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Advanced Course Scenarios and Test Questions | Complete Solution
Tracy is 40 years old, single, and a U.S. citizen with a valid Social Security number. She has a filing requirement.
• Tracy tells you she has chosen not to claim her son, Chris, as a dependent so he can get a higher refund.
• During the interview with Tracy, you determine the following facts:
• Tracy’s son Chris, age 19, is unmarried and was a full-time student during 2016.
• Chris’ income was $6,500 in wages. He does not provide more than half his own support.
• Chris lived with Tracy all year.
• Chris is a U.S. citizen with a valid Social Security number.
1. Chris can claim his own personal exemption since his mother has decided not to claim him as a dependent.
True
False
Using Publication 4012, Who Must File tab, Chart B, Chris has a filing requirement and must file a tax return.
True
False
•
Mike is 45 and made $36,000 in wages in 2016. He is single and pays all the cost of keeping up his home.
• Mike's daughter, Brittany, lived with Mike all year.
• Brittany's son, Hayden, was born in November 2016. Hayden lived in Mike's home since birth.
• Brittany is 18, single, and had $1,700 in wages in 2016.
• Mike provides more than half of the support for both Brittany and Hayden.
• Mike, Brittany, and Hayden are all U.S. citizens with valid Social Security numbers.
• Mike and Hayden had health insurance that qualified as minimum essential coverage. Brittany did not have health insurance at all in 2016.
3. Who can claim Hayden as a dependent?
A. No one can claim Hayden because he was not a member of the household for more than six months.
B. Mike cannot claim Hayden because Hayden is not Mike’s child.
C. Brittany can claim Hayden because she is his parent.
D. Mike can claim Hayden; Brittany cannot claim Hayden because Brittany qualifies as Mike’s dependent.
4. How many qualifying children does Mike have for the earned income credit?
A. 0
B. 1
C. 2
If Brittany does not qualify for a health coverage exemption, Mike must make a shared responsibility payment.
True
False
• Henry and Claudia are married and want to file a joint return.
• They have one child, Alyssa, who is 5 years old and lived with them all year.
• Henry and Alyssa are U.S. citizens and have valid Social Security numbers.
• Claudia lives with Henry and Alyssa in the U.S. but is not lawfully present in the U.S and has an Individual Taxpayer Identification Number (ITIN).
• Claudia did not have any health insurance for all of 2016. Henry and Alyssa had minimum essential coverage (MEC) all year.
• Henry earned $37,000 in wages and had no other income. Claudia had $5,000 in earned income.
• Henry and Claudia provided all the support for Alyssa.
6. Henry and Claudia are eligible to claim the earned income credit.
True
False
7. Claudia must make a shared responsibility payment.
True
False
• Martin is married, but did not live with or have contact with his spouse this tax year. He does not know where she is. He indicated on the intake sheet that he is not legally separated.
• Martin does not have any dependents.
• Martin worked as a clerk and earned $36,000 in wages. He had no other income.
• In 2016, he took a computer class at the local university to improve his job skills.
• Martin has a receipt showing he paid $1,095 for tuition. He paid for all his educational expenses and did not receive any assistance or reimbursement.
• He paid $350 for a course book from an online bookseller. Purchase of the book was not a requirement of enrollment.
• Martin paid $90 for a parking permit. It was not a requirement of enrollment.
• Martin does not have enough deductions to itemize.
• He is a U.S. citizen with a valid Social Security number.
8. Martin's filing status is Single.
True
False
Martin is eligible to claim the lifetime learning credit.
True
False
Scenario 5
10. Lamar received Form 1095-A from the Marketplace. How is this information used on his tax return?
A. The information is not needed to prepare his return.
B. Enter $1,440 directly on Form 1040, page 2 on the premium tax credit line.
C. The information is used on Form 8965.
D. The information is used to determine the amount of premium tax credit.
11. Lamar must repay a portion of the advance premium tax credit that he received.
True
False
12. The total amount of qualified educational expenses used in the calculation of Lamar’s 2016 American opportunity credit is:
A. $3,300
B. $3,800
C. $4,000
D. $4,240
13. Lamar's cancelled debt from Form 1099-C does not need to be included on his federal income tax return.
True
False
14. Which exception can Lamar use to avoid the 10% additional tax on the early distribution from his IRA on Form 5329?
A. He does not qualify for an exception
B. Distribution made for higher education expenses
C. Distribution made for purchase of a first home
D. Distribution due to total and permanent disability
Scenario 6
15. Which allowable filing status is most advantageous to Samantha?
A. Qualifying Widow with Dependent Child
B. Single
C. Married Filing Separately
D. Head of Household
16. Howard is Samantha’s qualifying child for which of the following benefits?
A. Exemption for a dependent
B. Child tax credit
C. Earned income credit
D. All of the above
17. The reduction in Samantha's basis reported on Form 982 is ________.
A. $160,000
B. $145,000
C. $100,000
D. $45,000
18. What is the credit for child and dependent care expenses on Form 1040, line 49? $________.
19. Samantha and her children did not have minimum essential coverage (MEC) for two months of the tax year. How does this affect her tax return?
A. She can claim the short coverage gap exemption.
B. She must make a shared responsibility payment for herself.
C. She must make a shared responsibility payment for Meredith and Oliver.
D. None of the above.
20. What is the amount of self-employment tax in the Other Taxes section of Samantha's Form 1040, page 2? $________.
Scenario 7
21. The total amount of taxable interest income shown on Line 8a is $245.
True
False
22. Quincy's entire $4,500 Roth IRA distribution is taxable.
True
False
23. The net capital gain or loss reported on Form 1040, Line 13 is a gain of $1,239.
True
False
24. How much of the $17,500 gross distribution reported on Form 1099-R from Hickory Corporation is taxable in 2016?
A. $17,097
B. $17,016
C. $16,719
D. $16,562
25. A portion of Quincy's Social Security income is taxable.
True
False
26. The amount of shared responsibility payment on the Pikes’ Form 1040, page 2 is $695.
True
False
27. The Pikes are entitled to an earned income credit for 2016.
True
False
Scenario 8
28. Where should Austin's cash income from his business be reported on the tax return?
A. Cash income does not have to be reported
B. Form 1040, Line 7
C. Form 1040, Line 21
D. Schedule C-EZ or C
28. Where should Austin's cash income from his business be reported on the tax return?
A. Cash income does not have to be reported
B. Form 1040, Line 7
C. Form 1040, Line 21
D. Schedule C-EZ or C
29. What is Austin's mileage expense deduction (at the standard mileage rate) for his business as a personal trainer?
A. $1,485
B. $2,025
C. $2,133
D. $4,158
30. Which item cannot be deducted by Austin as a business expense?
A. Business license
B. Business liability insurance
C. Advertising
D. Nutritional supplements
31. How does Austin's self-employment tax affect his tax return?
A. Austin's self-employment tax is not reported anywhere on Form 1040.
B. A portion of the self-employment tax is deducted as a business expense on Schedule C-EZ or C.
C. The self-employment tax is shown on Form 1040, Other Taxes section, and the full amount is deducted on Schedule A, Taxes You Paid section.
D. The self-employment tax is shown on Form 1040, Other Taxes section, and the deductible part is an adjustment on Form 1040, page 1.
32. How do you report qualified student loan interest paid?
A. As an expense for an education credit
B. As other income on Form 1040, line 21
C. As an itemized deduction on Schedule A
D. As an adjustment to income on Form 1040, page 1
33. What is Austin’s total itemized deductions on Schedule A, line 29? $______.
34. What is the amount of Austin's retirement savings contributions credit? $_______
35. Austin is not able to pay the entire balance due. One way to reduce the amount of penalties and interest is to file his return and pay as much as he can by the due date of the return (without extensions).
True
False
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