Sample Questions
Question 1
Easy
For 2026, what is the annual gift tax exclusion amount per donee?
Solution
C is correct.
For 2026, the annual gift tax exclusion is $19,000 per donee. This amount is indexed for inflation and increased from $18,000 (2024) to $19,000 (2025/2026). Gifts within this exclusion are not taxable and do not reduce the donor's lifetime exemption.
For 2026, the annual gift tax exclusion is $19,000 per donee. This amount is indexed for inflation and increased from $18,000 (2024) to $19,000 (2025/2026). Gifts within this exclusion are not taxable and do not reduce the donor's lifetime exemption.
Question 2
Medium
In distinguishing AMT exclusion items from deferral items for an individual's minimum tax credit, which statement is *incorrect*?
Solution
A is correct. Personal SALT disallowance is an exclusion item. AMT attributable solely to that source is removed when determining the amount potentially recoverable through the minimum tax credit. ISO exercise involves a deferral item and can support a carryforward, but a subsequent sale does not guarantee full utilization. [IRC 53 minimum-tax-credit exclusion rules](https://www.law.cornell.edu/uscode/text/26/53).
Question 3
Hard
A self-employed taxpayer earned net self-employment income of 160,000 in 2025. The taxpayer also earned 40,000 in wages. The Social Security wage base for 2025 is 176,100. What is the approximate total self-employment tax?
Solution
D is correct.
Self-employment tax is computed on 92.35% of net SE income: 160,000 times 0.9235 equals 147,760. The Social Security portion (12.4%) applies to combined wages and SE earnings up to the wage base (176,100). Since the taxpayer has 40,000 in wages, the remaining Social Security cap for SE income is 176,100 minus 40,000, which equals 136,100. The SE earnings subject to Social Security tax are the lesser of 147,760 or 136,100, so Social Security tax applies to 136,100. Social Security tax: 136,100 times 12.4% equals 16,876. Medicare tax (2.9%) applies to all SE earnings with no cap: 147,760 times 2.9% equals 4,285. Total SE tax: 16,876 plus 4,285 equals approximately 21,161. The 92.35% adjustment applies regardless of other income. Wages do reduce the available Social Security cap for SE income.
Self-employment tax is computed on 92.35% of net SE income: 160,000 times 0.9235 equals 147,760. The Social Security portion (12.4%) applies to combined wages and SE earnings up to the wage base (176,100). Since the taxpayer has 40,000 in wages, the remaining Social Security cap for SE income is 176,100 minus 40,000, which equals 136,100. The SE earnings subject to Social Security tax are the lesser of 147,760 or 136,100, so Social Security tax applies to 136,100. Social Security tax: 136,100 times 12.4% equals 16,876. Medicare tax (2.9%) applies to all SE earnings with no cap: 147,760 times 2.9% equals 4,285. Total SE tax: 16,876 plus 4,285 equals approximately 21,161. The 92.35% adjustment applies regardless of other income. Wages do reduce the available Social Security cap for SE income.
