H&R Block Income Tax Course Questions & Answers

Circular 230 - ANSWERSRegulations governing the practice of attorneys, certified public accountants, enrolled agents, enrolled actuaries, and appraisers before the IRS. Disclosure - ANSWERSThe release of tax information by an IRS employee. Due Diligence - ANSWERSRequirements that tax professionals must follow when preparing income tax returns. Noncompliance - ANSWERSFailure or refusal to comply with the tax code. Privilege - ANSWERSProtection from being required to disclose confidential communications between two parties, such as attorney and client. Estimated Tax - ANSWERSThe amount of tax a taxpayer expects to owe for the year after subtracting expected amounts withheld and certain refundable credits. Estimated Tax Voucher - ANSWERSA statement by an individual of (1) the amount of income tax he estimates he will incur during the current taxable year on income that is not subject to withholding, (2) the excess amount over that withheld on income which is subject to withholding, and (3) his estimated self-employment tax. Exemption from Withholding - ANSWERSStatus claimed on Form W-4 directing the employer not to withhold federal income taxes from the employee. Underpayment Penalty - ANSWERSIf a taxpayer did not pay enough tax on a timely basis during the year, he may be required to pay an underpayment penalty. Withholding Allowances - ANSWERSAn increase by which income tax withholding on certain income is reduced. Two Ways to Pay as You Go - ANSWERSWithholding and Estimated Tax Payments Form W-4 - ANSWERSEmployee's Withholding Allowance Certificate Form 8815 - ANSWERSExclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989 Form 2210 - ANSWERSUnderpayment of Estimated Tax by Individuals, Estates, and Trusts Form 4868 - ANSWERSApplication for Automatic Extension of Time To File U.S. Individual Income Tax Return Form 8888 - ANSWERSAllocation of Refund Form 9465 - ANSWERSInstallment Agreement Request Amended Return - ANSWERSA tax return filed on Form 1040X after the original return has been filed. Closed Year - ANSWERSA tax year for which the statute of limitations has expired. Open Year - ANSWERSA taxable year for which the statute of limitations has not yet expired. Failure-to-File Penalty - ANSWERSGenerally 5% for each month or part of a month the return is late, but not more than 25% of the tax not paid. Failure to File - ANSWERSTaxpayer fails to file the return by the due date, and there is a balance due. Failure to Pay - ANSWERSTaxpayer fails to pay the tax owed by the due date. Failure-to-Pay Penalty - ANSWERS0.5% of the unpaid taxes for each month or part of a month after the due date, but not more than 25%. Negligence or Intentional Disregard - ANSWERSTaxpayer shows negligence or disregard of the rules or regulations causing an underpayment. Negligence-or-Intentional-Disregard Penalty - ANSWERS20% of the underpayment. Substantial Understatment - ANSWERSTaxpayer understates their tax by the larger of $5,000 or 10% of the correct tax. Substantial-Understatement Penalty - ANSWERS20% of the underpayment. Form 1040X - ANSWERSAmended U.S. Individual Income Tax Return When can an amended return be filed? - ANSWERSWithin three years of the date the original return was filed, or within two years of the date the tax was paid, whichever is later. Can the 1040X be e-filed? - ANSWERSNo. Household Employee - ANSWERSAn individual who performs nonbusiness services in a taxpayer's home. Active Income and Losses - ANSWERSThose for which a taxpayer performs services. Partnership - ANSWERSA form of business in which two or more persons join their money and skills in conducting the business as co-owners. Passive Income and Losses - ANSWERSThose from business activities in which the taxpayer does not materially participate, and all rental activities. Portfolio Income and Losses - ANSWERSThose from such sources as dividends, interest, capital gains and losses, and royalties. Rental Income - ANSWERSIncome received by the taxpayer for allowing another person's use of the taxpayer's property. Royalty - ANSWERS(1) A payment received for the right to exploit a taxpayer's ownership of natural resources or a taxpayer's literary, musical, or artistic creation. (2) An interest in the oil and gas in place that entitles the holder to a specified fraction, in kind or in value, of the total production from the property, free of any expenses of development and operation. S Corporation - ANSWERSA qualified small business corporation that has elected special tax treatment under subchapter S of the Internal Revenue Code. S corporations pass income, losses, and deductions through to shareholders to report on their individual returns. Trust - ANSWERSA tax entity that distributes all or part of its income to beneficiaries as instructed by the trust agreement. Requirements for a Real Estate Professional - ANSWERS1. More than half of the personal services performed by the taxpayer in all trades or businesses during the tax year were performed in real property trades or businesses in which the taxpayer materially participated. 2. The taxpayer performed more than 750 hours of services during the year in real property trades or businesses in which the taxpayer materially participated. Trade or Business Activities - ANSWERSAny activity that: Involves the conduct of a trade or business; is conducted in anticipation of starting a trade or business; Involves research or experimental expenditures that are deductible under IRS Code 174. Nonpassive Income - ANSWERSIncome derived from activities that are not passive. Types of Nonpassive Income - ANSWERSPortfolio income; personal service income; other income. Portfolio Income - ANSWERSIncludes interest, dividends, annuities, and royalties not derived in the ordinary course of business. Personal Service Income - ANSWERSSalaries, wages, commissions, self-employment income from trade or business in which the taxpayer materially participates, deferred compensation, taxable social security and other retirement benefits, and payments from partnerships to partners for personal services. Rent - ANSWERSIncome received for the use of property. Is rent earned or unearned income? - ANSWERSUnearned. Schedule E - ANSWERSSupplemental Income and Loss Deductible Maintenance and Repairs - ANSWERSThose that do not appreciably add to the value or useful life of the property. Is the value of the owner's labor deductible when it comes to rental property? - ANSWERSNo. Rental Property Depreciable Basis - ANSWERSBasis MINUS land value TIMES the rental use percentage. Vacation home - ANSWERSA dwelling unit and may be a house, apartment, condominium, mobile home, boat, or any other property that provides normal living accomodations. Used as a Residence - ANSWERSA dwelling unit is used for personal purposes during the year for whichever is greater: more than 14 days; more than 10% of the days the house is rented at fair rental value. Royalty - ANSWERSPayments received for the right to extract natural resources from the taxpayer's property or to use a taxpayer's literary, musical, or artistic creation. Economic Interest - ANSWERSOne acquired by investment, the return on which is dependent upon the extraction of the natural deposit or cutting of the timber. Two Methods of Computing Depletion - ANSWERSCost and Percentage What tax form must estates and trusts file? - ANSWERSForm 1041 What tax form must partnerships file? - ANSWERSForm 1065 Do partnerships pay income taxes? - ANSWERSNo. General Partner - ANSWERSOne who is personally responsible for partnership debts. Limited Partner - ANSWERSA partner in a partnership organized under a state's limited partnership law, whose personal liability for partnership debts is limited to their investment in the partnership. Limited Liability Company - ANSWERSA business entity formed under state law by filing articles of organization as a limited liability company. Passive Activity - ANSWERSA business activity in which the taxpayer does not materially participate.