HRB FINAL EXAM PRACTICE QUESTIONS AND ANSWERS

HRB FINAL EXAM PRACTICE QUESTIONS AND ANSWERS What is the Difference between earned income and unearned income? - Ans:-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? - Ans:-Employee should discuss with employer who issued the document and request a W2C. If no help from employer, notify IRS. Tax prepaper can then file a substitute. What information do you need to know to determine whether a taxpayer is required to file a return? - Ans:-Gross income, filing status, age and if they are a dependent For tax purposes, when is a person's marital status determined? - Ans:-On the last day of the tax year ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 2/41 Where on the tax form can you find the regular standard deduction amounts? - Ans:-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? - Ans:-$1550 if unmarried, $1250 if married What is the personal exemption amount for 2016? - Ans:-$4,050 What two amounts are combined to make up the gross income filing requirments for most taxpayers? - Ans:-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? - Ans:-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? - Ans:-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 ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 3/41 CHAPTER 3: DEPENDENT EXEMPTIONS AND SUPPORT - Ans:- What four requirements must be met for an individual to be claimed as a dependent - Ans:-Must pass the dependent test, joint return test, citizenship, qualifying child or relative What are the five tests for a qualifying child? - Ans:-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? - Ans:-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? - Ans:-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? - Ans:-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? - Ans:-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 ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 4/41 What four tests must be met for an individual to be considered a qualifying relative? - Ans:-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? - Ans:-Gross income must be less than $4050 (Do not include tax exempt income) What is the purpose of Form 2120 Multiple Support Declaration? - Ans:-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? - Ans:-$1,000 What additional requirements must be met for a taxpayer to be eligible to claim the Child Tax Credit for the qualifying child? - Ans:-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 - Ans:-CTC is nonrefundable the The additional child tax credit is refundable ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 5/41 How much is the penalty if a paid prepaerer fails to meet the child tax credit due diligence requirements - Ans:-$510 for each failure, for each credit on each return Total Penalty max for return is $1530 What is the first due diligence requirement for the EITC, CTC,ACTC, AOTC and how does a paid preparer meet this requirement? - Ans:-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 - Ans:- What filing statuses are available to taxpayers who are unmarried - Ans:-1. Single 2. Head of Household 3. Qualifying widow(er) How may a married taxpayer qualify as unmarried for tax purposes? - Ans:-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 - Ans:-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? - Ans:-Rent, mortgage interest, real estate taxes, homeowner or renter insurance, repairs/maintenance, utilities, food eaten in home ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 6/41 What requirements must be met for a taxpayer to use the qualifying wideo(er) status? - Ans:-1. 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? - Ans:-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? - Ans:-Custodial parent may waive the right to claim dependency exemption (Form 8332) What happens when more than one taxpayer claims the sam