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TAX PREPARER FINAL EXAM REVIEW
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TAX PREPARER FINAL EXAM REVIEW2024-2025
What type of revenue reporting form should an independent contractor receive
from the person who paid for his services? - ANSWER: Form 1099-MISC (15.6)
Schedule C, Line F inquires about the accounting technique utilized in the business.
What is the distinction between the cash method and the accrual method of
accounting? - ANSWER • Under the accrual approach, total sales and total costs
for services are included in income even if payment is received in a different tax
year.
• The cash approach only includes revenue and costs received or paid throughout
the year. (15.5)
What exactly does it mean when a proprietor "materially participates" in the
business? - ANSWER Daily, he actively participates in the operation of the firm.
(15.5)
Why is it vital to know whether the proprietor has a material interest? - ANSWER
If the proprietor does not significantly participate in the business, any loss is
considered a passive loss and can currently only be deducted against passive
revenue. (15.6)
What are returns and allowances? - ANSWER • Amounts refunded to customers
who returned items for a refund or partial refund.
• These amounts are deducted from the gross receipts. (15.6)
How is the cost of items sold determined? - ANSWER Beginning inventory
includes purchases, labor, materials, depreciation, and other expenses incurred
during product manufacture or preparation for sale, minus ending inventory. (15.7)
,If the client has contract workers, what should you remind them to do? -
ANSWER: Provide a Form 1099-MISC to each independent contractor who earned
$600 or more. (15.9)
What is the objective of the self-employment tax? - ANSWER To pay Social
Security and Medicare taxes. (15.14)
What is a proprietor's "at risk" amount? - ANSWER Amounts invested in the
company, including any commercial debts for which the owner is personally
accountable. (15.16)
What difference does it make if the proprietor is "at risk" or not. - ANSWER Only
the sums at risk can be utilized to calculate the actual loss on Schedule C. (15.16)
How does a Tax Professional meet the due diligence requirements? - ANSWER •
Tax professionals meet due diligence standards by making every attempt to create
correct and comprehensive returns.
• Tax professionals must be knowledgeable about tax law and conduct a
reasonableness check on the facts provided by their clients. (26.1)
What constitutes a thorough interview? - ANSWER A thorough interview consists
of asking general information questions, followed by supplementary questions
whenever information is inadequate, erroneous, or inconsistent. (26.2)
What constitutes a conflict of interest? - ANSWER A conflict of interest occurs
when one's circumstance may profit at the expense of another's. (26.3)
What activities may you take to address a conflict of interest? - ANSWER A
conflict of interest is resolved when it is acknowledged, reported to all parties, and
the parties agree to waive the conflict. (26.3)
, What customer information is considered confidential? - ANSWER Any
information that could potentially identify the client is kept secret.
The information includes, but is not limited to:
• Name
• Address and telephone number.
• Social Security numbers.
• Place of Employment
• Any details from a tax return (26.4)
Is it permissible for a tax professional to leave a comprehensive phone voicemail
for a client informing them that their tax return is complete? - ANSWER • Tax
professionals must obtain the client's prior consent before leaving phone messages
relating to their tax return.
• The fact that a taxpayer is a client of a Tax Professional or a tax preparation
business is considered confidential and must not be divulged. (26.5)
What is a tax professional's role if they discover that a client has not followed any
tax laws? - ANSWER A Tax Professional must inform the customer about the
noncompliance and the implications of not fixing the issue. (26.7)
What should a tax professional do if a client insists on providing false information?
- ANSWER A tax professional should never draft a return with false information.
(26.7)
If the employee believes his Form W-2 is incorrect, what should he do? -
ANSWER • If the taxpayer's name or social security number is incorrect, he can
alter it himself and does not need to receive a revised W-2 before submitting his tax
return.
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