H&R BLOCK INCOME TAX COURSE EXAM STUDY QUESTIONS WITH ANSWERS

H&R BLOCK INCOME TAX COURSE EXAM STUDY QUESTIONS WITH ANSWERS 1. On February 3rd, 1913 the states ratified the _____ amendment to the U.S. Constitution which established... - ANSWER 16th & Taxes 2. The due date for filing taxes is when? - ANSWER April 15th 3. What is Medicare Tax? - ANSWER The tax taken out of an employee's wages, or the same tax paid by a self-employed person on net selfemployment income. The payment of this tax contributes to the taxpayer's medicare coverage under the U.S. social security system. The current tax rate is 1.45% of gross wages (2.9% for self-employed individuals). An additional medicare tax may apply if the taxpayer's wages and compensation exceed a threshold amount. 4. What is a Nonrefundable Credit? - ANSWER A credit which cannot exceed that taxpayer's tax liability. 5. What is Social Security Tax Withheld? - ANSWER The employee's share of social security tax that was taken out of the employee's pay and submitted along with the employer's share to the IRS by the employer. The employee pays 6.2% and the employer pays 6.2% on certain employee's gross wage thresholds. 6. What are Social Security Wages? - ANSWER Total wages paid to an employee that are subject to this tax. This amount does not include tips. Wages are also subject to medicare tax. 7. Alternative Minimum Tax: - ANSWER The tax law gives preferential treatment to some kinds of income and allows special deductions and credits for some kinds of expenses. The alternative minimum tax (AMT) attempts to ensure that all individuals who benefit from these tax advantages pay at least a minimum amount of tax. The alternative minimum tax is a separate tax computation that, in effect, reduces the benefit of certain deductions and credits, thus creating a tax liability for an individual who would otherwise pay little or no tax. The Tax Cuts and Jobs Act of 2017 did not repeal the individual AMT, but provides some temporary relief by increasing the exemption amounts and providing higher phaseouts for Tax Years 2018- 2025. 8. Property Tax - Real Estate - ANSWER Real estate taxes are state, local, or foreign taxes levied on real property for the general public welfare. They usually do not include local assessments for improvements that increase the value of the assessed property. They may be deductible on an individual's tax return. 9. Sales and Use Tax - ANSWER A general sales tax is a sales tax imposed on retail sales of a broad range of items at a single rate. However, sales taxes imposed at different rates may also be fully or partially deductible. A use tax may be imposed by a taxing jurisdiction when a purchase is made outside the jurisdiction but used within the jurisdiction. For example, if a taxpayer buys goods over the internet from a retailer in another state, and no sales tax is collected, they are responsible for paying a use tax. 10.Self-Employment Tax - ANSWER Self-employment (SE) tax is a social security and medicare tax for individuals who work for themselves. SE tax is similar to the social security and medicare taxes (payroll taxes) withheld from the wages of most employees. 11.Gift Tax - ANSWER A gift is nontaxable to the person who receives it, but the person who gives it may have to report it on a gift tax return (Form 709). Gifts made during the year that are less than the annual exclusion amount for that year are not taxed. This amount is indexed for inflation, though it does not necessarily change every year. Gifts that qualify for the annual exclusion do not use up any of the donor's lifetime gift tax exemption. 12.The IRS (internal revenue code) oversees the execution of the _____. - ANSWER Internal revenue code 13.If not an enrolled agent, CPA, or attorney, a paid tax return preparer cannot: - ANSWER -Represent a taxpayer before any of these IRS officers: appeals, revenue, counsel, or similar officers and employees of the IRS. -Provide tax advice other than advice necessary to prepare a return, a claim for refund, or other document intended to be submitted to the IRS. 14.What is Circular 230? - ANSWER Regulations governing practices before the IRS. Ethical standards and prohibited conduct. (READ CIRCULAR 230) 15.Which form is used as the current base form for individual tax returns? - ANSWER Form 1040 16.Primary authority for tax issues consists of: - ANSWER PRIMARY AUTHORITY: Descending order of authority -Internal Revenue Code -Regulations issued by the Treasury Department. -Judicial decisions. SECONDARY AUTHORITY -Commentaries -Publications -Tax Periodicals -Common reference material, such as dictionaries and encyclopedias 17.What is Publication 17? - ANSWER The Federal Income Tax for Individual Tax Guide 18.Wage - ANSWER Compensation, usually financial, received by workers in exchange for their work. Included in gross income. 19.What is Adjusted Gross Income? - ANSWER Adjusted gross income equals total income less reductions that are allowable, regardless of whether personal deductions are itemized. 20.What are deductions? - ANSWER Amounts that may be subtracted from income that is otherwise taxable. 21.What is Earned Income? - ANSWER Income from personal services as distinguished from income generated by property or other sources. Earned income includes all amounts received as wages, tips, bonuses, other employee compensation, and self-employment income, whether in the form of money, services, or property. 22.What is Federal Income Tax Withheld? - ANSWER The amount taken out of income by the payer and submitted to the IRS as an advance payment of the taxpayer's federal income tax. 23.What is Gross Income? - ANSWER Total WORLDWIDE income received in the form of money, property, or services that is subject to tax.