A taxpayer should include which of the following when figuring their federal gross income?

Commissions.

Federal income tax refunds.

Gifts and inheritances.

Alimony after 12/31/18.

Under 2021 tax law, a child no longer qualifies a taxpayer for the Child Tax Credit in the year the child reaches:

Age 17.

Age 18.

Age 19.

Age 19, or age 24 if the child is a full-time student.

A paid tax preparer must demonstrate due diligence. Review the following scenario, and then choose the appropriate response. Rosie Morales (58) comes in to your office to have her tax return prepared. She states that she wants to use the head of household filing status and claim the Earned Income Credit (EIC). She also tells you that her dependent child is her granddaughter, Angela (12), who currently lives with her. All of the following are appropriate questions to ask Rosie with the EXCEPTION of:

How long has Angela has lived with you?

Where do Angela's parents live?

Are all of Angela's belongings in your house?

Can anyone else claim Angela as a dependent?

Choose the response that correctly describes the penalty, or penalties, that may be assessed against paid tax preparers who fail to comply with due diligence requirements when preparing returns for taxpayers using the head of household filing status and/or claiming the Earned Income Credit, the Child Tax Credit/Other Dependent Credit/Additional Child Tax Credit, or the American Opportunity Tax Credit. For 2021 returns prepared in 2022, the IRS can assess a maximum penalty of:

Zero, although preparers may face civil penalties and an injunction barring them from preparing returns in the future.

$545 per failure or a total of $2,180 per return for failure to provide due diligence for the four credits.

$540 per return that incorrectly uses the head of household filing status and claims at least one of the credits.

Zero, although a penalty of $2,180 per return may be assessed against the preparer's employer.

Choose the response that correctly describes the tax treatment of municipal bond interest. Interest from this type of investment is:

Not federally taxable and does not need to be reported on Form 1040.

Federally taxable and must be reported on Form 1040.

Not federally taxable, but must be reported on Form 1040, regardless of the amount.

Not federally taxable and only reportable on Form 1040 when the amount received exceeds $1,500.

Antonio Sanchez had taxable income of $35,950 in 2021. He will file a return using the single filing status. In 2021, he opened an interest bearing savings account and received Form 1099-INT showing he had earned $12.00 interest for the year. He must report the following amount of interest on his Form 1040.

$0

$10

$12

$24

Janice Bell (63) shared a home all year with her son, Antonio (41), and Antonio's son, Dante (23). They were all U.S. citizens, lived in the U.S. all year, and all had valid SSNs valid for employment. Janice and Antonio worked full-time. Dante was a part-time student during the year; he took one class at the local community college. He had no income. No one else lived in the home. Janice had earned income and an adjusted gross income of $23,459. She had no foreign income or investment income. Antonio had earned income and an adjusted gross income of $32,500. He had no foreign income or investment income. Who, if anyone, is eligible to claim and receive the Earned Income Credit?

No one.

Janice only.

Both Janice and Antonio.

Either Janice or Antonio but not both.

Mark for follow up

The maximum amount of qualified student loan interest a taxpayer may be eligible to deduct as an adjustment to income is:

$1,500

$2,000

$2,500

$4,000

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.

Susie Peterson (29) spent $2,900 for tuition and required course fees to complete two college courses during the year. Susie cannot be claimed as a dependent on anyone else's return, and she will use the single filing status. She is not a degree candidate, nor was she a full-time student. However, the courses she took were job-related. Her 2021 modified adjusted gross income was $55,000. Given the information provided, Susie potentially qualifies for which of the following tax benefits for education?

American Opportunity Tax Credit.

Lifetime learning credit.

Qualified tuition program.

Sallie Mae student loan.

A deduction reduces adjusted gross income to determine taxable income. A credit can reduce total tax.

A deduction reduces total income to determine adjusted gross income. A credit can reduce total tax.

A credit reduces total income to determine adjusted gross income. A deduction increases payments.

A deduction always lowers the amount of earned income credit while a credit will increase the amount of earned income credit.

A deduction reduces the taxable income. A credit increases taxable income.

Ryan and Lonnie Montague, a married couple who will file jointly, are both high school teachers. In 2021, Ryan had receipts totaling $394 in qualifying expenses for his classroom. Lonnie had receipts totaling $275 for qualified expenses. They both worked over 900 hours in the school building during the school year and were not reimbursed by their employer. What is the maximum amount of the educator expense deduction that they may claim on their Form 1040?

$250

$394

$500

$669

Choose the response that accurately completes the following sentence. A taxpayer claiming the Premium Tax Credit:

May be claimed as a dependent on another person's return, as long as they are under age 27.

May have employer-sponsored health care coverage.

Must have purchased private coverage through a plan outside the Marketplace.

Must be lawfully present in the United States.

Miles (45) and Sarah (51) Tobias are married, and they will file a joint return for 2021. During the year, Miles earned $95,000 in wages; Sarah earned $19,700 from a part-time job and was not a participant in an employer-maintained retirement plan. They had no other income. What is the maximum amount the couple may contribute to Sarah's traditional IRA for 2021?

$0

$3,500

$6,000

$7,000

Which of the following taxpayers may potentially qualify for the Retirement Savings Contributions Credit (Saver's Credit)? Assume that all are over the age of 18, not claimed as a dependent on another's return and not a student.

Alice and John are married and will file married filing jointly. Their 2021 modified adjusted gross income was $42,762. Alice contributed to a Roth IRA.

Larry will use the single filing status. His 2021 modified adjusted gross income was $27,000. His employer made contributions on his behalf to a simplified employee pension (SEP) IRA.

Maurice will use the head of household filing status. His 2021 modified adjusted gross income was $54,000. He contributed to a traditional IRA.

Victoria and Evan are a married couple filing a joint return. Their 2021 modified adjusted gross income was $72,000. Victoria made voluntary contributions to her company's 401(k) plan.

Choose the response that correctly explains how a taxpayer must compute and report the taxable amount of distribution from a traditional IRA to which nondeductible contributions were made. They must:

Report the entire amount as a taxable distribution on Form 1040.

Use the general rule to compute the taxable portion of their distribution.

Use the simplified method to compute the taxable portion of their distribution.

Calculate the taxable portion of their distribution on Form 8606, Nondeductible IRAs.

Roberta (69) and Henry (72) Stein are married, retired and live together. Roberta receives social security benefits in the amount of $18,420, and Henry's social security benefits total $22,420. They both are using the Married Filing Separately filing status. What is the Roberta's maximum percentage of taxable social security benefits when her Modified Adjusted Gross Income (MAGI) is $30,426?

0.00%

10.00%

50.00%

85.00%

Yolanda Smith is an unmarried, 34 year-old taxpayer. She will use the head of household filing status, and she has the following income for the year:

Wages: $34,500.

Interest from a bank savings account: $350.

Municipal bond interest: $200.

Lottery prize: $250.

Gift from her father: $5,000.

Yolanda contributed $1,500 to her traditional IRA, which she qualifies for and will deduct. What is Yolanda's adjusted gross income?

$33,350

$33,600

$33,800

$38,800

All of the following must be included in income and reported on a tax return EXCEPT:

Lottery winnings of $500.

Dividends of $750.

Royalty payments of $1,500.

A $5,000 scholarship received by a degree candidate and used to pay tuition at a state university.

Danielle Williams is a 29-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. She then used the proceeds to make a down payment on a new car. In early 2022, she received the following Form 1099-R reporting the distribution. Her only other income was from wages, and her 2021 taxable income was $51,350. What will be the amount of the penalty for the early withdrawal from her 401(k) plan, if any? (Answer choices are below the image.)

$0

$400

$600

$1,200

Which of the following statements about the relationship between domicile and residency is correct?

All taxpayers have one, and only one, state of domicile; but they may have more (or less) than one state of residency.

A taxpayer domiciled in a state will always also be a resident of the state.

All taxpayers have one, and only one, state of residency; but they may have more (or less) than one state of domicile.

A taxpayer who is a resident of a state will always also be domiciled in that state.

.

A state's IRC conformity date can be used to determine:

Qualifications for state tax credits.

Which state-specific deductions may be claimed in the current year.

Whether recent changes to the Internal Revenue Code will carry through to the state return.

Whether the starting point for calculation of state taxable income is federal taxable income or federal adjusted gross income.