What income reporting form should an independent contractor sometimes receive from the person who paid him for his services? - ANSWERSForm 1099-MISC (15.6)
Schedule C, Line F asks for the accounting method used in the business.
What is the difference between the cash method and the accrual meth...
What income reporting form should an independent contractor sometimes receive from the person who
paid him for his services? - ANSWERSForm 1099-MISC (15.6)
Schedule C, Line F asks for the accounting method used in the business.
What is the difference between the cash method and the accrual method of accounting? - ANSWERS•
Under the accrual method, total sales and total charges for services are included in income even though
payment may be received in another tax year.
• Under the cash method, only income actually received or expenses actually paid during the year are
included. (15.5)
What does it mean if a proprietor "materially participates" in the business? - ANSWERSHe is active in
running the business in a substantial way on a day-to-day basis. (15.5)
Why is it important to know whether or not the proprietor materially participates? - ANSWERSIf the
proprietor does not materially participate, any loss from the business is a passive loss and generally may
be currently deducted only against passive income. (15.6)
What are returns and allowances? - ANSWERS• Amounts that were refunded to customers who returned
merchandise for refund or partial refund.
• These amounts are subtracted from gross receipts. (15.6)
How is cost of goods sold determined? - ANSWERSBeginning inventory plus purchases, plus labor,
supplies, depreciation, etc. attributable to product manufacture or preparation for sale, minus ending
inventory. (15.7)
If the client has contract labor, what should you remind the client that they should do? - ANSWERS•
Provide a Form 1099-MISC to any independent contractor who worked and earned $600 or more. (15.9)
,What is the purpose of self-employment tax? - ANSWERSTo pay social security and medicare taxes.
(15.14)
What amounts does a proprietor have "at risk"? - ANSWERSAmounts invested in the business plus any
business debts for which the proprietor is personally liable. (15.16)
What difference does it make if the proprietor is "at risk" or not? - ANSWERSOnly amounts at risk may be
used to determine the actual loss on Schedule C. (15.16)
How does a Tax Professional meet due diligence requirements? - ANSWERS• Tax Professionals fulfill due
diligence requirements by making every effort to prepare accurate and complete returns.
• Tax Professionals must have knowledge of tax law, and apply a reasonability check to the information
provided by their clients. (26.1)
What is a thorough interview? - ANSWERSA thorough interview consists of asking general information
questions, then asking additional questions whenever information is incomplete or seems inaccurate or
inconsistent. (26.2)
What is a conflict of interest? - ANSWERSA conflict of interest is when one's situation might benefit at
the expense of another's situation. (26.3)
What actions can resolve a conflict of interest? - ANSWERSA conflict of interest is resolved when it is
acknowledged, disclosed to all parties, and the parties have consented to waiving the conflict. (26.3)
What client information is confidential? - ANSWERSAny information that could potentially identify the
client is confidential.
Information includes (but is not limited to):
• Name
• Address and phone number
• Social security numbers
• Place of employment
• Any information from a tax return (26.4)
, Is it acceptable for a Tax Professional to leave a detailed phone message for a client, letting them know
their tax return is complete? - ANSWERS• Tax Professionals must have prior consent from the client to
leave phone messages related to their tax return.
• The fact that a taxpayer is the client of a Tax Professional or tax preparation business is confidential
information that must not be disclosed. (26.5)
What is a Tax Professional's responsibility upon finding out that a client has not complied with any tax
law? - ANSWERSA Tax Professional must advise the client of the noncompliance and the consequences
for not correcting the situation. (26.7)
What is the exemption amount for 2009? - ANSWERS$3,650 with a reduction for higher-income
taxpayers of 2% for each $2,500 ($1,250 MFS) the AGI exceeds amounts:
$166,800 S
$250,200 MFJ QW
$125,100 MFS
$208,500 HH
(3.7,8)
Are early distributions from qualified retirement plans always penalized? - ANSWERSNo.
• Does not apply to qualified disaster recovery assistance distributions.
• Does not apply to any recovery of cost or any amount rolled over in a timely manner.
(22.12,13)
How does a Tax Professional know if a distribution exception applies? - ANSWERS• He can determine
that by using thorough interview questions when discussing the distribution with the client.
• The distribution code on the 1099-R can also be helpful to the Tax Professional. (22.12)
Is there a time limit for filing amended returns? - ANSWERSYes.
Three years from the date the return was filed or within two years the tax was paid, whichever is later.
(23.3)
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