Question 18 of 40.

What is the correct order in which the limitations on potential losses must be applied for 2020?

First, at-risk; second, basis; third, excess business loss; fourth, passive activity.

First, passive activity; second, excess business loss; third, basis; fourth, at-risk.

Ronaldo receives a Schedule K-1 from a family business that he does not actively participate in. On it, he shows interest income of $245 and dividends of $681. There is also $275 in annuities. Ronaldo also has a passive loss of $1,721 from another business. Can he offset the loss with the Schedule K-1 income?

No, he cannot offset passive losses using investment income unless there is enough gain to wipe the loss out completely.

Yes, he can offset $926 of the loss using the interest and dividends, but not the annuities.

No, he cannot offset passive losses with portfolio income.

Yes, he can offset $1,201 of the loss using the investment income.

First, basis; second, passive activity; third, excess business loss; fourth, at-risk.

First, basis; second, at-risk; third, passive activity; fourth, excess business loss.

Why might a military taxpayer want to consider making contributions to the military Thrift Savings Plan while deployed to a combat zone? Nontaxable combat pay is:

Not included in adjusted gross income (AGI) for purposes of determining the Saver's Credit. Therefore, the contributions to the military Thrift Savings Plan may increase the tax benefits of saving for retirement.

Not included in AGI for purposes of determining taxability of current contributions to the military Thrift Savings Plan. Therefore, the taxpayer can pay tax on their current contributions at a lower rate.

A good source of funds to help the taxpayer increase their tax basis in the military Thrift Savings Plan account.

Subject to FICA taxes, and contributions to the military Thrift Savings Plan can defer FICA tax on at least some of the combat pay.

Question 28 of 40.

Martay and Gloria are married; both are on active duty. They have two children, Martay, Jr. (age 4) and Estrelia (age 2). In 2020, Martay earned $20,000, of which $14,000 was combat pay. Gloria earned $24,000, of which $5,000 was combat pay. How would you prepare their return with regard to the Earned Income Tax Credit (EITC) and the Child and Dependent Care Credit?

Separately calculate both the EITC and the Child and Dependent Care Credit four ways: 1) using all combat pay; 2) using no combat pay; 3) using only Martay's combat pay; 4) using only Gloria's combat pay. Each credit should be figured independently; they do not have to use the same income figure.

Calculate the EITC and the Child and Dependent Care Credit two ways: 1) using all combat pay; 2) using no combat pay. Both credits must be calculated using the same income figure.

Calculate the EITC and the Child and Dependent Care Credit four ways: 1) using all combat pay; 2) using no combat pay; 3) using only Martay's combat pay; 4) using only Gloria's combat pay. Both credits must be calculated using the same income figure.

Look at the calculation tables for each credit and add as much of the combat pay as needed to get the largest possible refund for the client.

Franklin Jeffries is a legal resident of New Hampshire. He was serving on active duty in Wyoming in 2018 when he met and married his wife, Danae. In 2020, Franklin receives PCS orders relocating him to Arizona, so he and Danae make the move.

Which of the following statements is TRUE regarding Danae's legal state of residency?