Tax Preparer Final Exam Review Questions
and Correct Answers
Question 1
What difference does it make if the proprietor is "at risk" or not?
Correct Answer
Only amounts at risk may be used to determine the actual loss on Schedule C.
(15.16)
Question 2
Are scholarships and fellowships taxable?
Correct Answer
• If a W-2 is received it is FULLY taxable.
• Amounts to Non-degree candidates are FULLY taxable and reported on Line 7
marked "SCH"
• Amounts to Degree candidates spent for qualified expenses are NOT taxable.
(18.5)
Question 3
A taxpayer makes his final 2008 state estimated tax payment on January 15, 2009.
Where should he report this item?
Correct Answer
It is included on his 2009 Schedule A, line 5. This payment also should have been
included on the estimated payments line of his 2008 state return.
Question 4
What is it called when a taxpayer takes money out of an IRA?
Correct Answer
Distribution.
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,Question 5
Where does the employer report the amount of child care expense assistance to the
taxpayer?
Correct Answer
Form W-2 Box 10 (8.11)
Question 6
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?
Correct 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)
Question 7
Under what circumstances may an employee claim exemption from withholding?
Correct Answer
Only if the employee had no federal income tax liability for the prior year and he
expects to have no tax liability for the current year. (24.)
Question 8
If one spouse refuses to file a joint return, can the other spouse do anything about it?
Correct Answer
No Both will have to file using the married filing separately status unless one or
both qualifies to be considered unmarried.
Question 9
What actions can resolve a conflict of interest?
Correct 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)
Page 2 of 29
, Question 10
Why is it important to distinguish qualified home mortgage interest from personal
interest?
Correct Answer
Mortgage Interest is deductible, Personal Interest is not. (12.20)
Question 11
A single self-employed taxpayer estimates that his 2009 tax will be $7,500. His 2008
tax was $7,000. How much must he prepay for 2009 in order to avoid an
underpayment penalty?
Correct Answer
$6,750; the lesser of 90% of his 2009 tax [$7,500 X 90% = $6,750] or 100% of his
2008 tax ($7,000). (24.)
Question 12
What form is used to report pension income to the recipient?
Correct Answer
1099-R (10.9)
Question 13
Kris (26) has an earned income and AGI of $9,256. He has no other income. He lived in
the United States all year and is no one's dependent. He has a valid SSN and is filing
as single. He is a U.S. citizen. Does Kris qualify for EIC?
Correct Answer
Yes. His Earned Income is under $13,440 (7.5)
Page 3 of 29
and Correct Answers
Question 1
What difference does it make if the proprietor is "at risk" or not?
Correct Answer
Only amounts at risk may be used to determine the actual loss on Schedule C.
(15.16)
Question 2
Are scholarships and fellowships taxable?
Correct Answer
• If a W-2 is received it is FULLY taxable.
• Amounts to Non-degree candidates are FULLY taxable and reported on Line 7
marked "SCH"
• Amounts to Degree candidates spent for qualified expenses are NOT taxable.
(18.5)
Question 3
A taxpayer makes his final 2008 state estimated tax payment on January 15, 2009.
Where should he report this item?
Correct Answer
It is included on his 2009 Schedule A, line 5. This payment also should have been
included on the estimated payments line of his 2008 state return.
Question 4
What is it called when a taxpayer takes money out of an IRA?
Correct Answer
Distribution.
Page 1 of 29
,Question 5
Where does the employer report the amount of child care expense assistance to the
taxpayer?
Correct Answer
Form W-2 Box 10 (8.11)
Question 6
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?
Correct 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)
Question 7
Under what circumstances may an employee claim exemption from withholding?
Correct Answer
Only if the employee had no federal income tax liability for the prior year and he
expects to have no tax liability for the current year. (24.)
Question 8
If one spouse refuses to file a joint return, can the other spouse do anything about it?
Correct Answer
No Both will have to file using the married filing separately status unless one or
both qualifies to be considered unmarried.
Question 9
What actions can resolve a conflict of interest?
Correct 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)
Page 2 of 29
, Question 10
Why is it important to distinguish qualified home mortgage interest from personal
interest?
Correct Answer
Mortgage Interest is deductible, Personal Interest is not. (12.20)
Question 11
A single self-employed taxpayer estimates that his 2009 tax will be $7,500. His 2008
tax was $7,000. How much must he prepay for 2009 in order to avoid an
underpayment penalty?
Correct Answer
$6,750; the lesser of 90% of his 2009 tax [$7,500 X 90% = $6,750] or 100% of his
2008 tax ($7,000). (24.)
Question 12
What form is used to report pension income to the recipient?
Correct Answer
1099-R (10.9)
Question 13
Kris (26) has an earned income and AGI of $9,256. He has no other income. He lived in
the United States all year and is no one's dependent. He has a valid SSN and is filing
as single. He is a U.S. citizen. Does Kris qualify for EIC?
Correct Answer
Yes. His Earned Income is under $13,440 (7.5)
Page 3 of 29
