Download HR Block Final Exam: Tax Credits, Filing Statuses, and Dependency Exemptions and more Exams Business Taxation and Tax Management in PDF only on Docsity!
HR BLOCK FINAL EXAM (NEWEST EXAM 2025 ) | ALL
QUESTIONS AND CORRECT ANSWERS | ALREADY
GRADED A+ | VERIFIED ANSWERS | LATEST EXAM
How can the gross income test for a qualifying relative be satisfied? --------- CORRECT ANSWER-----------------The qualifying relative's gross income must be less than $4,300. When determining the gross income, tax-exempt income, such as certain social security benefits, is not included. What is the purpose of Form 2120, Multiple Support Declaration --------- CORRECT ANSWER-----------------If two or more persons combined provided over one-half of a person's support, they may together agree to allow any one of them who contributed at least 10% of the support to claim the exemption. A statement waiving the right to claim the dependency exemption should be signed by each contributor who is not claiming the exemption, and retained by the one who is. Form 2120 is attached to the return of the taxpayer claiming the exemption. How much is the Child Tax Credit worth? ---------CORRECT ANSWER------- ----------Up to $3,600 per qualifying child under age 6 and up to $3,000 per qualifying child ages 6 through 17. What additional requirements must be met for a taxpayer to be eligible to claim the Child Tax Credit for their qualifying child? ---------CORRECT ANSWER-----------------The child must: Be a qualifying child who is the taxpayer's dependent and who has not reached their 18th birthday by the end of the year. Have a social security number valid for employment before the due date of the return. Be a citizen, national, or resident of the United States.
Is the Child Tax Credit refundable or nonrefundable? ---------CORRECT ANSWER-----------------For most taxpayers, the Child Tax Credit is fully refundable in 2021. In other years, the Child Tax Credit is nonrefundable. However, certain taxpayers may qualify for the Additional Child Tax Credit, which is refundable. How much is the penalty if a paid preparer fails to meet the Child Tax Credit due diligence requirements? ---------CORRECT ANSWER--------------- --There is a $545 penalty for failing to meet the CTC/ODC/ACTC due diligence requirement on one taxpayer's return. What is the first due diligence requirement for the CTC/ODC, and how does a paid preparer meet this requirement? ---------CORRECT ANSWER--------- --------Complete and submit Form 8867, Paid Preparer's Earned Income Credit Checklist. The form must be completed thoroughly and conscientiously by the paid preparer. One Form 8867 must be submitted with every e-filed or paper- filed return (original and/or amended) for every taxpayer who claims the EIC, CTC/ODC/ACTC, AOTC, and/or uses the head of household filing status. What filing statuses are available to taxpayers who are unmarried --------- CORRECT ANSWER-----------------Qualifying widow(er), head of household, and single. How may a married taxpayer qualify as unmarried for tax purposes? --------- CORRECT ANSWER-----------------To qualify as unmarried for the purpose of claiming the head of household filing status, a taxpayer must meet all of the following:
custodial parent, according to the IRS definition, which is the person with whom the child spent more nights during the year. What is the exception to the rules for children of divorced or separated parents? ---------CORRECT ANSWER-----------------If a decree of divorce or separate maintenance or written separation agreement that became effective after October 4, 2004, and before January 1, 2009, states that the noncustodial parent is entitled to claim the child's dependency exemption, or if the custodial parent executes a written declaration that they will not claim the child as a dependent for that year, the noncustodial parent may claim the qualifying child. For divorces granted after December 31, 2008, Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, must be filed if parents are separating tax benefits. Chris (26) has an earned income and AGI of $9,486. He has no other income. He lived in the United States all year and is no one's dependent. He has a valid SSN and is filing as single. He is a U.S. citizen. Does Chris qualify for EIC? ---------CORRECT ANSWER-----------------Yes, Chris meets all six requirements for any taxpayer to claim the Earned Income Credit. What is the third due diligence requirement for the EIC, CTC/ACTC, ODC,and AOTC, and how does a paid preparer meet this requirement for EIC and CTC/ACTC/ODC? ---------CORRECT ANSWER----------------- Satisfy the knowledge requirement. To meet the knowledge requirement, the paid preparer cannot know of, or have any reason to know, that any information used to determine a taxpayer's eligibility for, or the amount of, the credit is incorrect, inconsistent, or incomplete. They need to know the tax law behind EIC and CTC/ACTC/ODC to ensure that all the eligibility requirements are met before claiming one of these credits. Interview each taxpayer, ask adequate questions, review the information the taxpayer provides, and then document their responses. Ask additional questions until you are satisfied
that the eligibility requirements are met and the taxpayer can claim the credit. Why are tax credits valuable to taxpayers? ---------CORRECT ANSWER----- ------------Credits are valuable because they reduce tax liability dollar for dollar. What is the difference between nonrefundable and refundable credits? ------ ---CORRECT ANSWER-----------------Nonrefundable credits may not reduce a taxpayer's tax liability below zero. Refundable credits may reduce the taxpayer's tax liability below zero, and the difference is refunded to the taxpayer. If a taxpayer's employer paid part of their child care expenses, how will this affect their Child and Dependent Care Credit, and on which form is it reported to the taxpayer? ---------CORRECT ANSWER-----------------The expenses eligible for the credit must be reduced by the employer-provided assistance that can be excluded from income. Dependent care expenses are reported in box 10 of Form W-2. What is the Premium Tax Credit ---------CORRECT ANSWER----------------- The Premium Tax Credit (PTC) is a credit that helps pay the cost of health care coverage through the Marketplace. It is either advanced to the taxpayer or refunded through their income tax return. What is the purpose of Form 1095-A? ---------CORRECT ANSWER----------- ------Taxpayers who purchase insurance coverage through the Marketplace will be sent a Form 1095-A, Health Insurance Marketplace Statement. All taxpayers who obtained coverage through the Marketplace for themselves, a spouse, or dependents, and either received the advance Premium Tax
Paid qualified education expenses for higher education for an eligible student and the student is the taxpayer, spouse, or someone that they claim as a dependent. Are not filing MFS, claimed as a dependent on another taxpayer's return, and their MAGI is below $90,000 ($180,000 for MFJ). The student must: Not have completed the first four years of college or claimed the AOTC or the former Hope credit for more than four tax years. Be enrolled at least half-time in a program leading to a degree, certificate, or other recognized academic credential for at least five months of the tax year. Not have been convicted of any federal or state felony for possessing or distributing a controlled substance. What effect do tax-free funds (such as grants) have on qualifying expenses for the AOTC? ---------CORRECT ANSWER-----------------The expenses must be reduced by the amount of any tax-free funds received prior to calculating the AOTC. What is the fourth due diligence requirement for the EIC, CTC/ODC/ACTC, and AOTC, and how does a paid preparer meet this requirement? --------- CORRECT ANSWER-----------------Satisfy the documentation requirement. Paid preparers must keep photocopies of any records provided by the taxpayer that were relied upon to determine their eligibility for the refundable credits, or to compute the amount of the credits when the return was prepared. This includes keeping copies of all handwritten worksheets used to calculate the credits and a record of any questions asked during the tax interview, with the taxpayer's responses, to ensure they met the knowledge requirement.
What is the maximum lifetime learning credit, and which taxpayers may take advantage of this credit? ---------CORRECT ANSWER-----------------The maximum is $2,000 per return. The lifetime learning credit is available to certain taxpayers paying for higher education courses, including graduate- level courses. Students may be degree candidates, or they may be non- degree candidates taking college courses to maintain or improve job skills. How is the lifetime learning credit calculated? ---------CORRECT ANSWER- ----------------It is 20% of the first $10,000 of qualifying expenses per return, per year. What is a thorough interview? ---------CORRECT ANSWER-----------------A thorough interview consists of asking open-ended, general information questions, then asking additional questions whenever information is incomplete or seems inaccurate or inconsistent. What is a conflict of interest ---------CORRECT ANSWER----------------- Circular 230 states that a conflict of interest exists if the representation of one client will be directly adverse to another client, or if there is a significant risk that the representation of one or more clients will be materially limited by the practitioner's responsibilities to another client, a former client, or a third person, or by a personal interest of the practitioner. What actions can resolve a conflict of interest? ---------CORRECT ANSWER-----------------A conflict of interest is resolved when it is acknowledged, disclosed to all parties, and the parties have consented, in writing, to waiving the conflict. What taxpayer information is confidential ---------CORRECT ANSWER------- ----------Any information that could potentially identify the taxpayer is
What is the IRA contribution limit for 2021? ---------CORRECT ANSWER---- -------------The lesser of 100% of the taxpayer's compensation or $6,000. Individuals who have reached age 50 by the end of the year may contribute an additional $1,000 for a total of $7,000. What is the last date on which an IRA contribution may be made and qualify as a contribution for a given year? ---------CORRECT ANSWER------ -----------The due date (not including extensions) of the return for that year. Why is it important to distinguish between taxpayers who are active participants in an employer-maintained retirement plan and those who are not? ---------CORRECT ANSWER-----------------Those who are not active participants and whose spouses are not active participants may deduct the full amount they contribute to a traditional IRA, assuming they stay within the contribution limits. Those who are active participants, or whose spouses are active participants, may still contribute within the limits but may find their allowable deduction reduced or eliminated based on the modified AGI. What are the main differences between traditional IRAs and Roth IRAs? ---- -----CORRECT ANSWER-----------------Contributions to a Roth IRA are never deductible, but qualified distributions are exempt from tax. Participation in an employer-maintained retirement plan has no effect on Roth IRA contributions. Amounts in a Roth IRA grow tax-free. If the requirements are met, money is also not taxed when it is withdrawn from the Roth IRA account. The growth in a traditional IRA is also tax-deferred, but is taxed when withdrawn.
What is the maximum amount of contributions on which the Saver's Credit may be based? ---------CORRECT ANSWER-----------------$2,000 for individuals and up to $4,000 on a joint return. What are the percentage rates for taxpayers who qualify for the Saver's Credit? ---------CORRECT ANSWER-----------------The rates are 10%, 20%, or 50%, depending upon filing status and modified AGI. On what form are social security benefits reported to the recipient? --------- CORRECT ANSWER-----------------Form SSA-1099. What form is used to report retirement account distributions to the taxpayer ---------CORRECT ANSWER-----------------Form 1099-R. Under what circumstances would a pension be partly taxable? --------- CORRECT ANSWER-----------------When the taxpayer has contributed after- tax money to the cost and has not yet recovered it. What traditional IRA distributions are fully taxable ---------CORRECT ANSWER-----------------When the taxpayer has not made any nondeductible contributions. Where is income tax withheld from a retirement account or IRA distribution reported on the tax return? ---------CORRECT ANSWER----------------- Amounts withheld and reported to the taxpayer on Form 10 99 - R are included on Form 1040 or Form 1040-SR, line 25b.
Unearned income is taxable income that does not meet the definition of earned income. Examples of unearned income include interest income, dividends, rents and royalties, pensions, alimony, and unemployment income. If an employee thinks their Form W-2 is incorrect, what should they do? ---- -----CORRECT ANSWER-----------------If the taxpayer's name, social security number, earnings, or withholdings are incorrect, the taxpayer should notify their employer and request a corrected Form W-2. The employee should request that the employer update their records and verify that the earnings were properly credited with the Social Security Administration. However, the taxpayer is still responsible for filing a timely tax return. If the employee's attempts to obtain a corrected Form W-2 from their employer are not successful, the taxpayer should notify the IRS. It may be necessary to prepare a substitute Form W-2. Is interest received on U.S. Treasury obligations taxable on state and/or local returns? ---------CORRECT ANSWER-----------------No. Interest on U.S. Treasury obligations is exempt from state and local tax by federal law. Is municipal bond interest taxable on a federal return ---------CORRECT ANSWER-----------------No, the federal government does not tax municipal bond interest. How is interest income reported to the taxpayer? ---------CORRECT ANSWER-----------------Interest income is reported to the taxpayer on Form 1099 - INT or a substitute statement. What information do you need to know to determine whether a nondependent taxpayer is required to file a return? ---------CORRECT
ANSWER-----------------The taxpayer's filing status, age at the end of the tax year, and gross income for the year. For tax purposes, when is a person's marital status determined? --------- CORRECT ANSWER-----------------On the last day of the tax year, or the date of death. How much is added to the standard deduction if the taxpayer (or spouse) is age 65 or older, or blind? ---------CORRECT ANSWER-----------------$1, for married taxpayers and qualifying widow(er)s, or $1,700 for those filing single or head of household. What is the personal exemption amount for 2021 ---------CORRECT ANSWER-----------------There is no personal exemption for 2021. A personal exemption was an amount previously allowed by law to reduce income that would otherwise be taxed. The Tax Cuts and Jobs Act of 2017 repealed this deduction beginning in 2018. How is the gross income filing requirement determined for most nondependent taxpayers ---------CORRECT ANSWER-----------------The taxpayer's standard deduction, including the additional amounts for age. However, for married filing separately, or married filing jointly when the spouses did not live together at the end of the year, the amount is $5. What is the difference between injured spouse allocation and innocent spouse relief? ---------CORRECT ANSWER-----------------The IRS provides an injured spouse allocation for the taxpayer to protect their portion of a refund from a spouse's past-due federal income tax, unpaid student loans, unpaid child and spousal support, or state income tax.
What are the adjustments that can be claimed on Schedule 1 (Form 1040)? ---------CORRECT ANSWER-----------------Some examples of adjustments that can be claimed on Schedule 1 are: Educator expense deduction. The health savings account (HSA) deduction. Moving expenses for members of the military. Self-employment tax deduction. Self-employed health insurance deduction. Penalty on early withdrawal of savings. Alimony payments. IRA deduction. Student loan interest deduction. How much may an eligible educator deduct for qualified classroom expenses as an adjustment to income? ---------CORRECT ANSWER--------- --------Up to $250 per eligible educator. Married taxpayers filing a joint return who are both eligible educators may each claim the $250 deduction, totaling $500. Who is an eligible educator? ---------CORRECT ANSWER----------------- Someone who worked at least 900 hours during the school year as a teacher, teacher's aide, counselor, or principal in an elementary or secondary school. Where is the educator expense deduction reported ---------CORRECT ANSWER-----------------Educator expenses are reported on Schedule 1, Additional Income and Adjustments to Income, line 11.
Who may not claim a student loan interest deduction? ---------CORRECT ANSWER-----------------Someone who is claimed as a dependent may not claim the deduction in the current tax year, nor may someone who uses the married filing separately filing status. The amount of income a taxpayer earns may also affect their deduction. Taxpayers whose modified AGI exceeds a threshold amount for their filing status may not be able to claim the deduction, or they may only be eligible to claim a reduced amount. What is a qualified student loan? ---------CORRECT ANSWER----------------- A loan used to pay qualified education expenses. Credit card debt may be included, provided the card was used exclusively to pay for qualified expenses. Money borrowed from a related person is not a qualified student loan. What three requirements must be met for an individual to be claimed as either a qualifying child or a qualifying relative? ---------CORRECT ANSWER-----------------To be either a qualifying child or qualifying relative, they must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada, or Mexico; they cannot file a joint return (unless solely to claim a refund of taxes paid); and the taxpayer claiming the dependent must not be a dependent of another taxpayer. What are the five tests for a qualifying child ---------CORRECT ANSWER---- -------------1. Relationship test.
- Age test.
- Residency test.
- Support test.
- Joint return test. How can a married individual meet the joint return test to remain a qualifying child? ---------CORRECT ANSWER-----------------They can meet this test by not filing a joint return with their spouse, or they can file a joint
rule does not allow any choice. Only the taxpayer with the highest AGI can claim the child. If either parent can claim the child but no parent does claim the child, the child is treated as the QC of the person who had the highest AGI for the year, but only if that person's AGI is greater than the higher AGI of either of the child's parents who could have claimed the child. When might a taxpayer need to claim itemized deductions, even though their standard deduction is higher? ---------CORRECT ANSWER--------------- --A taxpayer who uses the married filing separately filing status whose spouse itemizes may not claim the standard deduction, even if it's higher than their itemized deductions. What types of taxes are deductible? ---------CORRECT ANSWER------------- ----State and local income or general sales taxes; state, local, or foreign real estate taxes; and state and local personal property taxes are generally deductible. State and local taxes are currently limited by a cap of $10, ($5,000 if married filing separately). What are some deductible medical expenses? ---------CORRECT ANSWER-----------------Payments made for the diagnosis, cure, mitigation, treatment, or prevention of disease; for transportation related to medical care; and for insurance covering medical care for the taxpayer, spouse, and dependents are deductible. A complete list of deductible expenses appears in IRS Publication 502, Medical and Dental Expenses. Nondeductible expenses include cosmetic surgery, weight loss programs not designed to treat a specific disease, and meals purchased while traveling for medical treatment. Whose medical expenses may a taxpayer deduct? Are there any situations when the taxpayer may deduct expenses of someone who is not their spouse or dependent? ---------CORRECT ANSWER-----------------A taxpayer
can generally deduct the expenses for themselves, their spouse, or their dependents. They may deduct expenses for a spouse if they were married to the person either at the time the expenses were paid or when the expenses were incurred. Similarly, they may deduct expenses of someone who was a dependent when the expenses were paid or when they were incurred. In addition, a taxpayer may deduct expenses for a person who would have been their dependent except that the person fails the gross income test or the joint return test. Finally, divorced or separated parents may each deduct costs they paid for their child, even if the other parent claims the dependency exemption. When are medical travel expenses deductible? What expenses may be deducted? ---------CORRECT ANSWER-----------------A taxpayer may deduct the cost of medical travel for a patient and for a person who accompanies a patient unable to travel alone. The cost of transportation, including taxis, train fare, and similar costs, is deductible. Taxpayers who use their own cars may deduct either the actual cost of gas and oil or a standard mileage rate of 17ยข per mile. Taxpayers may deduct the cost of lodging, up to $50 per night per person. The cost of meals is not deductible unless the meals are provided by a hospital or other institution with a primarily medical purpose. What expenses are allowed for medical aids and equipment? --------- CORRECT ANSWER-----------------The cost of medical aids and equipment, such as bandages, glasses, crutches, wheelchairs, hearing aids, and telecommunications equipment for the deaf, is deductible. In addition, the cost of maintaining a service animal, such as a guide dog, is deductible. The cost of Braille books and magazines is deductible to the extent the cost of the Braille version exceeds the cost of the same printed materials. A taxpayer makes their final 2021 state estimated tax payment on January 15, 2022. Where should they report this item? ---------CORRECT ANSWER-----------------They should report this payment as an estimated payment on their 2021 state return as this is the final payment for 2021.
