Wages, Income, and Taxes

Question 1 of 85.
Choose the response that best defines gross income.
All worldwide income realized in any form, from whatever source derived, unless specifically excluded
by law.
Financial gain derived from labor or capital, less any deductions or adjustments.
Income less allowable reductions.
Specific income items identified and classified as taxable income.
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Question 2 of 85.
All of the following income items are federally taxable and must be reported on the Form 1040 EXCEPT:
Interest on a certificate of deposit in the amount of $450.
A wedding gift from a non-relative in the amount of $10,000.
A $17,500 distribution from a public pension plan.
Income in the amount of $19,000 from an illegal activity.
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Question 3 of 85.
Which of the following is included in an individual taxpayer's federal gross income?
Certain income from the discharge of indebtedness.
Disaster relief payments.
A federal income tax refund.
Interest on state and local municipal bonds.
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Filing Requirements and Filing Status

Question 4 of 85.
In which of the following situations might it be appropriate for a married taxpayer filing a joint return to
file an injured spouse claim?
The taxpayer is unable to pay the tax liability because their spouse has suffered some type of injury.
There is an understatement of tax due because the taxpayer's spouse omitted income on the original
return.
The joint overpayment was applied to a prior tax liability of the taxpayer and their spouse.
The joint overpayment may be applied to their spouse's past-due child support.
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Question 5 of 85.
Which of the following is a factor that may determine whether a nondependent taxpayer is required to
file a return?
Age.
Citizenship.
Net worth.
State of residency.
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Question 6 of 85.
What is the 2021 gross income filing requirement for a married couple, filing jointly, where neither is
blind, but one is age 65, and the other is age 60? They lived together all year.
$25,100
$26,450
$26,800
$27,800
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Question 7 of 85.
Taylor and Lucy were divorced on September 24, 2021. Neither has any dependents. Neither has
remarried. The correct filing status they should each use is:
Single.
Married filing jointly.
Married filing separately.
Head of household.
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Question 8 of 85.
In June 2021, Valerie filed for divorce from her husband, Brian. Although they lived apart for the last six
months of the year, their divorce is not yet finalized; they are still legally married. Valerie does not wish
to file a joint 2021 return, and she has no qualifying child or qualifying relative. What filing status should
Valerie use?
Single.
Married filing separately.
Head of household.
Unmarried for tax purposes.
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Question 9 of 85.
Choose the response that correctly completes the following sentence about the filing requirement for a
dependent taxpayer. A single dependent who is not blind and is under age 65 has a 2021 filing
requirement if their gross income is more than the greater of $1,100 or their earned income (up to
$12,200) plus:
$50
$200
$250
$350
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Qualifying Dependents, Support, and Dependent-Related Filing Statuses
Question 10 of 85.
Jason and Erica are a married couple who will file a joint return for 2021. They have two young children,
Hudson (5) and Leo (3). The couple's 2021 adjusted gross income is $110,000. If Jason and Erica did not
receive any advance Child Tax Credit payments during 2021, what is the maximum amount they may be
eligible to receive for the Child Tax Credit and the credit for other dependents?
$4,000
$6,000
$6,600
$7,200
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Question 11 of 85.
Stella's (58) husband, Anthony, died in 2018, and she has not remarried. Stella's mother, Marion, lives in
a nursing home. Marion's only income for 2021 consisted of $17,250 in social security benefits. Stella
pays the entire cost of the nursing home and more than 50% of Marion's support. Stella does not have
any children, and no one else lives with her. What is Stella's correct and most favorable filing status?
Single.
Married filing jointly.
Head of household.
Qualifying widow(er).
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Question 12 of 85.
Failure to meet the due diligence requirements when determining eligibility for the Child Tax
Credit/Advanced Child Tax Credit/Other Dependent Credit, Earned Income Tax Credit, American
Opportunity Tax Credit, and head of household filing status for a return filed in 2022 (for the 2021 tax
year), could result in a penalty of:
$50, per return, assessed towards the taxpayer.
$500, per return, assessed towards the tax preparer.
$530, per return, assessed towards the taxpayer.
$545, for each item on each return, assessed towards the tax preparer.
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Question 13 of 85.
All of these are requirements for a taxpayer to file as head of household EXCEPT:
Be unmarried or "considered unmarried" on the last day of the tax year.
Maintain a household for a qualifying child or qualifying person.
Pay the medical, clothing, and educational expenses for themselves and any qualifying children or
relatives.
Pay more than half the expenses of maintaining the household for the entire year.
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Question 14 of 85.
All of the following are factors that determine whether an individual is a qualifying child EXCEPT:
Age.
Gross income.
Relationship.
Support.
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Question 15 of 85.
Wyatt (39) is a U.S. citizen. He was married at the beginning of 2021. His wife lived in the household until
July. Their divorce was finalized on September 30, and Wyatt has not remarried. Wyatt provided 100% of
the support for his son, who lived with him all year and is his qualifying child. Wyatt's most advantageous
filing status is:
Single.
Married filing jointly.
Married filing separately.
Head of household.
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Question 16 of 85.
In 2021, Nora (28) lived with her daughter, Avery (4), her brother, Jack (19), and her fiancée, Luke (30) for
the entire year. Nora's adjusted gross income is $32,850, Jack's gross income is $5,000, Luke's gross
income is $4,500, and Avery has no income. None of the individuals in the household were students
during the year. Neither Jack, nor Luke, nor Avery provided over 50% of their own support. Nora qualifies
for and files as head of household in 2021. How many qualifying dependents can Nora claim on her
return?
One.
Two.
Three.
Four.
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Question 17 of 85.
Sandra and Christopher were married 18 years ago. They had one child, Noah (13). Noah has no income,
and he has never provided more than half of his own support. Christopher passed away in 2020, and
Sandra has not remarried. Sandra and Noah lived together all year long; no one else lived with them.
Sandra paid all the expenses of maintaining their home. What is Sandra's most beneficial filing status for
2021?
Single.
Married filing jointly.
Head of household.
Qualifying widow(er).
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Interest and Dividend Income

Question 18 of 85.
Gabriella had taxable income totaling $37,850 in 2021. She will file a return using the single filing status.
Her income consisted of ordinary and qualified dividend income of $1,500, reported to her on Form
1099-DIV. All the rest of her income was from wages. What tax rate will apply to Gabriella's qualified
dividend income?
0%
12%
15%
20%
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Question 19 of 85.
Taxpayers whose only unearned income consists of qualified dividends and capital gain distributions
reported to them on Form 1099-DIV generally compute the amount of tax on their income using:
Form 8949, Sales and Other Dispositions of Capital Assets.
The Qualified Dividends and Capital Gain Tax Worksheet.
The Schedule D Tax Worksheet.
The 2021 Tax Rate Schedules.
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Question 20 of 85.
Carson owns shares of a money market mutual fund. During the year, he received $2,800 in dividend
distributions, $700 of which he received in cash. He elected to use the remaining $2,100 to purchase
additional shares of the fund. The total amount of dividend income subject to tax is:
$0
$700
$2,100
$2,800
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Question 21 of 85.
Choose the response that correctly completes the following sentence describing the tax treatment and
reporting requirements for municipal bond interest.

Interest income from this type of investment is:

Federally taxable and must be reported on Form 1040.
Nontaxable and does not have to be reported.
Not federally taxable but must be reported on Form 1040.
Not federally taxable and only reportable on Form 1040 when the amount received exceeds $1,500.
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Eric and Marissa will file a joint return. Eric owns shares of stock, and during the year, he received
dividends from this investment. In early 2022, he received the following Form 1099-DIV. The couple's
only other income was from wages. Their taxable income for the year was $88,910. How much tax will
they pay on their dividend income? (Answer choices are below the image.)
$0
$150
$225
$330
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Earned Income Tax Credit

Question 23 of 85.
Which of these is a requirement for a taxpayer without a qualifying child to claim the Earned Income Tax
Credit (EITC) on a 2021 return?
Their investment income cannot exceed $3,650 for the year.
They must be at least 25 years old, but younger than age 65, on December 31, 2021.
They must have either a valid social security number or individual taxpayer identification number (ITIN).
They must have lived in the U.S. for more than half the year.
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Question 24 of 85.
Which of the following is a requirement for a taxpayer to be eligible to claim the Earned Income Tax
Credit (EITC) on their 2021 return? They must:
Be a U.S. citizen.
Be younger than age 65 at the end of the year.
File a return using either the single, head of household, or qualifying widow(er) filing statuses.
Have a valid SSN for employment in the U.S.
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Question 25 of 85.
Which of the following may qualify as earned income for a taxpayer claiming the Earned Income Tax
Credit (EITC)?
Certain disability retirement benefits.
Child support.
Social security benefits.
Unemployment benefits.
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Question 26 of 85.
Jaleah would like to claim her granddaughter, Jade, as her qualifying child so she can claim the Earned
Income Tax Credit (EITC). However, Jade's mother, Lyn, is also eligible to claim Jade as her qualifying child
for EITC purposes and would like to do so if she is able. As Jaleah's tax preparer, what information would
you share with Jaleah?
As long as Jaleah files before Lyn, she may claim EITC based on Jade, her qualifying child.
Lyn holds a higher right and may claim EITC based on Jade because Lyn is Jade's parent.
Jaleah may claim EITC based on Jade if her adjusted gross income was higher than Lyn's.
Jaleah and Lyn may agree to each claim one-half of the EITC based on Jade, their qualifying child.
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Question 27 of 85.
Which of the following is a requirement for a taxpayer with a qualifying child to claim the Earned Income
Tax Credit (EITC) on a 2021 return?
They cannot be the qualifying child of another person.
They cannot have any investment income.
They must be a U.S. citizen, resident alien, or resident of Mexico or Canada.
They must be at least 25 years old, but younger than age 65, on December 31, 2021.
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Other Income and Adjustments

Question 28 of 85.
Which of the following is an adjustment that will generally result in a lower tax liability for an eligible
taxpayer because it directly reduces the taxpayer's total income from sources such as wages, business
income, dividends, capital gains, and other income?
An education credit.
An IRA deduction.
Medical and dental expenses deduction.
The retirement savings contributions credit (Saver's Credit).
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Question 29 of 85.
A taxpayer who claims the standard deduction rather than itemizing may still be eligible to reduce the
amount of total income subject to tax when they report which of the following as an adjustment to
income?
Amounts paid for unreimbursed medical and dental expenses.
A contribution to a health savings account.
Investment advisory fees.
Tuition and fees paid to a state university.
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Question 30 of 85.
Sam and Carlie, a married couple who will file jointly, are both teachers. In 2021, Sam had receipts
totaling $330 in unreimbursed, qualifying expenses for his classroom. Carlie also had unreimbursed
expenses for COVID-19 protective items, such as face masks and hand sanitizer, that she purchased
during the year in an attempt to stop the spread of COVID-19 in her classroom. Her receipts totaled
$295. What is the maximum amount of educator expenses the couple may deduct on their joint return?
$250
$330
$500
$625
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Question 31 of 85.
Which of the following is a type of nontaxable income that does not need to be reported on a federal tax
return?
Interest income from a U.S. Treasury security.
Interest income from municipal bonds.
Unemployment compensation.
Workers' compensation.
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Question 32 of 85.
Jilly (21) is a full-time undergraduate student pursuing an accounting degree at her state university.
During the year, she received a $6,000, unrestricted scholarship, reported to her on Form 1098-T rather
than Form W-2.
Jilly spent $5,000 of the scholarship funds on her current-year tuition, and she applied the rest to room
and board. She also had income from a part-time job, and she is required to file a 2021 tax return. How
should Jilly report the scholarship income on her Form 1040?
None of Jilly's scholarship is included in her taxable income or reported on her return.
She should include this in the amount she reports for wages, salaries, tips, etc. by entering $1,000 on
line 1 of her Form 1040 and writing "SCH" on the dotted line next to it.
She should report this as additional income from gains by entering $1,000 on line 4 of Schedule 1,
Additional Income and Adjustments to Income, and write "SCH" on the dotted line next to it.
She should report this as additional other income by entering $6,000 on line 8z of Schedule 1,
Additional Income and Adjustments to Income, and writing "SCH" on the dotted line next to it.
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Credits

Question 33 of 85.
Ashley (34) will use the head of household filing status. She has one dependent child, Brayden (4).
During the year, Ashley spent $8,500 for Brayden's childcare. Ashley's income during the year totaled
$68,000, all from wages. She did not receive any dependent care benefits from her employer. What is
the maximum amount of work-related expenses that Ashley may use to calculate her Child and
Dependent Care Credit?
$0
$3,000
$8,000
$8,500
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Question 34 of 85.
Troy and Clare began and finalized the adoption of a U.S. child with special needs in 2021. Their total
adoption expenses were $4,100. Their modified adjusted gross income was $208,000. What is the
maximum amount they may claim for the Adoption Credit?
$0
$2,050
$4,100
$14,440
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Question 35 of 85.
What amount of work-related child care expenses should a married couple with two dependent children
under age 13 use to calculate their Child and Dependent Care Credit? They both work full-time, and they
spent $13,950 for child care during the year. Their adjusted gross income is $120,000. They did not
receive any employer dependent care benefits.
$0
$3,000
$8,000
$13,950
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Question 36 of 85.
Brandon and Cleo are married and will file a joint return. They both work full-time, and they have two
dependent children, Jack (11) and Phoebe (4). During the year, the couple spent $16,000 for Phoebe's
child care. However, Cleo's mother watched Jack free of charge when he was not in school, so they did
not incur any child care expenses for him. Brandon and Cleo's 2021 adjusted gross income is $118,500.
They did not receive any employer dependent care benefits. What is the maximum amount they may be
eligible to receive for the Child and Dependent Care Credit?
$3,200
$8,000
$10,500
$16,000
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Education Provisions

Question 37 of 85.
If a taxpayer claiming the American Opportunity Tax Credit (AOTC) has their tax liability reduced to zero,
what is the maximum amount they may receive as a refundable credit?
20% of the credit, up to $500.
40% of the credit, up to $1,000.
100% of the first $1,000 of qualified education expenses.
100% of the first $4,000 of qualified education expenses.
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Question 38 of 85.
Which of the following is a qualified expense for the purpose of the American Opportunity Tax Credit
(AOTC)?
Books required for the student's course of study, purchased from an online retailer.
COVID-19-related medical expenses.
Room and board at a residence hall operated by the educational institution.
Transportation to and from the educational institution.
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Question 39 of 85.
The maximum amount a taxpayer may claim for the lifetime learning credit is:
$2,000 per return.
$2,000 per eligible student, including the taxpayer, their spouse, and any dependents listed on the
return.
$2,500 per return.
$2,500 per eligible student, including the taxpayer, their spouse, and any dependents listed on the
return.
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Question 40 of 85.
Zach and Caitlyn are married and will file a joint tax return. For 2021, their modified adjusted gross
income was $112,000. Caitlyn has a bachelor's degree in journalism, but she wants to pursue a different
line of work. She is currently attending a community college to earn her associate degree in nursing. She
paid $3,000 for the fall semester. Zach is not a student. What amount can the couple claim for the
lifetime learning credit?
$0
$200
$400
$600
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Question 41 of 85.
Gianna (20) attends State University and is a qualifying student for the purpose of the American
Opportunity Tax Credit (AOTC). Her parents will claim her as a dependent on their jointly-filed 2021
return. Their adjusted gross income is $135,000, and they paid $14,500 for Gianna's tuition during the
year. What is the maximum AOTC Gianna's parents may be eligible to receive?
$0
$2,000
$2,500
$4,000
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Question 42 of 85.
William and Serena are married and will file a joint return. For 2021, their modified adjusted gross
income is $90,000. Their dependent daughter, Emery (21), is in her third year at State University. William
and Serena are not students, and they have no other dependents. They paid $6,400 for Emery's tuition
during the year. What is the maximum American Opportunity Tax Credit (AOTC) they may be eligible to
receive?
$0
$2,000
$2,500
$2,560
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Question 43 of 85.
Which tax benefit for education is partially refundable?
American Opportunity Tax Credit.
Distribution from a Qualified Tuition Program.
Lifetime learning credit.
Student loan interest deduction.
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Retirement Contributions

Question 44 of 85.
Brittany (30) will use the head of household filing status for 2021. Her modified adjusted gross income is
$45,000. During the year, she made a $1,500 contribution to her employer's 401(k) plan. She is not a
student, and she has never taken a distribution from any retirement plan. The maximum amount Brittany
may receive for the retirement savings contributions credit (Saver's Credit) is:
$0
$150
$300
$1,500
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Question 45 of 85.
All of the following are types of retirement plans self-employed taxpayers may establish for themselves
and their employees EXCEPT:
Qualified defined contribution plans, such as 401(k) plans.
SIMPLE IRAs.
Simplified employee pensions (SEPs).
Spousal IRAs.
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Question 46 of 85.
Frank (48) and Suzanne (51) are married, and they will file a joint return for 2021. During the year, Frank
earned $94,000 in wages; Suzanne earned $4,500 from a part-time job. They had no other income. What
is the maximum amount the couple may contribute to Suzanne's traditional IRA?
$0
$4,500
$6,000
$7,000
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Question 47 of 85.
What is the age requirement to contribute to a Roth IRA?
There is no age requirement for contributing to a Roth IRA if the taxpayer meets the compensation
requirements.
Taxpayers must be at least age 18 and less than age 59½.
Taxpayers must be at least age 18 and less than age 72.
Taxpayers must be at least age 18, but there is no maximum age.
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Question 48 of 85.
Javier (25) will use the single filing status for 2021. His modified adjusted gross income is $25,000. During
the year, he made a $2,000 contribution to his employer's 401(k) plan. He has never taken a distribution
from any retirement plan. Javier is not a student. The maximum amount he may receive for the
retirement savings contributions credit (Saver's Credit) is:
$0
$200
$1,000
$2,000
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Retirement Contributions

Question 49 of 85.

Anthony (30) will use the single filing status for 2021. His only income for the year was from wages. In
early 2022, he received the following Form W-2 from his employer. He comes to you to have his taxes
prepared, and he tells you he would like to contribute to a traditional IRA for 2021, but only if he is
eligible to deduct the amount. He has no other adjustments to income. What is the largest amount
Anthony can contribute and deduct if he makes the IRA contribution before the filing deadline? (Answer
choices are below the image.)
$0
$5,000
$6,000
$7,000
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Retirement Contributions

Question 49 of 85.

Anthony (30) will use the single filing status for 2021. His only income for the year was from wages. In
early 2022, he received the following Form W-2 from his employer. He comes to you to have his taxes
prepared, and he tells you he would like to contribute to a traditional IRA for 2021, but only if he is
eligible to deduct the amount. He has no other adjustments to income. What is the largest amount
Anthony can contribute and deduct if he makes the IRA contribution before the filing deadline? (Answer
choices are below the image.)
$0
$5,000
$6,000
$7,000
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Retirement Distributions

Question 50 of 85.
Paul (69) and Kathryn (67) are married and will file a joint return. During the year, Paul received $9,000 in
social security benefits, and Kathryn received $29,000 in benefits. In addition, the couple earned $2,000
in interest income, and Paul, a retired military officer, received pension benefits totaling $73,000. How
much, if any, of the couple's social security benefits are taxable?
100%.
85%.
50%.
None of their benefits are taxable.
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Question 51 of 85.
The Simplified Method must be used to calculate the taxable portion of a distribution from a qualified
retirement account when:
The funds are rolled over into a Roth IRA.
The funds are rolled over into a traditional IRA.
The taxpayer previously made after-tax contributions to a traditional IRA.
The taxpayer previously made after-tax contributions to a qualified employee pension, profit-sharing,
stock bonus, or employee annuity plan.
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Question 52 of 85.
A taxpayer who takes a distribution from a traditional IRA in which they previously made nondeductible
contributions must:
Report the entire amount as a taxable distribution on Form 1040.
Use Form 8606, Nondeductible IRAs, to compute the taxable portion of their distribution.
Use the general rule to compute the taxable portion of their distribution.
Use the Simplified Method to compute the taxable portion of their distribution.
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Question 53 of 85.
Choose the response that completes the following sentence. A cash distribution from a qualified
retirement account in which the taxpayer ONLY made pre-tax contributions:
Is always fully taxable.
Is never taxable.
Is only taxable at the state and local level.
May be partially taxable.
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Time remaining

148:40

Retirement Distributions (continued)

Question 54 of 85.

Howard (71), a retired single taxpayer, received a monthly pension of $2,500 ($30,000 annually). He did not
contribute any after-tax dollars to the plan while he was working; his employer paid all the costs. Howard's
only other income for the year consisted of $17,256 in social security benefits. In early 2022, Howard
received the following 2021 Form 1099-R reporting the distribution from his pension plan. When Howard files
his tax return, how much should he report as taxable income from pensions and annuities? (Answer choices
are below the image.)
$0
$12,744
$27,000
$30,000
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Question 55 of 85.

Aurora Martinez (31) is filing as a single taxpayer. Aurora was the beneficiary of one of her great-
grandmother's traditional IRAs. She passed away during the year, and Aurora took a $3,000 total distribution
from the account. She then used the money to pay down her credit card debt.

Aurora did not qualify for any COVID-19 or other exceptions for IRA distributions. As far as she knows, all of
her great-grandmother's contributions to the account were deductible.

Aurora's only other income during the year was $58,000 in wages. She will claim the standard deduction.
Aurora received the following Form 1099-R reporting the IRA distribution. The form shows a code "4" in box
7, indicating that the distribution is due to death. When Aurora files her 2021 return, how much of the
distribution must she include in her total income? (Answer choices are below the image.)

$0
$300
$2,700
$3,000
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Question 56 of 85.

McKenna Michaels is a 30-year-old single taxpayer who changed jobs during the year. When she left her first
job, she decided to take a total distribution from the 401(k) plan she had established with her former
employer. This was not a COVID-19-related distribution, and she did not qualify for any hardship or disaster-
related exceptions. She used the proceeds to make a down payment on a new car.

McKenna's only other income was from wages, and her 2021 taxable income was $54,650, placing her in the
22% tax bracket. In early 2022, she received the following Form 1099-R reporting the distribution she took
from her former employer's retirement plan. What amount, if any, will McKenna need to pay for the additional
tax on early distributions? (Answer choices are below the image.)
0
$200
$1,000
$2,200

Ethics

Question 57 of 85.

The third due diligence requirement is the knowledge requirement. To meet the knowledge requirement, the
paid tax preparer must:
Attest that to the best of their personal knowledge, the information provided is correct, consistent, and complete.
Complete and submit all worksheets used to compute any refundable credits.
Complete the Form 8867, Paid Preparer's Due Diligence Checklist, thoroughly and conscientiously.
Must keep copies of any records provided by the taxpayer that were relied upon to determine eligibility for the
refundable credits, or to compute the amount of the credits when the return was prepared.
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Question 58 of 85.

Circular 230 authorizes an individual to sign, as the preparer, a tax return that:
Reports a $12,000 loss from an investment with no documentation or written opinion.
Shows zero income tax due and includes a claim that filing and paying income taxes are voluntary.
Takes a non-frivolous position and has substantial authority for the position.
Takes an undisclosed position that the tax preparer has not encountered before and does not have time to
research.
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Question 59 of 85.

What is the penalty a tax preparer would face who failed to report all of his client's income by taking an
unreasonable position? The preparer charged $500 for the tax preparation.
$250
$1,000
 $5,000
$5,250
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Question 60 of 85.

Jasmine provided Benjamin, her tax preparer, with detailed check registers to compute her expenses.
Benjamin, however, knowingly overstated the expenses on Jasmin's return. After adjustments by the
examiner, the tax liability increased significantly. Benjamin charged Jasmine $1,000 for the tax preparation.
Because Benjamin willfully disregarded information provided in the check registers, Benjamin is subject to a
penalty in which amount?
$500
$750
$1,000
$5,000
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Question 61 of 85.

Amber is your best friend's 19-year-old daughter. Amber has a two-year-old child. You know that Amber lived
at home and was a full-time student until she quit college at the end of September of the tax year. Your friend
(Amber's mom) gives you Amber's tax documents and tells you to let Amber claim herself and claim her child
for Earned Income Credit (EIC). To meet the EIC due diligence knowledge requirement, you:
Can complete Amber's return filing her as a single nondependent, with EIC for her child.
Can disregard information obtained through a personal relationship.
Cannot complete Amber's return under any circumstances.
Cannot ignore the facts about Amber living with her mother for nine months of the year when she was a full-time
student.
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Question 62 of 85.

What is the penalty a tax preparer would face who reduces a client's tax liability by recklessly and
intentionally disregarding tax laws? The preparer charged $500 for the tax preparation.
$250
$500
$5,000
 $5,500
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Question 63 of 85.

Due diligence requires paid preparers to satisfy four tests when a return claims Earned Income Credit (EIC),
Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), Credit for Other Dependents (ODC), and head of
household (HOH) filing status. What are the four tests?
Complete Schedule 8812 (Form 1040), Credits for Qualifying Children and Other Dependents, submit all
worksheets used to compute any of these four credits, ask questions, and take notes.
Complete and submit Form 8867, Paid Preparer's Due Diligence Checklist, complete and keep all worksheets
used to compute any of these four credits, satisfy the knowledge requirement, and satisfy the documentation
requirement.
Does this make sense, reasonable basis, substantial authority, nonfrivolous position.
Knowledge, prepare, review, and file the tax return.
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Question 64 of 85.

Section 7525 privileged communication applies to:

Corporate tax matters.
Criminal tax matters.
State tax law.
Tax advice.
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Question 65 of 85.

It is not enough to ask more questions; tax preparers must also:

Audit the return.
Ask clients for two references to verify the information.
Perform employment verification checks on all EIC clients.
Contemporaneously document the questions asked and the client's responses.
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Question 66 of 85.

A tax preparer's high ethical standards protect taxpayers by:

Guaranteeing their returns will not be questioned by the IRS.
Promising they will be free from IRS penalties.
Protecting the tax preparer, not the taxpayer.
Providing them with an accurate return, including all tax benefits to which they are entitled.
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Question 67 of 85.

What is a tax preparer's correct response to a taxpayer who omitted items on an income tax return which
was submitted in a previous year? Advise the taxpayer promptly of the fact of such omission and:
Advise them of the consequences for such omissions as provided under the Internal Revenue Code and
Preparer Regulations.
Make an adjustment for the previous year's omission on the current-year return.
Refer the taxpayer to a supervisor.
Refuse to prepare the current-year return until the previous-year return is amended.
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Itemized Deductions

Question 68 of 85.

Aaron received a state income tax refund in 2021 for state taxes he overpaid in 2020. He was able to reduce
his 2020 federal tax liability by itemizing and claiming a deduction for state and local income taxes paid that
year. When Aaron files his 2021 return, he may need to report all or part of the state tax refund he received in
2021 as:

A negative deduction.

A recaptured credit.

A refundable credit.
 Taxable additional income.

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Question 69 of 85.

Marina (33) will use the single filing status. She itemized deductions in 2020. She plans to itemize for 2021.
For her plan to itemize deductions to be the most beneficial, her itemized deductions should exceed a
threshold amount of:

$12,400

$12,550

$13,900

$18,800

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Question 70 of 85.

Which of the following is a medical expense that is generally deductible on Schedule A, Itemized
Deductions?

Dental expenses for teeth whitening to improve the taxpayer's appearance.

Eyeglasses.

Health club dues.

Nutritional supplements.

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Question 71 of 85.

Which of the following is a deductible medical expense?

Funeral, burial, or cremation expenses.

Medicare Part B premiums withheld from the taxpayer's social security benefits.

Premiums paid for an insurance policy covering loss of life, limb, or sight.

Swimming lessons recommended by a doctor to improve the taxpayer's general health.

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Question 72 of 85.

Marlin and Teri are married and will file a joint return. They live in a state that does not impose a state sales
tax. However, they did pay the following taxes in 2021:

 $4,800 state income tax withheld from earnings.

 $900 state balance due for 2020.
 $750 personal property taxes.
 $5,750 real estate taxes.

How much are they eligible to deduct for taxes paid on Schedule A, Itemized Deductions?

$10,000

$11,300

$11,450

$12,200

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Self-Employment Income

Question 73 of 85.

All of the following are self-employed taxpayers EXCEPT:

Luciano, an independent consultant who performs services for a manufacturing firm in exchange for a fee.

Naomi, the owner and operator of a bed and breakfast. She provides daily cleaning and laundry services in
addition to the furnished rooms in exchange for rent.

Nick, a driver for a rideshare service. He received a Form 1099-K reporting payments from credit and debit card
transactions.

Paige, a home health nurse who works for a health care agency that determines when and how her work should
be performed.

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Question 74 of 85.

A sole proprietor who earned a net profit from their business may be eligible for which of the following tax
benefits?

A deduction of up to 20% of gross income from all sources, including wages and investments.

A deduction of up to 20% of qualified business income.

A more favorable tax rate of 0%, 15%, or 20% on net profit from business.

A flat corporate tax rate of 21% on net profit from business.

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Question 75 of 85.

Liam has always been a photo enthusiast. In 2021, a local gallery owner saw some of his photographs and
offered to set up an exhibit for him. The special, one-time, weekend exhibit was a huge success, and patrons
of the gallery ended up purchasing many of Liam's photographs. Even though the gallery owner retained a
percentage of the profits, Liam still earned $10,000 from selling his work.

How should Liam report this income on his tax return? His only other income was from wages from his full-
time job as an office manager.

He does not need to report any of the income.

He may postpone a decision to report the income for up to five years.

He should report the $10,000 as other income, activity not engaged in for profit income, on Schedule 1,
Additional Income and Adjustments to Income; this amount will then carry to page 1 of his Form 1040. He may not
deduct any expenses.

He should report the $10,000 as income on Schedule C, Profit or Loss from Business. He may deduct eligible
expenses, including mileage and the cost of supplies. The amount of his net profit will then carry to page 1 of his
Form 1040.

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Question 76 of 85.

All of the following are reported on Schedule C, Profit or Loss from Business, EXCEPT:

Cost of goods sold.

Gross receipts.

Information on the taxpayer's vehicle.

Self-employment tax.

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Question 77 of 85.

A taxpayer may be eligible to deduct which of the following as an allowable business expense in Part II of
Schedule C, Profit or Loss from Business?

An amount contributed to their individual retirement plan.

The cost of health insurance premiums for themselves and their families.

The cost of meals purchased while traveling for business.

A late payment fee for failing to renew a business license on time.

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Depreciation

Question 78 of 85.

Choose the response that correctly describes a condition, or conditions, that must be met for property to be
considered depreciable.

The property must be an item that will eventually wear out, get used up, become obsolete, or otherwise lose its
value.

The taxpayer must place the property in service and dispose of it within the same year.

The taxpayer must either rent or own the property and use it in their business or in an income-producing activity.

The useful life of the property must not exceed one year.

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Question 79 of 85.

Which of the following is depreciable property?

Equipment placed in service and disposed of in the same year.

A lawn mower used to mow the taxpayer's yard.

A truck used by the taxpayer for both personal and business purposes.

An unimproved piece of land used as a parking lot.

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Question 80 of 85.

Which of the following is classified as depreciable property?

An intangible asset, such as a secret recipe.

Inventory.

Land.

An office building.

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Depreciation
Question 78 of 85.

Choose the response that correctly describes a condition, or conditions, that must be met for property to be
considered depreciable.

The property must be an item that will eventually wear out, get used up, become obsolete, or otherwise lose its
value.

The taxpayer must place the property in service and dispose of it within the same year.

The taxpayer must either rent or own the property and use it in their business or in an income-producing activity.

The useful life of the property must not exceed one year.

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Question 79 of 85.

Which of the following is depreciable property?

Equipment placed in service and disposed of in the same year.

A lawn mower used to mow the taxpayer's yard.

A truck used by the taxpayer for both personal and business purposes.

An unimproved piece of land used as a parking lot.

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Question 80 of 85.

Which of the following is classified as depreciable property?

 An intangible asset, such as a secret recipe.

Inventory.

Land.

An office building.

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Penalties and Amended Returns

Question 81 of 85.
What is a paid tax preparer's correct response to a taxpayer who omitted items on an income tax return
that was submitted in a previous year? Advise the taxpayer promptly of the fact of such omission and:
Advise them of the consequences of not amending the previous year's return.
Make an adjustment for the previous year's omission on the current-year return.
Refer them to an office supervisor.
Refuse to prepare the current-year return until the previous year's return is amended.
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Question 82 of 85.
Melvin timely filed his 2020 tax return on March 1, 2021. He was entitled to a $300 refund, which he
received a few weeks later. Melvin later determined that he had failed to claim a refundable education
credit for which he was eligible. The credit would have given him an even larger refund for that year.

The latest Melvin can file an amended return to correct his originally filed 2020 return and claim the
refundable credit is:
March 1, 2023.
The 2023 tax filing deadline (generally April 15).
March 1, 2024.
The 2024 tax filing deadline (generally April 15).
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Question 83 of 85.
Which taxpayer should file an amended return?
Chase. He never filed a tax return for 2016. In March 2022, he realized he was entitled to a refund for
that year.
 Elysia. She received a notice from the IRS identifying a discrepancy. She agrees with the notice and the
amount of tax due.
Joseph. After he timely filed his 2021 return, he discovered that he had neglected to report $970 in
income from a job he only held for two weeks that year.
Reba. She timely filed a joint 2020 return with her husband, Geoff, on April 15, 2021. In March 2022, she
determined that it would have been more beneficial to file separately for that year.
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Question 84 of 85.
Why would a taxpayer need to file Form 1040-X, Amended U.S. Individual Income Tax Return?
To correct errors and omissions on the original return that result in a change to the original tax liability,
refund, or balance due.
To report original information before the end of the tax year when a return has not been filed
previously.
To report information from a corrected income document before the original return has been filed.
To report original information when the due date for the return has passed, and the return has not been
previously filed.
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Question 85 of 85.
Taxpayers are assessed the failure-to-file penalty when they:
Fail to file the return by the due date and there is a balance due.
Timely file their return, but fail to pay the tax owed by the due date.
Show negligence or disregard of the rules or regulations, causing an underpayment.
Understate their tax by the larger of $5,000 or 10% of the correct tax.
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