Download CTEC Certification 2025: California Tax Preparer Exam Q&A Guide and more Exams Tax Legislation and Financial Law in PDF only on Docsity!
CTEC Certification 2025 – Complete California Tax
Preparer Guide
A cash basis taxpayer gets a few hundred dollars for payment on some random labor a few days before Christmas but doesn't spend it until January. Does the money get reported in the year he received it or in the year after? - ANSWER ✨✔---It gets reported in the year received under the doctrine of constructive receipt. Which taxing system does the United States use for income tax calculation? - ANSWER ✨✔--- progressive tax Recovery of Capital Doctrine - ANSWER ✨✔---Recovery of Capital Doctrine states that income cannot be taxed to the extent it is a recovery of basis. This doctrine limits the amount a person can be taxed on a trANSWERation by subtracting the adjusted basis from the income received to arrive at net gain. not ordinary income - ANSWER ✨✔---long term capital gain is considered capital gain income, not ordinary income. pension - ANSWER ✨✔---: Anyone who receives a distribution from a pension plan before this 59. will be subject to a 10% penalty, unless they meet a stated exception.
How much can taxpayers who materially participate in rental activity deduct in losses without being subject to passive activity limits? - ANSWER ✨✔---25, Since TY2018, there is no requirement to include the investment income of certain children on their parent's return. - ANSWER ✨✔---The TCJA heavily altered the "Kiddie Tax" to no longer be taxable to the parents AND be subject to the trust and estate tax rates. How many Schedules does the Form 1040 have? - ANSWER ✨✔--- 3 Which of the following forms would be present for an individual who receives both a pension and social security? - ANSWER ✨✔--- 1099 - R and SSA- 1099 Where would the net income from all Schedule Cs on a return be directly reported? - ANSWER ✨✔---schedule 1 child tax credit - ANSWER ✨✔---$2,000 per qualifying dependent itemized deductions - ANSWER ✨✔---Taxpayers may deduct certain allowed expenses in lieu of taking the standard deduction. Which of these expenses are allowed to be itemized post-Tax Cuts and Jobs Act - ANSWER ✨✔--- State and Local taxes are still allowed to be itemized, however, they are subject to a $10,000 limitation. Which of the following types of adjustments can taxpayers no longer take under the Tax Cuts and Jobs Act? - ANSWER ✨✔---Moving expenses can no longer be taken as an adjustment, unless it is incurred by a member of the military. Medical expenses must exceed what percentage of AGI in order to qualify as an itemized deduction? - ANSWER ✨✔---7.5%
deductible trANSWERportation - ANSWER ✨✔---Miles driven to a different site than your normal work location are deductible vehicle expenses. What happens to unrecovered basis at the end of the recovery period? - ANSWER ✨✔---It is deducted as a percentage of the annual maximum based on business use until the unrecovered basis is fully expensed. Which of the following are true about the cost investment in a plan? - ANSWER ✨✔---Taxpayers can use either a simplified or general method to calculate the cost basis. Which of the following type of income cannot be both active and passive income depending on the circumstances? - ANSWER ✨✔---estate and trust income - will always be passive Jonas has $10,000 in adjusted gross income. During TY2021, Jonas sold some stocks he held over a year, generating a loss of $6000. He also sold some stocks he held for a short period to make a profit of $1000. How much is Jonas's AGI after applying these trANSWERactions? - ANSWER ✨✔---7,000 - The short term gain is offset by $1000 in long term loss. Additionally, Jonas would be limited to $3000 in capital loss in TY2018. Taxpayers with a MAGI above a certain threshold face which tax on passive income? - ANSWER ✨✔---taxpayers whose MAGI falls above a certain threshold must pay the Net Investment Income Tax of 3.8%. A taxpayer buys a property in Florida on May 15th and has his family stay there for two weeks while spending 30 days renovating the property and renting it out for the rest of the year. During the rental period, the taxpayer's family returns for another week to stay. What is his personal use ratio for the rental? - ANSWER ✨✔--- 96 - this percentage is calculated by excluding both the period of personal use and renovation prior to the property being used in rental activity, while including the 7 day personal use that occurred during this time frame. Which of the following methods of calculating OID interest does not result in a current year deduction? - ANSWER ✨✔---Under maturity basis, the entire interest expense reporting is deferred until the OID has reached maturity and all taken that final year.
What is the default method for depreciating rental property - ANSWER ✨✔---MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS) When is a Form 4562 required on a Sch E, out of the available options presented? - ANSWER ✨✔--- The taxpayer has put new property into service or is depreciating listed property. What is the special allowance amount for taxpayers with active participation in their rental activity, assuming they are not filing as MFS? - ANSWER ✨✔---25, A taxpayer buys a personal asset and sells it exactly one year later for a gain. How should this be taxed? - ANSWER ✨✔---As a short term capital gain. The holding period is a year or less and it is not a business asset. Which forms are attached to the Schedule D for totaling most forms of capital gains income? - ANSWER ✨✔---forms 8949.These forms are used to report the vast majority of short and long term capital gains that are not required to be reported elsewhere. A single filer's trANSWERition from the 0% to 15% rate for LTCGs occurs when... - ANSWER ✨✔--- When taxable income is over $40,000, the 15% LTCG is triggered. How many years must an individual use a primary residence in order to qualify for exclusion for the gains from the sale of a main home? - ANSWER ✨✔---They must use the home as a main home for two (2) out of the previous five years. How much is the Net Investment Income tax? - ANSWER ✨✔---An additional 3.8% tax on gains (and other investment income) when the taxpayer's MAGI exceeds certain thresholds. At what MAGI would a married taxpayer have to be under in order to take the deduction for student loan interest? - ANSWER ✨✔---Joint filers must have an MAGI under $165,000 in order to take advantage of this benefit. Separate filers do not qualify. Student taxpayers can take which of the following education credits or benefits together on the same return for the same student? - ANSWER ✨✔---None, if they relate to tax treatments on the
Which convention is the most common? - ANSWER ✨✔---half year What is the maximum amount of Section 179 deduction that can be claimed on a return for TY2021? - ANSWER ✨✔---The adjust $1m limit is increased to $1,020,000 for TY2019. A taxpayer gives his son a car as a present for graduating college. At the time the son received it, the car was worth $25,000. What taxable event occurs? - ANSWER ✨✔---The taxpayer pays gift tax on the excess over the gift exclusion and files a Form 709 for the taxable portion of the gifted car. The value of the vehicle is over the exclusion amount and therefore the excess is taxed and the amounts reported on the Form 709. A 40-year old taxpayer pulls out $25,000 from their traditional IRA retirement fund. They roll over $25,000 into a different plan, and then spend the rest on personal expenses because of "tight times." Which of the following is true? - ANSWER ✨✔---The taxpayer will have $20,000 in taxable income and pay $2,000 in early withdrawal penalty added on top of their tax. The rollover is excludable and not subject to the 10% additional tax The taxpayer is packaging his Form 1040 to mail to the IRS. He has two (2) Form(s) W-2, one with withholding and one without. Where do they go in context to the other forms? - ANSWER ✨✔--- Form(s) W-2 go in front of the Form 1040 for a mailed return. A married couple had an argument and the other spouse left one evening in the middle of March and hasn't been back since. The remaining spouse is taking care of the home and their dependent child. What filing status should they use to minimize tax exposure? (Assume they are a low- to mid-income filer.) - ANSWER ✨✔---head of household - Under the rule for abandoned spouses, the remaining taxpayer qualifies for the "considered unmarried" exception to the requirement to file separate, and can choose Head of Household filing status. A taxpayer wants to make sure that they withhold the appropriate amount from their pay. Which of the following information is not needed to properly complete the Form W-4? - ANSWER ✨✔--- Dependent names and TINs. Only the rough number of dependents, broken into the credits they traditionally qualify for, are needed. Names and TINs of dependents do not go on Form(s) W-4. A taxpayer earns $50,000 in salary. From that value, he contributes $5,000 a year into a 401(k). What differences, if any, exist between regular and FICA wages? - ANSWER ✨✔---The federal total will
be $5,000 less than FICA wages due to the elective deferral. The federal wages receive preferential tax treatment due to the elective deferrals while the FICA wages do not. A waitress makes $6,500 in tips during the year. When they get their Form W-2, the Allocated Tips in Box 8 shows $10,000. What must the waitress do in order to avoid having to include this figure in Form 4137 income? - ANSWER ✨✔---They need to keep an accurate daily tip record to prove that their own tips were less than the allocated amount. If a taxpayer can show that their tips were less than the Allocated Amount, then they can leave those amounts off of the Form 4137, or not have to file one, depending on their circumstances. A taxpayer receives sick pay from a plan where they and their employer split the cost of contributions equally. What amount of the sick pay is taxable income to the employee? - ANSWER ✨✔---Half of the benefits are taxable since the employer paid for half of the cost of contributions. Since the payment of the plan premiums was fifty-fifty, the income is, as well. Taxpayers do not include in income amounts of sick pay that are part of their own cost in the plan. Which of the following is true when a tax preparer is handling preparation fees? - ANSWER ✨✔--- Preparers must inform clients about the free options offered by the IRS before using a bank product. What does not trigger the requirement to complete the Form 8867? - ANSWER ✨✔---The Child Care Credit is purely non-refundable, and is not included on the 8867. What would cause a return to be rejected upon e-filing? - ANSWER ✨✔---Wrong bday. The e-file system will check last names, birth dates, and whether a return has already been filed in verifying the return. Tax preparers must keep physical copies of all records. - ANSWER ✨✔---NOPE. The IRS doesn't care what format records are kept so long as they are legible and easily reproducible on request Which type of rejection would not be fixable for e-filing purposes? - ANSWER ✨✔---Dependent claimed on another return. This would require the dependent either being deleted or the return being paper filed
In which of the following scenarios would an Enrolled Agent be incapable of representing a client assuming they possessed no additional relevant professional credentials in the realm of tax preparation?
- ANSWER ✨✔---Enrolled Agents may not represent clients in Tax Court by default without additional certifications or a license to practice law. Which of the following types of practitioner have limits to their ability to represent clients before the IRS? - ANSWER ✨✔---AFSP Record of Completion holders have what is called "limited representation" and can only represent clients whose returns they signed and prepared, and only before revenue agents, customer service representatives, and similar IRS employees. Tax practitioners must ensure which of the following facts are true in regards to their recordkeeping? - ANSWER ✨✔---The records kept can be in any format so long as they are legible and can be retrieved promptly. A client provides information that a practitioner uses to file their return. After completing the return, but before filing, the practitioner learns of several errors in the return based on false or misleading information provided by the client. The practitioner is required to do which of the following? - ANSWER ✨✔---1. Advise the client of the consequences of their errors and noncompliance.
- Refuse to sign or send the return as the preparer without correcting the error(s).
- Inquire and seek ANSWERwers to clarify information which was originally used to incorrectly complete the tax return. A tax practitioner files a return for TY2020 claiming the Earned Income Tax Credit, Child Tax Credit, American Opportunity Credit, and the Head of Household filing status the HOH filing status was added to the Form 8867 for TY2018 onwards). The IRS determines later that due diligence on this return was not satisfied because the tax practitioner kept no contemporaneous records and assesses a penalty. What is the amount of the penalty assessed for this one return? - ANSWER ✨✔---Each item on this return mentioned has a separate standard of Due Diligence on Form 8867 and is subject separately to a base $530 penalty for each due diligence violation. A violation of due diligence on all four (4) items totals $2,120. What is the Standard Deduction for a Married Filing Joint taxpayer? - ANSWER ✨✔---25, A single taxpayer, under age sixty-five (65) will have a filing requirement at what gross income value? - ANSWER ✨✔---12,
What is the maximum amount that can be contributed to a 401k plan for TY2021, assuming the taxpayer is under fifty (50)? - ANSWER ✨✔---19, What is the minimum age a taxpayer needs to be to claim EITC on their tax return, assuming that they have no children, in TY2021? - ANSWER ✨✔---19 min; 65 max Which of the following is true for TY2021? - ANSWER ✨✔---Medical expense AGI limitations for deductions are permanently extended at the 7.5% rate. Taxpayers with too much Advance Premium Tax Credit will have what issue to deal with on their TY returns? - ANSWER ✨✔---They will have to pay back APTC to an amount based on their household income compared to the Federal Poverty Line and their filing status. What amount of EIP is available for TY2021 returns? - ANSWER ✨✔---0. EIP is the advance payment only. Any amounts unclaimed are taken on the TY2021 return as Recovery Rebate Credit. What is the maximum amount of expenses that can be used for a child for the purposes of the Dependent Care Credit in TY2021? - ANSWER ✨✔--- 8000 Which of the following taxpayers would automatically be ineligible for EITC with the information given? - ANSWER ✨✔---Timothee, an undocumented immigrant with an ITIN. Which of the following is not a consequence of identity theft? - ANSWER ✨✔---Easier time filing in the future. Which form should be filed with the IRS to report Identity Theft? - ANSWER ✨✔---Victims of identity theft should file a form 14039 to report the theft and receive an IP Pin E-mails from the IRS initiating correspondence about a taxpayer's return will end with what URL? - ANSWER ✨✔---The IRS will never initiate contact via e-mail or phone. They will always mail correspondence to the taxpayer's last known address.
Which of the following taxpayers is ineligible to claim California EITC? - ANSWER ✨✔---HOH taxpayer, four children, AGI of $45,000. California EITC - ANSWER ✨✔---California Earned Income Tax Credit The taxpayer files their return and puts $1,000 of their refund into estimated payments for the following year. FTB assesses a liability for understatement of income after the due date of the return. The taxpayer wishes to use the estimated payment to cover the deficit. They may do what? - ANSWER ✨✔---Pay the deficit directly. In which of the following circumstances would the taxpayer be required to pay their tax balance electronically? - ANSWER ✨✔---The taxpayer made over $100,000 in estimated payments during the year, one of which was $40,000. Voluntary contributions are totaled on what line of the Form 540? - ANSWER ✨✔---line 110 Tax practitioners can act as representatives for taxpayers with power of attorney by completing the third party designee section of the Form 540 for their clients. - ANSWER ✨✔---The Form 3520-PIT is what authorizes power of attorney for FTB purposes. Which form is used to file a normal return for a California resident taxpayer? - ANSWER ✨✔--- forms 568 and 540 How long must a tax preparer keep records for State purposes after efiling the return? - ANSWER ✨✔---4 years When evaluating income levels to see if the taxpayer has a filing requirement; Which is the lower value for comparison sake - Federal AGI or California AGI? - ANSWER ✨✔---Comparing to California AGI is comparing to a lower value.
An HOH taxpayer with two minor children claimed on the return will have what exemption credit value? (Assume the taxpayer is under sixty-five, not blind, and does not meet the reduction threshold based on income.) - ANSWER ✨✔---It's $124 for the taxpayer and $383 twice, once for each child. SO 890 Which of the following does CA conform to on the fed - ANSWER ✨✔---7.5% of AGI medical expense deduction Which of the following legal fees would technically NOT be deductible as a miscellaneous deduction for California purposes? - ANSWER ✨✔---Legal fees to contest custody of one's children
- has to be related to the production of income Taxpayers who are California residents who decide to file separate may have which of the following to consider? - ANSWER ✨✔---Completing Form 8958 to split allocation of community and separate income. Which form is used for filing a return for LLCs in the state of California? - ANSWER ✨✔---Form 568 A military taxpayer, stationed and domiciled in California, is on deployment to Afghanistan for half of the year before being stationed in support of operations in the Sinai Peninsula. The combat zone pay excluded from income on the federal return is $50,000, split equally between the two deployments. How much income must be added back to the state return? - ANSWER ✨✔---25, A taxpayer receives dividends from two different mutual funds. Fund A pays out exempt interest dividends included in federal income. Fund B pays out exempt interest dividends which include federally-exempt income. Fund A has a statement which shows that 75% of the funds assets would be exempt if held by a CA state individual. Fund B seems to come from from mostly non-CA sources. Which treatment is considered accurate for the state return? - ANSWER ✨✔---Fund A is subtracted from state income and Fund B is included. Fund A has over 50% of fund assets that would be exempt from State taxation, so it's subtracted from income, while Fund B is added to income since the fund assets are mostly outside the state. A taxpayer has a $1,000 CA and $1,000 NY taxable refund on the federal return. How much taxable state refund income is on the CA return? - ANSWER ✨✔--- 0 - Taxable refunds included on the federal return are subtracted from CA income
allowed to deduct the wildfire on their federal return and both incidents on their state return. The state will allow both but the federal will not. The federal tax return has $200 in educator expense deductions as an adjustment to income. What's the end effect on California's treatment of the same expenses? - ANSWER ✨✔---The California return does not conform to these expenses and the deduction is removed from the state return. California does not have educator expense deductions like the federal return. A seventy-three year old taxpayer makes $7,000 in IRA contributions to their IRA during the year. Which of the following best describes the tax impacts? - ANSWER ✨✔---The federal allows a $7, deduction, but the state doesn't match it. The state did not conform to the SECURE Act in removing the age limit for IRA contributions. A taxpayer runs a rental unit with $25,000 in expenses while making $20,000 in income for a net $5, loss. One half of his units are determined to be considered substandard housing by a local agency. What is the net profit on their return from this activity? (Assume income and expenses are split equally) - ANSWER ✨✔---$7,500 profit. Half of the $25,000 in expenses are non-deductible, netting against income to a net profit of $7,500. The taxpayer receives $10,000 a year in alimony for a divorce which finalized in early TY2020. Which of the following is accurate? - ANSWER ✨✔---The taxpayer reports $10,000 on their state return, but not their federal return. The taxpayer files their return and puts $1,000 of their refund into estimated payments for the following year. FTB assesses a liability for understatement of income after the due date of the return. The taxpayer wishes to use the estimated payment to cover the deficit. They may do what? - ANSWER ✨✔---Pay the deficit directly. Which of the following is NOT exempt from collecting sales tax? - ANSWER ✨✔---A warehouse in California which sells building materials to contractors. Which of the following methods is required for signature for electronic filing? - ANSWER ✨✔--- Both the Self-select and Practitioner PIN methods. Either choice can be taken to sign the return for e- filing.
A taxpayer goes without paying a liability for a long time on their personal return and their LLC, such that the state has to take measures to collect. What is the amount of the cost recovery fee that this taxpayer will pay? - ANSWER ✨✔---$632 - This is the amount of the individual and LLC (not treated as a corporation) cost recovery fee combined. Which of the following does the state have a dedicated Due Diligence form for? - ANSWER ✨✔--- Earned Income Tax Credit. The Form 3596 is the Due Diligence worksheet for the State. What AGI limit turns off CalEITC for taxpayers? - ANSWER ✨✔---$30,000 or under for ty Which of the following tests is used to determine whether or not a taxpayer is an independent contractor? - ANSWER ✨✔---- A test to see if the worker works in a trade or business which is customarily known as an independent, established trade or business profession.
- A test to determine whether the worker is free from control and direction of the hiring entity for their work.
- A test to see if the worker performs work outside of their hiring entity's type of business or profession. how to deduct home office - ANSWER ✨✔---Simplified Method: $5 per square foot up to 300 square feet of office. Maximum total is $1,500. Safest. Individuals capable of practice before the IRS: - ANSWER ✨✔---Enrolled Agents (EAs) Certified Public Accountants (CPAs) Enrolled Retirement Plan Advisors (ERPAs) Enrolled Actuaries Attorneys AFSP Record of Completion Holders Earned income for purposes of calculating the Earned Income Credit includes which of the following? - ANSWER ✨✔---wages, tips, salaries, non-taxable combat pay, union strike benefits, and certain long-term disability benefits Individuals capable of practice before the IRS: - ANSWER ✨✔---Enrolled Agents (EAs)
