Tax Preparer Final Exam Review:
Actual Questions & Verified
Answers | 100% Correct
This Tax Preparer Final Exam Review contains 125 Updated Questions & Answers
typically covering a comprehensive range of topics essential for accurately
preparing individual income tax returns, adhering to IRS rules, and fulfilling ethical
responsibilities. The review is designed to provide a solid foundation in tax theory,
law, and practical application (Ultimate Guide for YR. 2026/2027)
Quiz_________________?
What income reporting form should an independent contractor
sometimes receive from the person who paid him for his
services? -
Answer☑️
Form 1099-MISC (15.6)
Quiz_________________?
Schedule C, Line F asks for the accounting method used in the
business.
What is the difference between the cash method and the accrual
method of accounting? -
Answer☑️
• Under the accrual method, total sales and total charges for
services are included in income even though payment may be
received in another tax year.
• Under the cash method, only income actually received or
expenses actually paid during the year are included. (15.5)
1
, Quiz_________________?
What does it mean if a proprietor "materially participates" in the
business? -
Answer☑️
He is active in running the business in a substantial way on a day-
to-day basis. (15.5)
Quiz_________________?
Why is it important to know whether or not the proprietor
materially participates? -
Answer☑️
If the proprietor does not materially participate, any loss from the
business is a passive loss and generally may be currently
deducted only against passive income. (15.6)
Quiz_________________?
What are returns and allowances? -
Answer☑️
• Amounts that were refunded to customers who returned
merchandise for refund or partial refund.
• These amounts are subtracted from gross receipts. (15.6)
Quiz_________________?
How is cost of goods sold determined? -
Answer☑️
Beginning inventory plus purchases, plus labor, supplies,
depreciation, etc. attributable to product manufacture or
preparation for sale, minus ending inventory. (15.7)
2
, Quiz_________________?
If the client has contract labor, what should you remind the client
that they should do? -
Answer☑️
• Provide a Form 1099-MISC to any independent contractor who
worked and earned $600 or more. (15.9)
Quiz_________________?
What is the purpose of self-employment tax? -
Answer☑️
To pay social security and Medicare taxes. (15.14)
Quiz_________________?
What amounts does a proprietor have "at risk"? -
Answer☑️
Amounts invested in the business plus any business debts for
which the proprietor is personally liable. (15.16)
Quiz_________________?
What difference does it make if the proprietor is "at risk" or not? -
Answer☑️
Only amounts at risk may be used to determine the actual loss on
Schedule C. (15.16)
Quiz_________________?
How does a Tax Professional meet due diligence requirement? -
Answer☑️
• Tax Professionals fulfill due diligence requirements by making
every effort to prepare accurate and complete returns.
3
, • Tax Professionals must have knowledge of tax law, and apply a
reasonability check to the information provided by their clients.
(26.1)
Quiz_________________?
What is a thorough interview? -
Answer☑️
A thorough interview consists of asking general information
questions, then asking additional questions whenever information
is incomplete or seems inaccurate or inconsistent. (26.2)
Quiz_________________?
What is a conflict of interest? -
Answer☑️
A conflict of interest is when one's situation might benefit at the
expense of another's situation. (26.3)
Quiz_________________?
What actions can resolve a conflict of interest? -
Answer☑️
A conflict of interest is resolved when it is acknowledged,
disclosed to all parties, and the parties have consented to waiving
the conflict. (26.3)
Quiz_________________?
What client information is confidential? -
Answer☑️
Any information that could potentially identify the client is
confidential.
Information includes (but is not limited to):
4
Actual Questions & Verified
Answers | 100% Correct
This Tax Preparer Final Exam Review contains 125 Updated Questions & Answers
typically covering a comprehensive range of topics essential for accurately
preparing individual income tax returns, adhering to IRS rules, and fulfilling ethical
responsibilities. The review is designed to provide a solid foundation in tax theory,
law, and practical application (Ultimate Guide for YR. 2026/2027)
Quiz_________________?
What income reporting form should an independent contractor
sometimes receive from the person who paid him for his
services? -
Answer☑️
Form 1099-MISC (15.6)
Quiz_________________?
Schedule C, Line F asks for the accounting method used in the
business.
What is the difference between the cash method and the accrual
method of accounting? -
Answer☑️
• Under the accrual method, total sales and total charges for
services are included in income even though payment may be
received in another tax year.
• Under the cash method, only income actually received or
expenses actually paid during the year are included. (15.5)
1
, Quiz_________________?
What does it mean if a proprietor "materially participates" in the
business? -
Answer☑️
He is active in running the business in a substantial way on a day-
to-day basis. (15.5)
Quiz_________________?
Why is it important to know whether or not the proprietor
materially participates? -
Answer☑️
If the proprietor does not materially participate, any loss from the
business is a passive loss and generally may be currently
deducted only against passive income. (15.6)
Quiz_________________?
What are returns and allowances? -
Answer☑️
• Amounts that were refunded to customers who returned
merchandise for refund or partial refund.
• These amounts are subtracted from gross receipts. (15.6)
Quiz_________________?
How is cost of goods sold determined? -
Answer☑️
Beginning inventory plus purchases, plus labor, supplies,
depreciation, etc. attributable to product manufacture or
preparation for sale, minus ending inventory. (15.7)
2
, Quiz_________________?
If the client has contract labor, what should you remind the client
that they should do? -
Answer☑️
• Provide a Form 1099-MISC to any independent contractor who
worked and earned $600 or more. (15.9)
Quiz_________________?
What is the purpose of self-employment tax? -
Answer☑️
To pay social security and Medicare taxes. (15.14)
Quiz_________________?
What amounts does a proprietor have "at risk"? -
Answer☑️
Amounts invested in the business plus any business debts for
which the proprietor is personally liable. (15.16)
Quiz_________________?
What difference does it make if the proprietor is "at risk" or not? -
Answer☑️
Only amounts at risk may be used to determine the actual loss on
Schedule C. (15.16)
Quiz_________________?
How does a Tax Professional meet due diligence requirement? -
Answer☑️
• Tax Professionals fulfill due diligence requirements by making
every effort to prepare accurate and complete returns.
3
, • Tax Professionals must have knowledge of tax law, and apply a
reasonability check to the information provided by their clients.
(26.1)
Quiz_________________?
What is a thorough interview? -
Answer☑️
A thorough interview consists of asking general information
questions, then asking additional questions whenever information
is incomplete or seems inaccurate or inconsistent. (26.2)
Quiz_________________?
What is a conflict of interest? -
Answer☑️
A conflict of interest is when one's situation might benefit at the
expense of another's situation. (26.3)
Quiz_________________?
What actions can resolve a conflict of interest? -
Answer☑️
A conflict of interest is resolved when it is acknowledged,
disclosed to all parties, and the parties have consented to waiving
the conflict. (26.3)
Quiz_________________?
What client information is confidential? -
Answer☑️
Any information that could potentially identify the client is
confidential.
Information includes (but is not limited to):
4
