Tax Consulting Registered Tax Return Preparer 3 — Questions and Answers
Question 1: A taxpayer is 67 and single. How does age affect the standard deduction?
- They qualify for an additional standard deduction amount (Correct answer)
- The standard deduction is eliminated
- They must itemize
- Age has no effect on deductions
Correct answer: They qualify for an additional standard deduction amount
Taxpayers 65 or older receive an additional standard deduction amount.
Question 2: Which schedule reports capital gains and losses from selling stocks?
- Schedule D (Correct answer)
- Schedule C
- Schedule B
- Schedule SE
Correct answer: Schedule D
Schedule D is used to report capital gains and losses from the sale of investments.
Question 3: What distinguishes a tax credit from a tax deduction?
- A credit reduces tax dollar-for-dollar; a deduction reduces taxable income (Correct answer)
- Both reduce tax equally
- A deduction reduces tax dollar-for-dollar
- A credit only applies to businesses
Correct answer: A credit reduces tax dollar-for-dollar; a deduction reduces taxable income
Credits directly reduce tax owed, while deductions reduce the income subject to tax.
Question 4: A dependent must generally meet which key test relating to support?
- The dependent must not have provided more than half of their own support (Correct answer)
- The dependent must earn over $50,000
- The dependent must be over 24
- The dependent must file jointly
Correct answer: The dependent must not have provided more than half of their own support
A qualifying child generally cannot have provided more than half of their own support.
Question 5: Interest income of $1,800 from a savings account is reported on which schedule when over the threshold?
- Schedule B (Correct answer)
- Schedule A
- Schedule C
- Schedule F
Correct answer: Schedule B
Schedule B reports interest and ordinary dividends exceeding $1,500.
Question 6: Which penalty can the IRS assess a preparer for understating tax due to an unreasonable position?
- A penalty under IRC §6694 (Correct answer)
- A trust fund recovery penalty
- An accuracy-related penalty on the client only
- No penalty applies to preparers
Correct answer: A penalty under IRC §6694
IRC §6694 imposes penalties on preparers for understatements due to unreasonable positions.
Question 7: When must a paid preparer sign a return and include their PTIN?
- On every return they prepare for compensation (Correct answer)
- Only on returns over $1 million income
- Only when e-filing
- Only if the client requests it
Correct answer: On every return they prepare for compensation
Paid preparers must sign and include their PTIN on all returns they prepare for compensation.
Tax Consulting Registered Tax Return Preparer 3
A taxpayer is 67 and single.
How does age affect the standard deduction?