Studying Taxes for SEE Exam 1.1

Which of the following taxpayers must file an individual tax return? A. A single taxpayer with self-employment net earnings of $400 or more. B. A single taxpayer with $2,000 in wage income. C. A single taxpayer with $1,000 in interest earnings. D. A single taxpayer with $900 in dividends.

A. A single taxpayer with self-employment net earnings of $400 or more. Explanation: A taxpayer with self-employment earnings of $400 or more is required to file a tax return. In that case, filing would not be optional, it would be mandatory.

Which of the following statements is correct about individual extensions? A. A taxpayer must estimate his tax liability when requesting an automatic six-month extension. B. As long as Form 4868 is filed by April 15, a taxpayer will not owe interest on any taxes due. C. Form 4868 provides a taxpayer an additional six months to file and pay his individual income tax return. D. Form 4868 must be filed by October 15 in order to be a valid extension.

A. A taxpayer must estimate his tax liability when requesting an automatic six-month extension. Explanation: If a taxpayer cannot file his tax return by the due date, he can request an extension by filing Form 4868, Application for Automatic Extension of Time to File, which may be filed electronically. An extension grants a taxpayer an additional six months to file his individual tax return, but does not extend the time to pay any tax due. A taxpayer should estimate his yearly tax liability, as he will owe interest on any amount that is not paid by the filing deadline plus a late payment penalty if he has not paid at least 90% of his total tax due by that date.

A taxpayer who files Form 4868 is requesting: A. An extension of time to file an individual tax return. B. An extension of time to pay income tax due. C. An installment agreement to pay overdue income tax. D. An abatement of collection activity.

A. An extension of time to file an individual tax return. Explanation: A taxpayer who files Form 4868 is requesting an extension of time to file his individual tax return. The extension gives a taxpayer six months past the normal filing deadline to file his return. An extension of time to file is not an extension of time to pay.

Emilio's 2020 tax return was due April 15, 2021. He filed it early, on January 23, 2021. Later, he finds an error on the return, and wants to amend it, expecting the correction to result in a refund. If he gets it postmarked on or before _____________ he will receive a refund from the IRS. A. April 15, 2024 B. January 23, 2024 C. January 23, 2025 D. April 15, 2025

A. April 15, 2024 Explanation: If Emilio gets his 2020 amended return postmarked on or before April 15, 2024, (taxpayers living in Maine or Massachusetts have until April 17, 2024, due to the Patriot's Day and Emancipation Day holidays) it will be within the three-year limit and the return will be accepted. But if the amended return is postmarked after this date, it will fall outside the three-year statute of limitations, and he will not receive a refund. There is a statute of limitations on refunds being claimed on amended returns. In general, if a refund is expected on an amended return, taxpayers must file the return within three years from the due date of the original return, or within two years after the date they paid the tax, whichever is later. Returns filed before the due date (without regard to extensions) are considered filed on the due date. Note: There are a few exceptions to the three-year limit on the IRS Statute of Limitations on refunds. For example, a taxpayer has a longer period of time to claim a loss on a bad debt or worthless security, or for a foreign tax credit or deduction.

Elena is a self-employed bookkeeper. She reports her income on Schedule C. Her business is profitable, and she is required to make estimated payments throughout the year. When is her first estimated payment due? A. April 15. B. March 15. C. May 1. D. January 1.

A. April 15. Explanation: Her first estimated payment would be due April 15. A self-employed taxpayer's first estimated payment is generally due April 15. Estimated tax payments for individuals are due as follows: - January 1 to March 31 payment is due April 15. - April 1 to May 31 payment is due June 15. - June 1 to August 31 payment is due September 15. - September 1 to December 31 payment is due January 15 of the following year. Note: There are special exceptions to the estimated tax due dates for Farmers and Fishermen. For more information about the rules for estimated taxes, see the IRS page for Top Frequently Asked Questions for Estimated Tax.

Greer and Jose are married but they plan to file separate tax returns. Greer is 67 and had a gross income of $11,000 for the tax year. Jose is 64. His gross income was $5,000 for the year. Do they need to file? A. Both are required to file tax returns. B. Neither is required to file a return. C. Only Greer is required to file, because her income is over the filing threshold. D. Only Jose is required to file, because he is less than 65 years of age.

A. Both are required to file tax returns. Explanation: Both Jose and Greer are required to file, because they are filing separate tax returns (MFS). Taxpayers of any age who use the Married Filing Separately status must file a return if they had gross income of $5 or more.

All of the following are types of relief from joint and several liability for spouses who file joint returns except: A. Common-law relief. B. Equitable relief. C. Innocent spouse relief. D. Separation of liability relief.

A. Common-law relief. Explanation: There are three types of relief from the joint and several liability of a joint return: Innocent Spouse Relief, Equitable Relief, and Separation of Liability Relief. "Common-law relief" does not exist.

Thomas and Hailey live in Wisconsin, which is a community property state. Both of them work full-time. They want to file separately. They do not have a marital agreement for the provision of separate property. If they file separate returns, how should their income be reported? A. Community property laws state that each spouse is entitled to 50% of total community income and expenses, so they must divide their income equally on their separate returns. B. They can just file single if it is easier for them. C. Community property laws state that each spouse is entitled to 100% of total community income and expenses, so they must report 100% of each spouse's income on each separate return. D. They can report only their own income on their own separate returns.

A. Community property laws state that each spouse is entitled to 50% of total community income and expenses, so they must divide their income equally on their separate returns. Explanation: Community property laws state that each spouse is entitled to 50% of total community income and expenses, so they must divide their income equally on their separate returns. If a taxpayer in a community property state files a Married Filing Separate (MFS) return, they must fill out the MFS allocation for Community Property states using Form 8958. Note: Community property rules are complex and can vary from state to state. This question is based on an example in Publication 555, Community Property. According to Publication 555, in Idaho, Louisiana, Texas, and Wisconsin, income from most separate property is treated as community income. Couples can also choose to have a legal agreement that provides that no community property will be created during the marriage (such as a Prenuptial Agreement between the spouses).

Which of the following payments may be subject to backup withholding? A. Dividend payments. B. Real estate transactions. C. Unemployment compensation. D. Canceled debts.

A. Dividend payments. Explanation: Backup withholding occurs when certain payers, such as banks or other businesses, are required to withhold and pay to the IRS a specified percentage of those payments. The current backup withholding tax is 24% for U.S. citizens and U.S residents. Backup withholding can apply to most kinds of payments that are reported on Form 1099. These include: - Interest payments - Dividends - Rents, profits, other gains (Form 1099-MISC) - Commissions, fees, or other payments for work done by independent contractors - Payments by brokers/barter exchanges - Royalty payments Payments that are excluded from backup withholding include real estate transactions, foreclosures, canceled debts, long-term care benefits, distributions from retirement plans, unemployment compensation, and state or local income tax refunds. Backup withholding applies in a number of instances, including when a payee fails to furnish her correct taxpayer identification number or when the IRS notifies a payer to start withholding on interest or dividends because the taxpayer has underreported them. See the IRS detail page on Backup Withholding.

Cyril is a U.S. citizen who is 28 years old and single. His gross income was $12,000 during the tax year. Based only on this information, which of the following would automatically trigger a filing requirement for Cyril? A. He had $400 in self employment income from a side-gig. B. He has a dependent parent. C. He lives in Canada. D. He sold $1,000 worth of stock at a loss.

A. He had $400 in self employment income from a side-gig. Explanation: The $400 in self employment income would trigger a filing requirement for Cyril, even though his gross income is under the standard deduction amount for his filing status, which is single. None of the other items listed would automatically trigger a filing requirement. The most common special situations when individuals are legally required to file a return are: - Self-employed with net earnings of $400 or more - Taxpayers who owe special taxes, such as excise taxes from early withdrawal from an IRA account. - Taxpayers who received advanced payments of the premium tax credit (APTC) for themselves, their spouse, or a dependent

Bayard e-files his 2023 tax return on February 27, 2024. He has a balance due of $950 on the return. How long can he wait to pay the amount owed and not pay a late payment penalty? A. He has until the original due date of the return (not including extensions) to pay the amount owed and not pay a late payment penalty. B. He does not have to pay the amount due by a certain date because it is less than the safe harbor amount of $1,000. C. He should pay his taxes owed when he files his return; otherwise, he will owe a penalty for late payment. D. He has until the original due date of the return (including extensions) to pay the amount owed and not pay a penalty.

A. He has until the original due date of the return (not including extensions) to pay the amount owed and not pay a late payment penalty. Explanation: Bayard has until the original due date of the return (not including extensions) to pay the amount owed and not pay a penalty. Taxpayers should submit payment of taxes due on or before April 15 (or the next business day if April 15 falls on a Saturday, Sunday, or legal holiday). They do not have to pay the tax when they file their tax return (as long as they are under the $1,000 safe harbor threshold), and as long as they pay any taxes owed by the actual due date of the return. For the 2023 filing season, the due date is April 15, 2024. Taxpayers living in Maine or Massachusetts have until April 17, 2024, because of the Patriot's Day and Emancipation Day holidays in those states.

What is IRS Form W-7 used for? A. It is used to apply for an ITIN. B. It is used to report contractor payments. C. It is used to report employee withholding. D. It is used to report backup withholding.

A. It is used to apply for an ITIN. Explanation: A W-7 Form is used to apply for an individual taxpayer identification number, or ITIN, for non-citizens who aren't eligible to receive a Social Security number, but need to file a federal tax return.

Nonresident aliens who have income that is not subject to U.S. withholding are required to file an income tax return by: A. June 15. B. October 15. C. March 15. D. April 15.

A. June 15. Explanation: Nonresident aliens who have income that is not subject to U.S. withholding are required to file an income tax return by June 15, two months after the regular filing deadline for most individuals.

"Separation of liability" relief does NOT apply to taxpayers who are: A. Married taxpayers who are living in the same household. B. Living apart for the 12 months prior to the filing of a claim. C. No longer married. D. Legally separated.

A. Married taxpayers who are living in the same household. Explanation: "Separation of liability" relief does not apply if the taxpayers are married and living in the same household. To qualify for separation of liability relief, you must have filed a joint return and must meet one of the following requirements at the time you request relief: - You are divorced or legally separated from the spouse with whom you filed the joint return. - You are widowed, or - You have not been a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you request relief.

Yolanda and Orville were married on November 1, 2023. Unknown to Orville, Yolanda had delinquent student loans totaling more than $80,000. They filed their joint tax return on March 1, 2024, and their entire refund was offset to pay Yolanda's delinquent student loan debt. Does Orville have any recourse in this case? A. Orville may request injured spouse relief. B. Orville may request a Collection Due Process (CDP) hearing. C. Orville may request equitable spouse relief. D. Orville may request innocent spouse relief.

A. Orville may request injured spouse relief. Explanation: Orville may request injured spouse relief to recover his portion of the refund. If a taxpayer files a joint return and all or part of their share of the refund is applied against the other spouse's past-due federal tax, state income tax, child or spousal support, or federal nontax debt, such as a student loan, the "injured" spouse may be entitled to relief by filing Form 8379, Injured Spouse Allocation.

Every taxpayer that signs a U.S. tax return signs their return under _________________. A. Penalty of perjury B. Penalty of forfeiture C. Penalty of liability D. Penalty of nullity

A. Penalty of perjury Explanation: Every taxpayer that signs a U.S. tax return signs the return under penalty of perjury. Every tax return must be signed (either electronically or with a handwritten signature). The signature on a tax return certifies (under penalty of perjury) that all of the statements in the tax return are true, correct, and complete to the best of the taxpayer's knowledge.

Alesandro has a loss from worthless securities. How many years does he have to amend his tax returns in order to take this loss? A. Seven years. B. Two years. C. Six years. D. Three years.

A. Seven years. Explanation: A taxpayer has up to seven years to amend a return in order to take a loss from a worthless security. This is an exception to the normal statute of limitations. In general, if a refund is expected on an amended return (or a delinquent return that is being filed late), taxpayers must file the return within three years from the due date of the original return, or within two years after the date they paid the tax, whichever is later. There are a few other exceptions to this normal limit, such as taxpayers having ten years to amend a return and claim the Foreign Tax Credit.

Joyce is 31 years old and recently divorced. She would like to save for retirement, but she's unsure how much she can contribute to her traditional IRA. During the year, she receives the following income: - $1,000 in wages - $1,200 in municipal bond interest - $30,000 in rental income from an investment property - $2,150 in gambling winnings - $10,000 in nontaxable alimony - $1,200 in self-employment income. Based on this information, how much can she contribute to an IRA? A. $6,500 B. $2,200 C. $3,200 D. $1,000

B. $2,200 Explanation: She can contribute $2,200. Only the self-employment income and the wages are qualifying income for IRA contribution purposes. None of the other income is "qualifying income" for the purposes of an IRA contribution. See IRS Topic No. 451, Individual Retirement Arrangements (IRAs) for more information.

For most self-employed taxpayers, when is their FIRST estimated tax payment due? A. March 15 B. April 15 C. January 1 D. April 1

B. April 15 Explanation: A self-employed taxpayer's first estimated payment is generally due April 15. Estimated tax payments for individuals are due as follows: - January 1 to March 31 payment is due April 15. - April 1 to May 31 payment is due June 15. - June 1 to August 31 payment is due September 15. - September 1 to December 31 payment is due January 15 of the following year. Note: There are special exceptions to the estimated tax due dates for Farmers and Fishermen. See the dedicated IRS page for estimated taxes for more information.

Camilla had a balance due when she filed her federal tax return, so she paid the amount due with a credit card. The IRS assessed a convenience fee for this method of payment. Which of the following statements is correct? A. Camilla can deduct the convenience fee, but only if she itemizes her deductions. B. Camilla cannot deduct the convenience fee. C. Camilla can deduct the convenience fee as an adjustment to income. D. The IRS does not charge convenience fees for credit card payments.

B. Camilla cannot deduct the convenience fee. Explanation: Taxpayers who pay their income tax (including estimated tax) by credit or debit card cannot deduct the convenience fee charged by the card processor. In prior tax years, this fee was deductible as a miscellaneous itemized deduction, however, the TCJA suspended a large group of miscellaneous itemized deductions, and these types of fees are no longer deductible.

Janet is unmarried and files single. This year, Janet earned $99,800 in income from various income sources. The total tax liability shown on Janet's prior-year return was $10,900. After estimating her allowable deductions and credits, her expected tax liability for 2023 is $14,000. The tax expected to be withheld in 2023 from her wages is $11,100. She plans to file right on April 15, 2024 the filing deadline, and pay any tax owed at the same time. Will Janet be subject to an estimated tax penalty when she files her return? A. Yes, Janet will be subject to the estimated tax penalty if she does not adjust her withholding or make estimated tax payments, because she will owe more than $1,000 when she files her return. B. Janet will not be subject to the estimated tax penalty because she paid at least 100% of the tax shown on her return for the prior year.

B. Janet will not be subject to the estimated tax penalty because she paid at least 100% of the tax shown on her return for the prior year. Explanation: Janet will not be subject to the estimated tax penalty because she paid at least 100% of the tax shown on her return for the prior year. Most taxpayers will avoid the penalty for underpayment of estimated tax, if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. In addition, taxpayers who had $0 tax liability in a prior year are not required to make estimated tax payments in the current year. See the IRS Information page on estimated tax payments.

Jianyu is a Chinese citizen who is a foreign student on an F-1 Student Visa. Jianyu is allowed to work part-time on campus as a teaching assistant. He had Social Security and Medicare taxes withheld on his wages in error. Jianyu is a nonresident alien to tax purposes and must file Form 1040NR. What form can he file to request a refund of these taxes? A. Jianyu may deduct the taxes that were erroneously withheld as an adjustment to income on his Form 1040NR. B. Jianyu may file Form 843, Claim for Refund and Request for Abatement, along with his Form 1040NR to request a refund. C. Jianyu may request a refund by filing a formal protest with his Form 1040NR. D. Social Security and Medicare taxes cannot be refunded.

B. Jianyu may file Form 843, Claim for Refund and Request for Abatement, along with his Form 1040NR to request a refund. Explanation: Jianyu may file Form 843, Claim for Refund and Request for Abatement, along with his Form 1040NR to request a refund. If a taxpayer is a foreign student or exchange visitor on an F-1, J-1, M-1, or Q visa, and social security or Medicare taxes were withheld on their wages in error, the taxpayer may file Form 843, Claim for Refund and Request for Abatement, to request a refund of these taxes. For more information, see Publication 519, U.S. Tax Guide for Aliens.

Beulah is self-employed and reports her income on Schedule C. She is required to make quarterly estimated tax payments totaling $8,000 for the tax year in order to avoid an estimated tax penalty. She makes the following payments: First payment: Credit of $2,000 from her previous year's tax refund. Second payment: $1,000 on April 20. Third payment: $1,000 on May 31. Fourth payment: $2,000 on August 15. Fifth payment: $1,000 on October 15. Sixth payment: $1,000 on December 30. Which of the following statements is correct? A. She has not made timely payments because her fourth payment was not made by June 15. B. She has made timely estimated payments. C. She has not made timely payments because her second and third payments were not made by April 15. D. She has not made any timely payments because none of the payments were made by the required IRS schedule.

B. She has made timely estimated payments. Explanation: The year is divided into four payment periods for estimated taxes, each with a specific payment due date. The schedule is as follows: first payment due: April 15; second payment due: June 15; third payment due: September 15; fourth payment due: January 15 of the following year. In Beulah's case, she was required to pay $2,000 each quarter by the payment due date, so she has made timely estimated payments. If a taxpayer does not pay enough tax by the due date of each of the payment periods, she may be charged a penalty, even if she is due a refund when she files her income tax.

Fatima has a full time job, and she is also self-employed as a part time Uber driver, which she does on weekends. She doesn't want to pay estimated payments, so she increases her withholding at her regular job. She always files her return on time. How much tax must she pay, in order to avoid an estimated tax penalty when she files her return? A. She will avoid the estimated tax penalty if she owes less than $2,500 in tax after subtracting her withholding and credits, or if she paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, (whichever is smaller). B. She will avoid the estimated tax penalty if she owes less than $1,000 in tax after subtracting her withholding and credits, or if she paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, (whichever is smaller).

B. She will avoid the estimated tax penalty if she owes less than $1,000 in tax after subtracting her withholding and credits, or if she paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, (whichever is smaller). Explanation: Most taxpayers will avoid the estimated tax penalty if they owe less than $1,000 in tax after subtracting their withholding and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. Note: Many taxpayers can avoid the requirement of making estimated tax payments by increasing their withholding from other sources, including regular wages. Taxpayers are required to prepay their taxes for the year through withholding OR by paying estimated tax payments. It is not mandatory for a taxpayer to make estimated tax payments if they increase their withholding enough to cover their tax liability. See the dedicated IRS page for estimated taxes for more information.

What biographical information, at a minimum, is required on each individual taxpayer's federal income tax return? A. Taxpayer name, taxpayer identification number, physical address, and phone number. B. Taxpayer name, taxpayer identification number, and mailing address. C. Taxpayer name, taxpayer identification number, physical address, phone number, and email address. D. Taxpayer name and taxpayer identification number.

B. Taxpayer name, taxpayer identification number, and mailing address. Explanation: An individual federal tax return requires a taxpayer's name, taxpayer identification number, and current mailing address. A phone number and email address are not required.

Percy filed his 2020 tax return late. He didn't file it until December 1, 2023. How long does the IRS have to audit the return and assess additional tax after Percy filed it? A. The IRS must assess additional tax within two years after Percy files it. B. The IRS must assess additional tax within three years from the received date of Percy's tax return. C. The IRS must assess additional tax within eighteen months from the original due date of the return. D. The IRS must assess additional tax within six years from the received date of Percy's tax return.

B. The IRS must assess additional tax within three years from the received date of Percy's tax return. Explanation: The IRS must assess additional tax within three years from the received date of Percy's tax return. The general rule is that if the IRS wants to assess additional tax on a return, the assessment of tax must be made within three years from the received date of an original tax return or three years from the due date of the original return, whichever is later. Since Percy's return is delinquent, the IRS will have three years from the date they receive Percy's return to audit the return or assess additional tax. Note: There are some instances when the IRS has a longer time period to assess additional tax. If you omitted more than 25% of your gross income from a tax return, the time the IRS can assess additional tax increases from three to six years from the date your tax return was filed. On a fraudulent return, the IRS has an unlimited amount of time to assess tax.

Penny was the victim of identity theft last year. She received an IP PIN from the IRS this year. She plans to use a paid preparer to file her return. How should the IP PIN be used? A. The preparer should enter Penny's IP PIN on the tax return in the third party designee area. B. The preparer should enter Penny's IP PIN on the tax return next to her signature block. C. The preparer does not need to enter Penny's IP PIN on the tax return. It is for her records only. D. The preparer should enter Penny's IP PIN on the tax return in the PTIN section.

B. The preparer should enter Penny's IP PIN on the tax return next to her signature block. Explanation: The preparer should enter Penny's IP PIN on the tax return next to her signature block. An Identity Protection PIN is a six-digit number assigned to eligible taxpayers to help prevent their Social Security number from being used to file fraudulent federal income tax returns. This number helps the IRS verify a taxpayer's identity and accept their tax return. An IP Pin can be entered on a paper filed return or an efiled return. A return that does not include an IP PIN (but where one is required, because the taxpayer was a victim of ID theft) will still be processed, but it must be mailed, and it will have an increased processing time.

According to the IRS, which of the following factors do NOT weigh in favor of the IRS approving equitable relief? A. Poor mental or physical health on the date the taxpayer signed the return or requested relief. B. The taxpayer requesting relief still living with his or her spouse. C. Abuse by the spouse or former spouse. D. None of the above.

B. The taxpayer requesting relief still living with his or her spouse. Explanation: If the taxpayer requesting relief still lives with his or her spouse, it would be unfavorable, rather than favorable. "Equitable relief" is designed to provide tax relief from spousal liability (if a taxpayer can't get tax relief under innocent spouse relief or separation of liability). Equitable relief is offered by the IRS to those taxpayers that don't qualify for innocent spouse relief or relief by separation of liability. With equitable relief cases, the IRS looks to see if it would be unfair to hold the taxpayer liable for the taxes even if the taxpayer does not qualify for the other two forms of relief.

Kyle and Jenna are married and file jointly. They both work full time for a department store. They have a $1,500 balance due on their joint return and want advice on how to prevent a balance due next year. What would help them avoid balance due in future years? A. They can ask for fewer hours through their employer. B. They need to adjust their withholding using Form W-4, then give the form to their employer. C. One of them can quit their jobs. D. They should adjust their withholding by filing a Form W-4 with the IRS.

B. They need to adjust their withholding using Form W-4, then give the form to their employer. Explanation: Kyle and Jenna need to adjust their withholding. They can use the Tax Withholding Estimator at IRS.gov and then adjust their withholding with their employer. Taxpayers who need to change the amount of tax withheld from their paychecks need to complete a Form W-4 and give it to their employer. The Form W-4 is not filed with the IRS.

Cruz is single with no dependents. After adding up all his income and deductions, Cruz's federal tax liability is $1,657 for the current year. He had $417 of income tax withholding from his wages on his Form W-2. His prior-year tax liability was $2,400. He files his tax return on time. Is Cruz likely to owe a penalty, and if so, which one? A. Penalty for late filing. B. Underpayment of estimated tax penalty. C. Trust fund recovery penalty. D. Penalty for substantial understatement.

B. Underpayment of estimated tax penalty. Explanation: Cruz will likely be charged an estimated tax penalty. The answer is figured as follows: Cruz's total tax: $1,657 Cruz's withholding: $417 Therefore, after withholding, Cruz still owes: $1,240 Because the amount he owes is over $1,000 and his withholding and credits are less than 90% of his current year tax and 100% of his prior year tax, he will not qualify for applicable safe harbors and will likely owe an estimated tax penalty. This penalty can be abated for reasonable cause (for example, if Cruz's home or business was located in a disaster area, or if he had a serious illness). See more about this topic on the IRS page for Underpayment of Estimated Tax by Individuals Penalty.

Aimee is a freelance editor who makes estimated tax payments on her self-employment income. She and her husband, Enrique, have two children. This year, they claimed the Child Tax Credit on their joint return. Enrique owes past-due spousal and child support, so the IRS took the couple's entire tax refund to pay his past-due debts. Aimee is not responsible for any of Enrique's debt. As their tax preparer, what would you advise Aimee to do? A. Aimee can amend the joint return to married filing separately. B. Aimee can file a request for innocent spouse relief. C. Aimee can file a request for injured spouse relief. D. Aimee can file a request for an appeal.

C. Aimee can file a request for injured spouse relief. Explanation: Aimee is likely eligible for injured spouse relief (not innocent spouse relief), and she does not need to wait to request the relief. She can request her portion of the refund by filing Form 8379, Injured Spouse Allocation. The form can be filed with a couple's joint tax return or by itself when a taxpayer is notified of an offset of a debt. To be considered an injured spouse, a taxpayer must have made and reported tax payments, such as federal income tax withheld from wages or estimated tax payments, or claimed a refundable tax credit. To learn more about Injured Spouse Relief, see the IRS FAQ page.

All of the following statements regarding the Adoption Taxpayer Identification Number (ATIN) are correct except: A. An ATIN can be used for a domestic adoption or a foreign adoption if the child has a permanent resident alien card or certificate of citizenship. B. An ATIN can be requested by a taxpayer who is unable to secure a Social Security number for a child until his adoption is final. C. An ATIN can be used to claim any tax credit that is available to someone with an SSN. D. An ATIN can be obtained even if an adoption has not been finalized.

C. An ATIN can be used to claim any tax credit that is available to someone with an SSN. Explanation: An ATIN cannot be used to claim any tax credit that is available to someone with an SSN. An ATIN cannot be used to claim the Earned Income Tax Credit, or the Child Tax Credit. If an adoptive parent is unable to secure a Social Security number for a child until the adoption is final, the adoptive parent can request an ATIN while the adoption process is pending. The adoption must be a valid domestic adoption or a foreign adoption in which the child has a permanent resident alien card or certificate of citizenship. See the dedicated IRS page for Adoption Taxpayer Identification Numbers for more information.

Filing Form 4868 will provide an individual taxpayer with the following: A. An automatic extension to pay estimated taxes due. B. An automatic extension of six months to pay taxes due. C. An automatic extension of six months to file a tax return. D. An automatic extension of five months to file a tax return.

C. An automatic extension of six months to file a tax return. Explanation: Form 4868 will give a taxpayer an additional six months to file his or her tax return. It does not give the taxpayer an additional six months to pay any taxes due. See the dedicated IRS page on extensions here: Extension of Time To File Your Tax Return.

How should an individual taxpayer calculate and pay their estimated taxes? A. An individual taxpayer should pay estimated taxes along with their yearly return, by submitting the payment by check in the same envelope with the Form 1040. B. An individual taxpayer should pay estimated taxes based on their expected income using Schedule C to calculate the tax. C. An individual taxpayer should pay estimated taxes based on their expected income, as well as using their prior year return as a guide. The tax is calculated and submitted to the IRS on Form 1040-ES. D. An individual taxpayer should pay estimated taxes based on their previous year's income. The tax is calculated and submitted to the IRS on Form 1040.

C. An individual taxpayer should pay estimated taxes based on their expected income, as well as using their prior year return as a guide. The tax is calculated and submitted to the IRS on Form 1040-ES. Explanation: An individual taxpayer should pay estimated taxes based on their expected income, as well as using their prior year return as a guide. The tax is calculated and submitted to the IRS on Form 1040-ES. Form 1040-ES is used to calculate and pay estimated tax. Estimated tax is the method used to pay tax on income that is not subject to withholding (for example, earnings from self-employment, interest, dividends, rents, alimony, etc.). Most self-employed taxpayers are required to pay quarterly tax estimates throughout the year.

Theadora applies for an automatic six-month extension using Form 4868. She knows that she will owe taxes this year, so she wants to file on the last possible day. When will a penalty for "failure to pay" begin to accrue? A. The penalties begin to accrue immediately upon filing the extension. B. Never. C. As soon as the filing deadline has passed on April 15. D. As soon as the EXTENDED filing deadline has passed on October 15.

C. As soon as the filing deadline has passed on April 15. Explanation: Theadora has until April 15 to file her return and pay the tax owed. An extension to file an individual income tax return isn't an extension to pay the amount of tax due on the return. If a taxpayer applies for the automatic six-month extension using Form 4868, a penalty for failure to pay the amount owed will begin to accrue as soon as the filing deadline has passed on April 15.

Which form should individual taxpayers use to figure their estimated tax? A. Schedule SE. B. Form 1040-V. C. Form 1040-ES. D. Form 1040-SR.

C. Form 1040-ES. Explanation: Individuals can use Form 1040-ES to figure estimated tax. See the dedicated IRS page for estimated taxes for more information.

Which individual tax form is designed specifically for seniors? A. Form 1040-PR B. Form 1040 C. Form 1040-SR D. Form 1040-NR

C. Form 1040-SR Explanation: Form 1040-SR, U.S. Tax Return for Seniors, is a tax form that is designed specifically for taxpayers age 65 and older. The Form 1040-SR has larger text and some helpful tips for older taxpayers.

Rebekah filed a joint tax return with her new husband, Noah, and the entire refund was applied to Noah's overdue student loans. What form should Rebekah file, in order to receive her portion of the refund? A. CP 2000. B. Form 656. C. Form 8379. D. Form 8857.

C. Form 8379. Explanation: Rebekah can request injured spouse relief in order to recover her portion of the refund. If a taxpayer files a joint return and is not responsible for the debt, but is entitled to a portion of the refund, the injured spouse may request their portion of the refund by filing Form 8379, Injured Spouse Allocation. For more information, refer to Topic No. 203, Reduced Refund, and the Instructions for Form 8379, Injured Spouse Allocation

The IRS has created a system of IP PINs as a step toward combating: A. Taxpayer abuse of the Earned Income Tax Credit. B. Unenrolled preparer fraud. C. Identity theft. D. Practitioner fraud.

C. Identity theft Explanation: Identity fraud is a growing problem for the IRS, which issues identity protection personal identity numbers (IP PINs) to taxpayers who have reported they have been victims of identity theft; have given the IRS information that verifies their identity; and had an identity theft indicator applied to their accounts. An IP PIN is good for only one year. It is designed to protect a taxpayer's Social Security Number. If a taxpayer with an IP PIN attempts to file a tax return without using it, the return will be rejected.

Layla is self-employed and expects to owe $2,500 of taxes for 2023. Her tax liability for the prior tax year was zero because her Schedule C business had a loss in the prior year. Which of the following statements is correct? A. Layla must pay at least $1,500 of estimated tax during the year, so she can be under the safe harbor threshold of $1,000 for the year. B. Layla is required to pay estimated taxes. C. Layla is not required to pay estimated taxes. D. Layla is required to pay the full amount due before December 31 or she will be subject to an estimated tax penalty.

C. Layla is not required to pay estimated taxes. Explanation: Since Layla had zero tax liability on her prior-year return, she is not required to pay any estimated tax in the current year (as long as she pays the tax due by the unextended due date of her return). A taxpayer must pay estimated tax if both of the following apply: - The taxpayer expects to owe at least $1,000 in tax after subtracting withholding and credits. - The taxpayer expects the amount owed after withholding and credits to be less than the smaller of: - 90% of the tax to be shown on the current year tax return, or - 100% of the tax shown on the prior-year tax return. Note: There is a higher "safe harbor" threshold for higher-income taxpayers. For taxpayers with adjusted gross income of over $150,000 ($75,000 if married filing separately), the threshold for the amount owed would be 110% of the previous year's tax liability rather than 100%. See the dedicated IRS page for estimated taxes for more information.

Miranda was married to Reese, but divorced him in 2023. They filed joint returns in prior years and now the IRS is attempting to collect the tax from Miranda. She believes that she might qualify for equitable relief. Which is NOT a factor for the IRS to consider in determining whether to grant equitable relief to Miranda? A. Whether Miranda would suffer significant economic hardship if the relief were not granted. B. Poor mental or physical health on the date Miranda signed the return. C. Miranda's prior-year AGI was significantly higher than her current year's income. D. Spousal abuse that Miranda suffered during the marriage.

C. Miranda's prior-year AGI was significantly higher than her current year's income. Explanation: Prior-year AGI would not be a factor if Miranda was to request equitable relief. It is rare for the IRS to grant equitable relief to a taxpayer. Equitable relief is a type of relief from joint and several liability. Factors the IRS may consider include: the mental or physical health of the taxpayer, spousal abuse, and potential economic hardship. A taxpayer applying for equitable relief has up to ten years to request relief.

Narissa is legally separated from her husband, Travis. She filed joint returns with him in the past. Travis had a business that was audited, and he was assessed a large amount of additional tax. Since they filed jointly, Narissa is also jointly and severally liable for the tax. Narissa wants to apply for equitable relief. In order to do so, what must be true? A. Narissa must prove that her ex-spouse committed tax fraud. B. Narissa cannot have enough assets to pay the debt. C. Narissa must show that it would be unfair to hold her liable for the understatement of tax. D. Narissa must be mentally incapable of signing a joint tax return.

C. Narissa must show that it would be unfair to hold her liable for the understatement of tax. Explanation: Narissa must show that it would be unfair to hold her liable for the understatement of tax. "Equitable relief" is when the IRS agrees that it would be unfair to hold the taxpayer responsible for their spouse or former spouse's tax debt on a joint return. Equitable relief is offered by the IRS to those taxpayers that don't qualify for innocent spouse relief or relief by separation of liability.

Which of the following taxpayers is required to file a return in 2023? A. Westin, age 45, who is Single and earned $12,500 in wages. B. Terry, age 60, who is Single and had $300 in self-employment income and $9,000 in wages. C. Paula, age 33, who is Married Filing Separate, and had $1,000 in interest income only. D. Gary, who is 15 years old and had $800 in interest income. He is claimed as a dependent by his parents.

C. Paula, age 33, who is Married Filing Separate, and had $1,000 in interest income only. Explanation: Paula, age 33, who is Married Filing Separate, and had $1,000 in interest income, is required to file a tax return in 2023. Special rules apply to MFS filers. A taxpayer filing MFS with gross income of at least $5, must file a return regardless of their age.

A month after Franco' filed his 2023 tax return, he received another Form W-2 in the mail. The amount on the additional Form W-2 was not included in his original tax return, because he'd forgotten about it. What is Franco's best course of action? A. Wait for the IRS to correct the original return. B. E-file a corrected Form 1040 to amend his tax return and include the additional Form W-2. C. Prepare Form 1040X to amend his tax return for the year and include the additional Form W-2. D. Call the IRS and submit the amount on the additional Form W-2 to the IRS Call Center.

C. Prepare Form 1040X to amend his tax return for the year and include the additional Form W-2. Explanation: Franco should prepare Form 1040X to amend the return and include the additional Form W-2. An amended return should be filed if the taxpayer: - Received an additional Form W-2 or a corrected Form W-2 that was not reported on the original return. - Received an additional Form 1099 (such as unemployment compensation) or a corrected Form 1099 that was not reported on the original return. - Claimed his own personal exemption on the return when someone else was entitled to claim it. - Claimed deductions or credits he should not have claimed. - Did not claim deductions or credits he could have claimed. - Should have used a different filing status. Form 1040X is not year-specific—the taxpayer must specify the year for which the amended return is being prepared.

Generally, every taxpayer who files a tax return must use an identifying number. Which of the following is NOT a taxpayer identification number for IRS purposes? A. Individual tax identification number (ITIN). B. Adoption taxpayer identification number (ATIN). C. Preparer tax identification number (PTIN). D. Social Security number (SSN).

C. Preparer tax identification number (PTIN). Explanation: A preparer tax identification number (PTIN) is used by paid preparers to identify themselves on a taxpayer's return. It is not an identifying number for a taxpayer's use.

Jamila is a nonresident alien that owns a rental property in the US that she inherited from her brother, who was a green-card holder. Jamila must file a U.S. tax return, but she is not eligible for a Social Security Number. What must she do? A. She must fill out a W-9 application form for an ITIN, and submit it to the IRS along with a completed tax return. B. She must fill out a W-7 form for an ATIN, and submit it to the IRS along with a completed tax return. C. She must fill out a W-7 application form for an ITIN, and submit it to the IRS along with a completed tax return. D. She must fill out a W-7 application form for an EIN, and submit it to the IRS along with a completed tax return.

C. She must fill out a W-7 application form for an ITIN, and submit it to the IRS along with a completed tax return. Explanation: She must fill out a W-7 application form to request an ITIN, and submit it to the IRS along with a completed tax return. A W-7 Form is used to apply for an individual taxpayer identification number, or ITIN, for nonresidents who are not eligible to receive a Social Security Number. It takes approximately 12 weeks for the IRS to process and issue an ITIN, which will be sent to the taxpayer by mail.

Patsy and Owen live in Texas, which is common-law state and a community property state. The couple lives together, own a house together, and tell family and friends that they are married. They have two children together. They do not have a formal marriage license, however. What is their filing status? A. They are considered to be partners in a civil union. B. Since they do not have a formal marriage license, they are each considered "single" for tax purposes. C. Since Texas is a common-law state, they are likely considered married under state law, and must file either MFJ or MFS. D. They are considered unmarried, and each would be able to file as "head of household" by claiming one of their children.

C. Since Texas is a common-law state, they are likely considered married under state law, and must file either MFJ or MFS. Explanation: Since Texas is a common-law state, they are likely considered married under state law, and must file either MFJ or MFS. A common law marriage is a legally recognized marriage between two people who have not purchased a marriage license, or had a formal ceremony. Taxpayers who live together in a common-law state may have a marriage recognized by the state, even without a formal license. Currently, the common-law states are: Alabama, Colorado, District of Columbia, Iowa, Kansas, Montana, Oklahoma, Pennsylvania, Rhode Island, South Carolina, and Texas. See the IRS tutorial page about married couples that live in common-law states.

Sammy and Belinda are getting divorced. They are both 35 years old. As part of the divorce settlement, Sammy is required to transfer $75,000 from his traditional IRA to Belinda's IRA account. The transfer is incident to the divorce and is part of the official divorce decree. How is this transfer treated for tax purposes? A. The transfer is treated as taxable alimony income to Belinda. B. The transfer is treated as a taxable gift. C. The transfer is tax-free. D. The transfer is treated as a taxable distribution to Sammy.

C. The transfer is tax-free. Explanation: If an interest in a traditional IRA is transferred from one spouse to another by a divorce decree, the transfer is tax-free, and there are no penalties. The transfer is not treated as a taxable distribution. The IRS calls this a "transfer incident to divorce." For more information about spousal transfers during a divorce, see Publication 504, Divorced or Separated Individuals.

A taxpayer should file Form 1040X only after: A. They have filed an innocent spouse request. B. They have filed a request for abatement. C. They have filed their original return. D. They have filed a protest.

C. They have filed their original return. Explanation: A taxpayer should file Form 1040X only AFTER they have filed their original return. Form 1040X is an amended return, it is used to correct errors on an original return that has already been filed. For more information, see the Instructions for Form 1040X as well as IRS Topic No. 308 Amended Returns.

Harlan is a taxpayer who has a filing requirement. Harlan's regular tax preparer, Jenessa, is located in an area that recently experienced a federal disaster. With regards to IRS disaster relief provisions, do those provisions apply if the tax preparer is located in a disaster area but the taxpayer is not? A. Yes, disaster relief provisions apply and no further action is needed. B. No, Harlan must still file his returns on time. C. Yes, disaster relief provisions apply, but Harlan may have to contact the IRS to request relief. D. None of the answers are correct.

C. Yes, disaster relief provisions apply, but Harlan may have to contact the IRS to request relief. Explanation: Disaster relief also applies to tax preparers who are unable to file returns or make payments on behalf of the client because of a FEMA disaster. For the purposes of this tax relief, affected taxpayers include individuals and businesses located in the disaster area, those whose tax records are located in the disaster area, and relief workers. To get the postponement for filing or payment, the taxpayer must: - Call the IRS Disaster Assistance Hotline. - Explain that their necessary records are located in a covered disaster area. - Provide the FEMA Disaster Number of the county where the tax preparer or their records are located.

Harry and Melanie are married. They live in a community property state (Texas). They lived together all year. Harry has $2,000 per month in retirement pay, which is considered to be community income. Harry also owns a rental (his name is on the deed, but his wife's name is not). The rental produces $600 a month in net income. Melanie does not have a job and does not work. Melanie and Harry decide to file separate tax returns. How much is considered to be community income and reportable on Melanie's separate return? A. $1,000 per month. B. $2,000 per month. C. $0, retirement pay and rental income is exempt from community property rules. D. $1,300 per month.

D. $1,300 per month. Explanation: If Melanie and Harry decide to file separate tax returns, and they live in a community property state, then one-half of the income would be treated as earned by Melanie. So $1,300 a month would be her portion of the community income (one-half the pension income and one-half of the rental income). Note: Community property rules are complex and can vary from state to state. This question is based directly on an example in Publication 555, Community Property. According to Publication 555, in Idaho, Louisiana, Texas, and Wisconsin, income from most separate property is treated as community income. Couples can also choose to have a legal agreement that provides that no community property will be created during the marriage (such as a Prenuptial Agreement between the spouses).

Porter is single and works as a self-employed consultant. In recent years, he has earned an average of about $200,000 a year. His income fluctuates throughout the year, however, and he's never sure of how much he will earn. In order to avoid paying an estimated tax penalty, Porter can rely on the safe harbor rule for higher-income taxpayers by paying: A. 100% of the tax liability on his prior year tax return. B. 90% of the tax liability on his prior year tax return. C. $1,000 or more in total tax on his current year tax return. D. 110% of the tax liability on his prior year tax return.

D. 110% of the tax liability on his prior year tax return. Explanation: A higher-income taxpayer with adjusted gross income of $150,000 or more ($75,000 or more if married filing separately) will not be assessed an estimated tax penalty if he pays the smaller of: 90% of the tax liability on his current year return or 110% of the tax liability on his prior-year tax return. This contrasts with a taxpayer earning under $150,000, who can rely on a safe harbor rule by paying the lesser of 90% of the tax liability on his current year return or 100% of the tax liability on his prior-year return. A taxpayer also will not face an underpayment penalty if the total tax shown on his return (minus the amounts of tax credits or paid through withholding) is less than $1,000.

A Form 1040X based on a loss from a worthless security generally must be filed within _______ after the due date of the return for the tax year in which the security became worthless (in order for the taxpayer to receive a refund). A. 5 years. B. 10 years. C. 3 years. D. 7 years.

D. 7 years. Explanation: A Form 1040X based on a loss from a bad debt or worthless security generally must be filed within SEVEN years after the due date of the return for the tax year in which the debt or security became worthless. This is an exception to the normal "three-year" rule. For more information, see the Instructions for Form 1040X as well as IRS Topic No. 308 Amended Returns.

Gilbert and Brittney are getting divorced. Gilbert has decided to buy Brittney out of their jointly-owned rental property as a condition of the divorce. What is the proper classification of this payment? A. Non-deductible child support. B. The buyout is treated as a taxable sale to Brittney. C. A deductible property settlement. D. A non-deductible property settlement.

D. A non-deductible property settlement. Explanation: This is classified as a non-deductible property settlement. Property transfers "incident to divorce" are not taxable income to the recipient and, therefore, are not tax-deductible to the payor. For more information, see Publication 504, Divorced or Separated Individuals.

The issuance of an ITIN does not: A. Entitle the recipient to Social Security benefits or the Earned Income Tax Credit. B. Create a presumption regarding the individual's immigration status. C. Give the individual the right to work in the United States. D. All of the above.

D. All of the above. Explanation: An ITIN is used for IRS reporting purposes only and does not entitle the taxpayer to the Earned Income Tax Credit or to Social Security benefits. An ITIN also does not create a presumption about the taxpayer's immigration or work status. The Individual Taxpayer Identification Number (ITIN) is a tax processing number the IRS issues to people who cannot get a social security number so they can comply with U.S. tax laws. To learn more about ITINs, see the dedicated IRS page about Individual Taxpayer Identification Numbers.

Bernie e-filed his 2023 tax return on April 15, 2024. Two weeks later, he received another Form W-2 in the mail that he had forgotten about. What should Bernie do? A. Bernie should contact the IRS by phone and ask them to prepare an amended return on his behalf. B. Bernie should wait for an audit notice and an automatic bill from the IRS. C. Bernie should prepare another Form 1040 to include the additional Form W-2. D. Bernie should prepare Form 1040-X to include the additional Form W-2.

D. Bernie should prepare Form 1040-X to include the additional Form W-2. Explanation: Bernie should prepare Form 1040-X to include the additional Form W-2. Taxpayers should file amended returns using Form 1040-X to correct any errors or omissions on a return they have already filed.

All of the following are types of spousal relief from joint and several liability except: A. Innocent spouse relief. B. Equitable relief. C. Separation of liability relief. D. Equivalent relief.

D. Equivalent relief. Explanation: "Equivalent" relief does not exist. There are three types of relief from joint and several liability: innocent spouse, separation of liability, and equitable relief.

Ramon and Meredith are married and file jointly. Their joint tax refund was seized because of Meredith's past-due student loan debt. In this scenario, Ramon is considered a: ______________. A. Innocent Spouse. B. Wounded Spouse. C. Qualified Spouse. D. Injured Spouse.

D. Injured Spouse. Explanation: Sometimes, a married couple's joint tax refund will be seized because of a debt for which only one spouse is responsible. In this scenario, Ramon is considered an "injured spouse" (not innocent spouse, which is different). Ramon may file Form 8379 to request his portion of the refund. To learn more about Injured Spouse Relief, see the IRS FAQ page.

Jaime expects to owe $1,500 in tax for 2023. Her tax liability for the prior year was $0, because she did not work at all that year. Is Jaime required to pay estimated taxes in 2023? A. Jaime is required to pay at least $1,000 in estimated tax for the year. B. Jaime is required to pay estimated tax for the year. C. Jaime is required to pay at least $500 in estimated tax for the year. D. Jaime is not required to pay estimated tax for the year.

D. Jaime is not required to pay estimated tax for the year. Explanation: Jaime is not required to pay estimated tax for the year. That is because she had $0 tax liability in the prior year. As long as Jaime files her return and pays what she owes by the unextended filing deadline, she will not be liable for any estimated tax penalties. Note: If you expect to owe less than $1,000 in income tax, after applying federal income tax withholding, you generally do not have to make any estimated tax payments. However, you also do not have to make estimated tax payments if you're a U.S. citizen or U.S. resident alien and you had no tax liability for the previous year.

For tax purposes, which of the following persons may be considered an "injured spouse", and qualify for injured spouse relief? A. Jazmine, who files separately from her husband, James. James owes past-due child support. B. Inga, who filed jointly with her husband Harold, and was subject to spousal abuse and then filed for innocent spouse relief. C. Karen, who is recently widowed from her late husband Olaf, who claimed improper deductions on a prior-year return that is now under audit. D. Larry, who is married to Jennifer and files jointly with her. Jennifer owes past-due student loans which are being offset.

D. Larry, who is married to Jennifer and files jointly with her. Jennifer owes past-due student loans which are being offset. Explanation: Larry is an "injured spouse" because he is married to Jennifer and files jointly with her. Jennifer owes past-due student loans. When a joint return is filed and only one spouse owes a past-due amount, the other spouse can be considered an "injured spouse." Form 8379 allows an injured spouse to request the division of the tax overpayment attributed to each spouse. None of the other examples would be classified as "injured spouse". Inga and Karen may qualify for "innocent spouse" provisions, but not injured spouse. And Jazmine would not be an injured spouse, because she is not filing a joint return with her husband, so there is no way that her refund would be offset for his debt. Note: An "injured spouse" is different from an "innocent spouse". These provisions only apply to joint return filings. A taxpayer that files MFS would not be an "injured spouse." An innocent spouse uses Form 8857, Request for Innocent Spouse Relief, to request relief from joint liability for tax, interest, and penalties on a joint return for items of the other spouse (or former spouse) that were incorrectly reported on the joint return.

Tomas is a U.S. citizen living in Florida. He requested an extension of time to file his individual tax return, what is his extended due date? A. June 15 B. December 15 C. August 15 D. October 15

D. October 15 Explanation: With the extension, Tomas will have until October 15 to file. This is an extension of time for the taxpayer to file, not an extension of time to pay taxes that are due.

To prepare an accurate tax return, a tax preparer needs all of the following information about a client except: A. Date of birth. B. Social Security number or taxpayer identification number. C. Citizenship or residency. D. Prior-year AGI

D. Prior-year AGI Explanation: To prepare an accurate return, a tax preparer must gather biographical information including a client's legal name, date of birth, marital status, citizenship or residency, dependents, and SSN or other TIN. A preparer does not need to know the prior year AGI to file a taxpayer's return.

Which of the following items would "carryforward" on a taxpayer's return, requiring a preparer to see the prior-year return? A. State income tax deduction that was limited by the SALT cap B. Hobby expenses in excess of hobby income C. Gambling losses in excess of gambling winnings D. Suspended passive losses

D. Suspended passive losses Explanation: Suspended passive losses can be carried forward indefinitely until you either use them to offset passive income or dispose of the investment. A tax "carryforward" or "carryover" is when a taxpayer can apply some unused tax deductions, credits, or losses to a future tax year. Other examples include: a capital loss carryforward and a net operating loss carryforward. The other choices listed cannot be carried forward to future tax years.

Kylie files her tax return and requests a direct deposit of her refund, which is $3,100 for the current year. She also owes $500 in delinquent back taxes from the prior year. How will the IRS allocate her refund in this scenario? A. The IRS will not direct deposit her refund until Kylie pays the full balance from the prior year. B. Kylie must request a formal abatement before receiving her refund. C. The IRS will withhold the balance due from Kylie's refund and send a paper check for the balance. D. The IRS will withhold the balance due from Kylie's refund and adjust her direct deposit accordingly.

D. The IRS will withhold the balance due from Kylie's refund and adjust her direct deposit accordingly. Explanation: The IRS will withhold the balance due from Kylie's refund and adjust her direct deposit accordingly. She will receive a letter from IRS explaining any adjustment(s) to her refund amount and direct deposit.

Rhett and Skylar are married and file jointly. They operate an unincorporated business together, but they do not want to file a partnership tax return. They live in New Jersey, which is not a community property state. The business is not an LLC or any other state-law entity. What are their options? A. They are required by law to file a partnership tax return. B. The spouses can file a single Schedule C and alternate years. C. One spouse can claim all the income. D. The spouses can elect to file as a Qualified Joint Venture.

D. The spouses can elect to file as a Qualified Joint Venture. Explanation: The spouses can elect to file as a Qualified Joint Venture. A qualified joint venture (QJV) conducted by married spouses who file a joint return for a tax year is not treated as a partnership for Federal tax purposes. A qualified joint venture is a joint venture that conducts a trade or business where: - The only members of the joint venture are a married couple who file a joint return, - Both spouses materially participate in the trade or business, and - Both spouses elect not to be treated as a partnership. Spouses make the "qualified joint venture" (QJV) election on a jointly filed Form 1040 by dividing all items of income, gain, loss, deduction, and credit between them in accordance with each spouse's respective interest in the joint venture, and each spouse filing with the Form 1040 a separate Schedule C, (or Schedule F). Only businesses that are owned and operated by spouses as co-owners (and not in the name of a state law entity, such as an LLC or LLP) qualify for the QJV election (there is a narrow exception for couples who reside in community property states, who can still elect QJV treatment if they operate a MMLLC together as sole owners).

Ursula and Patrick were married three years ago and they file jointly. Both of them work. They are owed a refund on their joint return, but this year, their entire refund is offset against Patrick's past-due child support. Can Ursula have any recourse to recover any of the refund? A. Ursula can request innocent spouse relief to recover the entire refund. B. No. Since they filed jointly, her portion of the refund cannot be recovered. C. Ursula can request innocent spouse relief to recover half of the refund. D. Ursula can request injured spouse relief in order to recover her portion of the refund.

D. Ursula can request injured spouse relief in order to recover her portion of the refund. Explanation: Ursula can request injured spouse relief in order to recover her portion of the refund. If a taxpayer files a joint return and is not responsible for the debt, but is entitled to a portion of the refund, the injured spouse may request their portion of the refund by filing Form 8379, Injured Spouse Allocation.

U.S. citizens and U.S. residents compute their U.S. taxes based on their _____________. A. Passive and non-passive income. B. U.S.-source income. C. Passive income. D. Worldwide income.

D. Worldwide income. Explanation: U.S. citizens and U.S. residents compute their U.S. taxes based on their worldwide income.