HRB-27 Final Exam Review WITH COMPLETE SOLUTIONS
GRADED A+
Terms in this set (125)
What income reporting form should an Form 1099-MISC (15.6)
independent contractor sometimes receive
from the person who paid him for his
services?
Schedule C, Line F asks for the accounting • Under the accrual method, total sales and total charges for services are included in
method used in the business. income even though payment may be received in another tax year.
What is the difference between the cash • Under the cash method, only income actually received or expenses actually paid
method and the accrual method of during the year are included. (15.5)
accounting?
What does it mean if a proprietor He is active in running the business in a substantial way on a day-to-day basis. (15.5)
"materially participates" in the business?
If the proprietor does not materially participate, any loss from the business is a
Why is it important to know whether or not
passive loss and generally may be currently deducted only against passive income.
the proprietor materially participates?
(15.6)
• Amounts that were refunded to customers who returned merchandise for refund or
What are returns and allowances? partial refund.
• These amounts are subtracted from gross receipts. (15.6)
Beginning inventory plus purchases, plus labor, supplies, depreciation, etc.
How is cost of goods sold determined? attributable to product manufacture or preparation for sale, minus ending inventory.
(15.7)
1/9
, If the client has contract labor, what should • Provide a Form 1099-MISC to any independent contractor who worked and earned
you remind the client that they should do? $600 or more. (15.9)
What is the purpose of self-employment To pay social security and medicare taxes. (15.14)
tax?
What amounts does a proprietor have "at Amounts invested in the business plus any business debts for which the proprietor is
risk"? personally liable. (15.16)
What difference does it make if the Only amounts at risk may be used to determine the actual loss on Schedule C. (15.16)
proprietor is "at risk" or not?
• Tax Professionals fulfill due diligence requirements by making every effort to
How does a Tax Professional meet due prepare accurate and complete returns.
diligence requirements? • Tax Professionals must have knowledge of tax law, and apply a reasonability check
to the information provided by their clients. (26.1)
A thorough interview consists of asking general information questions, then asking
What is a thorough interview? additional questions whenever information is incomplete or seems inaccurate or
inconsistent. (26.2)
A conflict of interest is when one's situation might benefit at the expense of another's
What is a conflict of interest?
situation. (26.3)
What actions can resolve a conflict of A conflict of interest is resolved when it is acknowledged, disclosed to all parties,
interest? and the parties have consented to waiving the conflict. (26.3)
Any information that could potentially identify the client is confidential.
Information includes (but is not limited to):
• Name
What client information is confidential? • Address and phone number
• Social security numbers
• Place of employment
• Any information from a tax return (26.4)
Is it acceptable for a Tax Professional to • Tax Professionals must have prior consent from the client to leave phone messages
leave a detailed phone message for a related to their tax return.
client, letting them know their tax return is • The fact that a taxpayer is the client of a Tax Professional or tax preparation business
complete? is confidential information that must not be disclosed. (26.5)
What is a Tax Professional's responsibility A Tax Professional must advise the client of the noncompliance and the
upon finding out that a client has not consequences for not correcting the situation. (26.7)
complied with any tax law?
What action should a Tax Professional take A Tax Professional should never prepare a return that contains inaccurate
if a client insists on reporting information information. (26.7)
that is inaccurate?
• If the name or social security number is incorrect, the taxpayer may change it
himself and need not obtain a corrected W-2 before filing his tax return.
If the employee thinks his Form W-2 is not • The employer should be notified of the error and asked to update his records.
correct, what should he do? • Furthermore, the employee's social security number and earnings records should
be verified with the Social Security Administration to ensure that the earnings were
properly credited. (2.17)
• In the left-hand margin at the top of page 2 of Forms 1040 and 1040A.
• They are: S, MFS $5,700; MFJ, QW $11,400; HH $8,400.
Where can the regular standard deduction
• The amounts differ for taxpayers age 65 or older or blind and those who may be
amounts be found?
claimed as dependents by other taxpayers.
[2010]
2/9
GRADED A+
Terms in this set (125)
What income reporting form should an Form 1099-MISC (15.6)
independent contractor sometimes receive
from the person who paid him for his
services?
Schedule C, Line F asks for the accounting • Under the accrual method, total sales and total charges for services are included in
method used in the business. income even though payment may be received in another tax year.
What is the difference between the cash • Under the cash method, only income actually received or expenses actually paid
method and the accrual method of during the year are included. (15.5)
accounting?
What does it mean if a proprietor He is active in running the business in a substantial way on a day-to-day basis. (15.5)
"materially participates" in the business?
If the proprietor does not materially participate, any loss from the business is a
Why is it important to know whether or not
passive loss and generally may be currently deducted only against passive income.
the proprietor materially participates?
(15.6)
• Amounts that were refunded to customers who returned merchandise for refund or
What are returns and allowances? partial refund.
• These amounts are subtracted from gross receipts. (15.6)
Beginning inventory plus purchases, plus labor, supplies, depreciation, etc.
How is cost of goods sold determined? attributable to product manufacture or preparation for sale, minus ending inventory.
(15.7)
1/9
, If the client has contract labor, what should • Provide a Form 1099-MISC to any independent contractor who worked and earned
you remind the client that they should do? $600 or more. (15.9)
What is the purpose of self-employment To pay social security and medicare taxes. (15.14)
tax?
What amounts does a proprietor have "at Amounts invested in the business plus any business debts for which the proprietor is
risk"? personally liable. (15.16)
What difference does it make if the Only amounts at risk may be used to determine the actual loss on Schedule C. (15.16)
proprietor is "at risk" or not?
• Tax Professionals fulfill due diligence requirements by making every effort to
How does a Tax Professional meet due prepare accurate and complete returns.
diligence requirements? • Tax Professionals must have knowledge of tax law, and apply a reasonability check
to the information provided by their clients. (26.1)
A thorough interview consists of asking general information questions, then asking
What is a thorough interview? additional questions whenever information is incomplete or seems inaccurate or
inconsistent. (26.2)
A conflict of interest is when one's situation might benefit at the expense of another's
What is a conflict of interest?
situation. (26.3)
What actions can resolve a conflict of A conflict of interest is resolved when it is acknowledged, disclosed to all parties,
interest? and the parties have consented to waiving the conflict. (26.3)
Any information that could potentially identify the client is confidential.
Information includes (but is not limited to):
• Name
What client information is confidential? • Address and phone number
• Social security numbers
• Place of employment
• Any information from a tax return (26.4)
Is it acceptable for a Tax Professional to • Tax Professionals must have prior consent from the client to leave phone messages
leave a detailed phone message for a related to their tax return.
client, letting them know their tax return is • The fact that a taxpayer is the client of a Tax Professional or tax preparation business
complete? is confidential information that must not be disclosed. (26.5)
What is a Tax Professional's responsibility A Tax Professional must advise the client of the noncompliance and the
upon finding out that a client has not consequences for not correcting the situation. (26.7)
complied with any tax law?
What action should a Tax Professional take A Tax Professional should never prepare a return that contains inaccurate
if a client insists on reporting information information. (26.7)
that is inaccurate?
• If the name or social security number is incorrect, the taxpayer may change it
himself and need not obtain a corrected W-2 before filing his tax return.
If the employee thinks his Form W-2 is not • The employer should be notified of the error and asked to update his records.
correct, what should he do? • Furthermore, the employee's social security number and earnings records should
be verified with the Social Security Administration to ensure that the earnings were
properly credited. (2.17)
• In the left-hand margin at the top of page 2 of Forms 1040 and 1040A.
• They are: S, MFS $5,700; MFJ, QW $11,400; HH $8,400.
Where can the regular standard deduction
• The amounts differ for taxpayers age 65 or older or blind and those who may be
amounts be found?
claimed as dependents by other taxpayers.
[2010]
2/9
