ExpertHard1 markMultiple Choice
CPA · Question 53 · Area IV: Individual Taxation
A taxpayer had $50,000 of wages and $3,000 of gambling winnings. They had $4,000 of gambling losses. They itemize deductions. What is the impact on taxable income?
A taxpayer had $50,000 of wages and $3,000 of gambling winnings. They had $4,000 of gambling losses. They itemize deductions. What is the impact on taxable income?
Answer options:
A.
Increase AGI by $3,000; Deduct $4,000 on Schedule A.
B.
Increase AGI by $3,000; Deduct $3,000 on Schedule A.
C.
Net impact $0 on AGI; no deduction.
D.
Increase AGI by $0; Deduct $1,000 on Schedule A.
How to approach this question
1) Include FULL winnings in AGI. 2) Deduct losses on Sch A (Itemized) ONLY up to amount of winnings.
Full Answer
B.Increase AGI by $3,000; Deduct $3,000 on Schedule A.✓ Correct
Gambling winnings ($3,000) are fully included in Gross Income (AGI). Gambling losses are deductible as an itemized deduction (Schedule A) but only to the extent of gambling winnings ($3,000). The excess $1,000 loss is lost.
Common mistakes
Netting the amounts on the front of the return.
Practice the full CPA REG Practice Exam 2
72 questions · hints · full answers · grading
More questions from this exam
Q01A CPA is representing a client in an IRS examination regarding a complex tax shelter transaction....HardQ02A tax return preparer is facing a penalty for an understatement of tax liability on a client's re...HardQ03Taxpayer L received a Statutory Notice of Deficiency (90-day letter) from the IRS regarding a tax...HardQ04A CPA is sued for common law negligence by a third party who relied on the CPA's audit report. Th...HardQ05Which of the following communications between a CPA and a client would generally be protected by ...Hard