Q1. All tax preparers have to exercise due diligence when preparing tax returns claiming EIC (Earned Income Credit) and Schedule C. To comply with the due diligence requirements, tax preparers must meet all the following prerequisites. Which statement is incorrect?
a. The preparer must not know or have reason to know that any information used is incorrect on determining the taxpayer's eligibility for the EIC. The preparer may not ignore the implications of information received and must make reasonable inquiries if the information is incorrect, inconsistent, or incomplete.
b. The preparer must complete either (a) the Earned Income Credit Worksheet or (b) record in the preparer's files the EIC computation, including the method and information used to make that computation. The information must be provided by the taxpayer or reasonably obtained by the preparer.
c. The preparer must retain, (a) the completed Form 8867, (b) a copy of the Worksheet, and (c) a record of how and when the information was obtained by the preparer, including the identity of the person furnishing the information.
d. The preparer must submit Form 8867 with the tax return (if it is being electronically filed) for any taxpayer claiming EIC if a preparer was paid to complete the return.
Q2. Woodrow and Elisabeth Martin have an AGI of $330,000. The couple is filing Married Filing Jointly and they have two dependent children. What is their exemption deduction?
a. $13,932
b. $16,000
c. $16,200
d. $15,100
Q3. Michelle has two children of her own, ages 15 and 12, and also cares for her two year old granddaughter. Michelle claims exemptions for all three children. Her AGI is $32,100 and her tax liability is $2,200. What is the amount, if any, of her child tax credit?
a. $3,000
b. $2,200
c. $ 0
d. $1,000
Q4. Bernard (age 45) and Marie (age 44) are married and both contribute $3,000 to their traditional IRA's. Marie is a stay at home mom and Bernard works full-time, their AGI is $56,500 for the year. Bernard doesn't have a retirement plan at work. Neither received a distribution from a retirement plan or IRA during the year. What is the maximum amount of retirement savings contribution credit Bernard and Marie can claim?
a. $300
b. $3,000
c. $600
d. $ 0
Q5. Bart is 67 years old and his wife, Anna, is 57 years old. Bart is retired and receives Social Security in the amount of $10,000 per year. Anna withdrew $12,000 from her IRA during 2017. Bart and Anna are filing a joint return; they have no other income to report. What is their 2016 tax liability?
a. $ 0
b. $1,200
c. $1,800
d. $3,000
Q6. Jennifer purchased a house on June 1, 2015. She and the seller paid the annual real estate taxes on the house during closing. The taxes for the house are $1,648 per year. What amount of real estate tax is deductible to Jennifer? (Round to the nearest dollar.)
a. $967
b. $681
c. $ 0
d. $1,648