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VITA Certification Basic Exam
Brought to you by the DABC
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.
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 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
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 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?
$______
See Taxwise, Sample Return for Evie
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
See Taxwise, Sample Return for Evie
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!