practice Exam EA

The state condemned Joe's property. Joe did not hold the property for use in a trade or business or for investment. The adjusted basis of the property was $26,000. The state paid Joe $36,000 in 2022. Joe realized a gain of $10,000. He bought like-kind property for $35,000 in 2022 for the purpose of replacing the condemned property. Joe also made a proper Internal Revenue Code Section 1033 election to defer gain from the condemnation on his 2022 tax return. In 2022, what is the net taxable gain and where must Joe report it? $36,000 on Form 8949 and transfer to Schedule D $10,000 on line 21 of Form 1040 $1,000 on Form 8949 and transfer to Schedule D $26,000 on Form 4797 (Sales of Business Property)

$1,000 on Form 8949 and transfer to Schedule D In the case where property is condemned or disposed of under the threat of condemnation, the gain or loss is determined by comparing the adjusted basis of the condemned property with the net condemnation award. (Publication 544, pages 6 and 7) Because this question deals with a gain situation, there are two parts to the question: amount of gain and reporting of gain. The first part is addressed in Publication 544, page 9, which provides that a taxpayer can postpone reporting all the gain if the taxpayer buys replacement property costing at least as much as the amount realized for the condemned property. If the cost of the replacement property is less than the amount realized, the taxpayer must report the gain up to the unspent part of the amount realized. The second part is addressed in Publication 544, page 11, which provides that a taxpayer reports a gain from a condemnation of property held for personal use (other than excluded gain from a condemnation of the taxpayer's main home or postponed gain) on Form 8949 and transfers to Schedule D (Form 1040 or 1040-SR). In this case, Joe has a reportable gain of $1,000, which is the amount of the condemnation award not used on the replacement property ($36,000 less $35,000). The gain would be reported on Form 8949 or Schedule D (Form 1040 or 1040-SR), as applicable. Publication 544, pages 6-11

Matt paid interest in 2022 as follows: $100 on his personal credit card $200 on funds borrowed in order to purchase $6,000 in tax-exempt securities $500 interest on his personal car loan (He does not use his car for business.) $10,000 on his home mortgage What is the amount of Matt's deductible interest in 2022? $17,400 $10,600 $10,000 $10,800

$10,000 Instructions to Schedule A, Form 1040, page A-8 indicate a taxpayer cannot deduct personal interest. Examples of personal interest include car loans, credit card interest, etc. The instructions also indicate the taxpayer is entitled to deduct qualified home mortgage interest and interest on student loans (on Schedule 1). Publication 936, page 2, states, in general, that home mortgage interest includes any interest that is paid on a loan secured by the taxpayer's home (main home or a second home). The loan may be a mortgage to buy the taxpayer's home, a second mortgage, a line of credit, or a home equity loan (provided that the equity loan is used to buy, build or improve the residence). Deductibility of interest associated with a mortgage loan is limited to $750,000 for loans originating after December 15, 2017 (Publication 936, page 2). In the case where a taxpayer borrows money to buy property that is held for investment, the interest that the taxpayer pays is investment interest and it can be deducted up to the amount of investment income. However, a person cannot deduct interest incurred to produce tax-exempt income. Investment income generally includes items such as interest, ordinary dividends, annuities, and royalties (Publication 550, page 32). Matt is able to deduct $10,000 of mortgage interest expense for the year. Publication 550, page 32 Publication 936, page 2 Instructions for Schedule A (Form 1040), page A-8

Jack, a U.S. citizen, was a resident of England for all of 2022. He received $120,000 in wages from an English corporation, and paid taxes to England on this income. What portion of the $120,000 is exempt from U.S. income tax? $0 $108,700 $112,000 $120,000

$112,000 In order to lessen the potential for double taxation, United States taxpayers are allowed to take an amount of qualified foreign taxes paid or accrued during the year as a credit or a deduction. Taken as a deduction, foreign income taxes reduce your taxable income. Taken as a credit, foreign income taxes reduce your tax liability. Regardless of which option a taxpayer elects, they must treat all foreign income taxes the same way during that year. (Publication 54, page 24) Claiming the credit is done on Schedule 3 (Form 1040 or 1040-SR), line 1, and generally requires a taxpayer to complete and attach Form 1116 to Form 1040. In order to claim the deduction, the taxpayer must itemize their deductions, and therefore take the deduction on Schedule A. (Publication 54, page 24) In addition, United States citizens or resident aliens who work "abroad" are taxed on worldwide income. However, the person may qualify to exclude from gross income up to $112,000 of foreign earned income for 2022 (Publication 54, page 20). However, a taxpayer is not permitted to take the credit or deduction for foreign income taxes paid on earnings that can be excluded from the U.S. tax under any of the following (Publication 54, page 24): Foreign earned income exclusion Foreign housing exclusion Possession exclusion Given that Jack received $120,000 while he was a resident of England for all of 2022, he may be able to exclude up to $112,000 (not the entire $120,000) from gross income. IRC Sections 911(b)(1) and (d)(2) Publication 54, pages 20 and 24

Joan received a scholarship for purposes of attending the University of California at Los Angeles. Joan is not a degree candidate. The scholarship consisted of $6,000 for tuition, $1,500 for fees, $500 for books, $800 for required equipment, and $6,000 for room and board. Which of the following amounts should Joan include in her taxable income? $6,000 $14,800 $0 $6,800

$14,800 Publication 17, page 74, states, in part, that a candidate for a degree can exclude amounts received as a qualified scholarship or fellowship. A qualified scholarship or fellowship is any amount received by a taxpayer that is for: tuition and fees to enroll at or attend an educational institution or fees, books, supplies, and equipment required for courses at the educational institution. Amounts used for room and board do not qualify for the exclusion. Since Joan is not a degree candidate, she would report the entire scholarship amount of $14,800 as taxable income. For additional information on qualified scholarships and fellowship grants, see Publication 970, Tax Benefits for Education. Publication 17, page 74

Jean is a U.S. citizen living and working in France for all of 2022. She received wages of $150,000, dividends of $10,000, and alimony of $20,000 in 2022. She decides to use the foreign earned income exclusion available to her and file Form 2555. What is the amount of Jean's foreign earned income before any limitations are applied? $0 $108,700 $150,000 $120,000

$150,000 In order to lessen the potential for double taxation, United States taxpayers are allowed to take an amount of qualified foreign taxes paid or accrued during the year as a credit or a deduction. Taken as a deduction, foreign income taxes reduce your taxable income. Taken as a credit, foreign income taxes reduce your tax liability. Regardless of which option a taxpayer elects, they must treat all foreign income taxes the same way during that year (Publication 54, page 24). Claiming the credit is done on Schedule 3 (Form 1040 or 1040-SR), line 1, and a taxpayer generally needs to complete and attach Form 1116. In order to claim the deduction, the taxpayer must itemize the deductions and therefore take the deduction on Schedule A (Publication 54, page 25). The foreign earned income exclusion is voluntary. A taxpayer can choose the exclusion by completing the appropriate parts of Form 2555 (Publication 54, page 20). To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, a taxpayer must have foreign earned income (Publication 54, page 16). Foreign earned income generally is income a taxpayer receives for services performed during a period in which the taxpayer met both of the following requirements: the taxpayer's tax home is in a foreign country, and the taxpayer meets either the bona fide residence test or the physical presence test. In addition, United States taxpayers who work "abroad" are permitted (if they qualify) to exclude from gross income the lesser of foreign earned income or $112,000 for 2022 (Publication 54, page 19). For Jean, the amount of foreign earned income before any limitations that qualifies for the exclusion is $150,000. IRC Sections 911(b)(1) and (d)(2) Publication 54, pages 16, 19-20, and 24

A taxpayer purchases rental property for $160,000. She uses $25,000 cash and obtains a mortgage for $135,000. She pays closing costs of $10,000, which includes $5,000 in points on the mortgage and $5,000 for bank fees and title costs. Her initial basis in the property is: $35,000. $170,000. $165,000. $160,000.

$165,000. The basis of property that is purchased by a taxpayer is usually its cost, which includes the amount paid in cash, debt obligations, other property, or services. In addition, some settlement fees or closing costs can be included in the basis of the property, which includes: abstract fees (abstract of title fees), charges for installing utility services, legal fees (including title search and preparation of the sales contract and deed), recording fees, surveys, transfer taxes, owner's title insurance, and any amounts the seller owes that the taxpayer agrees to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions (see Publication 551, pages 2-3). Points are one of the settlement fees and closing costs that a taxpayer cannot include in the basis of property (see Publication 551, page 2-3). Given the information above, the taxpayer in this problem has a basis of $165,000 from the purchase of the property. This basis is the sum of the property cost ($160,000 consisting of $25,000 in cash and $135,000 mortgage) and bank and title costs ($5,000). Publication 551, pages 2-3

Sam owns a plumbing supply business that he reports as a sole proprietorship. Sam spends a great deal of time and money entertaining clients. A lot of Sam's business is conducted in restaurants and on the golf course. In 2022, Sam incurred the following expenses: $2,000 in meal expenditures for client business dinners in restaurants $300 in babysitting fees during client business dinners $1,000 in golf club membership dues $200 in golf equipment In 2022, what is the amount that Sam can deduct for business entertainment expenses?

$2,000 In order to answer this question, one must understand what is meant by "entertainment expenses." Entertainment expenses include any activity that is considered to provide entertainment, amusement, or recreation. Entertainment expenses include but are not limited to entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; or on hunting, fishing, vacation, or similar trips. A taxpayer can no longer take a deduction for any expenses related to activities generally considered entertainment, amusement, or recreation. A taxpayer can continue to deduct 50% of the cost of business meals if the taxpayer (or their employee) is present and the food or beverages are not considered lavish or extravagant. For more information, see Chapter 2 of Publication 463. (Publication 463 pages 10-11) Publication 463, page 10, explicitly states that dues paid to country clubs and golf clubs are not deductible. The Consolidated Appropriations Act, 2021 (CAA) allows businesses to deduct 100% of business meals for years 2021 and 2022. The business meal expenses are required to be incurred for food and beverages provided by a restaurant. Given the facts above, Sam is only able to deduct the meal expenditure of $2,000 as an entertainment expense. IRC Section 274(a)(1)(A) Regulation Section 1.274-2(b)(1)(ii) Publication 463, pages 10-11

Lois, a cash basis taxpayer, died on September 30, 2022. Assume the following details regarding the assets of her estate: Lois' home was appraised for $2,000,000 at the date of her death and sold on March 15, 2023, for $1,950,000. Lois had a time certificate in the amount of $100,000. The certificate was redeemed for funeral expenses on October 1, 2022. (Ignore interest for purposes of this question.) Lois had common stock valued at $1,850,000 at the date of death. On the alternate valuation date, the stock was valued at $1,750,000. Lois had personal and household furnishings that were appraised at $25,000 as of the date of death. The executor gave all of the items to a charity on November 1, 2022. If the alternate valuation date is elected, what is the gross value of the estate if it were to be reported? $3,825,000 $3,875,000 $3,925,000 $3,975,000

$3,825,000 Unless the election to adopt an alternate valuation is made at the time the return is filed, the value of all property included in the gross estate will be the value on the date of the decedent's death. Alternate valuation cannot be applied to only a part of the property. The election for alternate valuation may not be made unless the election will decrease both the value of the gross estate and the total net estate and GST (generation-skipping transfer) taxes due after application of all allowable credits. Once made, the election may not be revoked. Additionally, if the alternate valuation method is used, the value of the property that is included in the gross estate must be in agreement with the following applicable dates: Any property distributed, sold, exchanged, or otherwise disposed of or separated or passed from the gross estate by any method within 6 months after the decedent's death is valued on the date of distribution, sale, exchange, or other disposition. Any property not distributed, sold, exchanged, or otherwise disposed of within the 6-month period is valued on the date 6 months after the date of the decedent's death. Any property, interest, or estate that is "affected by mere lapse of time" is valued as of the date of decedent's death or on the date of its distribution, sale, exchange, or other disposition, whichever occurs first. In this case, the alternate valuation election is made and, as such, the gross value if it had to be reported is determined as follows: Fair Market Value (FMV) Alternate Valuation Home $1,950,000 Certificate of Deposit 100,000 Stock 1,750,000 Personal Items 25,000 Gross Estate Value $3,825,000 Instructions for Form 706, pages 10-11

Joyce and Arron are married and file a joint tax return in 2022. Joyce has $150,000 in wages and Arron has $130,000 in wages. Neither employer withheld Additional Medicare Tax from the couple's wages. What amount is subject to the Additional Medicare Tax for the couple on their 2022 tax return? $0 $30,000 $80,000 $280,000

$30,000 As provided in the instructions for Form 8959, page 1, all wages that are currently subject to Medicare tax are subject to Additional Medicare Tax to the extent they exceed the threshold amount for the taxpayer's filing status. Thus, Medicare wages and self-employment income are combined to determine if a taxpayer's income exceeds the threshold amount. Since Joyce and Arron's wages of $280,000 exceed the threshold amount of $250,000 for a married couple filing jointly, the couple is subject to the Additional Medicare Tax on $30,000, which is the excess amount ($280,000 − $250,000). Instructions for Form 8959, pages 1-2

In 2022, John donated $100 to the United Way, $200 to Veterans of Foreign Wars, and $300 to his neighbor whose home was destroyed by a tornado. How much is John's deduction for charitable contributions for 2022? $300 $400 $500 $600

$300 Publication 526, page 21, provides, in part, that a charitable contribution is a donation or gift to, or for the use of, a qualified organization. It is voluntary and is made without getting, or expecting to get, anything of equal value. In this problem, one must assume that the United Way and the Veterans of Foreign Wars are both qualified organizations and as such, John's contributions of $300 ($100 and $200, respectively) qualify as deductions (see Table 1 in Publication 526, page 3). It is also assumed John meets the substantiation for his charitable contributions (copy of check, receipts, etc.) John's contribution to his neighbor, however, would not qualify since the contribution is to a person and not to a qualified charity. Publication 526, pages 2-3

During 2022, Ms. Gonzales paid $2,000 for real estate taxes on property she rents to others and $3,425 real estate taxes on her residence. In addition, she paid Social Security taxes of $650 for household help and $1,250 for state income taxes to New Jersey. What amount can Ms. Gonzales deduct as an itemized deduction on her tax return for 2022? $4,675 $5,325 $6,675 $7,325

$4,675 Publication 17, page 94, states that a taxpayer can deduct state and local income taxes. However, the taxpayer cannot deduct state and local income taxes paid on income that is exempt from federal income tax, unless the exempt income is interest income. Beginning in 2005, a taxpayer can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A of Form 1040 (Publication 17, page 95). Deductible real estate taxes, on the other hand, are any state or local taxes on real property levied for the general public welfare. A taxpayer can deduct these taxes only if they are based on the assessed value of the real property and charged uniformly against all property under the jurisdiction of the taxing authority. (See Publication 17, page 95.) Real estate taxes, however, paid on property that produces rent or royalty income are deductible on Schedule E (Publication 17, page 98). Publication 17, page 98, goes on to stipulate that Social Security and other employment taxes for household workers that a taxpayer pays cannot be deducted. However, the taxpayer may be able to include them in medical expenses that are deductible or child care expenses that allow the taxpayer to claim the child and dependent care credit. For tax years 2018 through 2026, the deduction for state and local taxes is limited to $10,000 ($5,000 if filing married separately). State and local taxes are the taxes that you include on Schedule A (Form 1040 or 1040-SR), lines 5a, 5b, and 5c. Ms. Gonzales' itemized deductions for 2022 are $4,675, which is the sum of $3,425 (real estate tax on her residence) and $1,250 (New Jersey state income taxes). Of course, Ms. Gonzales would be wiser to claim the standard deduction of $12,950, which is greater than the itemized amount of $4,675 unless her total itemized deductions exceed $12,950. Publication 17, pages 94-98

In 2022, Billy's father deeded him 400 acres of land. The fair market value (FMV) on the date of the transfer was $350,000. His father had paid $40,000 for the land. No gift tax was paid on the transfer. When Billy's father died 6 months later, the fair market value of the land was $400,000. What is Billy's basis in the 400 acres? $400,000 $350,000 $40,000 $260,000

$40,000 In general, a taxpayer that receives property as a gift needs to know the property's adjusted basis to the donor just before it was received, its FMV at the time it was received, and any gift tax paid on it in order to determine the property's basis. As provided in Publication 551 on page 9, if the FMV of the property is equal to or greater than the donor's adjusted basis, the donee's basis is the donor's adjusted basis at the time the donee received the gift. The basis in the gifted property also is increased by all or part of any gift tax paid, depending on the date of the gift. See Publication 551, page 9, for a discussion on the gift tax adjustment for gifts received before 1977 or after 1976. In this problem, Billy received the land (nondepreciable property) from his father prior to the father's death and it had an FMV that exceeded his father's adjusted basis. Billy, therefore, would have an adjusted basis in the land of $40,000, which is the same as his father. Publication 551, page 9

Tim and Tina teach in the local high school. During 2022, Tina spent $425 on supplies that were used in her classes and Tim spent $150 on supplies that were used in his classes. What are the maximum educator expenses that the couple can claim on their tax return if the couple files jointly in 2022? $0 $450, which is $300 for Tina and $150 for Tim $400, which is $250 for Tina and $150 for Tim $575, which is $425 for Tina and $150 for Tim

$450, which is $300 for Tina and $150 for Tim Form 1040 Instructions, page 87, states, in part, that an eligible educator can deduct up to $300 of qualified expenses paid in the year as an adjustment to gross income on Form 1040 or 1040-SR, line 11. In the case where both spouses are eligible educators and are filing a joint return, the maximum deduction is $600. However, neither spouse can deduct more than $300 of his or her qualified expenses. An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide who worked in a school for at least 900 hours during a school year. In this case, the couple would be able to deduct up to $450. That is, Tina would be able to deduct up to $300 of her $425 expenses and Tim would be able to deduct up to $150 of his expenses. Instructions for Form 1040, page 87 IRC Section 62(a)(2)(D)

Which of the following penalties is likely to be assessed a taxpayer when filing a claim for the earned income tax credit and not including the Social Security number when required? $50 per tax return $50 per omission $100 per omission $100 per tax return

$50 per omission A taxpayer that fails to include his or her Social Security number (SSN) or that of another person where required on a return, statement, or other document is subject to a $50 penalty for each failure. The penalty can be waived if the taxpayer can show that the failure was due to reasonable cause and not willful neglect. Publication 17, page 20

Sandy received the following income in 2022: wages (Box 1 of W-2) $50,000, money won at weekly poker games $1,000, Christmas ham from her employer (fair market value) $22, dependent care benefits (Box 10 of W-2) $2,000 (spent $3,000 for child care), and group-term life insurance ($40,000 death benefit) $50. How much gross income must be reported by Sandy for tax year 2022? $50,022 $53,000 $51,000 $53,072

$51,000 A taxpayer must include for federal income tax purposes all income received from money, goods, property, and services, unless specifically excluded by the code (Publication 17, page 6). Fringe benefits received in connection with the performance of the taxpayer's services are included in gross income unless the taxpayer pays the fair market value (FMV) for them or the benefit is specifically excluded by law. (Publication 17, pages 45-46) If an employer provides a taxpayer with a product or service and the cost of it is so small (i.e., a de minimis benefit) that it would be unreasonable for the employer to account for it, the value is not included in the taxpayer's income (e.g., turkey or a ham). In relation to the above question, the Christmas ham that Sandy received is considered to be a de minimis (minimal) benefit and not includible in gross income (Publication 17, page 46). Additionally, the employer-provided dependent care benefits under a qualified plan would not generally be includible in gross income, to the extent that they do not exceed the total amount of dependent care benefits received the total amount of qualified expenses incurred, earned income, spouse's earned income, or $6,000 ($3,000 for married filing separately) (Publication 503, page 2). Employer-provided amounts that are used to cover qualified child care expenses will not be included in gross income but will also be excluded from qualifying expense for purposes of calculating the qualified child and dependent care credit (no double benefit). Furthermore, group-term life insurance coverage paid by an employer is not taxable because it is below $50,000 of coverage (Publication 17, page 46). Therefore, Sandy's gross income for 2022 would include only her wages and winnings as follows: Wages $50,000 Winnings 1,000 Total $51,000 IRC Section 61 Publication 17, pages 6 and 45-46 Publication 503, page 2

Richard collected baseball cards as a hobby. Richard had shared his interest in this hobby with his niece Susan, who was also an avid card collector. At the time of his death in 2022, Richard's collection had a fair market value of $10,000 and an adjusted basis of $2,000, while Susan's collection had a fair market value of $5,000 and an adjusted basis of $1,000. Upon his death, Richard's entire card collection went to Susan. With the death of her uncle, Susan lost interest in the hobby and sold all of the cards for $20,000. What is Susan's gain on the sale of these baseball cards? $5,000 $9,000 $13,000 $17,000

$9,000 The gain or loss on a sale or trade of property is found by comparing the amount realized with the adjusted basis of the property. As provided in Publication 551, pages 9-10, the basis of property that is received from a decedent is generally one of the following: The FMV of the property at the date of the individual's death The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement If a federal estate tax return does not have to be filed, the taxpayer's basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. In this problem, the gain on the sale for Susan is $9,000, which is the selling price of $20,000 less the adjusted basis of $11,000 ($10,000 on the inherited cards and $1,000 on Susan's cards). Publication 551, pages 9-10

James has $180,000 in self-employment income and $100,000 in retirement income. His employer does not withhold Additional Medicare Tax. What amount is subject to the Additional Medicare Tax for James on his 2022 tax return? $0 $80,000 $180,000 $280,000

0 As provided in the instructions for Form 8959, page 1, all wages that are currently subject to Medicare tax are subject to Additional Medicare Tax to the extent they exceed the threshold amount for the taxpayer's filing status. Thus, Medicare wages and self-employment income are combined to determine if a taxpayer's income exceeds the threshold amount. Retirement income is not considered Medicare wages; as such, James' retirement income is not added to his Medicare wages. Since James' Medicare wages of $180,000 are below the threshold amount of $200,000 for a single taxpayer, he is not subject to this tax. Instructions for Form 8959, pages 1-2

Bethany and Michael (wife and husband) are itemizing their Schedule A expenses on their tax year 2022 return. Michael traveled to Japan for his employer, but was not reimbursed. His meal expenses totaled $500. How much can Michael deduct for meals? $250 $500 $150 $0

0 Beginning in 2018, a taxpayer can no longer claim a deduction for unreimbursed employee expenses unless they fall into one of the following categories of employment or have certain qualified educator expenses (Publication 17, page 100). The eligible categories are: Armed Forces reservists Qualified performing artists Fee-basis state or local government officials Employees with impairment-related work expenses Therefore, unless a taxpayer falls into one of the qualified categories of employment, miscellaneous itemized deductions that are subject to the 2% of adjusted gross income limitation can no longer be claimed. In this case, Michael cannot claim any miscellaneous itemized deductions. (Publication 17, page 98) Publication 17, page 98

The taxpayer earned $1,000 in interest in 2021. The taxpayer withdrew $700 in 2021 and $300 in 2022. How much of the original $1,000 should taxpayer report as interest earned in 2022? $0 $300 $700 $1,000

0 Publication 17, page 53, provides the basic concept to the tax treatment of interest income. In general, any interest that a taxpayer receives or that is credited to his or her account and can be withdrawn is taxable income. (It does not have to be entered in the taxpayer's passbook or bankbook.) There are some exceptions to this general statement, but they are not applicable in this problem. Most individual taxpayers use the cash method. If a taxpayer uses this method, they generally report their interest income in the year in which they actually or constructively receive it. (Publication 17, page 59) The taxpayer earned interest in 2021 and, as such, the taxpayer pays taxes on the earnings in that year. A later withdrawal of that income does not trigger another taxable event. Publication 17, pages 53 and 59

Rena is a 73-year-old single chemical engineer. She works part-time for a pharmaceutical company and earned $47,000 in 2022. Her modified adjusted gross income is $79,000. She participates in her employer's pension plan and profit-sharing plan. In 2022, she contributed $6,000 to a traditional IRA. How much of her contribution can Rena deduct in 2022? $2,750 $0 $6,500 $5,500

0 Publication 590-A, page 9, states that the maximum annual contribution to a person's traditional IRA is the smaller of $6,000 ($7,000 if age 50 or older) or the person's taxable compensation for the year. If, however, a taxpayer is covered by an employer retirement plan and the taxpayer did not receive any Social Security benefits, his or her IRA deduction may be reduced or eliminated entirely depending on the taxpayer's filing status and modified AGI. That is, a single taxpayer is able to claim: a full deduction if the taxpayer's modified AGI is $68,000 or less, a partial deduction if the taxpayer's modified AGI is between $68,000 and $78,000, or no deduction if the taxpayer's modified AGI is $78,000 or more. (Publication 590-A, page 13, Table 1-2) Because Rena has a filing status of single, she is covered by a plan, and her modified AGI is $79,000 (over the threshold of $77,000), she cannot make a deductible IRA contribution in 2022. Hence, the correct response again is $0 regardless of age. Note: This question can appear in a variety of ways and, as such, needs to be read carefully. Publication 590-A, pages 5, 9, 12-13, and 39

Vernon, age 73, had compensation of $4,000 in 2022. He made a $4,000 contribution to his traditional IRA during 2022. The balance of the IRA account at the end of the 2022 was $10,000. Vernon did not withdraw any amount of the contribution by the due date of the 2022 return. What would be the tax because of an excess contribution for 2022? $0 $90 $240 $150

0 The general rule for 2022 as given in Publication 590-A, page 8, is that the maximum annual contribution to a person's traditional IRA is the smaller of $6,000 ($7,000 if you are 50 or older) or the person's taxable compensation for the year. Given that Vernon is permitted to make contributions to his traditional IRA (over age 72), all $4,000 of his contribution is no longer deemed to be an excess contribution. Hence, Vernon would owe no excise tax. Publication 590-A, pages 2 and 8

What penalty will most likely be assessed a taxpayer that erroneously claims the earned income credit but is able to show a reasonable basis for claiming it? 0% 20% 50% 75%

0% In general, a taxpayer may have to pay a penalty if he or she files an erroneous claim for refund or credit. The penalty is equal to 20% of the disallowed amount of the claim, unless the taxpayer can show a reasonable basis for the way they treated the item. Any disallowed amount due to a transaction that lacks economic substance will not be treated as having a reasonable basis. The penalty will not be figured on any part of the disallowed amount of the claim that relates to the earned income credit or on which the accuracy-related or fraud penalties are charged. In the case of fraud, the taxpayer will be subject to a 75% penalty. Since this taxpayer shows a reasonable basis for claiming the credit, the penalty will most likely be zero. Publication 17, page 20

Don and Joyce have adjusted gross income of $85,000. Both children (Mary, age 14, and David, age 20, who completed his education in the prior year) lived with them all year. Mary had interest income of $300. David had interest income of $600 and wages of $6,500. The parents provided over 50% of the support of both children. How many dependents, not including Don and Joyce, would they list on their Form 1040 as dependents? 2 3 4 1

1 For 2022, a taxpayer cannot claim a personal exemption deduction for themselves, their spouse, or their dependents. However, dependents are still listed on Form 1040 in order to claim appropriate tax credits. Therefore, the following rules are provided: The term "dependent" means a qualifying child or a qualifying relative. There are four tests that must be met for a person to be a qualifying relative (see Table 3-1 on page 26 of Publication 17): Not a qualifying child Member of the household or satisfies the relationship test Gross income test (less than $4,400 in 2022) Support test (more than half of the person's total support for the year) To be a qualifying child, the individual must be under age 19 (24 if a full-time student) and must satisfy both tests 2 and 4 above. In addition, a qualifying child is exempt from all of the above tests except the gross income test. But, be aware there are a number of exceptions to the above tests for a qualifying child as provided in Table 3-1 on page 26 of Publication 17. If a person is a qualifying relative or a qualifying child, the person still must satisfy three additional tests as provided on pages 26 and 27 of Publication 17: Dependent taxpayer test Joint return test Citizen or resident test The exemption and dependency rules are covered in chapter 3 of Publication 17. In this case, one dependent would be listed on Don and Joyce's Form 1040. Their daughter (Mary, age 14) qualifies as a dependent (meets the qualifying child test). David, on the other hand, does not qualify under qualifying child (he is 20 and not a full-time student). He can still qualify as a qualifying relative (no age test), but his gross income of $7,100 ($600 + $6,500) exceeds the gross income test limit of $4,400 for 2022. Publication 17, pages 25-27

Which of the following items generally is included in a person's estate? The transfer of title to property to another individual whereby the decedent retains the right to the use of the property during his or her lifetime The receipt of annuity income by the decedent The interest in community property ownership by the decedent 1 only 2 only 2 and 3 only 1, 2, and 3

1, 2, and 3 The gross estate includes all property in which the decedent had an interest (including real property outside the United States). It also includes: certain transfers made during the decedent's life without an adequate and full consideration in money or money's worth; annuities; the includible portion of joint estates with right of survivorship; the includible portion of tenancies by the entirety; certain life insurance proceeds (even though payable to beneficiaries other than the estate); property over which the decedent possessed a general power of appointment; dower or curtesy (or statutory estate) of the surviving spouse; and community property to the extent of the decedent's interest as defined by applicable law. See pages 30 through 32 of the instructions for Form 706 for a more detailed discussion of the conditions necessary for including annuity income in the gross estate. If the conditions are not satisfied, annuity income would not be included. However, the general rule is that the amount is included. Hence, the correct response for this question would be that items 1, 2, and 3 are includible. Instructions for Form 706, pages 2 and 30-32

Beth and Donnie purchased a house to use as rental property. They paid the following amounts: $100,000 cash, assumption of an existing $25,000 mortgage, title search $500, recording fees of $100, points for their new loan of $1,000, and the seller's part of the property taxes of $1,500. The seller did not reimburse them for the property taxes. What is their cost basis in the house? $100,000 $125,000 $127,100 $128,100

127100 The basis of property that is purchased by a taxpayer is usually its cost, which includes the amount paid in cash, debt obligations, other property, or services (see Publication 551, pages 2 and 3). In addition, some settlement fees or closing costs can be included in the basis of the property, which includes the following: Abstract fees (abstract of title fees) Charges for installing utility services Legal fees (including title search and preparation of the sales contract and deed) Recording fees Surveys Transfer taxes Owner's title insurance Any amounts the seller owes that the taxpayer agrees to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions Casualty insurance premiums, rent for occupancy of the property before closing, charges for utilities or other services related to occupancy of the property before settlement, fees for refinancing a mortgage, and points are a few of the settlement fees and closing costs that a taxpayer cannot include in the basis of property (see Publication 551, page 3). Given the information above, the taxpayer in this problem has a basis of $127,100 from the purchase of the property. This basis is the sum of the property cost ($100,000), assumption of an existing mortgage ($25,000), title search ($500), recording fees ($100), and the seller's part of the property taxes ($1,500). The points can be deducted as interest in the current year. See Publication 551, pages 2 and 3, for more information on this calculation. Publication 551, pages 2-3

Mr. Hardwood has an adjusted gross income of $50,000. In 2022, he donated capital gain property valued at $25,000 to his church and did not choose to reduce the fair market value of the property by the amount that would have been long-term capital gain if he had sold it. His basis in the property was $20,000. In addition, he made the following contributions: $500 to upgrade the city public park $1,000 to the Hill City Chamber of Commerce $5,000 to a charitable organization in Germany Compute Mr. Hardwood's deduction for charitable contributions in the current year (without regard to any carryover or carryback amounts). $25,000 $31,500 $16,500 $15,500

15500 Publication 526, page 2, provides, in part, that a taxpayer can deduct contributions of money or property that are made by the taxpayer to, or "for the use of," a qualified organization. In general, a charitable contribution is a donation or gift to, or for the use of, a qualified organization. It is voluntary and is made without getting, or expecting to get, anything of equal value. In the case of donated property, Publication 526, page 8, provides, in part, that if you contribute property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution. Publication 526, pages 15-16, further provides that a special 30% limit applies to gifts of capital gain property to 50% limit organizations. However, the special 30% limit does not apply when you choose to reduce the fair market value of the property by the amount that would have been long-term capital gain if you had sold the property. Instead, only the 50% limit applies. This special 30% limit for capital gain property is separate from the other 30% limit. Therefore, the deduction of a contribution subject to one 30% limit does not reduce the amount you can deduct for contributions subject to the other 30% limit. However, the total you deduct cannot be more than 50% of your adjusted gross income. Example Your adjusted gross income is $50,000. During the year, you gave capital gain property with a fair market value of $15,000 to a 50% limit organization. You do not choose to reduce the property's fair market value by its appreciation in value. You also gave $10,000 cash to a qualified organization that is not a 50% limit organization. The $15,000 gift of property is subject to one 30% limit and the $10,000 cash contribution is subject to the other 30% limit. The $10,000 cash contribution is fully deductible because the contribution is not more than the smaller of (i) 30% of your AGI ($15,000) and (ii) 50% of your AGI minus all contributions to a 50% organization ($25,000 - $15,000 = $10,000). The $15,000 is also fully deductible because the contribution is no more than 30% of your AGI minus all contributions to a 50% organization subject to the 60% or 50% limit ($25,000 - $10,000 = $15,000)

Ernest, a self-employed watchmaker, traveled to Germany in September 2022. During his 5-day stay in Germany, he attended a 2-hour watchmaking seminar in the city of Berlin on a Monday and took a 4-hour tour of a watch manufacturing facility in Dresden on a Wednesday. The rest of the time Ernest spent hiking and touring the countryside. Ernest incurred the following costs for this trip: Round-trip airfare of $500 Lodging of $1,000 Meals of $300 Seminar and tour registration fees of $200 In 2022, what is the amount that Ernest can deduct for travel, meals, and entertainment for this trip to Germany? $2,000 $800 $200 $0

200 Publication 463, page 7, provides that if a taxpayer travels outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. If, however, the taxpayer spends some time attending brief professional seminars or a continuing education program during his or her travels, the taxpayer can deduct registration fees and other expenses the taxpayer incurs that are directly related to his or her business. In this case, Ernest spent little time on business and as such, he is unable to claim any of his costs as business expenses, except for the seminar and tour registration fees of $200. Publication 463, page 7

Charles died and left his daughter Sue a commercial rental property. He purchased the property for $150,000 and had taken $45,000 in depreciation. The fair market value (FMV) on his death was $200,000. Six months after his death, the property was re-titled into Sue's name by the estate's representative. There was no alternative valuation done on the transfer. The FMV on that day was $210,000. Sue's basis in the property is: $210,000. $200,000. $150,000. $125,000.

200000 As provided in Publication 551, page 10, the basis of property that is received from a decedent is generally: the FMV of the property at the date of the individual's death or the FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. In this problem, the alternate valuation date was not elected; the FMV on the date of death (i.e., $200,000) becomes the rental property's basis for Sue. Publication 551, page 10

What amount is a sole proprietor obligated to report on Form 1099-NEC given the following expenses claimed on Schedule C? Incorporated law firm: $600 Web page designer: $800 ($600 labor and $200 software) Sign printer: $500 Incorporated janitorial company: $800 Consultant A: $1,000 ($400 paid in cash and $600 paid by check) Consultant B: $500 paid in cash Consultant C: $400 paid by check $2,200 $2,400 $2,600 $3,300

2400 Form 1099-MISC, Miscellaneous Income, is required for each person to whom the taxpayer has paid the following during the year (Form 1099-MISC and 1099-NEC Instructions, page 1): At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8); At least $600 in:rents (box 1);prizes and awards (see instructions for boxes 3 and 7);other income payments (box 3);generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);any fishing boat proceeds (box 5);medical and health care payments (box 6);crop insurance proceeds (box 10); payments to an attorney (box 10);Section 409A deferrals (box 12); ornonqualified deferred compensation (box 14). Note: Attorney's fees of $600 are reportable in Box 1 of Form 1099-NEC (per Instructions, page 2). However, gross proceeds in excess of $600 that are made to an attorney in the course of trade or business in connection with legal services, i.e., settlement agreement will be reported in Box 20 on Form 1099-MISC. The example above does not indicate the payments are for legal settlement, so we would have to assume it is direct legal services provided by the law firm. Pursuant to pages 7 and 8, Instructions for Form 1099-MISC and 1099-NEC, Form 1099-NEC is filed for each person in the course of your business beginning with tax year 2022 to whom you have paid the following during the year: At least $600 in: services performed by someone who is not the taxpayer's employee (including parts and materials (box 1)); cash payments for fish (or other aquatic life) the taxpayer purchases from anyone engaged in the trade or business of catching fish (box 1); or payments to an attorney (box 1). The term "attorney" includes a law firm or other provider of legal services. Attorneys' fees of $600 or more paid in the course of a taxpayer's trade or business are reportable in box 1 of Form 1099-NEC. The correct response is $2,400, which is the sum of $600 (law firm), $800 (web page designer), and $1,000 (Consultant A). Instructions for Form 1099-MISC and 1099-NEC, pages 1-2 and 7-8

During 2022, Ms. Tina paid $2,000 for state income taxes to Ohio, $1,400 in general sales tax, and $1,200 in sales tax on the purchase of a motorcycle. What amount can Ms. Tina deduct as an itemized deduction on her tax return for 2022? $1,400 $2,000 $2,600 $3,200

2600 The instructions for line 5 of Schedule A (Form 1040), pages A-3 and A-4, state that the deduction for state and local taxes is limited to $10,000 ($5,000 if married filing separately). In addition, line 5a states that a taxpayer can deduct from adjusted gross income either state and local income taxes or state and local sales tax. The taxpayer cannot deduct both in the same year. In addition, a taxpayer can deduct either his or her actual expenses (which would include the sales tax paid on specific items such as a motor vehicle, boat, etc.) or an amount figured using the Optional State and Certain Local Sales Tax Tables in the instructions for Schedule A, Form 1040. If the taxpayer uses the Optional State and Certain Local Sales Tax Tables, he or she may be able to add to the table any state and local general sales tax paid on motor vehicles, motorcycles, motor homes, RVs, SUVs, trucks, vans, and off-road vehicles. (For more information, see the instructions for line 7 of the State and Local General Sales Tax Deduction Worksheet on page A-7 of the Schedule A (Form 1040) Instructions.) Ms. Tina's itemized deductions for 2022 are $2,600, which is the sum of $1,400 (general sales tax) and $1,200 (state sales tax on motorcycle purchase). Instructions for Schedule A (Form 1040), pages A-3, A-4, and A-7

John and Joanne are the sole support of the following individuals, all U.S. citizens, none of whom lives with them. None of these individuals files a joint return or has any gross income: Jennie, John's mother Julie, Joanne's stepmother Jonathan, father of John's first wife How many individuals, excluding John and Joanne, are listed on their tax return for 2022 as dependents? 3 2 1 0

3 For 2022, a taxpayer cannot claim a personal exemption deduction for themselves, their spouse, or their dependents. However, dependents are still listed on Form 1040 in order to claim appropriate tax credits. (Publication 17, page 25) Therefore, the following rules are provided: The term "dependent" means a qualifying child or a qualifying relative. There are four tests that must be met for a person to be a qualifying relative (see Table 3-1, Publication 17, page 26): Not a qualifying child Member of the household or satisfies the relationship test Gross income test (less than $4,400 in 2022) Support test (more than half of the person's total support for the year) If a person is a qualifying relative or a qualifying child, the person must satisfy three additional tests (Publication 17, page 25) to claim an exemption for him or her: Dependent taxpayer test Joint return test Citizen or resident test The exemption and dependency rules are covered in chapter 3 of Publication 17. An exception exists to the Member of the Household rule. In particular, a person related to the taxpayer in any of the following ways does not have to live with the taxpayer for the entire year as a member of the taxpayer's household to meet this test (see Publication 17, page 33): Child, grandchild, great-grandchild, etc. (a legally adopted child is considered your child), Stepchild, foster child, Brother, sister, half-brother, half-sister, stepbrother, or stepsister, Parent, grandparent, or other direct ancestor, but not foster parent, Stepfather or stepmother, Brother or sister of the taxpayer's father or mother, Son or daughter of the taxpayer's brother or sister, or Father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law. Better yet, any of these relationships that were established by marriage are not ended by death or divorce. As a result of the new tax, John and Joanne can claim three dependents on their return because the three individuals do not need to live with the taxpayer in order to be claimed as a dependent. Publication 17, pages 25-26 and 33

In February 2022, Auto Repair, Inc. sold a car with a basis of $12,000 to Mark, its 55% shareholder, for $10,000. In June 2022, Mark sold the car to an unrelated party for $15,000. What is the amount of Mark's recognized gain? $0 $2,000 $3,000 $5,000

3000 Publication 544, pages 21 and 22, states, in part, that when a taxpayer receives property from a related party in a purchase or exchange, a loss is not allowable. Furthermore, if the taxpayer later sells or exchanges the property at a gain, the taxpayer recognizes the gain only to the extent that it is more than the loss previously disallowed to the related party. This rule applies only to the original transferee. A loss on the sale or exchange of property between related persons is not deductible. This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. Publication 544, page 21, provides 13 situations that are classified as related parties. The second illustration states that a related party is one where the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. The question's transaction is treated as a related party transaction. As a result, the $2,000 loss (sale price of $10,000 less an adjusted basis of $12,000) from the transfer of the car to Mark by the corporation is disallowed. Mark, as a result, has a basis of $10,000 (his purchase price). If Mark had sold the car for $7,000, he would have only been able to deduct his $3,000 loss. The $2,000 corporate loss would have benefited no taxpayer. Because Mark sold the car for $15,000, he realizes a gain of $5,000. However, he is allowed to reduce his gain by the loss disallowed of $2,000, so his recognized gain is equal to $3,000. Publication 544, pages 20-22

Joe has the following records of charitable contributions he made in 2022. How much can he deduct on Schedule A, Itemized Deductions? $300 check to local church but no written acknowledgment $600 by payroll deduction of $50 per month to United Way $100 fair market value of clothing donated that is in fair condition on September 1, 2022 $200 cash contribution to a local qualified charity $1,200 $900 $800 $600

600 Publication 526, page 2, provides that a taxpayer can deduct contributions of money or property that are made to, or for the use of, a qualified organization. A contribution is "for the use of" a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. With respect to contributed property to a qualified organization, a taxpayer generally can deduct the fair market value of the property at the time of the contribution. In the case of clothing and household items, a person cannot take a deduction for these items unless the item is in good used condition or better. An exception to this rule is if the taxpayer deducts more than $500 for an item and a qualified appraisal of the item is included in the return, a deduction for an item that is not in good used condition or better is deductible. (Publication 526, page 8) Another restriction on the deductibility of charitable contributions pertains to the amount contributed. In particular, a taxpayer can claim a deduction for a contribution of $250 or more only if the taxpayer has a contemporaneously written acknowledgment of the contribution from the qualified organization or if the taxpayer has certain payroll deduction records (Publication 526, page 20). In figuring whether a taxpayer's contribution is $250 or more, the taxpayer does not combine multiple contributions. For example, if a person gave $25 per week, the weekly contributions do not need to be combined. Each payment is a separate contribution. A taxpayer cannot deduct a cash contribution, regardless of the amount, unless the taxpayer keeps records to prove the amount of the contribution made during the year. The kind of record required includes a bank record (e.g., a canceled check, a bank or credit union statement, or a credit card statement), a receipt, or a payroll deduction record. (Publication 526, page 20) Given the above restrictions, Joe's charitable contributions for the year are limited to $600, which is the sum of his payroll deduction plan. The $200 cash contribution is not deductible since he has no documentation; the $300 contribution to his church is not permitted because he lacks an acknowledgment; and the

Which of the following statements regarding the annual exclusion for gift taxes in 2022 is true? A gift made by a spouse is always split between the spouses if they are married and filing jointly. A gift of a future interest cannot be excluded under the annual exclusion. The annual exclusion amount for 2022 is $15,000. None of the answer choices are correct.

A gift of a future interest cannot be excluded under the annual exclusion. Generally, the federal gift tax applies to any transfer by gift of real or personal property, whether tangible or intangible, that is made directly or indirectly, in trust, or by any other means to a donee. A gift of a present interest may be excluded, whereas gifts of a future interest cannot be excluded under the annual exclusion. A gift is considered a present interest if the donee has immediate rights to the use, possession, and enjoyment of the property or income from the property. A gift is considered a future interest if the donee's rights to the use, possession, and enjoyment of the property or income from the property will not begin until some future date. The annual exclusion for 2022 is $16,000. A married couple can elect to gift splitting, but it is not an automatic election. Instructions for Form 709, pages 1-3 and 6

Which of the following statements is correct about filing Form 8867 with a 2022 tax return concerning the paid preparer's earned income credit (EIC)? It is a tax preparer's checklist that is filed with the taxpayer's tax return. It contains a due diligence requirements section. It contains a checklist section for documents provided to the tax preparer. All of the answer choices are correct.

All of the answer choices are correct. Form 8867 is a paid preparer's (not a taxpayer's) due diligence checklist that should be completed by a tax preparer. It is required to be filed with tax returns for any taxpayer claiming the EIC, child tax credit (CTC), additional child tax credit, and American opportunity tax credit (AOTC). In addition, beginning with 2018 tax returns, this form must be filed for any taxpayer claiming Head of Household. The checklist for 2022 has six parts: The first part (Due Diligence Requirements) is applicable to all taxpayers claiming any of the four tax credits to determine whether the taxpayer satisfies the basic requirements for claiming the credit. The second part pertains to Due Diligence Questions pertaining to Returns Claiming EIC. The third part pertains to Due Diligence Questions pertaining to Returns Claiming CTC/ACTC/ODC. The fourth part pertains to Due Diligence Questions pertaining to Returns Claiming the AOTC. The fifth part pertains to Head of Household. The sixth part certifies the credit eligibility by the tax preparer. As a result, all three responses are correct. The form must be filed with the tax return and it is a tax preparer's due diligence checklist. Form 8867, pages 1-2

Which of the following statements is correct concerning a gift of property that is an inter vivos direct skip? It is a transfer that is subject to gift taxes. It is a transfer that is of an interest in property. It is a transfer that is made to a skip person. All of the answer choices are correct.

All of the answer choices are correct. The generation-skipping tax that must be reported on Form 709 is that imposed only on inter vivos direct skips. An "inter vivos direct skip" is a transfer that is: subject to gift tax, of an interest in property, and made to a skip person. All three requirements must be met before the gift is subject to the generation-skipping transfer tax. Instructions for Form 709, page 4

Brian is preparing his 2022 income tax return. He has gathered all of his records together for the current year, including a copy of the 2021 income tax return that he filed last year to assist with his preparation. While reviewing all of the forms he received for 2021 (i.e., Form W-2s and Form 1099s) he observes that his 2021 income tax return included dividends for ABC Corporation of $1,000 as reported on a 2021 Form 1099-DIV, but he does not have a 2022 Form 1099-DIV showing ABC Corporation dividends. Brian recalls that ABC Corporation has been paying an annual dividend for several years. Which of the following reasons could be why there is no Form 1099-DIV for ABC Corporation for 2022? ABC Corporation may not have paid a dividend for 2022. ABC Corporation may have paid a dividend in 2022 and the Form 1099-DIV is lost in the mail or the delivery has been delayed. Brian may have sold all of his shares in ABC Corporation in 2021 or 2022 after he was entitled to the 2021 dividend payment and before he was entitled to the 2022 dividend payment. All of the reasons listed could be why there is no Form 1099-DIV for ABC Corporation for 2022.

All of the reasons listed could be why there is no Form 1099-DIV for ABC Corporation for 2022. Publication 17, page 11, Table 1-6, lists six steps for preparing a tax return. The first two steps advise the taxpayer to get records together for income and expenses and to get the forms, schedules, and publications that are needed. These steps should be done before the income tax return is filled in. In this case, Brian has made a useful observation while preparing his income tax return for 2022 that may not have occurred if he had not reviewed his 2022 income tax return and his basic records. ABC Corporation may not have paid a dividend in 2022, may have paid a dividend but the Form 1099-DIV is missing, or Brian may have sold it before he was entitled to a dividend in 2022. All of these reasons are possible. Thus, Brian should look further into why he did not receive the Form 1099-DIV. He may need to report dividends for 2022 or a sale or exchange of ABC stock in 2022 so that he can render a complete and accurate income tax return (as noted in "What Records Should I Keep?" on page 17 of Publication 16). Publication 17, pages 11 and 16

Which of the following are due diligence requirements for a tax preparer when claiming the earned income credit (EIC) for a taxpayer on a 2022 tax return? The checklist is based on information reasonably obtained by the preparer. The preparer has complied with the knowledge requirements. The preparer keeps the checklist for his or her files. All of the responses are correct.

All of the responses are correct Form 8867 is a paid preparer's (not a taxpayer's) due diligence checklist that should be completed by a tax preparer. It is required to be filed with tax returns for any taxpayer claiming the EIC, child tax credit (CTC), additional child tax credit, and American opportunity tax credit (AOTC). In addition, beginning with 2018 tax returns, this form must be filed for any taxpayer claiming Head of Household. In addition, Part 1 of the checklist contains eight questions on the due diligence requirements for the tax preparer: The first question asks whether the tax preparer completed Form 8867 based on information provided by the taxpayer or reasonably obtained by the tax preparer. The second question asks whether the tax preparer completed the appropriate worksheets for the four tax credits or the tax preparer's own worksheet. The third question applies to satisfying the knowledge requirement. The fourth question applies to whether the information provided by the taxpayer appears to be incorrect. The fifth question asks whether the tax preparer satisfied the record retention requirement. The sixth question asks whether the taxpayer could provide documentation to substantiate eligibility for the credit amount being claimed. The seventh question asks if the tax preparer asked if any of the credits were disallowed or reduced in a previous year. The eighth question pertains to taxpayers with self-employment income and filing a Schedule C. As a result, all of the responses given for this question are correct. Form 8867, pages 1-2

Which of the following statements is correct concerning the Additional Medicare Tax? A taxpayer may be subject to a penalty for failure to make estimated tax payments if they owe Additional Medicare Tax. A taxpayer may claim a credit for any withheld Additional Medicare Tax against the total tax liability on their tax return by filing Form 8959. A nonresident alien is required to pay Additional Medicare Tax if their wages exceed the threshold amount. All of the responses are correct.

All of the responses are correct. As provided in the instructions for Form 8959, page 1, all wages that are subject to Medicare tax are subject to Additional Medicare Tax to the extent they exceed the threshold amount for a person's filing status. The threshold for a married taxpayer filing jointly is $250,000 and for all other taxpayers is $200,000. However, the rules further state that employers must withhold Additional Medicare Tax on wages it pays to their employee in excess of $200,000 for the calendar year, regardless of the employee's filing status and regardless of wages or compensation paid by another employer. As a result, an employee who has wages between $200,000 and $250,000 has Additional Medicare Tax withheld from their wages even though they are not subject to this tax if they file married jointly with their spouse who does not have any wages in that year. In this case, the taxpayer may claim a credit for any withheld Additional Medicare Tax against the total tax liability on their tax return by filing Form 8959. Second, a taxpayer may be subject to a penalty for failure to make estimated tax payments if they owe Additional Medicare Tax and wait to pay the tax with their tax return. (Form 8959, page 2) Third, a nonresident alien or a U.S. citizen living abroad is required to pay Additional Medicare Tax on Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that exceed the threshold amount for the person's filing status. There are no special rules for nonresident aliens and U.S. citizens living abroad. Instructions for Form 8959, pages 1-2

Which of the following statements is correct concerning the ABLE account? Distributions to pay for qualified disability expenses are not included in gross income. The earnings portion of a distribution in excess of qualified disability is included in gross income. Any distribution amount included in taxable income from an ABLE account is assessed an additional tax of 10%. All of the responses are correct.

All of the responses are correct. Publication 907, pages 7-9, provides the general rules for the taxing of distributions from ABLE accounts. In general, a person can take distributions from their ABLE account to pay for any qualified disability expenses such as expenses for maintaining or improving their health, independence, or quality of life. Qualified disability expenses include those for education; housing; transportation; employment training and support; assistive technology; personal support services; health, prevention and wellness; financial management; administrative services; legal fees; expenses for oversight and monitoring; and funeral and burial. If distributions from a person's ABLE account during a year are not more than their qualified disability expenses for that year, no amount is taxable for that year. If the total amount distributed during a year is more than their qualified disability expenses for that year, the earnings portion of the distribution is included in their income for that year. The includible portion is calculated as follows: (Qualified portion of distribution ÷ Total distribution) × Earnings portion of distribution = Nontaxable earnings amount In addition, the tax on any distribution included in a person's taxable income is increased by 10%. This tax is figured on Form 5329, Part II, and is filed even if the taxpayer is not otherwise required to file a federal income tax return. Publication 907, pages 7-9

Under which of the following conditions may the substantial understatement of income tax penalty be assessed a taxpayer whose earned income tax credit is disallowed? A taxpayer whose understatement is greater than 10% of the correct tax and the amount owed is less than $5,000 A taxpayer whose understatement is greater than 10% of the correct tax and the amount owed is greater than $5,000 A taxpayer whose understatement is less than 10% of the correct tax but the amount owed is greater than $5,000 All of the taxpayers listed would be subject to the substantial understatement of income tax penalty.

All of the taxpayers listed would be subject to the substantial understatement of income tax penalty. The substantial understatement of income tax penalty may be assessed a taxpayer if the tax shown on their tax return is less than the correct tax. In particular, the understatement is substantial if it is more than the larger of: 10% of the correct tax or $5,000. This amount of the understatement may be reduced to the extent the understatement is due to (1) substantial authority or (2) adequate disclosure and a reasonable basis. Publication 17, page 20

Jerry has two dependent children, Greg and Mandy, who are attending an accredited, qualified college in 2022. Greg is a senior who spent $7,000 for tuition and fees. Mandy, a freshman with no prior postsecondary education, had tuition expenses of $5,000 and transportation expenses of $400. Jerry meets all the income and filing status requirements for the education credits. Which of the following statements is correct for 2022? Jerry cannot claim the American Opportunity Credit on the room and board expenses of Mandy. Jerry can claim the American Opportunity Credit on the educational cost of Greg. Jerry cannot claim the American Opportunity Credit on the transportation expenses of Mandy. All of these statements are correct.

All of these statements are correct. Taxpayers are able to claim an American Opportunity Credit if the taxpayers can satisfy all three of the following requirements (Publication 970, pages 11-12): the taxpayer pays qualified education expenses of higher education, the taxpayer pays the qualified education expenses for an eligible student, and the eligible student is the taxpayer, the taxpayer's spouse, or a dependent for which the taxpayer claims an exemption on his or her tax return. The American Opportunity Credit is available for qualified education expenses, which include tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Qualified education expenses do not include amounts paid for insurance, medical expenses, room and board, and transportation, to name a few items. (Publication 970, pages 13 and 17) As a result, all the responses given in this problem are correct. Publication 970, pages 11-17

Which of the following expenses are deductible on Form 1040, Schedule A, Itemized Deductions? Investment fees and expenses Hobby expenses Amortizable premium on taxable bonds Trustee's administrative fees for IRAs

Amortizable premium on taxable bonds Beginning in 2018, certain miscellaneous deductions have been suspended. Two categories of miscellaneous expenses that have been suspended are: miscellaneous itemized deductions subject to the 2% AGI floor and those expenses that are traditionally nondeductible under the Internal Revenue Code. Suspended miscellaneous itemized deductions include: Unreimbursed employee expenses (exceptions apply) Appraisal fees Investment fees and expenses Casualty and theft losses Depreciation on home computer Fees to collect interest and dividends Hobby expenses Indirect Deductions of Pass-through Entities Legal expenses. Items that are not subject to the 2% of AGI limit are still deductible as miscellaneous itemized deductions. These items are reported on Schedule A (Form 1040 and 1040-SR) and include items such as: Amortizable premium on taxable bonds Federal estate tax on income in respect of a decedent Unlawful discrimination claims Gambling losses up to the amount of gambling winnings Hence, the correct response is the amortizable premium on a taxable bond, which is an itemized deduction that appears on line 16 of Schedule A. Publication 529, pages 9 through 11, provides a list of other items that are deductible as a miscellaneous deduction. Publication 17, page 98 Publication 529, pages 2-5 and 9-11

Which of the following amounts may be converted directly to a Roth IRA, provided all requirements are met? Amounts in a SIMPLE IRA, with the 2-year participation period having been met Amounts in a traditional IRA inherited from a person other than a spouse Hardship distribution from a 401(k) plan Required minimum distributions from a traditional IRA

Amounts in a SIMPLE IRA, with the 2-year participation period having been met The general rules for an eligible rollover distribution are found in Publication 590-A, pages 24 and 25. An eligible rollover distribution is any distribution of all or any part of the balance to the taxpayer's credit in a qualified retirement plan except: a required minimum distribution, hardship distributions, any of a series of substantially equal distributions paid at least once a year over the taxpayer's lifetime or life expectancy, the joint lives or life expectancies of the taxpayer and beneficiary, or a period of 10 years or more, corrective distributions of excess contributions or excess deferrals, a loan treated as a distribution, dividends on employer securities, and the cost of life insurance coverage. In addition to the above exclusions, Publication 590-A, page 20, states that if a taxpayer inherits a traditional IRA from anyone other than the taxpayer's deceased spouse, the taxpayer cannot treat the inherited IRA as his or her own. This means that the taxpayer cannot make contributions to or roll over any amounts into or out of the inherited IRA. However, the taxpayer can make a trustee-to-trustee transfer to another IRA as long as the new IRA is maintained in the name of the deceased owner for the benefit of the beneficiary. Finally, a person is permitted to convert an amount in his or her SIMPLE IRA to a Roth IRA under the same rules that apply for converting from any traditional IRA to a Roth IRA with one exception. That is, a taxpayer cannot convert any amount distributed from the SIMPLE IRA during the 2-year period beginning on the date the taxpayer first participated in any SIMPLE IRA plan maintained by his or her employer. (See Publication 17, page 88.) The correct response for this question, therefore, is that amounts can be converted to a Roth IRA from a SIMPLE IRA where the 2-year participation period has been satisfied. Publication 590-A, pages 20 and 24-25 Publication 17, page 88

Joyce and Arron are married and file a joint tax return in 2022. The couple have a son (age 24) who lives with them because he is totally disabled. The couple wish to establish an ABLE account on behalf of their son. Which of the following statements is correct concerning their ability to establish an ABLE account on behalf of their son in 2022? The maximum contribution the couple can make to the ABLE account is $30,000 ($15,000 each). An ABLE account can be established for the son because he is disabled. Contributions to an ABLE account are tax deductible for the person making the contribution. All of the responses are correct.

An ABLE account can be established for the son because he is disabled. As provided on pages 7-8 of Publication 907, contributions to an ABLE account are not tax deductible and must be in cash equivalents. Anyone, including the designated beneficiary, can contribute to an ABLE account. In addition, a person may establish an ABLE account if their blindness or disability occurred before age 26. As a disabled individual, a person may be eligible if either of the following applies: The person is entitled to benefits based on blindness or disability under Title II or XVI of the Social Security Act, or The person files a disability certification with their qualified ABLE program, including their diagnosis relating to their relevant impairment or impairments signed by a physician (as defined in section 1861(r) of the Social Security Act). In addition, the person must certify one of the following:The person has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, which can be expected to result in death or lasted or can be expected to last for a continuous period of not less than 12 months; orThe person is blind (within the meaning of section 1614(a)(2) of the Social Security Act). The total annual contributions to an ABLE account (including those rolled over from a Section 529 account, but not other amounts received in rollovers and/or program-to-program transfers) are limited to the annual gift tax exclusion amount ($16,000 for 2022, not $16,000 per person), plus certain employed ABLE account beneficiaries may make an additional contribution up to the lesser of these amount: the designated beneficiary's compensation for the tax year, or the poverty the continental United States of $12,880, $14,820 in Hawaii, and $16,090 in Alaska. (Publication 907, page 8) Therefore, the only correct response is an ABLE account can be established for the couple's son because he is disabled. Publication 907, pages 7-8

Which of the following cannot claim the premium tax credit? An individual whose spouse is enrolled in a qualified health plan An individual who inherited a $1.5 million non-income-producing vacation home An individual whose household income increases to 390% of the federal poverty line An individual who becomes eligible as a dependent on their parent's joint tax return

An individual who becomes eligible as a dependent on their parent's joint tax return Publication 974, page 4, addresses the issue of who can take the premium tax credit (PTC). A person can take the PTC for 2022 if they meet the conditions under (1) and (2): For at least one month of the year, all of the following were true:An individual in the person's tax family was enrolled in a qualified health plan offered through the Health Insurance Marketplace on the first day of the month.That individual was not eligible for minimum essential coverage for the month, other than coverage in the individual market. An individual is generally considered eligible for minimum essential coverage for the month only if he or she was eligible for every day of the month. (See "Minimum Essential Coverage" on page 8 of Publication 974.)The portion of the enrollment premiums for the month for which the individual is responsible was paid by the due date of their tax return (not including extensions). However, if the individual became eligible for the advanced premium tax credit (APTC) because of a successful eligibility appeal, see "Enrollment premiums" on page 6 of Publication 974 for the date by which the individual's portion of the enrollment premiums must be paid. The individual is an applicable taxpayer for 2022, which means they must meet all of the following requirements:The individual's household income for 2022 is at least 100% but no more than 400% of the federal poverty line for their family size (see "Line 4" in the Form 8962 Instructions). However, having household income below 100% of the federal poverty line will not disqualify the individual from taking the PTC if they meet certain requirements described under "Household income below 100% of the federal poverty line" under "Line 6" in the Form 8962 Instructions, page 8.No one can claim the individual as a dependent on a tax return for 2022.If the individual was married at the end of 2022, generally they must file a joint return. However, filing a separate return from the individual's spouse will not disqualify the individual from being an applicable taxpayer if they meet certain requirements described under "Married taxpayers," which is covered in Publication 974, pa

How are taxable disability payments reported? As pension income both before and after reaching the minimum retirement age As nontaxable income before and pension income after reaching the minimum retirement age As wages before and pension income after reaching the minimum retirement age As wages both before and after reaching the minimum retirement age

As wages before and pension income after reaching the minimum retirement age Publication 17, page 51, states that if a taxpayer retired on disability, then the taxpayer must include in income any disability pension received under a plan that is paid for by the employer. Moreover, the taxpayer must report the taxable disability payments as wages, until the taxpayer reaches minimum retirement age. Minimum retirement age generally is the age at which the taxpayer can first receive a pension or annuity if the taxpayer is not disabled. Beginning on the day after the taxpayer reaches minimum retirement age, payments received by the taxpayer are taxable as a pension or annuity. For information concerning the reporting of pension income, refer to Publication 575. Publication 17, page 51

What action should a taxpayer take if she gets married in October but made estimated tax payments during the year under her maiden name? Attach a statement to the front of the tax return File amended estimated tax forms File any remaining estimated tax forms under her maiden name No action is necessary.

Attach a statement to the front of the tax return Pursuant to Form 1040-ES, page 3, if a taxpayer changes his or her name because of marriage, divorce, etc. and they made estimated tax payments using their former name, the taxpayer should attach a statement to the front of the form. On the form, the following information should be given: all of the estimated tax payments the taxpayer (and the taxpayer's spouse, if filing jointly) made for the current tax year and the name(s) and SSN(s) under which the taxpayer made the payments. In addition, the taxpayer should be advised to report the change, if they have not already, to their local Social Security Administration office before filing the tax return to prevent delays in processing the tax return. Hence, the correct response for this question is to attach a statement to the front of the tax return. Form 1040-ES, page 3

When must Form 706-GS(T) be filed by a trustee for a trust that has a taxable termination? By the 15th day of the 4th month following the date of termination By April 15 of the year following the calendar year of termination By September 15 of the year following the calendar year of termination By December 31 of the year following the calendar year of termination

By April 15 of the year following the calendar year of termination In general, the trustee of any trust that has a taxable termination must file Form 706-GS(T) for the tax year in which the termination occurred. Pursuant to Form 706-GS(T) Instructions, page 1, the trustee must file Form 706-GS(T) by April 15 of the year following the calendar year of termination. However, if the due date falls on a Saturday, Sunday, or legal holiday, the filing is due on the next business day. Instructions for Form 706-GS(T), page 1

Dave, age 40, had a traditional IRA with a $40,000 balance at the beginning of 2022. All of Dave's contributions have been tax-deductible. On July 1, 2022, Dave withdraws $20,000 from the IRA account. Which of the following would be a correct statement regarding the effects of this transaction? Dave would not have to include the $20,000 in income if it is returned to the IRA within 90 days from the day of withdrawal. Dave would be required to include $20,000 in income as a distribution in 2022. Dave would be required to include $40,000 in income as a distribution in 2022. Dave would not have to include the $20,000 in income if it were used for qualified higher education expenses.

Dave would be required to include $20,000 in income as a distribution in 2022. Pursuant to Publication 590-B, page 14, distributions from a traditional IRA generally are taxable in the year the taxpayer receives them. Exceptions to distributions from traditional IRAs being taxable in the year the taxpayer receives them are: rollovers (i.e., 60 days), qualified charitable distributions, tax-free withdrawals of contributions, and the return of nondeductible contributions. As a result, Dave would be required to include $20,000 in income as a distribution in 2022. Publication 590-B, page 14

There are five tests that must be met for you to claim a qualifying relative as a dependent. Which of the following is not a requirement? Citizen or resident test Member of household or relationship test Disability test Joint return test

Disability test A taxpayer can claim one dependent for each person that satisfies the qualifying child or qualifying relative tests. (Publication 17, page 26) There are four basic tests that must be met for a person to be a qualifying relative (see pages 33 through 36 and Table 3-1 on page 26 of Publication 17): Not a qualifying child Member of the household or satisfies the relationship test Gross income test (less than $4,400 in 2022) Support test (more than half of the person's total support for the year) If a person satisfies the above four tests under qualifying relative, he or she still must satisfy three additional tests (Publication 17, page 27): Dependent taxpayer test Joint return test Citizen or resident test The dependency rules are covered in chapter 3 of Publication 17. The disability test is not one of the tests that must be met by a taxpayer to claim a qualifying relative as a dependent. Publication 17, pages 26-27 and 32-35

In which situation would local transportation expenses not be deductible? From the regular or main job to the second job From the regular or main job to a temporary work location From the second job to a temporary work location From home (residence) to the second job on your day off from your main job

From home (residence) to the second job on your day off from your main job Publication 463, page 13, states that there are some expenses that a taxpayer can deduct for business transportation when not traveling away from home. These expenses include the cost of transportation by air, rail, bus, taxi, etc., and the cost of driving and maintaining the taxpayer's car. When the taxpayer has two places of work, transportation expenses they have in going between home and part-time job on a day off from the main job are commuting expenses. For more examples, please refer to pages 13-14 of Publication 463. Publication 463, pages 13-14

George and Helen are husband and wife. During 2022, George gave $40,000 to his brother and Helen gave $32,000 to her niece. George and Helen both agree to split the gifts they made during the year. What is the taxable amount of gifts, after the annual exclusion, each must report on Form 709? George and Helen each have taxable gifts of $20,000. George has a taxable gift of $23,000 and Helen has a taxable gift of $16,000. George and Helen each have taxable gifts of $4,000. George has a taxable gift of $8,000 and Helen has a taxable gift of zero.

George and Helen each have taxable gifts of $4,000. Generally, the federal gift tax applies to any transfer by gift of real or personal property, whether tangible or intangible, that is made directly or indirectly, in trust, or by any other means to a donee. An exclusion is allowed for a gift of a present interest. The annual exclusion is $16,000 for 2022. Additionally, married couples may not file a joint gift tax return, but IRC Section 2513 does permit spouses to split gifts. If both spouses agree, all gifts during the calendar year will be considered as made one-half by each spouse. As such, George and Helen have a taxable gift of $8,000 that is split between them. The taxable gift amount is computed as follows: George's brother $40,000 Helen's niece 32,000 Gross gifts $72,000 Exclusions 64,000 (($16,000 x 2) + ($16,000 x 2)) Taxable gifts $ 8,000 ($4,000 to each) Instructions for Form 709, pages 2 and 6 IRC Section 2513 error_outline

A self-employed consultant has a business history of net profits and net losses as follows: 2018 $(400) 2019 800 2020 200 2021 (500) In 2022, he would like to pay self-employment tax even though he incurred a loss of $(2,200). Which of the following statements is correct? He can use either the optional self-employment tax computation or the regular tax method. He qualifies for the optional self-employment tax computation because he has been in business for 5 years or less. He does not qualify for the optional self-employment tax computation. He qualifies for the optional self-employment tax computation because he had positive net earnings in at least 2 of the 3 years.

He does not qualify for the optional self-employment tax computation. Publication 334, page 40, provides that a self-employed taxpayer must pay self-employment (SE) tax and file Schedule SE (Form 1040) if the taxpayer's net earnings from self-employment were $400 or more. In addition to the regular method for computing a person's SE tax, a person may want to use the optional method (see Publication 334, page 42, and Schedule SE (Form 1040) Instructions) when he or she has a loss or a small net profit and the taxpayer: wants to receive credit for Social Security benefit coverage, incurred child or dependent care expenses and could claim a credit, is entitled to the earned income credit, or is entitled to the additional child tax credit. To qualify for use of the nonfarm optional method as given in Publication 334, page 42, the taxpayer must satisfy all of the following tests: The taxpayer is self-employed on a regular basis. This means that actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the current taxable year for which this method is being elected. The net earnings can be from either farm or nonfarm earnings or both, and The taxpayer has used this method less than 5 years. (There is a 5-year lifetime limit.) The years do not have to be one after another, and The taxpayer's net nonfarm profits were less than $5,891, and less than 72.189% of the taxpayer's gross nonfarm income. The facts given in this problem do not satisfy the first test of $400 in at least 2 of the 3 years. Therefore, the taxpayer does not qualify for the optional self-employment tax computation. Publication 334, pages 40-42 Instructions for Schedule SE (Form 1040)

John is an unmarried dependent child; he earns $4,200 wages during the summer, has no tips, has $200 in interest/dividends, and has no income tax withheld. Which of the following statements is correct with respect to him being required to file a tax return for 2022? He is not required to file a tax return. He is required to file a tax return because his earned income exceeded the minimum amount. He is required to file a tax return because his unearned income exceeded the minimum amount. He is required to file a tax return because his total income exceeded the minimum amount.

He is not required to file a tax return. Publication 17, page 8, Table 1-2, states that a single dependent that is not age 65 or older or blind is required to file a tax return if any of the following apply: His or her unearned income was more than $1,150. His or her earned income was more than $12,950. His or her gross income was more than the larger of:$1,150 orhis or her earned income (up to $12,550) plus $400. John is not required to file a tax return for 2022 because he is an unmarried dependent child with earned income ($4,200) that does not exceed $12,950 and unearned income ($200) that does not exceed $1,150. Publication 17, page 8

The tax law gives special treatment to certain types of income and allows special deductions and credits for certain types of expenses. Taxpayers who benefit from the law in these ways may have to calculate the alternative minimum tax (AMT). A review of Jamie's past 5 years of tax returns shows he paid AMT for 2021 and had a minimum tax credit carryforward to 2022. Which of the following statements is applicable to Jamie for his 2022 tax return? He may be eligible to take a credit for the prior-year minimum tax. He may be eligible to take a refundable credit for the prior-year minimum tax. He may be eligible to take both a refundable and nonrefundable credit for the prior-year minimum tax. He is not eligible to take a credit for the prior-year minimum tax.

He may be eligible to take a credit for the prior-year minimum tax. Publication 17, page 104, states, in part, that the tax law gives special treatment to some kinds of income and allows special deductions and credits for some kinds of expenses. Taxpayers who benefit from the law in these ways may have to pay at least a minimum amount of tax through an additional tax (not a tax credit). This additional tax is called the alternative minimum tax (AMT). The special treatment of some items of income and expenses only allows taxpayers to postpone paying tax until a later year. If in prior years the taxpayer paid alternative minimum tax because of these tax postponement items, they may be able to take a credit for prior-year minimum tax against their current year's regular tax. The taxpayer may be able to take a credit against their regular tax if for 2022 they had: an alternative minimum tax liability and adjustments or preferences other than exclusion items, a minimum tax credit that they are carrying forward to 2022, or an unallowed qualified electric vehicle credit. In this case, Jamie may be eligible to claim a nonrefundable credit. Publication 17, page 104 Instructions for Form 8801

Which of the following statements is correct if a taxpayer files his 2022 Form 1040 by January 31, 2023, and pays the balance due with the return? He will not receive an underpayment of estimated tax penalty for the 4th-quarter estimated tax payment that was due on January 15, 2023. He may receive an underpayment of estimated tax penalty for the 4th-quarter estimated tax payment that was due on January 15, 2023. He is required to make the estimated tax payment that is due on January 15, 2023. None of the answer choices are correct.

He will not receive an underpayment of estimated tax penalty for the 4th-quarter estimated tax payment that was due on January 15, 2023. Publication 17, page 41, provides a special rule for the January estimated tax payment. Specifically, if a taxpayer files his or her Form 1040 or Form 1040-SR by January 31 of the year the tax return is due and pays the rest of the tax owed, the taxpayer does not need to make the payment due on January 15, 2023. IRC Section 6654(h) Publication 17, page 41

Holly and Harp Oaks were divorced in 2021. The divorce decree was silent regarding the exemption for their 12-year-old daughter, June, as a dependent on their 2022 tax return. Holly has legal custody of her daughter and did not sign a statement releasing the exemption. Holly earned $8,000 and Harp earned $80,000. June had a paper route and earned $3,000. June lived with Harp 4 months of the year and with Holly 8 months. Who may claim June as a dependent in 2022? June may, since she had gross income over $3,000 and files her own return. Since June lived with both Holly and Harp during the year, they both may claim her as a dependent. Holly may, since she has legal custody and physical custody for more than half the year. Harp may, since he earned more than Holly and, therefore, is presumed to have provided more than 50% of June's support.

Holly may, since she has legal custody and physical custody for more than half the year. Publication 17, pages 28-29, states, in part, that a child will be treated as the qualifying child of his or her custodial parent. However, the child will be treated as the qualifying child of the noncustodial parent if all of the following apply: The parents:are divorced or legally separated under a decree of divorce or separate maintenance,are separated under a written separation agreement, orlived apart at all times during the last 6 months of the year. The child received over half of his or her support for the year from the parents. The child is in the custody of one or both parents for more than half of the year. The custodial parent signs a written declaration that he or she will not claim the child as a dependent for the year and the noncustodial parent attaches the waiver to his or her return for pre-2009 divorce decrees or separations; or in the case of a post-2008 divorce decree or separation, the noncustodial parent must attach Form 8332 if the decree or agreement went into effect after 2008. Form 8332 or a similar statement is signed by the custodial parent and is a release of the claim to the exemption. As a result of the general rule, Holly may claim June as a dependent because she had legal custody and physical custody for more than half of the year, and she did not provide Form 8332 or similar documentation to Harp releasing her claim to the exemption. Publication 17, pages 28-29

Which of the following statements is correct with respect to property received as a gift that has a basis greater than its fair market value? If it is sold for less than the fair market value, the fair market value at the date of the gift becomes the basis for computing the loss. If it is sold for less than the adjusted basis but more than the fair market value, the adjusted basis becomes the basis for computing the loss. If it is sold for more than the fair market value but less than the adjusted basis, the fair market value becomes the basis for computing the gain. None of the statements are correct.

If it is sold for less than the fair market value, the fair market value at the date of the gift becomes the basis for computing the loss. In order to calculate the basis of property received as a gift, the adjusted basis of the donor just before it was given, the fair market value at the time of the gift, and any gift tax paid must be known. If the gift received has an adjusted basis that is greater than the fair market value at the time of the gift, the basis of the gifted property is contingent on how the asset is sold, at a loss or at a gain. The basis, when there is a gain, is the same as the donor's basis plus or minus any required basis adjustments. The basis, when a loss occurs, is the fair market value of the property on the date of gift, plus or minus any required basis adjustments. Publication 551, page 9

Which of the following statements concerning the alternate valuation election is correct for 2022? The alternate valuation election may be made even if no estate tax will be paid if the election is not made. If the alternate valuation election is made, it is possible for some but not all of the assets to be included in the decedent's estate at a higher FMV than on the date of death. If the alternate valuation election is made, assets that are disposed of within 6 months of the decedent's death are generally valued on the date of death. None of the statements are correct.

If the alternate valuation election is made, it is possible for some but not all of the assets to be included in the decedent's estate at a higher FMV than on the date of death. Unless the election to adopt an alternate valuation is made at the time the return is filed, the value of all property included in the gross estate will be the value on the date of the decedent's death. Alternate valuation cannot be applied to only a part of the property. The election for alternate valuation may not be made unless the election will decrease both the value of the gross estate and the total net estate and GST (generation-skipping transfer) taxes due after application of all allowable credits. Once made, the election may not be revoked. Additionally, if the alternate valuation method is used, the value of the property that is included in the gross estate must be in agreement with the following applicable dates: any property distributed, sold, exchanged, or otherwise disposed of or separated or passed from the gross estate by any method within 6 months after the decedent's death is valued on the date of distribution, sale, exchange, or other disposition, any property not distributed, sold, exchanged, or otherwise disposed of within the 6-month period is valued on the date 6 months after the date of the decedent's death, and any property, interest, or estate that is "affected by mere lapse of time" is valued as of the date of decedent's death or on the date of its distribution, sale, exchange, or other disposition, whichever occurs first. Therefore, if the alternate valuation election is made, it is possible for some but not all of the assets to be included in the decedent's estate at a higher FMV than on the date of death. The key issue is that the election for alternate valuation may not be made unless the election will decrease both the value of the gross estate and the total net estate and GST taxes. If all the assets increased in value, the key rule would be violated. Instructions for Form 706, pages 10-11

Ted is an ordained minister. He owns his own home and receives a housing allowance. Which of the following statements is correct? If the housing allowance is less than the fair rental value of the home, Ted must include the housing allowance as income for self-employment tax and may exclude it for income tax. If the housing allowance is less than the fair rental value of the home, Ted must include the housing allowance as income for income tax and self-employment tax. If the housing allowance is less than the fair rental value of the home, Ted must include the housing allowance as income for income tax and may exclude it for self-employment tax. If the housing allowance is less than the fair rental value of the home, Ted may exclude the housing allowance as income for self-employment tax and income tax.

If the housing allowance is less than the fair rental value of the home, Ted must include the housing allowance as income for self-employment tax and may exclude it for income tax Ministerial services, in general, are the services a taxpayer performs in the exercise of their ministry, in the exercise of their duties as required by their religious order, or in the exercise of their profession as a Christian Science practitioner or reader. Income the taxpayer receives for performing ministerial services is subject to self-employment tax unless the taxpayer has an exemption (as explained later). Even if the taxpayer has an exemption, only the income the taxpayer receives for performing ministerial services is exempt. The exemption does not apply to any other income. (Publication 517, page 4) Publication 517, page 9, goes on to provide that if the taxpayer owns his or her home and they receive as part of their salary a housing or rental allowance (including an amount to pay utility costs), the taxpayer may exclude from their gross income the smallest of: the amount actually used to provide a home; the amount officially designated as a rental allowance; or the fair rental value of the home, including furnishings, utilities, garage, etc. In addition, the amount excluded cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. Example Rev. Joanna Baker is a full-time minister. The church allows her to use a parsonage that has an annual fair rental value of $24,000. The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. Her actual utility costs during the year were $7,000. For income tax purposes, Rev. Baker excludes $31,000 from gross income ($24,000 for fair rental value of the parsonage plus $7,000 from the allowance for utility costs). She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). Her income for self-employment tax purposes, however, is $91,000 ($67,000 salary plus $24,000 fair rental value of the parsonage). Therefore, Ted as an ordained minister who is receiving a housing allowance that is less than the fair rental value may exclude the allowance from income for income tax purposes, b

Which of the following statements is not correct concerning the filing of an amended tax return? Form 1040-X is used to file an amended tax return. An amended return can be filed within 3 years after the date of filing the original return. If the last day for filing falls on a weekend, the return must be filed by the Friday preceding the weekend. All of the statements are correct.

If the last day for filing falls on a weekend, the return must be filed by the Friday preceding the weekend. With respect to filing an amended tax return, Publication 17, pages 17-18, provides that a taxpayer should file an amended tax return (Form 1040-X) if they did not report some income, claimed deductions or credits that should have been claimed, claimed deductions or credits that should not have been claimed, or claimed a different filing status. In addition, a person must file their claim within 3 years after the date the original return was filed or within 2 years after the date the taxes were paid, whichever is later. Also, if the last day for claiming a credit or refund is a Saturday, Sunday, or legal holiday, the taxpayer can file the claim on the next business day. (Publication 17, pages 17-18) Publication 17, pages 17-18

Which of the following items is not an adjustment or tax preference item for computing alternative minimum tax? Subtraction of any refund of state and local taxes Standard deduction Interest income Itemized deduction for state and local taxes

Interest income Publication 17, page 104, provides a list of the more common adjustments and tax preference items in computing the alternative minimum tax (AMT). The list includes: addition of the standard deduction (if claimed), addition of itemized deductions claimed for state and local taxes, certain interest, most miscellaneous deductions, and part of medical expenses, subtraction of any refund of state and local taxes included in gross income, changes to accelerated depreciation of certain property, difference between gain and loss on the sale of property reported for regular tax purposes and AMT purposes, addition of certain income from incentive stock options, change in certain passive activity loss deductions, addition of certain depletion that is more than the adjusted basis of the property, addition of part of the deduction for certain intangible drilling costs, and addition of tax-exempt interest on certain private activity bonds. Additional information about the alternative minimum tax can be found in the instructions for Form 6251, Alternative Minimum Tax—Individuals. Given the information above, interest income is not a tax preference item or adjustment to taxable income for AMT purposes. Publication 17, page 104

Which of the following is true regarding the filing of Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return? Filing Form 4868 provides an automatic 2-month extension of time to file and pay income tax. Any U.S. citizen who is out of the country on April 18, 2023, is allowed an automatic 6-month extension of time to file his/her 2022 return and pay any federal income tax due. Interest is charged on tax not paid by the due date of the return even if an extension is obtained. Electronic filing cannot be used to get an extension of time to file.

Interest is charged on tax not paid by the due date of the return even if an extension is obtained. According to Publication 17, page 10, an automatic 6-month (not 2-month) extension can be obtained by filing Form 4868 in paper form or e-filing. Form 4868 can be filed using e-filing up through April 15 by providing certain information from the prior year's tax form. A taxpayer can get an extension by paying part or all of their estimate of tax due by using a credit or debit card or by direct transfer from their bank account. A taxpayer can do this by phone or over the Internet. Under this method, a taxpayer does not file Form 4868. If an extension is obtained by the taxpayer, the return that was due on April 15, 2023, is now due on October 15, 2023. However, if the taxpayer does not pay the tax due by the regular due date (generally, April 15), the taxpayer will owe interest and may also be charged penalties. Publication 17, page 10

Jennifer expects to owe $1,500 in tax for 2023. Her tax liability for 2022 was $0. Which of the following statements is correct concerning Jennifer's requirement to pay estimated tax for 2023? Jennifer is required to pay estimated tax for 2023. Jennifer should pay estimated taxes for 2023. Jennifer is not required to pay estimated tax for 2023. There is insufficient information to respond to the question.

Jennifer is not required to pay estimated tax for 2023. Publication 17 (pages 39 and 40) provides the general rule regarding when a taxpayer is not required to pay estimated taxes for the coming year. In general, a taxpayer must satisfy all three of the following conditions to be excluded from paying estimated tax for 2023: the taxpayer had no tax liability for 2022, the taxpayer was a U.S. citizen or resident for the whole year, and the taxpayer's 2022 tax year covered a 12-month period. In this case, the first exception applies (i.e., no tax liability in 2022), and one must assume that the second and third exceptions apply. Publication 17, pages 39-40

Maria has a traditional IRA, from which she has taken a taxable distribution of $8,000. Under which of the following circumstances will the distribution be subject to the 10% penalty for premature distributions? Maria's AGI is $30,000, and she had $13,000 in unreimbursed deductible medical expenses which exceed 10% of her adjusted gross income. Maria's granddaughter is a sophomore in college, and Maria paid her tuition expenses of $10,000. Maria is age 57, the distribution is not part of a series of equal periodic payments, and she has no qualifying expenses or conditions. The distribution was made pursuant to an IRS levy on Maria's IRA.

Maria is age 57, the distribution is not part of a series of equal periodic payments, and she has no qualifying expenses or conditions. Pursuant to Publication 590-B, page 25, distributions before the taxpayer is age 59-1/2 are called early distributions. Most early distributions from a traditional IRA result in a 10% additional tax on the distribution of any assets (money or other property). There are several exceptions to the age 59-1/2, which means some early distributions are not subject to the 10% additional tax. A list of these exceptions is given below and can be found in Publication 590-B, beginning on page 25: The taxpayer has unreimbursed medical expenses that are more than 7.5% of the taxpayer's AGI. The distributions are not more than the cost of the taxpayer's medical insurance due to a period of unemployment. The taxpayer is totally and permanently disabled. The person is the beneficiary of a deceased IRA owner. The taxpayer is receiving distributions in the form of an annuity. The distributions are not more than the taxpayer's qualified higher education expenses. The taxpayer uses the distributions to buy, build, or rebuild a first home. The distribution is due to an IRS levy of the qualified plan. The distribution is a qualified reservist distribution. In Maria's case, she cannot avoid the excise tax penalty because she is age 57 (under age 59-1/2), the distribution is not a series of equal periodic payments, and she has no qualifying expenses or conditions. Publication 590-B, pages 25-27

Lisa was married with two dependent children in 2022. Her husband died in April and she did not remarry before the end of 2022. Which filing status should Lisa use for her tax return in 2022? Single Married filing jointly Head of household Qualifying surviving spouse

Married filing jointly Publication 17, page 21, states, in part, that a taxpayer is considered married for the whole year if, on the last day of the taxpayer's tax year, the taxpayer and the taxpayer's spouse meet any one of the following tests: married and living together, living together in a common-law marriage that is recognized in the state where the taxpayer now lives or in the state where the common-law marriage began, married and living apart, but not legally separated under a decree of divorce or separate maintenance, or separated under an interlocutory (not final) decree of divorce. In the case where a spouse died during the year, the taxpayer is considered married for the whole year for filing status purposes. Hence, Lisa is able to file as married filing jointly since her husband died during the current tax year. It should be noted that although Lisa may qualify under another filing status, married filing jointly is the most favorable tax filing status. Hence, Lisa should elect it, and that is the question here. Publication 17, page 21

An individual taxpayer has capital gain distributions only, and no other capital gains. Which of the following satisfies the reporting requirements? All capital gain distributions must be entered on Schedule B. No Schedule D is required and the amount is entered directly on Form 1040. Dividends and capital gains distributions are totaled on Schedule B and carried to the front page of Form 1040. If there are no other capital gains, capital gain distributions must be combined with interest on the Schedule B.

No Schedule D is required and the amount is entered directly on Form 1040. If a taxpayer does not have any capital losses and only receives capital gain distributions, they are not required to complete and file a Form 8949 and/or Schedule D (Form 1040 or 1040-SR) if both of the following are true (per "Exception 1" on pages 64 and 65 of Publication 550): The amounts that would be reported on Schedule D would be the capital gain distributions from box 2a of Form 1099-DIV. The 1099-DIV received does not include any amounts in boxes 2b, 2c, or 2d of any Form 1099-DIV. Publication 550, pages 64-65

John bought a condominium and lived in it as his principal residence for $250,000 on May 1, 2020. He sold it on May 3, 2022, for $400,000. What is the amount and character of his gain to be reported? No gain on sale Long-term, capital gain of $150,000 Long-term, ordinary gain of $650,000 Short-term, capital gain of $150,000

No gain on sale Pages 14 through 15 of Publication 523 provide that the gain or loss on a sale or trade of property is found by comparing the amount realized with the adjusted basis of the property. In the case of a personal residence that is the primary residence, a special rule applies whereby the taxpayer can exclude up to $250,000 per spouse of the gain on the sale of the main home if all of the following are true: The taxpayer meets the ownership test (i.e., owned the home for at least 2 of the last 5 years). The taxpayer meets the use test (i.e., lived in the main home for at least 2 of the last 5 years). During the 2-year period ending on the date of the sale, the taxpayer did not exclude gain from the sale of another home. (Publication 523, page 15) A condominium (as well as houseboat, mobile home, or cooperative apartment) qualifies as a main home as provided in Publication 523, page 3. Therefore, John satisfied the special rule for excluding up to $250,000. In this case, the gain from the sale is $150,000, which is the amount received of $400,000 less the property's basis of $250,000. Since the $150,000 is less than the excludable amount, the correct answer is no gain on sale. Publication 523, pages 3 and 14-15

Which of the following are deductible as entertainment facilities expenses? Cost of yacht and hunting lodge Cost of bowling alley and tennis courts Cost of hotel suite and home in a vacation resort None of the answer choices are deductible costs.

None of the answer choices are deductible costs. For tax years 2018 through 2025, the treatment of certain meals and entertainment expenses changed. In general, entertainment, amusement, or recreation expenses are no longer deductible. The cost of business meals generally remains deductible, subject to the 50% limitation. The Consolidated Appropriations Act, 2021 (CAA) allows businesses to deduct 100% of business meals for years 2021 and 2022. The business meal expenses are required to be incurred for food and beverages provided by a restaurant. See Section 274 for additional information on the changes. Generally, a taxpayer cannot deduct any expense for the use of an entertainment facility. This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. An entertainment facility is any property that the taxpayer owns, rents, or uses for entertainment. Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. Publication 463, pages 10-11

Which of the following early distributions from an IRA is not an exception to the early distribution excise tax? An early distribution caused by an IRS levy of the qualified plan An early distribution due to the taxpayer being totally and permanently disabled An early distribution that is not more than the taxpayer's qualified higher education expenses None of the answer choices are subject to the early distribution excise tax.

None of the answer choices are subject to the early distribution excise tax. Publication 590-B, page 25, provides the general exceptions to the early distribution excise tax penalty. The following are some exceptions to this excise tax: The taxpayer has unreimbursed medical expenses that are more than 7.5% of the taxpayer's AGI. The distributions are not more than the cost of the taxpayer's medical insurance due to a period of unemployment. The taxpayer is totally and permanently disabled. The taxpayer is the beneficiary of a deceased IRA owner. The taxpayer is receiving distributions in the form of an annuity. The distributions are not more than the taxpayer's qualified higher education expenses. The taxpayer uses the distributions to buy, build, or rebuild a first home. The distribution is due to an IRS levy of the qualified plan. The distribution is a qualified reservist distribution. As given in the listing above, all three distributions are exceptions to the early distribution penalty. Note This question is worded quite oddly, with a negative question and a negative correct response. Publication 590-B, page 25

George and Jean, an unmarried couple living together, have no income other than their wages. George earned $27,000 and Jean earned $13,000. Both individuals claim a tax filing status of single. Which of the following statements is correct with respect to the earned income credit? Both George and Jean qualify for the credit. Only George qualifies for the credit. Only Jean qualifies for the credit. Neither George nor Jean qualifies for the credit.

Only Jean qualifies for the credit. In order to qualify for the earned income credit, a taxpayer without any children must have earned less than $16,480. Given that George earned more than the limit, he does not qualify for the credit. Jean, on the other hand, earned only $13,000 and, therefore, she does qualify for the credit. See Rule 1 on page 4 of Publication 596 for rules governing earned income and not married filing jointly. IRC Section 32(d) Publication 596, page 4

In which situation would Janice not be required to file Schedule H, Household Employment Taxes, for the year 2022? Paid $2,500 wages to Cynthia for babysitting in Janice's home Withheld $100 federal income tax from payments to her yard worker Paid $2,500 to her mother for housekeeping Paid household help, other than her mother, $2,500 for the period July, August, and September

Paid $2,500 to her mother for housekeeping Publication 926 addresses issues associated with household employment. In particular, Schedule H is used to report household employment taxes and is necessary if the taxpayer pays any of the following wages to the employee (Publication 926, page 11): Social Security and Medicare wages FUTA wages Wages from which a taxpayer withholds federal income tax As provided in Table 1 on page 5 of Publication 926, a person needs to pay employment taxes if they: Pay cash wages of $2,400 or more in 2022 to any one household employee. But wages are not counted if they are paid to a taxpayer's spouse, child under the age of 21, parent, or any employee under the age of 18 at any time in 2022; or Pay cash wages of $1,000 or more in any calendar quarter of 2021 or 2022 to any household employee. Wages are not counted if they are paid to a taxpayer's spouse, child under the age of 21, or parent. Schedule H is filed with a taxpayer's federal income tax return by April 15. If the taxpayer gets an extension to file his or her tax return, the extension also will apply to the Schedule H filing. In this case, Janice does not need to file a Schedule H for her mother since she satisfies the exception given above. Publication 926, pages 5 and 11

Reba, age 88, and Charles, age 90, are married, live together, and file jointly. During 2022, they received interest income of $3,000, dividend income of $1,500, a pension of $12,000, and Social Security of $17,000. Which of the following statements is correct? Reba and Charles are not required to file a tax return. The couple must include $8,500 of their Social Security benefits in gross income. The couple does not include any Social Security benefits in gross income because they are over age 80. Reba and Charles are required to file a tax return.

Reba and Charles are not required to file a tax return. Publication 17, page 6, Table 1-1, states for 2022 that a couple with a married joint filing status is not required to file a tax return where both spouses are 65 or older and gross income is less than $28,700, where one spouse is age 65 or older and gross income is less than $27,300, or where neither spouse is 65 or older and gross income is less than $25,900. Publication 17, pages 62 and 63, states that some Social Security benefits become taxable if one-half of the benefits plus all other income, including tax-exempt interest, exceed the base amount of $32,000 in the case of a couple filing married ($25,000 if filing single or head of household and $0 if married, filing separate, and living with one's spouse at any time during 2022). Reba, age 88, and Charles, age 90, are married, live together, and file jointly. None of the Social Security benefits are included in gross income because the sum of AGI without the Social Security ($16,500) and one-half of the Social Security ($8,500) equals $25,000, which is less than the starting point of $32,000 for including Social Security income in gross income (Publication 17, pages 62 and 63). Furthermore, the couple is not required to file a tax return because they had an AGI of $16,500, which is less than $28,700, in 2022 (Publication 17, page 6). Thus, the correct response is the couple is not required to file a tax return. Publication 17, pages 6 and 62-63

Jack's antique car caught fire and was totally destroyed. The car was appraised for $22,500. Jack only had it insured for $15,000 since this was more than enough to cover his adjusted basis of $9,000. He decided not to replace the car. What should Jack report on his 2022 tax return? Deduct a loss of $7,500 Deduct a loss of $6,000 Report income of $6,000 None of the answer choices are correct.

Report income of $6,000 Publication 547, page 3, provides, in part, that a casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. For tax years 2018 through 2025, if you are an individual, casualty losses of personal-use property are deductible only if the loss is attributable to a federally declared disaster (federal casualty loss). On the other hand, if a taxpayer receives an insurance or other reimbursement that is more than their adjusted basis in the destroyed or stolen property, they have a gain from the casualty or theft. In this case, they must include this gain in their income in the year the reimbursement is received, unless the taxpayer chooses to postpone reporting the gain as explained in Publication 547, page 13. In this case, Jack has an adjusted basis of $9,000 and a decrease in the FMV of $22,500 ($22,500 − $0). Since the smaller of the two calculations is $9,000, this amount is compared to the insurance coverage, which is $15,000. The result is that Jack has income (not a loss) of $6,000 from the casualty, which he must claim on his tax return. Publication 547, pages 3 and 13

Which of the following statements is correct concerning excess contribution to a traditional IRA and the 6% excise tax? The contribution and any earnings on it must be withdrawn by the date the taxpayer's return is due (excluding extension) to avoid the 6% excise tax. The contribution and any earnings on it must be withdrawn by the date the taxpayer's return is due (including extension) to avoid the 6% excise tax. The contribution only must be withdrawn by the date the taxpayer's return is due (including extension) to avoid the 6% excise tax. The contribution only must be withdrawn by the date the taxpayer's return is due (excluding extension) to avoid the 6% excise tax.

The contribution and any earnings on it must be withdrawn by the date the taxpayer's return is due (including extension) to avoid the 6% excise tax. Publication 590-A, pages 34 and 35, provides the general rules for the tax when making an excess contribution to an IRA. In general, if the excess contributions for a year and the interest or other income that was earned on the excess contribution are not withdrawn by the date the taxpayer's return for the year is due (within 6 months of the due date of your return, excluding extensions), the taxpayer is subject to a 6% tax. The taxpayer must pay the 6% tax each year on excess amounts that remain in the taxpayer's traditional IRA at the end of the tax year. The tax cannot be more than 6% of the value of the taxpayer's IRA as of the end of the taxpayer's tax year. Publication 590-A, pages 34-35

Which of the following statements regarding gift splitting is correct? The couple must have been married at the time the gift was given, but either or both spouses may be remarried during the year. The couple must have been married at the time the gift was given and the spouse who gave the gift may not be remarried during the year. The couple need not be married at the time of the gift, but must be married by the end of the year. The couple must be married at all times during the year.

The couple must have been married at the time the gift was given and the spouse who gave the gift may not be remarried during the year. While a married couple may not file a joint gift tax return, the IRS permits spouses to split gifts under certain conditions. If both spouses agree, all gifts during the calendar year will be considered as made one-half by each spouse if: both spouses were married to one another at the time of the gift, divorced or widowed after the gift, the spouse did not remarry during the rest of the calendar year, neither of the spouses was a nonresident alien at the time of the gift, and a spouse was not given a general power of appointment over the property interest transferred. Accordingly, the only correct statement in the above question regarding gift splitting is that the couple must have been married at the time the gift was given and the spouse who gave the gift may not be remarried during the year. Instruction for Form 709, page 6

Which of the following statements concerning the deduction for estate taxes by individuals is true? The deduction for estate tax can be claimed only for the same tax year in which the income in respect of a decedent must be included in the recipient's income. Individuals may claim the deduction for estate tax whether or not they itemize deductions. The estate tax deduction is a miscellaneous itemized deduction subject to the 2% limitation. None of the answer choices are correct.

The deduction for estate tax can be claimed only for the same tax year in which the income in respect of a decedent must be included in the recipient's income. Income that a decedent had a right to receive is included in the decedent's gross estate and is subject to estate tax. This income in respect of a decedent is also taxed when received by the recipient (estate or beneficiary). However, an income tax deduction is allowed to the recipient for the estate taxes paid on this income. The deduction for estate tax can be claimed only for the same tax year in which the income in respect of a decedent must be included in the recipient's income. (This is also true for income in respect of a prior decedent.) Individuals can claim this deduction only as an itemized deduction on line 16 of Schedule A (Form 1040 or 1040-SR), which is a miscellaneous deduction that is not subject to the 2% limitation. Hence, the only correct response is the deduction for estate tax can be claimed only for the same tax year in which the income in respect of a decedent must be included in the recipient's income. Publication 559, page 33 Instructions for Schedule A (Form 1040), page A-13

Interest was credited to Jane's savings account on December 31, 2022. Which of the following statements is correct? The interest becomes taxable after Jane removes the interest from her account. The interest becomes taxable in 2023 because interest is taxable the day after it is credited to a person's account, which is January 1, 2023. The interest becomes taxable in 2022 because it was credited to her account in 2022, even though it was December 31, 2022. There isn't enough information to respond to the question.

The interest becomes taxable in 2022 because it was credited to her account in 2022, even though it was December 31, 2022. Most individual taxpayers use the cash method. Under this method, taxpayers generally report any interest as interest income in the year that they receive or constructively receive the interest. The interest is constructively received if it is credited to his or her account or is made available to the taxpayer. Moreover, the taxpayer does not need to have physical possession of it. For example, the taxpayer is considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to the person's account and can be withdrawn by the person. This is true even if they are not yet entered in the taxpayer's passbook or bankbook. One exception to this rule is municipal bond interest, which is excludable. Publication 17, page 59

How is QBI defined? The net amount of income and gain from the operations of a business, excluding investment income The net amount of income and gains from the operations of a business, including investment income The net amount of income, gain, deductions, and loss from the operation of a business, including investment income The net amount of income, gain, deductions, and loss from the operation of a business, excluding investment income

The net amount of income, gain, deductions, and loss from the operation of a business, excluding investment income Between 2018 and 2025, individuals will get a deduction of 20% of qualified business income (QBI) from pass-through entities, such as partnerships, limited liability companies, S corporations, and sole proprietorships (including a sole-member limited liability company). QBI is the net amount of income, gain, deduction, and loss from the operation of a business, not including investment income.

What information should an Enrolled Agent pass onto a taxpayer concerning the options available for direct deposit of their refund? The taxpayer can elect to have part, or all, of the refund deposited into their checking or savings account. The taxpayer can elect to have part, or all, of the refund deposited into the EA's personal bank account. The taxpayer can elect to split the refund and have it deposited among as many as four accounts. All of the responses are correct.

The taxpayer can elect to have part, or all, of the refund deposited into their checking or savings account. Publication 17, page 14, provides the general rules for a taxpayer electing to use direct deposit of their 2022 tax refund amount. The current tax rules permit a taxpayer to have their refund deposited directly into their checking or savings account, including an individual retirement arrangement. If the taxpayer chooses direct deposit, they can split the refund and have it deposited among two or three accounts or buy up to $5,000 in paper series I savings bonds (not four accounts). To make a direct deposit, Form 8888, Allocation of Refund (Including Savings Bond Purchases), must be completed and attached to their tax return. Thus, the only correct response for this question is the taxpayer can elect to have part, or all, of the refund deposited into their checking or savings account. Circular 230, Section 10.30 prohibits an enrolled agent or any other tax preparer to endorse, negotiate, electronically transfer, or direct the deposit of any government check relating to a Federal tax liability issued to a client. Any person subject to Treasury Circular 230 is prohibited from directing or accepting payment from the government into an account owned or controlled by that person. Publication 17, page 14 Circular 230, Section 10.31

With respect to filing an amended tax return, Publication 17, pages 17-18, provides that a taxpayer should file an amended tax return (Form 1040-X) if they did not report some income, claimed deductions or credits that should have been claimed, claimed deductions or credits that should not have been claimed, or claimed a different filing status. In addition, a person must file their claim within 3 years after the date the original return was filed or within 2 years after the date the taxes were paid, whichever is later. Also, if the last day for claiming a credit or refund is a Saturday, Sunday, or legal holiday, the taxpayer can file the claim on the next business day. (Publication 17, pages 17-18) Publication 17, pages 17-18

The taxpayer cannot claim a deduction because it is a miscellaneous itemized deduction and can no longer be deducted. Pursuant to Publication 17, pages 64 and 65, there are some situations where a taxpayer's Form SSA-1099 or Form RRB-1099 will show that the total benefits repaid (box 4) are more than the gross benefits (box 3) received. If this occurred, the taxpayer's net benefits in box 5 will be a negative figure (a figure in parentheses) and none of their benefits will be taxable. If the total amount shown in box 5 of all the taxpayer's Forms SSA-1099 and RRB-1099 is a negative figure, a taxpayer may be able to deduct the part of this negative figure that represents benefits they included in gross income in an earlier year if the figure is more than $3,000. If the figure is $3,000 or less, it is a miscellaneous itemized deduction and can no longer be deducted. Publication 17, pages 64-65

Which of the following rules requires a person to make estimated tax payments for year 2023 if the taxpayer had a tax liability for year 2022? The taxpayer expects to owe at least $1,000 in tax for 2023 after subtracting withholding and credits. The taxpayer expects withholding and credits to be less than the smaller of (1) 90% of the tax to be shown on the 2023 tax return or (2) 100% of the tax shown on the 2022 tax return (110% if AGI over $150,000) and the 2022 tax return must cover all 12 months. The taxpayer only needs to satisfy item 1 to be required to pay estimated taxes. The taxpayer only needs to satisfy item 2 to be required to pay estimated taxes. The taxpayer must satisfy both items 1 and 2 to be required to pay estimated taxes. The taxpayer must satisfy some other rule to be required to pay estimated taxes.

The taxpayer must satisfy both items 1 and 2 to be required to pay estimated taxes. In general, a taxpayer must pay estimated tax if both of the following apply: The taxpayer expects to owe at least $1,000 in tax for 2023 after subtracting his or her withholdings and credits. The taxpayer expects his or her withholdings and credits to be less than the smaller of 90% of the tax to be shown on the 2023 tax return or 100% of the tax shown on the 2022 tax return. Moreover, the 2022 tax return must cover all 12 months. If a taxpayer is considered a higher-income taxpayer, the percentages in the above general rule change. Specifically, if the taxpayer's AGI for 2022 is more than $150,000 ($75,000 if filing married separate), 110% is substituted for the 100% in the general rule. See Publication 17, page 41, or Publication 505 for a discussion on who does and who does not need to pay estimated taxes. Assuming that this is not a higher-income taxpayer, both rules would apply in this question. Publication 17, page 41

Which of the following statements is correct with respect to a person's 2022 federal tax return? There is no difference in the tax treatment of short-term capital gains, dividends, and long-term capital gains. There is no difference in the tax treatment of short-term capital gains and dividends. There is no difference in the tax treatment of short-term capital gains and long-term capital gains. There is a difference in the tax treatment of short-term capital gains, dividends, and long-term capital gains.

There is a difference in the tax treatment of short-term capital gains, dividends, and long-term capital gains. Pursuant to Publication 544, page 36, the tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. These lower rates are called the maximum capital gain rates. The term "net capital gain" means the amount by which the net long-term capital gain for the year exceeds the net short-term capital loss. For 2022, the maximum capital gains rates are 0%, 15%, 20%, 25%, or 28%, depending on the assets. (See page 36 of Publication 544.) In this case, the correct response is that there is a difference in the tax treatment of short-term capital gains, dividends, and long-term capital gains. IRC Section 1(h) Publication 544, page 36

Which of the following statements is correct concerning (the value of the) bonds that are specifically exempt from federal income tax? They are reported on the United States Estate (and Generation-Skipping Transfer) Tax Return (Form 706) but not on the final income tax return. They are not reported on the United States Estate (and Generation-Skipping Transfer) Tax Return (Form 706) or on the final income tax return. They are not reported on the United States Estate (and Generation-Skipping Transfer) Tax Return (Form 706) but are reported on the final income tax return. They are reported on the United States Estate (and Generation-Skipping Transfer) Tax Return (Form 706) and on the final income tax return.

They are reported on the United States Estate (and Generation-Skipping Transfer) Tax Return (Form 706) but not on the final income tax return. Bonds that are exempt from federal income tax are not exempt from estate tax unless specifically exempted by an estate tax provision of the Internal Revenue Code. Therefore, bonds exempted from federal income tax need to be reported on the United States Estate (and Generation-Skipping Transfer) Tax Return (Form 706). Exempt bonds are not reported on the final income tax form, but the tax-exempt interest is reported a on Form 1040 although it is not subject to tax. Instructions for Form 706, pages 23-24

Which of the following statements is correct with respect to unused alternative minimum tax credits? They may be carried back 2 years and then forward 20 years. They may be carried forward and used against other income. They may be carried forward and used against other deferral-type preferences. They may not be carried back or forward.

They may be carried forward and used against other deferral-type preferences. The tax laws give special treatment to some kinds of income and allow special deductions and credits for some kinds of expenses. If a taxpayer benefits from these laws, they may have to pay at least a minimum amount of tax in addition to any other tax on their tax return. This is called the alternative minimum tax. The special treatment of some items of income and expenses only allows a taxpayer to postpone paying tax until a later year. If in prior years a taxpayer paid alternative minimum tax (AMT) because of these tax postponement items, the taxpayer may be able to take a credit for prior-year minimum tax against his or her current-year regular tax. The AMT is attributable to two types of adjustments and preferences—deferral items and exclusion items. Deferral items (for example, depreciation) generally do not cause a permanent difference in taxable income over time. Exclusion items (for example, the standard deduction), on the other hand, do cause a permanent difference. The minimum tax credit is allowed only for the AMT attributable to deferral items (Form 8801 Instructions, page 1). More specifically, a taxpayer may be able to take a credit against his or her regular tax if for 2022 the taxpayer had: an alternative minimum tax liability and adjustments or preferences other than exclusion items, a minimum tax credit that is being carried forward to 2022, or an unallowed qualified electric vehicle credit. Instructions for Form 8801, page 1

A couple filed their 2008 return as married filing jointly and claimed $7,500 for the first-time homebuyer credit. The couple used this home as a primary residence. In 2022 they converted the home into rental property. What, if any, is the tax obligation of the taxpayers regarding the first-time homebuyer credit? They must pay the unpaid balance of the credit. Since they used this home as a primary residence for 5 years, there is no requirement to repay. They must prorate the credit received over 15 years and repay 50% of the original credit. They must reduce their depreciable basis in the property by 50% of the unpaid balance of the credit.

They must pay the unpaid balance of the credit. The Form 5405 Instructions, page 1, provide that a taxpayer must file Form 5405 (Repayment of the First-Time Homebuyer Credit) with their 2022 tax return if they purchased the home in 2008 and: They disposed of it in 2022; or: They ceased using it as their main home in 2022. In the case of a 2008 purchase where the taxpayer disposes of the home or where it ceases to be the main home, the taxpayer must repay the balance of the unpaid credit with their 2022 tax return. The exception to the repayment is if the taxpayer's home was destroyed or condemned, or they disposed of the home under threat of condemnation, and they didn't acquire a new main home within 2 years of the event. None of the repayment exceptions apply to this question. Hence, the correct response is the taxpayer must pay the unpaid balance of the credit since they are no longer using it as their main home. Instructions for Form 5405, pages 1-3

John is the sole support of his mother. To claim her as a dependent on his Form 1040-SR for 2022, she must be a resident of which of the following countries for some part of calendar year 2022? United States Mexico Canada United States, Mexico, or Canada

United States, Mexico, or Canada For 2022, a taxpayer cannot claim a personal exemption deduction for themselves, their spouse, or their dependents. However, dependents are still listed on Form 1040 in order to claim appropriate tax credits. (Publication 17, page 26) Therefore, the following rules are provided: The term "dependent" means a qualifying child or a qualifying relative (see Table 3-1, page 26, of Publication 17). There are four tests that must be met for a person to be a qualifying relative: Not a qualifying child Member of the household or satisfies the relationship test Gross income test (less than $4,400 in 2022) Support test (more than half of the person's total support for the year) If a person is a qualifying relative, the person still must satisfy three additional tests: Dependent taxpayer test Joint return test Citizen or resident test The exemption and dependency rules are covered in chapter 3 of Publication 17. Publication 17, page 27, expands on the citizen or residency test by stating, in part, that a taxpayer cannot claim an exemption for a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or resident of Canada or Mexico. There is an exception for certain adopted children, which is not relevant to this problem. In this problem, John's mother can be a resident of any one of the three countries (United States, Mexico, or Canada) to qualify as his dependent. Publication 17, pages 26-27

Violet made no estimated tax payments for 2022 because she thought she had enough tax withheld from her wages. In January 2023, she realized that her withholding was $2,000 less than the amount needed to avoid a penalty for the underpayment of estimated tax, so she made an estimated tax payment of $2,500 on January 10. Violet filed her 2022 return on March 1, 2023, showing a refund due her of $100. Which of the following statements is not true regarding the estimated tax penalty? Violet will not owe a penalty for the quarter ending December 31, 2022, because she made sufficient payment before January 15, 2023. Violet will not owe a penalty for any quarter because her total payments exceed her tax liability. Violet could owe a penalty for 1 or all of the first 3 quarters even though she is due a refund for the year. If Violet owes a penalty for any quarter, the underpayment will be computed from the date the amount was due to the date the payment is made.

Violet will not owe a penalty for any quarter because her total payments exceed her tax liability. An underpayment of tax either through withholding or by making estimated tax payments may cause a penalty to be imposed. Generally, a taxpayer will not be subject to a penalty for 2022 if any of the following situations apply: Total withholding and estimated tax payments are at least as much as the 2021 tax (or 110% of 2021 tax if adjusted gross income was more than $150,000, more than $75,000 if the taxpayer's filing status is married filing separately) and all required estimated tax payments were paid on time, The tax balance due is no more than 10% of the total 2022 tax, and all required estimated tax payments were paid on time, Total tax minus withholding is less than $1,000, There was not a tax liability for 2021 and the taxpayer's 2021 tax year was 12 months, or The taxpayer did not have any withholding taxes and current-year tax less any household employment taxes is less than $1,000. In addition, a penalty is figured separately for each installment due date. Therefore, a taxpayer may owe a penalty for an earlier due date even if the taxpayer paid enough tax later to make up the underpayment. This is true even if the taxpayer is due a refund when he or she files the tax return. The statement that "Violet will not owe a penalty for any quarter because her total payments exceed her tax liability" is not covered by any of the above situations. Hence, it is the incorrect statement. Publication 17, page 43 Instructions for Form 2210, page 2

Under which of the following conditions is gift splitting not permitted even if both spouses agree to gift splitting? Widowed before the gift and the surviving spouse does not remarry during the rest of the calendar year Divorced after the gift Neither of the spouses was a nonresident alien at the time of the gift. A spouse was not given a general power of appointment over the property interest transferred.

Widowed before the gift and the surviving spouse does not remarry during the rest of the calendar year While a married couple may not file a joint gift tax return, the IRS permits spouses to split gifts under certain conditions. If both spouses agree, all gifts during the calendar year will be considered as made one-half by each spouse if: both spouses were married to one another at the time of the gift, divorced or widowed after the gift, the spouse did not remarry during the rest of the calendar year, neither of the spouses was a nonresident alien at the time of the gift, and a spouse was not given a general power of appointment over the property interest transferred. Accordingly, if a husband and wife elect gift splitting, then both spouses must file their own, individual gift tax return. As such, the liability for the entire gift tax of each spouse is joint and several. Instructions for Form 709, page 6

Who would not be a qualifying person for purposes of filing as head of household in 2022? Your mother, whom you can claim as a dependent Your adopted child who lives with you, is married, and can be claimed as your dependent Your foster child who lived with you all year and is your dependent Your aunt, related to you by blood. She does not live with you but is your dependent.

Your aunt, related to you by blood. She does not live with you but is your dependent. For a person to be able to file as head of household, the taxpayer must meet all of the following requirements: Be unmarried or "considered unmarried" on the last day of the year, Pay more than half the cost of keeping up a home for the year, and Have a "qualifying person" live with the taxpayer in the home for more than half the year (except for temporary absences, such as school). Dependent parents, however, are not required to live with the taxpayer. In this case, the aunt is related by blood to and is a dependent of the taxpayer, but she does not live with the taxpayer and is not a parent; thus, she is not a qualifying person for filing as head of household. Publication 17, pages 23-24

Filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, gives you: an extension of time to pay the amount of taxes due. a 6-month extension to file the tax return. a penalty-free period of 6 months if you cannot pay the taxes due by the filing date. no interest on the amount due from the original due date of the return, which for most taxpayers is April 15.

a 6-month extension to file the tax return. Publication 17, page 10, states, in part, that if a taxpayer cannot file his or her tax return by the due date, the taxpayer may be able to get an automatic 6-month extension of time to file. However, failure to pay the tax due by the regular due date (generally, April 15) will result in the taxpayer owing interest on the tax liability and may also result in penalty charges for failing to file the return when due. A taxpayer can get the automatic extension by: Using IRS e-file (electronic filing), or Filing a paper form (i.e., Form 4868) Publication 17, page 10 error_outline First Time Score

A taxpayer may deduct the cost of medical expenses for the following items, except: doctor-prescribed drugs, including birth control pills. controlled substances in violation of federal law. laser eye surgery, contacts, eyeglasses, and hearing aids. guide dogs for the visually impaired and the cost of the dogs' care.

controlled substances in violation of federal law. The lists for items that are and are not treated as deductible medical and dental expenses are provided in Publication 502, pages 5 through 17. The following is a partial list of medical and dental expenses that are deductible: Birth control pills prescribed by your doctor Eye surgery—to promote the correct function of the eye Guide dogs or other animals aiding the blind, deaf, and disabled Prescription medicines (prescribed by a doctor) and insulin Special items (artificial limbs, false teeth, eyeglasses, contact lenses, hearing aids, crutches, wheelchair, etc.) All of the items in this problem are listed above as deductible medical expenses except for controlled substances in violation of federal law. Publication 502, pages 5-17

A taxpayer has total tax in the previous year of $21,000. In this year, the taxpayer received a bonus and his tax increased $4,500. The taxpayer has long-term capital gain of $4,000 with a tax of $600. The taxpayer's withholding was increased to $23,700. To avoid a penalty for underpayment of estimated tax, the taxpayer must: do nothing, since the withholding exceeds 100% of last year's tax. pay an additional $5,300 to equal 100% of tax due. do nothing, since the withholding exceeds 90% of the tax due this year. do nothing, since the withholding exceeds 100% of last year's tax or exceeds 90% of the tax due this year.

do nothing, since the withholding exceeds 100% of last year's tax or exceeds 90% of the tax due this year. Publication 17, pages 39-40, provides the general rule for determining the amount of estimated tax that must be paid to avoid the underestimated tax penalty. Specifically, 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 any amounts withheld and credits, and the taxpayer expects withholding and credits to be less than the smaller of 90% of the tax to be shown on the current tax return or 100% of the tax shown on the previous tax return. Also, the taxpayer's previous tax return must cover all 12 months. In this case, the taxpayer's withholding for the current year ($23,700) exceeds 100% of last year's total tax liability of $21,000 and exceeds 90% of this year's tax liability of $23,490 (0.90 × ($21,000 + $4,500 + $600)). Hence, both rules are covered. Note If the taxpayer had an adjusted gross income in excess of $150,000 ($75,000 if married filing a separate return), the taxpayer will have to deposit the smaller of 90% of the expected tax for 2022 or 110% of the tax shown on the person's 2021 return to avoid an estimated tax penalty (see chapter 2 of Publication 505). Publication 17, pages 39-40 Publication 505, Chapter 2

Milton is 39 years old. He has been divorced from his wife since March 1 of the tax year. They have two minor children. One child lives with Milton, and the other child lives with the mother. The children have been with their respective parents from March through December of the tax year. Milton provides all of the support for the minor child living with him. The filing status with the lowest rate that Milton qualifies for is: married filing separately. single. head of household. married filing jointly.

head of household. Milton will qualify as head of household because he satisfies all of the requirements (as given on pages 23 and 24 of Publication 17): unmarried or considered unmarried (generally, the taxpayer's spouse did not live in the taxpayer's home during the last 6 months of the tax year) on the last day of the year, paid more than half the cost of keeping up a home for the year, and a qualifying person lived with the taxpayer in the home for more than half the year (except for temporary absences, such as school). There is another exception to the third requirement; a taxpayer's dependent parents do not need to live with the taxpayer. Of course, this exception is not relevant to this problem. A taxpayer is considered unmarried if they satisfy all five tests given on page 23, which are: file a separate return, paid more than half the cost of keeping up the taxpayer's home for the tax year, the taxpayer's spouse did not live in the taxpayer's home during the last 6 months of the tax year, the taxpayer's home is the main home for the taxpayer's child, stepchild, or foster child for more than half the year, and the taxpayer must be able to claim an exemption for the child. (However, the taxpayer meets this test if they cannot claim the exemption only because the noncustodial parent can claim the child.) Since Milton is considered unmarried at year-end (i.e., divorced), has one child living with him, and paid more than half of the cost of keeping up a home for the year, he has satisfied all three conditions for claiming head of household filing status. Publication 17, pages 23-24

Joe is 37 years old. His wife died during the tax year, and he has not remarried. His deceased wife had no income. He has two minor children living with him. Joe paid all of the costs for keeping up his home for the tax year, and he has paid for all of the support of his wife and these children. The filing status with the lowest tax rate that Joe qualifies for is: qualifying surviving spouse. married filing separately. head of household. married filing jointly.

married filing jointly. Publication 17, pages 21-22, states, in part, that a taxpayer is considered married for the whole year if, on the last day of the taxpayer's tax year, the taxpayer and the taxpayer's spouse meet any one of the following four tests: married and living together, living together in a common-law marriage that is recognized in the state where the taxpayer now lives or in the state where the common-law marriage began, married and living apart, but not legally separated under a decree of divorce or separate maintenance, or separated under an interlocutory (not final) decree of divorce. In the case where a spouse died during the year, the taxpayer is considered married for the whole year for filing status purposes. Hence, Joe is able to file as married filing jointly since his wife died in the current tax year. It should also be mentioned that Joe will likely be able to claim qualifying widower(er) status for the 2 years following his wife's death unless he remarries during either of those years. Publication 17, pages 21-22

If a taxpayer has capital gains dividends, but has no other capital gain: capital gain distributions must be put on Schedule B. no Schedule D is required, and the amount is put directly on the Form 1040. dividends and capital gains dividends may be added together on Schedule B. it must be combined with interest on the Schedule B.

no Schedule D is required, and the amount is put directly on the Form 1040. Pursuant to Exception 1 as given in Publication 550, page 64, the taxpayer that receives only capital gain distributions does not need to file Form 8949 or Schedule D if all of the following are true: The taxpayer has no capital losses and the only amounts the taxpayer would have to report on Schedule D are capital gain distributions from box 2a of Form 1099-DIV (or substitute statement). The taxpayer does not have an amount in box 2b, 2c, or 2d of any Form 1099-DIV (or substitute statement). If both of the above statements are true, the taxpayer satisfies the exceptions to filing Form 8949 and Schedule D, reports the capital gain distributions directly on line 7 of Form 1040, and checks the box on line 7. (See Publication 550, page 64.) Publication 550, page 64

All of the following items can be claimed as deductions against a decedent's estate, except: specific bequest to son. executor's fees. legal fees to settle estate. charitable bequests.

specific bequest to son. In figuring taxable income, an estate is generally allowed the same deductions as an individual. A bequest is the act of giving or leaving property to another through the last will and testament. Generally, any distribution of income (or property in kind) to a beneficiary is an allowable deduction to the estate and is includible in the beneficiary's gross income to the extent of the estate's distributable net income. However, a distribution will not be an allowable deduction to the estate and will not be includible in the beneficiary's gross income if the distribution meets the following requirements: it is required by the terms of the will, it is a gift or bequest of a specific sum of money or property, and it is paid out in three or fewer installments under the terms of the will. Therefore, a "specific" bequest to a son would not be an allowable deduction because it meets the above requirements.

In order to qualify as an accountable plan for reimbursement of travel expenses, the employer plan must satisfy all of the following, except: the expenses have a business connection. the employee must make an adequate and timely accounting to the employer. the employer must pay a per diem for meals. the employee must timely return any excess reimbursements.

the employer must pay a per diem for meals. In order for an employer's reimbursement or allowance arrangements to qualify as an accountable plan the arrangements must include all three of the following rules: Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. You must adequately account to your employer for these expenses within a reasonable period of time. You must return any excess reimbursement or allowance within a reasonable period of time. Publication 463, page 29

All of the following are requirements to claim head of household filing status, except: you are unmarried or considered unmarried on the last day of the year. your spouse did not live in your home during the last 6 months of the tax year. your parent must live in your home at least 6 months. you paid more than half of the cost of keeping up your house for the entire year.

your parent must live in your home at least 6 months. To qualify as head of household, a taxpayer must meet all of the following requirements: unmarried or considered unmarried (generally, the taxpayer's spouse did not live in the taxpayer's home during the last 6 months of the tax year) on the last day of the year, paid more than half the cost of keeping up a home for the year, and a qualifying person lived with the taxpayer in the home for more than half the year (except for temporary absences, such as school). There is another exception to qualifying as head of household; a taxpayer's dependent parents do not need to live with the taxpayer. Thus, in this question, all of the responses are correct except the one stating that the taxpayer's parent must live in the taxpayer's home. Publication 17, page 23-24