Tax Deductions and Credits: Understanding the Intricacies, Exams of Advanced Education

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A taxpayer discovers an error on a previous return that would result in an additional refund. The return for the year in question was filed on March 2, 2020 with the due date being April 15, 2020. What is the latest acceptable post-marked date for the refund to be issued under the statute of limitations?

A) March 2, 2022 (B) March 2, 2023 (C) April 15, 2022 (D) April 15, 2023 - Correct Answers -(D) April 15, 2023

The statute of limitations on a refund being issued based on a change to a previous return is the later of three years from the due date of the original return or two years from the date the tax was paid. In this case, it would be three years after the original due date of April 15, 2020 which is April 15, 2023.

What is not a minimum requirement of provided biographical information for the filing of a tax return?

(A) Providing a social security card (B) Providing two forms of identification (C) Date of birth (D) Citizenship status - Correct Answers -(A) Providing a social security card

There is a minimum amount of information that must be provided to file a return. This includes: Legal name Date of birth Marital status Residency Citizenship Identification of any dependents Providing two forms of identification

Providing SSN, ITIN, or ATIN

Which of the following statements are false in regards to the issuance of an Individual Taxpayer Identification Number (ITIN)?

(A) An ITIN does not authorize work in the U.S. (B) AN ITIN does not provide eligibility for Social Security benefits (C) An ITIN does not indicate ineligibility for a Social Security Number (D) An ITIN does not qualify a dependent for Earned Income tax credit purposes - Correct Answers -(C) An ITIN does not indicate ineligibility for a Social Security Number

An Individual Taxpayer Identification Number (ITIN) is used to identify and process individuals who are not able to obtain or have a Social Security Number but are still responsible for the filing of a federal tax return. An ITIN does not provide the following benefits: Authorize work in the U.S. Provide eligibility for Social Security benefits Qualify a dependent for Earned Income Tax Credit Purposes

A couple has a registered domestic partnership with a qualifying child. Both members of the couple attempt to claim the child as a dependent. The child lives with Parent "A" for a longer period of time during the taxable year than parent "B". Also, Parent "A "has a higher AGI than Parent "B". What statement is true regarding the correct filing?

(A) Both parents may claim the child as dependent (B) Parent "A" may claim the child as dependent (C) Parent "B" may claim the child as dependent (D) Neither parent may claim the child as dependent - Correct Answers -(B) Parent "A" may claim the child as dependent

Registered domestic partnerships are not able to file joint taxes as they are not married under state law. The dependency of the child may be claimed but only by one of the members of the domestic partnership. If both attempt to claim the dependent, the IRS will only allow the parent with whom the child had the most time of residence to claim the dependence. If the time were split evenly, the parent with the higher adjusted gross income would be able to claim the dependency.

Of the scenarios listed below, which one would require a filing status of single?

(A) A couple divorced in early December of the tax year (B) A couple married in November

(C) A same-sex couple married but living in a jurisdiction that does not recognize the marriage (D) A deceased individual who was married at the time of death - Correct Answers -(A) A couple divorced in early December of the tax year

The filing status of the individual is determined by their status on the last day of the tax year. The length of time associated with a specific arrangement is inconsequential. Therefore, a couple who was married for almost the entirety of the year but then is divorced on the final day will have to file as single.

What is not a means of removal of green card status?

(A) Voluntary announcement in writing (B) Failure to meet the substantial presence test requirements (C) Administrative termination by the USCIS (D) Judicial termination by a federal court - Correct Answers -(B) Failure to meet the substantial presence test requirements

An individual's green card status may be removed by the following means:

Judicial removal by a federal court Renouncement by the individual Administrative termination by the USCIS

The substantial presence test is a separate evaluation of residency for tax purposes

Which of the following may not be eligible to be claimed as a dependent? (A) Foreign exchange student (B) Foreign adopted child (C) Resident of Canada (D) U.S. resident alien - Correct Answers -(A) Foreign exchange student

The citizen or resident dependency test details the types of individuals who can and cannot be a qualifying dependent. A dependent person must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico. They may also be an adopted non-U.S. citizen, U.S. resident alien, or U.S. national as long as the child lives with the taxpayer as a member of the household all year and if all other dependency tests are met. Foreign exchange students despite the length of stay are not considered eligible.

Of the scenarios listed below, which does not meet the age requirements for qualification as a dependent? (A) 17-year-old single mother (B) 30-year-old with a permanent disability (C) 28-year-old full-time student (D) 9-year-old adoption - Correct Answers -(C) 28-year-old full-time student

The age requirement for dependency is as follows: Under the age of 19 at the end of the tax year and younger than the taxpayer or A full-time student under the age of 24 at the end of the year and younger than the taxpayer, or Any age if permanently disabled at any time during the year

Which of the following tests is used as a basis of qualification for the Child Tax Credit and not for the Earned Income Tax Credit? (A) Age (B) Support (C) Residency (D) Relationship - Correct Answers -(B) Support

The Child Tax Credit and the Earned Income Tax Credit have similar qualifications for the dependency portion. The CTC includes:

Age Relationship Support Dependent Citizenship Residence

The EITC includes: Residency Age Joint return Relationship

All of the following scenarios can be considered work or looking for work-related expenses for the purposes of qualifying for the Child and Dependent Care Credit except: (A) Paying for care while one spouse works nights and the other sleeps (B) Paying for care to perform volunteer work (C) Paying for care to go on a job interview (D) Paying for care during a business trip - Correct Answers -(B) Paying for care to perform volunteer work

The Child and Dependent Care expenses must be work-related or related to looking for a job. Volunteering is considered an optional act and does not fall under work-related expenses.

What individual scenario listed below is not eligible for the foreign earned income exclusion? (A) U.S. resident alien physically present in a foreign country from June 1st to the following August 1st (B) U.S. citizen physically present in a foreign country from June 1st to the following January 1st

(C) A U.S. citizen who is a bona fide resident of a foreign country for the entirety of a tax year (D) A U.S. resident alien who is a citizen of a country which includes an income tax treaty with the U.S. for the entirety of a tax year - Correct Answers -(B) U.S. citizen physically present in a foreign country from June 1st to the following January 1st

The foreign earned income exclusion allows the exclusion of foreign income for U.S. tax purposes. The individual must have foreign earned income, the tax home must be in a foreign country, and one of the following must be true: A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

An individual making $60,000 per year has a portion of income paid directly to a former spouse for the purposes of child support. The payment is $500 per month. What is the adjusted gross income based solely on the child support adjustment? (A) $54, (B) $57, (C) $59, (D) $60,000 - Correct Answers -(D) $60,

The income despite being received by a third party is still assigned to the original individual. There is no deduction for this scenario.

An individual taxpayer has been determined to owe a gross tax liability of $400. They are eligible for the full American Opportunity Tax Credit of $2,500. What is the amount of refund that can be expected due to the tax credit? (A) $ (B) $ (C) $ (D) $2100 - Correct Answers -(B) $

The American Opportunity Tax Credit (AOTC) is classified as a partially refundable tax credit. This means that if the student's tax liability has been reduced to zero with AOTC, they may still receive 40% of the remaining credit, up to $1,000, as a tax refund. Therefore, in this scenario, once the liability is reduced to zero, there is $2, remaining. 40% of this is $840 which is less than the maximum of $1,000.

A landlord is to receive rental income from the renter by means of check. The check is delivered on December 29, 2020. Which of the following scenarios would require the income to be reported for the following tax year of 2021?

(A) The check received had insufficient funds and had to be resent in 2021 (B) The postal service delivered the check but it was not physically retrieved until 2021 (C) The check was not cashed until 2021 but received in 2020 (D) The check was never cashed - Correct Answers -(A) The check received had insufficient funds and had to be resent in 2021

The scenario falls under constructively-received income. This indicates that income shall be reported at the time the funds are made available to the recipient. Despite the check being cashed at a later date, if the funds were able to be deposited for the landlord, then the income must be reported in that year. In the case of insufficient funds or a bounced check, the landlord does not, in fact, have access to the funds and the income would be reported in the following year when an additional check is sent.

What is the minimum amount of expected taxes owed for when Individuals shall make estimated tax payments?

(A) $ (B) $1, (C) $2, (D) $2,500 - Correct Answers -(B) $1,

Individuals, including sole proprietors, partners, and S corporation shareholders, have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. Corporations have to make payments if they expect to owe tax of $500 or more when their return is filed.

An individual writes a book that is not a part of their regular job and does not engage in regular activities associated with the book. The writer receives royalties from sales of the intellectual property. How should the income be reported?

(A) Schedule C (B) Schedule E (C) Schedule D (D) The income is nontaxable - Correct Answers -(B) Schedule E

The determination of the filing for income from royalties is based on whether or not the individual is engaged in the business at the time the intellectual property was created. The determinization of whether or not an individual is engaged in business practices depends on if actions are taken to treat it as a business. These include multiple books being written, revising, advertising, etc. If the individual only writes a single book and does not engage in business practices, the income is taxed at a lower rate and is reported on Schedule E.

Which of the following statements indicates an individual who is ineligible to report the interest and dividends of a child on the parent's tax return?

(A) The child is aged 18 years old (B) The child's gross income is $18, (C) The source of the child's income was exclusively from interest and dividends (D) All of the above - Correct Answers -(B) The child's gross income is $18,

A parent may elect to report a child's interest and ordinary dividends on their return. The child must meet all of the following conditions. At the end of the tax year, the child was under age 19 (or under age 24 if a full-time student). The child's gross income was less than $11,000 for the tax year. The child had income only from interest and dividends. No estimated tax payments were made for the child for the tax year, and no overpayment from the previous tax year (or from any amended return) was applied to the current tax year. No federal income tax was withheld from the child's income under the backup withholding rules. The child is required to file a return unless you make this election. The child doesn't file a joint return for the tax year. The parent qualified to make the election is the one including the child on their return.

What is the minimum amount of tips in an individual month that must be reported as income to an employer?

A) $ (B) $ (C) $ (D) $200 - Correct Answers -(B) $

Tips must be properly reported to an employer so that the correct amount of withholding can be applied. If tips accumulated in an individual month are less than $20 however, they need not be reported.

All of the scenarios below are eligible for classification as a statutory employee except:

(A) A driver who distributes alcohol (B) A life insurance salesperson for a single insurance company (C) A dressmaker who supplies material (D) A traveling salesperson for restaurant merchandise - Correct Answers -(C) A dressmaker who supplies material

A statutory employee is an independent contractor that is treated as an employee for tax withholding purposes if they meet certain conditions. A statutory employee falls under any one of the following categories as specified by the IRS: A driver who distributes beverages (other than milk), meat, vegetable, fruit, or bakery products, picks up and delivers laundry or dry cleaning.

A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company An individual who works at home on materials or goods that the company supplies and that must be returned based on specifications for the work to be done A full-time traveling or city salesperson who turns in orders to wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments (The goods sold must be merchandise for resale or supplies for use in the buyer's business operation; the work performed must also be the salesperson's principal business activity.)

A taxpayer purchases a bond in their own name and a co-owner as well. The entirety of the funds come from the individual taxpayer and none are from the co-owner. The interest must be reported by which of the following individuals?

(A) The individual taxpayer (B) The co-owner (C) Both the co-owner and the individual taxpayer (D) The person with the higher adjusted gross income - Correct Answers -(A) The individual taxpayer

Interest from bonds shall be reported based on the scenario in which the bond is paid for:

An individual buys a bond in their name and the name of another person as co-owners, using only their own funds. The individual must report the interest. An individual buys a bond in the name of another person, who is the sole owner of the bond. The person for whom the bond was bought for reports the interest. An individual and another person buy a bond as co-owners, each contributing part of the purchase price. Both report interest in proportion to the amount each paid for the bond.

All of the following scenarios involving dividends are eligible for the maximum rate of tax for qualified dividends except:

(A) Dividends paid by a qualified foreign corporation (B) A stock held for 68 days (C) Dividends paid by a qualified U.S. Corporation (D) A preferred stock held for 75 days - Correct Answers -(D) A preferred stock held for 75 days

Qualified dividends are ordinary dividends subject to the same tax rate that applies to net capital gain. To qualify for the maximum rate, all of the following requirements must be met. The dividends must have been paid by a U.S. corporation or a qualified foreign corporation. The dividends are qualified

The holding period must be at least 60 days normally or 90 days for preferred stocks Therefore, a preferred stock held less than 90 days does not qualify.

An individual opens a new credit card and receives a welcome bonus of $500 after spending a minimum amount. The credit card also offers 2% cash back on the purchases. If the individual spent $2,000 on their credit card, what is the total amount of taxable interest?

(A) $ (B) $ (C) $ (D) $2,000 - Correct Answers -(B) $

Gifts and bonuses to open a new account are considered taxable interest. The points received beyond that, however, are not. Therefore, the only taxable amount for the individual is the initial $500 bonus.

What portion of the purchase of a Series EE bond shall be taxable?

(A) The purchase price only (B) The amount received at the time of redemption (C) The face value (D) The interest accumulated at the time of redemption - Correct Answers -(D) The interest accumulated at the time of redemption

The portion of a purchase of a Series EE bond which is considered taxable is determined by the difference between the purchase price and the redeemed value. This is the interest accumulated over time.

An individual redeems a total of $5,000 in education bonds. The split of principal and interest is $4,500 and $500 respectively. $4,000 of the proceeds are used for the purposes of qualified education expenses and the remainder is used for personal expenses. What portion of the bond proceeds is considered taxable?

(A) $ (B) $ (C) $1, (D) $5,000 - Correct Answers -(B) $

The value of education bonds must be used fully to fund qualified educational purposes to be exempt from taxes. If a portion is used, as in this example, the percentage of principal to interest is used to determine the amount of taxable interest that remains. Since $4,500 of the $5,000 is principal, then 90% of the proceeds are principal and 10% for interest. After the qualifying purchases are made, the remainder used for personal expenses is $1,000. 10% of this number is the remaining interest that must be considered taxable which equals $100.

What is the minimum period of time that mutual funds need to be held so that the taxable capital gain distributions are considered long-term for profits resulting from investments made by the fund itself?

(A) 6 months (B) 1 year (C) 2 years (D) Mutual fund distributions are always considered long-term - Correct Answers -(D) Mutual fund distributions are always considered long-term

Capital gains are typically classified as short term or long-term depending on the amount of time held. Mutual funds, however, are exempt from this distinction and capital gain distributions are always considered long term.

A mortgage loan is designated as a non-recourse loan with an existing balance of $220,000. The individual can no longer make payments and the home goes into foreclosure. Eventually, the foreclosed home sells for $200,000. The bank forgives the remaining balance in lieu of pursing. What portion of the loan is taxable income?

(A) $ (B) $20, (C) $200, (D) $220,000 - Correct Answers -(A) $

A non-recourse loan is one in which the lender cannot pursue a remaining balance in the event of default. This is more common for loans involving assets that can be seized. Therefore, in this scenario despite the forgiveness of the remaining $20,000, the debt cancellation is not taxable.

An individual has been a stamp collector for over five years. She comes into possession of a rare piece and decides to sell it for a significant sum. What statement below is true about the income related to the sale?

(A) The income is treated as a capital gain (B) The income is subject to self-employment taxes (C) The income must be added to the individual's regular income and taxed appropriately (D) The income is tax-exempt - Correct Answers -(A) The income is treated as a capital gain

Hobby income is treated differently depending on if the actions can be considered as for profit or not. Considering this is an isolated occurrence, it cannot be determined that the individual is in the business of selling stamps and therefore the income is treated as a capital gain.

Which IRA type does not have the need to calculate a basis?

(A) Traditional (B) SEP (C) SIMPLE (D) Roth - Correct Answers -(D) Roth

The basis calculation for an IRA is the total of all the nondeductible contributions and nontaxable amounts included in rollovers made to these IRAs minus the total of all nontaxable distributions, adjusted if necessary. A Roth IRA does not include nondeductible contributions and therefore cannot calculate a basis.

A couple is married filing jointly and receives social security. The breakdown of income is as follows: Social Security: $12, Nontaxable interest: $5, What is the minimum amount of additional income that would cause the social security benefits to be taxable if the basis threshold is $32,000?

(A) $ (B) $6, (C) $15, (D) $21,000 - Correct Answers -(D) $21,

Social security benefits are taxable if the cumulation of income, including nontaxable interest, is above the basis threshold. The number used for comparison is one-half the social security benefit plus all other income:

$12,000/2 + $5,000 + Additional income > $32,

Therefore, the social security is taxable if the additional income is $21,000.

What statement below is false regarding the applicable election of net unrealized appreciation on a stock sale?

(A) The stock must be of a company for which the individual was employed (B) Roth IRA's are not eligible (C) The stock must be placed in a tax-deferred account (D) They are taxed as ordinary income at the time of distribution - Correct Answers -(D) They are taxed as ordinary income at the time of distribution

Distributions from tax-deferred retirement accounts are taxed as ordinary income.The IRS offers an election of employer stock to be taxed at the more favorable capital gains rate by the use of Net Unrealized Appreciation (NUA). The use of the NUA election is only available when the stock is placed into a tax-deferred account, such as a 401(k) or traditional IRA, and is only applicable if the stock of the company for which an individual

is or was employed. Roth IRAs do not qualify for NUA because they are not tax- deferred.

An unmarried individual dies suddenly at the age of 45. This person had a traditional IRA with a balance of $45,000. A nephew of the individual is the beneficiary. Which of the following options is not a possible distribution of the inheritance for the nephew?

(A) Rollover the inheritance into an existing IRA (B) Receive the inheritance as a lump sum (C) Receive the inheritance as a lifetime annuity payment (D) Receive the inheritance over a period of five years - Correct Answers -(A) Rollover the inheritance into an existing IRA

If an IRA is inherited, the rules are different for a spouse than for anyone else. A spouse has the ability to treat the IRA as their own or to roll it over into an existing account. Any other beneficiary does not have this option.

A property is purchased for $100,000 with an existing dilapidated home that is to be removed for a new home. The work includes $40,000 in demolition, $10,000 for a new easement, and $5,000 for the removal of trees. The total project cost of the new home is $450,000. What is the cost basis of the land only?

(A) $100, (B) $115, (C) $155, (D) $450,000 - Correct Answers -C) $155,

The basis of the land is different than the basis of the building. Any costs associated with the acquisition and preparation of a site are identified with the land. Therefore, the land basis is $100,000 + $40,000 + $10,000 + $5,000 = $155,000.

All of the scenarios listed below use the cost of acquisition to determine the basis of asset except:

(A) Purchase of a vehicle (B) Inheritance of property (C) Renovated home (D) Acquisition of a copyright - Correct Answers -(B) Inheritance of property

Basis is determined by the cost it takes to acquire property unless it is inherited or gifted.

An individual purchases three separate blocks of stock from the same company. The number of shares is 400, 500, and 600 for the individual blocks at a price of $4.00, $5.50, and $6.00 per share respectively. 500 stocks are to be sold without a

specification of the block. If the stock is trading at $7.00 per share currently, what is the net gain of the sale? (A) $ (B) $ (C) $1, (D) $1,350 - Correct Answers -(D) $1,

If stocks are sold without specific identification, that sale reverts to the first in, first out method in which the earliest bought stocks are sold first. Since the sale is 500 shares, it accounts for the entirety of the first block and 100 of the second. The determination of the cost of the sold shares is: 400 x $4 + 100 x $5.50 = $2,150. The proceeds from the sale are now 500 x $7 = $3,500. Therefore, the difference is $3,500 - $2,150 = $1,350.

An individual is renting out a residential property with a basis of $160,000. In the current year, the house needs a 20-year roof at a cost of $20,000 and has $2,000 in repairs. Determine the total deductions that can be claimed for the rental in the current year. (A) $8, (B) $22, (C) $27, (D) $182,000 - Correct Answers -A) $8,

Depreciation can be claimed from the home itself and any improvements to the home which have a lifespan. The home itself is spread out over the 27.5 years. Therefore, the yearly home depreciation is $160,000/27.5 = $5,818. Any work performed on the home must be classified as either improvements or repairs. Improvements extend the useful life of the property. Examples are additions, remodeling, or replacements. The roof classifies as an improvement and is to be depreciated over its lifespan of 20 years. The calculated depreciation is $20,000/20 = $1,000. The repairs are not depreciated over a lifespan and are taken in the year the expense occurs. Therefore, the total is $5,818 + $1,000 + $2,000 = $8,818.

An employee chooses to participate in an employee stock purchase plan (ESPP). Money is deducted from their paycheck every week for a period of 52 weeks. At what point does the holding period begin for the ESPP?

(A) The day after the first payroll deduction (B) The time of opting into the plan (C) The point at which the stock is at its lowest value over the 52 weeks (D) The day after the option is exercised - Correct Answers -(D) The day after the option is exercised

Despite opting into the plan 52 weeks earlier, the holding period does not begin until the day after the option is exercised.

What is used to determine the basis of a property inherited from a deceased individual? (A) The fair market value on the date of death

(B) The fair market value at the day of inheritance (C) The adjusted basis on the date of death (D) The adjusted basis at the time of purchase - Correct Answers -(A) The fair market value on the date of death

Inheritance basis is determined by the fair market value at the time of death.

An individual taxpayer has a health savings account with their employer. They have contributed $1,000 and $2,000 in each year over a two-year span. The individual is 55 years old and is not disabled. The funds are withdrawn from the account and used to pay a $2,000 qualified medical bill and the remainder is put into a savings account. What is the resulting taxable income?

(A) $1,000 taxable as income and subject to 20% penalty (B) $1,000 taxable as income (C) $2,000 taxable as income (D) All money is tax free - Correct Answers -(A) $1,000 taxable as income and subject to 20% penalty

The use of money in a health savings account is subject to tax if it is not used for qualifying medical expenses. It is also subject to an additional 20% penalty if the individual does not meet the exceptions. Money for an expense does not have to be spent in the same year in which it was saved.

A couple chooses to file as married filing separately. The husband itemizes his deductions with a total of $30,000. The wife does not have any itemized deductions. What is the total deduction for the couple? (A) $24, (B) $30, (C) $42, (D) $54,400 - Correct Answers -(B) $30,

If a couple files as married filing separately and one member of the marriage uses itemized deductions, the other cannot take the standard deduction and it will be taken as zero. In this scenario, the total deductions for the couple would be $30,000.

An individual taxpayer with an adjusted gross income of $45,000 has a total of $5,225 in unreimbursed medical expenses. What is the maximum allowable deduction for the expenses?

(A) $ (B) $1, (C) $2, (D) $5,225 - Correct Answers -(B) $1,

An individual can only deduct the amount of unreimbursed medical expenses which exceed 7.5% of the adjusted gross income. To calculate this scenario, 7.5% of $45, is $3,375. The amount that exceeds this is $5,225 - $3,375 = $1,850.

An individual makes the following cash donations for the current year: Golf charity event: $ Church Donation: $30 per month Cancer research contribution: $ How much of the donations are required to be documented by receipts?

(A) $ (B) $ (C) $ (D) $910 - Correct Answers -(C) $

The documentation of charitable contributions is determined by the type of payment and the amount of each individual contribution. For cash donations, any individual contributions exceeding $250 must be documented by a receipt from the organization indicating the amount and date of the donation.

An individual takes out a home equity loan of $40,000. She uses $30,000 of the loan for an addition on the home and the remaining $10,000 to pay off a student loan. Which of the following statements are true?

(A) No interest can be deducted from the home equity loan (B) Only interest related to the $10,000 student loan payment can be deducted (C) Only interest related to the $30,000 home addition can be deducted (D) All interest can be deducted from the home equity loan - Correct Answers -(C) Only interest related to the $30,000 home addition can be deducted

Interest from home equity loans can only be deducted if the funds are used to cover substantial improvements to the taxpayer's home.

An individual chooses to refinance a home mortgage for a lower interest rate. The term of the new loan is 30 years. To obtain the desired rate, points were required at a cost of $2,200. How much of the cost for points is eligible for deduction in the year of the refinance?

(A) $ (B) $36. (C) $73. (D) $2,200 - Correct Answers -(C) $73.

The deduction of points for a refinance is treated differently than that of a purchase. For a purchase, the entirety of the cost can be deducted in the year of the loan origination.

For a refinance the cost must be evenly spread out over the life of the loan. Therefore, $2,200/30 = $73.33.

An individual has a primary residence in the United States and a vacation home in a different country. She pays $8,000 in real estate taxes on the primary residence and an additional $3,000 of foreign real estate tax. What is the total allowable real estate deduction? (A) $3, (B) $8, (C) $10, (D) $11,000 - Correct Answers -(B) $8,

Due to the recent law changes, foreign real estate taxes are no longer deductible. The $8,000 in primary residence real estate taxes is under the $10,000 cap and is fully deductible.

All of the following are classified as qualifying charitable organizations except: (A) Gifts to political groups (B) Educational nonprofits (C) Federal government entities (D) Amateur sports competition organizations - Correct Answers -(A) Gifts to political groups

Qualifying charitable organizations include: Religious organizations Educational organizations State or Federal Government entities Hospitals Nonprofits for the purposes of religion, education, charity, or science Amateur sports competition organizations

A home is lost during a hurricane. The President declared the area a federal disaster zone. If the basis in the home was $125,000 at the time of destruction, determine the personal casualty loss deduction if the adjusted gross income is $45,000.

(A) $ (B) $4, (C) $120, (D) $125,000 - Correct Answers -(C) $120,

Theft and casualty losses are only deductible now if the area is determined by the President to be a federal disaster area. The loss deduction is the lesser of the decrease in fair market value or the adjusted basis at the time of the event. It is then further reduced by both $100 and 10% of the adjusted gross income. The basis of this instance is reduced by $100 and 10% of $45,000 which is $4,500. Therefore, the total deduction is $125,000 - $100 - $4,500 = $120,400.

Which of the following statements are true in regards to the proper reporting of gambling deductions?

(A) Up to 50% of gambling losses may be reported (B) Up to 100% of gambling losses may be reported to offset gambling winnings only (C) Up to 100% of gambling losses may be reported up to $0 taxes owed (D) Gambling deductions are not allowed - Correct Answers -(B) Up to 100% of gambling losses may be reported to offset gambling winnings only

Gambling losses can be reported as miscellaneous deductions but only apply to the extent to which they offset any gambling winnings.

Nonresident aliens are eligible to deduct all of the following except:

(A) Charitable contributions (B) Casualty and theft losses (C) Real estate taxes (D) Mortgage interest deductions - Correct Answers -(D) Mortgage interest deductions

Nonresident aliens are limited to specific itemized deductions including: State and local income taxes Casualty and theft losses Charitable contributions

A married couple filing jointly has an adjusted gross income of $160,000. They have a child eligible for the Child Tax Credit at the age of 9. What is the amount of the eligible tax credit?

(A) $2, (B) $2, (C) $3, (D) $3,600 - Correct Answers -(B) $2,

The Child Tax Credit begins to phase out over a threshold for the adjusted gross income. For married filing jointly, it begins at an AGI of $150,000 but cannot be reduced below $2,000 at an AGI below $400,000. The phase-out is $50 for every $1,000 over the threshold. Therefore, since the couple is $10,000 over the limit, the credit is reduced by 10 x $50 = $500. The eligible credit is $3,000 for a child older than 6. Therefore, the credit is $3,000 - $500 = $2,500.

A married couple filing jointly has taxable earned income of $85,000. They have a qualifying child for the Child Tax Credit of age 3. Their tax liability is $1,000. How much tax will be refunded as a result of the credit?

(A) $

(B) $2,

(C) $3,

(D) $3,600 - Correct Answers -(B) $2,

As of 2021, the Child Tax Credit is now fully refundable. Therefore, the full Child Tax Credit of $3600 is applied and the refund is $2600.

Which of the following individuals are eligible for the Other Dependent Credit?

(A) A 20-year-old son who is a full-time student (B) The 12-year-old half-brother of the taxpayer (C) A U.S. resident alien with a valid Social Security Number (D) A child who lived with the parent for 10 months of the year - Correct Answers -(A) A 20-year-old son who is a full-time student

The Other Dependent Credit is available for dependents that do not qualify for the Child Tax Credit. They are not subject to the qualifying child tests of age, relationship, support, dependency, joint return, citizenship, and residency. A child who is 17 or older is not eligible for the Child Tax Credit but can be for the Other Dependent Credit.

A family with a full-time student has the following expenses: Tuition: $5, Books bought from the college: $1, Additional school-related supplies paid to a department store: $ What is the eligible Lifetime Learning Credit amount?

(A) $1, (B) $1, (C) $2, (D) $5,000 - Correct Answers -(A) $1,

The Lifetime Learning Credit is a nonrefundable credit for 20% of education expenses. The credit applies to a maximum of $10,000 of expenses. The expenses may include tuition and any other payments made directly to an institution for books or supplies. Therefore, the qualifying payments are the tuition and books which total $5,000 + $1,200 = $6,200. 20% of that would be $1,240.

Which of the following scenarios is the taxpayer ineligible for the Adoption Credit?

(A) Adoption of a 25-year-old special needs person (B) Adoption of the son of a domestic partner (C) Adoption of the daughter of a spouse from a previous marriage (D) Adoption of a second child - Correct Answers -(C) Adoption of the daughter of a spouse from a previous marriage

The Adoption Credit has the following limitations:

The person must be 18 years of age or less unless they are mentally or physically disabled Surrogate parenting arrangement expenses are not eligible An individual may not claim the credit for the adoption of a spouse's child

All of the individual scenarios listed below are eligible for the Earned Income Credit except:

(A) Self-employment income (B) An individual with an investment income of $2, (C) An individual with an ITIN (D) A couple married filing jointly - Correct Answers -(C) An individual with an ITIN

There are specific qualifications for the Earned Income Tax Credit. The individual must meet the following criteria: Has a valid SSN Cannot be claimed as a dependent Must be a U.S. citizen or legal resident for the entirety of the year Those married filing separately are not eligible Must have earned income from wages, tips, combat pay, or self-employment income Any investment income must not exceed $3,

A single individual has an adjusted gross income of $15,000. She contributed $400 to a traditional IRA. What is the eligible saver's credit for the individual?

(A) $ (B) $ (C) $ (D) $400 - Correct Answers -C) $

The Retirement Savings Contribution Credit, also referred to as the Saver's Credit, allows a credit of a certain percentage of qualified retirement savings based on adjusted gross income. For a single individual with an income of $15,000, they are eligible for the 50% credit. Therefore 50% of $400 is $200.

All of the following statements regarding the Earned Income Tax Credit are true except:

(A) An individual with zero children may still qualify for a credit (B) A child who was born in a tax year but only lived in the home for 3 months is considered a qualifying child (C) The Adjusted Gross Income limit is the same for five qualifying children as it is for three qualifying children (D) Nontaxable combat pay must be included in the earned income - Correct Answers - (D) Nontaxable combat pay must be included in the earned income

The Earned Income Tax Credit has limits on the taxpayer's earnings. These limits are based on the number of qualifying children and range from zero to three or more. Any children above three have the same limits. Combat pay is an exception to the exclusion of nontaxable income from the determination of earned income and the individual may choose to include it or not. A child who is born or died in the tax year automatically is an exception to the residency test.

A couple married filing jointly has a gross income of $46,000. They make the following investments for retirement savings:

401k deferred compensation plan contributions: $5, Roth IRA contributions: $2, Bond purchase: $1,

Determine the eligible Retirement Savings Contributions Credit.

(A) $ (B) $ (C) $1, (D) $2,500 - Correct Answers -(C) $1,

The Retirement Savings Contributions Credit allows individuals with qualifying income levels to deduct retirement savings contributions. The eligible contributions are traditional and Roth IRAs or employer-sponsored retirement plans such as 401k's. The bond is not eligible. In this scenario, the gross income needs to be adjusted based on the tax-deferred 401k investment of $5,000: $46,000 - $5,000 = $41,000. At this income level, the credit is 20% of the contributions for married filing jointly. Then to calculate the credit, 20% of $7,000 = $1,400.

An individual eligible for the Earned Income Tax Credit is determined by the IRS to have committed intentional fraud. What is the corresponding penalty?

(A) The amount must be paid back with interest and he can claim the credit the following year (B) The amount must be paid back with interest and he cannot claim the credit for the next year (C) The amount must be paid back with interest and he cannot claim the credit for an additional two years (D) The amount must be paid back with interest and he cannot claim the credit for an additional ten years - Correct Answers -(D) The amount must be paid back with interest and he cannot claim the credit for an additional ten years

The penalty for errors concerning the Earned Income Tax Credit is a combination of paying back the penalty with interest and being barred from claiming the credit for a certain number of years depending on the intention of the error. If the error was

committed as a result of reckless filing, the individual is barred for two years. If the error is determined to be intentional fraud, the time frame is ten years.

An individual has two employers. The first of which she makes $110,000 and pays $6,820 in Social Security tax. The second job she earns $35,000 and pays $2,170 in Social Security tax. What is the eligible Excess Social Security Tax Credit if the maximum is $8,853.60?

(A) $136.40 (B) $780.62 (C) $1,180.78 (D) $2,170 - Correct Answers -(A) $136.40

If an individual works for two separate employers, they are entitled to a credit in the amount of the excess Social Security taxes paid. The maximum for 2021 is $8,853.60. Therefore, the excess amount is $6,820 + $2,170 - $8,853.60 = $136.40.

An individual receives pension benefit payments from the Pension Benefit Guarantee Corporation (PBGC). What is the eligible age range for the taxpayer to qualify for the Health Coverage Tax Credit?

(A) 40 to 65 years old (B) 45 to 61 years old (C) 55 to 64 years old (D) 60 to 70 years old - Correct Answers -(C) 55 to 64 years old

The Health Coverage Tax Credit only applies to specific types of assistance, one of which is pension benefit payments from the Pension Benefit Guarantee Corporation (PBGC). This type of assistance also carries an age restriction of being between 55 and 64 years old.

What is the minimum number of credits required for the general business credit to facilitate the need for the filing of Form 3800?

(A) One (B) Two (C) Three (D) Five - Correct Answers -(B) Two

The General Business Credit is an aggregation of multiple credits into one. The credit is claimed by filing form 3800 if more than one of the individual credits are claimed.

Question 62 What is the maximum household income that can qualify for the Premium Tax Credit for a married couple with two children? Use a Federal poverty line of $26,200.

(A) $26,200

(B) $39,300

(C) $52,400

(D) $104,800 - Correct Answers -(D) $104,800

The Premium Tax Credit has an acceptable range for the required household income. It is based on the Federal poverty line and can be within 100% to 400%. If the poverty line is $26,200, then 400% is 4 x $26,200 = $104,800.

Question 63 A taxpayer who is eligible for and chooses the Advance Premium Tax Credit must do which of the following in regards to the filing of a tax return?

(A) No tax return is necessary (B) A tax return is only necessary if additional payments are required (C) A tax return is only necessary if a refund is to be provided (D) A tax return must be filed regardless - Correct Answers -(D) A tax return must be filed regardless

If the taxpayer chooses the Advance Premium Tax Credit, the individual must still file a tax return to ensure proper reconciliation. The agreed-upon payments were established only as an estimate based on the information provided at the time but it is understood that it may change often.

A single individual taxpayer has an adjusted gross income of $190,000 from wages. He also has a net investment income from the sale of stocks of $22,000. What is the total Net Investment Income Tax for the individual?

(A) $456 (B) $836 (C) $1,200 (D) $3,845 - Correct Answers -(A) $456

The Net Investment Income Tax is the lesser of 3.8% of the total net investment amount or the excess of the modified adjusted gross income over the threshold. The threshold for a single filer is $200,000. The addition of the wages and the investment income gives a total modified adjusted gross income of $212,000. Since the amount above the threshold, $12,000, is less than the total investments, the tax is 3.8% of $12,000 = $456.

A single taxpayer has wages of $185,000 and also has additional self-employment income of $35,000. What is the required amount of Additional Medicare Tax that must be applied?

(A) $0 (B) $180

(C) $225

(D) $480 - Correct Answers -(B) $180

The Additional Medicare Tax is applied as a part of the Affordable Care Act and applies to the difference in income above the threshold. Often employers will withhold the tax if the income is above the thresholds. If an individual has multiple sources of income, it will not be withheld and needs to be applied to the return. The threshold for a single individual is $200,000. The total income for this scenario is $220,000 which is $20,000 above the threshold. Therefore 0.9% of this is $180.

A self-employed individual has a tax liability of $3,900 in the previous year. In the current year, he makes additional income resulting in a tax liability of $4,500. What is the minimum amount of prepaid taxes that are required to avoid a penalty?

(A) $2,500 (B) $3,900 (C) $4,050 (D) $4,500 - Correct Answers -(B) $3,900

To avoid the penalty, the individual must pay either 90% of the taxes owed in the current year or 100% of that owed in the previous year. Therefore, the minimum amount would be the lesser of $3,900 or 90% of $4,500 = $4,050.

An individual has an Alternative Minimum Tax credit carry forward of $1,200 from the year 2020. His tax liability in 2021 is $2,500 with a tentative minimum tax of $2,000. How much carry forward will be available for 2022?

(A) $0 (B) $500 (C) $700 (D) $1,200 - Correct Answers -(C) $700

Deferral items for the Alternative Minimum Tax may be used as a carryforward to apply for a credit in future years. The amount in a single year cannot exceed the difference in the regular tax and the tentative minimum tax but the excess can be carried over again to the following year. Therefore, in 2021 a maximum of $500 is used which leaves $700 for 2022.

Which of the following retirement savings account withdrawals are not subject to a 10% penalty before the age of 59½?

(A) Basis withdraw from Roth IRA (B) Basis withdraw from traditional IRA (C) Earnings withdraw from Roth IRA (D) Earnings withdraw from traditional IRA - Correct Answers -(A) Basis withdraw from Roth IRA

A withdrawal of basis, not earnings, from a Roth IRA can be done at any holding period and at any age.

An individual has an adjusted gross income of $70,000. He has a total of $10,000 in unreimbursed medical bills. If he is at the age of 50, how much of the unreimbursed medical bills can be covered by IRA distributions without an early withdrawal penalty?

(A) $2,500 (B) $3,375 (C) $4,750 (D) $5,200 - Correct Answers -C) $4,750

An individual under the age of 591⁄2 may use retirement funds without penalty to pay for unreimbursed medical expenses that exceed 7.5% of their adjusted gross income. 7.5% of $70,000 = $5,250. The eligible amount is $10,000 - $5,250 = $4,750.

What is the penalty for the failure to withdraw any required minimum distributions from a traditional IRA?

(A) 10% of the account balance (B) 50% of the earnings (C) 10% of the basis (D) 50% of the required withdrawal amount - Correct Answers -(D) 50% of the required withdrawal amount

The penalty for failure to withdraw the minimum amount from a traditional IRA is 50% of the minimum amount that should have been withdrawn.

What is the required means of repayment for individuals who claimed the First-time Homebuyer Credit in 2008?

(A) Equal installments of $750 per year over 10 years (B) Equal installments of $500 per year over 15 years (C) Increasing payments dependent on income over 10 years (D) Increasing payments dependent on income over 15 years - Correct Answers -(B) Equal installments of $500 per year over 15 years

The First-time Homebuyer Credit Repayment is paid back in Yearly $500 installments over 15 years.

All of the following are eligible to be considered household employees and subject to the "Nanny Tax" except:

(A) A babysitter who works with multiple families (B) A part-time yard worker

(C) An hourly housekeeper (D) A once per week private nurse - Correct Answers -(A) A babysitter who works with multiple families

The Nanny Tax applies to those who are considered employees of the taxpayer. The time frame and frequency of the work do not apply. An exception is those who are self- employed by providing the same service to multiple families. These individuals would be subject to self- employment taxes.

A married couple filing jointly has an income of $40,000 and $60,000 for the husband and wife respectively. Additionally, the wife has a side business generating $45,000 in net qualified business income. What is the applicable qualified business income deduction?

(A) $0 (B) $9,000 (C) $19,000 (D) $29,000 - Correct Answers -(B) $9,000

The qualified business income deduction applies to businesses which are sole proprietorships, partnerships, or S corporations. As long as the joint modified income is under the threshold, the business income deduction is 20% of the net business income. Therefore, 20% of $45,000 = $9,000.

An ordained minister lives in a home that is owned by the church. The fair market rental value is considered to be $800 per month. The minister also receives $35,000 in wages and an additional $2,000 throughout the year for weddings and baptisms. What is the total self employment income?

(A) $35,000 (B) $37,000 (C) $44,400 (D) $46,600 - Correct Answers -(D) $46,600

The clergy members are still subject to self-employment tax including any housing allowances that are not subject to income tax. Therefore, the total income is $35,000 + $2,000 + 800 x 12 = $46,600.

An individual who owns a stock for a ten-year period decides to sell at a gain of $3,000. Before the actual receipt of the sale proceeds, the individual dies and the money is received by a decedent. What is the characterization of the income received by the beneficiary?

(A) Ordinary income (B) Long-term capital gain (C) Short-term capital gain