HRB-27 FINAL EXAM REVIEW
Whatloincomeloreportingloformloshouldloanloindependentlocontractorlosometimesloreceivelo
fromlothelopersonlowholopaidlohimloforlohisloservices?lo-loans--✔✔Formlo1099-
MISClo(15.6)
ScheduleloC,loLineloFloasksloforlotheloaccountinglomethodlousedloinlothelobusiness.
Whatloislothelodifferencelobetweenlothelocashlomethodloandlotheloaccruallomethodloofloacco
unting?lo-loans--
✔✔•loUnderlotheloaccruallomethod,lototallosalesloandlototallochargesloforloservicesloareloincl
udedloinloincomeloevenlothoughlopaymentlomaylobeloreceivedloinloanotherlotaxloyear.
•loUnderlothelocashlomethod,loonlyloincomeloactuallyloreceivedloorloexpensesloactuallylopai
dloduringlotheloyearloareloincluded.lo(15.5)
Whatlodoesloitlomeanloifloaloproprietorlo"materiallyloparticipates"loinlothelobusiness?lo-
loans--✔✔Heloisloactiveloinlorunninglothelobusinessloinloalosubstantiallowayloonloaloday-to-
daylobasis.lo(15.5)
Whyloisloitloimportantlotoloknowlowhetherloorlonotlotheloproprietorlomateriallyloparticipates?
lo-loans--
✔✔Iflotheloproprietorlodoeslonotlomateriallyloparticipate,loanylolosslofromlothelobusinessloislo
alopassivelolossloandlogenerallylomaylobelocurrentlylodeductedloonlyloagainstlopassiveloinco
me.lo(15.6)
Whatloareloreturnsloandloallowances?lo-loans--
✔✔•loAmountslothatlowerelorefundedlotolocustomerslowholoreturnedlomerchandiseloforloref
undloorlopartiallorefund.
•loTheseloamountsloarelosubtractedlofromlogrossloreceipts.lo(15.6)
Howloislocostlooflogoodslosoldlodetermined?lo-loans--
✔✔Beginningloinventorylopluslopurchases,lopluslolabor,losupplies,lodepreciation,loetc.loattri
butablelotoloproductlomanufactureloorlopreparationloforlosale,lominusloendingloinventory.lo(1
5.7)
Iflotheloclientlohaslocontractlolabor,lowhatloshouldloyouloremindlotheloclientlothatlotheyloshoul
dlodo?lo-loans--✔✔•loProvideloaloFormlo1099-
MISClotoloanyloindependentlocontractorlowholoworkedloandloearnedlo$600loorlomore.lo(15.9
)
, Whatloislothelopurposeloofloself-employmentlotax?lo-loans--
✔✔Tolopaylosociallosecurityloandlomedicarelotaxes.lo(15.14)
Whatloamountslodoesloaloproprietorlohavelo"atlorisk"?lo-loans--
✔✔Amountsloinvestedloinlothelobusinessloplusloanylobusinesslodebtsloforlowhichlotheloprop
rietorloislopersonallyloliable.lo(15.16)
Whatlodifferencelodoesloitlomakeloiflotheloproprietorloislo"atlorisk"loorlonot?lo-loans--
✔✔OnlyloamountsloatlorisklomaylobelousedlotolodeterminelotheloactuallolossloonloSchedulelo
C.lo(15.16)
HowlodoesloaloTaxloProfessionallomeetloduelodiligencelorequirements?lo-loans--
✔✔•loTaxloProfessionalslofulfillloduelodiligencelorequirementslobylomakingloeveryloeffortlotol
oprepareloaccurateloandlocompleteloreturns.
•loTaxloProfessionalslomustlohaveloknowledgelooflotaxlolaw,loandloapplyloaloreasonabilityloc
hecklotolotheloinformationloprovidedlobylotheirloclients.lo(26.1)
Whatloisloalothoroughlointerview?lo-loans--
✔✔Alothoroughlointerviewloconsistsloofloaskinglogeneralloinformationloquestions,lothenloas
kingloadditionalloquestionslowheneverloinformationloisloincompleteloorloseemsloinaccuratelo
orloinconsistent.lo(26.2)
Whatloisloaloconflictlooflointerest?lo-loans--
✔✔Aloconflictlooflointerestloislowhenloone'slosituationlomightlobenefitloatlotheloexpenseloofloa
nother'slosituation.lo(26.3)
Whatloactionslocanloresolveloaloconflictlooflointerest?lo-loans--
✔✔Aloconflictlooflointerestloisloresolvedlowhenloitloisloacknowledged,lodisclosedlotoloalllopart
ies,loandlothelopartieslohaveloconsentedlotolowaivinglotheloconflict.lo(26.3)
Whatloclientloinformationloisloconfidential?lo-loans--
✔✔Anyloinformationlothatlocouldlopotentiallyloidentifylotheloclientloisloconfidential.
Informationloincludeslo(butloislonotlolimitedloto):
•loName
•loAddressloandlophonelonumber
•loSociallosecuritylonumbers
•loPlaceloofloemployment
•loAnyloinformationlofromloalotaxloreturnlo(26.4)
IsloitloacceptableloforloaloTaxloProfessionallotololeaveloalodetailedlophonelomessageloforloalo
client,lolettinglothemloknowlotheirlotaxloreturnloislocomplete?lo-loans--
✔✔•loTaxloProfessionalslomustlohavelopriorloconsentlofromlotheloclientlotololeavelophonelom
essageslorelatedlotolotheirlotaxloreturn.
•loThelofactlothatloalotaxpayerloislotheloclientloofloaloTaxloProfessionalloorlotaxlopreparationlob
usinessloisloconfidentialloinformationlothatlomustlonotlobelodisclosed.lo(26.5)
Whatloincomeloreportingloformloshouldloanloindependentlocontractorlosometimesloreceivelo
fromlothelopersonlowholopaidlohimloforlohisloservices?lo-loans--✔✔Formlo1099-
MISClo(15.6)
ScheduleloC,loLineloFloasksloforlotheloaccountinglomethodlousedloinlothelobusiness.
Whatloislothelodifferencelobetweenlothelocashlomethodloandlotheloaccruallomethodloofloacco
unting?lo-loans--
✔✔•loUnderlotheloaccruallomethod,lototallosalesloandlototallochargesloforloservicesloareloincl
udedloinloincomeloevenlothoughlopaymentlomaylobeloreceivedloinloanotherlotaxloyear.
•loUnderlothelocashlomethod,loonlyloincomeloactuallyloreceivedloorloexpensesloactuallylopai
dloduringlotheloyearloareloincluded.lo(15.5)
Whatlodoesloitlomeanloifloaloproprietorlo"materiallyloparticipates"loinlothelobusiness?lo-
loans--✔✔Heloisloactiveloinlorunninglothelobusinessloinloalosubstantiallowayloonloaloday-to-
daylobasis.lo(15.5)
Whyloisloitloimportantlotoloknowlowhetherloorlonotlotheloproprietorlomateriallyloparticipates?
lo-loans--
✔✔Iflotheloproprietorlodoeslonotlomateriallyloparticipate,loanylolosslofromlothelobusinessloislo
alopassivelolossloandlogenerallylomaylobelocurrentlylodeductedloonlyloagainstlopassiveloinco
me.lo(15.6)
Whatloareloreturnsloandloallowances?lo-loans--
✔✔•loAmountslothatlowerelorefundedlotolocustomerslowholoreturnedlomerchandiseloforloref
undloorlopartiallorefund.
•loTheseloamountsloarelosubtractedlofromlogrossloreceipts.lo(15.6)
Howloislocostlooflogoodslosoldlodetermined?lo-loans--
✔✔Beginningloinventorylopluslopurchases,lopluslolabor,losupplies,lodepreciation,loetc.loattri
butablelotoloproductlomanufactureloorlopreparationloforlosale,lominusloendingloinventory.lo(1
5.7)
Iflotheloclientlohaslocontractlolabor,lowhatloshouldloyouloremindlotheloclientlothatlotheyloshoul
dlodo?lo-loans--✔✔•loProvideloaloFormlo1099-
MISClotoloanyloindependentlocontractorlowholoworkedloandloearnedlo$600loorlomore.lo(15.9
)
, Whatloislothelopurposeloofloself-employmentlotax?lo-loans--
✔✔Tolopaylosociallosecurityloandlomedicarelotaxes.lo(15.14)
Whatloamountslodoesloaloproprietorlohavelo"atlorisk"?lo-loans--
✔✔Amountsloinvestedloinlothelobusinessloplusloanylobusinesslodebtsloforlowhichlotheloprop
rietorloislopersonallyloliable.lo(15.16)
Whatlodifferencelodoesloitlomakeloiflotheloproprietorloislo"atlorisk"loorlonot?lo-loans--
✔✔OnlyloamountsloatlorisklomaylobelousedlotolodeterminelotheloactuallolossloonloSchedulelo
C.lo(15.16)
HowlodoesloaloTaxloProfessionallomeetloduelodiligencelorequirements?lo-loans--
✔✔•loTaxloProfessionalslofulfillloduelodiligencelorequirementslobylomakingloeveryloeffortlotol
oprepareloaccurateloandlocompleteloreturns.
•loTaxloProfessionalslomustlohaveloknowledgelooflotaxlolaw,loandloapplyloaloreasonabilityloc
hecklotolotheloinformationloprovidedlobylotheirloclients.lo(26.1)
Whatloisloalothoroughlointerview?lo-loans--
✔✔Alothoroughlointerviewloconsistsloofloaskinglogeneralloinformationloquestions,lothenloas
kingloadditionalloquestionslowheneverloinformationloisloincompleteloorloseemsloinaccuratelo
orloinconsistent.lo(26.2)
Whatloisloaloconflictlooflointerest?lo-loans--
✔✔Aloconflictlooflointerestloislowhenloone'slosituationlomightlobenefitloatlotheloexpenseloofloa
nother'slosituation.lo(26.3)
Whatloactionslocanloresolveloaloconflictlooflointerest?lo-loans--
✔✔Aloconflictlooflointerestloisloresolvedlowhenloitloisloacknowledged,lodisclosedlotoloalllopart
ies,loandlothelopartieslohaveloconsentedlotolowaivinglotheloconflict.lo(26.3)
Whatloclientloinformationloisloconfidential?lo-loans--
✔✔Anyloinformationlothatlocouldlopotentiallyloidentifylotheloclientloisloconfidential.
Informationloincludeslo(butloislonotlolimitedloto):
•loName
•loAddressloandlophonelonumber
•loSociallosecuritylonumbers
•loPlaceloofloemployment
•loAnyloinformationlofromloalotaxloreturnlo(26.4)
IsloitloacceptableloforloaloTaxloProfessionallotololeaveloalodetailedlophonelomessageloforloalo
client,lolettinglothemloknowlotheirlotaxloreturnloislocomplete?lo-loans--
✔✔•loTaxloProfessionalslomustlohavelopriorloconsentlofromlotheloclientlotololeavelophonelom
essageslorelatedlotolotheirlotaxloreturn.
•loThelofactlothatloalotaxpayerloislotheloclientloofloaloTaxloProfessionalloorlotaxlopreparationlob
usinessloisloconfidentialloinformationlothatlomustlonotlobelodisclosed.lo(26.5)
