vita certification basic exam · cora is 11 years old and jack is 15 years old. she does not have...

VITA Certification Basic Exam

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Basic Scenario 1: Olivia Otis● Olivia is single, 66 years old, and

not blind.● She paid all the cost of keeping up

her home. She earned $55,000 in wages for 2019.

● Olivia provided all the support for her two grandchildren who lived with her all year. Cora is 11 years old and Jack is 15 years old.

● She does not have enough deductions to itemize.

● Olivia, Cora, and Jack are all U.S. children with valid Social Security numbers.

1. What is the amount of Olivia’s

standard deduction?

a. $18,350

b. $20,000

c. $24,400

d. $25,700

See Pub 4012 - Tab F, pages F-1 and F-2

Hints:

● What is Olivia’s filing status?

● What is Olivia’s age?

Basic Scenario 1: Olivia Otis● Olivia is single, 66 years old, and

not blind.● She paid all the cost of keeping up

her home. She earned $55,000 in wages for 2019.

● Olivia provided all the support for her two grandchildren who lived with her all year. Cora is 11 years old and Jack is 15 years old.

● She does not have enough deductions to itemize.

● Olivia, Cora, and Jack are all U.S. children with valid Social Security numbers.

Question 2:

The maximum amount of child tax credit that Olivia is

able to claim per qualifying child for 2019 is:

a. $500

b. $1,000

c. $1,400

d. $2,000

See Pub 4012, Tab G, page G-2

Hint:

● The answer is looking for the total amount of

the credit, which includes a refundable + a non-

refundable portion.

Basic Scenario 2: Felix & Isabella● Felix and Isabella Franklin have been married

since 2016. Felix is a US citizen with a valid Social Security number. Isabella is a resident alien with an ITIN. They elect to file Married Filing Jointly.

● Felix worked in 2019 and earned wages of $40,000. Isabella worked part-time and earned $10,000.

● They have two children: Rose, who is 3 years old, and Iris, who is 8 years old. Both children were supported by their parents all year. Rose is a US citizen and has a valid SSN. Iris is a resident alien and has an ITIN.

● Felix and Isabella paid $5,000 in daycare for Rose and Iris. The statement from the daycare provider includes the provider’s name, address, valid employer identification number, and the amount paid for Rose and Iris’s care.

● Felix, Isabell, Rose, and Iris lived together in the US all year.

Question 3:

Are the Franklins eligible to claim the Earned Income

Credit?

a. Yes, because everyone has a taxpayer

identification number.

b. Yes, because Felix has a Social Security

number.

c. No, because Isabella has an ITIN.

d. No, because their income is too high.

See Pub 4012, Tab I, page I-2

Hint:

● Who is required to have a valid Social Security

number for EITC purposes?

Basic Scenario 2: Felix & Isabella● Felix and Isabella Franklin have been married

since 2016. Felix is a US citizen with a valid Social Security number. Isabella is a resident alien with an ITIN. They elect to file Married Filing Jointly.

● Felix worked in 2019 and earned wages of $40,000. Isabella worked part-time and earned $10,000.

● They have two children: Rose, who is 3 years old, and Iris, who is 8 years old. Both children were supported by their parents all year. Rose is a US citizen and has a valid SSN. Iris is a resident alien and has an ITIN.

● Felix and Isabella paid $5,000 in daycare for Rose and Iris. The statement from the daycare provider includes the provider’s name, address, valid employer identification number, and the amount paid for Rose and Iris’s care.

● Felix, Isabell, Rose, and Iris lived together in the US all year.

Question 4

Which credit(s) can the Franklins claim on their 2019

tax return?

a. Child and dependent care credit for both Rose

and Iris.

b. Child tax credit for Rose.

c. Credit for other dependents for Iris

d. All of the above

See Pub 4012, Tabs G & I

Hint:

● Look at the requirements for each credit,

specifically looking at whether or not a valid

Social Security number is a requirement.

Basic Scenario 3:Henry & Charlotte● Henry and Charlotte are both 28 years old.● Henry and Charlotte separated in 2018 and

their divorce was finalized in January 2019. During 2019, Charlotte paid Henry alimony payments of $12,000.

● Charlotte earned $85,000 in wages during 2019. Henry earned $13,000 in wages.

● Henry has two children from a previous relationship. Ethan is 9 and James is 6 years old and they lived with Henry for all of 2019. Ethan and James did not provide over half of their own support.

● Henry paid all the rent, utilities, and household expenses.

● Henry, Charlotte, Ethan, and James are all US citizens with valid Social Security numbers.

Question 5

Which of the following statements is true?

a. Henry must report the $12,000 alimony received

as income and Charlotte can claim alimony paid

as an adjustment to income.

b. Henry is not required to report the $12,000

alimony received as income and Charlotte

cannot claim alimony paid as an adjustment to

income.

c. Henry must report the $12,000 alimony received

as income and Charlotte cannot claim alimony

paid as an adjustment to income.

d. Henry is not required to report the $12,000

alimony received as income and Charlotte can

claim alimony paid as an adjustment to income.

Alimony and Separate Maintenance Payment Agreements Executed On or Before 12/31/2018:

● Deductible from the income of the payor spouse

● Includable in the income of the receiving spouse

Alimony and Separate Maintenance Payment Agreements Executed After 12/31/2018:

● Not deductible from the income of the payor spouse

● Not included in the income of the receiving spouse

Alimony and Separate Maintenance Payments, continued:

Modifications:

The new rule applies to modifications of agreements executed on or before 12/31/2018, provided the modification:

1. changes the terms of the alimony or separate maintenance payments; AND

2. states that the payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Basic Scenario 3:Henry & Charlotte● Henry and Charlotte are both 28 years old.● Henry and Charlotte separated in 2018 and

their divorce was finalized in January 2019. During 2019, Charlotte paid Henry alimony payments of $12,000.

● Charlotte earned $85,000 in wages during 2019. Henry earned $13,000 in wages.

● Henry has two children from a previous relationship. Ethan is 9 and James is 6 years old and they lived with Henry for all of 2019. Ethan and James did not provide over half of their own support.

● Henry paid all the rent, utilities, and household expenses.

● Henry, Charlotte, Ethan, and James are all US citizens with valid Social Security numbers.

Question 6

Who can claim Ethan and James as qualifying

children for Earned Income Credit?

a. Charlotte

b. Henry

c. Both Charlotte and Henry

d. Neither Charlotte or Henry

See Pub 4012, Tab I, page I-2 under “Part B”

Hint: Child(ren) must meet the relationship, age,

residency test and joint return tests but not the

support test.

Basic Scenario 4:Mark & Sue● Mark and Sue are married and US

citizens with valid Social Security numbers.

● The Malones received wages and a large amount of taxable income not subject to withholding.

● Mark did not have health insurance coverage for 2019 and Sue had health insurance coverage through her employer.

● The Malones have a $2,500 balance due on their joint return and want advice on how to prevent a balance due next year. They do not anticipate a change in their sources of income and amount received next year.

Question 7

One of the ways Mark and Sue can prevent having a

balance due next year is to use the Tax Withholding

Estimator at IRS.gov and then adjust their withholding.

a. True

b. False

Note:

● IRS.gov has a Tax Withholding Estimator

● Withholding can be adjusted on a W-4

● If taxpayers need to make adjustments, we

encourage them to speak with the person in

charge of their payroll.






Question 8

Mark and Sue should not file their tax return until they

can pay the entire balance due.

a. True

b. False

Notes:

● Two of the most common filing penalties are (1)

Failure to File and (2) Failure to Pay

● Payments are due on the filing deadline (cannot get

an extension!)

● Filing must be done by the deadline (usually April

15th) but can be extended by filing an extension

(Form 4868), which gives you until October 15th

● File and pay by each deadline in order to avoid

penalties and interest






Question 9

Mark is required to make a Shared

Responsibility payment because he did

not have health insurance in 2019.

a. True

b. False

See Pub 4491, page vi, under the

heading Affordable Care Act.

Basic Scenario 5:Aurora Davis● Aurora and Oscar separated in 2017 and

divorced in October 2019. She earned $40,000 in wages and paid more than half the cost of keeping up her home in 2019.

● Aurora and Oscar have a son, Milo, who is 17 years old and unmarried.

● Aurora signed Form 8332 (Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent) allowing Oscar to claim Milo in 2019.

● Milo is a full-time student working towards a degree in computer information systems. Milo lived on campus during the school year and spent the summer at home with his mother.

● Milo does not have a felony drug conviction and

is not a qualifying child for anyone except

Aurora.

● Aurora paid $5,000 of Milo’s tuition that was not

covered by his scholarship.

● Aurora provided more than half of her son’s

support and all the cost of his room and board

on campus.

● Milo’s only income was $3,800 in wages and

$400 of dividend income. He had no federal or

state tax withholding.

● Aurora and Milo are US citizens and have valid

Social Security numbers.

Question 10

Is Milo required to file a federal tax return?

a. Yes, because Milo’s gross income was more than the gross income limit required to file a federal tax return.

b. Yes, because Milo had unearned income over the unearned income limit of $1,100 required to file a federal income tax return.

c. No, because Milo had earned income that was under the earnings limit that requires him to file a tax return.

d. No, because Milo didn’t have any federal or state income tax withholdings.

See Pub 4012, Tab A, page A-2, Chart B

Milo is a single dependent (i.e. unmarried), who is under

the age of 65 and he is not blind.

“You must file a return if any of the following apply.

1. Your unearned income was over $1,100

a. Milo had $400 of unearned income.

2. Your earned income was over $12,200.

a. Milo’s earned income was $3,800.

3. Your gross income was more than the larger of -

a. $1,100 or

b. Your earned income (up to $11,850) plus

$350

i. Milo’s Gross Income: $3,800 of earned

income PLUS $400 of unearned

income, totaling $4,200.

ii. Milo’s earned income ($3,800) plus

the $350 statutory limit, totals $4,150.

iii. Milo’s gross income of $4,200 is more

than his earned income of $3,800 +

$350.

Question 11

Aurora’s best filing status for 2019 is Single.

a. True b. False

Custodial Parent ALWAYS gets (i.e. non-transferable):● Earned Income Credit;● Child and Dependent Care Credit; &● Head of Household filing status.

Non-Custodial Parent IS ELIGIBLE* to get:● Child Tax Credit;● Additional Child Tax Credit;● Credit for Other Dependents;● Education Credits; &● Student loan interest deduction

*Must file Form 8332 & it is revocable by custodial parent at any time

Question 12

Aurora cannot claim her son for the earned income credit because he did not live with her for more than half the year and does not meet the residency test.

a. True. Milo only lived with his mother during the summer, which was less than six months.

b. False. Attendance at school is considered a temporary absence and those months are counted as time that Milo lived with her for the earned income credit.

See Pub 4012, Tab C, page C-3, Table 1, Footnote 2

“A child is considered to have lived with you during

periods of time when one of you, or both, are

temporarily absent due to illness, education, business,

vacation, military service, institutionalized care for a

child who is permanently and totally disabled, or

incarceration.”

This is very common with taxpayers we deal with

when their children go to college.

Question 13

Milo is Oscar’s qualifying person for which of the following:

a. Head of Householdb. Earned Income Creditc. Credit for other dependentsd. Child tax credit

Hints:

From Slide 15, we know:

Head of Household Status: always goes with the

Custodial Parent

Earned Income Credit: always goes with the custodial

parent

Credit for Other Dependents: can go with the non-

custodial parent if Form 8332 (Release/Revocation of

Release of CLaim to Exemption for Child by Custodial

Parent) is signed by the custodial parent

Child Tax Credit: can go with the non-custodial

parent, BUT it has age restrictions

Basic Scenario 6:Noah & Ella● Noah, age 65, and Ella, age 54, are

married. They elect to file Married Filing Jointly.

● Their son Leo is 23 years old and a full-time college student in his third year of study. He is pursuing a degree in Business Administration and does not have a felony drug conviction. His 2018 Form 1098-T did not have an amount entered in Box 2.

● Their son Freddie is 26 years old and graduated from college in June 2019. He had a part-time job where he earned $7,000 in 2019.

● Noah and Ella paid more than half the cost of

maintaining a home and provided over half the

support for both Leo and Freddie.

● Noah retired in 2019 and received interest income,

Social Security benefits, and wages from a part-time

job. Ella received disability pension benefits. She

has not reached minimum retirement age.

● Noah and Ella made estimated tax payments of

$500 for 2019.

● Noah and Ella do not have enough deductions to

itemize.

● Leo received a scholarship and the terms require

that it be used to pay tuition. Noah and Ella paid the

cost of Leo’s tuition and course-related books in

2019 not covered by scholarship. They paid $75 for

a school sweatshirt for homecoming and $4,500 for

a meal plan.

● If Noah and Ella receive a refund, they would like to

deposit half into their checking account and half

into their savings account.

Question 14

Ella’s disability pension is reported as wages and considered earned income for the purposes of the earned income tax credit.

a. Trueb. False

See Pub 4012, Tab I, page I-1, Earned

Income Table

Hint:

● Has Ella reached minimum

retirement age?

Question 15

Amounts paid for room and board and meal plan are qualified education expenses for claiming the American Opportunity Credit.

a. Trueb. False

See Pub 4012, Tab J, page J-1, Education

Expenses

“Qualified Education Expenses”

● Key terms to determine if an item qualifies:

○ Tuition and fees

○ “Required”

○ Course-related expenses

Question 16

How much of Noah’s Social Security is taxable?

a. $0b. $6,851c. $2,175d. $31,000

See Taxwise software for this return and the

sample return for Noah and Ella.

Look at Worksheet 1 (1040 Wkt1). Once you have

entered the taxpayer’s Social Security amount, the

taxable portion will be determined (if any).

About midway down, you can see the calculation

and see if any portion of the taxpayer’s Social

Security was taxed.

Quick Method to Determine if Any Social Security

will be Taxable:

½ of Social Security + All other Income

If over $25,001 (Single) or $32,001(MFJ), a portion

will be taxable.

Question 16

How much of Noah’s Social Security is taxable?

a. $0b. $6,851c. $2,175d. $31,000

See Taxwise software for this return and the

sample return for Noah and Ella.

Ella’s 1099-R:

● If you fill out the information in Taxwise

exactly as it appears in Pub 6674, you will

not get the correct answer.

● Just below Boxes 7 & 8, it says: “Check if

disability and the taxpayer is disabled”

● On our 1099-R, Box 7 has Code 3, which is

for disability and Ella is in fact disabled.

● Her compensation is treated as earned

income for purposes of the Earned Income

Credit, as well as determining the amount of

taxable Social Security income.

● Check the box and notice the amount of

taxable Social Security on Form 1040, page

1, Line 5b.

Question 17

What is the amount of Noah and Ella’s standard deduction?

$________

See Pub 4012 - Tab F, pages F-1 and F-2

Hints:

● Look at the Intake sheet

● What is their filing status?

● Were either spouses born before

January 2, 1955?

● Are either spouses blind?

Question 18

Which of the following items are included in the total payments on NOah and Ella’s tax return?

a. Federal income tax withheld from Forms W-2 and 1099

b. $500 estimated tax paymentc. Refundable credits d. All of the above

See Taxwise, Sample Return for Noah

and Ella

Look at Form 1040, Page 2:

● Lines 17, 18, and 19 list the

payments made by the taxpayer

prior to filing the return.

Question 19

Leo and Freddie are dependents on Noah and Ella’s 2019 tax return.

a. Trueb. False

See Pub 4012, Tab C, page C-1

Leo: Recall the rules for age and full-

time students with temporary

absences (footnote 2)

Freddie: If a child is too old to be a

“Qualifying Child,” the person might

still be a dependent as a “Qualifying

Relative”.

● However, there are income

restrictions for Qualifying

Relatives.

Basic Scenario 7:Evie Adams● Evie is single and has two young

girls, Poppy and Lily, who lived with her all year.

● Evie paid more than half of the support for her daughters and all the cost of keeping up the home.

● Evie is paying off a student loan that she took out when she attended college for her bachelor’s degree.

● She took some courses this year at Southwest College to improve her job skills as an educator. She did not receive a Form 1098-T for 2018.

● Evie was an elementary school teacher from

May to December and pad $550 out of

pocket for classroom supplies.

● She went to the local casino and won some

money in 2019. During the interview she

mentions that she had gambling losses of

$700.

Question 20

What is the total amount of adjustments on Evie’s tax return?

a. $250b. $600c. $850d. $1,550

See Taxwise, Sample Return for Evie Adams

Form 1040, Schedule 1, Part II lists several

adjustments to income.

Educator Expenses: An eligible educator must

work from K-12 and must have worked at least

900 hours. If eligible, the educator may deduct up

to $250 paid out-of-pocket for educator expenses.

Student Loan Interest Deduction: Taxpayers can

deduct up to $2,500 of student loan interest paid

during the 2019 tax year.

1040 Worksheet 2 (1040 Wkt2 in Taxwise): note

that both of the above deductions can be entered

on Worksheet 2 and will then transfer onto

Schedule 2.

Question 21

What is the Lifetime Learning Education Credit amount on Evie’s tax return?

$_________

See Taxwise, Sample Return for Evie

Adams

Education Credits: Form 8863

Start on Page 2 and enter her school

information, then proceed to answer the

questions on the form.

Note that she is not a full-time student,

as required to claim the American

Opportunity Credit.

Once the expenses are entered on Line

31, the total amount of the LLC will

appear on Line 19.

Question 22

What is the total federal income tax withheld on Evie’s tax return?

$______


Adams

Look at Evies:

● W-2s;

● W-2G;

● 1099-G; and

● 1099-R

Total Federal Withholding is listed on

Form 1040, Line 17 (page 2).

Question 23

What is the amount of gambling winnings reported on her 2019 return?

a. $0b. $1,300c. $2,000d. $3,200


Adams

Gambling for Entertainment:

● Cannot deduct losses

● Must report, and are taxed, on

entire amount of winnings

Gambling as a Profession:

● Can deduct losses

● File Schedule C and list total

winnings as gross receipts, then

deduct your losses

● Will owe self-employment tax

Question 24

Evie is eligible to claim which of the following credits on her 2019 tax return?

a. Child and dependent care credit

b. Child tax creditc. Earned income creditd. All of the above

Child & Dependent Care Credit: Pub 4012, Tab G, page

G-10

● Taxwise: Fill out Form 2441. Amount of the

credit appears on Line 11. That amount is then

transferred to Line 2 of Schedule 3,

Nonrefundable Credits.

Child Tax Credit: Pub 4012, Tab G, page G-2

● Taxwise: Fill out the family’s information on the

Main Information page and, if eligible, the amount

of the credit appears on Form 8812 and is

transferred to Line 3 of Schedule 3,

Nonrefundable Credits.

Earned Income Credit: Pub 4012, Tab I, page I-2

● Taxwise: Fill out the family’s information and, if

eligible, the amount of the credit appears on Sch

EIC Wkt, Line 9. This amount is then transferred

to Line 18(a) on Page 2 of the 1040.

Question 25

Evie must pay an additional tax on the early distribution from her 401(k) of:

a. 0%b. 5%c. 10%d. 15%

See Pub 4012, Tab H, page H-4

What is the early withdrawal penalty?

● If you withdraw money from a 401(k) before

the age of 59 ½, you are subject to a penalty.

1099-R, Box 7 - Distribution Code: This box

dictates the character of the distribution.

● For Evie, her 1099-R is coded with a “1” in

Box 7, which is for an “Early Distribution, no

known exception”, and is thus subject to the

penalty

The penalty is calculated on Form 5329, Line 4,

and that amount is then transferred to the 1040,

Schedule 2, Line 6.

Exceptions to the IRA early distribution penalty

See Pub 4012, Tab H, page H-5

There are 12 exceptions for the early distribution

penalty.

If the taxpayer qualifies, enter the code number on

Line 3 of Form 5329 to remove the penalty.

The End! Thank You!

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