CTP Tax Preparation & Filing 5

Question 1

A taxpayer has $15,000 of net capital losses in the current year. How much can they deduct against ordinary income, and what happens to the remainder?

Accepted Answer

$3,000 is deductible against ordinary income; $12,000 carries forward indefinitely

Answer

Capital losses can offset capital gains fully, but net capital losses deductible against ordinary income are capped at $3,000 per year; the rest carries forward indefinitely.

Question 2

What is the 'constructive receipt' doctrine and how does it affect cash-basis taxpayers?

Accepted Answer

Income is taxable when it is made available to the taxpayer without restriction, even if not yet physically received

Answer

Under constructive receipt, a cash-basis taxpayer must include income when it is credited to their account or made available without restriction, even if not physically received.

Question 3

A taxpayer who is blind AND age 65 or older files as Single. How many additional standard deduction amounts do they receive for 2023?

Accepted Answer

Two additional amounts

Answer

For 2023, each condition (age 65+ and blindness) adds a separate additional standard deduction amount, so a single taxpayer who qualifies for both receives two additional amounts.

Question 4

Which IRS notice typically indicates the first formal step in a tax audit by correspondence?

Accepted Answer

CP2000 — Underreporter Notice

Answer

A CP2000 notice is issued when income reported to the IRS by third parties does not match what was reported on the return, initiating a correspondence audit process.

Question 5

A taxpayer pays $12,000 in qualified mortgage interest and $6,000 in state and local taxes. The standard deduction for Single is $13,850. Should they itemize?

Accepted Answer

Yes — itemized deductions of $18,000 exceed the standard deduction

Answer

Combined itemized deductions of $18,000 ($12,000 mortgage interest + $6,000 SALT, within the $10,000 SALT cap) exceed the $13,850 standard deduction, so itemizing saves more tax.

(CTP) Certified Tax Professional Practice Test

(CTP) Certified Tax Professional Practice Test

CTP Tax Preparation & Filing 5