RTRP Exam Prep Domains 1- 2 Tax Information

RTRP Exam Prep Domains 1- 2 Tax Information Joe is 37 years old. His wife died during the tax year and he has not remarried. His deceased wife had no income. He has two minor children living with him. Joe paid all of t ...

RTRP Exam Prep Domains 1- 2 Tax Information Joe is 37 years old. His wife died during the tax year and he has not remarried. His deceased wife had no income. He has two minor children living with him. Joe paid all of the costs for keeping up his home for his children. What is the filing status with the lowest tax rate for which Joe qualifies? - ✔✔Correct. A taxpayer whose spouse died during the year and did not remarry is eligible for the MFJ status. Joe may claim exemptions for himself, his spouse, and his two children. Lisa was married with two dependent children when her husband died in April. She has not remarried. What is Lisa's filing status for the year of her husband's death? - ✔✔Correct. Lisa's filing status is Married Filing Jointly for the year her husband died. If she does not remarry and still has a dependent child, her filing status will be Qualifying Widow(er) with dependent child for the next two tax years following the year of death. Correct. Camila's filing status is limited to married filing separately. If Camila does not wish to file as married filing jointly, her only remaining option is to file as married filing separately. Camila does not qualify to file as Head of Household because her husband Mark lived in the home within the last six months of the year. Because Mark left the home in August (as opposed to January through June), this requirement is not met. A married taxpayer who is not divorced (or legally separated) is not considered single for tax purposes, thus Camila is not eligible to file using the single filing status. - ✔✔Camila has two children who lived with her all year. Her husband, Mark, left the home in August. She hasn't been able to locate him, and they have not filed for divorce or legal separation. Mark didn't work all year, and Camila provided all the support for the home and children. Which filing status may Camila use if she doesn't wish to file a return together with her husband? Camila has two children who lived with her all year. Her husband, Mark, left the home in August. She hasn't been able to locate him, and they have not filed for divorce or legal separation. Mark didn't work all year, and Camila provided all the support for the home and children. Which filing status may Camila use if she doesn't wish to file a return together with her husband? Margaret, a single mother who has never been married, lost her job in May of 2011. Margaret and her ten-year-old daughter Samantha moved in with Margaret's sister, Joanne, that same month and lived with her the rest of the year. Joanne provided more than half of the support for the household during the year. What is Margaret's filing status? - ✔✔Correct. Margaret's only option is the Single filing status. Because Margaret did not provide more than half of the household support during the year, she is unable to claim the Head of Household status. This is true whether Margaret has provided more than half of Samantha's support during the year or not. Margaret is not married, thus she is not eligible to file as Married Filing Jointly or Married Filing Separately. Gene, age 85 and single, received social security benefits of $14,000 (which includes $648 Medicare premiums), dividends and interest of $21,000, pension of $30,000, and taxable IRA benefits of $16,000. What is Gene's adjusted gross income? - ✔✔Correct. Gene has adjusted gross income of $78,900 [$21,000 dividends and interest + $30,000 pension + $16,000 taxable IRA benefits + $11,900 taxable social security = $78,900]. Tom is an employee whose employer did not withhold social security and Medicare tax from his wages. Tom must: - ✔✔Correct. Tom must file Form 8919 and report the uncollected tax on Form 1040, line 57. Which of the following filing statuses is ineligible to claim the EIC? Which of the following filing statuses is ineligible to claim the EIC? - ✔✔Correct. A married person filing separately cannot claim the EIC. Who cannot take the health insurance tax credit (assuming all other eligibility requirements are met): Who cannot take the health insurance tax credit (assuming all other eligibility requirements are met): - ✔✔Correct. Even if a taxpayer is a TAA, ATAA, RTAA, or PBGC recipient, he or she is ineligible if claimed as a dependent by another person. Which of the following situations will NOT impact taxable income? Which of the following situations will NOT impact taxable income? - ✔✔Correct. Contributing to a Roth IRA does not impact a taxpayer's taxable income because the contribution is made with after-tax funds. Unlike a tradition IRA, contributions to a Roth IRA are nondeductible, and thus do not have an impact on taxable income. Which of the following vehicle credits does NOT apply for 2011: - ✔✔Correct. The credit for buying a hybrid vehicle ended in 2010 (earlier for certain hybrids). Cecilia receives vacation pay, sick pay, and employer-paid health coverage. She also receives a year-end bonus. Which of these payments is NOT taxable on Cecilia's 2011 return: Cecilia receives vacation pay, sick pay, and employer-paid health coverage. She also receives a year-end bonus. Which of these payments is NOT taxable on Cecilia's 2011 return: - ✔✔Correct. The amount of employer-paid health coverage is a tax-free fringe benefit. Which of the following is NOT a requirement to qualify for the EIC? Which of the following is NOT a requirement to qualify for the EIC? - ✔✔Correct. A taxpayer must be a U.S. citizen or resident alien all year to be eligible for the EIC. Supplemental wages are compensation paid in addition to an employee's regular wages. They do not include payments for: Supplemental wages are compensation paid in addition to an employee's regular wages. They do not include payments for: - ✔✔Correct. Supplemental wages (compensation paid in addition to an employee's regular wages) do not include travel reimbursements paid at the federal government per diem rate. Ellie, who is single, supports her elderly mother, who resides in a nursing home. Ellie pays all of the costs for her own household and pays more than half the costs of her mother's support. Her mother receives social security benefits and a modest pension that pays the expenses not covered by Ellie. Which filing status is the most advantageous (and allowable) for Ellie? - ✔✔Correct. Head of Household is the most advantageous filing status for Ellie. Because Ellie pays for more than half the cost of support for her mother, she meets the requirements to file as Head of Household. Although Ellie is also eligible to file as Single, the Head of Household filing status is more advantageous (resulting in less tax) than filing as Single. Ellie is not eligible to file as a Qualifying Widow(er) or Married Filing Separately. In 2011, Ed, who is single and age 67, fully supports his 90-year-old mother and claims a dependency exemption for her. He can claim a standard deduction of: - ✔✔Correct. Ed's standard deduction is $9,950, $8,500 is the standard deduction for Head of Household, plus an additional standard deduction of $1,450 because he is at least 65 years old. Domain 2 - Cory owns an apartment building. In addition to providing utilities for his tenants, he also cleans the halls and utility room and picks up the trash. He is not a real estate professional. Because of the services he provides, Cory must report the rental income on: - ✔✔RTRP Exam Prep WBT (2012) Correct. Cory reports rental income from his apartment building on Schedule E because the services he performs (cleaning the halls and utility room and picking up the trash) are maintenance of the building, not services to tenants. Domain 2 - On October 1, 2011, Nichole purchased a six-month CD that matures on April 1, 2012, at which time the total interest income of $50 will be credited to her account. She will not receive the 1099-INT for this interest until early 2013. Nichole reports the interest as follows: - ✔✔Correct. Nichole, a cash-basis taxpayer, must report the interest for the tax year in which she actually or constructively received the interest. Domain 2 - Rohan was lucky and won $400 playing slots at a local casino. Assuming Rohan is not a professional gambler, his winnings are: - ✔✔Correct. Gambling winnings of a nonprofessional gambler are reported as other income on Form 1040 and subject to income tax. Gambling losses may be deducted on Schedule A, Itemized Deductions. Domain 2 - Gene and Claire, a married couple, are partners in a consulting business generating gross receipts of $60,000 and net profit of $45,000. Gene also received wages of $25,000 as an employee of JKI. Jointly, they had stock dividends of $2,000, City of Birmingham Bond interest of $4,000, and savings account interest of $1,000. What is their total income before the adjustment for self-employment tax? - ✔✔Correct. [$45,000 + 25,000 + 2,000 + 1,000 = $73,000]. Municipal bond interest is not taxable. Domain 2 - Which of the following statements is correct with regard to dividends received in a dividend reinvestment plan used to acquire additional shares of stock? - ✔✔Correct. The dividends are taxable in the year they are reinvested in the plan and add to the shareholder's basis in the newly acquired shares. Domain 2 - Joann lives in Florida and receives the following payments. Which of these payments is NOT reported as taxable interest on her federal tax return? - ✔✔Correct. Interest on a California state bond is a municipal bond exempt from federal income tax. However, the interest is still reported on the return as tax-exempt interest. Domain 2 - When more than one vehicle is used for a single business use: - ✔✔Correct. A taxpayer with multiple business-use vehicles may choose to use different methods for each vehicle. They are not limited to using the same method for each vehicle. Domain 2 - Miriam, head of household, has $80,000 in wages, $12,000 income from a limited partnership (passive income), and a $30,000 loss from rental real estate activities (passive losses) in which she actively participated (her MAGI is does not exceed $100,000). What part of the $30,000 loss can she use in 2011? - ✔✔Correct. She can offset her $12,000 passive income. Of the remaining $18,000, she can use it all to offset her salary. Domain 2 - All of the following taxpayers file Schedule C EXCEPT: - ✔✔Correct. A farmer who is a sole proprietor files a Schedule F, not a Schedule C Domain 2 - Interest was credited to Jane's savings account on December 31, 2011. The interest is taxable to her when: - ✔✔RTRP Exam Prep WBT (2012) Correct. The interest is taxable to Jane in 2011, the year it is credited to her account. Domain 2 - Which of the following does NOT meet the requirements for being used for business purposes for a home office? - ✔✔Correct. To be a home office, the space must be used as the taxpayer's principal place of business, a place to meet with clients in the normal course of business, or a separate structure used in connection with the taxpayer's business. If an employer provides an office for the employee, although the employee may be allowed to work from home, this does not qualify the home as a business home office for which expenses can be claimed. Domain 2 - John frequently pays for repairs in his apartment and gives the receipts to his landlord in lieu of part of his rental payment. The landlord: - ✔✔Correct. John's landlord is entitled to deduct the repair expenses paid by John in lieu of rent and also must report these amounts as rental income. Domain 2 - In 2010, Greg formed Spring Lawn, LLC, to provide yard maintenance to residential customers. Greg is the sole member of Spring Lawn, LLC. Before he began operations in May 2011, Spring Lawn, LLC, incurred $3,000 in advertising and other costs for securing customers and market analysis expenses of $4,000. What is the maximum amount of these business start-up costs that Greg (who reports Spring Lawn, LLC's income and expenses on his individual return on Schedule C) may deduct on his 2011 return? - ✔✔Correct. The maximum amount Greg can deduct is $5,089. In 2011, the lesser of start-up costs of up to $5,000 or $5,000 reduced by the amount of expenses that exceed $50,000 may be expensed. Spring Lawn LLC may deduct $5,000 of the expenses as start-up costs. The remaining start-up costs are amortized over 180 months starting in the month the business began. Thus, Spring Lawn, LLC, is able to deduct $5,000 plus an additional $89 for the remaining amortizable costs. [($2,000/180 months) x 8 months = $89] Domain 2 - All of the following earnings are subject to self-employment tax EXCEPT: - ✔✔Correct. Fees received for services performed as a notary public are not subject to selfemployment tax. Domain 2 - Roger, a cash-basis taxpayer, operates a small retail store. His books show the following income items for the year: Sales paid, $72,000; Sales unpaid, $1,000; Sale of cardboard packaging to recycling company for which he received payment, $1,500. What does Roger report as his gross income on his Schedule C? - ✔✔$73,500