Topic 1 - Introduction to Taxation
There was a time when there was no income tax. The taxing process graduated slowly to what it is now. At one point there was a question of the constitutionality of taxation. Taxes are a necessity. How else can a nation survive and prosper? This topic is your introduction to taxation. In it you will find the very basic tax principles that are necessary to prepare tax returns. Upon reading the material for topic 1, you will encounter almost every topic covered in the basic certification course including the mentioning of publications used in this course. Due to ethics and tax updates requirements that must be met, everything in the reading material matters (everything is game, fine print, help to taxpayers, disclosures and the various tax worksheets).
Tax School Homepage
Student Instructions: Complete the following 3 steps:
Read the reading material and answer the questions on this page.
Submit the answers to the Assignment online (the questions on this page). Scroll down for all questions 1-24 on this page. When you are ready to submit click on the Assignment link. (These questions may appear again on the quiz online).
Complete a quiz on the reading material: Quiz Online online. You have 60 minutes to complete 40 questions for this quiz. You must study the reading material. You won't have time to look up questions in the reading material. If you don't pass, you can retry only after 24 hours have passed. - Every time you try the questions will be different. You will be disqualified from completing this topic if you do not allow the proper 24 hours in between tries. If you are disqualified, you will notified through email of the substitute topic to complete.
Most forms are in Adobe Acrobat PDF format. You will need Adobe Reader to view and print these forms. If you do not already have Adobe Reader installed on your computer, you may download the software for free.
You will need IRS 1040EZ Instructions, History of U.S. Taxes and Publication 552 to complete this topic.
You will need to prepare a tax return for your friend Daniel and another return for your friend James. Their information is stated separately in each of the following situations:
Tax Return 1:
Please prepare Form 1040EZ for Daniel. Here is Daniel's W-2. All income and identifying information for Daniel on this W-2 is correct and current.
Daniel is 27 years old and is not married. Daniel cannot be claimed as a dependent on another tax return. He received $3,400 in unemployment benefits for the year.
Tax Return 2:
Please prepare Form 1040EZ for James. Here is James' W-2. All income and identifying information for James on this W-2 is correct and current.
In addition, James married Sarah Baker on December 22, 2011. They did not live together at any time during the year. James and his wife are both over age 65. In January 2012, James received a Form SSA-1099 showing net benefits of $9,700 in box 5 for 2011 tax year. James also received unemployment compensation of $1,800 and taxable interest income of $450.
Sarah did not work in 2011. Her SSN is 658-65-0935. Sarah received a Form SSA-1099 showing net benefits of $1,400 in box 5.
James wants to know if he can take the EIC on his tax return.
Neither James nor Sarah received any tax-exempt interest income. They cannot be claimed as dependents on another tax return.
1. Look at the 1040EZ form you prepared for Daniel. What is the amount on line 1?
A. $5,009. B. $5,010. C. $5,009.55 D. None of the above.
2. Look at the 1040EZ form you prepared for Daniel. What is the amount on line 3?
A. $0. B. $2,400. C. $3,400. D. None of the above.
4. Look at the 1040EZ form you prepared for Daniel. What is the amount on line 4?
A. $8,410. B. $5,010. C. $3,400. D. None of the above.
5. Look at the 1040EZ form you prepared for Daniel. What is the amount on line 5?
A. $19,000. B. $9,500. C. $5,800. D. None of the above.
6. Look at the 1040EZ form you prepared for Daniel. What is the amount on line 6?
A. $9,500. B. $5,010. C. $0. D. None of the above.
7. Look at the 1040EZ form you prepared for Daniel. What is the amount on line 7?
A. $495.99. B. $496. C. $495. D. None of the above.
8. Look at the 1040EZ form you prepared for Daniel. What is the amount on line 8a?
A. $0. B. $400. C. $384. D. None of the above.
9. Look at the 1040EZ form you prepared for Daniel. What is the amount on line 9?
A. $880. B. $779.55 C. $496. D. None of the above.
10. Look at the 1040EZ form you prepared for Daniel. What is the amount on line 10?
A. $0. B. $880. C. $496. D. None of the above.
11. Look at the 1040EZ form you prepared for Daniel. What is the amount on line 11a?
A. $496. B. $880. C. $384. D. None of the above.
12. Look at the 1040EZ form you prepared for Daniel. What is the amount on line 12?
A. $0. B. $880. C. $396. D. None of the above.
13. Look at the 1040EZ form you prepared for James. What is the amount on line 1?
A. $8,760.43 B. $11,010. C. $8,760. D. None of the above.
14. Look at the 1040EZ form you prepared for James. What is the amount on line 2?
A. $450. B. $0. C. $1,800. D. None of the above.
15. Look at the 1040EZ form you prepared for James. What is the amount on line 3?
A. $0. B. $2,400. C. $1,800. D. None of the above.
16. Look at the 1040EZ form you prepared for James. What is the amount on line 4?
A. $8,760. B. $11,010. C. $11,010.43 D. None of the above.
17. Look at the 1040EZ form you prepared for James. What is the amount on line 5?
A. $9,500. B. $11,600. C. $19,000. D. None of the above.
18. Look at the 1040EZ form you prepared for James. What is the amount on line 6?
A. $0. B. $10,240. C. $8,760. D. None of the above.
19. Look at the 1040EZ form you prepared for James. What is the amount on line 7?
A. $7,990. B. $867. C. $867.37 D. None of the above.
20. Look at the 1040EZ form you prepared for James. What is the amount on line 8a?
A. $464. B. $374. C. $0. D. None of the above.
21. Look at the 1040EZ form you prepared for James. What is the amount on line 9?
A. $867. B. $1,331. C. $867.37 D. None of the above.
22. Look at the 1040EZ form you prepared for James. What is the amount on line 10?
A. $0. B. $867. C. $1,331. D. None of the above.
23. Look at the 1040EZ form you prepared for James. What is the amount on line 11a?
A. $1,241. B. $1,331. C. $867. D. None of the above.
24. Look at the 1040EZ form you prepared for James. What is the amount on line 12?
A. $1,241. B. $0. C. $1,331. D. None of the above.
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1. If you changed your name because of marriage, divorce, etc., be sure to report the change to the Social Security Administration (SSA) before you file your return. This
A. Prevents delays in processing your tax return. B. Prevents delays in issuing tax refunds. C. Safeguards your social security benefits. D. All of the above.
2. If you are a nonresident or resident alien and you do not have and are not eligible to get an SSN, you must apply for an ITIN.
True False
3. The presidential election campaign Fund reduces candidate's dependence on large contributions from individuals and group and places candidates on an equal financial footing in the general election. If you check a box for $3 to go to this fund, your tax refund will be lowered by $3.
4. You direct deposit request will be rejected and a check will be sent instead if
A. Any numbers or letters on lines 11b through 11d are crossed out or whited out. B. Your financial institution will not allow a joint refund to be deposited to an individual account. C. You request a deposit of your refund to an account that is not in your name. D. Any of the above.
5. If you cannot pay the full amount when you file, you
A. Can ask for an installment agreement. B. Can ask for an extension of time to pay. C. Either A or B above. D. The IRS will not accept your tax return unless you include payment.
6. A frivolous return is one that does not contain information needed to figure the correct tax or shows a substantial incorrect tax because you take a frivolous position or desire to delay or interfere with the tax laws. In addition to any other penalties, there is a penalty of __________ for filing a frivolous return.
A. $1,000. B. $500. C. $5,000. D. $100.
7. If you cannot file on time, you can get an automatic _________ extension if no later than the date your return is due, you file Form 4868.
A. 2 - month. B. 3 - month. C. 4 - month. D. 6 - month.
8. If you get an automatic extension, you have until October 15, 2012 to file and pay the tax you owe.
9. Identity theft occurs when someone uses your personal information, such as your name, social security number (SSN), or other identifying information, without your permission, to commit fraud or other crimes such as getting a job or filing a tax return to receive a refund. To reduce your risk,
A. Protect your SSN. B. Ensure your employer is protecting your SSN. C. Be careful when choosing a tax preparer. D. All of the above.
10. Keep a copy of your tax return, worksheets you used, and records of all items appearing on your tax return until
A. The statute of limitations runs out for that tax return. B. 10 years from the time you file your tax return. C. 5 years from the date the tax return was due. D. The IRS sends you a letter notifying you that you cannot be audited anymore.
11. The tax return information is needed to carry out the tax laws of the United States and to figure and collect the right amount of tax.
12. On or before the ___________ of each year the President is required by law to submit to the Congress a budget proposal for the fiscal year that begins the following October.
A. First Monday in January. B. First Monday in February. C. First Monday in March. D. First Monday in April.
13. Starting January 1, 2012, many tax return preparers will be required to use IRS e-file.
14. The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements.
15. There are many reasons to keep records. In addition to tax purposes, you may need to keep records for insurance purposes or for getting a loan. Good records will help you
A. Identify sources of income. B. Keep track of expenses and basis of properties. C. Support items reported on your tax return. D. All of the above.
16. You should keep copies of your tax returns as part of your tax records. They can help you
A. Prepare future tax returns. B. If you need to prepare an amended tax return. C. Provide information to your survivor or the executor or administrator of your estate. D. Any of the above.
17. Keeping a copy of Form W-2 until you begin to receive social security benefits will help you protect your benefits in case there is a question about your work record or earnings in a particular year.
18. Proof of payment alone is proof that the item you claim on your tax return is allowable.
19. To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. Your records also must be able to support the amount you claim. For a casualty loss, your records should show
A. The type of casualty and when it occurred. B. That the loss was a direct result of the casualty. C. That your were the owner of the property. D. All of the above.
20. To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. For a theft loss, your records should show
A. When you discovered your property was missing. B. That your property was stolen. C. That you were the owner of the property. D. All of the above.
21. To claim the credit for the elderly or the disabled and if you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired, and
A. You have to file this statement with your Form 1040. B. You have to file this statement with your Form 1040A. C. Either A or B above. D. You do not have to file this statement with your tax return, but you must keep it for your records.
22. If you want to claim one of the tax incentives for the purpose of energy-efficient products, you must keep records to prove
A. When and how you acquired the property. B. The purchase price of the property. C. That the property qualified for the credit. D. All of the above.
23. In addition to records you keep of regular medical and dental expenses, you should keep records of
A. The doctors that cared for you. B. Transportation expenses that are primarily for and essential to medical care. C. Name and address or location of the hospital. D. Names of other persons present with you at the hospital.
24. If you paid mortgage interest of _________, you should receive Form 1098, Mortgage Interest Statement. Keep this form and your mortgage statement and loan information in your records.
A. $100. B. $300. C. $500. D. $600.
25. If you deducted actual state and local general sales taxes instead of using the optional state sales tax tables, you must keep a diary showing general sales taxes paid.
26. You must keep your records
A. For as long as they may be needed for the administration of any provision of the Internal Revenue Code. B. Until the period of limitations for that return runs out. C. For the period of time in which you can amend your tax return to claim a credit or refund or the IRS can assess additional tax. D. All of the above.
27. When your records are no longer needed for tax purposes, do not discard them until you check to see if they should be kept longer for other purposes.
28. You and your spouse (under 50 years old), each may be able to contribute up to _____________ to a traditional IRA or Roth IRA in 2011.
A. $2,400. B. $5,000. C. $6,000. D. $3,000.
29. If you are age 50 or older, you may owe a penalty if your contributions to an IRA or Roth IRA exceed
30. To file your tax return electronically, you must sign the tax return electronically using a personal identification number (PIN).
