Want to do well on your income tax exam?
Interested in figuring out how to structure an essay so that you get more points?
Stay to the end, as I provide you with the steps you need to take to do well on
your income tax final exam.
Hi, this is Beau Baez, and today I want to discuss 14 income tax exam strategies.
We will do this through the lens of what, who, when, where, and why.
Let’s first look at the what questions,
as these are the most important income tax questions.
1. Begin with a discussion on whether something that the taxpayer receives
is an accession to wealth.
For example, this might occur when the taxpayer sells property or
when the taxpayer’s stock goes up in value.
This doesn’t mean that the transaction is taxable, but you must discuss that there has
been an increase or decrease in the taxpayer’s wealth.
2. Discuss if it is gross income under the tax code.
Most accessions to wealth are taxable, but some are not.
For example, imputed income, as when a taxpayer paints his own home,
is ignored by the tax code,
even though it clearly increases someone’s wealth by increasing the value of their home.
3. If the taxpayer has gross income, determine if there is an applicable exclusion.
A common exclusion includes a de minimis fringe, like a free cup of coffee at work.
4. If the taxpayer has gross income, discuss whether some provision in the code
defers recognition of the gain or loss.
This might include a like-kind exchange of real property.
5. Discuss the character of income.
Generally, the sale of a capital asset will result in a capital gain or loss, and all
other gains or losses are ordinary.
And if the question provides the acquisition or disposition dates of a capital asset,
then you should also discuss whether it is
a short-term or long-term capital gain or loss.
You should also discuss any other issues related to the sale of a capital asset,
such as any special tax preferences.
6. Discuss the deductibility of an expense.
Some expenses are not deductible, while others are.
Discuss each expense you see on the exam.
Now that we are done with the what questions, move on to any who questions.
7. Who should be reporting the gain or loss, or who should claim a deduction.
This can arise in the context of someone making a partial transfer of property, where the
issue becomes whether the transferor or transferee is required to report the gain.
Next, move to any when questions.
8. When must the taxpayer report gross income.
One example involves the claim of right doctrine, when the taxpayer receives the money in one
year but is not legally entitled to the money in that year.
9. When is the taxpayer entitled to a deduction.
The most common example involves depreciation.
If you get a depreciation question, make sure to recognize the asset class and
the depreciation method.
We now move to where questions, which are not common on most income tax exams.
10. Where is income taxed or where can the taxpayer litigate their tax case.
The next type of questions involve why?
These tend to be the rarest on exams, but you need to determine if your professor wants
the why questions answered.
Some do, and will give you points for dealing with policy considerations on the exam.
11. Why is a particular provision in the code?
Why is the provision necessary.
Again, don’t spend much or anytime on this
unless your professor wants you to deal with this.
And finally, here is some advice for all your answers.
12. Fully explain all answers, which means providing the reasons for reaching your conclusions.
Getting to the right result is often not enough to get you a top grade.
In fact, the right end-result without a reason might earn you a low grade.
13. Minor issues versus major issues.
Focus on the major issues discussed in class.
Most professors won’t test you on obscure issues mentioned in passing by some Code provision.
But be careful, as some professors do test on the obscure.
14. Find a professor’s old tests, if you can.
This will give you a sense of what might appear on a future exam.
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