Which of the following is an example of unearned income?

1. Compensation received by a self-employed, freelance writer for services provided.
2. Interest earned on a savings account.
3. Tips.
4. Wages from a part-time job.

Deliah was married with two dependent children when her husband died in August 2020. She has not remarried. Deliah's correct and most favorable filing status for Tax Year 2020 is:

1. Single.
2. Married filing jointly.
3. Head of household.
4. Qualifying widow(er).

What is the 2020 gross income filing requirement for a married couple (one is age 65, the other is age 62), filing jointly? Neither is blind, and they lived together all year.

1. $24,800
2. $26,100
3. $27,400
4. $28,700

Malcolm (37) is a U.S. citizen. He was married at the beginning of 2020. His wife lived in the household until the end of February, then she moved out of the home. Their divorce was finalized on November 30, 2020, and Malcolm has not remarried. Malcolm provided 100% of the support for his son, who lived with him all year and is his qualifying child. Malcolm's most advantageous filing status is:

1. Single.
2. Married filing jointly.
3. Married filing separately.
4. Head of household.

Xavier received the following Form 1099-B reporting the sale of 100 shares of stock. How should he report the sale of this property when he prepares his tax return?

1. Short-term capital loss of $1,660.
2. Long-term capital loss of $1,660.
3. Short-term capital gain of $1,660.
4. Long-term capital gain of $6,640.

Allen and Charlotte married in 2020. They filed a joint return for the year, but the IRS offset their refund because Allen owes past-due child support for his two children from a previous marriage. Charlotte is not legally responsible for the children's support, and she would like to receive her portion of their tax refund. As the couple's tax preparer, what advice would you offer?

1. Allen should request a certificate of non-attachment.
2. Allen and Charlotte should submit a joint offer-in-compromise.
3. Charlotte should request relief as an injured spouse.
4. Charlotte should request relief as an innocent spouse.

In May 2020, Whitney filed for divorce from her husband, Michael. Although they lived apart for the last six months of the year, their divorce is not yet finalized; they are still legally married. Whitney does not wish to file a joint 2020 return, and she has no qualifying child or qualifying relative. What filing status should Whitney use?

1. Single.
2. Unmarried for tax purposes.
3. Married filing separately.
4. Head of household.

Vanessa, a single mother, has three children, Mariah (6), Alejandro (12), and Brianna (17). Brianna is a full-time student. Vanessa's adjusted gross income is $68,950, and her tax liability is $5,757. All three children are Vanessa's qualifying child dependents. What is the total of Vanessa's Child Tax Credit and Other Dependent Credit?

1. $2,000
2. $4,000
3. $4,500
4. $5,757

Jade is a single mother with two qualifying dependent children. The amount of her Child Tax Credit was limited by her tax liability. Jade may qualify for which of the following?

1. The Additional Child Tax Credit.
2. An additional itemized deduction.
3. An additional nonrefundable credit.
4. A supplemental adjustment to income.

Lisa would like to claim her granddaughter, Amani, as her qualifying child so she can claim the Earned Income Tax Credit (EITC). However, Amani's mother, Taya, is also eligible to claim Amani as her qualifying child for EITC purposes and would like to do so if she is able. As Lisa's tax preparer, what information would you share with Lisa?

1. As long as Lisa files before Taya, she may claim EITC based on Amani, her qualifying child.
2. Lisa and Taya may agree to each claim one-half of the EITC based on Amani, their qualifying child.
3. Lisa may claim EITC based on Amani if her adjusted gross income was higher than Taya's.
4. Taya holds a higher right and may claim EITC based on Amani because Taya is Amani's parent.

Choose the response that correctly states the maximum penalty the IRS can assess against a paid tax return preparer who fails to satisfy the due diligence requirements when preparing a return for an individual claiming the following tax benefits:

• Head of household filing status.
• Earned Income Tax Credit.
• Child Tax Credit / Additional Child Tax Credit / Other Dependent Credit.
• American Opportunity Tax Credit.

1. $2,160 per return.
2. $1,620 per return.
3. $540 per return.
4. Zero, although penalties may be assessed against the taxpayer.

Evonne received the following Form 1099-R reporting the IRA distribution. The form shows a code "4" in box 7, indicating that the distribution is due to death. When Evonne files her 2020 return, how much of the distribution must she include in her total income?

1. $0
2. $200
3. $1,800
4. $2,000

The Form 1099-R Evonne received is shown in the image below. The form shows a code "4" in box 7, indicating that the distribution is due to death. What amount, if any, will Evonne need to pay as an additional tax on early distributions?

1. $0
2. $100
3. $200
4. $400

Review the following scenario. Use the information provided to answer questions about the taxpayer’s 2020 return.

Makayla Jennings (34) is filing as a single taxpayer. During the year, she earned $53,000 in wages from her job as a high-school English teacher. Makayla has always been an avid reader, and in addition to her teaching job, she had an opportunity in early 2020 to lead a book club at a nearby community center. Makayla led the book club from early January until March 19, 2020, when the center closed due to COVID-19 restrictions. The community center paid Makayla for her work, and in early 2021, she received a Form 1099-NEC reporting $510 for nonemployee

What amount should Makayla report as profit or loss from business? You may refer to her partially completed Schedule C, Profit or Loss from Business, which is shown below, to assist you in answering this question.

1. $0
2. $425
3. $460
4. $510

What is the amount of Makayla's self-employment tax? You may refer to her partially completed Schedule SE, Self-Employment Tax, which is shown below, to assist you in answering this question.

1. $0
2. $65
3. $70
4. $78

Review the following scenario. Use the information provided to answer question about the taxpayer’s 2020 return.

Xavier Brown (32) is filing as a single taxpayer. During the year, he was unhappy with the performance of an investment he had made in ALX Corporation in 2018. Xavier sold his shares on May 4, 2020, for fear the stock would continue its downward trend. Information relating to the sale was reported to him on Form 1099-B.

Xavier had no other capital gains or losses during the year. His only other income was from wages.

Xavier received the following Form 1099-B reporting the sale of 100 shares of stock. How should he report the sale of this property when he prepares his tax return?

1. Short-term capital loss of $1,660.
2. Long-term capital loss of $1,660.
3. Short-term capital gain of $1,660.
4. Long-term capital gain of $6,640.

Answer rating: 100% (QA)

Compensation received by a selfemployed freelance writer for services provided is an example of unearned income Unearned income is income that is not earned through the exchange of labor or services T... View the full answer