H&R Block Income Tax Course Exam Study Guide with Complete Solutions

H&R Block Income Tax Course Exam Study Guide with Complete Solutions Circular 230 - Ans:-Regulations governing the practice of attorneys, certified public accountants, enrolled agents, enrolled actuaries, and appraisers before the IRS. Disclosure - Ans:-The release of tax information by an IRS employee. Due Diligence - Ans:-Requirements that tax professionals must follow when preparing income tax returns. Noncompliance - Ans:-Failure or refusal to comply with the tax code. Privilege - Ans:-Protection from being required to disclose confidential communications between two parties, such as attorney and client. Estimated Tax - Ans:-The amount of tax a taxpayer expects to owe for the year after subtracting expected amounts withheld and certain refundable credits. Estimated Tax Voucher - Ans:-A 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) ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 2/71 the excess amount over that withheld on income which is subject to withholding, and (3) his estimated self-employment tax. Exemption from Withholding - Ans:-Status claimed on Form W-4 directing the employer not to withhold federal income taxes from the employee. Underpayment Penalty - Ans:-If 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 - Ans:-An increase by which income tax withholding on certain income is reduced. Two Ways to Pay as You Go - Ans:-Withholding and Estimated Tax Payments Form W-4 - Ans:-Employee's Withholding Allowance Certificate Form 8815 - Ans:-Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989 Form 2210 - Ans:-Underpayment of Estimated Tax by Individuals, Estates, and Trusts Form 4868 - Ans:-Application for Automatic Extension of Time To File U.S. Individual Income Tax Return Form 8888 - Ans:-Allocation of Refund Form 9465 - Ans:-Installment Agreement Request ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 3/71 Amended Return - Ans:-A tax return filed on Form 1040X after the original return has been filed. Closed Year - Ans:-A tax year for which the statute of limitations has expired. Open Year - Ans:-A taxable year for which the statute of limitations has not yet expired. Failure-to-File Penalty - Ans:-Generally 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 - Ans:-Taxpayer fails to file the return by the due date, and there is a balance due. Failure to Pay - Ans:-Taxpayer fails to pay the tax owed by the due date. Failure-to-Pay Penalty - Ans:-0.5% 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 - Ans:-Taxpayer shows negligence or disregard of the rules or regulations causing an underpayment. Negligence-or-Intentional-Disregard Penalty - Ans:-20% of the underpayment. Substantial Understatment - Ans:-Taxpayer understates their tax by the larger of $5,000 or 10% of the correct tax. Substantial-Understatement Penalty - Ans:-20% of the underpayment. ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 4/71 Form 1040X - Ans:-Amended U.S. Individual Income Tax Return When can an amended return be filed? - Ans:-Within 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? - Ans:-No. Household Employee - Ans:-An individual who performs nonbusiness services in a taxpayer's home. Active Income and Losses - Ans:-Those for which a taxpayer performs services. Partnership - Ans:-A 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 - Ans:-Those from business activities in which the taxpayer does not materially participate, and all rental activities. Portfolio Income and Losses - Ans:-Those from such sources as dividends, interest, capital gains and losses, and royalties. Rental Income - Ans:-Income received by the taxpayer for allowing another person's use of the taxpayer's property. Royalty - Ans:-(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 ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 5/71 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 - Ans:-A 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 - Ans:-A tax entity that distributes all or part of its income to beneficiaries as instructed by the trust agreement. Requirements for a Real Estate Professional - Ans:-1. 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 - Ans:-Any 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 - Ans:-Income derived from activities that are not passive. Types of Nonpassive Income - Ans:-Portfolio income; personal service income; other income. ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 6/71 Portfolio Income - Ans:-Includes interest, dividends, annuities, and royalties not derived in the ordinary course of business. Personal Service Income - Ans:-Salaries, 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 - Ans:-Income received for the use of property. Is rent earned or unearned income? - Ans:-Unearned. Schedule E - Ans:-Supplemental Income and Loss Deductible Maintenance and Repairs - Ans:-Those 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? - Ans:-No. Rental Property Depreciable Basis - Ans:-Basis MINUS land value TIMES the rental use percentage. Vacation home - Ans:-A dwelling unit and may be a house, apartment, condominium, mobile home, boat, or any other property that provides normal living accomodati