CALIFORNIA TAX PREPARER EXAM | ALL QUESTIONS
AND ANSWERS | A+ GRADED | COMPREHENSIVE EXAM
GUIDE 2026/2027
1. A California tax preparer is beginning work on a new individual client’s return. Which
identification should the preparer generally verify before preparing the return?
A. The client’s preferred filing software
B. The client’s taxpayer identification information
C. The client’s employer’s business license
D. The client’s bank routing number
Answer: B
EXPLANATION: Accurate taxpayer identification information is essential to correctly prepare
and file a tax return. The preparer should verify identifying information before entering
return data.
2. A client provides a Form W-2 showing wages and California income tax withholding.
The client asks the preparer to omit the W-2 because the employer made an error. What is
the best action?
A. Omit the W-2 and wait for the IRS to contact the client
B. Enter only the federal wages
C. Investigate the discrepancy and obtain corrected documentation when necessary
D. Report the withholding but not the wages
Answer: C
EXPLANATION: A preparer should not knowingly omit income information. The discrepancy
should be investigated and corrected documentation obtained when appropriate.
3. Which federal form generally reports an employee’s annual wages and federal and state
income tax withholding?
A. Form W-2
B. Form 1099-NEC
C. Form 1098
D. Form 5498
Answer: A
EXPLANATION: Form W-2 reports wages, salary, other compensation, and applicable federal
and state tax withholding for employees.
,4. A California taxpayer receives income from freelance consulting performed as an
independent contractor. Which form may commonly report that income?
A. Form W-4
B. Form W-2
C. Form 1095-A
D. Form 1099-NEC
Answer: D
EXPLANATION: Form 1099-NEC is generally used to report nonemployee compensation,
including qualifying payments to independent contractors.
5. A client tells a preparer that cash income was not reported on prior tax returns. What
should the preparer do?
A. Ignore the prior-year issue because the current return is separate
B. Discuss the issue and advise the client about appropriate correction procedures
C. Automatically add an estimated amount to the current return
D. Refuse to document the conversation
Answer: B
EXPLANATION: Unreported prior-year income may create tax and compliance issues. The
preparer should not conceal the issue and should advise the client regarding appropriate
corrective action.
6. Which agency administers California’s individual income tax system?
A. California Department of Motor Vehicles
B. California Employment Development Department
C. Franchise Tax Board
D. California Secretary of State
Answer: C
EXPLANATION: The California Franchise Tax Board administers California’s personal income tax
and corporation tax programs.
7. A taxpayer is a California resident for the entire tax year and earns wages from an
employer located in another state. Which statement is generally correct?
A. California generally taxes the resident’s worldwide income, subject to applicable rules
B. California cannot tax wages earned outside California
C. Only the other state can tax the wages
D. The taxpayer automatically becomes a nonresident
,Answer: A
EXPLANATION: California residents are generally subject to California income tax on income
from all sources, subject to applicable credits, exclusions, and other rules.
8. A taxpayer moved from California to another state during the year and changed
domicile. Which filing status may be appropriate for California purposes?
A. Nonresident only
B. Full-year resident automatically
C. Exempt taxpayer
D. Part-year resident
Answer: D
EXPLANATION: A taxpayer who changes residency during the year may generally need to file
as a part-year resident, depending on the facts and applicable California residency rules.
9. Which factor is especially important when determining California residency?
A. The taxpayer’s favorite sports team
B. The taxpayer’s domicile and connections to California
C. The taxpayer’s credit-card limit
D. The taxpayer’s vehicle color
Answer: B
EXPLANATION: California residency determinations consider domicile and numerous factual
connections. Residency is not determined solely by one isolated fact.
10. A preparer discovers that a client has provided inconsistent information about the
client’s filing status. What should the preparer do first?
A. Select the status producing the lowest tax
B. Select married filing jointly automatically
C. Obtain clarification and supporting information
D. Use the status from the prior year without review
Answer: C
EXPLANATION: Filing status must be based on the taxpayer’s actual circumstances. The
preparer should resolve inconsistencies before completing the return.
11. Which document is primarily used to determine an employee’s federal withholding
allowances or withholding information with an employer?
, A. Form W-4
B. Form 1040
C. Form 1099-INT
D. Form 540
Answer: A
EXPLANATION: Form W-4 provides information used by an employer to determine federal
income tax withholding from an employee’s wages.
12. A taxpayer has interest income reported on Form 1099-INT. The taxpayer says the
amount is small and therefore should not be reported. What should the preparer do?
A. Report only amounts exceeding $1,000
B. Ignore the form if no tax was withheld
C. Report the income according to applicable tax rules
D. Convert the interest to wages
Answer: C
EXPLANATION: Income does not become reportable solely because the taxpayer considers the
amount insignificant. The preparer should properly report taxable interest under applicable
rules.
13. Which form is generally used by an individual to file a California personal income tax
return?
A. Form 540
B. Form 1120
C. Form 941
D. Form 1065
Answer: A
EXPLANATION: Form 540 is the California Resident Income Tax Return generally used by full-
year California resident individuals who are required to file.
14. A taxpayer is not a California resident for the entire year and has California-source
income. What should the preparer consider?
A. California filing requirements for nonresidents or part-year residents
B. Filing only a federal return
C. Automatically claiming California residency
D. Reporting California income only if paid in cash
Answer: A
AND ANSWERS | A+ GRADED | COMPREHENSIVE EXAM
GUIDE 2026/2027
1. A California tax preparer is beginning work on a new individual client’s return. Which
identification should the preparer generally verify before preparing the return?
A. The client’s preferred filing software
B. The client’s taxpayer identification information
C. The client’s employer’s business license
D. The client’s bank routing number
Answer: B
EXPLANATION: Accurate taxpayer identification information is essential to correctly prepare
and file a tax return. The preparer should verify identifying information before entering
return data.
2. A client provides a Form W-2 showing wages and California income tax withholding.
The client asks the preparer to omit the W-2 because the employer made an error. What is
the best action?
A. Omit the W-2 and wait for the IRS to contact the client
B. Enter only the federal wages
C. Investigate the discrepancy and obtain corrected documentation when necessary
D. Report the withholding but not the wages
Answer: C
EXPLANATION: A preparer should not knowingly omit income information. The discrepancy
should be investigated and corrected documentation obtained when appropriate.
3. Which federal form generally reports an employee’s annual wages and federal and state
income tax withholding?
A. Form W-2
B. Form 1099-NEC
C. Form 1098
D. Form 5498
Answer: A
EXPLANATION: Form W-2 reports wages, salary, other compensation, and applicable federal
and state tax withholding for employees.
,4. A California taxpayer receives income from freelance consulting performed as an
independent contractor. Which form may commonly report that income?
A. Form W-4
B. Form W-2
C. Form 1095-A
D. Form 1099-NEC
Answer: D
EXPLANATION: Form 1099-NEC is generally used to report nonemployee compensation,
including qualifying payments to independent contractors.
5. A client tells a preparer that cash income was not reported on prior tax returns. What
should the preparer do?
A. Ignore the prior-year issue because the current return is separate
B. Discuss the issue and advise the client about appropriate correction procedures
C. Automatically add an estimated amount to the current return
D. Refuse to document the conversation
Answer: B
EXPLANATION: Unreported prior-year income may create tax and compliance issues. The
preparer should not conceal the issue and should advise the client regarding appropriate
corrective action.
6. Which agency administers California’s individual income tax system?
A. California Department of Motor Vehicles
B. California Employment Development Department
C. Franchise Tax Board
D. California Secretary of State
Answer: C
EXPLANATION: The California Franchise Tax Board administers California’s personal income tax
and corporation tax programs.
7. A taxpayer is a California resident for the entire tax year and earns wages from an
employer located in another state. Which statement is generally correct?
A. California generally taxes the resident’s worldwide income, subject to applicable rules
B. California cannot tax wages earned outside California
C. Only the other state can tax the wages
D. The taxpayer automatically becomes a nonresident
,Answer: A
EXPLANATION: California residents are generally subject to California income tax on income
from all sources, subject to applicable credits, exclusions, and other rules.
8. A taxpayer moved from California to another state during the year and changed
domicile. Which filing status may be appropriate for California purposes?
A. Nonresident only
B. Full-year resident automatically
C. Exempt taxpayer
D. Part-year resident
Answer: D
EXPLANATION: A taxpayer who changes residency during the year may generally need to file
as a part-year resident, depending on the facts and applicable California residency rules.
9. Which factor is especially important when determining California residency?
A. The taxpayer’s favorite sports team
B. The taxpayer’s domicile and connections to California
C. The taxpayer’s credit-card limit
D. The taxpayer’s vehicle color
Answer: B
EXPLANATION: California residency determinations consider domicile and numerous factual
connections. Residency is not determined solely by one isolated fact.
10. A preparer discovers that a client has provided inconsistent information about the
client’s filing status. What should the preparer do first?
A. Select the status producing the lowest tax
B. Select married filing jointly automatically
C. Obtain clarification and supporting information
D. Use the status from the prior year without review
Answer: C
EXPLANATION: Filing status must be based on the taxpayer’s actual circumstances. The
preparer should resolve inconsistencies before completing the return.
11. Which document is primarily used to determine an employee’s federal withholding
allowances or withholding information with an employer?
, A. Form W-4
B. Form 1040
C. Form 1099-INT
D. Form 540
Answer: A
EXPLANATION: Form W-4 provides information used by an employer to determine federal
income tax withholding from an employee’s wages.
12. A taxpayer has interest income reported on Form 1099-INT. The taxpayer says the
amount is small and therefore should not be reported. What should the preparer do?
A. Report only amounts exceeding $1,000
B. Ignore the form if no tax was withheld
C. Report the income according to applicable tax rules
D. Convert the interest to wages
Answer: C
EXPLANATION: Income does not become reportable solely because the taxpayer considers the
amount insignificant. The preparer should properly report taxable interest under applicable
rules.
13. Which form is generally used by an individual to file a California personal income tax
return?
A. Form 540
B. Form 1120
C. Form 941
D. Form 1065
Answer: A
EXPLANATION: Form 540 is the California Resident Income Tax Return generally used by full-
year California resident individuals who are required to file.
14. A taxpayer is not a California resident for the entire year and has California-source
income. What should the preparer consider?
A. California filing requirements for nonresidents or part-year residents
B. Filing only a federal return
C. Automatically claiming California residency
D. Reporting California income only if paid in cash
Answer: A
