Melba 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, Melba 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 Melba to avoid a balance due?

A) Decrease her withholding allowances by submitting Form W-4 to her employer.

B) Claim an exemption from withholding.

C) Send a notarized letter to her employer requesting that they withhold additional amounts from her pay each month.

D) Investigate whether she qualifies to classify her tutoring income as a hobby rather than as business income.

Jen bought 100 shares of ABC stock at $15 a share on July 14, 2017. On August 7, 2018, she noticed that the stock had increased in value to $20 a share and decided to sell her shares. Jen's marginal tax rate is 22%. How is the revenue from the sale treated on her 2018 income tax return?

A) Her AGI will increase by $2,000, and this $2,000 will be taxed at her regular marginal rate of 22%.

B) Her AGI will increase by $500, and this $500 will be taxed at her regular marginal tax rate of 22%.

C) Her AGI will increase by $2,000, but this $2,000 will be taxed at a capital gain rate of 20%.

D) Her AGI will increase by $500, but this $500 will be taxed at a capital gain rate of 15%.

Max received an extension of time to file his 2018 income tax return. He did not pay any amount due with his extension. He finally filed his return on May 3, with a $900 balance due. How much must he pay in failure-to-file and failure-to-pay penalties?

A) None, as long as he timely filed for the extension.

B) A failure-to-pay penalty of 0.5%, but no failure-to-file penalty.

C) A failure-to-file penalty of 5% plus a 0.5% failure-to-pay penalty for an overall total of 5.5%.

D) A $210 penalty, since his return was due after January 1, 2018.

Question 17 of 35. All of the following are due diligence requirements a paid tax preparer must meet when filing a return for a taxpayer claiming EITC, CTC/ACTC, ODC, AOTC, and/or head of household filing status EXCEPT: O Investigate and verify the accuracy of information the taxpayer provides to show eligibility for the credits and/or head of household filing status. O Complete all worksheets used to compute the credit. If the worksheet is completed by hand, keep a hard copy in the taxpayer's client file. O Document the questions and answers asked about significant issues on the return. O Complete and maintain a copy of Form 8867, Paid Preparer's Due Diligence Checklist. Mark for follow up Question 18 of 35. A self-employed taxpayer may be eligible to deduct amounts paid for medical insurance for themselves and for their families. To claim this deduction, a qualifying taxpayer should: O Deduct the cost of the health insurance premiums as a business expense on Schedule C. o Only deduct the health insurance costs on Schedule A if they itemize their deductions. Claim a nonrefundable tax credit based on the cost of the insurance. Include the costs as an adjustment to income on Schedule 1 (Form 1040), up to the amount of net business income. Mark for follow up Question 20 of 35. The taxpayer must file Schedule A, Itemized Deductions, to claim which of the following deductions? O Mortgage interest paid. Student loan interest deduction. O Educator expenses. O IRA deduction. Mark for follow up Question 21 of 35. Which of the following is NEVER deductible on Schedule A? O Home mortgage interest paid on a second home. O Interest paid on money borrowed to buy stock for an investment portfolio. O "Points" paid in advance at the time of securing a mortgage for a taxpayer's main residence. o Credit card interest paid on personal purchases. Mark for follow up Question 24 of 35. Which of the following is classified as depreciable, business-use property? Property placed in service and disposed of in the same year. O A vehicle used by the taxpayer for both personal and business purposes. O Inventory. O A copyright. Mark for follow up Question 29 of 35. For 2018, what is the gross income filing requirement for a married couple, where one is age 64 and the other is age 65, using the married filing jointly status? O $18,000 O $24,000 $25,300 $26,600 Mark for followun Question 31 of 35. Which of the following income items is NOT subject to income tax on a 2018 return? O Bank interest in the amount of $100. O Birthday gift in the amount of $2,500. Alimony received in the amount of $5,000. O Income from an illegal activity. Mark for follow up Question 17 of 35. All of the following are due diligence requirements a paid tax preparer must meet when filing a return for a taxpayer claiming EITC, CTC/ACTC, ODC, AOTC, and/or head of household filing status EXCEPT: O Investigate and verify the accuracy of information the taxpayer provides to show eligibility for the credits and/or head of household filing status. O Complete all worksheets used to compute the credit. If the worksheet is completed by hand, keep a hard copy in the taxpayer's client file. O Document the questions and answers asked about significant issues on the return. O Complete and maintain a copy of Form 8867, Paid Preparer's Due Diligence Checklist. Mark for follow up Question 18 of 35. A self-employed taxpayer may be eligible to deduct amounts paid for medical insurance for themselves and for their families. To claim this deduction, a qualifying taxpayer should: O Deduct the cost of the health insurance premiums as a business expense on Schedule C. o Only deduct the health insurance costs on Schedule A if they itemize their deductions. Claim a nonrefundable tax credit based on the cost of the insurance. Include the costs as an adjustment to income on Schedule 1 (Form 1040), up to the amount of net business income. Mark for follow up Question 20 of 35. The taxpayer must file Schedule A, Itemized Deductions, to claim which of the following deductions? O Mortgage interest paid. Student loan interest deduction. O Educator expenses. O IRA deduction. Mark for follow up Question 21 of 35. Which of the following is NEVER deductible on Schedule A? O Home mortgage interest paid on a second home. O Interest paid on money borrowed to buy stock for an investment portfolio. O "Points" paid in advance at the time of securing a mortgage for a taxpayer's main residence. o Credit card interest paid on personal purchases. Mark for follow up Question 24 of 35. Which of the following is classified as depreciable, business-use property? Property placed in service and disposed of in the same year. O A vehicle used by the taxpayer for both personal and business purposes. O Inventory. O A copyright. Mark for follow up Question 29 of 35. For 2018, what is the gross income filing requirement for a married couple, where one is age 64 and the other is age 65, using the married filing jointly status? O $18,000 O $24,000 $25,300 $26,600 Mark for followun Question 31 of 35. Which of the following income items is NOT subject to income tax on a 2018 return? O Bank interest in the amount of $100. O Birthday gift in the amount of $2,500. Alimony received in the amount of $5,000. O Income from an illegal activity. Mark for follow up