In Terms of the Tax Formula Applicable to Individual Taxpayers

question 74

Multiple Choice

In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?

• A) In arriving at AGI, a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
• B) In arriving at taxable income, a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
• C) If a taxpayer has deductions for AGI, the standard deduction is not available.
• D) In arriving at taxable income, a taxpayer must elect between deductions for AGI and the standard deduction.
• E) None of these.

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Definitions:

Coupon Rate

Annually, the interest earned on a bond represented as a percentage of its face value.

Premium Bond

Bond prices and interest rates are inversely related; that is, they tend to move in the opposite direction from each other. A fixed-rate bond will sell at par when its coupon interest rate is equal to the going rate of interest, rd. When the going rate of interest is above the coupon rate, a fixed rate bond will sell at a “discount” below its par value. If current interest rates are below the coupon rate, a fixed rate bond will sell at a “premium” above its par value.

Floating Rate Bond

A floating rate bond is a bond with a variable interest rate, which adjusts periodically according to a specified benchmark.

Variable Rate

An interest rate that can change over the period of a loan or mortgage, based on an underlying benchmark interest rate or index.