TAX Certification Questions
Federal income tax withheld is reported to taxpayers on Form W-4.
FALSE
Dion's tax liability is $1,044. After withholding, she owes $640 in income taxes. Does this mean Dion might have to pay a penalty for underpayment of estimated tax?
No The tax Dion owes is less than $1,000, so she does not have to pay a penalty.
Which tip income is exempt from federal income tax?
None All tip income is subject to federal income tax.
Both spouses must have earned income in order to claim the child and dependent care credit.
True
Taxpayers filing Married Filing Separately cannot claim deductions for the American opportunity credit, lifetime learning credit, or student loan interest deductions.
True
Taxpayers who claim the EIC based on one or more qualifying children are required to attach the Schedule EIC to their return.
True
The Social Security Benefits Worksheet is used to calculate the taxable portion of Hank's benefits.
True
Is it true that taxpayers may subtract the deductible portion of their self-employment tax from their income?
Yes Self-employed taxpayers can subtract a deductible portion of their self-employment tax from their income. The deductible portion of the self-employment tax is automatically calculated from Schedule SE.
To claim a personal exemption, the taxpayer must be able to answer "no" to the intake question, "Can anyone claim you or your spouse on their tax return?"
false
If a taxpayer cannot obtain a valid Social Security number and has not yet applied for an taxpayer identification number, can you use the taxpayer's driver's license or passport instead?
False Correct! Taxpayers must have a valid Social Security number or taxpayer identification number before you can assist them.
Would being married to a nonresident alien prevent a taxpayer from being eligible for the EIC?
False Nonresidents may qualify for the EIC if they file a joint return with a U.S. citizen or resident.
here are fees charged by the IRS on installment agreement requests that are approved.
True
Capital gain distributions are also called _____
Capital gain dividends Capital gain distributions and capital gain dividends both refer to when a mutual fund sells assets for more than their cost and distributes the realized gain to the shareholders. A capital gain occurs when the owner of a mutual fund (or capital asset) sells shares in the fund (or property) for more than its cost and realizes a profit
Is a person who holds an alien registration card considered to be a lawful permanent resident of the United States?
Yes
Susan and Ted are married and will file a joint return. They have supported Ted's parents for the majority of the tax year. Ted's parents do not live with Ted and Susan. Do Ted's parents meet the member of household or relationship test?
Yes Correct! A taxpayer's father-in-law and mother-in-law do not have to live with the taxpayer the entire year in order to meet the member of household or relationship test.
Federal income tax withheld is reported to taxpayers on all the following forms: Forms 1099, Form W-2, Form W-4, Forms RRB-1099, and SSA-1099
FLASE Forms W-2, 1099-R, 1099-INT, 1099-DIV, 1099-G, SSA-1099, RRB-1099, and RRB-1099-R all include income tax withheld. (Form W-4 is used to adjust withholding.)
Taxpayers age 65 or older must use Form 1040-SR instead of Form 1040 to file their return.
False
Taxpayers can choose not to claim depreciation on business property.
False
Tip income is not subject to federal income tax.
False
To claim the foreign tax credit without filing Form 1116, a taxpayer who is filing Single must have paid foreign taxes as shown on Form 1099-DIV, Form 1099-INT, or Schedule K-1 that are less than or equal to $600.
False
You can provide a guaranteed date that the taxpayer can expect a tax refund, based on the date the return is filed
False
A 401(k) includes "after-tax" contributions, which means employees pay income tax on their salary before the contributions have been deducted.
False A 401(k) program includes "before-tax" contributions; each year, the employee pays income tax on the salary after the "before-tax" contributions have been deducted.
To prepare a prior year tax return, it is first necessary to locate an Intake/Interview & Quality Review Sheet that corresponds to the same tax year as the return.
False A current year Form 13614-C must be completed for each prior year return and will be used to determine the scope and certification level of each return.
Would receiving $2,100 in investment income prevent a taxpayer from being eligible for the EIC?
False A taxpayer may receive up to $3,600 in investment income and still be eligible for EIC.
Are the only acceptable means of verifying taxpayers's identity a valid U.S. drivers license, passport, or military ID?
False Correct! Other acceptable means are a current state ID, visa, national ID, employer ID, school ID or other proof of taxpayer identification.
Form 1040X cannot be prepared using tax software and cannot be e-filed
False Form 1040X can be prepared using tax software. Tax returns for the two most current prior years can be filed electronically. Other prior year returns must be mailed by taxpayers to the appropriate IRS address listed in the Volunteer Resource Guide, Tab P, Partner Resources.
Christopher is 22 and earned $32,000 during the year. He is single and contributed $3,000 to his 401(k) plan at work. Christopher is eligible for the qualified retirement savings contributions credit.
False Not less than 32,000
Four years ago Barbara bought a U.S. Series EE savings bond and decided to report the interest it earns each year until maturity. This tax year Barbara bought another Series EE savings bond. Can she wait until the second bond matures to report all the interest it earns?
False Savings bond owners must use the same interest-reporting method for all the Series EE and Series I bonds they own.
Howard chooses to itemize his deductions. He can take a deduction of $13,225 for the following that he paid in 2019: - $11,200 for real estate taxes - $2,025 for state income taxes withheld
False The deductible amount of state and local income, sales, and property taxes is limited to a combined total of $10,000 ($5,000 if Married Filing Separately).
Distributions from all IRAs discussed in the Retirement Income lesson are fully taxable with the exception of the Roth IRA.
False In addition to Roth IRAs, nondeductible contributions to traditional IRAs are also not taxed when they are distributed. Click the Materials tray to review the Roth IRA job aid from the Volunteer Resource Guide.
Louis and Carmella are married and filing separate returns. Louis itemizes his deductions on Form 1040. Which of the following can Carmella do?
Itemize her deductions Because the taxpayers are filing as Married Filing Separately and one spouse itemizes, the other cannot take the standard deduction.
Jessica has been raising her son, Jim, alone since her husband died 5 years ago. This year, Jessica earned $25,000. Jim, who lives with Jessica, is single, and does not provide more than half of his own support. He was 19 years old on September 17. Jim is not a full-time student and is not disabled. He worked for a short time at a fast food restaurant and made about $1,800. Jessica and Jim are both U.S. citizens and have SSNs.
Jim meets the requirements for being Jessica's qualifying relative.
Allen can be claimed as a dependent on his mother's tax return, but his mother is not claiming him as a dependent. Can Allen claim his personal exemption on his own tax return?
No
Martin and Regina were married until their divorce in November of the tax year. Can they take an exemption for each other since they were married most of the year?
No
Steve provides $4,000 toward his mother's support during the year. His mother has earned income of $600, nontaxable Social Security benefit payments of $4,800, and tax-exempt interest of $200. She uses all of these for her support. Can Steve claim his mother as a dependent if she meets all other tests?
No
Keith has received Form W-2 for his part time job, but did not receive Form W-2 for a taxable college scholarship he won last year. Does Keith need to report the scholarship as income on his tax return?
No Even though Keith did not receive Form W-2 for his taxable scholarship income, he must include the amount on Form 1040 as income. If entered in the software correctly, "SCH" and the scholarship amount will appear to the left of the wages line on his printed tax return.
Tier 1 railroad retirement benefits are not treated like Social Security equivalent benefits.
No For tax purposes Tier 1 railroad retirement benefits are treated like Social Security benefits and are shown on the Blue Form RRB-1099, box 5.
Wendy holds a traditional IRA to which she makes contributions each year. Throughout the year, Wendy gets statements listing the interest earned. Is she supposed to pay taxes on any of this interest income?
No Interest on a traditional IRA is tax-deferred. No tax is owed on that interest until the taxpayer makes withdrawals from the IRA.
Karen Roberts is single and works full-time as a nurse's assistant in a hospital. Her modified AGI was $32,000. During the current tax year, she enrolled part-time in nursing school and took half the required course load. Her tuition was $4,000. As part of her employer-provided educational assistance, her employer reimbursed her for $1,000 in education expenses. The amount of her qualified education expenses is $1,000.
No Karen may be eligible for either the lifetime learning credit or the American opportunity credit. Her qualified education expense is the net of $4,000 minus $1,000, which is $3,000.
Leticia died in May just before reaching her 65th birthday. Does she qualify as age 65?
No Leticia does not qualify for the higher standard deduction given to those 65 or older because she was not 65 when she died.
Wally claimed the standard deduction on last year's tax return for a state refund. Does he have to include the refund in his taxable income?
No Taxpayers who claimed the standard deduction on the tax return for the year they received a refund of state or local income taxes do not have to include the refund in their taxable income.
Jose and Yolanda Alameda are Married Filing Jointly and have five dependent children under the age of 17. Jose and Yolanda both have valid SSNs. Their children have Individual Taxpayer Identification Numbers (ITINs). Are their children qualifying children for the purpose of the child tax credit?
No The children do not qualify for the child tax credit because they do not have valid SSNs. However, they may qualify for the credit for other dependents.
Are qualified Roth IRA distributions taxable?
No The taxpayer has already paid taxes on the money contributed to the plan.
Which of the following is in scope as a deductible business expense on Schedule C?
Office rent
On July 12, 2018, Helena bought 1,000 shares of stock for $8,000, including commission. On July 12, 2019, she sold the shares for $4,600, sales price less commissions (net proceeds) shown on Form 1099-B. Which section of Form 8949 will you use to report Helena's loss?
Page 1 to report the short-term loss
If a taxpayer receives several Forms W-2 and 1099, then the amount of income tax withheld reported on the return is the total of all income tax withheld from all the Forms W-2 and all Forms 1099.
TRUE You report the total of all federal income tax withholding from all Forms W-2 and all Forms 1099-R, 1099-INT, 1099-DIV, 1099-G, SSA-1099, RRB-1099, and RRB-1099-R.
Anita has a 13-year-old adopted son, Ryan. He is a U.S. citizen and lived with Anita for the entire tax year. Anita provided all of her son's support. Ryan is a qualifying child for the child tax credit.
True
Carol and Roger were married three years ago and have no children. Although they lived apart during the entire tax year, they are neither divorced nor legally separated. Can Carol and Roger use either of the married filing statuses?
True
Direct deposit saves postage and is almost always faster than receiving a refund through the mail.
True
Form 1099-INT may be used to report tax-exempt interest income.
True
If Hank had not sold his stock and had no other source of income other than Social Security, his benefits may not be taxable.
True
Robert has taken his first job after completing law school. His filing status is Single. He paid $3,000 in interest on his student loans during the tax year. With all adjustments to income (except student loan interest adjustment), his MAGI is below the limits. True or False? He can deduct $2,500 of his student loan interest as an adjustment to income.
True
Schedule SE is not required unless net earnings exceed $400.
True
Some taxpayers may wish to increase withholding and make estimated tax payments to avoid having a balance due next year.
True
The cost of sending a child to day camp is a qualified expense for the child and dependent care credit.
True
When entering an account number for direct deposit, do not include spaces and symbols
True
Is the additional child tax credit refundable?
Yes If the taxpayer's tax liability is less than the allowable child tax credit, the taxpayer may be eligible to claim a refundable additional child tax credit. The additional child tax credit may result in a refund even if the taxpayer doesn't owe any tax.
Do taxpayers who received benefits under a dependent care program need to complete Form 2441, Part III?
Yes Taxpayers who received benefits under a dependent care program need to complete Form 2441, Part III, before they complete Part II.No
To claim qualified education expenses for the American opportunity credit, taxpayers may include required course-related fees, books, supplies, and equipment even if they are not purchased from an educational institution.
Yes The American opportunity credit allows taxpayers to claim qualified education and related expenses, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.
Julio Isanti was a resident alien on December 31, of the tax year, and married to Mary, a nonresident alien. Can they choose to treat Mary as a resident alien and file a joint income tax return?
Yes Correct! When a taxpayer is a citizen or resident alien whose spouse does not meet the green card or substantial presence test, the couple may choose to file as Married Filing Jointly and treat the nonresident spouse as a resident alien.
Bob was a full-time student and a fifth-year senior. He has only claimed the American opportunity and Hope credit in three earlier years. Does he qualify for the American opportunity credit?
Yes. Bob qualifies for the American opportunity credit because he only claimed the credit in three previous tax years.
Vicky and Chuck file a joint return and claim their two children as dependents. Neither taxpayer is over 65. They have an adjusted gross income of $95,400. Last year the family accumulated $6,620 in unreimbursed medical and dental expenses that included the following: - Insulin for Vicky's diabetes ($320) - Prescription eyeglasses for the entire family ($1,000) - Chuck's smoking-cessation program ($5,300) The total of Chuck and Vicky's deductible medical expenses is _____.
$0 The total of Vicky and Chuck's medical expenses, $6,620, is less than $95,400 x 10%=$9,450. Only the portion of total medical expenses that exceeds 10% of the taxpayer's AGI is deductible
Gloria withdrew $5,000 early from a one-year, deferred-interest certificate of deposit. She had to pay a penalty of three months' interest. True or False? She cannot claim this penalty amount as an adjustment to income.
False
Taxpayers can take the additional child tax credit in place of the child tax credit.
False
Schedules K-1 are filed with the tax return.
False Schedules K-1 are not filed with the tax return. Advise taxpayers to keep Schedules K-1 with their records.
To determine if a taxpayer must file a tax return, do you need to know their income for the year, filing status, and place of birth?
False Correct! You need to know their approximate income, likely filing status, and age.
The following are more examples of deductible business expenses on Schedule C EXCEPT _____.
Full cost of business meals Only 50% of business meals is deductible.
Brenda discovered an error on her 2015 tax return, which had been filed on time. Correction of this error would result in a refund. She mails an amended return on May 6, 2019
True
In most cases, unemployment compensation is taxable.
True
In some circumstances, eligible students can claim education credits for themselves even if their parents actually paid the qualified tuition and related expenses.
True
Rita and Ted, both first-year university students, are required to have certain books and other reading materials to use in their mandatory first-year classes. Ted bought his books from a friend, and Rita bought her materials at the university bookstore. Both Rita's and Ted's payments for books qualify as a related expense for the American opportunity education credit.
True
Taxpayers can deduct part of their self-employment tax as an adjustment to income.
True
Taxpayers with more than one employer might have had more than the required amount of social security tax withheld from their wages for the year. If this occurred, taxpayers can claim the excess withholding as a credit in the Payments section of Form 1040.
True
The deduction for personal exemptions is suspended (reduced to $0) for tax years 2018 through 2025.
True
These expenses cannot be claimed as a deductible medical expense: - Premiums for life insurance - Nonprescription ointment for treating poison oak - Vitamins
True
Three examples of foreign taxes that generally qualify for the foreign tax credit are taxes on dividends, royalties, and annuities.
True
Tim works as an independent contractor for ABC Construction Company. The company sent Tim a Form 1099-MISC that shows he received $15,000 for the work he did for them. He also received cash payments of $4,000 from several different individuals for the work he completed. He did not receive Forms 1099-MISC for the $4,000.Tim must include the $4,000 cash payments as self-employment income along with the $15,000 on Form 1099-MISC.
True
To qualify for the child and dependent care credit, a taxpayer must have taxable income
True
To qualify for the nonrefundable child tax credit, a taxpayer must have tax liability (owe taxes).
True
Stan, an unmarried college student working part time, earned $4,500 during the tax year. He contributed $1,000 to a Roth IRA. What is the maximum he can contribute to all his IRAs combined?
$4,500 His IRA contributions are limited to $4,500, the amount of his compensation.
On May 11, 2011, Henry bought 1,000 shares of ZZZ Corporation stock for $5,000, plus an additional $100 commission. What is Henry's original basis in the stock?
$5,100
Taxpayers who have a balance due and who elect to pay in full within 120 days will pay interest and a penalty for payments received after the tax filing deadline (April 15).
true
The actual amount of the child tax credit is figured using worksheets, but you must determine which worksheet to use for each taxpayer. According to step 8 in the Child Tax Credit Interview Tips in the Volunteer Resource Guide, Tab G, Nonrefundable Credits, a taxpayer would need to use Publication 972 to figure the credit if they _____.
Are claiming an adoption credit
Under the substantial presence test, the term "United States" includes which of the following areas?
District of Columbia
Would earning income in a foreign country prevent a taxpayer from being eligible for the EIC?
False Taxpayers who do not exclude their foreign income from their gross income (by filing Form 2555) may still be eligible for the EIC.
Tom and Judith Ballard want to file under the Married Filing Separately status. If Tom wants to itemize his casualty losses, then _____
Judith must either itemize her deductions or claim a zero standard deduction
Kathy, divorced with no children, lived with her unemployed roommate, Sandra, for the entire year. Kathy had to pay more than half of the cost of keeping up their apartment. Can Kathy use the Head of Household filing status?
True
Kevin paid his broker a $75 fee on the sale of his stock. His Form 1099-B shows $925, and the box next to net proceeds is checked. The amount Kevin reports as his sales price on Schedule D is $925.
True
Martin and Rita got divorced in December, and neither has remarried. Even though Martin supported Rita all year, is he still required to file as Single?
True
True or False? A resident of Mexico meets the requirements of the citizen or resident test.
True To meet the citizen or resident test, a person must be a U.S. citizen or resident, OR a resident of Canada or Mexico.
Denise files as Head of Household. She has a modified AGI of $84,000. She has three dependent qualifying children. Is she eligible for the full $2,000 child tax credit for each child?
YEs Denise meets the taxpayer requirements for receiving the full child tax credit.
Taxpayers who file Schedule C may be required to file Schedule SE if their net profit was $400 or more
Yes Correct! If the net profit was less than $400, you enter the profit on Form 1040 and attach Schedule C to the return. Schedule SE is not required unless it was a profit of $400 or more.
Paul Stone, a U.S. citizen, is married to a Chinese citizen. Their daughter was born in China during the tax year. Does his daughter meet the citizen/resident test?
Yes Correct! Paul's daughter is considered to be a U.S. citizen because her father is a U.S. citizen.
Do education credits reduce the amount of tax due?
Yes The amount of the credit is based on qualified education expenses the taxpayer paid during the tax year.No
Can a married taxpayer claim their spouse as a dependent?
No
The following children live with Mira, who takes care of all of them as if they were her own. Which child meets the EIC tests?
Billy, the 10-year-old son of Mira's stepdaughter
Tom is separated from his wife but does not have a legal separation agreement. He has paid $3,000 during the tax year for the support of his son, who lives with his wife. Which of the following is true?
Child support is never an adjustment to income Taxpayers who pay child support cannot claim it as an adjustment to income.
Since volunteer tax assistance sites use tax software to create and e-file tax returns, a paper copy of the return is not necessary.
False
Taxpayers who file as Married Filing Separately may qualify for the EIC.
False
Taxpayers who have a balance due may elect to pay in full within 60 or 120 days with no interest and penalty
False
The amount of tax due and paid with this year's tax return qualifies as an estimated payment.
False
This tax year, Sheila's parents paid $4,000 of their own funds for her college tuition. Sheila also received a Pell grant for $1,000 and a student loan for $2,000. For purposes of figuring an education credit, Sheila's parents' total qualified tuition and related expenses are $1,000.
False
The amount of tax due and paid with this year's tax return qualifies as an estimated payment.
False The amount paid with the return is not included with estimated payments. Estimated tax payments include (1) payments already made during the tax year using Form 1040ES or (2) an overpayment shown on last year's tax return that the taxpayer elected to apply to the next year.
A taxpayer who claimed the 2008 homebuyer credit doesn't have to pay back a portion of the credit each year.
False The credit functions like a no-interest loan and must be paid back. Taxpayers who received the credit in 2008 continue to repay the credit over a 15-year period that began with the 2010 tax return.
An employee is not required to report their tip income to their employer if they receive $20 or more per month in tips from their job.
False The taxpayer must pay income tax plus an additional tax if a distribution is taken before the individual reaches the age of 59½ and is not rolled over into another qualified plan or IRA and no other exception applies.
All taxpayers who contribute to traditional IRAs are automatically entitled to a full or partial deduction on their tax return.
False Whether or not taxpayers are eligible for full or partial IRA deductions depends upon whether they are covered by an employer's retirement plan, their filing status and their modified adjusted gross income.
True or False? Jason is 22 and earned $40,000 during the year. He is single and contributed $3,000 to his 401(k) plan at work. Jason is eligible for qualified retirement savings contributions.
False b/c he exceeds the threshold of $32,000
Taxpayers can take the additional child tax credit in place of the child tax credit.
False taxpayers who take the additional child tax credit must also claim the nonrefundable child tax credit.
Ryan and Julie were married on December 29 of the tax year. They should file as:
Married Filling Jointly
For the purposes of the child and dependent care credit, is a spouse who attended school full time is considered to have earned income?
Yes A spouse who is either a full-time student for 5 months of the year or is incapable of self-care for some period of the year is considered to have earned income on a month-by-month basis.
Carol paid $2,000 in December for qualified tuition for the spring semester, which begins in January. Is this prepaid amount a qualifying expense for the current tax year?
Yes Carol may use the $2,000 in figuring her credit. Taxpayers who prepaid qualified tuition and related expenses for an academic period that begins in the first three months of the following year can use the prepaid amount in figuring the credit.
Douglas is 65 and his spouse, Terry, is 64. Neither are blind, nor can they be claimed as a dependent on someone else's return. They are filing as Married Filing Jointly. Is $25,700 the correct standard deduction for the couple?
Yes Douglas is entitled to an additional $1,300 for being age 65 or older, but Terry is not. The correct standard deduction for the couple is $25,700.
Joe, age 35, made an excess contribution of $1,500, which he withdrew by the due date of his return. At the same time, he also withdrew the $75 income earned on the $1,500. Does Joe have to pay an additional tax on the on the early distribution?
Yes He must pay an additional tax of $7.50 the 10% additional tax on early distributions because he is not yet 59½ years old.
The taxable portion of Social Security benefits is never more than 85% of the net benefits the taxpayer received.
Yes In many cases, the taxable portion is less than 50%. However, if the taxpayers are Married Filing Separately and lived with their spouse at any time during the tax year, 85% of the benefits will be taxable.
Generally if Social Security benefits are the only source of income, then the benefits are not taxable.
Yes Taxpayers may not be required to file a return. However, if the taxpayers are Married Filing Separately and lived with their spouse at any time during the tax year, 85% of the benefits will be taxable.
Eric received a Form 1098-E with student loan interest His loan was for a qualified education expenses with an eligible institution. His filing status is Single. Can he claim the deduction?
Yes The student loan interest deduction is generally the smaller of $2,500 or the interest paid that year on a qualified student loan. This amount is gradually reduced (phased out) or eliminated, based on the taxpayer's filing status and MAGI.
Do you need to update the intake and interview sheet if you determine that a taxpayer is eligible for the child and dependent care credit?
Yes Update the Intake/Interview sheet under Expenses, make sure the box is checked to indicate that the taxpayer had child or dependent care expenses. Note anything unusual that the quality reviewer may need to know when reviewing this part of the tax return.
Becky and Frank were divorced on December 29 of the tax year. They have no children or other dependents and have not remarried. Their filing status should be:
Single
Ronald was widowed before the first day of the tax year and did not remarry during the tax year. He has no children. For the purpose of determining filing status, Ronald is considered _____.
Single
Which of the following taxes can taxpayers deduct on Schedule A?
Stale and local sales tax
When an adjustment results in a smaller refund than indicated on the return, and the taxpayer has designated the refund to be direct deposited into three different accounts, the IRS deducts the difference _____.
Starting with the direct deposit amount designated for the last account shown on Form 8888
Taxpayers who underpay their estimated tax liability for the previous tax year may be __
Subject to a penalty for underpayment of estimated tax
Three taxpayers have claimed the EIC for the same child. One is the child's parent, another provided the child's home for the longest period of time during the tax year, and the third is a member of the household who had the highest AGI. Which taxpayer would be entitled to the credit?
The parent
For a tax to be deductible, all of the following must be true EXCEPT ___.
The tax must be imposed during the tax year Taxpayers can deduct tax imposed during another year, as long as the taxes were paid during the current tax year.
Fred has a traditional IRA account, and a Roth IRA account. During the tax year, Fred contributed $2,200 to his traditional IRA, and $1,000 to his Roth IRA. True or False? The most Fred will be able to deduct is the $2,200 contribution to his traditional IRA.
True
Individuals who are not required to file a tax return should file a return if they can claim the earned income credit.
True
Traditional IRAs and other qualified plans allow individuals to defer paying taxes on money they contribute, and on the earnings, until the funds are distributed. However, a taxpayer who takes a distribution before age 59½ may be subject to not only the income tax but also an additional tax.
True
When Colten was laid off, he received state unemployment compensation totaling $4,000 before finding a new job. He will report $4,000 as unemployment income.
True
Taxpayers may be able to take the credit for the elderly or the disabled if they are: - Under age 65 at the end of the tax year - Retired on permanent and total disability - Under the mandatory retirement age on January 1 of the tax year, and - Receiving taxable disability income
True A taxpayer who is under age 65 at the end of the tax year, retired on permanent and total disability, had not reached mandatory retirement age, and who receives taxable disability income, may be able to take the credit for the elderly or the disabled. All these conditions must first be met before a taxpayer who is under age 65 can be considered for this credit.
Taxpayers whose installment agreement request is granted may have to pay an additional fee to make monthly payments through electronic funds transfer
True An additional fee of $120 is charged on an approved installment agreement. It is $52 if payments are made by electronic funds withdrawal; it may be lower for incomes below certain limits or if the taxpayer submits Form 13844, Application for Reduced User Fee for Installment Agreement
Antonio has $23,050 in earned income, and his adjusted gross income is $23,175. His filing status is single. Antonio's 20-year-old daughter, Maria, lived with him for eight months of the year. Maria is not married and is a full-time college student. Can Antonio claim the EIC?
True Antonio can claim the EIC because he has a qualifying child who lived with him more than half the year, and his earned income and adjusted gross income are both under $41,094.
No Correct! A taxpayer may receive up to $3,600 in investment income and still be eligible for EIC. Would filing a joint return with a spouse who has an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number prevent a taxpayer from being eligible for the EIC?
True Both spouses on a joint return must have valid Social Security numbers.
Jack earned more than $400 in net earnings from his home business. He must pay self-employment tax.
True Generally, taxpayers who are independent contractors and receive Form 1099-MISC must file Schedule C and Schedule SE. Since taxes are not withheld from independent contractors' pay, it is the taxpayer's responsibility to pay income and SE tax. Taxpayers should make quarterly estimated tax payments during the year to pay these taxes.
Estimated tax includes the taxpayer's income tax and self-employment tax. Self-employment tax is the Social Security and Medicare taxes owed by self-employed workers.
True Many taxpayers have income from self-employment, dividends, interest, capital gains, rent, and royalties. The "pay as you go" system also applies to this income. If the tax due on this income exceeds certain limits, the taxpayer must make estimated tax payments on a quarterly basis. If estimated payments are not paid when they are required, a penalty could be imposed. This also applies if taxpayers do not have enough income tax withheld from their salary or wages
Amended returns should be filed if any of the following were reported incorrectly on a previously filed tax return: - Filing status - Total income - Deductions or credits
True Taxpayers should file amended returns using Form 1040X to correct these types of errors or omissions on a return they have already filed.
Twila, age 32, lives alone, is single, and earns $10,250. Her adjusted gross income is $10,950. She is not the qualifying child of another person. Is Twila eligible to claim the EIC?
True Twila is between 25 and 65; her earned income and her AGI are both less than $15,570; she cannot be claimed as a dependent; and she is not a qualifying child of another person.
Annie Jo is 47 years old and has retired on disability from her job. She used to load cargo for a tractor-trailer company, but a large box fell on her and left her paralyzed. She receives a monthly payment from her former employer's pension plan. She has not reached the minimum retirement age set by her company's pension plan. How should she report her disability income on her Form 1040?
Wages
A taxpayer aged 35 doesn't have to pay income tax and an additional tax if they take a distribution from an IRA and it is rolled into another qualified plan or IRA.
true Individuals who receive $20 or more per month in tips from any one job must report their tip income to their employer. If the employee received $20 or more in unreported cash and charge tips in any month from any job, the employee must report that income on Form 1040 and pay the Social Security and Medicare taxes on that income.
Bob holds a promissory note for a cash loan that he made to his brother-in-law, Stan. Stan pays Bob principal and interest each month. Bob received $2,000 in interest, but did not receive a Form 1099-INT. How should he report this income?
He enters the amount on Schedule B and files it with his tax return
Jane's husband moved out of their home in February of the tax year and has not returned. Jane provides all the cost of keeping up the home for herself and her two dependent children. Jane refuses to file a joint return with her husband. What filing status should she use?
Head of Household
When are employees required to report their tip income to their employer?
If their tips total $20 or more per month
Taxpayers must complete Part IV of Schedule C if their business expenses _____.
Included car or truck expenses
John purchased a home in 2009. Through your interview process, you discover that he sold the home in 2019. John had not lived in the home for six years. Which of the following conditions would allow John to exclude his gain?
John was deployed to Europe on official extended military duty for five years.
Taxpayers who file Schedule C may not be required to file Schedule SE if their net profit was ______.
Less than $400
Homer bought two blocks of 400 shares of stock, the first in March 2010 for $1,200, and the second in March 2019 for $1,600. In June of 2019, he sold 400 shares for $1,500 without specifying which block of shares he was selling.
Long-term gain of $300 The basis and holding period defaults to the original block of shares, so Homer realized a long-term gain of $300.
Which of the following taxpayers is not required to file Form 8949 and Schedule D?
Lorraine, who received three Forms 1099-DIV for capital gain distributions as her only income from investments Since Lorraine does not have capital asset sales or dispositions to report, she may report her capital gain distributions directly on Form 1040, Schedule 1, and is not required to file Forms 8949 and Schedule D.
Mark Gibson, a U.S. citizen, lives in Italy. His wife, Liliana, is an Italian citizen and has never lived in the U.S. She earned income in the tax year by working full time at her family's restaurant in Italy. She has an ITIN and no other taxpayer can claim her as a dependent. Which of the following statements is true?
Mark can file a Married Filing Separate return
Cindy's husband died on August 19 of the tax year. Cindy has no dependents and has not remarried. She should file as:
Married Filing Jointly
For a relative to qualify a taxpayer to be Head of Household, how long must the taxpayer's home be the main home of the relative?
More than half the year
William Burke's wife is a Greek citizen. Her sister, Athena, who is also a Greek citizen, lived in the Burkes' home in Greece for the entire tax year. William provided more than 50 percent of Athena's total support. Can William claim his sister-in-law as a dependent?
No
Carla changed jobs and received Form 1099-R from her previous employer. The gross distribution amount in box 1 is $11,200. Carla deposited the entire $11,200 into her IRA within 30 days of receiving the check (rollover). Is this taxable?
No A rollover of the assets from one retirement account to another qualified account, such as an IRA, within 60 days is tax free.
Juan is a citizen of the Philippines and does not have a green card. He came to the United States for the first time on November 1, 2017, and was here for 30 days. In 2018, Juan was in the United States for 60 days. Juan returned to the Philippines and came back to the United States on September 1, 2019. He stayed in the United States for the rest of the year. Does Juan meet the substantial presence test?
No Correct! Juan does not meet the substantial presence test because he was present in the United States for only 147 days over a three-year period. In 2019, he was present 122 days; in 2018, 20 days are counted toward the test (1/3 of 60); in 2017, 5 days are counted (1/6 of 30).
A taxpayer's deduction limit (the net allowable capital loss per year) cannot be more than $3,000 ($1,500 for married taxpayers filing separately) in figuring taxable income for any single tax year.
No To figure any capital loss carryover from the year prior to the current tax year, use the Capital Loss Carryover Worksheet from the Schedule D instructions.
Wendell worked 30 years for a construction company. Each week, he contributed to the Carpenter's Pension Plan. Every year, Wendell paid tax on the gross amount of his salary, including his pension contribution. Wendell has now retired and receives distributions from the plan. Is this fully taxable?
No Wendell has already paid taxes on the money he contributed to the plan.
Phillipe works full-time but has a home business teaching Tai Chi. He received cash payments of $3,677. Would his cash income be reported on Form 1040 as wages?
No Correct! Cash income must be reported on Schedule C.
Jay is in the U.S. Army in Germany. His wife and children live with him and he is able to claim the children as dependents. Jay's wife (a citizen of Germany) chooses to be treated as a resident alien for tax purposes.Jay meets all of the qualifications for Head of Household. Even though he is married, can he claim Head of Household status (assuming he meets the other requirements for filing as Head of Household)?
No Correct! Jay cannot claim the Head of Household status because his spouse is choosing to be treated as a resident alien for tax purposes. If she were being treated as a nonresident alien, Jay would be considered unmarried for tax purposes and would be able to claim Head of Household status.
Is income produced by investments, such as interest on savings or dividends on stock, considered earned income?
No Income produced by investments is considered unearned income. Earned income is any income accumulated by personal effort, such as wages or business/self-employment income.
Olivia held both common stock and preferred stock in several U.S. corporations. Several of them paid dividends during the tax year. She received Forms 1099-DIV listing these as _____.
Ordinary dividends
Larry received a Form 1099-DIV that shows he received a total capital gain distribution of $170. Larry also received a Form 1099-B that shows gross proceeds from the sale of 400 shares of stock. You should report Larry's stock sale on Form 8949 and Schedule D and his Form 1099-DIV capital gain distribution on _____.
Schedule D, Part II Larry must use Schedule D, Part II, to report his capital gain distribution because he sold stock that must be reported on Schedule D.
If a taxpayer with an individual taxpayer identification number (ITIN) receives a Form W-2 with an erroneous Social Security number (SSN), is it acceptable to e-file the return as long as you enter the correct ITIN on the return and the mismatched SSN exactly as shown on the Form W-2 issued?
True Correct! Taxpayers who file tax returns using their ITINs often have Forms W-2 showing erroneous SSNs, and it's acceptable to e-file the return if you enter the correct ITIN on the return and the mismatched SSN exactly as shown on the Form W-2 issued.
If the taxpayer with a valid Social Security number (SSN) receives a Form W-2 with an incorrect SSN, can you prepare the return using that W-2?
True Correct! You can use the original W-2 to prepare the return, but the taxpayer needs to request a corrected Form W-2 from the employer before submitting the tax return.
A taxpayer cannot use a valid ITIN if it was not used on a federal tax return at least once in the last three years.
True Correct. ITINs that have not been used on a federal tax return at least once in the last three consecutive years will no longer be valid for use on a tax return unless renewed by the taxpayer.
Mike holds a traditional IRA to which he makes contributions each year. Throughout the year, he gets statements listing the interest earned. He does not have to report any of the interest income on his traditional IRA on his tax return.
True Interest on a traditional IRA is tax-deferred. Mike does not have to include that interest in taxable income until he makes a withdrawal from the IRA.
Taxpayers who withdraw excess contributions and earnings on the excess contributions by the due date of the tax return are not subject to an additional 6 percent tax on the excess contribution.
True Taxpayers must withdraw excess contributions and any earnings by the due date of the return (including extensions) to avoid the additional 6 percent tax on the excess contribution
The gross income test considers taxable income only, whereas the support test considers all of the dependent's income - both taxable and nontaxable.
True The gross income test considers all taxable income in the form of money, goods, property, and services. The support test considers taxable income as well as nontaxable income including borrowed amounts like student loans and Social Security benefits, among other examples.
Marie, 18, earned $5,000. Her father provided more than half of her support. If all other dependency tests are met, can her father claim her as a qualifying child dependent?
YES Because Marie is under 19, the gross income test does not apply. If the other dependency tests are met, her father can claim her as a qualifying child dependent.
Gloria's husband, Dante, has neither a green card nor a visa, and he does not have a tax home in another country. He was physically present in the United States for 150 days in each of the years 2017, 2018, and 2019. Is Dante a resident alien under the substantial presence test for 2019?
Yes
Volunteers may assist self-employed taxpayers who file Schedule C if they incur $25,000 or less in business expenses.
Yes A return is in scope if the self-employed taxpayer filing Schedule C has a net profit, uses the cash method of accounting, has no employees or inventory, and has $25,000 or less in business expenses.
Tom Brown supports his wife's uncle Jim who lives in another city. The Browns file a joint return. Can the Browns claim Jim as a dependent if all other tests are met?
Yes Because Jim is related by blood to Mrs. Brown, he meets the member of household or relationship test (as described in Step 2 of the interview tips). Uncle Jim does not have to live with the Browns.
The taxable amount, if any, of a taxpayer's Social Security benefits depends upon filing status and other reportable income.
Yes Generally, if Social Security (or Social Security equivalent) benefits were the taxpayer's only source of income, the benefits are not taxable and the taxpayer does not need to file a federal income tax return.
Julio contributed $500 a year to a traditional IRA. Each year, he deducted these contributions from his income. This year he received his first distribution from the traditional IRA. Is his distribution taxable?
Yes Julio has not yet paid income tax on the money he made and deducted, nor on the earnings from his IRA account.
Keith worked for a software development company for 20 years. He retired and began receiving pension income the same year. Keith never contributed to the pension plan while he was working; his employer made all of the contributions. Is this taxable?
Yes Keith never made any contributions to his pension, so the distributions he receives are fully taxable.
Generally an independent contractor will receive Form 1099-MISC showing income they earned in box 7.
Yes The income earned for independent contractors will be shown in Form 1099-MISC, box 7. The amount from the Form(s) 1099-MISC, along with any other business income payments, are reported on their tax return.
Lilith, a U.S. citizen, lives in Japan. She is married to Kenji, a Japanese citizen who has never been in the United States, and the couple has never elected to treat Kenji as a resident alien for tax purposes. They have two children, for whom they provide total support. Lilith has decided that using the Head of Household filing status on her tax return would result in a lower tax. Can Lilith file as Head of Household?
Yes Correct! Even though Lilith is married, she can be considered unmarried for tax purposes since her husband is not a U.S. citizen or resident. Therefore, she can use the Head of Household filing status.
Jane and Todd are not married. They have one daughter together, Amanda. Jane and Amanda lived together all year in an apartment. Todd lived alone. Todd earns a lot more than Jane, and helps her out with living expenses. He paid over half the cost of Jane's rent and utilities. He also gave Jane extra money for groceries. Todd does not pay any expenses or support for any other family member. Can Todd file Head of Household?
no
Antonio volunteers as a receptionist at a qualifying children's community center. He can deduct the fair market value of the hours he spent staffing the center as a charitable contribution.
False
Factors that determine the amount of a taxpayer's standard deduction are the taxpayer's gross income and filing status.
False
For EIC, a child can be claimed as a qualifying child on more than one tax return.
False
Which of the following would not be considered an adjustment to the basis of a taxpayer's home?
Adding new flowers and potted plants to a front yard Adding new plants is not considered to be a home improvement that has a useful life of more than one year; therefore it would not be considered an adjustment in the basis of a home
Rhonda received distributions from a retirement plan that was funded by her before-tax contributions. Assuming age and waiting period requirements are met, is this retirement income taxable?
YEs
A Form W-4 is used to report wage and tax information to employees.
False
Gary paid $3,000 for his daughter's tuition last year. What is the maximum potential amount of his American opportunity credit for her expenses?
2,250 Gary's American opportunity credit is $2,250 because the credit is 100% of the first $2,000 and 25% of the second $1,000 of eligible expenses per student, up to the amount of tax.
Remember Nancy who had a summer job at a coffee hut? She made $18 in tips in May, $755 in June, $600 in July, and $45 in August; she only reported $1,000 in tips to her boss. On what amount of unreported tips does Nancy have to pay Social Security and Medicare taxes when she files her tax return?
400 Nancy only has to pay Social Security and Medicare taxes on tips she received in any month that amount to $20 or more for the month.
A penalty for early withdrawal of funds from a savings account may be charged when the depositor withdraws funds _____.
Before the maturity date for a time deposit
When should you figure the taxpayer's itemized deductions on Schedule A?
Before you determine the taxpayer's AGI You need to know the AGI to determine the deductible portion of some itemized expenses.
All of the following are in scope as deductible business expenses on Schedule C EXCEPT _____.
Expenses for business use of the taxpayer's home
Can taxpayers that previously filed their return using an Individual Taxpayer Identification Number (ITIN) retroactively file an amended return to claim EIC after being issued an SSN after the return due date?
FALSE Taxpayers cannot file an amended return retroactively for any year in which they did not have a valid Social Security number by the due date of the return (including extensions).
A driver's license can be used to verify a taxpayer's Social Security number and correct name spelling.
False
A taxpayer electing to exclude foreign earned income from tax is eligible to claim the additional child tax credit?
False
A taxpayer who is on temporary disability and under age 65 might qualify for the credit for the elderly or the disabled.
False
All interest income is taxable.
False
Homer bought two blocks of 400 shares of stock, the first in March 2008 for $1,200, and the second in March 2019 for $1,600. In June of 2019, he sold 400 shares for $1,500 without specifying which block of shares he was selling. Homer's sold stock represents a short-term loss of $100.
False
John Princeton was transferred overseas and began renting out his residence on September 1 of the tax year. He can claim 2/3 or 67% of his mortgage interest and property taxes as a rental expense.
False
John e-filed his 2015 Form 1040 on March 29, 2016. This year, while preparing his current year tax return, John discovered an error in his 2015 return, which resulted in a higher refund. John mailed an amended 2015 return on April 15, 201
False
Laura has always filed a joint return with her spouse, who died in September of the tax year. Laura, who did not remarry, provides all the support for her two dependent children, ages 7 and 9. Should Laura file as a Qualifying Widow(er)
False
Can taxpayers whose tax liability is zero take the child tax credit?
No Taxpayers whose tax liability is zero cannot take the child tax credit because there is no tax to reduce. However, the taxpayer may be eligible for the additional child tax credit
Can a taxpayer be banned from claiming the child tax credit or additional child tax credit?
No A taxpayer can be banned for 2 or 10 years for disregarding CTC or ACTC rules.
If a taxpayer is filing a joint return and one spouse receives Social Security benefits and the other spouse does not, the spouse's other income does not need to be included in the tax return.
No If the taxpayer files a joint return, enter the amounts from each Form SSA-1099 and the software will compute the portion that is taxable, if any.
Anne's husband died one year ago. Anne has not remarried during the current tax year, but she has a 18-year-old dependent son. Anne's filing status should be:
Qualifying Widow(er)
The Child and Dependent Care Credit is a nonrefundable credit, which means the credit may _____.
Reduce the tax liability to zero but does not result in a tax refund
Taxpayers who claim the EIC based on one or more qualifying children are required to attach the _____ to their return.
Schedule EIC
This tax year, Jacob and Rita Newberry attached a statement to their tax return stating that they choose to be treated as U.S. residents for the entire year. If Jacob and Rita's choice ended, which of the following would not preclude them from making this choice again in future years?
They moved to a foreign country
Benjamin, age 26, lives alone, is single, and earns $10,250. His adjusted gross income is $10,950. Benjamin can claim the EIC.
True
Bob is 27 years old. No one can claim him as a dependent. His gross income was $17,000 during the tax year. Based only on this information, Bob is required to file a tax return.
True
Carl is a U.S. citizen living in South Vietnam. His income included wages from his U.S. employer, interest income from a U.S. bank, and interest from a Vietnamese bank. Although he had to pay taxes to South Vietnam on all his income, the only income he can apply to a foreign tax credit is the interest income from the Vietnamese bank.
True
For the filing status Married Filing Separately, if one spouse itemizes, the other must also itemize.
True
Form 1040-ES is used to compute the amount of estimated tax to be paid over the year.
True
Fred is single and sold his home in June of the tax year. The amount realized in the sale of Fred's home was $410,000. The adjusted basis in the home is $100,000. What is Fred's exclusion amount on the gain from the sale of his home?
$250,000
What is the maximum number of times a taxpayer can carry over an unused capital loss?
As many times as required to receive the entire deduction
In 2009, Zack bought 100 shares of Atoka Corporation stock for $3,000. In 2010, he bought another 100 shares of Atoka for $3,300. In 2019, Zack sold 100 shares of Atoka for $4,000. He did not identify the specific block at the time of sale. The result of Zack's sale of Atoka stock is a long-term _____.
Gain of $1,000 Because Zack purchased the earliest block of shares at $3,000, the adjusted basis of the sold shares was $3,000. The sales price of the sold shares was $4,000, so Zack had a long-term capital gain of $1,000