Form 1040EZ: Which of the following factors would make a taxpayer ineligible to file Form 1040EZ?

Answer Choices:a. Taxable income exceeding $99,000b. Taxable interest exceeding $1,400c. Itemized deductionsd. Scholarship income

Correct Answer: c

Answer Explanation: Itemized deductions can only be claimed on Form 1040.

Form 1040A: The simplest form a U.S. resident taxpayer with a filing requirement and a dependent can use to file a return is:

Answer Choices:a. Form 1040EZb. Form 1040Ac. Form 1040d. Form 1040NR

Correct Answer: b

Answer Explanation: No dependent is claimable on Form 1040EZ. Form 1040 is not a simplified form. Form 1040NR is for U.S. nonresident returns. Form 1040: Which of the following is a write-in adjustment on form 1040?Answer Choices:a. Alimony paid to a former spouseb. Moving expensesc. Repayment, of jury duty pay, to an employerd. Student loan interestCorrect Answer: cAnswer Explanation: The three answers a, b, and d are adjustments but they are not write-in adjustments, they have a specific line number on the Form 1040.

Form 1040ES: An employed taxpayer has an estimated tax liability of $1,200. She wishes to prepay enough tax to avoid a balance due. What choices does she have?

Answer Choices:

a. She may make a total of $600 timely estimated payments and increase her withholding by $600.

b. She may make a total of $1,200 timely estimated tax payments.

c. She may increase her federal withholding by $1,200.

d. She may do any of these.

Correct Answer: d

Answer Explanation: Any combination of estimated payments made through withholding or through payments submitted with a Form 1040-ES may be used to avoid a tax liability.

Form 1040X: Merida is a citizen of Italy and is attending State University. She received income working part time and received a Form W-2. She filed a Form 1040 in 2008. She is a non-resident alien and will need to file an amended return. Which form should Merida use? (3)

Answer Choices:a. Form 1040NR onlyb. 1040EZ onlyc. Form 1040X and Form 1040NRd. Form 1040X only

Correct Answer: c

Answer Explanation: Merida will need to file both the Form 1040X to amend her original return, and a Form 1040NR as a non-resident.

Form 1040V: Sending their check with a completed Form 1040V:Answer Choices:a. Helps your clients avoid a $50 penalty.b. Is required by law.C. Is only required on electronically-filed returns.d. Allows the IRS to process the payment more accurately and efficiently.

Correct Answer: d

Answer Explanation: Sending Form 1040V makes good sense for you clients because it allows the IRS to process the payment more accurately and efficiently. Its use is not required.

Form W-2: In which of the following situations should a Tax Professional be especially wary?

Answer Choices:A. Many Forms W-2 for one tax year

b. A handwritten Form W-2

c. All income and expenses are reported on Schedule C

d. Many children live in the taxpayer's household

Correct Answer: b

Answer Explanation: A hand-written Form W-2 is indentified to the IRS as a non-standard Form W-2.

Form W-2G: If a taxpayer goes to a casino and wins more than a $5,000 jackpot playing the slot machines, the casino must report the winnings to him using:A Form 1099-RB Form W-2C Form W-2GD Form W-4Correct Answer: cAnswer Explanation: A Form W-2G is used to report to both the IRS and the taxpayer his winnings and any federal withhold taxes withheld.

Form W-4: A taxpayer uses which of the following forms to report the number of allowances that determine the withholding amount? Form:

Answer Choices:a. W-2b. W-3c. W-4d. W-7

Correct Answer: c

Answer Explanation: IRS Form W-4 is entitled: Employee’s Withholding Allowance Certificate.

Form W-4P: Which form does a taxpayer use to request withholding on an annuity?

Answer Choices:a. W-2b. W-4c. W-4P

d. W-7

Correct Answer: c

Answer Explanation:W-4P, Withholding Certificate for Pension or Annuity Payments, is used to request withholding on an annuity.

Form W-4V: A taxpayer who wishes to have federal income tax withheld from his or her unemployment benefits should file which form?

Answer Choices:a. Form W-4b. Form W-5c. Form W-4Pd. Form W-4V

Correct Answer: d. Form W-4V

Answer Explanation: Form W-4V is used to request voluntary federal income tax withholding from various sources of income, including unemployment benefits.

Form W-7: Who issues the Individual Tax Identification Number (ITIN)?

Answer Choices:A. U.S. Citizenship and Immigration Servicesb. Social Security Administrationc. Internal Revenue ServiceD. Treasury Department

Correct Answer: c

Answer Explanation: An ITIN is a tax processing number, issued by the IRS, for certain resident and nonresident aliens, their spouses, and their dependents.

Form 1098: A lender is not required to send a taxpayer a Form 1098 when the combined mortgage interest and points is less than:A $1,000B $500C $600D $1,500

Correct answer: cAnswer Explanation: Any lender must send both the government and the taxpayer a Form 1098 when the combined mortgage interest and points is $600 or more.

Form 1098E: A taxpayer could not be claimed as a dependent on another person's return the year she took out a student loan. Qualified student loan interest on the taxpayer's school loans is paid by her grandparents. Who is eligible to claim the student loan interest deduction?

Answer choices:a. The taxpayer may claim the deduction. b. The grandparents may claim the deduction. c. The taxpayer and grandparents may split the deduction. d. No one may claim the deduction.

Correct answer: a

Answer explanation: In this case, the only person potentially eligible to claim the student loan interest deduction is the taxpayer who took out the loan (no one else could claim her as a dependent when she took out the loan, therefore, no one else may deduct the interest). Even though her grandparents are making the payments, the taxpayer may still claim the student loan interest deduction; she is treated as receiving the funds from her grandparents, and in turn, paying the interest.

Form 1099B: Your client brings in a Form 1099-B showing $6,521 in net proceeds from a securities sale on May 7, 2009. What are all of the other items you need to know to complete Schedule D?

Answer Choices:a. The purchase price paid for the securitiesb. Whether the client sold stocks or mutual funds

c. The asset basis on the sale dated. The date(s) the asset was acquired and the asset basis on the sale dateCorrect Answer: d

Answer Explanation: Both the date(s) the asset was acquired and the asset basis on the sale date are required to complete Schedule D.

Form 1099-C: If debt of $600 or more is cancelled in connection with a foreclosure, on what information form is this reported to the taxpayer?

Answer Form 1099-C

Answer Choices:a. Form 1099-Cb. Form 1099-MISCc. Form 982d. Form 1098

Correct Answer: a

Answer Explanation: Form 1099-C must be sent when an institution has canceled a debt greater than $600

Form 1099DIV: Whitley received Form 1099-DIV reporting $50 in dividends for 2009. She had previously elected to have these dividends reinvested. Which of the following statements regarding the reinvested dividends is true?

Answer Choices:a. The dividends are not taxable until the stock is sold.

b. The dividends are not taxable in 2009, but increase her basis in the stock.

c. The dividends are taxable on her 2009 return and increase her basis in the stock.

d. None of the above.

Correct Answer: c

Answer Explanation: Dividends reinvested in the account (commonly referred to as a Dividend Reinvestment Plan (DRIP)) are taxable as dividend income. The reinvested dividend is added to he taxpayer’s basis in the account.

Form 1099G: Form 1099-G is used to report all of the following except:

Answer Choices:a. Gambling winningsb. Unemployment compensationc. Taxable energy grantsd. State income tax refund

Correct Answer: a

Answer Explanation: Gambling winnings are reported on Form W-2G. All the other items are reported on Form 1099-G, Certain Government Payments.

Form 1099INT: Bonds issued by a state or political subdivision are often called

Answer Choices:a. U.S. Savings bondsb. Municipal bondsc. Treasury bondsd. Series HH bonds

Correct Answer: b

Answer Explanation: Bonds issued by a state or political subdivision are called municipal bonds and their interest is tax exempt on the federal return.

Form 1099MISC: What does box 9 of the Form 1099-MISC indicate?

Answer Choices:a. Other income.b. Direct sales of $5,000 or more.c. Prizes and awards.d. Nonemployee compensation.

Correct Answer: b

Answer Explanation: When Form 1099-MISC, box 9 is checked, the payer made direct sales of $5,000 or more of consumer products to the recipient for resale.

Form 1099OID: Which of the following is a true statement in regards to OID?

Answer Choices:a. OID is treated as interest and is taxable as it accrues over the term of the bond

b. OID is treated as dividends and is taxable as it accrues over the term of the bond

c. OID is treated as dividends and is not taxable until the bond maturesd. OID is treated as interest and is not taxable until the bond matures

Correct Answer: a

Answer Explanation: OID is interest that is taxable as it accrues over the term of the bond. It is not dividends and taxation is not deferred until the bond matures.

Form 1099-R: Reading Form 1099-R, what does code 1 in box 7 mean?

Answer Choices:

a. The distribution is subject to penalty unless an exception applies.

b. The distribution is eligible for lump-sum treatment.

c. The distribution is not eligible for rollover treatment.

d. A distribution was rolled over.

Correct Answer: aAnswer Explanation: Code 1 indicates the client has taken an early distribution from a retirement plan. Early distributions are subject to a 10% penalty, unless the client qualifies for an exception. Code 1 is one of the most common codes in Form 1099-R, box 7.

Schedule A: Which of the following are NOT deductible on Schedule A?Answer Choices:a. Casualty lossesb. Federal taxes withheldc. Charitable contributionsd. Dentist feesCorrect Answer: bAnswer Explanation: Federal taxes withheld are not an itemized deduction.

Schedule B: Interest income from which of the following institutions can be called a dividend?

Answer Choices:a. Credit unionsb. Cooperative banksc. Mutual savings banksd. All of the above

Correct Answer: d

Answer Explanation: All of these payers may describe as dividends the interest which is reported as interest on Schedule B.

Schedule C-EZ: A client can file Schedule C-EZ instead of Schedule C if they meet certain requirements. Which of the following IS one of the requirements?

Answer Choices:a. The net profit was not greater than $50,000.b. The net loss was not greater than $10,000.c. The business had no employees.d. Basis of depreciable property did not exceed $25,000.

Correct Answer: c

Answer Explanation: To file Schedule C-EZ, the business cannot have any employees. The other items are not requirements to file Schedule C-EZ.

Schedule D: If shares of stock were purchased on April 5, 2009, the earliest they could be sold to be considered for long-term treatment would be ___.

Answer Choices:a. May 5, 2010b. April 5, 2010c. April 6, 2010d. May 6, 2010

Correct Answer: c

Answer Explanation: Property must be held one year and a day to be considered long term.

Schedule D-1: In 2009, Jeffrey sold shares of stock and/or mutual funds in 200 separate transactions on 200 separate dates. Which of the following is Jeffrey’s best option for the preparation of his 2009 income tax return?

Answer Choices:

a. Jeffrey should only report the transactions which will fit on Schedule D.

b. Jeffrey should use Schedule D-1 to list the transactions which will not fit on Schedule D; the total from the Schedule D-1 will be carried to his Schedule D.

c. Jeffrey should send his broker statement to the IRS along with a blank tax return; the IRS will prepare the return.

d. Jeffrey should attach his broker statements to his tax return; instead of filling out Schedule D, he should write “See Attached” across the top of the Schedule D.

Correct answer: b

Answer Explanation: Schedule D-1 is used as a continuation sheet for Schedule D. The totals from Schedule D-1 carry to Schedule D.

Schedule EIC: All the following are a requirement to claim earned income credit (EIC) EXCEPT:Answer Choices:a. The taxpayer must be a U.S. citizen.b. The taxpayer must file a tax return, even if not required.c. The taxpayer must have earned income.d. The taxpayer must have a valid SSN for employment in the U.S.

Correct Answer: a

Answer Explanation: Answers b, c, and d are requirements to claim EIC. It is not necessary to be a U.S. citizen to claim EIC

Schedule L: Schedule L is used by taxpayers who are increasing their standard deduction by:Answer Choicesa. The new motor vehicle taxb. A net disaster lossc. Certain state and local real estate taxesd. All of the aboveCorrect Answer: dAnswer Explanation: When a taxpayer increases his standard deduction using any of the reasons listed, new motor vehicle tax, net disaster loss, and/or certain real estate taxes he would use Schedule L.

Schedule M: For which years is the Making Work Pay Credit (MWPC) available?

Answer Choices:

a. 2008 and 2009

b. 2009 and 2010

c. 2010 and 2011

d. 2011 and 2012

Correct answer: b

Answer explanation: Under current legislation, the Making Work Pay Credit (MWPC) is available for the 2009 and 2010 years.

Schedule R: To qualify for the credit for the elderly or the disabled, individuals must be:

Answer Choices:a. Age 65 or olderb. Age 55 or olderc. Permanently retiredd. Receiving social security income

Correct Answer: a

Answer Explanation: To qualify for the credit for the elderly or the disabled, individuals must be:

Age 65 or older, or Under age 65, retired on permanent and total disability, receiving taxable disability income,

and have not reached the mandatory retirement age their company has set

Schedule SE: What is the general SE tax rate?

Answer Choices:a. 100%b. 92.35%c. 15.30%d. 12.40%

Correct Answer: c

Answer Explanation: Self-employed clients are subject to pay SE tax of 15.30% (12.40% social security plus 2.90% medicare) on 92.35% of their net self-employment income.

Form 2106EZ: Which of the following taxpayers CANNOT claim the standard mileage rate?

Answer Choices:a. Leonard bought two new cars this year. He usually uses his Jetta when running errands for his employer. Occasionally, he trades cars with his wife and uses her Jeep.b. Drew leased a new Mustang this year. He uses it to travel between his two jobs.

c. Marla borrows her sister's car while her own car is in the shop. During the time that she has her sister's car, she drives each day to her second job.

d. Mimi has a Camry that she purchased in 2006. In 2006, she claimed the standard mileage rate. Since then she has claimed actual expenses.

Correct Answer: c

Answer Explanation: Marla cannot use the standard mileage rate because she does not own the vehicle.

Form 2120: What is the minimum contribution percentage of qualifying relative’s support that a taxpayer must make to be able to claim a dependency exemption based on a multiple support agreement?Answer Choices:a. 5%.

b. 10%.

c. 25%.

d. 50%.

Correct Answer: b

Answer Explanation: Form 2120, Multiple Support Declaration, asks the taxpayer to certify which persons listed paid over 10% of the support of their qualifying relative.

Form 2441: Which of the following taxpayers is NOT able to claim the child and dependent care creditAnswer Choices:

a Alice Keeler is divorced. Her daughter, Janet (5), lived with her all year. Alice would have been able to claim the dependency exemption for Janet except that she signed a waiver allowing her ex-husband to do so. While she was working, Alice sent her daughter to the Kiddy Care Center.

b Christine Williams’ husband, Henry, was disabled and unable to care for himself for the entire year. Christine hired a nurse to care for him in their home while she was at work. The Williamses will file a joint return.

c Sidney and Stella Anderson have a dependent daughter, Andrea (8). Sidney works full time and Stella is extensively involved in charity work. They paid the Daily Child Care Center to take care of Andrea while she worked for various charitable organizations.

d Jim and Mary McGraw have two dependent children, Tom (10) and Dana (4). Jim worked all year. Mary looked for a job in July and worked from August through December. They paid a babysitter to care for the children from July through December. The McGraws will file a joint return.

Correct Answer: cAnswer Explanation: Both parents must be working or looking for work.

Form 2555EZ: To exclude foreign earned income from U.S. income tax, a client must meet three requirements. Which item listed below is NOT one of the requirements:

Answer Choices:a. The client must have foreign earned income.b. The client must maintain a permanent residence within the U.S.c. The client’s tax home is in a foreign country.d. The client qualifies as a bona fide resident of a foreign country or have a sufficient physical presence outside the U.S.

Correct Answer: b

Answer Explanation: The client is not required to maintain a permanent residence within the U.S. The other three items are all required to claim the foreign earned income exclusion.

Form 3903: Which of the following taxpayers qualifies to deduct moving expenses?Answer Choices:

a Alicia moved from New York to Los Angeles on January 15, 2009, to take a new job as a television reporter. She worked full time all of 2009. Alicia paid $1,750 to move all of her personal belongings to her new apartment. She paid $375 for her airline ticket.

b Bill moved from Philadelphia, PA to Trenton, NJ (32 miles) on March 1, 2009, to take a new job as a lobbyist. He worked full time for the remainder of 2009. He paid $985 to move all of his personal belongings to his new apartment. His old job was three miles from home.

c Jason moved from Denver to Chicago on November 2, 2009. Jason was employed as a construction worker in Denver and moved to be closer to his family. He is not currently employed. He paid $485 for his airfare and $1,895 to move all of his personal belongings.

d Linda moved from San Francisco to San Jose on February 4, 2009, to take a new job as an attorney. She worked full time for the remainder of the year. She paid $1,385 to move her personal belongings to her new condo. Her old office was four miles from her home. It is 48 miles from her old apartment to her new firm's officeCorrect Answer: aAnswer Explanation: A is the only answer that meets the work time and distance requirements for claiming moving expenses.

Form 4137: Form 4137 is used to calculate social security and Medicare taxes on what income?

Answer Choices:a. Tips of less than $20 per monthb. Allocated tipsc. Noncash tipsd. None of the above

Correct Answer: b

Answer Explanation: Form 4137 is used to figure the social security and Medicare tax owed on tips that were not reported to an employer, including any allocated tips shown on Form W-2.

Form 4868: Which of the following is a correct statement about filing for an automatic extension of time to file an individual income tax return?

Answer Choices:a. Use Form 4868 to apply for 6 more months (4 if out of the country and a U.S. citizen or resident) to file Form 1040, 1040A, 1040EZ, 1040NR, or 1040NR-EZ.b. A taxpayer can file a Form 4868 after the normal April 15th filing deadline.c. Once the taxpayer files for an automatic extension you cannot file your return until six months (4 if out of the country) has passed.d. Form 4868 automatic extension for time to file an individual income tax return can only be filed by mailing the form to the IRS.

Correct Answer: a

Answer Explanation: The taxpayer must use Form 4868 to file for an automatic extension to file Forms 1040, 1040A, 1040EZ, 1040NR, or 1040NR-EZ.

Form 5405: For 2009, the First-Time Homebuyer Credit (FTHBC) is 10% of the purchase price of the home, with a maximum available credit of:Answer Choices:

a. $4,000b. $6,000c. $8,000d. $10,000

Correct answer: cAnswer explanation: For 2009, the maximum FTHBC is 10% of up $80,000 purchase price. Therefore the maximum available credit is $8,000.

Form 8283: Form 8283 is used to report:

Answer Choices:a. Noncash deductions over $500b. Expenses paid for a foreign exchange studentc. Blood donations to the Red Crossd. Special donations for the earthquake victims in Haiti

Correct Answer: a

Answer Explanation: Form 8283 is required for noncash deductions of over $500.

Form 8332: In most cases, a child of divorced or separated parents is the qualifying child of the custodial parent. However, the child will be treated as the qualifying child of the noncustodial when the following is true:

Answer Choices:a. The custodial parent signs a written declaration that he or she will not claim the child as a dependent. Generally, this declaration is IRS Form 8332.b. The non-custodial parent sends along a copy of a few pages of the divorce decree granting them the right to claim.c. The child lived with the non-custodial parent the greater part of the year.d. The custodial parent gives verbal permission for the non-custodial parent to claim the child.

Correct Answer: a

Answer Explanation: The non-custodial parent must file Form 8332, signed by the custodial parent, to claim a child as a dependent on their tax return.

Form 8379: Under which of the following circumstances might it be appropriate for a taxpayer to file an injured spouse claim?

Answer Choices:a. If the taxpayer is unable to pay the tax liability because his or her spouse has suffered some type of injury.b. If the taxpayer filed a joint return and the joint overpayment was applied to a prior tax liability on a joint tax return filed by the taxpayer and his or her spouse.c. If the taxpayer filed a joint return and there is an understatement of tax due because of omitted income of the taxpayer's spouse.d. If the taxpayer filed a joint return and the joint overpayment was applied to his or her spouse's past-due child support.

Correct Answer: d

Answer Explanation: Form 8379, Injured Spouse Allocation, is filed by one spouse (the injured spouse) on a jointly filed tax return when the joint refund was, or is expected to be, applied to a past-due obligation of the other spouse.

Form 8453: IRS Form 8453 is used when a tax return is e-filed and additional forms or documentation needs to be mailed to the IRS. Which of the following forms is NOT to be sent with Form 8453?

Answer Choices:a. Form 3115, Application for Change in Accounting Methodb. Form 8885, Health Coverage Tax Credit, and all required attachmentsc. Form 8332, Release / Revocation of Release of Claim to Exemption for Child by Custodial Parentd. Form 2441 Child and Dependent Care Credit

Correct Answer: d

Answer Explanation: Forms 3115, 8885, and 8332 should be included with Form 8453. Form 2441 should not be included with Form 8453.

Form 8606: Under which of these scenarios is filing Form 8606 NOT required?Answer Choices:a. The client makes a partially-deductible traditional IRA contribution.b. The client takes a qualified Roth IRA distribution.c. The client converts a SEP IRA to a Roth IRA.d. The client who is over age 59½ and converts a traditional IRA to a Roth IRA.

Correct Answer: b

Answer Explanation: Form 8606 includes three sections to report nondeductible traditional IRA contributions, conversions, and nonqualified Roth IRA distributions.

Form 8812: The ACTC is filed using which form?

Answer Choices:a. Form 8812b. Form 8332c. Form 8901d. Form 4137

Correct Answer: a

Answer Explanation: Form 8812 is used for the Additional Child Tax Credit.

Form 8821: In which of the following situations would Form 8821, Tax Information Authorization, be most appropriate?

Answer Choices:a. When an enrolled agent wants to request tax documents from the IRS for a client, for whom he has a Form 2848 on file.b. When an attorney wants to advise clients she agrees to represent them.c. When a CPA wants to advise the IRS he represents a particular taxpayer.d. When a CPA wants to enable her unenrolled assistant to request and inspect tax documents from the IRS.

Correct Answer: D

Answer Explanation: Taxpayers submit Form 8821 to authorize a designated individual, corporation, firm, organization, or partnership to inspect and/or receive their confidential tax information.

Form 8859: What must a taxpayer who claims the District of Columbia First-Time Homebuyer Credit do? Answer Choices:

a. Claim the credit as taxable income on the federal income tax return for the year after purchasing the home.

b. Repay the credit in equal installments over 20 years. c. Reduce the basis of the home by the amount of the credit. d. Reduce the amount of home mortgage interest deducted on Form 1040, Schedule A, by

the amount of the credit. Correct answer: cAnswer explanation: Taxpayers who claim the District of Columbia First-Time Homebuyer Credit are required to reduce the basis of the home by the amount of the credit.

Form 8863: Which of the following expenses qualify for an education credit in 2009?Answer Choices:a. Fees for an optional student activityb. Cost of student health feesc. Tuition payments. No scholarships, grants, or other nontaxable benefits were received.d. Tuition payments. The taxpayer received a nontaxable grant, which covered the entire tuition expense.Correct Answer: c

Answer Explanation: Following instructions for the Form 8863, only qualified expenses are eligible, optional activities, health fees, and tuition paid by grants and scholarships are not qualified expenses.

Form 8867: Form 8867 is:

Answer Choices:a. A form used to compute the lifetime learning creditb. An eligibility checklist for a paid preparer to complete for a client with EITCc. The part of a tax return that lists names and dates of birth of children who qualify a taxpayer for EITCd. A form used to split a taxpayer’s refund among two or more accounts

Correct Answer: b

Answer Explanation: Form 8867, Paid Preparer’s Earned Income Credit Checklist, or its equivalent, is a due diligence requirement for preparers who complete a return that contains EITC.

Form 8879: When a return is e-filed by an electronic return originator (ERO), which of the following forms is used as the declaration document and signature authorization for an e-filed return?

Answer Choices:a. Form 8332b. Form 8453c. Form 8879d. Form 8885

Correct Answer: c

Answer Explanation: Form 8879 is the declaration document and signature authorization for an e-filed return filed by an electronic return originator (ERO). Complete Form 8879 when the Practitioner PIN method is used or when the taxpayer authorizes the ERO to enter or generate the taxpayer’s personal identification number (PIN) on his or her e-filed individual income tax return.

Form 8880: Peter and Mary file MFJ and have modified AGI of $58,000. Peter contributed $2,000 to his traditional IRA. What is their Saver's Credit rate?

Answer Choices:

a. 0%b. 10%c. 20%d. 50%

Correct Answer: a

Answer Explanation: For married couples filing a joint return, the Saver’s Credit rates are as follows:

Modified AGI Saver’s Credit rate

$0 to $33,000 50%

$33,001 to $36,000 20%

$36,001 to $55,500 10%

$55,001 and above $0

Form 8888: The purpose of Form 8888 is to:

Answer Choices:a. Report potential fraudb. Apply for the additional child tax creditc. Compute a penaltyd. Directly deposit a refund into more than one account.

Correct Answer: d

Answer Explanation: The title of Form 8888 is: Direct Deposit of Refund to More Than One Account.

Form 8889: For purposes of a Health Savings Account (HSA), to be considered an eligible individual for the entire tax year, a taxpayer must be an eligible individual:Answer choices:

a. On the first day of the last month of the individual’s tax year.b. On the last day of the last month of the individual’s tax year. c. For more than six months during the individual’s tax year. d. For the entirety of the individual’s tax year.

Correct answer: a

Answer explanation: This is known as the “last-month rule”; a taxpayer who is an eligible individual on the first day of the last month of the tax year (December 1 for most taxpayers), is considered an eligible individual for the entire tax year.

Form 8917: What is the maximum amount a client can deduct as an adjustment to income for qualified tuition and fees?

Answer Choices:a. $2,000b. $4,000c. $6,000d. $10,000Correct Answer: b

Answer Explanation: Clients with qualified education expenses may deduct up to $4,000 as an adjustment to income.

1. Form 9465: Why is it good practice to recommend that clients in an installment agreement make their payments using electronic funds transfer?

Answer Choices:a. The IRS no longer accepts payments by check on installment payment agreements.b. The IRS will agree to stop the accrual of interest on the balance due if this payment option is selected. c. The IRS will waive the set-up fee for the installment payment agreement.d. It removes the substantial risk of default that is present if the client has to write and mail a check to the IRS each month.

Correct Answer: d

Answer Explanation: If Form 9465, Installment Agreement Request, set up terms that are not followed, the IRS may revoke the installment agreement and request full payment.

Cash: Dwayne is a self-employed plumber. He uses the cash-basis of accounting. In 2009, Dwayne redid the plumbing in Sarah’s house. Dwayne billed Sarah $13,000 for the job. Sarah did not pay Dwayne’s bill. How much should Dwayne deduct as bad debt expense on his 2009 income tax return?

Answer Choices:

a. $0

b. $2,500

c. $5,000

d. $10,000

Correct answer: a

Answer explanation: As a cash-basis taxpayer sole proprietor, Dwayne does not report income until he receives it. Since Sarah has not paid his bill, Dwayne has not reported any income related to this job. Therefore he may not claim a bad-debt deduction for the unpaid bill.