California Tax Education Council (CTEC) Exam 2026 | Most Tested
Questions & Verified Answers | Latest Update | Graded A+
1. Describe the importance of accurately splitting wages and taxes for an
employer.
Accurate splitting is primarily for the employer's financial records.
Accurate splitting ensures compliance with tax regulations and
proper employee compensation.
Accurate splitting has no impact on tax filings.
Accurate splitting is only important for employee satisfaction.
2. What is the primary distinction between regular wages and FICA wages?
Regular wages are reported on a W-2 form, while FICA wages are not.
Regular wages are taxed at a higher rate than FICA wages.
FICA wages include bonuses, while regular wages do not.
FICA wages are subject to Social Security and Medicare taxes, while
regular wages may not be.
3. If a taxpayer sells stocks and needs to report capital gains, which forms must
they complete and how do they relate to each other?
The taxpayer only needs to complete Schedule D without Form 8949.
The taxpayer should complete Form 1040 and ignore Schedule D.
The taxpayer must complete Form 8949 to detail each transaction,
which is then summarized on Schedule D.
The taxpayer must complete Form W-2 for reporting capital gains.
,4. What is the primary form attached to Schedule D for reporting capital gains
income?
Form 1099
Form 1040
Form W-2
Form 8949
5. What filing status is typically recommended for a surviving spouse with a
dependent child to reduce tax liability?
Married Filing Jointly
Qualifying Widow(er)
Head of Household
Single
6. Describe the responsibilities of a tax preparer when faced with a missing
information notice from the IRS.
The tax preparer must determine the correct information and submit
it to the IRS to ensure compliance.
The tax preparer should advise the taxpayer to contact the IRS
directly.
The tax preparer can choose to ignore the notice if they believe the
return is accurate.
The tax preparer must file a new return without further investigation.
7. If you withdraw funds from most pension plans before age 59½, you will have
to pay a __ federal income tax penalty.
, 10 percent
20 percent
25 percent
15 percent
5 percent
8. If a taxpayer has an AGI of $50,000 and incurred $4,000 in medical expenses,
will they be able to deduct any of these expenses?
Yes, they can deduct the amount that exceeds $3,750.
No, because the medical expenses do not exceed 7.5% of AGI.
Yes, they can deduct the full $4,000.
Yes, they can deduct 7.5% of their AGI.
9. Which of the following would preclude a taxpayer from deducting student
loan interest expense?
The taxpayer is married filing jointly with AGI of $80,000
The taxpayer is single with AGI of $40,000
The total amount paid is $1,000
The taxpayer is a dependent of another taxpayer
10. Interpret the significance of making reasonable changes to a business model
in relation to the 3 out of 5 rule.
Making changes to a business model guarantees profitability.
Making reasonable changes to a business model can demonstrate
an effort to achieve profitability, which may help in meeting the IRS
criteria for being classified as a business.
, The IRS does not recognize any changes made to a business model.
Changes to a business model are irrelevant to the IRS's classification
of a business.
11. Describe the tax implications of gifting a car worth $25,000 to a family
member. What should the taxpayer consider?
The transaction is considered a sale and is subject to capital gains tax.
The taxpayer must pay income tax on the value of the car gifted.
The taxpayer may need to file a gift tax return if the value exceeds
the annual exclusion limit, but no tax is owed unless the lifetime
exemption is exceeded.
The recipient of the car must pay tax on the value received as income.
12. The following tax professionals have unlimited representation rights before
the IRS EXCEPT:
Certified Public Accountants.
AFSP certificate holders.
Attorneys.
Enrolled agents.
13. If an individual is seeking representation for an IRS audit but their Enrolled
Agent lacks a license to practice law, what implications does this have for the
representation?
The Enrolled Agent would be unable to represent the individual in
the audit.
The Enrolled Agent can represent the individual if they have
completed the AFSP.
Questions & Verified Answers | Latest Update | Graded A+
1. Describe the importance of accurately splitting wages and taxes for an
employer.
Accurate splitting is primarily for the employer's financial records.
Accurate splitting ensures compliance with tax regulations and
proper employee compensation.
Accurate splitting has no impact on tax filings.
Accurate splitting is only important for employee satisfaction.
2. What is the primary distinction between regular wages and FICA wages?
Regular wages are reported on a W-2 form, while FICA wages are not.
Regular wages are taxed at a higher rate than FICA wages.
FICA wages include bonuses, while regular wages do not.
FICA wages are subject to Social Security and Medicare taxes, while
regular wages may not be.
3. If a taxpayer sells stocks and needs to report capital gains, which forms must
they complete and how do they relate to each other?
The taxpayer only needs to complete Schedule D without Form 8949.
The taxpayer should complete Form 1040 and ignore Schedule D.
The taxpayer must complete Form 8949 to detail each transaction,
which is then summarized on Schedule D.
The taxpayer must complete Form W-2 for reporting capital gains.
,4. What is the primary form attached to Schedule D for reporting capital gains
income?
Form 1099
Form 1040
Form W-2
Form 8949
5. What filing status is typically recommended for a surviving spouse with a
dependent child to reduce tax liability?
Married Filing Jointly
Qualifying Widow(er)
Head of Household
Single
6. Describe the responsibilities of a tax preparer when faced with a missing
information notice from the IRS.
The tax preparer must determine the correct information and submit
it to the IRS to ensure compliance.
The tax preparer should advise the taxpayer to contact the IRS
directly.
The tax preparer can choose to ignore the notice if they believe the
return is accurate.
The tax preparer must file a new return without further investigation.
7. If you withdraw funds from most pension plans before age 59½, you will have
to pay a __ federal income tax penalty.
, 10 percent
20 percent
25 percent
15 percent
5 percent
8. If a taxpayer has an AGI of $50,000 and incurred $4,000 in medical expenses,
will they be able to deduct any of these expenses?
Yes, they can deduct the amount that exceeds $3,750.
No, because the medical expenses do not exceed 7.5% of AGI.
Yes, they can deduct the full $4,000.
Yes, they can deduct 7.5% of their AGI.
9. Which of the following would preclude a taxpayer from deducting student
loan interest expense?
The taxpayer is married filing jointly with AGI of $80,000
The taxpayer is single with AGI of $40,000
The total amount paid is $1,000
The taxpayer is a dependent of another taxpayer
10. Interpret the significance of making reasonable changes to a business model
in relation to the 3 out of 5 rule.
Making changes to a business model guarantees profitability.
Making reasonable changes to a business model can demonstrate
an effort to achieve profitability, which may help in meeting the IRS
criteria for being classified as a business.
, The IRS does not recognize any changes made to a business model.
Changes to a business model are irrelevant to the IRS's classification
of a business.
11. Describe the tax implications of gifting a car worth $25,000 to a family
member. What should the taxpayer consider?
The transaction is considered a sale and is subject to capital gains tax.
The taxpayer must pay income tax on the value of the car gifted.
The taxpayer may need to file a gift tax return if the value exceeds
the annual exclusion limit, but no tax is owed unless the lifetime
exemption is exceeded.
The recipient of the car must pay tax on the value received as income.
12. The following tax professionals have unlimited representation rights before
the IRS EXCEPT:
Certified Public Accountants.
AFSP certificate holders.
Attorneys.
Enrolled agents.
13. If an individual is seeking representation for an IRS audit but their Enrolled
Agent lacks a license to practice law, what implications does this have for the
representation?
The Enrolled Agent would be unable to represent the individual in
the audit.
The Enrolled Agent can represent the individual if they have
completed the AFSP.
