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Chapter 3: Tax Computation

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This chapter breaks down the process of calculating your taxable income, starting from determining your gross income to applying deductions and credits. It explains how tax brackets work in the progressive tax system and how to compute your final tax liability, ensuring you understand each step of the tax calculation process.

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1. What is the first step in computing your taxes?
Applying tax credits Determining gross income Choosing a filing status Subtracting itemized deductions
2. Which of the following is included in gross income?
Child support payments Gifts Wages and salaries Life insurance payouts
3. What is Adjusted Gross Income (AGI)?
Gross income minus taxes paid Gross income minus adjustments such as student loan interest and retirement contributions Total income before any deductions Total income minus standard deduction
4. Which of the following is an example of an adjustment to income?
Home mortgage interest Contributions to a traditional IRA Charitable donations State and local taxes
5. What is the standard deduction for a single filer in 2023?
$12,950 $13,850 $20,800 $27,700
6. When would a taxpayer choose to itemize deductions instead of taking the standard deduction?
When their itemized deductions exceed the standard deduction When they have no dependents When they don’t qualify for tax credits When their income is below the poverty line
7. Taxable income is calculated by subtracting which of the following from Adjusted Gross Income (AGI)?
Gross income Tax credits Standard deduction or itemized deductions Self-employment tax
8. What type of tax system is used in the U.S.?
Regressive tax system Flat tax system Progressive tax system Consumption tax system
9. If a single taxpayer has a taxable income of $50,000, which tax bracket would apply to part of their income?
10% 12% 22% 24%
10. Which of the following directly reduces the amount of tax you owe, rather than just reducing taxable income?
Itemized deductions Tax credits Adjustments to income Standard deduction
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