HRB Final Exam with Complete Questions and Answers 2024, Exams of Marketing Business-to-business (B2B)

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HRB Final Exam with Complete Questions and Answers 2024

What is the Difference between earned income and unearned income? Earned income is received for services performed. Examples are wages commissions, tips and generally farming and other business income. Taxable income other than that received for services performed. Unearned Income includes money received ro the investment of money or other property, such as interest, dividends, and royalties. It also includes pensions alimony, unemployment compensation and other income that is not earned If an employee thinks their Form W2 is incorrect, what should they do? What information do you need to know to determine whether a taxpayer is required to file a return? Gross income, filing status, age and if they are a dependent For tax purposes, when is a person's marital status determined? On the last day of the tax year Where on the tax form can you find the regular standard deduction amounts? W2C. If no help from employer, notify IRS. Tax prepaper can then file a substitute.

Line 22 on 1040A, In the left margin at the top of the page 2 of forms 1040 and 1040A. Look at actual form to look for line How much is added to the standard deduction if the taxpayer (or spouse is age 65 or older, or blind? $1550 if unmarried, $1250 if married What is the personal exemption amount for 2016? $4, What two amounts are combined to make up the gross income filing requirments for most taxpayers? The standard deduction and the personal exemption amounts Under what circumstances might a taxpayer be required to file a return even though they do not meet the gross income filing requirements?

1. Has net employment of $400 or more net self employment 2. You had unemployment income you owe medicare Advantage MSA, receive HAS, Archer, MSA 3. Reeived an Advanced Premium Tax credit even if they didn't otherwise have a filing requirment for the year *Tips, HSA, SE $400, PTC

What is the difference between injured spouse allocation and innocent spouse relief? The difference between injured spouse and innocent spouse is significant in the eyes of the IRS. Both release you from an income tax liability arising from a "married filing jointly" return but different outcomes. Innocent spouse filed a joint return byt was unaware that their spouse deliberately under reported tax liability. Injured spouse seeks to protect his or her share of the refund in case it gets seized or offset due to the other spouse's debts or unpaid obligations CHAPTER 3: DEPENDENT EXEMPTIONS AND SUPPORT What four requirements must be met for an individual to be claimed as a dependent Must pass the dependent test, joint return test, citizenship, qualifying child or relative What are the five tests for a qualifying child?

1. Relationship 2. Age 3. Residency 4. Support 5. Joint Return How can a married individual meet the joint return test to remain a qualifying child? 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 on any taxes withheld

How can you determine who paid more than half of a person's support? Total support is determined and reduced by the funds received by and for the person from all sources other than the taxpaer. The remaining support is considered to be provided by the taxpayer. Other sources might include government support Worksheet for Determining Support What happens if an individual is a qualifying child of more than one taxpayer? Generally, the custodial parent is the one in which the child spent the most nights What happens when more than one taxpayer claims the same qualifying child? Tie Breaker Rules apply : 1. The parent, if only one of the persons is the childs parent 2. The parent with whom the child lived the longest during the tax 3. The parents with the highest AGI if no parent can claim the child as a qualifying child What four tests must be met for an individual to be considered a qualifying relative?

1. Not be a qualifying child, the person cannot be the taxpayers qualifying child or the qualifying child of another taxpayer 2. Relationship: Child, brother, sister, step sister, step brother, step father , step mother, in-laws 3. Gross Income: gross income must be less than $4050 4. Support: Taxpayer must provide more than half the support

How can the gross income for a qualifying relative test be satisfied? Gross income must be less than $4050 (Do not include tax exempt income) What is the purpose of Form 2120 Multiple Support Declaration? You only need 2120 multiple support declaration if you are claiming someone other than a qualifying child as a dependent and there are two or more people including yourself who provide support for the dependent How much is the child tax credit worth? $1, What additional requirements must be met for a taxpayer to be eligible to claim the Child Tax Credit for the qualifying child?

1. Taxpayer 2. Child must be under17 at the end of the year 3. Qualifying child must be claimed on tax payer returns 4. Qualifying child must be US Citizen US National or resident of US Is the Child Tax Credit refundable or nonrefundable CTC is nonrefundable the The additional child tax credit is refundable

How much is the penalty if a paid prepaerer fails to meet the child tax credit due diligence requirements $510 for each failure, for each credit on each return Total Penalty max for return is $ What is the first due diligence requirement for the EITC, CTC,ACTC, AOTC and how does a paid preparer meet this requirement? Complete and submit the form 8867. 1. Complete the form thoroughly and conscientously read the form carefully 2. submit the form on every claim for eitc, ctc/actc and aotc CHAPTER 4: DEPENDENT-RELATED FILING STATUS What filing statuses are available to taxpayers who are unmarried

1. Single 2. Head of Household 3. Qualifying widow(er) How may a married taxpayer qualify as unmarried for tax purposes? Must be legally seperated under a decree of divorce or separate maintenance or meet these requirements: 1. must file a separate return 2. must have provided more than half the cost of maintaining a household 3. the home must have been the principle place of abode

What requirements must be met for a taxpayer to qualify to file as head of household

1. unmarried on the last day of year 2. paid more than 1/2 to maintain home 3. taxpayer has qualifying child or relative or parent What are some of the costs of maintaining a home? Rent, mortgage interest, real estate taxes, homeowner or renter insurance, repairs/maintenance, utilities, food eaten in home What requirements must be met for a taxpayer to use the qualifying wideo(er) status?
2. Taxpayer's spouse died in either of the two tax years immediately preceding the current tax year 2. Taxpayer paid over half the cost of maintaining the household wich is home of their dependent son , stepson or step daughter for the entire year and cannot remarry In the case of divorced or separated parents, which parent generally gets to claim the qualifying child? Generally, the custodial parent is the one in which the child spent the most nights. If child lived equal nights, the parent with the higher AGI What is the exception to this rule?

Custodial parent may waive the right to claim dependency exemption (Form

What happens when more than one taxpayer claims the same qualifying child? The IRS will apply the TIE BREAKER RULES CHAPTER 6: ITEMIZED DEDUCTIONS When is it considered advantageous for a taxpayer to itemize? When allowable expenses for things like home mortgage interest and property taxes, state income taxes or sales taxes, medical expenses, charitable contributions that exceed the standard deduction Is the deduction for medical expenses limited? You can deduct such costs only to the extent that unreimbursed expenses exceed 10% of your AGI 7.5% if 65 years old or older What types of taxes are deductible? State and local taxes Real Property tax Personal Property Tax Foreign income tax (withheld during the year)

What are some common types of itemized deductions that are subject to the 2% - of-AGI floor? Tax preperation fees- Unreimbursed ordinary and necessay employment expenses, gambling losses to the extent of winnings, hobby losses to extent of hobby income, tax advice and preperation fees, investment expenses What are some miscellaneous itemized deductions that are not subject to the 2%- of-AGI limitation? Gambling losses, impairment related expenses for handicap, decedents remaining basis, federal estate tax in respect of a decedent A taxpayer wrote a check for a $500 donation to their mosque. Is their canceled check sufficient documentation to support the deduction? No, the gift exceeded $249 must obtain written substantation from the donee organization CHAPTER 11: EITC AND ACTC Who may qualify for the Additional Child Tax Credit? Must qualify for the Child Tax Credit and has one of the following: Earned Income exceeding $3000, 3 or more qualifying children whose child tax credit was limited

What is the second due diligence requirements for the EITC, CTC/ACTC and AOTC and how does a paid preparer meet this requirement for EITC and CTC/ACTC? Requirement 2 - The second due diligence requirements for ACTC is to complete and keep all worksheets for ACTC the credit is calculated using Schedule 8812 for CTC a worksheet must be completed and kept If a taxpayer has no qualifying children, what are the four qualifications they must meet to receive the Earned Income Tax Credit?

1. Must be at least 25 years old but younger than 65 on Dec 31, 2016 (If married filing jointly either spouse can meet this requirement) 2. Must not be able to be claimed as a dependent on another taxpayers return 3. Must not be a qualifying child of another person 4. Must live in the United States more than 1/2 the year 5. Must have earned income and AGI of less than $14,880 ($20,430 if MFJ) If a taxpayer has one or more qualifying children, what the four specific qualifcations they must meet to receive the Earned Income Tax Credit? (11.12) 1. Have qualifying child who meets the relationship, age, residency and joint return tests 2. Have a qualifying child who is not claimed by another EITC 3. Not be qualifying child of another person 4. Have earned income and AGI less than one of the following: $39,296 ($44,846 if MFJ) $44,648 ($50,198 if MFJ) with two qualifying children *$47,955 ($53,606 if MFJ) with three or more children What are the six qualifications that must be met for any taxpayers to be eligible to claim the Earned Income Tax Credit?

1. Have a valid SSN 2. Not use the filing status MFS 3. Be a US citizen or resident alien all year 4. Not file a Form 2555, Foreign Earned Income or Form 2555EZ Foreign Income Exclusion 5. Have investment income of $3400 or less 6. Have Earned Income of at least $ 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 not one's dependent. He has a valid SSN and is filing as single. He is a US citizen. Does Chris qualify for EITC? Yes What is the third due diligence requirement for the EITC, CTC/ACTC, and AOTC, and how does a paid preparer meet this requirement for EITC and CTC/ACTC? Knowledge Requirement: Tax preparer cannot know of or have any reason to know that any information used to determine taxpayers eligibility for, or the amount of , the credit is incorrect or inconsistent. Tax Preparers must complete the smell test (Retain notes and ask open end questions) Is unemployment compensation taxable? Yes Are scholarships and fellowships taxable? If the student is a non degree candidate or is not attending an eligible educational institution then the scholarship or fellowship are fully taxable

What documents will the taxpayer receive from their employer reproting disability pension payments? 1099R Where is income from disability pension payments entered on Form 1040 A? 1040 A line 7 Note: once the taxpayer reaches minimum retirement age, pension income is reported on Form 1040A lines 12a and 12b..it could go on line 12a or b if retired Under what circumstances can a d disability pension qualify as earned income for the EITC Before the taxpayer reaches minimum retirement age, income is treated as wage income and is considered earned income for EITC purposes What types of income must be reported on Form 1040 and cannot be reported on Form 1040a? Gambling winnings, Alimony, Prizes and Awards, jury duty, hobby income (compare 1040 and 1040A if you need help figuring it out CHAPTER 14: ADJUSTMENTS

What are the four adjustments that can be claimed on Form 1040A Educator Expenses, IRA Deduction, Student Loan Interest Deduction, Tuition and Fees Deduction How much may an eligible educator deduct for qualified classroom expenses as an adjustment to income? $250 per educator Who is an eligible educator? Someone who worked 900 hours during the school year as a teacher, instructor, teachers aide, counselor principal or administrator in an elementary or secondary school (Kindergarten to 12th) Where is the educator expense reported? 1040 pg 1 Line 23, 1040A Line 16 Who may not claim a student loan interest deduction? If they file married filing seperately, some claims them as a dependent, must be legally obligated to pay the loan

What is a qualified student loan? A loan taken out by a tax payer solely to pay qualified education expenses that were for: the taxpayer, the taxpayers spouse or a person who was the taxpayers dependent when the taxpayer took out the laon 2. paid in a reasonable time 3. for education during academic period for eligible student What adjustments my not be reported on Form 1040EZ or Form 1040A and must be reported on Form 1040? Certain business expenses of reservists, performing artists and fee basis government officials, health savings accounts HAS deduction; moving expenses; deductible part of self employment tax; self employed SEP, SIMPLE, and qualified plans self employed Health Insurance deduction, penalty on early withdrawal of saving, alimony paid, domestic production activites deduction and other write in adjustments to income CHAPTER 15: CREDITS Why are tax credits valuable to taxpayers? Tax credit is an amount of money a taxpayer is able to subtract from taxes owed. Unlike deductions and exemptions, which reduct the amojnt of taxable income, tax creditsreduct the actual tax What is the difference between nonrefundable and refundable credits?

Nonrefudable means that they combined amount of these credits cannot reduce the taxpayers liability below zero Refundable credits may reduce tax liability below zero and difference refunded to taxpayer How will the taxpayer's employer paying $500 of a taxpayer's $2000 child care expenses affect the Child Care Credit, and on which form is it reported to the taxpayer? Box 10 of Form W2. Total Child Care Expenses must be reduced by any amounts paid by the employer What is the Premium Tax Credit? (15.14) A credit that helps pay the cost of health carecoverage through the market place What is the purpose of Form 1095-A? (15.18) Health Insurance Marketplace Statement How is the premium tax credit calculated, and how does a taxpayer reconcile the premium tax credit with and advance premium tax credit received? (15.23) Form 8962 PTC calculates the taxpayer's PTC and reconciles it with any APTC received Form 8962 must be filed for any taxpayer who received the APTC. Information from 1095-A is used to compute.

Are there some credits that must be reported on Form 1040? Foreign credits and Residential Energy Credits ex: water heater, energy saving doors etc CHAPTER 18: RETIREMENT What is a qualified retirement plan? (18.2) A qualified plan is eligible for favorable tax treament because it meets the following: IRC 401 and ERISA Employment Reitrement Income Security Act. The most common types of a qualified plans are profit sharing plans (including 401K plans, defined benefit plans, and money purchase pension plans in general- money is not taxed until you withdraw money from the plan) In tax terms, what is it called when a taxpayer puts money into and IRA and what is it called when a taxpayer takes money out of an IRA? Contribution and Distribution What is it called if a taxpayer take smoney of one IRA and puts into another IRA (and all requirements are met)? rollover

Who is eligible to to establish a traditional IRA? Any taxpayer who has not reached age 70 1/2 at the end of the year and who has received compensation during the tax year. This includes self employed taxpayers What is the IrA contribution limit for 2016? $5500 - $6500 if taxpayer has reached age 50 by the end of the year or 100% of taxpayer compensation What is the last date on which an IRA contribution may be made and qualify as a contribution for a given year? (18.9) An IRA may be established and contributed to until the due date (not including extensions) of the return for the year on or before April 18, 2017 Why is it important to distinguish between taxpyers who are active participants in an employer maintained retirement plan and those who are not? Those who are not active and whose spouses are not active may deduct the full amount they contribute to a traditional IRA assuming they stay within the contribution limits. Those are 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 What are the main differences between traditional IRAs and Roth IRAs?

contributions to a Roth 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 taxpayer has reached 70 1/2. Contributions to Roth IRA are not reported on the tax return as long as you have income CHAPTER 19: ETHICS What is a thorough interview? (19.3) A thorough interview consists of asking questions whenever information is incomplete or seems inaccurate or inconsistent What is a conflict of interest? (19.5) A situation where one client will be adversley affected by representation of another client Circ 230 Sect 10. What actions can resolve a conflict of interest? (19.6) When a conflict of interest acknowledged, a tax preparer may still represent the clients under the following circumstances 1. The tax preparer reasonably believes they can provide competent and diligent representation to each affected client 2. The representation is not prohibited by law 3. Each affected client gives informed consent, confirmed in writing, stating that they waive the conflict. IRS requires conflict of interest waivers from client and keep for 36 months

What taxpayer information is confidential? All types of tax returns tax information forms Declaration of estimated tax supporting schedules Taxpayer identity The nature source and amount of income Payments, receipts, deductions, exemptions, credits ...everything Is it acceptable for a Tax Professional to leave a deailed phone message for a taxpayer, letting them know their return is complete? Tax professionals must have prior consent from the client to leave phone messages related to their tax return The that a taxpayer is a client of a Tax Professinal or tax preparation business is confidential information that must not be disclosed What is a Tax Professional's responsibility upon finding out that taxpayer has not complied with one or more tax laws? Practitioner must advise the client of the consequences as provided under the code and regulations of such non compliance error or omission What actions should a Tax Professional take if a taxpayer insists on reporting information that is inaccuracte? A tax preparer should never prepare a return that contains inaccurate information

On what form are social security benefits reported to the recipient? (18.21) Form SSA- 1099 What form is used to report the taxpayer's retirement account distributions? (18.26) Form 1099R Under what circumstances would a pension be partly taxable? (18.25) A partially taxable distribution is a distribution in which a taxpayer has made after tax contributions to the retirement account What traditional IRA distributions are fully taxable? (18.3) If taxpayer made only deductible contributions. Use form 8606 Quizlet: Those to which the taxpayer made no nondeductible contributions (all contributions were fully deductible) When would traditional IRA distribution be partly taxable? When the taxpayer has made nondeductible contributions Where is income tax withheld from a retirement account or IRA distribuin reported on the Form 1040A tax return 1040A line 40 1040 Line 64 (check actual form)

What is the maximum amount of contributions on which the Saver's Credit may be based? (18.18) up to $2000 $1000 for individuals What are the percentage rates for the Saver's Credit? (Table on 18.19) Credit rates are 10%, 20%, or 50% depending on filing status and MAGI Are early distributions from qualified retirement plans always penalized? (18.35) no, There are several exceptions to the penalty. Fill out form for exception form 5329 How does a Tax Professional know if an exception applies? If an exception applies, a code is entered in form 5329 line 2 - Thorough interview, questions or could be code on 1099R Exceptions are on 18.35 What is a qualified retirement plan? "A plan that meets the requirement of IRC §401(a) and the Employment

Retirement Income Security Act of 1974 (ERISA) and is therefore eligible for favorable tax treatment." What is a nonqualified retirement plan? "A retirement plan which does not meet IRS or ERISA requirements for favorable tax treatment." What are some of the tax benefits of qualified plans? "qualified plans allow:

• Employers to deduct annual allowable contributions for each plan participant.

• Contributions and the earnings on the contributions to be taxdeferred until withdrawn for each plan participant.
• Some taxes to be deferred even further through a transfer into a different type of IRA account." "What are some key differences between qualified and nonqualified plans?" "nonqualified plans:
• Do not have the tax benefits of qualified plans.
• Are funded by employers.

• May be more flexible than qualified plans (nonqualified plans may have different rules regarding who must be allowed to participate in the plan and how the plan is administered)." What is a 401(k) plan? "A popular type of qualified plan (the plans take their name from the IRC section governing their existence). The 401(k) plans are primarily employer- sponsored plans." What is a primary tax benefit of a traditional 401(k) plan? "Employee contributions to a traditional 401(k) plan are tax-deferred. This

means the deferred compensation is not subject to federal income tax in the year earned. Many states also allow tax-deferred treatment of the contributions. Earnings on the contributions are also tax-deferred." What is an EMPLOYER RELATED major benefit of many 401(k) plans? "An employer may choose to match all or part of the employee's contribution to the account (this may be done by matching contributions or by offering a profit-sharing contribution to the plan)." What is a 403(b) plan? "A 403(b) plan is a tax-advantaged retirement savings plan available for