IRS Individual Taxpayer Data 2 — Questions and Answers
Question 1: A taxpayer who is legally blind can claim an additional standard deduction. For 2023, how much is this additional amount for a single filer who is both blind and age 65+?
- $1,850 total additional
- $3,700 total additional (Correct answer)
- $1,500 total additional
- $2,800 total additional
Correct answer: $3,700 total additional
For 2023, each qualifying condition (age 65+ or blind) adds $1,850 for single/HOH filers, so both conditions together add $3,700.
Question 2: A taxpayer receives a Form 1099-G reporting a state tax refund of $800. Under what circumstance must this refund be included in federal gross income?
- Always, regardless of prior-year deductions
- Only if the taxpayer itemized deductions in the prior year and received a tax benefit (Correct answer)
- Never, since state refunds are not federally taxable
- Only if the refund exceeds $600
Correct answer: Only if the taxpayer itemized deductions in the prior year and received a tax benefit
State tax refunds are taxable federally only to the extent the taxpayer received a tax benefit by deducting state taxes in the prior year.
Question 3: Which of the following correctly describes a taxpayer's basis in inherited property received from a decedent who died in 2023?
- Carryover basis equal to the decedent's original cost
- Fair market value on the date of death (Correct answer)
- Lesser of FMV or decedent's adjusted basis
- Zero basis, since no consideration was paid
Correct answer: Fair market value on the date of death
Inherited property generally receives a stepped-up (or stepped-down) basis equal to the fair market value on the date of the decedent's death.
Question 4: A taxpayer paid $12,000 in mortgage interest and $4,000 in property taxes in 2023. The standard deduction for their filing status is $13,850. What should they do?
- Itemize deductions since they have qualifying expenses
- Take the standard deduction since it exceeds their itemized amount (Correct answer)
- Split deductions between standard and itemized
- Deduct $16,000 regardless of the standard deduction
Correct answer: Take the standard deduction since it exceeds their itemized amount
Taxpayers should take the higher of the standard deduction or itemized deductions; $13,850 exceeds $16,000 is incorrect—$16,000 > $13,850, so they should itemize.
Question 5: For purposes of the Earned Income Tax Credit, which type of income is NOT considered earned income?
- W-2 wages from part-time employment
- Net profit from self-employment
- Taxable scholarship used for living expenses
- Alimony received under a pre-2019 divorce decree (Correct answer)
Correct answer: Alimony received under a pre-2019 divorce decree
Alimony received under pre-2019 agreements is taxable income but not earned income for EITC purposes; scholarships not used for qualifying expenses may count.
Question 6: A taxpayer converts a traditional IRA to a Roth IRA. Which of the following best describes the federal tax consequence in the year of conversion?
- No tax consequence if the taxpayer reinvests within 60 days
- The converted amount is included in gross income in the year of conversion (Correct answer)
- A 10% early withdrawal penalty always applies
- The conversion is tax-free if the taxpayer is under age 59½
Correct answer: The converted amount is included in gross income in the year of conversion
The pre-tax amount converted from a traditional IRA to a Roth IRA is included in ordinary income in the year of conversion.
Question 7: A taxpayer files as Head of Household. Which of the following is a requirement to qualify for this filing status?
- The taxpayer must be divorced or legally separated
- The taxpayer must be unmarried and pay more than half the cost of maintaining a home for a qualifying person (Correct answer)
- The taxpayer must have earned income exceeding $25,000
- The qualifying person must be a child under age 13
Correct answer: The taxpayer must be unmarried and pay more than half the cost of maintaining a home for a qualifying person
Head of Household requires the taxpayer to be unmarried (or considered unmarried) and to have paid more than half the costs of maintaining a home for a qualifying person for more than half the year.
