Annual Federal Tax Refresher (AFTR) — Questions and Answers

Question 1: The Additional Medicare Tax of 0.9% applies to wages and self-employment income that exceeds what threshold for single filers?

$400,000
$250,000
$125,000
$200,000 (Correct answer)

Correct answer: $200,000

The 0.9% Additional Medicare Tax applies to wages, RRTA compensation, and self-employment income exceeding $200,000 for single filers ($250,000 for MFJ).

Question 2: Which taxpayers are generally required to make estimated tax payments?

Taxpayers with self-employment income only
Taxpayers whose AGI exceeds $100,000
Taxpayers who expect to owe at least $1,000 in tax after subtracting withholding and credits (Correct answer)
Anyone who files a federal return

Correct answer: Taxpayers who expect to owe at least $1,000 in tax after subtracting withholding and credits

Individuals must generally make estimated tax payments if they expect to owe at least $1,000 in tax after withholding and refundable credits.

Question 3: What is the catch-up contribution amount allowed for traditional or Roth IRA contributions for taxpayers age 50 and older in 2024?

$500
$1,000 (Correct answer)
$1,500
$3,000

Correct answer: $1,000

Taxpayers age 50 and older can contribute an additional $1,000 catch-up amount, bringing the 2024 IRA limit to $8,000.

Question 4: How should risk be assessed in regulatory compliance?

Risk assessment is only needed for retirees
Evaluate risk tolerance, capacity, time horizon, and investment objectives systematically (Correct answer)
Ignore risk for aggressive growth
Use a one-size-fits-all risk profile

Correct answer: Evaluate risk tolerance, capacity, time horizon, and investment objectives systematically

Comprehensive risk assessment considers tolerance, capacity, time horizon, and objectives to create appropriate strategies.

Question 5: How should risk be assessed in tax strategies?

Use a one-size-fits-all risk profile
Risk assessment is only needed for retirees
Ignore risk for aggressive growth
Evaluate risk tolerance, capacity, time horizon, and investment objectives systematically (Correct answer)

Correct answer: Evaluate risk tolerance, capacity, time horizon, and investment objectives systematically

Comprehensive risk assessment considers tolerance, capacity, time horizon, and objectives to create appropriate strategies.

Question 6: Which of the following forms is used to report income earned as an employee?

Schedule C
Form 1098
Form 1099-NEC
Form W-2 (Correct answer)

Correct answer: Form W-2

Form W-2, also known as the "Wage and Tax Statement," is specifically used to report income earned as an employee. Employers are required to issue this form to their employees, detailing their annual wages, salary, and other compensation, along with the federal, state, and local taxes withheld. This form is crucial for employees to accurately prepare and file their income tax returns.

Question 7: A sole proprietor reports business income and expenses on which schedule attached to Form 1040?

Schedule E
Schedule A
Schedule C (Correct answer)
Schedule B

Correct answer: Schedule C

Schedule C, Profit or Loss from Business, is used by sole proprietors to report gross income, deductible business expenses, and net profit or loss.

Question 8: What fiduciary duty applies to portfolio management?

Recommend the most expensive products
Maximize the advisor's commission
Follow the firm's sales targets above all
Act in the client's best interest with loyalty, care, and full disclosure (Correct answer)

Correct answer: Act in the client's best interest with loyalty, care, and full disclosure

Fiduciary duty requires acting in the client's best interest with loyalty, care, and full disclosure of all material facts.

Question 9: When a business sells depreciable property used in a trade or business at a gain, the gain is reported on:

Form 4797, Sales of Business Property (Correct answer)
Form 8949
Schedule C as ordinary income
Schedule D as a capital gain only

Correct answer: Form 4797, Sales of Business Property

Gains and losses from the sale of business property, including recaptured depreciation, are reported on Form 4797, which then flows to Form 1040.

Question 10: What is the purpose of the standard deduction?

To claim dependents
To eliminate the need for itemized deductions
To increase taxable income
To reduce the amount of income subject to tax (Correct answer)

Correct answer: To reduce the amount of income subject to tax

The standard deduction is a fixed dollar amount that taxpayers can subtract from their adjusted gross income (AGI) to reduce their taxable income. Its purpose is to provide a simplified way for taxpayers to lower their tax burden without having to itemize individual deductions like mortgage interest or charitable contributions. Taxpayers choose between the standard deduction and itemized deductions, opting for whichever provides a greater tax benefit.

Question 11: Which form is used by individuals to pay estimated federal income taxes?

Form 1040-ES (Correct answer)
Form 2210
Form W-4P
Form 1040-V

Correct answer: Form 1040-ES

Form 1040-ES, Estimated Tax for Individuals, is used to calculate and pay quarterly estimated taxes.

Question 12: What continuing education requirement supports investment analysis competence?

Initial licensure is sufficient
Education is only needed when seeking promotion
Read financial news occasionally
Ongoing education in regulatory changes, market developments, and best practices (Correct answer)

Correct answer: Ongoing education in regulatory changes, market developments, and best practices

Financial markets, regulations, and best practices evolve constantly, requiring ongoing education for competent practice.

Question 13: A partnership reports its income, deductions, and credits to partners using which form?

Form 1065 with Schedule K-1 (Correct answer)
Form 1120-S with Schedule K-1
Form W-2
Form 1041 with Schedule K-1

Correct answer: Form 1065 with Schedule K-1

Partnerships file Form 1065 as an informational return and issue Schedule K-1 to each partner showing their distributive share of income, deductions, and credits.

Question 14: What fiduciary duty applies to risk assessment?

Recommend the most expensive products
Act in the client's best interest with loyalty, care, and full disclosure (Correct answer)
Follow the firm's sales targets above all
Maximize the advisor's commission

Correct answer: Act in the client's best interest with loyalty, care, and full disclosure

Fiduciary duty requires acting in the client's best interest with loyalty, care, and full disclosure of all material facts.

Question 15: A taxpayer who cannot pay their full tax bill by April 15 should:

File for an automatic extension which also extends the payment deadline
Request an abatement before filing
Wait for an IRS notice before paying
File the return and pay as much as possible to minimize penalties and interest (Correct answer)

Correct answer: File the return and pay as much as possible to minimize penalties and interest

Filing the return and paying as much as possible reduces both the failure-to-pay penalty and accruing interest, since an extension to file does not extend the time to pay.

Question 16: What fiduciary duty applies to regulatory compliance?

Recommend the most expensive products
Act in the client's best interest with loyalty, care, and full disclosure (Correct answer)
Maximize the advisor's commission
Follow the firm's sales targets above all

Correct answer: Act in the client's best interest with loyalty, care, and full disclosure

Fiduciary duty requires acting in the client's best interest with loyalty, care, and full disclosure of all material facts.

Question 17: When are estimated tax payments generally due for calendar-year individuals?

March 31, June 30, September 30, December 31
April 15, July 15, October 15, December 15
January 15, April 15, July 15, October 15
April 15, June 15, September 15, January 15 (Correct answer)

Correct answer: April 15, June 15, September 15, January 15

The four estimated tax due dates for calendar-year taxpayers are April 15, June 15, September 15, and January 15 of the following year.

Question 18: A taxpayer who uses part of their home exclusively and regularly for business may be able to deduct home office expenses using which form?

Form 4562
Schedule E
Form 2106
Form 8829 (Correct answer)

Correct answer: Form 8829

Form 8829, Expenses for Business Use of Your Home, is used to calculate and claim home office deductions for self-employed taxpayers using the regular method.

Question 19: How should conflicts of interest be managed in tax strategies?

Identify, disclose, and mitigate all actual and potential conflicts of interest (Correct answer)
Self-assessment of conflicts is sufficient
Conflicts are unavoidable and need not be disclosed
Conflicts only matter in large transactions

Correct answer: Identify, disclose, and mitigate all actual and potential conflicts of interest

All actual and potential conflicts of interest must be identified, disclosed to clients, and mitigated to maintain trust and compliance.

Question 20: How should client relations performance be reported to clients?

Reporting is only required annually
Only report positive results
Provide accurate, complete, and timely performance reporting with appropriate benchmarks (Correct answer)
Let clients check their own accounts

Correct answer: Provide accurate, complete, and timely performance reporting with appropriate benchmarks

Accurate, complete, and timely reporting with appropriate benchmarks enables informed decision-making by clients.

Question 21: Which of the following is considered taxable income?

Unemployment compensation (Correct answer)
Life insurance proceeds
Child support payments
Gifts received

Correct answer: Unemployment compensation

Unemployment compensation, which includes benefits paid to individuals who have lost their jobs, is generally considered taxable income by the IRS. While some forms of income like child support or life insurance proceeds are typically non-taxable, unemployment benefits are included in gross income and must be reported on a federal income tax return. This helps fund future unemployment programs and contributes to federal revenue.

Question 22: At what age must required minimum distributions (RMDs) generally begin under SECURE 2.0 Act provisions effective in 2023?

70½
72
73 (Correct answer)
75

Correct answer: 73

SECURE 2.0 raised the RMD starting age to 73 for individuals who reach age 72 after December 31, 2022.

Question 23: How should tips received by an employee be reported?

Tips do not need to be reported
All tips must be reported as income (Correct answer)
Only cash tips must be reported
Tips are reported only if they exceed $500

Correct answer: All tips must be reported as income

The IRS considers all tips received by an employee as taxable income, regardless of whether they are cash, non-cash, or received through electronic payment. Employees are legally required to report all tips to their employer, who then includes these amounts in the employee's wages for tax withholding purposes. Failing to report tips can lead to penalties and underpayment of taxes.

Question 24: A retiree receiving pension income with no withholding should:

Submit Form W-4P to request voluntary withholding from the pension (Correct answer)
Use Form 941 to remit withholding monthly
File only at year-end and pay any balance due
Request a filing extension automatically

Correct answer: Submit Form W-4P to request voluntary withholding from the pension

Form W-4P allows pension and annuity recipients to elect voluntary federal income tax withholding from their periodic payments.

Question 25: A net operating loss (NOL) generated in tax years after 2017 can generally be carried:

Back 5 years only with no carryforward
Forward indefinitely, limited to 80% of taxable income (Correct answer)
Forward 10 years with no limitation
Back 2 years and forward 20 years

Correct answer: Forward indefinitely, limited to 80% of taxable income

Under the TCJA, NOLs arising after 2017 can no longer be carried back (with limited exceptions) but may be carried forward indefinitely, limited to 80% of taxable income in the carryforward year.

Question 26: How should risk be assessed in investment analysis?

Risk assessment is only needed for retirees
Use a one-size-fits-all risk profile
Evaluate risk tolerance, capacity, time horizon, and investment objectives systematically (Correct answer)
Ignore risk for aggressive growth

Correct answer: Evaluate risk tolerance, capacity, time horizon, and investment objectives systematically

Comprehensive risk assessment considers tolerance, capacity, time horizon, and objectives to create appropriate strategies.

Question 27: What regulatory compliance requirement applies to portfolio management?

Regulations are optional for small practices
Full compliance with all applicable federal, state, and industry regulations (Correct answer)
Self-regulation is sufficient
Compliance is only needed for publicly traded companies

Correct answer: Full compliance with all applicable federal, state, and industry regulations

Full regulatory compliance is mandatory regardless of practice size, ensuring market integrity and client protection.

Question 28: How should portfolio management performance be reported to clients?

Only report positive results
Let clients check their own accounts
Reporting is only required annually
Provide accurate, complete, and timely performance reporting with appropriate benchmarks (Correct answer)

Correct answer: Provide accurate, complete, and timely performance reporting with appropriate benchmarks

Accurate, complete, and timely reporting with appropriate benchmarks enables informed decision-making by clients.

Question 29: What fiduciary duty applies to investment analysis?

Act in the client's best interest with loyalty, care, and full disclosure (Correct answer)
Recommend the most expensive products
Maximize the advisor's commission
Follow the firm's sales targets above all

Correct answer: Act in the client's best interest with loyalty, care, and full disclosure

Fiduciary duty requires acting in the client's best interest with loyalty, care, and full disclosure of all material facts.

Question 30: Which form does an employee complete to tell their employer how much federal income tax to withhold?

Form 941
Form W-4 (Correct answer)
Form W-2
Form 1099-W

Correct answer: Form W-4

Form W-4, Employee's Withholding Certificate, is submitted to the employer to designate withholding allowances and any additional withholding amounts.

Annual Federal Tax Refresher (AFTR)

The AFTR is a 6-credit IRS-approved course and comprehension test required for non-credentialed tax preparers to earn the Annual Filing Season Program (AFSP) record of completion. It tests knowledge of current tax law updates, general tax preparation topics, and professional standards.

100

Questions

180 min

Time Limit

70%

To Pass

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Exam Rules

You can skip questions and return to them later
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No feedback shown until you submit the entire exam
Unanswered questions count as wrong — answer everything
10 pretest questions are mixed in and don't affect your score
Timer auto-submits when time runs out
Your progress is auto-saved every 30 seconds

These practice questions were written with AI tools. They are not real exam questions. Exam facts are checked against the official sources listed below. Not reviewed by a subject-matter expert. Editorial policy

Sources & references

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irs.gov — Test delivery, eligibility, fees, score validity, exam format, registration deadline, retake policy, time limit, score release, test dates · verified Oct 2026