Reference no: EM131337736

1. Complete this statement about a refundable credit. A refundable credit reduces the taxpayer's:

Income before determining tax liability.

Tax liability and may even increase the refund.

Income before determining tax liability and may even increase the refund.

Tax liability but may not exceed the tax liability.

2. Which one of the following types of income IS included in federal gross income?

Federal income tax refund.

Checking account interest.

Personal injury compensation.

Qualified disaster relief payments.

3. Which situation below qualifies a taxpayer to file as head of household?

A child not living in the household whose dependency exemption was released to the taxpayer.

A dependent brother who lived in the household almost half the year.

A dependent girlfriend who lived in the household all year.

A dependent nephew who lived in the household more than half the year.

4. Celia's spouse died in 2013. Her filing status option for that year is:

Married filing jointly or married filing separately.

Qualifying widow.

Single.

Head of household.

5. When does a child no longer qualify a taxpayer for the Child Tax Credit?

The year the child reaches age 17.

The year the child reaches majority, which is 18 in most states.

The year the child reaches age 19.

The year the child reaches age 19, or age 24 if the child is a full-time student at least five months of the year.

6. After the due date of the original return, an amended return can be filed to change filing status in all of the following EXCEPT:

Married filing separate to married filing joint.

Married filing joint to married filing separate.

Single to head of household.

Head of household to single.

7. State returns should be reviewed for amendment:

Only if the state sends a notice.

When a federal return has been amended.

Before the federal return is reviewed.

Not required because the IRS will notify the state.

8. Which of the following can be resolved solely by filing an amended return?

Spouse did not know or have reason to know that their joint tax return was inaccurate.

Taxpayer agrees with a letter of adjustment from the IRS.

Taxpayer's refund was applied to spouse's child support obligation from a previous marriage.

Taxpayer filed as single but qualifies as head of household.

9. In general, amended returns must be filed:

By the last day of the year following the tax year of the return.

As soon as possible after the original return is accepted by the IRS.

Three years from the due date of the original return or two years from the date the tax was paid, whichever is later.

There is no deadline, as long as the amended return is e-filed.

10. On a joint return, the names entered on the Form 1040X should be listed:

Exactly as they were on the original return.

Husband first, wife second.

In order, according to their social security numbers.

It does not matter.

11. An amended return that claims a refund on behalf of a single deceased taxpayer must include:

Form 1310.

Form 2210.

Form 2848.

A copy of the decedent's will.

12. Sofia filed her 2011 return on February 19, 2012. Under ordinary circumstances, what is the last day she can file an amended 2011 return?

April 15, 2013.

February 19, 2014.

April 15, 2014.

April 15, 2015.

13. Which of the following scenarios CANNOT be resolved by filing an amended return?

Taxpayer who received IRS letter and paid additional balance due finds new deduction.

Married taxpayers filed separate returns but now want to file a joint return.

Taxpayer agrees with an IRS letter of adjustment but does not have the funds to pay the tax due.

Dependent taxpayer claimed personal exemption.

14. complete amended return must include Form 1040X and:

Any forms or schedules that caused the amendment or changed due to the amendment.

A copy of the original return, but no new forms or schedules.

Form 1045, Application for Tentative Refund.

Form 2848, Power of Attorney and Declaration of Representative

15. Emeril, a self-employed architect, paid for his health insurance out of his own pocket. He was not eligible to be covered under any other insurance plan until November 1, when he became eligible under his spouse's plan. His total premiums paid for all of 2013 were $3,500. How much can Emeril deduct as an adjustment to income on his tax return?

$875

$1,750

$2,917

$3,500

16. When is a Form 1099-MISC issued?

When a business pays an individual $400 or more.

Any time a business pays an individual other than an employee $600 or more.

If a contractor bills a business $1,000 or more.

Any time a business pays an individual for services.

17. How do you know if a client is a statutory employee?

Their Form W-2 has no withholding for social security or Medicare taxes.

Box 13 on their Form W-2 is checked.

Their Form 1099-MISC has an amount reported as other income in box 3.

They have a Form 1099-MISC with nonemployee compensation reported in box 7.

18. Franklin, a self-employed consultant, pays for his health insurance out of his own pocket. He is not eligible to be covered under any other insurance plan. His total premiums paid for 2013 were $4,500. His net profit from his business, as reported on Schedule SE, was $68,000. He had no other earned income. How much can Franklin deduct as an adjustment to income on his tax return?

$2,250

$4,500

$5,750

$7,500

19. Foster owns a computer store. Which of the following items should he include in his year-end inventory?

Two cases of paper for use in the store office.

CDs sold and paid for by a customer but not picked up.

Software shipped to a customer COD.

Computer program Foster designed and uses at home.

20. Melissa files for an extension due to the nature of her business. Melissa wishes to start an SEP for herself in 2013. What is the latest date she may establish the plan and still make contributions for 2013?

April 15, 2014.

August 15, 2014.

October 15, 2014.

December 31, 2014.

21. For which of these client scenarios do you need to prepare a Schedule C?

Josh has a Form W-2G showing $15,000 in winnings from playing blackjack. He has records showing he spent $20,000 playing blackjack.

Sonya has a Form 1099-MISC showing $1,000 in box 3 for winning a neighborhood fundraising raffle. She bought six raffle tickets for $5.

William sold his car to his neighbor for $2,500 cash. He bought the car ten years ago for $21,000.

Lindsey has a Form 1099-MISC showing $800 in box 7 as compensation for distributing product samples at neighborhood festivals. She incurred no expenses.

22. Shirley owns a cosmetics store that had gross sales of $87,000. Customers returned $2,000 worth of products. Her cost of goods sold was $25,000. What amount should Shirley enter on Part I of Schedule C, line 7, as her gross income?

$60,000

$62,000

$85,000

$87,000

23. Which of the following taxpayers is not required to meet the exclusive-use test to deduct business-use-of-home expenses?

Architect with his office and living room combined with no space identified as an office.

Day care provider using the entire home for day care purposes; state certification requirements have NOT been met.

Insurance salesperson who works at home for personal convenience.

Cosmetics salesperson using her home to store product samples and inventory.

24. Prepare Renee Winters' Schedule C. Renee's birthday is ***** 15, 1975. Use the following information: Renee knits socks and scarves and sells them through an Internet marketplace. Her business is called Winter Knits. Her gross income for the year was $9,622. She uses the cash method of accounting and has the following expenses:

Advertising $738

Beginning inventory $12,500

Inventory purchases $1,500

Ending inventory $10,500

Legal and professional fees $275

Supplies $2,800

Taxes and licenses $150

What is Renee's net profit or loss?

$2,159

$3,500

$4,159

$6,122

25. Jennifer has an expected tax liability of $5,000. She will have $2,200 withheld from wages and will be eligible for a Child Tax Credit of $1,000. What will her estimated balance due be?

$1,800

$2,300

$4,050

$5,500

26. What contribution amount would you recommend as a minimum for a 401(k) plan with a 3% employer match feature?

0.01

0.02

0.03

0.06

27. What is the general rule for when income tax is due?

January 15 of the following year.

April 15 of the following year.

When income is received.

At the end of the year income is received.

28. In a §125 plan, an employee sets aside pre-tax earnings to pay for medical care. Which statement about these accounts is accurate?

Funds not used for medical care are refunded after the end of the year.

Funds not used for medical care can be used in retirement (after age 59 1/2).

Funds set aside are included as earned income for purposes of social security and Medicare withholding.

Funds must be used for medical care within a prescribed period or they are forfeited.

29. What is the tax consequence when an employer pays for $100,000 in group term life insurance for an employee?

The employee cannot claim the Earned Income Credit.

The premiums for coverage in excess of $50,000 are taxable to the employee.

The employee cannot claim the Saver's Credit.

All of the premiums are taxable to the employee.

30. The deduction for a Health Savings Account is computed on:

Form 8888.

Form 8889.

Form 8917.

Form 9453.

31. Why should a client keep accurate records of medical expenses?

To help accurately estimate the amount to contribute to a flexible spending account.

So their children will know what to expect when they get their own insurance.

It will help the client's employer decide which insurance package is most appropriate to offer their employees.

There is no need for the client to keep records; the insurance company will take care of it.

32. Which of the following types of insurance premiums may be included in itemized deductions?

Health and/or long-term care insurance.

Life insurance.

Automobile insurance.

Renter's insurance.

33. Jeff's home has an appraised value of $100,000. Jeff owes $70,000 on his home mortgage. How much home equity does Jeff have?

$20,000

$30,000

$70,000

$100,000

34. Which of the following forms does a taxpayer use to report the number of allowances that determine the withholding amount?

Form W-2

Form W-3

Form W-4

Form W-5

35. Which of the following is considered a repair and is deductible in the current year?

Re-landscaping the yard.

Installing a steel door to meet a new zoning requirement.

Repainting the second bedroom due to normal wear and tear.

Replacing the roof after a tornado destroyed the previous one.

36. Rental income is:

Earned income.

Passive income.

Nontaxable income.

Tax deferred.

37. Rental income is reported on:

Schedule C.

Schedule E, page 1.

Schedule E, page 2.

Schedule F.

38. Dorothy owns a duplex. She resides in one unit and rents out the other. Her expenses need to be categorized as indirect (partly deductible) or direct (fully deductible). Which of the following expenses is direct?

Replacement sidewalk leading up to the building.

County property tax bill for entire building.

City water bill for entire building.

Replacement of water heater in the tenant's unit.

39, Woody owns a vacation house at the lake. He uses it nearly every weekend, but he occasionally rents it out when he cannot get away for the weekend. At what point must Woody report this rental income on his tax return?

He must report the income if he rents the vacation house 15 days or more in a year.

He must report the income if the number of days he rents the property exceeds 10% of the number of days he personally uses it.

He must always report all of the rental income received.

He must report the income unless he rents the vacation house at less than fair market value.

40. When a taxpayer owns a part rental/part personal-use property, how is mortgage interest on that property treated on the tax return?

Prorated deduction on Schedule E and Schedule C.

Prorated deduction on Schedule E and Schedule A.

The taxpayer can choose to deduct the full amount on either Schedule E or Schedule A.

Fully deducted on Schedule E.

41. Which of the following best describes rental income reported on Schedule E?

Rents received for the use of real property and personal property leased with it.

Rents received only for the use of personal property.

Rents received for the casual use of personal property.

Rents received in the ordinary course of a real estate dealer's business.

42. Which of the following costs is deducted in the current year rather than depreciated over time?

Installation of vinyl siding

Replacement of the central air conditioning unit

Paving the entire driveway

Patching a hole in the vinyl siding

43. While reviewing last year's tax return for a new client, you see an entry for rental income on Form 1040, line 21, and deductions for rental expenses on the Other Expenses section of the Schedule A. What was the client's situation regarding this rental property?

The property was not rented for profit.

The property was rented for fewer than 15 days.

The property was rented in exchange for maintenance services on the property.

The property was fully depreciated, so Schedule E was not necessary.

44. Prepare Renee Winters' Schedule E. Renee's birthday is ***** 15, 1975. Use the following information: Renee rents a single family home at***** Your City, YS XXXXX, that has been fully depreciated. Renee materially participates in the rental activity. She received $7,200 in rent for the year. She had the following expenses:

Maintenance $600

Insurance $2,400

Legal and professional fees $500

Mortgage interest $1,388

Repairs $650

Taxes $1,100

What is Renee's net profit or loss?

($5,659)

($3,963)

$562

$826

45. Jennifer Wade had her 2013 taxes done on April 12, 2014, at H&R Block this year. On May 1, 2014, Jennifer brings in a Form 1099-INT that she found in her desk drawer. What form is needed to add this information to her return?

4868, Automatic Extension of Time to File

1040X, Amended Tax Return

8949/Schedule D, Capital Gains and Losses

Schedule B, Interest and Ordinary Dividends

46. Which is the least costly choice of payment available to a taxpayer who cannot pay a balance due by April 15, but who expects to pay it by the first of August (shell return accessed at ***-**-****)?

File the return with a Form 9465, Installment Agreement Request.

File the return and apply for an extension of up to 120 days.

Complete the Form 1040-ES to make quarterly payments on the 2013 tax liability.

Wait until August to file the return.

47. Assume it is January 4, 2014. For 2014, Renee Winters (shell return accessed at 744- 82-1002) will have only employment income. She expects to earn $1,295 every two weeks. How should she complete her Form W-4 for 2014 if she would like the smallest refund that is at least $500?

S-0

S-1

S-2

S-3

48. On which TPS form would you expect to find questions about loans paid for qualified higher education expenses?

Form 1098-E

Form 1099-MISC

Form 1099-T

Form 1098-T

49. On which TPS screen do you enter the Educator's Expense deduction for a qualified teacher? You may use the shell return accessed at ***-**-**** to help you answer this question.

Form 2106 screen

W-2 Summary/Other Income & Deductions

Deductions Not Entered Elsewhere

Form 8863 screen

50. Where are state estimated payments made entered into TPS? You may use shell return ***-**-**** to help you answer this question

Other Taxes screen

Fm 1040 ES screen

Self-Employment Tax screen

Tax Payments screen

51. If an amended return is based on a bad debt or worthless security, how many years (from the original due date of the return) does a taxpayer generally have to file the amended return?

Three years

Five years

Seven years

Ten years

52. Nancy has operated a shoe store since 2006. In 2013, she began selling socks and handbags. How many Schedules C should she file for 2013?

One

Two

Three

Four

53. Bill is an employed taxpayer with an estimated tax liability of $1,200. He wishes to prepay enough tax to avoid a balance due. What choice does he have?

Make $600 timely estimated payment and increase withholding by $600.

Make $1,200 timely estimated tax payments.

Increase federal withholding by $1,200.

Any of the above.

54. Marilyn owns a rental house. Her current tenant, Colby, signed a two-year lease and moved into the house on January 1 of last year. At that time, Colby paid Marilyn $1,500 for the first month's rent, $1,500 for the last month's rent, and $1,500 as a refundable security deposit. Colby paid the rent in cash on the first of each month during the year, except in November, when he replaced the water heater in exchange for his rent. The water heater would have cost Marilyn $1,300 to purchase and install. How much rental income must Marilyn report for last year?

$17,800

$18,500

$19,300

$20,800

55. Bridget replaced the heating and air unit in one of her rental houses after it went out. How will this expense be reported?

As a repair, deducted as a current expense on line 14.

As an improvement, depreciated over 15 years.

As an improvement, depreciated over 27 1/2 years.

As an improvement, depreciated over 31 1/2 years.

56. Which TPS form would you check in order to enter income from a qualified pension distribution?

1099SS Social Security

1099G Government Payment

1099R Pension Distribution

1099SA HSA Distribution