Final Exam – Annual Federal Tax Refresher#2

Which of the following is a key characteristic of “listed property” under IRC Section 280F that affects the deductibility of its business use expenses for the 2025 tax year?

It must be used exclusively for business more than 50% of the time.

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It includes all tangible personal property used in a trade or business.

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It is primarily real estate used for business purposes.

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It is subject to a simplified depreciation method, regardless of its business use percentage.

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A paid tax return preparer electronically files a 2025 tax return for a client on April 12, 2026. Which of the following scenarios would constitute a potential violation of IRC Section 6695(c)?

The preparer includes their office's Employer Identification Number (EIN) instead of their Preparer Tax Identification Number (PTIN).

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The preparer provides the client with an unsigned copy of the tax return for their records.

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The preparer fails to advise the client about potential estimated tax penalties.

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The preparer retains a list of prepared returns that does not include the client's phone number.

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A paid tax return preparer completes a 2025 tax return for a client and obtains the client’s signature on April 10, 2026. Which of the following actions by the preparer would constitute a potential violation of IRC Section 6695(d)?

Mailing the client's copy of the completed tax return one week after obtaining the client's signature.

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Only offering the client an electronic copy of the tax return without ensuring the client can easily access and retain it.

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Failing to sign the preparer section of the client's tax return.

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Failing to inform the client of the due date for filing their tax return.

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Which statement will restrict you on eligibility for the AFSP Program.

Disbarred, suspended or disqualified from practice before the IRS under Circular 230,

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Compliance with personal federal tax obligations.

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Obtain necessary continuing education before December 31 of given year

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Have an active PTIN for the year of participation

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As a participant of the AFSP, a non-credentialed tax professional may have what level of client representation?

May represent clients as long as it's a prior year tax return

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May represent clients to assist with an offer in compromise

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May represent clients as long as it's a client they prepared and signed the tax return, representing initial audits and customer service-related issues

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None of the above

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Mia paid $7,400 for daycare and $1,500 for after school care. What is the maximum amount of expenses that she can claim for the Child and Dependent Care Credit?

$8,900.00

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6,000

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$7,400

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$3,000

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What is the maximum percentage of eligible expenses a taxpayer’s child and dependent care tax credit may be?

15% of expenses

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25% of expenses

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35% of expenses

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50% of expenses

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In order to claim the Child Tax Credit (CTC), the taxpayer’s child must meet which of these conditions to qualify? Select one:

The child must be permanently and totally disabled

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The child must have lived with the taxpayer in question for at least 4 months out of the year

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The child must not have provided over half of their own support for the tax year

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The child must have an income of their own

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For the 2025 tax year, if you are an eligible educator, what is the maximum amount you can deduct for unreimbursed trade or business expenses

$150

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$300

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$600, regardless of filing status

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$1200, but only if married filing jointly and both spouses are eligible educators with expenses.

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Which of these statements is true about alimony agreements executed after 2018?

Alimony will not be deductible for any divorce decree executed or modified after 2018.

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Alimony is a payment agreement between each party to a separation/divorce and their lawyers.

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The spouse receiving alimony will report it as other income

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Alimony is court-ordered allotment awarded to a former spouse for child support following a separation or divorce

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Under current U.S. federal tax law, which statement best describes how Net Operating Losses (NOLs) can be carried forward in the 2025 tax year?

NOLs can be carried forward for up to 20 years, with no limit on the amount of taxable income they can offset.

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NOLs can be carried forward indefinitely, but the deduction in any given year is limited to 80% of taxable income

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NOLs can be carried forward indefinitely and can fully offset 100% of taxable income in any year.

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NOLs must be carried back two years before they can be carried forward.

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Linda has an AGI of $80,000. She paid interest of $4,400 and loan fees of $1,000 on her mortgage in 2024. What amount can Linda deduct as an itemized deduction on her 2025 tax return if she itemizes?

$0

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$1,000

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$4,400

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$5,400

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According to IRS rules for charitable contributions, when must a taxpayer receive a Contemporaneous Written Acknowledgment (CWA) from a qualified charity for a single donation of $250 or more to be deductible?

Immediately at the time the donation is made.

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By December 31st of the year the contribution was made.

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By the earlier of the date the taxpayer files their income tax return or the due date (including extensions) for filing that return for the contribution year.

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Only if the IRS specifically requests it during an audit.

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Which of the following payments is reported on Form 1099-LTC, Long-Term Care and Accelerated Death Benefits?

Payments for short-term medical care.

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Payments received from a traditional health insurance policy for doctor visits.

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Accelerated death benefits received from a life insurance policy due to a terminal illness.

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Disability insurance payments received due to a temporary injury.

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What is the current state and local tax (SALT) deduction cap for married couples filing jointly for the 2025 tax year?

$5,000

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$10,000

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$15,000

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$30,000

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Mellisa Michelle has an Adjusted Gross Income (AGI) of $90,000 in 2025. She makes a cash contribution of $60,000 to a qualifying public charity. Which of the following statements accurately describes the tax treatment of her cash contribution based on the 60% AGI limit for cash contributions?

Mellisa Michelle can deduct the full $60,000 in 2025 because it's a cash contribution to a public charity.

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Mellisa Michelle's deduction for 2025 is limited to $45,000, and the remaining $15,000 can't be deducted

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Mellisa Michelle's deduction for 2025 is limited to $54,000, and the remaining $6,000 can be carried forward for up to five years.

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Mellisa Michelle's deduction for 2025 is limited to $50,000, with the excess being non-deductible.

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Which of the following statements correctly describes how Forms 1099-INT, 1099-OID, and 1099-DIV are used with Schedule B (Form 1040)?

Form 1099-INT is used only by corporations to report investment losses, and it is not entered on Schedule B.

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Form 1099-OID reports interest earned on savings accounts and is included on Schedule A.

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Form 1099-DIV reports ordinary dividends, and along with 1099-INT and 1099-OID, helps complete Schedule B if the total income exceeds $1,500.

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Only Form 1099-INT is relevant to Schedule B, as other forms are reported separately

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Which taxpayer may have a Form 114, FBAR filing requirement?

A taxpayer who has 2,000 in interest income from his local bank

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A taxpayer whose dividend income of $1500 from his local credit union reported on Schedule B.

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A taxpayer who has a financial interest or signature authority in a foreign bank account with assets more than $10,100

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An American citizen that lives in a foreign country

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In 2025, Jimmy received $1,800 in taxable interest from his savings account at a local bank and $900 in ordinary dividends from stocks he owns in a brokerage account. Under what circumstances would Jimmy be required to complete and attach Schedule B to his Form 1040 when filing his 2025 tax return?

f the total amount of taxable interest and ordinary dividends he received was less than $1,500.

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If he received interest from more than one payer (e.g., multiple banks or financial institutions).

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Only if the ordinary dividends he received were qualified dividends.

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If the total amount of taxable interest was more than $1,500, or the total ordinary dividends were more than $1,500, or the total of both was more than $1,500.

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The following statements are correct regarding the business use of a home except:

An exclusive use strictly for business of the part of the home claiming the expense

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A simplified option allows taxpayers to claim $12 per square foot of home office space up to 500 sq. ft.

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A simplified option allows taxpayers to claim $5 per square foot of home office space up to 300 sq. ft.

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Use of the Simplified Method is much easier with potentially smaller deductions

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What is considered a ‘hobby’ when it comes to filing tax returns. especially where Schedule C is required? Select one:

non-profit charity work

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any activity that makes a profit which could be taxed as capital gain

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any activity which is not expected to earn income and is intended for recreation or pleasure

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any activity that could potentially make money

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Which of the following statements is incorrect regarding Schedule C?

A sole proprietor generally reports all income and expense on Form 1040 as wages

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Cost of goods sold is beginning inventory plus inventory purchased minus ending inventory.

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Gross income includes all income from a trade or business.

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Gross income from a business that sells products is calculated as gross sales (receipts) less cost of goods sold plus other gross income.

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Which of the following statements provides the most accurate overview of how capital gains and losses are generally categorized for tax purposes?

Capital gains are always taxed at a flat rate, while capital losses are fully deductible against any type of income.

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The primary distinction between short-term and long-term capital gains and losses depends on how long the asset was held before it was sold.

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Only gains from the sale of real estate are considered capital gains, and capital losses are never deductible.

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All income from investments, regardless of holding period, is classified as a long-term capital gain or loss.

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Capital gain or loss from sale or trade of investment property:

Held 1 year or less is a short-term capital gain or loss

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Held 1 year or more is a short-term capital gain or loss

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Held 1 year or less is a long-term capital gain or loss

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Held 6 months or less is a long-term capital gain or loss

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For a taxpayer filing single in the taxable year 2025, what is the modified adjusted gross income (MAGI) range within which the $2,500 maximum deduction for student loan interest will be gradually reduced, as specified in Rev. Proc. 2024-40(.30)?

$0 to $85,000

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$85,000 or more

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Between $85,000 and $100,000

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$100,000 or more

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What is the primary purpose of IRS Form 1099-B?

To report interest income from savings accounts

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To report dividend income paid by corporations

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To report proceeds from the sale of stocks, bonds, or other securities

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To report income from rental property

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When should cancelled student debt be excluded from a taxpayer’s income? Select one:

When the student was unable to work due to illness or injury and received deferment or forbearance on their debt

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When the student went on to serve in the military

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Cancelled student debt is never taxed

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When the student's debt is cancelled due to bankruptcy, insolvency, or death

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Darren, a security equipment installer, is an independent contractor. He was paid in Bitcoins (Virtual Currency). At the end of year, he received Form 1099. Does he have to pay self-employment tax?

No, since it is virtual currency

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Yes, Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply

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No, he should return his 1099 to employer and request a W-2

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Yes, because he will get a W-2

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For the 2025 tax year, you sell a significant amount of cryptocurrency through a major U.S. digital asset broker. Regarding tax reporting, which of the following statements is most accurate?

he broker will provide you with a Form 1099-MISC detailing your capital gains, and you will report this on Schedule 1 (Form 1040).

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The broker will issue you a Form 1099-DA reporting the gross proceeds from your sale, and you will be responsible for tracking and reporting your own cost basis on Form 8949.

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The broker is not required to report digital asset sales to the IRS, so you only need to report if you have a large capital gain.

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he broker will send you a Form W-2, as all digital asset transactions are considered ordinary income.

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During 2025, a taxpayer can check the “No” box if their activities with digital assets were limited to which of the following:

Purchasing digital assets using U.S. currency including through electronic platforms such as PayPal.

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Received digital assets as payment for property or services provided

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Sold a digital asset

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Received digital assets resulting from a reward or award.

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Siri received $8,000 in unemployment compensation during 2025 and received Form 1099-G. On which IRS form and schedule will Siri primarily report this unemployment compensation when filing her federal income tax return?

Form 1040, directly on the main form.

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Schedule C (Form 1040), Profit or Loss From Business.

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Schedule 1 (Form 1040), Additional Income and Adjustments to Income.

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Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.

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Based on IRS Notice 2024-85, which of the following scenarios involving payments made by Uber to a participating driver in calendar year 2025 would require Uber to issue a Form 1099-K to that driver?

A driver earned a total of $500 for various ride-sharing trips.

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A driver earned a total of $3,000 for providing ride-sharing services to passengers.

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A driver received a single payment of $2,000 for referring a new driver to the platform.

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A driver earned $1,500 from ride-sharing fares paid via credit card and $1,200 from fares paid through Uber's in-app payment system.

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Which statement is not correct for 529 College Savings Account vs 529A Achieving a Better Life Experience (ABLE) account

Account holder (not the beneficiary) controls the funds in 529 vs Account holder (beneficiary) controls the funds in ABLE

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Can only be used for qualified education-related expenses in 529 vs Can be used for broad categories of qualified disability expenses in ABLE

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Anyone can open an account for the benefit of the beneficiary in 529 vs Only beneficiary or legal guardian/power of attorney can open account in ABLE

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Can have an Limited amount of accounts in the beneficiary’s name in 529 vs Unlimited to only one account per beneficiary in ABLE

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Which statement is correct regarding 529 Plans in 2025?

A 529 Plan can have multiple beneficiaries

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The annual 529 plan contribution limit rises to $18,000 per contributor

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You cannot switch beneficiaries from one child to another using one plan

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529 account holders cannot transfer funds to a Roth IRA for a beneficiary.

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Which of the following statements about reporting distributions from pensions, IRAs, annuities, and similar plans is correct?

You report distributions directly to the IRS without needing a form from the payer.

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Form 5329 is used to report all retirement distributions, including taxable income and rollovers

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You report distributions from a traditional IRA on Form 1040, Lines 5a and 5b.

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Form 1099-R is the primary form used to report distributions, and the amounts are transferred to Form 1040 using lines 4a/4b for IRAs and 5a/5b for pensions and annuities.

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Greg retired in 2025 at age 62. He began taking regular distributions from his traditional 401(k) plan. Which of the following statements is generally true regarding the federal income tax treatment of these distributions in 2025?

The distributions are entirely tax-free because Greg is now retired.

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The distributions will be taxed as ordinary income in the year they are received.

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Only a portion of the distributions will be taxed, based on Greg's contributions.

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he distributions are subject to a mandatory 20% federal income tax withholding.

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The Secure 2.0 Act, Section 124 applies to:

New reporting requirements for 529 accounts

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Increased beneficiary participation

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Increased age of onset of blindness or disability for qualified Able programs

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Increased contributions to Able program

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Which of the following statements about the taxability of distributions from pensions, annuities, IRAs, and similar retirement plans is correct for the 2025 tax year?

All distributions from retirement accounts are always fully tax-free.

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Distributions from traditional IRAs are generally tax-free if taken after age 59½.

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Distributions are taxable to the extent they were not previously taxed (e.g., pre-tax contributions and earnings).

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Roth IRA distributions are always taxable regardless of age or purpose.

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Which of the following statements is TRUE regarding payment of tax when a taxpayer cannot pay by the due date?

Taxpayers must always pay the full amount owed on the due date or face criminal penalties.

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Filing Form 4868 gives taxpayers an extension of time to pay their taxes.

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Taxpayers may request additional time to pay due to financial hardship by filing Form 1127.

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The IRS does not offer installment agreements for unpaid tax balances.

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What is the standard mileage rate for charity purposes for 2025?

56 cents per mile

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6 cents per mile

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24 cents per mile

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14 cents per mile

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A U.S. citizen lives and works in Germany for all of 2025, earning $145,000 in wages from a German employer. She qualifies for the Foreign Earned Income Exclusion under the bona fide residence test and files a timely return. She has no housing exclusion. According to Rev. Proc. 2024-40(.39), which of the following is the correct way to report this income and exclusion on her 2025 U.S. tax return?

Report the full $145,000 as gross income on Form 1040, then deduct $130,000 on Schedule A as an itemized deduction.

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Report the full $145,000 as gross income on Form 1040, then claim a $130,000 foreign tax credit using Form 1116.

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Complete Form 2555 to calculate and exclude $130,000, report the remaining $15,000 on Schedule 1 (line 8), and transfer it to Form 1040.

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Complete Form 2555 to exclude $130,000, report the excluded amount on Schedule 1 (line 8), and include only the remaining $15,000 as taxable income on Form 1040

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Which of the following statements is true about moving expense deduction and reimbursement?

Employees who receive qualified moving expense reimbursement can exclude the income from their gross income

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Moving expense deduction and taxable reimbursement are for anyone who moves to a new location because of a job relocation

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Active military can deduct qualified moving expenses reimbursement during the suspension period of 2018 through 2025.

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Active military cannot deduct qualified moving expenses reimbursement during the suspension period of 2018 through 2025.

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Which statement about the taxability of earnings such as wages, salaries, and tips is correct, and how does Form 4137 relate to tip income?

Only wages and salaries are subject to Social Security and Medicare taxes; tips are not taxable income.

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All wages, salaries, and tips are taxable, but Form 4137 is used to report Social Security and Medicare taxes on tip income not reported to an employer

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Tips are taxable only if they exceed $100 per month, and Form 4137 is used to report income tax on those tips.

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Form 4137 is used to report all wage income to the IRS, including salaries and bonuses.

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The qualified real property definition for Section 179 deduction was extended to include all of the following under the Tax Cuts and Jobs Act except:

A/C

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Land

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Security Systems

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Roofs

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Dr. Bruce purchases a new passenger car for $55,000 on July 1, 2025, for his consulting business. The car has a Gross Vehicle Weight Rating (GVWR) of 4,800 pounds. He determines his business use percentage for the year is 75%. Assuming Dr. Bruce elects to take the maximum allowable depreciation, including the 40% bonus depreciation, what is the maximum total depreciation deduction he can claim for this vehicle in its first tax year (2025)?

$15,150

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$20,200

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$12,200

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$36,750

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Which of the following statement is true about depreciation of rental property?

Depreciation cannot be used by for rental properties

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Depreciation on the land can be taken on Form 4562

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The value of the property is not a factor in depreciation

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The rental must have a determinable useful life and be expected to last more than one year

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Super Sagless, a manufacturing company in Mississippi, purchased a total of $3,200,000 worth of qualifying new machinery during Tax Year 2025. What is the maximum Section 179 expense deduction Super Sagless can claim for 2025, given the established limits?

$1,250,000

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$1,180,000

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$3,130,000

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$0 (No deduction allowed)

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Listed property includes all of the following except:

An asset used for business purposes more than 50% of the time

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Passenger automobiles weighing 6,000 pounds or less

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Property used for entertainment purposes or recreational purposes

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An ambulance or vehicle used for transporting persons for compensation

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If a taxpayer needs to request an automatic extension of time to file a U.S. individual income tax return

You can pay all or part of your estimated income tax due and indicate that the payment is for an extension using Direct Pay or using a credit or debit card.

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You can file Form 4868 electronically by accessing IRS e-file using your tax software or by using a tax professional who uses e-file.

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You can pay all or part of your estimated income tax due and indicate that the payment is for an extension using Electronic Federal Tax Payment System.

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All of the Above

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The Internal Revenue Service defines tax return due date as:

April 15th each year for calendar and fiscal year filers unless April 15 th falls on a weekend or holiday, then it's the following Monday or day after the holiday

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The 2nd Monday of each April unless the 2 nd Monday is a holiday, then it's the Tuesday after the 2 nd Monday of April each year

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October 15th each year unless October 15th falls on a weekend or holiday, then it's the following Monday or day after the holiday

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The 15th day of the 4th month after the close of the tax year. For taxpayers who use a calendar year, this is generally April 15th unless April 15th falls on a Sunday or holiday, then it's the next business day.

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For the 2025 tax year, if an individual under age 59½ takes an early distribution from their Traditional IRA, they will generally owe a 10% additional tax, reported and paid using Form 5329. Which of the following scenarios would likely qualify for an exception to this 10% penalty and therefore not require the penalty to be reported on Form 5329?

They used the distribution to pay off personal credit card debt.

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They used the distribution to purchase a new car.

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They used the distribution to pay for qualified higher education expenses.

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They simply decided they wanted to access the funds early for a vacation.

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Which of the following pieces of information is typically reported on Form 5498, IRA Contribution Information, for the 2025 tax year?

The taxable amount of any distributions taken from the IRA during the year.

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The amount of any required minimum distributions (RMDs) that the IRA holder must take for the following year (2026).

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The total contributions made to the IRA for the 2025 tax year.

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Any penalties assessed for early withdrawals from the IRA during the year.

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Which of the following statements about IRS Form 5498-SA is true?

Form 5498-SA is used by taxpayers to report distributions from their HSA on their individual tax return.

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Form 5498-SA must be filed by the individual taxpayer with their annual income tax return.

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Form 5498-SA is filed by the HSA trustee or custodian and reports contributions to the HSA.

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Form 5498-SA is only used to report employer contributions to a Health Reimbursement Arrangement (HRA)

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Which of the following statements about the Residential Clean Energy Property Credit is incorrect?

The credit allowed for fuel cell property expenditures is 30% of the expenditures up to a maximum credit of $500

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There is no overall dollar limit for the credit

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The credit is for property placed in service for 2024 through 2032

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Small wind energy property expenditures is eligible for the credit

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According to Rev. Proc. 2024-40 (.11) for the 2025 tax year, which of the following statements accurately reflects the Alternative Minimum Tax (AMT) exemption and/or its phaseout for a single individual?

The AMT exemption amount is $137,000, and it begins to phase out at $1,252,700 of Alternative Minimum Taxable Income (AMTI).

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The AMT exemption amount is $88,100, and it begins to phase out at $626,350 of Alternative Minimum Taxable Income (AMTI).

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The AMT exemption amount is $68,500, and it begins to phase out at $626,350 of Alternative Minimum Taxable Income (AMTI).

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There is no AMT exemption for single individuals, as it has been completely phased out for all income levels.

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An individual passes away in 2025 with a gross estate valued at $14,500,000. The estate has no debts or deductions. Assuming no lifetime gifts were made and the decedent was a U.S. citizen, how much of the estate would be subject to federal estate tax under § 2010, given the 2025 unified credit exclusion amount as provided in Rev. Proc. 2024-40(.41)?

510,000

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14,500,000

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13,990,000

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$0

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Which of the following is a qualified charitable organization?

Boy scout

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NRA

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Amnesty International

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Proprietary School

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A business, “Global Imports Inc.,” is typically required to electronically file its annual Forms 1099-NEC. However, due to an unexpected and severe system malfunction that prevents them from using their e-file software, they believe they qualify for an exception. Which of the following actions related to Form 8508 is TRUE?

Global Imports Inc. should file Form 8508 with their paper Forms 1099-NEC after the due date.

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Form 8508 is used to request a waiver from electronically filing individual income tax returns, such as Form 1040.

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Global Imports Inc. must submit Form 8508 to the IRS at least 45 days before the due date of their Forms 1099-NEC, stating "undue hardship" as the reason.

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Filing Form 8508 automatically grants Global Imports Inc. a waiver from the e-file requirement, allowing them to paper file without further IRS approval.

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Which of the following taxpayers must file IRS Form 8862 with their tax return?

Terry had his Earned Income Credit denied in 2021 due to missing a qualifying child's school record. He now wants to claim the credit again in 2025.

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Keith received IRS Notice CP74 confirming he was recertified for the Earned Income Credit.

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John had his Child Tax Credit denied in 2022 due to a math error on his return.

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Blair filed Form 8862 in 2023, her American Opportunity Tax Credit was allowed, and she is claiming it again in 2025.

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Due diligence as a tax preparer is best understood as what? Select one:

Verifying facts under consideration and obtaining outside, secondary sources to support the eligibility for the credits or filing status claimed on the return

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Omitting any information that doesn't make sense to the tax professional

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Assume that the taxpayer was never disallowed any credits since they did not mention it

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Ignoring the implications of inconsistent or incorrect information

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Treas. Reg. §1.6695-2 provides specific due diligence requirements for a tax preparer and tax preparer’s firm to follow when the following credits and filing status are claimed on a return. Which of the following statements are true?

Child tax credit (CTC), Qualifying Surviving Spouse (QSS) filing status, American Opportunity Credit (AOTC), Earned Income Credit EIC

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AOTC, Child and Dependent Care Credit (CDC) EIC and HOH Filing Status

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EIC, AOTC, CTC, ACTC, ODC, HOH filing Status

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Credit for the Elderly, Child Tax Credit, HOH filing status, EIC.

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What is the primary purpose of Form 8879, IRS e-file Signature Authorization?

To request an extension of time to file an income tax return electronically.

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To report the fees charged by a tax preparer for electronic filing services.

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To authorize an Electronic Return Originator (ERO) to transmit the taxpayer's income tax return electronically to the IRS and serve as the taxpayer's signature for the e-filed return.

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To inform the IRS that a taxpayer will be filing their income tax return on paper instead of electronically.

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Which of the following is the primary purpose of IRS Form 8888, Allocation of Refund?

To request an extension to file your tax return.

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To pay a balance due to the IRS in multiple installments.

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To direct deposit your entire tax refund into a single bank account.

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To split your federal income tax refund and direct deposit it into multiple accounts.

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Which of the following is a required item that a dealer must report to both the purchaser and the IRS when a taxpayer intends to claim the new clean vehicle credit using Form 8936?

The taxpayer's adjusted gross income and filing status

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The name of the vehicle's manufacturer and dealer’s federal tax ID number

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The vehicle's VIN, battery capacity, purchaser's TIN, and confirmation that the original use begins with the purchaser

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A notarized statement from the dealer guaranteeing future tax savings

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Shyla is considering purchasing a new electric vehicle in 2025 and wants to take advantage of the clean vehicle credit. If the dealership offers the option to transfer the credit at the point of sale, which of the following would Shyla need to understand?

Shyla will still need to claim the full credit amount on Form 8936 when she files her 2025 taxes.

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The dealership must be registered with the IRS to allow Shyla to reduce the vehicle's price by the credit amount at the time of purchase.

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By transferring the credit to the dealer, Shyla will automatically bypass any income limitations that might otherwise apply to her.

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The transfer option will allow Shyla to purchase a vehicle with an MSRP that exceeds the standard limit for her vehicle type.

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Which of the following statements best describes the Premium Tax Credit?

The premium tax credit is a refundable tax credit designed to help eligible individuals and families with low or moderate income afford health insurance purchased through the Health Insurance Marketplace.

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Applies to health insurance bought via Marketplace

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Insurance purchased through the Marketplace must be reconciled on a tax return for that year

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All of the Above

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Which of the following statements about the Sec. 199A deduction is false?

The Sec. 199A deduction does not reduce adjusted gross income.

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The Sec. 199A deduction is allowed only for federal income tax purposes.

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The Sec. 199A deduction is taken on Schedule C.

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The Sec. 199A deduction does not increase a net operating loss.

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Which of the following would be considered a paid tax return preparer?

Crystal prepares tax returns only for her immediate family and no one else. She does not receive any compensation from her family members.

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Mona, a retired tax preparer, prepares returns for friends at her bridge club for $100 a return

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Etta goes online and prepares her own return on a tax return preparation site and receives a $200 tax refund.

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Belinda volunteers at the senior citizen's center and assists members in filling out a paper Form 1040.

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Which of the following statement is correct regarding a paid preparer?

A paid preparer must sign the return.

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Every individual income tax return filed must be prepared by a paid preparer

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A paid preparer does not sign the return.

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A paid preparer cannot be designated as the third-party designee

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Which of the following statements is most accurate regarding the implementation of Section 109 of the SECURE 2.0 Act for tax year 2025?

Individuals aged 60 to 63 may make additional catch-up contributions, which must be separately identified and reported in a new box on Form W-2 starting in 2025.

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Employers must create a separate payroll channel to handle higher catch-up contributions for employees aged 60 to 63 and issue a supplemental Form 1099-R at distribution.

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Section 109 allows individuals aged 60 to 63 to make higher catch-up contributions to workplace retirement plans, which are reported on Form W-2 alongside other contributions with no new separate reporting requirement.

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Section 109 allows individuals aged 60 to 63 to make higher catch-up contributions to workplace retirement plans, which are reported on Form W-2 alongside other contributions with no new separate reporting requirement.

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An employee turns 60 in March 2025 and contributes the maximum elective deferral plus the enhanced catch-up amount under Section 109 to her 401(k). Which of the following is true regarding the reporting and tax treatment of her contributions for the 2025 tax year?

Her enhanced catch-up contribution will require the employer to file a separate W-2 to reflect the age-specific catch-up amount

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Her contributions, including the higher catch-up, will be reported as a combined amount on Form W-2, with no separate reporting required for the age 60–63 enhancement.

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Because she is eligible for the increased catch-up amount, her total 401(k) contributions are exempt from the annual IRS elective deferral limits for 2025.

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Her Form 1099-R in retirement will distinguish between distributions from regular contributions and the age 60–63 enhanced catch-up contributions.

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Which of the following statements is TRUE regarding Form W-4, Employee’s Withholding Certificate?

Form W-4 is only used for employees who work part-time and is not required for full-time employees.

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Filing Form W-4 allows employees to adjust their federal income tax withholding based on their anticipated tax liability.

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Form W-4 can only be submitted once a year, even if there are changes in your tax situation during the year

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Employees who do not submit Form W-4 are automatically exempt from federal income tax withholding

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Which of the following statements regarding the Individual Taxpayer Identification Number (ITIN) and its application process via Form W-7 is TRUE?

An ITIN serves as a valid form of identification for obtaining legal work authorization in the United States.

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To apply for an ITIN, individuals must submit Form W-7 along with original or certified copies of their foreign passport or other acceptable identification documents, generally attached to a valid federal income tax return.

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U.S. citizens who do not have a Social Security Number (SSN) are required to apply for an ITIN using Form W-7.

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An ITIN is primarily assigned to U.S. permanent residents who are awaiting their Social Security Number.

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For an individual filing their U.S. federal tax return for Tax Year 2025, which of the following statements about ITIN expiration is TRUE?

An ITIN will expire on December 31, 2025, if it has not been used on a U.S. federal tax return for any of the tax years 2022, 2023, or 2024.

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All ITINs issued before 2025 will expire at the end of Tax Year 2025, regardless of prior use.

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ITINs with middle digits 90-99 (e.g., 9XX-90-XXXX) will automatically expire at the end of Tax Year 2025, regardless of when they were issued.

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An ITIN never expires if the individual has an active U.S. bank account.

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Which of the following statements accurately reflects the 2025 contribution limits for 401(k) and IRA plans, as announced in IRS news release IR-2024-285?

The 401(k) limit increases to $23,000, and the IRA limit remains $6,500.

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The 401(k) limit remains $23,000, and the IRA limit increases to $7,000.

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The 401(k) limit increases to $23,500, and the IRA limit remains $7,000

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The 401(k) limit increases to $23,500, and the IRA limit increases to $7,500.

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For the 2025 tax year, what is the highest marginal income tax rate that applies to an estate or trust?

22%

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24%

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32%

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37%

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Which of the following statements is TRUE about Medical Savings Accounts (MSAs) under Rev. Proc. 2024-40(.29) for taxable years beginning in 2025?

Contributions to an MSA are only allowed for individuals with family coverage under a high-deductible health plan.

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he maximum contribution to an MSA for individual coverage in 2025 is $7,750.

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Individuals aged 55 or older can make catch-up contributions of up to $1,000 to their MSA in addition to the standard contribution limits.

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MSAs offer tax-free withdrawals for all health-related expenses, including health insurance premiums

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What happens to an ITIN that goes unused in conjunction with a federal tax return for three straight years?

On the the 31st of December of the third year in which it is not used, the ITIN expires

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On the the 31st of December of the third year in which it is not used, the ITIN is transferred to a new person

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On the the 31st of December of the third year in which it is not used, the ITIN is automatically renewed for one year

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Nothing; the ITIN can be used indefinitely

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Which of the following statements is incorrect regarding Federally declared disaster area casualty loss deduction?

If you have a net qualified disaster loss, and you are not itemizing, there is no remedy for you to claim the loss

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In 2025, an accidental house fire due to a faulty fireplace (no federal disaster) destroyed your home. You get no casualty loss deduction

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If a loss is insured, you must file a timely claim, even if it will result in the cancellation of your policy or an increase in premiums

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Only Uninsured Disaster Losses Are Deductible

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When an Electronic Return Originator (ERO) receives a reject of an e-filed return and cannot rectify the reason for the rejection, how soon must the ERO take reasonable steps to notify the taxpayer?

Within 8 hours

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Within 12 hours

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Within 24 hours

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Within 48 hours

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Which of the following is not a requirement in Publication 4557?

Safeguarding taxpayer information

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Writing an appropriate plan of how confidential information will be protected

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Assisting the taxpayer with filing Form 14039

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Monitoring EFINs and PTINs

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Robin spent $750 on meals while on a qualifying business trip. She was not reimbursed. Hours-of-service limits do not apply to her deduction for business meals. What is her deduction relating to the $750 for tax year 2025?

$0

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$375

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$600

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$750

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A businessman took a good customer to the opera right after a substantial business discussion. Which of the following statements is true regarding the cost of the opera tickets?

The businessman can deduct one-half of the cost of one of the tickets, but his own ticket is nondeductible.

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The businessman should deduct one-half of the cost of the tickets as entertainment.

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The businessman cannot deduct the cost of the tickets because entertainment expenses are no longer deductible.

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The businessman should deduct the cost of the tickets as a gift.

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According to IRS Publication 463, what specific information is required in a mileage log to substantiate the business use of your vehicle when claiming the standard mileage rate on Schedule C?

The total number of miles driven for the entire year.

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The make and model of your vehicle.

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The date of each trip, the number of miles driven for business, the destination or starting and ending points, and the business purpose of the trip.

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Receipts for all gasoline purchases.

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What is the standard deduction in 2025 for single individuals filing their taxes with two dependents?

$12,550

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$14,600

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$15,000

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$13,850 plus $1,500 for each dependent

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which of the following statements is TRUE regarding the gross income test for claiming someone as a qualifying relative in 2025?

The qualifying relative's gross income must be less than your gross income.

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The qualifying relative's gross income must be $5,200 or more to be claimed as a dependent.

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The qualifying relative's gross income must be less than $5,200 for you to claim them as a dependent.

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The qualifying relative's gross income is irrelevant as long as you provide more than half of their support.

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What might it mean if the IRS has sent a letter indicating that more than one tax return has been filed by one taxpayer?

That taxpayer is entitled to an additional refund.

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It is likely that the IRS has confused the taxpayer's name with someone else's.

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The IRS likely stamped the wrong address on the letter.

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It is a good indication that someone may have had their identity stolen.

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According to IRS Publication 5199, if you suspect you are a victim of tax-related identity theft, why might it be important to check your IRS tax transcript?

To immediately receive your refund.

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To see if a fraudulent return has already been filed using your Social Security number.

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To update your contact information with the IRS.

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To determine the exact amount of taxes you owe.

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According to IRS Publication 5227, what is the minimum number of continuing education hours in Federal Tax Law (excluding updates and ethics) that a tax return preparer typically needs to complete to earn an Annual Filing Season Program Record of Completion?

2 hours

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10 hours

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15 hours

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18 hours

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According to Publication 525, which of the following items typically reported on Form W-2 is generally considered taxable income for the 2025 tax year?

Contributions made by the employee to a qualified 401(k) plan (reported in Box 12 with code D.

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Employer-sponsored health insurance premiums paid on the employee's behalf (not typically a specific box, but reduces Box 1 wages).

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Dependent care benefits provided by the employer (reported in Box 10).

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Wages, salaries, tips, and other compensation (reported in Box 1).

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One must report the social security and Medicare taxes on unreported tips as additional tax on his/her return, if he/she received cash and charge tips in a month from a job, in excess of;

$10

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$20

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$30

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$40

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Contemporaneous written acknowledgment (CWA) required $250 or more requires:

Name of the organization

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Amount of cash contribution

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Description (but not value) of non-cash contribution

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All of the above

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According to the information provided, which of the following statements is TRUE regarding the annual gift tax exclusion in 2025?

Gifts of future interests in property qualify for the annual gift tax exclusion.

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An individual can gift up to $38,000 to one person in 2025 without using any of their lifetime gift tax exemption.

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Gifts exceeding $19,000 to a U.S. citizen in 2025 may require the filing of a gift tax return

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The annual gift tax exclusion for gifts to a non-citizen spouse is the same as for a U.S. citizen.

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According to the key takeaway from Publication 5646, what is a primary characteristic of the annual continuing education requirements for tax return preparers as set by the IRS?

They are optional for all tax return preparers.

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They must be completed by March 15th of each year.

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They include an Annual Federal Tax Refresher (AFTR) course and test for certain non-exempt preparers.

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They are the same number of hours for all categories of tax return preparers.

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Distributions from qualified retirement plans made to a person before he or she reaches 59 ½ are subject to additional tax of:

5%

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10%

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15%

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20%

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According to IRS Publication 5916, which of the following is a stated benefit of using the Direct File Pilot Program?

It automatically maximizes all potential tax deductions for the user.

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It requires users to have extensive tax knowledge to navigate the system

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It offers live, in-person tax preparation assistance at IRS offices.

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It provides a user-friendly, step-by-step guided process for filing federal income tax returns online.

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Which of the following would allow a parent to attach Form 8814 with their return.

The child's has not reached age 19 (under 24 if a full-time student) by the close of the taxable year.

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The child's gross income is less than $13,500

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No estimated tax payments were made for child for the tax year.

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All of the above.

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For an unenrolled tax preparer like Kirby participating in the Annual Filing Season Program (AFSP), consenting to be subject to Circular 230 rules is a crucial step. Which of the following statements about this consent is FALSE?

By consenting, the preparer formally agrees to abide by the IRS's ethical and professional standards for tax practitioners.

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This consent is a mandatory requirement for the preparer to receive their AFSP Record of Completion.

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Consenting to Circular 230 grants the preparer unlimited representation rights before all IRS offices and in federal courts.

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The consent signifies that the preparer's conduct while practicing before the IRS will be subject to the oversight of the Office of Professional Responsibility (OPR).

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What was the primary purpose of the IRS in establishing the Annual Filing Season Program (AFSP) as outlined in Revenue Procedure 2014-42?

To mandate specific continuing education requirements for all tax return preparers, regardless of their credentials.

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To provide a pathway for non-credentialed tax return preparers to enhance their tax law knowledge and gain limited representation rights before the IRS.

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To create a new set of regulations governing the fees that tax return preparers can charge clients.

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To simplify the process for all tax return preparers to obtain a Preparer Tax Identification Number (PTIN).

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For tax year 2025, which IRS form is used to report Social Security benefits, and what is the maximum percentage of these benefits that may be taxable based on your filing status and combined income?

Form W-2; up to 50% taxable

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Form SSA-1099; up to 85% taxable

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Form 1099-INT; up to 100% taxable

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Form 1099-R; up to 25% taxable

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Which of the following best reflects the IRS’s approach under Code Section 183 when determining if an activity is a business or a hobby?

The IRS only considers whether the activity has made a profit in the current year.

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The IRS automatically treats any activity with a loss as a hobby.

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The IRS uses a set of factors to evaluate the taxpayer’s intent to earn a profit.

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The IRS classifies any activity related to a taxpayer's personal interest as a hobby.

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For the 2025 tax year, consider a single individual with a taxable income of $45,000. They sell a stock they held for two years and realize a long-term capital gain of $5,000. What would be the capital gains tax rate applied to this $5,000 gain?

0%

Correct Incorrect Correct answer

15%

Correct Incorrect Correct answer

20%

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The individual's ordinary income tax rate.

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Which of the following statements correctly distinguishes between Form 1099-DIV and Form 1099-B?

Form 1099-DIV reports proceeds from the sale of securities, while Form 1099-B reports dividends and interest income.

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Form 1099-DIV reports dividends and distributions, while Form 1099-B reports proceeds from the sale of securities.

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Form 1099-DIV is issued only for mutual fund investments, while Form 1099-B is issued for stock investments only.

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Form 1099-DIV reports only income from real estate investments, while Form 1099-B is for income from savings accounts.

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A paid tax return preparer prepares a 2025 tax return for a client, claiming a deduction for business expenses that lacks reasonable basis. Due to this, the client’s tax liability is understated. Which of the following statements accurately describes a potential penalty the preparer could face under IRC Section 6695(a) for this understatement on a return filed in 2026?

A penalty of $65.

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A penalty of $650.

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A penalty equal to the amount of the tax understatement.

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The greater of $1,000 or 50% of the income derived (or to be derived) by the preparer with respect to the return.

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A paid tax return preparer completes a 2025 income tax return for a client and delivers it to the client for filing. Which of the following scenarios would constitute a potential violation of IRC Section 6695(b)?

The preparer signs the return using a stamp of their signature instead of a manual signature.

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The preparer provides the client with an electronic copy of the return but fails to also provide a paper copy

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The preparer fails to manually sign the preparer section of the tax return before providing it to the client for filing.

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The preparer includes their PTIN on the return but forgets to include their business address.

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In order to participate in the AFSP for the 2026 filing season, the preparer must complete the Record of Completion requirements by…

Midnight September 15, 2025

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Midnight December 31, 2025

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Midnight December 31, 2026

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Midnight January 1, 2026

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Completion of The Annual Filing Season Program (AFSP) allows tax return preparers to represent clients whose returns they prepared and signed in which of the following categories:

With IRS customer service representatives

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With the Taxpayer Advocate Service

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During initial audits

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All of the Above

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Completion of The Annual Filing Season Program (AFSP) allows tax return preparers to represent clients whose returns they prepared and signed in which of the following categories:

With IRS customer service representatives

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With the Taxpayer Advocate Service

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During initial audits

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All of the Above

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Under what circumstances married but separated spouses can choose to be treated as not married for the purpose of claiming EITC.

They must have a qualifying child living with them for more than half the year

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Do not have the same principal residence as the other spouse for at least the last six months out of the year.

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Are legally separated according to their state law under a written separation agreement or a decree of separate maintenance and not live in the same household as their spouse at the end of the tax year for which the EITC is being claimed. Taxpayers should file Schedule EIC – Form 1040 and check the box showing them as married filing separately with a qualifying child.

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All of the Above

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A dependent who is a qualified child for the purposes of the child tax credit should be which of the following:

Under the age of 17 at the end of the year

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Claimed as a dependent on another tax return

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Lived with the taxpayer for at least 4 months

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Provided more than half of his/her own support for the year

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Betty has three qualifying children and files her federal income tax return as HOH. What is the completed phaseout amount for 2025 to qualify for EITC ?

$50,434

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$61,555

Correct Incorrect Correct answer

$64,430

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$68,675

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All of the following carry value as forms of Earned Income, EXCEPT

wages

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interest on saving

Correct Incorrect Correct answer

business/self-employment income

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nontaxable combat pay

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Which of the following is TRUE regarding Form 1040-ES, Estimated Tax for Individuals?

Form 1040-ES is used by individuals who have no withholding from their wages or other sources of income.

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Form 1040-ES must be filed quarterly regardless of whether the taxpayer owes taxes or not.

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Form 1040-ES can only be used by self-employed individuals to report income.

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Form 1040-ES is only required if you have income from investments, such as interest or dividends.

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Which of the following scenarios correctly describes what is deductible under the Educator Expense Deduction for 2026?

An eligible educator buys a set of exercise mats for use in a health class teaching students how to stretch. These exercise mats are deductible under the Educator Expense Deduction.

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An eligible educator buys educational charts and books on healthy eating and nutrition for use in a health class. These materials are deductible under the Educator Expense Deduction.

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An eligible educator buys dumbbells and treadmills for use in a physical education class. These items are deductible under the Educator Expense Deduction as long as they are used for general fitness instruction.

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An eligible educator buys exercise mats and sporting equipment for a physical education class. These items are deductible under the Educator Expense Deduction as long as they are used for health education.

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Which of the following statements is true regarding IRA contribution limits for 2026?

The contribution limit for Traditional and Roth IRAs in 2026 is $6,000, with no additional catch-up contributions allowed.

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You can contribute up to $7,500 to a Traditional IRA and a Roth IRA combined if you are 50 or older.

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The contribution limit for both Traditional and Roth IRAs combined in 2026 is $6,500, with an additional $1,000 catch-up contribution allowed for individuals aged 50 and older.

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The combined contribution limit for Traditional and Roth IRAs in 2026 is $7,000, and there is no catch-up contribution allowed for people aged 50 or older

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For the 2025 tax year, which of the following scenarios describes alimony payments where the payer would be able to deduct the payments on their federal income tax return?

Payments made under a divorce agreement executed in 2022.

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Payments made under a separation agreement executed in 2019.

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Payments made under a divorce decree executed in 2018 that was modified in 2020 to expressly state the alimony would be non-deductible.

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Payments made under a legal separation agreement executed in 2017 that has not been modified since 2018.

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For the 2025 tax year, if you receive digital assets as income (e.g., from staking rewards, mining activities, or as payment for services rendered), where would this income primarily be reported on your federal income tax return?

Directly on Form 8949, Sales and Other Dispositions of Capital Assets.

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As a non-taxable event, requiring no specific reporting.

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As ordinary income on Schedule 1 (Form 1040), or on Schedule C (Form 1040) if it constitutes business income.

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On a new, dedicated "Digital Asset Income" form, separate from existing schedules.

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What is a net operating loss (NOL)?

When a taxpayer can't pay their taxes due to bankruptcy or insolvency

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When a taxpayer's short-term gains exceed their long-term losses

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When a taxpayer chooses to take a certain deduction rather than add up all of their losses

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When a taxpayer's deductions for the tax year are more than their income

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Which of the following statements is true when taking a deduction for the interest paid on a mortgage debt?

The homeowner's premiums along with the interest is deductible.

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A deduction is taken on 50% of the interest paid.

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Home equity interest is deductible only if the proceeds were used to buy, build or substantially improve your home.

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The interest is not deductible.

Correct Incorrect Correct answer

Which of the following statements is MOST ACCURATE regarding the recordkeeping and documentation requirements for claiming deductions on Schedule A (Form 1040)?

Taxpayers are generally required to keep records supporting their deductions for 1 year after filing, as the IRS typically audits within that timeframe.

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For a cash contribution of $250 or more to a qualified charity, a canceled check alone is sufficient documentation for IRS purposes.

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All documentation, such as receipts and acknowledgments, must be submitted to the IRS along with Schedule A when filing your tax return.

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The primary purpose of keeping records is to substantiate the amount and validity of deductions claimed in case of an IRS audit, and records should include proof of payment, amount, date, payee, and description.

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Which of the following statements is incorrect with respect to a taxpayer itemizing on their 2024 tax return?

Amounts paid for qualified long term services are not deductible medical expenses

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A taxpayer can choose between state income taxes and states sales taxes to deduct as an itemized deduction

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A taxpayer cannot deduct hobby expenses as an itemized deduction

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There is a limitation on the amount a taxpayer can claim as an itemized deduction for state and local taxes

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The $10,000 limit on the amount of deduction for state and local tax is not for which filing status?

married filing jointly status

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single

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head of household

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Married Filing Separately

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Which of the following statements accurately reflects the rules for claiming a casualty loss deduction due to a federally declared disaster for tax years 2018 through 2025?

Only taxpayers who itemize deductions can claim a casualty loss deduction, regardless of the disaster's federal status

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Taxpayers can claim a casualty loss deduction for any personal property loss, even if the event is not a federally declared disaster.

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Taxpayers affected by a federally declared disaster can claim a casualty loss deduction without itemizing deductions, subject to specific conditions

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Casualty loss deductions are only available for business or income-producing property losses, not personal-use property.

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In 2025, a taxpayer has an adjusted gross income (AGI) of $100,000 and makes a $70,000 cash contribution to a qualified public charity. The IRS allows a deduction for cash contributions up to 60% of AGI in a given year. What is the maximum deduction allowed in 2025, and what happens to the excess contribution?

$70,000 is fully deductible in 2025; no carryforward applies.

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$60,000 is deductible in 2025; $10,000 is carried forward for up to 5 years.

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$50,000 is deductible in 2025; $20,000 is carried forward for 3 years.

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$60,000 is deductible in 2025; $10,000 is forfeited.

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Some municipal bonds are considered triple exempt, and are considered interest income, how would the interest be reported on the tax return?

The interest income would be reported as tax-exempt interest on Form 1040, Line 2a.

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The interest would be reported as other income.

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The taxpayer would not report the interest income for 3 year from the received date of 1099-Int

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The interest income would be reported as tax-exempt interest on Form 1040, Line 2a.

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There are certain reporting requirements when an individual engage in foreign accounts or transactions. A taxpayer must complete Schedule B, Part III on Form 1040 if any of the following occurs except:

The taxpayer is over age 65

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The taxpayer had a foreign account

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The taxpayer either received distributions from or granted/transferred funds to a foreign account

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The taxpayer had more than $1,500 of taxable interest or dividends

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Jimmy and Cheryl have foreign financial accounts totaling $12,500 for Tax Year 2025. They live in the United States and file jointly. Which statement about their FBAR and Form 8938 filing requirements is correct?

They must file FBAR because their accounts exceed $10,000, and they must file Form 8938 because their accounts exceed $100,000.

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They must file FBAR but do not have to file Form 8938 because their total foreign assets do not exceed the $100,000 threshold for joint filers living in the U.S.

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They only need to file Form 8938 because it replaces the FBAR filing requirement.

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They do not need to file either FBAR or Form 8938 because they earned no income from their foreign accounts.

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Which of the following is a key element in determining the gross income reported on Schedule C for a sole proprietorship?

The owner's personal living expenses paid from business profits.

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The cost of goods sold (COGS) directly related to the business revenue.

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The amount of self-employment tax paid on the business profits.

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The net profit of the business after deducting all business expenses.

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Under the simplified method of calculating the taxpayer’s deduction for business use of their home, what should be included in that calculation?

square footage of the space regularly and exclusively used for business, childcare, or storage of inventory or product

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wear and tear of furniture in the home due to increased time spent in there for work

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the full amount of mortgage interest, cost of utilities, and home maintenance fees for the building

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a percentage of the cost for meals eaten at home during workdays

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In 2025, Katie, a self-employed consultant, incurred $500 in business meal expenses while taking a client out to discuss a potential project. She also spent $300 on tickets to a sporting event to entertain a different client. Assuming these expenses were properly documented and directly related to her business, what is the total amount Katie can deduct for these expenses on her Schedule C?

$800

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$400

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$250

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650

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There is a presumption that an activity is engaged for profit if the activity…

generates a profit within ten years

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generates a profit in at least 1 out of 3 consecutive years

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generates a profit in at least 3 out of 5 consecutive years.

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has a loss for the 5 consecutive years

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Katie operates a photography business as a sole proprietorship, and she reports her income and expenses on Schedule C. Which of the following statements accurately reflects the IRS’s general record-keeping requirements for her business?

Katie only needs to keep records for expenses that she plans to deduct, not for all income received.

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She must keep all supporting documents, such as receipts, invoices, and bank statements, for a minimum of one year after the tax return due date.

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She should keep records for three years from the date she filed her original return or two years from the date she paid the tax, whichever date is later.

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Electronic records are not sufficient; all original records must be maintained in paper format.

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What is the main difference between Form 8949 and Schedule D?

Form 8949 is filed with a 1120 and Sch D is filed with Form 1040

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Form 8949 is a detailed itemization of gains from sales of capital assets. Schedule D is a summary of all capital gains.

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Schedule D is for short term capital gains

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Form 8949 is for long term gains

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Certain types of student loan forgiveness are tax-free. This includes:

If a student was falsely certified for a loan by the school

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Cancellation due to death or permanent and total disability

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Teachers who meet certain criteria and work in low-income schools for a set period

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All of the above

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Which of these statements about the tax treatment of digital assets is false?

Virtual currency is treated as property and not as currency for federal tax purposes

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A taxpayer who “mines” virtual currency realizes gross income upon receipt

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Virtual currency received by an independent contractor, or an employee constitutes income

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For federal tax purposes, virtual currency is treated as other income.

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All of the following statements are true about IRS Direct File except:

There are no fees to use Direct File

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Direct File started as a pilot program in 12 states.

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Direct File will be available for the 2026 filing season

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Funding for Direct File came from the Inflation Reduction Act

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All of the following statements are true about unemployment compensation, except:

Unemployment is a social insurance designed provide benefits to most individuals out of work

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Unemployment compensation is taxable and reported as income on Schedule 1.

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Recipients have to meet eligibility requirements to qualify.

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Some or all of the benefits may be excluded from income in certain situations

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New IRS 1099K reporting requirements for payment networks like Paypal, Cashapp and Venmo will apply for tax year 2025. Based on the new requirements, which of the following will likely not receive a 1099K?

James who does not have a business uses Paypal to pay for his online orders. He spent $2500 in 2025.

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Frances who has a small sporting goods store and accept payment cards. Orders totaled $6000 in 2025.

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Billy accepts payment cards as a form of payment for his internet auction site, he estimated he received 8000 for payments in 2025

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Tammy, a tax preparer received Paypal payments totaling $3000 for her services in 2025

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All of the following statements are correct regarding ABLE plans except

Beneficiary controls the Fund

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Can have unlimited accounts in the Beneficiary's name

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Limited to only one account per Beneficiary

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Contributions to an ABLE account are not tax deductible.

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How might the information reported on Form 1099-QA, Distributions From ABLE Accounts, be affected by the changes introduced in Section 124 of the SECURE 2.0 Act?

Form 1099-QA will now include a field indicating the beneficiary's age of onset of disability.

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The threshold for issuing Form 1099-QA will increase due to the expanded eligibility for ABLE accounts.

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Starting with distributions made in the 2026 tax year, a potentially larger pool of individuals may receive Form 1099-QA due to the increased age of onset for ABLE account eligibility.

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The format of Form 1099-QA will be significantly revised to reflect the new age limit of 46

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Which of the following expenses is generally considered a qualified education expense for a Section 529 plan?

Monthly rent for an apartment while the beneficiary attends college less than half-time.

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Repayment of a parent's student loans.

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Tuition and fees for enrollment at an eligible university where the beneficiary is a full-time student.

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The cost of a new car for the beneficiary to commute to campus.

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Distributions from qualified retirement plans made to a person before he or she reaches 59½ are subject to additional tax of:

5%

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10%

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15%

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20%

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What is the difference between a pension and annuity? Select one:

Pensions are a savings pot the the guarantor pays into throughout their life; annuities are insurance products that a person buys as a lump sum for income security later in life

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One is a type of retirement plan and the other is related to stocks or bonds

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Pensions are insurance products that a person buys as a lump sum for income security later in life; annuities are a savings pot the the guarantor pays into throughout their life.

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There is no difference; they are synonyms for the same retirement plan

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Regarding Roth IRAs, unless an exception applies, an additional tax of what percent must be paid on the taxable part of any distributions that are not qualified distributions?

50%

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12%

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15%

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10%

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According to the Secure 2.0 Act, Section 109, which of the following statements is true?

The Act changed the RMD age to 73 for persons born in 1960

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There were no significant changes to Roth accounts.

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Section 109 allows those aged 60-63 to make higher catch-up contributions to workplace retirement plans.

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RMDs will revert back to age 72

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Under IRS rules, which of the following situations typically results in a 10% early withdrawal penalty from a Traditional IRA

aking a distribution at age 62 to pay for college tuition.

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Withdrawing funds at age 45 to take a vacation.

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Taking a qualified first-time homebuyer withdrawal of $10,000 at age 35.

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Rolling over funds from one Traditional IRA to another within 60 days.

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According to IRS Publication 5199, what is the main purpose of filing Form 14039, Identity Theft Affidavit, with the IRS?

To request an extension to file your tax return if your identity has been stolen.

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To report to the Social Security Administration that your Social Security number has been compromised.

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To officially notify the IRS that you are a victim of tax-related identity theft and request their assistance.

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To dispute an incorrect tax assessment or penalty you received from the

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Which of the following statements is true regarding IRS Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA?

Form 1099-SA is filed by the taxpayer to report annual contributions to an Archer MSA.

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Distributions reported on Form 1099-SA must be entered on Form 8853 if they are from an Archer MSA.

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Distributions from an Archer MSA are never taxable, so Form 1099-SA is for informational purposes only.

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Form 1099-SA is only used for reporting employer contributions to a Medical Savings Account.

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According to IRS Notice 2025-05, which of the following statements is generally true regarding the choice between using the standard mileage rate and actual expenses for deducting vehicle costs?

Taxpayers must use the actual expense method in the first year a vehicle is used for business and can switch to the standard mileage rate in later years.

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If a taxpayer leases a vehicle and uses the actual expense method, they can switch to the standard mileage rate at any lease renewal.

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Employees can claim a miscellaneous itemized deduction for unreimbursed vehicle expenses incurred for their employer.

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If the standard mileage rate is chosen in the first year a vehicle is used for business, the taxpayer can choose between the standard rate and actual expenses in subsequent years.

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Which of the following moving expenses can members of the Armed Forces deduct?

Movement of one's household goods and personal effects to the place of enlistment

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Packing, crating and shipping of household goods

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Travel and lodging to the new location

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All of the above

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Luz worked as a server in a restaurant throughout the 2025 tax year. She received $5,000 in cash tips from customers but did not report $1,500 of these tips to her employer. When Luz files her 2025 tax return, which of the following will be the primary purpose of Form 4137 regarding these unreported tips?

To claim a tax credit for the Social Security and Medicare taxes she paid on the reported tips.

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To report the full $5,000 in cash tips she received to the IRS.

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To calculate and pay the Social Security and Medicare taxes owed on the $1,500 in unreported tips.

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To request an extension of time to report her tip income to her employer.

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A taxpayer purchased a computer in 2025 and used it 35% for business. May she take a Section 179 deduction for 35% of the cost of the computer?

Yes, because it is used in a business.

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No, because no Section 179 is allowed if business use is less than 50%

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No, because the computer was purchased in 2024

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Yes, because property is always depreciable.

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Katie purchased a new Honda CRX (GVWR 6,000 lbs or less) for her business in 2025. Assuming she continues to use it for business purposes and has not fully depreciated it by the fourth tax year, what is the maximum amount she can deduct for depreciation for this vehicle in each succeeding tax year (i.e., the fourth year and beyond) for tax year 2025, according to IRS limits?

$19,600

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$11,800

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$7,060

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$6,960

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What are the benefits of rental property depreciation?

Depreciation can lower the annual tax liability for a rental owner

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A landlord can take advantage of tax deductions based on any renovations or repairs to help offset annual expenses

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Depreciation can be subtracted from your taxable income every year.

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All of the above

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Which of the following statements is false concerning depreciation on your rental properties?

You must have full ownership of the property.

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The property does not generate some form of income for you

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Your property must have a useful life value which is value that decreases over time

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The property must have a useful lifespan of at least one year or more.

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A small business owner in Mississippi purchases and places into service a new piece of qualifying equipment costing $1,000,000 during Tax Year 2025. Their total qualifying equipment purchases for the year do not exceed the phase-out threshold. What is the maximum amount this business owner can deduct under Section 179 for this equipment in 2025?

600,000

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$1,000,000

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$1,250,000

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$3,130,000

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If a taxpayer needs more time to file their tax return, they may file for an extension, which will typically extend the due date of the return to …

July 15

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June 15

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September 15

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October 15

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Which of the following is TRUE regarding the use of IRS Form 4868?

It provides an automatic extension to pay any tax due with your return.

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It automatically grants an extension for both filing and paying your taxes for up to 6 months.

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It only extends the filing deadline for 90 days and does not affect your payment deadline.

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Filing Form 4868 grants an automatic extension to file but does not extend the deadline for paying taxes owed.

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For the 2025 tax year, which of the following actions related to an IRA could potentially trigger the need to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts?

Making a timely, deductible contribution to a Traditional IRA.

Correct Incorrect Correct answer

Receiving a required minimum distribution (RMD) from a Traditional IRA.

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Failing to withdraw the required minimum distribution (RMD) from a Traditional IRA by the deadline.

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Rolling over funds from one Traditional IRA to another Traditional IRA within 60 days.

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According to Section 109 of the SECURE 2.0 Act, for the 2025 tax year, the increased catch-up contribution limit for eligible participants aged 60 through 63 in employer-sponsored retirement plans is calculated as the greater of $10,000 or:

50% of the regular catch-up contribution limit for those age 50 and over.

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100% of the regular catch-up contribution limit for those age 50 and over.

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150% of the regular catch-up contribution limit for those age 50 and over.

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Two times the regular catch-up contribution limit for those age 50 and over.

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Which of the following expenditures would be reported on Part I of IRS Form 5695 for the 2025 tax year?

Replacement of exterior doors with ENERGY STAR-rated models

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Installation of a geothermal heat pump system

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Air sealing insulation in an existing home

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Home energy audit by a certified contractor

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Taxpayers who benefit from law’s special treatment to some kinds of incomes and special deductions and credits to certain expenses may have to pay an additional tax which is known as:

Minimum Additional Tax.

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Alternative Minimum Tax

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Special Additional Tax

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Special Alternative Tax

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As it pertains to the alternative minimum tax (AMT) in 2025, $88,100 is the amount of which of the following? Select one:

the exemption limit on certain tax benefits for Unmarried Individuals filers with high income

Correct Incorrect Correct answer

the full phaseout threshold for single filers

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the max AGI a taxpayer can have if they want to claim the AMT

Correct Incorrect Correct answer

the initial phaseout threshold for joint filers

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For tax year 2025, a child to whom the “kiddie tax” applies has earned income of $1,500. According to Rev. Proc. 2024-40, Section .02, subsection .12, what is the maximum Alternative Minimum Tax (AMT) exemption amount this child can claim?

$88,100

Correct Incorrect Correct answer

$1,500

Correct Incorrect Correct answer

$9,550

Correct Incorrect Correct answer

$11,050

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For the estate of a decedent dying in calendar year 2025, what is the basic exclusion amount used to determine the unified credit against estate tax under § 2010?

$12,920,000

Correct Incorrect Correct answer

$13,610,000

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$13,990,000

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$14,250,000

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In calendar year 2025, what is the annual gift tax exclusion for gifts made to a United States citizen, as specified in Rev. Proc. 2024-40(.43)?

$13.99 million

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$190,000

Correct Incorrect Correct answer

19,000

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There is no annual gift tax exclusion

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In order for a charitable contribution to be deductible, it must be made to:

Registered organizations

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Qualified tax exempt organizations

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Federal Organizations

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State Organizations

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An individual is required to file 15 Forms 1099-NEC for the 2025 tax year. Due to a lack of reliable internet access in their rural location, they wish to file these returns on paper. What is the appropriate action they should take to potentially be excused from the electronic filing requirement?

Simply file the Forms 1099-NEC on paper by the due date.

Correct Incorrect Correct answer

File Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, to get more time to figure out electronic filing.

Correct Incorrect Correct answer

File Form 8508, Application for a Waiver from Electronic Filing of Information Returns, explaining their hardship.

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Contact the IRS Small Business/Self-Employed division by phone to request a verbal waiver.

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Taxpayer Stanford had their Earned Income Credit (EIC) disallowed by the IRS in a previous year. If Stanford believes they are now eligible for the EIC for the current tax year, what IRS form will Stanford likely need to file with their tax return to claim the credit?

Form 1040-X, Amended U.S. Individual Income Tax Return

Correct Incorrect Correct answer

Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return

Correct Incorrect Correct answer

Form 8862, Information To Claim Certain Credits After Disallowance

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Schedule EIC (Form 1040), Earned Income Credit

Correct Incorrect Correct answer

Due diligence requirements for preparers include:

Completing form 8867 if they feel the taxpayer is providing inadequate, incomplete or inconsistent information

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Completing all five parts of the 8867 with information provided by the taxpayer and the Eligibility Certification.

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Assume answers on the 8867 or follow the default answers in the software

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Not asking additional questions because of privacy laws

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A paid tax return preparer is preparing a tax return for a client who is claiming the Earned Income Tax Credit (EITC). Which of the following actions, if performed by the preparer, would violate the due diligence requirements under Treasury Regulation §1.6695-2?

Completing Form 8867, Paid Preparer's Due Diligence Checklist, based solely on the information provided by the client without further inquiry, even though some information appears inconsistent.

Correct Incorrect Correct answer

Retaining a copy of the client's tax return and Form W-2.

Correct Incorrect Correct answer

Asking the client for documentation to support their qualifying child for the EITC and retaining copies of that documentation.

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Having a general understanding of the eligibility rules for the Earned Income Tax Credit.

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For what primary purpose is Form 8878, IRS e-file Signature Authorization for Form 4868 or Form 2350, used?

To authorize a tax preparer to receive a taxpayer's refund directly.

Correct Incorrect Correct answer

To allow a taxpayer to pay their estimated taxes electronically.

Correct Incorrect Correct answer

To authorize an Electronic Return Originator (ERO) to electronically file an application for an extension of time to file an individual income tax return (Form 4868 or Form 2350) on the taxpayer's behalf.

Correct Incorrect Correct answer

To request a change of address with the IRS.

Correct Incorrect Correct answer

Individuals may qualify for a Clean Vehicle Credit for tax year 2025. Which of the following individuals would most likely qualify for the new Clean Vehicle Credit for a vehicle purchased and placed in service in 2025?

Jennifer, who is single with a modified adjusted gross income (MAGI) of $160,000, purchased a new electric SUV with an MSRP of $75,000 that was assembled in North America.

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David, who is married filing jointly with a MAGI of $280,000, purchased a new electric sedan with an MSRP of $60,000 that was assembled in Europe.

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Stephanie, who is a head of household with a MAGI of $200,000, purchased a new electric pickup truck with an MSRP of $78,000 that was assembled in North America and meets all battery sourcing requirements.

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Robert, who is single with a MAGI of $140,000, purchased a new electric van with an MSRP of $85,000 that was assembled in North America.

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According to IRC Section 30D(g), which of the following is a requirement for a taxpayer purchasing a new clean vehicle to elect to transfer the clean vehicle credit to the dealer?

he taxpayer must have a modified adjusted gross income (AGI) below a certain threshold.

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The dealer must be a manufacturer of the clean vehicle.

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The taxpayer must explicitly agree to transfer the credit to the dealer at the time of sale.

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The vehicle's final assembly must have occurred outside of North America.

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Which of the following accurately describes the impact of the Inflation Reduction Act on the Premium Tax Credit (PTC) through 2025, specifically regarding the income cap?

The income cap of 400% of the federal poverty line remains in place, limiting PTC eligibility.

Correct Incorrect Correct answer

While the income cap has been removed, the benchmark plan cost cannot exceed 8.5% of any individual's income for PTC eligibility.

Correct Incorrect Correct answer

With no income cap, higher-income individuals may now qualify for the PTC if the benchmark health insurance plan's cost is more than 8.5% of their income.

Correct Incorrect Correct answer

The Inflation Reduction Act eliminated the PTC for individuals with incomes above 400% of the federal poverty line.

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For the 2025 tax year, a single individual named Bruce operates a qualifying sole proprietorship and has a taxable income of $150,000 (before the QBI deduction). His business meets all the general QBI requirements, and he has no aggregated businesses, prior-year disallowed losses, or other complex QBI situations. Which form should Bruce primarily use to calculate and claim his Qualified Business Income (QBI) deduction?

Form 1040, Schedule C.

Correct Incorrect Correct answer

Form 8995-A, Qualified Business Income Deduction.

Correct Incorrect Correct answer

Form 8995, Qualified Business Income Deduction Simplified Computation.

Correct Incorrect Correct answer

Form 1040, Schedule 1.

Correct Incorrect Correct answer

In case of any failure relating to a return or claim for refund filed in 2026, the penalty amount under §6695, what is the penalty amount for failure to exercise due diligence?

$60

Correct Incorrect Correct answer

$650 per failure

Correct Incorrect Correct answer

$600 per failure

Correct Incorrect Correct answer

a percentage of the refund

Correct Incorrect Correct answer

Under Internal Revenue Code 6695, there are several requirements relating to the tax preparers treatment of every tax return they prepare. Upon violation of any item under IRC 6695, penalties are assessed to the tax preparer. Which of the following is not a violation of IRC 6695

Failure to furnish a copy of the tax return to the taxpayer

Correct Incorrect Correct answer

Failure to sign the tax return

Correct Incorrect Correct answer

Failure to file correct information of a tax return

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All of the above are violations of IRC 6695.

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Based on IRS Revenue Procedure 2024-40, concerning the 2025 tax year, what would be the tax liability for Susan if she files as Head of Household with a taxable income greater than $17,000 but not exceeding $64,850?

$1,700.00 plus 12% of the excess over $17,000

Correct Incorrect Correct answer

10% of the taxable income

Correct Incorrect Correct answer

12% of the taxable income

Correct Incorrect Correct answer

$14,200

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Which of the following statements is TRUE regarding the Qualified Transportation Fringe Benefit under Rev. Proc. 2024-40(.17)?

Employers can provide tax-free transportation benefits for parking, transit passes, and bicycle commuting, up to a total of $200 per month for 2025.

Correct Incorrect Correct answer

Employers are required to provide transportation benefits to employees, but only for public transit expenses.

Correct Incorrect Correct answer

The maximum exclusion for qualified transportation fringe benefits in 2025 is $300 per month for parking, $200 per month for transit passes, and $150 per month for bicycle commuting

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Qualified transportation fringe benefits are fully taxable to employees and must be reported as wages

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Which of the following does an ITIN do?

Qualifies a dependent for Earned Income Tax Credit purposes

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Authorizes an individual to work in the U.S.

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Provides an efficient way for a taxpayer without an SSN to file their taxes

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Grants a taxpayer social security benefit

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What must happen before an Electronic Return Originator (ERO) originates the electronic submission of the return?

Complete a personal information usage request from that has been signed by the taxpayer

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Complete a signature authorization form (8879) that has been signed by the taxpayer

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Complete an ERO authorization form that has been signed by the taxpayer

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Complete an ERO agency form that has been signed by the taxpayer

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Which statement is not correct regarding Safeguarding Taxpayer Information

Use Security Software (Anti-virus,Anti-spyware,Firewall,Drive Encryption such as Bitlocker)

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Protect Stored Client Data (password protect files)

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Recognize Phishing Scams (Do not click link in email. You may easily 'hover' the mouse cursor over the link where the actual destination of link is displayed.

Correct Incorrect Correct answer

Store records in a room or cabinet that is not locked when unattended.

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According to Publication 4557, which of the following is generally a requirement for a small business that hires employees?

They are exempt from paying any employment taxes for the first year.

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They need to obtain an Employer Identification Number (EIN) from the IRS.

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They only need to report wages paid if they exceed $10,000 per employee annually.

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They can choose whether or not to withhold federal income tax from their employees' wages.

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For the 2025 tax year, Mark and Kit are married. Mark files his tax return separately from Kit. If Kit chooses to itemize her deductions, what is Mark required to do regarding his own deductions?

Mark can still choose to take the standard deduction.

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Mark is also required to itemize his deductions, even if his standard deduction would be higher.

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Mark can file as "Married Filing Separately" and claim half of Kit's itemized deductions.

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Mark can file as "Single" to avoid this rule.

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In 2025, your widowed mother lived with you for the entire year. Her gross income for the year was $5,300, consisting entirely of taxable interest. You provided 75% of her total support. Which filing status could you potentially use, and could you claim your mother as a dependent?

You could file as Head of Household, and you can claim your mother as a dependent.

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You could file as Single, and you cannot claim your mother as a dependent.

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You could file as Head of Household, and you cannot claim your mother as a dependent.

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You must file as Single, and you can claim your mother as a dependent.

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One must report the social security and Medicare taxes on unreported tips as additional tax on his/her return, if he/she received cash and charge tips in a month from a job, in excess of:

$10

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$20

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$30

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$40

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How should employees in a service industry position keep track of their tip income?

Writing information about tips in a tip diary

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employees in the service industry don't have to report their tips

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tip income is exempt from taxation

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by expecting their employer to provide them with a final tally on their W-2

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Which of the following types of income is nontaxable?

Severance pay

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Federal tax refunds

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Military pay

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Sick pay

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A written acknowledgment of contribution has to be obtained by the donor from the qualified organization for claiming deduction:

On a single contribution exceeding $250

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On multiple contributions, exceeding $250 in total

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On a single contribution exceeding $500

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A taxpayer claiming a charitable donation deduction of $250 or more is also required to obtain and maintain record of a contemporaneous written acknowledgment for a charitable contribution.

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According to IRS Publication 590-A, which of the following is a requirement to be eligible to contribute to a Traditional IRA for the 2025 tax year?

You must be under age 70½ by the end of the year.

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Your modified adjusted gross income (MAGI) must be below a certain threshold, regardless of whether you are covered by a retirement plan at work.

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You (or your spouse, if married) must not be covered by a retirement plan at work.

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You must have taxable compensation during the year.

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Certain tax professionals are exempt from taking the AFTR exam if they choose to participate in the AFSP. Who is exempt from the Consent to Adhere to Circular 230?

RTRP completed tax professionals

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Enrolled Agents

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CPAs

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None of the above

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For the 2025 tax year, Melissa received a Form SSA-1099 showing $18,000 in Social Security benefits (Box 5). When preparing her federal income tax return, what is the primary purpose of this form for Melissa?

To determine the exact amount of Social Security taxes she paid during her working years.

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To report the total amount of Social Security benefits she received so the IRS can determine how much, if any, is taxable.

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To claim an exemption from federal income tax on her Social Security benefits.

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To calculate the amount of Medicare premiums that will be deducted from her future Social Security payments.

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Final Exam – Annual Federal Tax Refresher#2

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