Are early distributions from qualified retirement plans always penalized?
There are exceptions, but the Tax Professional has to do a thorough interview to ask questions to find out if an exception applies.
100
What is the maximum amount of student loan interest that can be deducted?
$2500, but that amount is phased out for MAGI between $125,000 - $150,000.
100
What types of taxes are deductible?
State income tax, or State sales tax (but not both).
Real estate taxes, personal property taxes, and foreign income taxes.
100
What are the requirements for the Child Tax Credit, and what is the maximum amount?
Must be a Qualifying Child, claimed as a dependent on the tax return, age less than 17 years old, be a citizen of the US, and the amount is $1000 per qualifying child.
100
How does a Tax Professional meet due diligence requirements?
By making every effort to accurately prepare and complete the tax return, have a knowledge of the tax law, and apply a reasonability check to the information provided by the taxpayer.
200
What is the last date in which an IRA contributions can be made and still qualify for a given tax year?
The due date of the tax return (NOT including extensions).
200
How much may an eligible educator deduct for qualified classroom expenses as an adjustment to income? What if there are more expenses that the maximum allowed for the adjustment?
Up to $250. Any amount over that may be claimed on the Schedule A, as an unreimbursed employee expense subject to 2% AGI.
200
A taxpayer makes their final 2013 State estimated tax payment on January 15, 2014. Where should they report this item?
On their 2014 Schedule A as a deduction for taxes paid. But the actual payment of tax would be reported on their 2013 State return.
200
A taxpayer's employer paid $500 of the taxpayer's $2000 child care expense. How will the employer's assistance affect the Child Care Credit? How do you know that the taxpayer had employer assistance?
The eligible expenses must be reduced by the employer-provided assistance before calculating the credit. The employer amount is shown in box 10 on the W2.
200
What taxpayer information is confidential?
Any information that could potentially identify the taxpayer, including but not limited to: name, address, phone number, ssn, employment info, any other info on the tax return.
300
Why is it important to distinguish between taxpayers who are active participants in an employer-maintained retirement plan and those who are not?
If they are NOT active they my take the full deduction amount for their IRA contributions. If they are active may have their deduction amount reduced or eliminated based on their MAGI.
300
What are the three tests to determine if moving expenses qualify as an adjustment?
Distance - more than 50 miles from the old residence to the new job.
Work time - must be full time work of at least 39 weeks during the 12 months following the move.
Move occurred within one year of the start of work.
300
What are some miscellaneous itemized deductions that are NOT subject to the 2% AGI floor?
Gambling losses to the extent of winnings, impairment-related work expenses of the handicapped, decedent's remaining basis in a pension or annuity, and Federal estate tax on income in respect to a decedent.
300
What affect do tax-free funds (such as grants) have on qualifying expenses for the AOC?
The expenses must be reduced by the tax-free funds before calculating the AOC.
300
Is it acceptable for a Tax Professional to leave a detailed phone message for a taxpayer letting them know their tax return is complete?
The Tax Professional must have prior consent from the taxpayer to leave phone messages related to their tax return. However you cannot disclose that the taxpayer is a client.
400
Under what circumstances would a pension be only partly taxable?
What about a distribution from a traditional IRA being only partly taxable?
If the taxpayer has contributed after-tax money and not recovered it.
If the taxpayer made nondeductible contributions.
400
If the taxpayer is required to pay both child support and alimony (or spousal maintenance) but doesn't pay the full amount due during the year, how do you determine what the taxpayer can deduct as an adjustment to their income?
Child support is considered paid first so calculate that as paid in full and not deductible, then whatever is left is considered alimony and can be claimed as a deduction.
400
Is the cost of items purchased to benefit a charitable organization deductible, such as ballet tickets to raise money for a non-profit hospital?
Only the amount in excess of the value of the item received.
400
Name the four education credits/deductions possible on a tax return?
AOC
Lifetime Learning Credit
Tuition and Fees Deduction
Education Expense as work related deduction on Schedule A
400
What is the Tax Professional's responsibility upon finding out that the taxpayer has not complied with one or more tax laws?
A Tax Professional must only advise the taxpayer of noncompliance and the consequences for not correcting the situation. The taxpayer is the only individual who can decide to make corrections to their tax return.
500
Pension income is not earned income. So how can a disability pension qualify as earned income for the EIC?
If the disability income is received before the taxpayer has reached minimum retirement age per their employer, the income is reported as wages so considered earned income for EIC.
500
When would the taxpayer have a deduction for amounts contributed to an HSA?
If they are participants in a High Deductible Health Insurance Plan and have an HSA that they contributed to with after-tax dollars.
500
A taxpayer wrote a check for a $500 donation to their mosque. Is their cancelled check sufficient documentation to support their deduction?
No, because the donation exceeds $249 so they must have written confirmation from the organization.
500
How do you know when to claim the Tuition and Fees Deduction over the Lifetime Learning Credit?
The Tuition and Fees Deduction comes off before tax and affects the taxable income, as well as the State taxable income, where the Lifetime Learning Credit is an after-tax credit so you need to calculate both to see which is the most beneficial to the taxpayer.
500
What are the four requirements for EIC due diligence?
Complete and submit eligibility checklist.
Compute the credit.
Knowledge.
Keep records.