H&R Block Final Exam Review 100% Correct And Verified Answers 2024, Exams of Advanced Education

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H&R Block Final Exam Review 100%

Correct And Verified Answers 2024

What is the difference between earned income and unearned income? - Correct Answer-Earned income is received for services performed. Some examples of earned income include wages, commissions, tips, farming, and other business income. Unearned income is taxable income that does not meet the definition of earned income. Examples of unearned income include interest income, dividends, rents and royalties, pensions, alimony, and unemployment income. If an employee thinks their Form W-2 is incorrect, what should they do? - Correct Answer-If the taxpayer's name, social security number, or earnings or withholdings are incorrect, the taxpayer should notify their employer and request a corrected Form W-2. The employee should request that the employer update their records and verify that the earnings were properly credited with the Social Security Administration. However, the taxpayer is still responsible for filing a timely tax return. If the employee's attempts to obtain a corrected Form W-2 from their employer are not successful, the taxpayer should notify the IRS. It may be necessary to prepare a substitute Form W-2. What information do you need to know to determine whether a taxpayer is required to file a return? - Correct Answer-The taxpayer's marital status, age at the end of the tax year, gross income for the year, and if the taxpayer is a dependent. Where on Form 1040 can you find the regular standard deduction amounts? - Correct Answer-In the left-hand margin on page 1 of Form 1040. They are: single and married filing separately, $12,200; married filing jointly and qualifying widow(er), $24,400; and head of household, $18,350. How much is added to the standard deduction if the taxpayer (or spouse) is age 65 or older, or blind? - Correct Answer-$1,300 for married taxpayers and qualifying widow(er)s, or $1,650 for all other unmarried taxpayers, is added for each condition. What is the personal exemption amount for 2019? - Correct Answer-There is no personal exemption for 2019. A personal exemption was an amount previously allowed by law to reduce income that would otherwise be taxed. The Tax Cuts and Jobs Act of 2017 repealed this deduction beginning in 2018. How is the gross income filing requirement determined for most taxpayers? - Correct Answer-The taxpayer's standard deduction, including the additional amounts for age and blindness. However, for MFS, the amount is $5. What is the difference between injured spouse allocation and innocent spouse relief? - Correct Answer-The IRS provides an injured spouse allocation for the taxpayer to

protect their portion of a refund from a spouse's past-due federal income tax, unpaid student loans, or unpaid child and spousal support, or state income tax. The IRS provides innocent spouse relief to taxpayers who file a joint return and later learn that their spouse has underestimated income (or overstated a credit or deduction) on the return. What is a thorough interview? - Correct Answer-A thorough interview consists of asking general information questions, then asking additional questions whenever information is incomplete or seems inaccurate or inconsistent What is a conflict of interest? - Correct Answer-Circular 230 states that a conflict of interest exists if the representation of one client will be directly adverse to another client, or if there is a significant risk that the representation of one or more clients will be materially limited by the practitioner's responsibilities to another client, a former client, or a third person, or by a personal interest of the practitioner. What actions can resolve a conflict of interest? - Correct Answer-A conflict of interest is resolved when it is acknowledged, disclosed to all parties, and the parties have consented to waiving the conflict. What taxpayer information is confidential? - Correct Answer-Any information that could potentially identify the taxpayer is confidential. Information includes (but is not limited to) name, address and phone number, social security number, place of employment, and any information from a tax return. What is a tax preparer's responsibility upon finding out that a taxpayer has not complied with one or more tax laws? - Correct Answer-A tax preparer must only advise the taxpayer of the noncompliance and the consequences for not correcting the situation. The taxpayer is the only individual who can decide to make corrections to their return. What action should a tax preparer take if a taxpayer insists on reporting information that is inaccurate? - Correct Answer-A tax preparer may not sign a return reporting clearly inaccurate information or otherwise assist a taxpayer in filing an inaccurate return. A tax preparer may not sign a return reporting clearly inaccurate information or otherwise assist a taxpayer in filing an inaccurate return. - Correct Answer-The dependent must be a qualifying child or qualifying relative; they must be a U.S. citizen or a resident of the United States, Canada, or Mexico; they cannot file a joint return (unless solely to claim a refund of taxes paid); and the taxpayer claiming the dependent must not be a dependent of another taxpayer. What are the five tests for a qualifying child? - Correct Answer-Relationship test. Age test. Residency test. Support test. Joint return test.

How can a married individual meet the joint return test to remain a qualifying child? - Correct Answer-They can meet this test by not filing a joint return with their spouse, or they can file a joint return with their spouse if they are filing only to claim a refund of any taxes withheld. How can you determine who paid more than half of a person's support? - Correct Answer-The amount of total support is reduced by the funds received for the person from all sources other than the taxpayer. Other sources of support might include relatives, government programs, and the dependent's own income. What happens if an individual is a qualifying child of more than one taxpayer? - Correct Answer-If more than one taxpayer claims the dependent, the IRS will apply the tiebreaker rules to award the qualifying child to one of the taxpayers. What four tests must be met for an individual to be considered a qualifying relative? - Correct Answer-1.Relationship or member of the household for the entire year. 2.Gross income. 3.Support. 4.Not a qualifying child of someone else. How can the gross income test for a qualifying relative be satisfied? - Correct Answer- The qualifying relative's gross income must be less than $4,200. When determining the gross income, tax-exempt income, such as certain social security benefits, is not included. What is the purpose of Form 2120, Multiple Support Declaration? - Correct Answer-If two or more persons combined provided over one-half of a person's support, they may together agree to allow any one of them who contributed at least 10% of the support to claim the exemption. A statement waiving the right to claim the dependency exemption should be signed by each contributor who is not claiming the exemption, and retained by the one who is. Form 2120 is attached to the return of the taxpayer claiming the exemption. How much is the Child Tax Credit worth? - Correct Answer-Up to $2,000 per qualifying child. What additional requirements must be met for a taxpayer to be eligible to claim the Child Tax Credit for their qualifying child? - Correct Answer-The child must: Be a qualifying child who is the taxpayer's dependent and who has not reached their 17th birthday by the end of the year. Have a social security valid for employment before the due date of the return. Be a citizen, national, or resident of the United States.

Is the Child Tax Credit refundable or nonrefundable? - Correct Answer-The Child Tax Credit is nonrefundable. However, certain taxpayers may qualify for the Additional Child Tax Credit, which is refundable. The Child Tax Credit is nonrefundable. However, certain taxpayers may qualify for the Additional Child Tax Credit, which is refundable. - Correct Answer-There is a $ penalty for failing to meet the CTC/ODC/ACTC due diligence requirement on one taxpayer's return. What is the first due diligence requirement for the EITC, CTC/ACTC, ODC, AOTC, and/or head of household filing status, and how does a paid preparer meet this requirement? - Correct Answer-Complete and submit Form 8867, Paid Preparer's Earned Income Credit Checklist. The form must be completed thoroughly and conscientiously by the paid preparer. One Form 8867 must be submitted with every e-filed or paper-filed return (original and/or amended) for every taxpayer who claims the EITC, CTC/ODC/ACTC, AOTC, and/or uses the head of household filing status. What filing statuses are available to taxpayers who are unmarried? - Correct Answer- Qualifying widow(er), head of household, and single. How may a married taxpayer qualify as unmarried for tax purposes? - Correct Answer- To qualify as unmarried for the purpose of claiming the head of household filing status, a taxpayer must meet all of the following: Not file a joint return with their spouse. Provide more than half the cost of maintaining their home. The home must be the main home for the taxpayer and their dependent child (or child who would be a dependent except that the exemption was given to the noncustodial parent) for more than six months of the tax year. The taxpayer's spouse must not have lived in the home during the last six months of the year. What requirements must be met for a taxpayer to qualify to file as head of household? - Correct Answer-The taxpayer must be unmarried (or qualify as unmarried for tax purposes) and must pay over half the cost of maintaining a home, which for over half the year was the main home of the taxpayer and their qualifying child or qualifying relative, or they paid over half the cost of maintaining their parent's home for the entire year and claimed that parent on their return. QList at least four costs of maintaining a home. - Correct Answer-Among other things, mortgage interest and real estate taxes (or rent), fire/casualty (or renter's) insurance, upkeep and repairs, utilities, and food consumed in the home are all costs of maintaining a home. What requirements must be met for a taxpayer to use the qualifying widow(er) status? - Correct Answer-The death of the taxpayer's spouse must have occurred during one of

the two preceding tax years; the taxpayer must not have remarried and must have been entitled to file a joint return for the year of death. The taxpayer must have paid over half the cost of maintaining the home for the entire year, which was the main home of their dependent son, daughter, stepson, or stepdaughter. In the case of divorced or separated parents, which parent generally gets to claim the qualifying child? - Correct Answer-The custodial parent. What is the exception to this rule? - Correct Answer-If a decree of divorce or separate maintenance or written separation agreement that became effective after October 4, 2004, and before January 1, 2009, states that the noncustodial parent is entitled to claim the child's dependency exemption, or if the custodial parent executes a written declaration that they will not claim the child as a dependent for that year, the noncustodial parent may claim the qualifying child. For divorces granted after December 31, 2008, Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, must be filed if parents are separating tax benefits. What happens when more than one taxpayer claims the same qualifying child (QC)? - Correct Answer-The IRS will apply tiebreaker rules as follows: If only one of the taxpayers is the child's parent, the child is treated as the qualifying child (QC) of the parent. If the parents do not file a joint return together, but both parents claim the child, the IRS will treat the child as the QC of the parent with whom the child lived and stayed over for the greater number of nights during the year. If the child lived with each parent and stayed over the same number of nights during the year, the IRS will treat the child as the QC of the parent with the highest AGI. If no parent can claim the child as a QC, the child is treated as the QC of the taxpayer with the highest AGI. If a parent can claim the child, but no parent claims the child, the child is treated as the QC of the taxpayer who had the highest AGI for the year, but only if that taxpayer's AGI is higher than the highest AGI of either of the child's parents who can claim the child. If the child's parents file a joint return with each other, this rule can be applied by dividing the parents' combined AGI equally between the two. How is interest income reported to the taxpayer? - Correct Answer-Interest income is reported to the taxpayer on Form 1099-INT or a substitute statement. Interest income is reported to the taxpayer on Form 1099-INT or a substitute statement.

• Correct Answer-Dividends are payments to shareholders (individuals who own stock) of corporations that represent the shareholder's portion of the corporation's profits. Dividend income may consist of ordinary dividends, capital gain distributions, or nontaxable (return of capital) distributions. Dividend income is reported to the taxpayer on Form 1099-DIV or a substitute statement.

At what threshold amount must interest or dividend income be reported on Schedule B?

• Correct Answer-When total taxable interest or ordinary dividend income exceeds $1,500. Is interest received on U.S. Treasury obligations taxable on state and/or local returns? - Correct Answer-No. Interest on U.S. Treasury obligations is exempt from state and local tax by federal law. Is municipal bond interest taxable on a federal return? - Correct Answer-No, the federal government does not tax municipal bond interest. What favorable tax treatment is received for qualified dividends and capital gain distributions? - Correct Answer-Qualified dividends and capital gain distributions receive more favorable tax treatment because they are treated as long-term capital gains. They are taxed at lower rates than ordinary income and short-term capital gains. For 2019, the maximum rate of tax on qualified dividends is: 0% on taxable income less than $78,750 MFJ/QW, $52,750 HH, and $39,375 S/MFS that otherwise would be taxed at higher tax rates. 15% on taxable income greater than the amounts listed above and below $488, MFJ/QW, $461,700 HH, $434,550 S, and $244,425 MFS. 20% on any amount above the maximum 15% rate amount. Which taxpayers will use the Qualified Dividends and Capital Gain Tax Worksheet? - Correct Answer-Taxpayers will use the Qualified Dividend and Capital Gain Tax Worksheet to compute their tax when they receive qualified dividends (shown in box 1b of Form 1099-DIV) and/or "normal" capital gain distributions (shown in box 2a of Form 1099-DIV) from mutual funds or regulated investment companies. Who may qualify for the Additional Child Tax Credit (ACTC)? - Correct Answer- Taxpayers who qualify for the Child Tax Credit and have earned income in excess of $2,500 for 2019, or those with three or more qualifying children for Child Tax Credit purposes whose Child Tax Credit was limited by their tax liability. What is the second due diligence requirement for the EITC, CTC/ODC/ACTC, and AOTC, and how does a paid preparer meet this requirement for EITC and CTC/ACTC?
• Correct Answer-Complete and keep all worksheets used to compute any of these four credits. The CTC has a worksheet that needs to be completed, and the ACTC is calculated using Schedule 8812. The EITC has several worksheets that need to be completed that tie to Schedule EITC. Complete and keep all worksheets used to compute any of these four credits. The CTC has a worksheet that needs to be completed, and the ACTC is calculated using Schedule 8812. The EITC has several worksheets that need to be completed that tie to Schedule EITC. - Correct Answer-The five qualifications are: Be at least 25 years old, but younger than age 65, on January 1, 2020.

Not be able to be claimed as a dependent on another taxpayer's return. Not be a qualifying child of another person. Live in the United States more than half the year. Have earned income and AGI of less than $15,570 ($21,370 if married filing jointly). If a taxpayer has one or more qualifying children, what are the four specific qualifications they must meet to receive the Earned Income Tax Credit? - Correct Answer-The four qualifications are:

1. Have a qualifying child who meets the relationship, age, residency, and joint return tests.
2. Have a qualifying child who is not used by another person to claim EITC.
3. Not be the qualifying child of another person.
4. Have earned income and AGI that is less than one of the following: $41,094 ($46,884 if married filing jointly) with one qualifying child. $46,703 ($52,493 if married filing jointly) with two qualifying children. $50,162 ($55,952 if married filing jointly) with three or more qualifying children. Note: Age is not a qualification if a taxpayer has qualifying children. What are the six qualifications that must be met for any taxpayer to be eligible to claim the Earned Income Tax Credit? - Correct Answer-The taxpayer must: Have a valid SSN. Not use the filing status MFS. Be a U.S. citizen or resident alien all year. Not file a Form 2555 or Form 2555-EZ. Have investment income of $3,600 or less. Have earned income. Chris (26) has an earned income and AGI of $9,486. He has no other income. He lived in the United States all year and is no one's dependent. He has a valid SSN and is filing as single. He is a U.S. citizen. Does Chris qualify for EITC? - Correct Answer-YES What is the third due diligence requirement for the EITC, CTC/ACTC, ODC,and AOTC, and how does a paid preparer meet this requirement for EITC and CTC/ACTC/ODC? - Correct Answer-Satisfy the knowledge requirement. To meet the knowledge requirement, the paid preparer cannot know of, or have any reason to know, that any information used to determine a taxpayer's eligibility for, or the amount of, the credit is incorrect, inconsistent, or incomplete. They need to know the tax law behind EITC and CTC/ACTC/ODC to ensure that all the eligibility requirements are met before claiming one of these credits. Interview each taxpayer, ask adequate questions, review the information the taxpayer provides, and then document their responses. Ask additional questions until you are satisfied that the eligibility requirements are met and the taxpayer can claim the credit. Is unemployment compensation taxable? - Correct Answer-Yes, unemployment compensation is fully taxable.

Are scholarships and fellowships taxable? - Correct Answer-Sometimes. Generally, scholarships and fellowships are excluded from income by degree-seeking candidates to the extent that they are used to pay qualified education expenses, such as tuition and course-related fees. However, if they are used to pay for room and board or other expenses, they are taxable. What document will the taxpayer receive from their employer reporting disability pension payments? - Correct Answer-The income is reported on Form 1099-R. Where is income from disability pension payments entered on Form 1040? - Correct Answer-Until the taxpayer reaches minimum retirement age, taxable disability pension payments reported on Form 1099-R, box 2a, are entered as wage income on Form 1040, line 1. Once the taxpayer reaches minimum retirement age, disability income is reported as pension income on Form 1040, lines 4c and 4d. Under what circumstances can a disability pension qualify as earned income for the EITC? - Correct Answer-Disability pension income received before the taxpayer attains minimum retirement age is reported as wage income. It is also considered earned income for purposes of EITC. What types of income must be reported on Schedule 1 (Form 1040) and then reported on Form 1040? - Correct Answer-Gambling winnings, alimony, jury duty pay, canceled debts, and hobby income are some examples of income that must be reported on Schedule 1 (Form 1040) and then reported on Form 1040. What are the adjustments that can be claimed on Schedule 1 (Form 1040)? - Correct Answer-On Schedule 1, a taxpayer may be eligible to claim: Educator expense deduction. Certain business expenses of reservists, performing artists, and fee-based government officials. The health savings account (HSA) deduction. Moving expenses for members of the military. Self-employment tax deduction. Self-employed SEP, SIMPLE, and qualified plan deduction. Self-employed health insurance deduction. Penalty on early withdrawal of savings. Alimony payments. IRA deduction. Student loan interest deduction. How much may an eligible educator deduct for qualified classroom expenses as an adjustment to income? - Correct Answer-Up to $250 per eligible educator. Married taxpayers filing a joint return who are both eligible educators may each claim the $250 deduction, totaling $500.

Who is an eligible educator? - Correct Answer-Someone who worked at least 900 hours during the school year as a teacher, teacher's aide, counselor, or administrator in an elementary or secondary school. Where is the educator expense deduction reported? - Correct Answer-Educator expenses are reported on Schedule 1, Additional Income and Adjustments to Income, line 10. Who may not claim a student loan interest deduction? - Correct Answer-Someone who is claimed as a dependent may not claim the deduction in the current tax year, nor may someone who uses the married filing separately filing status. The amount of income a taxpayer earns may also affect their deduction. Taxpayers whose modified AGI exceeds a threshold amount for their filing status may not be able to claim the deduction, or they may only be eligible to claim a reduced amount. What is a qualified student loan? - Correct Answer-A loan used to pay qualified education expenses. Credit card debt may be included, provided the card was used exclusively to pay for qualified expenses. Money borrowed from a related person is not a qualified student loan. Why are tax credits valuable to taxpayers? - Correct Answer-Credits are valuable because they reduce tax liability dollar for dollar. What is the difference between nonrefundable and refundable credits? - Correct Answer-Nonrefundable credits may not reduce a taxpayer's tax liability below zero. Refundable credits may reduce the taxpayer's tax liability below zero, and the difference is refunded to the taxpayer. How will the taxpayer's employer paying $500 of a taxpayer's $2,000 of child care expenses affect the Child and Dependent Care Credit, and on which form is it reported to the taxpayer? - Correct Answer-The expenses eligible for the credit must be reduced by the $500 of employer-provided assistance that can be excluded from income. Dependent care expenses are reported in box 10 of Form W-2. What is the premium tax credit? - Correct Answer-The premium tax credit (PTC) is a credit that helps pay the cost of health care coverage through the Marketplace. It is either advanced to the taxpayer or refunded through their income tax return. What is the purpose of Form 1095-A? - Correct Answer-Taxpayers who purchase insurance coverage through the Marketplace will be sent a Form 1095-A, Health Insurance Marketplace Statement. All taxpayers who obtained coverage through the Marketplace for themselves, a spouse, or dependents, and either received the advance premium tax credit or are eligible to claim the premium tax credit on their tax return, must have a Form 1095-A to complete their return.

How is the premium tax credit calculated, and how does a taxpayer reconcile the premium tax credit with any advance premium tax credit received? - Correct Answer- Form 8962, Premium Tax Credit, calculates the taxpayer's premium tax credit and reconciles it with any advance premium tax credit received. Form 8962 must be filed for any taxpayer who received the advance premium tax credit. It may also be prepared for any taxpayer who is eligible for the premium tax credit but did not receive the advance premium tax credit. Information from Form 1095-A is used to complete Form 8962. When are expenses for the adoption credit claimed? - Correct Answer-If the taxpayer adopts a U.S. citizen or resident, they generally will claim the credit in the year following the year in which they paid the expenses. This is true even if the adoption is never finalized. However, if the adoption becomes final during or before the year in which the taxpayer paid the expenses, they will claim the credit in the year the expenses were paid. If the taxpayer adopts a child who is not a U.S. citizen or resident, they may claim the credit (or exclude the employer's assistance) only for the year the adoption becomes final. What is the maximum adoption credit for 2019? - Correct Answer-$14,080 per child. Which taxpayers may claim the American Opportunity Tax Credit (AOTC)? - Correct Answer-A taxpayer may claim the AOTC if they paid qualified education expenses for an eligible student who is either the taxpayer, their spouse, or their dependent. Also, the taxpayer may not be filing MFS, have not completed the first four years of college, or be claimed as a dependent on another taxpayer's return, and their MAGI must be below $90,000 ($180,000 for MFJ). What effect do tax-free funds (such as grants) have on qualifying expenses for the AOTC? - Correct Answer-The expenses must be reduced by the amount of any tax-free funds received prior to calculating the AOTC. What is the fourth due diligence requirement for the EITC, CTC/ODC/ACTC, and AOTC, and how does a paid preparer meet this requirement? - Correct Answer-Satisfy the documentation requirement. Paid preparers must keep photocopies of any records provided by the taxpayer that were relied upon to determine their eligibility for the refundable credits, or to compute the amount of the credits when the return was prepared. This includes keeping copies of all handwritten worksheets used to calculate the credits and a record of any questions asked during the tax interview, with the taxpayer's responses, to ensure they met the knowledge requirement. What is the maximum lifetime learning credit, and which taxpayers may take advantage of this credit? - Correct Answer-The maximum is $2,000 per return. The lifetime learning credit is available to certain taxpayers paying for higher education courses, including graduate-level courses. Students may be degree candidates, or they may be non- degree candidates taking college courses to maintain or improve job skills.

How is the lifetime learning credit calculated? - Correct Answer-It is 20% of the first $10,000 of qualifying expenses per return, per year. What is the tuition and fees deduction, and which taxpayers may take advantage of this deduction? - Correct Answer-This tax benefit for education is a deduction rather than a credit. It is claimed as an adjustment to income rather than as an itemized deduction on Schedule A. As an adjustment, it may directly reduce the amount of a taxpayer's income subject to tax by either $2,000 or $4,000, depending on the taxpayer's modified adjusted gross income. The deduction is available to certain taxpayers who paid tuition and/or fees required for enrollment or attendance at an eligible, postsecondary educational institution. The taxpayer must have paid the tuition or fees for themselves, their spouse, or a dependent claimed on their return. Students may be degree candidates or working towards a graduate degree, or they may be non-degree candidates taking college courses to maintain or improve job skills. Taxpayers who use the married filing separately status and individuals who can be claimed as a dependent on someone else's return cannot claim the deduction. Taxpayers using the single, head of household, or qualifying widow(er) filing status may not claim the deduction if their modified adjusted gross income exceeds $80,000. The income limit increases to $160,000 for married taxpayers filing a joint return. What is a qualified retirement plan? - Correct Answer-A plan that meets the requirement of IRC Section 401(a) and the Employment Retirement Income Security Act of 1974 (ERISA), and is therefore eligible for favorable tax treatment. In tax terms, what is it called when a taxpayer puts money into an IRA, and what is it called when a taxpayer takes money out of an IRA? - Correct Answer-Putting money in an IRA is called a contribution, and taking money out is called a distribution. What is it called if a taxpayer takes money out of one IRA and puts it into another IRA (and all requirements are met)? - Correct Answer-A rollover. Who is eligible to establish a traditional IRA? - Correct Answer-Any taxpayer who has not reached age 70½ at the end of the year and who has received compensation during the year. What is the IRA contribution limit for 2019? - Correct Answer-The lesser of 100% of the taxpayer's compensation or $6,000. Individuals who have reached age 50 by the end of the year may contribute an additional $1,000 for a total of $7,000. What is the last date on which an IRA contribution may be made and qualify as a contribution for a given year? - Correct Answer-The due date (not including extensions) of the return for that year.

Why is it important to distinguish between taxpayers who are active participants in an employer-maintained retirement plan and those who are not? - Correct Answer-Those who are not active participants and whose spouses are not active participants may deduct the full amount they contribute to a traditional IRA, assuming they stay within the contribution limits. Those who are active participants, or whose spouses are active participants, may still contribute within the limits but may find their allowable deduction reduced or eliminated based on the modified AGI. What are the main differences between traditional IRAs and Roth IRAs? - Correct Answer-Contributions to a Roth IRA are never deductible, but qualified distributions are exempt from tax. Participation in an employer-maintained retirement plan has no effect on Roth IRA contributions, and contributions can be made after the taxpayer has reached age 70½. As long as they have compensation, contributions to Roth IRAs are not reported on the tax return. What is the maximum amount of contributions on which the Saver's Credit may be based? - Correct Answer-$2,000 for individuals and up to $4,000 on a joint return. What are the percentage rates for the Saver's Credit? - Correct Answer-The rates are 10%, 20%, or 50%, depending upon filing status and modified AGI. On what form are social security benefits reported to the recipient? - Correct Answer- Form SSA-1099. What form is used to report the taxpayer's retirement account distributions? - Correct Answer-Form 1099-R. Under what circumstances would a pension be partly taxable? - Correct Answer-When the taxpayer has contributed after-tax money to the cost and has not yet recovered it. What traditional IRA distributions are fully taxable? - Correct Answer-When all the contributions the taxpayer made were fully deductible. When would a traditional IRA distribution be partly taxable? - Correct Answer-When the taxpayer has made nondeductible contributions. Where is income tax withheld from a retirement account or IRA distribution reported on the tax return? - Correct Answer-Amounts withheld and reported to the taxpayer on Form 1099-R are included on Form 1040 or Form 1040-SR, line 17. Are early distributions from qualified retirement plans always penalized? - Correct Answer-No, there are exceptions that apply to many situations, depending on the type of retirement account from which the distribution was made. How does a tax preparer know if an exception to the early distribution penalty applies? - Correct Answer-The tax preparer can determine if an exception applies by using

thorough interview questions when discussing the distribution with the taxpayer. The distribution code on the Form 1099-R can also be helpful to the tax preparer, but may not correctly report an exception that applies. How do you determine the taxable portion of a social security distribution? - Correct Answer-The amount of a taxpayer's social security or tier 1 railroad retirement benefits subject to federal tax varies from zero to 85%, depending upon filing status and income. The level of taxability is based on MAGI increased by one-half of the net benefits received by the taxpayer (and spouse, if MFJ). The taxable portion is calculated using the Social Security Taxable Benefits Worksheet. What are the two methods used to calculate the taxable amount of a partly taxable pension distribution? When is each used? - Correct Answer-The simplified method and the general rule. The simplified method is generally used to compute the taxable portion of a pension or annuity with a starting date after November 18, 1996, where the taxpayer has after-tax contributions in the plan. The general rule for calculating the excludible portion of pension and annuity payments may be used if a taxpayer started receiving payments before November 19, 1996. Taxpayers with an annuity date starting after July 1, 1986, and before November 19, 1996, generally could have chosen to use the simplified method or the general rule. When might a taxpayer decide to claim the standard deduction even if their itemized deductions are higher? - Correct Answer-A taxpayer who uses the married filing separately filing status whose spouse itemizes may not claim the standard deduction. In addition, taxpayers may choose not to itemize if the cost of paying for tax preparation outweighs the advantages of itemizing or if they prefer to avoid the additional audit risk that comes with itemizing. What types of taxes are deductible? - Correct Answer-State and local income or general sales taxes; state, local, or foreign real estate taxes; and state and local personal property taxes are generally deductible. State and local taxes are currently limited by a cap of $10,000 for 2018 and 2019. There is legislation pending that may change this for

2020. Tax preparers are encouraged to stay abreast of possible changes to this limitation. What are some deductible medical expenses? - Correct Answer-Payments made for the diagnosis, cure, mitigation, treatment, or prevention of disease; for transportation related to medical care; and for insurance covering medical care for the taxpayer, spouse, and dependents are deductible. A complete list of deductible expenses appears in IRS Publication 502, Medical and Dental Expenses. Nondeductible expenses include cosmetic surgery, weight loss programs not designed to treat a specific disease, and meals purchased while traveling for medical treatment. Whose medical expenses may a taxpayer deduct? Are there any situations when the taxpayer may deduct expenses of someone who is not their spouse or dependent? -

Correct Answer-A taxpayer can generally deduct the expenses for themselves, their spouse, or their dependents. They may deduct expenses for a spouse if they were married to the person either at the time the expenses were paid or when the expenses were incurred. Similarly, they may deduct expenses of someone who was a dependent when the expenses were paid or when they were incurred. In addition, a taxpayer may deduct expenses for a person who would have been their dependent except that the person fails the gross income test or the joint return test. Finally, divorced or separated parents may each deduct costs they paid for their child, even if the other parent claims the dependency exemption. When are medical travel expenses deductible? What expenses may be deducted? - Correct Answer-A taxpayer may deduct the cost of medical travel for a patient and for a person who accompanies a patient unable to travel alone. The cost of transportation, including taxis, train fare, and similar costs, is deductible. Taxpayers who use their own cars may deduct either the actual cost of gas and oil or a standard mileage rate of 20¢ per mile. Taxpayers may deduct the cost of lodging, up to $50 per night per person. The cost of meals is not deductible unless the meals are provided by a hospital or other institution with a primarily medical purpose. What expenses are allowed for medical aids and equipment? - Correct Answer-The cost of medical aids and equipment, such as bandages, glasses, crutches, wheelchairs, hearing aids, and telecommunications equipment for the deaf, is deductible. In addition, the cost of maintaining a service animal, such as a guide dog, is deductible. The cost of Braille books and magazines is deductible to the extent the cost of the Braille version exceeds the cost of the same printed materials. A taxpayer makes their final 2018 state estimated tax payment on January 15, 2019. Where should they report this item? - Correct Answer-They should report this payment as an estimated payment on their 2018 state return as this is the final payment for 2018. They may also deduct it on line 5 of Schedule A on their 2019 federal return as an itemized deduction, since it was paid in 2019. Why is it important to distinguish qualified home mortgage interest from personal interest? - Correct Answer-Qualified home mortgage interest is deductible, with limitations, on Schedule A. Personal interest, such as credit card interest, is not deductible. What are points? How are they treated on a tax return? - Correct Answer-"Points" are charges, such as loan origination fees, loan charges, or loan discounts that are paid upfront in order to obtain a home mortgage. Points paid to acquire a mortgage on a main residence are deductible in the year paid if charging points is an established business practice in the area and no funds from the lender were used to pay the points. Otherwise, points paid for a qualified mortgage are deductible over the life of the loan. Is the cost of items purchased to benefit a charitable organization deductible? (For example, ballet tickets to raise money for a nonprofit hospital.) - Correct Answer-If a

taxpayer pays more for an item than its fair market value, with the intent of making a charitable contribution of the excess, then the amount of the cost that exceeds the item's value may be deducted as a charitable contribution. This amount is deductible on Schedule A. A taxpayer wrote a check for a $500 donation to their house of worship. Is their canceled check sufficient documentation to support the deduction? - Correct Answer- No, contributions of $250 or more at any one time require written substantiation from the charity. Such substantiation must be received before the tax return is completed. The IRS will not accept reconstructions. May a taxpayer who volunteers for a charitable organization take a deduction for the value of their time? - Correct Answer-No. The value of a volunteer's time is not deductible. However, they may deduct any expenses that they incur in the course of their volunteer work. How much of a deduction may a taxpayer claim for a charitable donation of property that has decreased in value? - Correct Answer-They may deduct the fair market value (FMV) of the property at the time of the contribution. QHow much of a deduction may a taxpayer claim for a charitable donation of property that has increased in value. How does the length of time the taxpayer owned the property affect this amount? - Correct Answer-The deduction for appreciated property that was held for one year or less is limited to the cost of the property. If the property was held for more than a year, the taxpayer may be able to deduct the FMV of the property subject to certain limitations. What are some other itemized deductions? - Correct Answer-Gambling losses to the extent of winnings, impairment-related work expenses, certain repayments under claim of right, and other miscellaneous expenses specifically listed in the Schedule A, line 16, instructions.