Mark and Carrie are married, and they will file a joint return. They both work full-time, and their 2020 income totaled $89,000, all from wages. They have one dependent child, Aubrey (5). During the year, they spent $7,000 for Aubrey's child care. Neither Mark nor Carrie received any dependent care benefits from their employer. What amount may they use to calculate the Child and Dependent Care Credit?

1. $0
2. $3,000
3. $6,000
4. $7,00

During the year, Carlos earned $900 in interest from a certificate of deposit held with his local bank. He also earned $725 in interest from U.S. Treasury securities and $300 in municipal bond interest. His only other income was $81,000 in wages. Which of the following forms is Carlos required to file? 1. Form 1099-INT. 2. Form 1099-OID. 3. The Qualified Dividends and Capital Gain Tax Worksheet. 4. Schedule B.

In May 2020, Whitney filed for divorce from her husband, Michael. Although they lived apart for the last six months of the year, their divorce is not yet finalized; they are still legally married. Whitney does not wish to file a joint 2020 return, and she has no qualifying child or qualifying relative. What filing status should Whitney use?

1. Single.
2. Unmarried for tax purposes.
3. Married filing separately.
4. Head of household.

Vanessa, a single mother, has three children, Mariah (6), Alejandro (12), and Brianna (17). Brianna is a full-time student. Vanessa's adjusted gross income is $68,950, and her tax liability is $5,757. All three children are Vanessa's qualifying child dependents. What is the total of Vanessa's Child Tax Credit and Other Dependent Credit?

1. $2,000
2. $4,000
3. $4,500
4. $5,757

Jade is a single mother with two qualifying dependent children. The amount of her Child Tax Credit was limited by her tax liability. Jade may qualify for which of the following?

1. The Additional Child Tax Credit.
2. An additional itemized deduction.
3. An additional nonrefundable credit.
4. A supplemental adjustment to income.

Lisa would like to claim her granddaughter, Amani, as her qualifying child so she can claim the Earned Income Tax Credit (EITC). However, Amani's mother, Taya, is also eligible to claim Amani as her qualifying child for EITC purposes and would like to do so if she is able. As Lisa's tax preparer, what information would you share with Lisa?

1. As long as Lisa files before Taya, she may claim EITC based on Amani, her qualifying child.
2. Lisa and Taya may agree to each claim one-half of the EITC based on Amani, their qualifying child.
3. Lisa may claim EITC based on Amani if her adjusted gross income was higher than Taya's.
4. Taya holds a higher right and may claim EITC based on Amani because Taya is Amani's parent.

preparer who fails to satisfy the due diligence requirements when preparing a return for an individual claiming the following tax benefits:

• Head of household filing status.
• Earned Income Tax Credit.
• Child Tax Credit / Additional Child Tax Credit / Other Dependent Credit.
• American Opportunity Tax Credit.

1. $2,160 per return.
2. $1,620 per return.
3. $540 per return.
4. Zero, although penalties may be assessed against the taxpayer.

Mark and Carrie are married, and they will file a joint return. They both work full-time, and their 2020 income totaled $89,000, all from wages. They have one dependent child, Aubrey (5). During the year, they spent $7,000 for Aubrey's child care. Neither Mark nor Carrie received any dependent care benefits from their employer. What amount may they use to calculate the Child and Dependent Care Credit?

1. $0
2. $3,000
3. $6,000
4. $7,000

During the year, Carlos earned $900 in interest from a certificate of deposit held with his local bank. He also earned $725 in interest from U.S. Treasury securities and $300 in municipal bond interest. His only other income was $81,000 in wages. Which of the following forms is Carlos required to file?

1. Form 1099-INT.
2. Form 1099-OID.
3. The Qualified Dividends and Capital Gain Tax Worksheet.
4. Schedule B.

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:

1. Form 8949, Sales and Other Dispositions of Capital Assets.
2. The Qualified Dividends and Capital Gain Tax Worksheet.
3. The Schedule D Tax Worksheet.
4. The 2020 Tax Rate Schedules.

Which of the following taxpayers may qualify for the Premium Tax Credit? They will each use the single filing status. Each purchased health care coverage through the Healthcare Marketplace, and each received Form 1095-A, Health Insurance Marketplace Statement.

1. Alanis. Her tax liability is zero.
2. Caleb. His household income places him at more than 400% of the federal poverty level in his state.
3. Jordan. He was eligible for employer-sponsored coverage, but he chose not to enroll in the plan because it would have cost him 5% of his household income.
4. Sydney. She will be claimed as a dependent on her grandmother's return.

Review the following scenario, then choose the appropriate response describing steps a paid tax preparer must take to demonstrate due diligence. Charlie (21) comes in to your office to have his tax return prepared. He states that he is a full-time college student with income from a part-time job, and his parents will not claim him as a dependent. He wants to claim the American Opportunity Tax Credit (AOTC). Which of the following describes an appropriate question to ask or action to take?

1. Ask him if he has ever been convicted of a misdemeanor offense or had his driver's license revoked.
2. Inform him that he may be assessed a penalty of $540 if he fails to provide all the information required.
3. Inform him he must provide copies of all transcripts before you can prepare his return.
4. Request a copy of his Form 1098-T, Tuition Statement, and inquire into when and how his educational and other living expenses were paid.

The maximum amount a taxpayer may claim for the lifetime learning credit is:

1. $2,000 per return.
2. $2,000 per qualifying student.
3. $2,500 per return.
4. $2,500 per qualifying student.

Which of the following statements about traditional IRAs is TRUE?

1. Taxable investment income, such as interest, dividends, and capital gains, will qualify as compensation for the purpose of contributing to an IRA.
2. Taxpayers who participate in an employer-sponsored retirement plan are prohibited from contributing to an IRA.
3. Taxpayers with a timely-filed extension have until October 15 of the tax year to establish and contribute to an IRA.
4. Taxpayers have until the due date of the return (not including extensions) to reduce their tax liability by contributing to an IRA.

During the year, Brenda (70), a single taxpayer, received $18,000 in social security benefits. Her only other income consisted of $6,000 in wages from a part-time job and a pension distribution of $8,500. How much of Brenda's social security benefits are taxable?

1. None of her benefits are taxable.
2. 50%.
3. 85%.
4. 100%.

Miles is 33 years old and single. In 2020, his only income consisted of $10,500 in wages. What is the maximum amount he can contribute to a traditional IRA for 2020?

• $0
• $6,000
• $7,000
• $10,500

Review the following scenario. Then, choose the response that correctly completes the last sentence describing how revenue from the sale of stock affects the taxpayer's taxable income, and how the revenue is taxed. Nadine bought 100 shares of OAK stock for $30 a share on April 30, 2019. On July 1, 2020, she noticed that the stock had increased in value to $35 a share. She decided to sell her shares. Nadine's only other income for the year consisted of $65,000 in wages. She will claim the standard deduction when she files her return. Nadine's revenue from the sale of stock will increase her taxable income by:

1. $500, and this $500 will be taxed at a capital gain rate of 15%.
2. $500, and this $500 will be taxed at her regular marginal tax rate of 22%.
3. $3,500, and this $3,500 will be taxed at a capital gain rate of 20%.
4. $3,500, and this $3,500 will be taxed at her regular marginal rate of 22%.

Which of the following is classified as depreciable, listed property?

1. Equipment placed in service and disposed of in the same year.
2. Inventory consisting of finished goods available for sale in a taxpayer's business.
3. A small pickup truck used by the taxpayer predominantly for business purposes, but also used occasionally for personal purposes.
4. A vacant piece of land held for investment.

During the year, Ava purchased a building for her business, Ava's Dress Shop. The cost of the building, not including the land value, will be deducted:

1. The year it is acquired.
2. The year after it is acquired.
3. Over a period of years, rather than all at once.
4. When it is no longer used in business.

While preparing a 2020 return for a taxpayer, Tyreek, a paid preparer, determined that the taxpayer had omitted certain items of income when they filed their prior-year return. Choose the response that correctly completes the next sentence describing how Tyreek should handle this situation. He should advise the taxpayer promptly of the fact of such omission and:

1. Advise them of the consequences of not amending the previous year's return.
2. Make an adjustment for the previous year's omission on the current-year return.
3. Refer the taxpayer to his supervisor.
4. Refuse to prepare the current-year return until the prior-year return is amended.

Sheena owns two rental houses. During the year, she was actively involved in managing the properties. The only services she provides are minor repairs and basic maintenance of the heating, cooling, electrical, and plumbing systems. She is not a real estate professional. How should Sheena report the rent she received as payment for use of these properties?

1. Business income, reported on Schedule C.
2. Investment income, reported on Schedule D.
3. Passive income, reported on Schedule E.
4. Other income, reported on Schedule 1.

Saving for education expenses is an important financial goal for many families. Taxpayers often seek tax-advantaged ways to fund education costs for their children, grandchildren, or other beneficiaries. All of the following are savings vehicles that enable investment earnings to grow tax-free when the funds are used to pay qualified education expenses EXCEPT:

1. Coverdell Education Savings Account.
2. Education Savings Bond Program.
3. Qualified tuition program.
4. Target-date mutual fund held in a standard investment account.

Which taxpayer should file an amended return?

1. Donovan. After he timely filed his 2020 return, he discovered that he had neglected to report $985 in income from a job he only held for two weeks that year.
2. Elysia. She received a corrected Form W-2 from her employer. She has not yet filed her 2020 return.
3. Lydia. She timely filed a joint 2019 return with her husband, Nate, on April 10, 2020. A year later, in April 2021, she determined that it would have been more beneficial to file separately for that year.
4. Tyler. He never filed a tax return for 2016. In March 2021, he realized he was entitled to a refund for that year.

Choose the response that completes the following sentence. A taxpayer may claim an exemption from withholding on their Form W-4 when they:

1. Did not have a federal income tax liability for the prior year and do not expect to have any liability for the current year.
2. Do not want to have any taxes withheld from a second job.
3. Experience a life-changing situation that will likely result in eligibility for one or more tax credits.
4. Have considerable amounts of self-employment or investment income.

Max, a self-employed taxpayer, did not have all the information he needed to timely file his 2020 tax return by May 17, 2021. Although he requested an automatic extension, he did not include a payment when he filed the extension. He then filed his return ten days later, on May 27, 2021, reporting a $950 balance due. How much must Max pay in failure-to-file and failure-to-pay penalties?

1. No failure-to-file penalty or failure-to-pay penalty will apply.
2. His failure-to-file penalty is $0, but he has a failure-to-pay penalty of 0.5% of his unpaid tax.
3. His failure-to-file penalty is 5% of his unpaid tax. He also has a failure-to-pay penalty of 0.5%, for an overall total of 5.5%.
4. He has a $435 failure-to-file penalty plus an additional penalty of 0.5%, applied to his unpaid tax.

Courtney receives most of her income from wages from her job as a high school teacher. She also receives supplemental income from freelance tutoring part-time during the summer. Because her tutoring income is not subject to withholding, Courtney is concerned that she will have a balance due at the end of the year. Which of the following is an option you can recommend to Courtney to avoid a balance due?

1. Claim an exemption from withholding.
2. Investigate whether she qualifies to classify her tutoring income as a hobby rather than as business income.
3. Send a notarized letter to her employer requesting that they withhold additional amounts from her pay each month.
4. Use the IRS Tax Withholding Estimator to determine her estimated tax obligation and complete a new Form W-4 if necessary.