Tax Preparer Licensing Exam Study Guide
2026: Practical Preparation for Exam Success
with Practice Questions, Answers, and Clear
Explanations
Question 1
A taxpayer files as Head of Household. To qualify for this filing
status, the taxpayer generally must:
A. Be unmarried and provide over 50% of the cost of
maintaining a household for a qualifying person for more
than half the year
B. Be married but living apart for at least 30 days
C. Have at least two dependents regardless of support
provided
D. Own a home in which a dependent resides
Answer: A
Rationale: Head of Household status generally requires the
taxpayer to be unmarried or considered unmarried on the last
day of the tax year and to pay more than half the cost of
maintaining a home for a qualifying person for more than
half the year. Ownership of the home is not required, nor is
having two dependents.
,Question 2
A taxpayer receives $45,000 in wages and $6,000 in interest
income. Which amount is generally included in gross income
before deductions?
A. $45,000
B. $6,000
C. $51,000
D. $39,000
Rationale: Gross income generally includes all income from
whatever source derived unless specifically excluded by law.
Wages and taxable interest are both included, resulting in
total gross income of $51,000.
Question 3
Which taxpayer is most likely eligible to claim the Earned
Income Tax Credit (EITC)?
A. A taxpayer with only dividend income
B. A taxpayer with earned income from employment
meeting income and eligibility requirements
C. A taxpayer with only municipal bond interest
D. A taxpayer whose entire income consists of gifts
Rationale: The EITC is designed for taxpayers with earned
income from employment or self-employment. Unearned
,income alone generally does not qualify a taxpayer for the
credit.
Question 4
A tax preparer discovers that a client omitted income from a
prior-year return. The preparer's ethical obligation is to:
A. Ignore the issue because the return has already been filed
B. Notify the IRS immediately without informing the client
C. Amend the return without client authorization
D. Advise the client of the error and potential consequences
Rationale: Ethical standards require preparers to promptly
advise clients of errors or omissions and explain potential
consequences. The decision to amend generally remains with
the taxpayer.
Question 5
Which of the following is generally considered self-
employment income?
A. Interest from a savings account
B. Dividend distributions
C. Income earned from operating a sole proprietorship
D. Life insurance proceeds
, Rationale: Net earnings from a trade or business conducted
as a sole proprietor are generally subject to self-employment
tax and reported as self-employment income.
Question 6
A taxpayer sells stock held for three years at a gain. The gain
is generally classified as:
A. Ordinary income
B. Short-term capital gain
C. Passive income
D. Long-term capital gain
Rationale: Assets held for more than one year before sale
generally generate long-term capital gains or losses, which
may receive preferential tax treatment.
Question 7
A taxpayer contributes to a traditional IRA and meets all
eligibility requirements. The contribution may:
A. Never affect taxable income
B. Increase taxable income
C. Reduce taxable income if deductible
D. Be treated as capital gain income
2026: Practical Preparation for Exam Success
with Practice Questions, Answers, and Clear
Explanations
Question 1
A taxpayer files as Head of Household. To qualify for this filing
status, the taxpayer generally must:
A. Be unmarried and provide over 50% of the cost of
maintaining a household for a qualifying person for more
than half the year
B. Be married but living apart for at least 30 days
C. Have at least two dependents regardless of support
provided
D. Own a home in which a dependent resides
Answer: A
Rationale: Head of Household status generally requires the
taxpayer to be unmarried or considered unmarried on the last
day of the tax year and to pay more than half the cost of
maintaining a home for a qualifying person for more than
half the year. Ownership of the home is not required, nor is
having two dependents.
,Question 2
A taxpayer receives $45,000 in wages and $6,000 in interest
income. Which amount is generally included in gross income
before deductions?
A. $45,000
B. $6,000
C. $51,000
D. $39,000
Rationale: Gross income generally includes all income from
whatever source derived unless specifically excluded by law.
Wages and taxable interest are both included, resulting in
total gross income of $51,000.
Question 3
Which taxpayer is most likely eligible to claim the Earned
Income Tax Credit (EITC)?
A. A taxpayer with only dividend income
B. A taxpayer with earned income from employment
meeting income and eligibility requirements
C. A taxpayer with only municipal bond interest
D. A taxpayer whose entire income consists of gifts
Rationale: The EITC is designed for taxpayers with earned
income from employment or self-employment. Unearned
,income alone generally does not qualify a taxpayer for the
credit.
Question 4
A tax preparer discovers that a client omitted income from a
prior-year return. The preparer's ethical obligation is to:
A. Ignore the issue because the return has already been filed
B. Notify the IRS immediately without informing the client
C. Amend the return without client authorization
D. Advise the client of the error and potential consequences
Rationale: Ethical standards require preparers to promptly
advise clients of errors or omissions and explain potential
consequences. The decision to amend generally remains with
the taxpayer.
Question 5
Which of the following is generally considered self-
employment income?
A. Interest from a savings account
B. Dividend distributions
C. Income earned from operating a sole proprietorship
D. Life insurance proceeds
, Rationale: Net earnings from a trade or business conducted
as a sole proprietor are generally subject to self-employment
tax and reported as self-employment income.
Question 6
A taxpayer sells stock held for three years at a gain. The gain
is generally classified as:
A. Ordinary income
B. Short-term capital gain
C. Passive income
D. Long-term capital gain
Rationale: Assets held for more than one year before sale
generally generate long-term capital gains or losses, which
may receive preferential tax treatment.
Question 7
A taxpayer contributes to a traditional IRA and meets all
eligibility requirements. The contribution may:
A. Never affect taxable income
B. Increase taxable income
C. Reduce taxable income if deductible
D. Be treated as capital gain income
