









Study with the several resources on Docsity
Earn points by helping other students or get them with a premium plan
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Community
Ask the community for help and clear up your study doubts
Discover the best universities in your country according to Docsity users
Free resources
Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors
VITA FINAL TEST WITH ALL ANSWERS
Typology: Exams
1 / 17
This page cannot be seen from the preview
Don't miss anything!
QR: Quality Reviewer - correct answer-Mandated by the IRS, every return that is prepared at a VITA site, MUST be double-checked by a designated reviewer paper return - correct answer-a tax return that must be physically mailed to the respective IRS office e-file/e-file return - correct answer-a tax return that is electronically transmitted to the IRS through the software greeter - correct answer-A person who ensures that each client is "in-scope," and assigns clients to volunteers (located at the intake station) ITIN - correct answer-At times, individuals will not have a social security number; however, that does not exempt them from paying taxes. Therefore, they need to apply for an ITIN (Individual tax identification number) how taxes work in the US - correct answer--fill out W-4 to tell employer how much to withhold from each paycheck -"pay as you go" tax system -Jan-April -receive a refund for an overpayment or pay for an underpayment Tax Calculation - correct answer--all income is taxable unless excluded by federal law -deductions and credits help lower amount of taxable income and taxes due -some deductions and credits are geared towards students and higher education Types of Taxes - correct answer-FICA, income, self-employment, state income, state disability Who requires a tax return - correct answer--They owe taxes (like FICA) -Have self-employment income greater than $400 (or will owe FICA taxes) -Their gross income exceeds the filing requirement threshold who should file a tax return - correct answer--They have withholdings/estimated payments that can be refunded -Qualify for refundable credits -File a state return Filing Status - correct answer--All filing statuses are based on the last day of the tax year
-Important because it changes how tax calculations are made, deduction amounts, and how each person on the return is liable for the tax payments Married Filing Jointly (MFJ) - correct answer--most beneficial status -Married and lived together, OR -Married and lived apart, but not legally separated/divorced, OR -spouse died but did not remarry in the same year Qualifying Widow(er) - correct answer--second most beneficial -Does not remarry after the death of a spouse, AND -Has a dependent child who qualifies, AND -spouse died in the prior 2 years Head of Household (HOH) - correct answer--Are unmarried or "considered unmarried" on the last day of the tax year, AND -Paid more than half the cost of keeping up a home for the required period of time, AND -Had a qualifying person living in their home for more than half the year (except for temporary absences, such as school) qualifying person - correct answer--single (whether or not the child can be claimed as a dependent), OR -A married child who can be claimed as a dependent, OR -A dependent parent, OR -A qualifying relative who lived with the taxpayer more than half the year, and is one of the relatives listed on the chart, and can be claimed as a dependent by the taxpayer single - correct answer-unmarried married filing separately - correct answer--Legally married, but chooses to file separately or cannot agree to file jointly -California is a communal property state -VITA does not do this dependency general rules - correct answer--dependent taxpayer test -joint return test -citizen or resident test Dependent Taxpayer Test - correct answer--A taxpayer who can be claimed as someone else's dependent cannot claim a dependent -A dependent cannot be claimed by more than one person Joint Return Test - correct answer-You generally cannot claim a married person as a dependent if he or she files a joint return
Wages and Salaries - correct answer--W-2 form -most common -Reports total income, withholdings, and other taxes from employer Tip Income - correct answer--W-2 box 8 -all tip is taxable and generally reported on W- Scholarship Income - correct answer--1098-T to report qualified tuition and related expenses deemed necessary for an institution -excess scholarship is taxable income -Any scholarship, grants, or fellowships used for qualified expenses are non-taxable income -If they are used for non-qualified expenses, it will be taxable -Scholarship income will be taxed as ordinary income if scholarship > qualified expenses - correct answer--scholarship income -taxable if scholarship < qualified expenses - correct answer--educational credit -nontaxable qualified expenses - correct answer--Tuition and fees required to attend the institution -Course-related expenses such as books, supplies, and equipment required for the enrollment of the course non-qualified expenses - correct answer--Room and board -Travel -Research -Expenses not required for the enrollment of the course 3 types of students with 1098-T and methods - correct answer--undergraduate: net method -graduate: circle method -foreign student: 1042-S method 1098-T net method - correct answer--net box 5 and box 1 for scholarship income/educational credit -confirm whether individual amount was actually spent/received 1098-T circle method - correct answer--Tuition Fee Remission is not taxable -look at tuition fee remission table -Net method generally does not work if the student has tuition fee remission because the non-taxable amount is still included in Box 5 -transaction with the word "tuition" and "fees" are non-taxable -transactions with "stipend", "scholarship", "grant" are taxable -equal amounts of positive and negative negate each other
interest/dividends - correct answer--1099-INT/1099-DIV -Checking and Saving accounts -Bonds 1099-INT/1099-DIV - correct answer-A form used to report unearned income from interest/dividends alimony - correct answer--Only applies to divorce agreements Post-1984 and Pre- 2018: -Alimony is included as income for the receiver and a deduction to AGI for the giver -Post-2018 agreements: Alimony is no longer considered income retirement income forms - correct answer--1099-SSA -1099-R -IRAs 1099-SSA (Social Security Income) - correct answer--box 5 -not taxable but reported on 1040 -Form used to report Social Security Benefits -taxable if half of the taxpayer's social security benefits and gross income is greater than a certain amount depending on the filing status 1099-R: Retirement Income - correct answer--catch-all form for all things related to distributions of retirement accounts -Important boxes: 1, 2a, 2b, 4, 7 -Common retirement plans: 401(k), Employer-sponsored plans (UCRP), Traditional IRA, Roth IRA Traditional IRA - correct answer-A retirement plan where an individual contributes with pre-tax dollars, and the distributions are taxed Roth IRA - correct answer-Retirement plan where an individual contributes with after- tax dollars, and the distributions are tax-free Retirement forms: 1099-R, 1099-SSA, IRAs BOX 2a/2b - correct answer--taxable amount should be listed -traditional IRA: fully taxable unless nondeductible contributions were made (VITA doesn't do this) -ROTH IRA: qualified distributions are non-taxable (must be 59+ or disabled) -pension/annuities: generally fully taxable but must use Simplified Method Simplified Method - correct answer-Method is used for calculating the tax-free/taxable portion of the pension/annuity plan. Not so common, but important for the IRS exam. Box 7 distribution code - correct answer-"7": Normal distribution "1": Early withdrawal
work -VITA only uses standard mileage to calculate for-hire drivers: Schedule C - correct answer--deduct the business part of their interest: car loan, state and local taxes on the car, parking fees, tolls, business portion of their cellular, expenses, inter-company fees, and ride-share insurance. -What should NOT be expensed with the standard mileage: gas, car washes, insurance, depreciation, commuting miles, and registration fees. 1099-K - correct answer--reports credit card transactions -related to online platforms (i.e. Uber/Lyft) -Breaks down monthly transactions net operating losses: Schedule C - correct answer-If a client has more expenses than income, they will have a loss which is OUT OF SCOPE for VITA stocks/capital gains - correct answer--Whenever someone sells a stock, or an asset, we will file Form 8949 and Schedule D -In terms of the VITA at UCLA site, we mainly deal with clients who come in with a 1099-B from their brokerage firm 1099-B - correct answer-form that reports an individual stock transactions; it lists information like dates, sales price and cost basis - correct answer-The original price that the individual purchased a stock/asset short-term stocks - correct answer-Stocks that are held for one year or less; tax is calculated like ordinary income long-term stocks - correct answer-Stocks that are held for more than a year; advantageous because there is a more favorable tax rate (capital gains rate) gains and losses - correct answer--profit -sales price-basis -gains are taxable -losses are deductible up to $3000, remainder is carried to next year wash sales - correct answer--A sale and purchase of the same stock/security that results in a loss within 30 days -Losses made from these transactions are not allowed and cannot be claimed; this is an "adjustment" to capital gains/losses -loss is added to the cost of the new stock or securities adjustments - correct answer-Items that the IRS deems not taxable income Student Loan Interst - correct answer-1098-E form
1098-E Form - correct answer-A form that reports the amount of interest a taxpayer has paid on a student loan (maximum of $2,500) to qualify for adjustment on 1098-E - correct answer--Must be for the taxpayer, spouse, or dependent when the loan was taken -Was used to pay for qualified expenses -Was for an eligible student -If you are filing MFS or can be claimed as a dependent you cannot claim this adjustment traditional IRA Adjustment - correct answer--IRS allows an individual to reduce their AGI by a certain limit depending on their income max adjustment on traditional IRA adjustment - correct answer-$6,000 or $7,000 if age is over 50 Traditional IRA - correct answer--A tax advantage retirement plan (compared to the Roth IRA) -Individuals are eligible to claim a tax adjustment (which will lower your gross income). Standard Deduction VS Itemized Deduction - correct answer--The standard deduction is given to everyone regardless of their expenses -Itemized deduction/itemizing deductions is useful for clients with certain expenses (Out of Scope) -Taxpayers can only take one type of deduction: generally for VITA sites, standard deductions are more advantageous anyways Standard Deduction - correct answer--A set amount that can lower a taxpayer's taxable income -Nonresident tax filers cannot take a standard deduction, and must itemize -Based on filing status (derives the "most advantageous" status) Itemized Deduction - correct answer--Eligible expenses that individual taxpayers can claim on federal income tax returns which decrease their taxable income -If the client can benefit more from itemizing their deductions, refer them to a professional -VITA does not do itemized deductions filing status: Single standard deduction (2020) - correct answer-$ filing status: Married Filing Jointly/Qualifying Widower standard deduction (2020) - correct answer-$ Filing Status: Married Filing Separately standard deduction (2020) - correct answer- $ Filing Status: Head of Household standard deduction (2020) - correct answer- $
Mike is 42, unmarried, and has no dependents. Last year in 2020, he earned $350 in tips as a waiter at the House of Meatballs. Select the statement that is true. - correct answer-Mike's $350 in tips will likely be reported on his W-2 and the total tip amount is taxable. When using the graduate student "circle" method to determine taxable income, which of the following line items should be circled on the 1098-T? - correct answer- Regents Stipend Honors Department Scholarship STEM Grant credits - correct answer-calculated as the last part of the tax equation that helps lower the client's tax liability dollar for dollar Nonrefundable Credit - correct answer-Credits that can reduce your tax liability, but no further than 0 (cannot give you a refund) refundable credit - correct answer-Credits that can reduce your tax liability, and in excess, will generate a refund common nonrefundable credits - correct answer--Child and Dependent Care Credit -Child Tax Credit -Lifetime Learning Credit -Retirement Savings Contributions Credit common refundable credits - correct answer--American Opportunity Credit -Earned Income Credit child and dependent care credit - correct answer--credit of up to $6,000 ($3000 for individual) to reduce tax by a portion of their child and dependent care expenses to work or look for work -credit allows taxpayers to reduce tax liability -taxpayer and spouse must have earned income -MFS cannot claim the credit expenses that qualify for Child and Dependent Care Credit - correct answer-- Preschool, home daycare, before/after school care, dependent care, housekeeper, cook, etc -expenses must allow taxpayer to work or look for work -for qualifying person's care and to provide for well-being and protection -going to school full-time qualifying persons for Child and Dependent Care Credit - correct answer--A qualifying child (SARA) under the age of 13 whom the taxpayer claims as a dependent or -A dependent or spouse who is incapable of self-care (unless they made more than the gross income test, file joint return, or can be claimed) qualified care providers - correct answer--Must have a name, address, ITIN (or SSN)
-Cannot be a dependent of the taxpayer, the taxpayer's child who is under age 19 at the end of the year, or the taxpayer's spouse -MFS cannot qualify for the credit -The taxpayer (and spouse, if married) must both have earned income during the year Child Tax Credit - correct answer--A nonrefundable credit that allows taxpayers to claim a tax credit of up to $2,000 per qualifying child, which reduces their tax liability -The additional Child Tax Credit is the refundable portion of the Child Tax Credit (up to $1,400) eligibility for child tax credit - correct answer-taxpayer must have at least one qualifying child -under 17 -live with taxpayer more than 6 months -does not provide more than 50% of its support -meets relationship criteria, is US citizen, and have SSN qualifying child for child tax credit - correct answer--under age 17 on December 31 of the tax year -Lived with the taxpayer for more than six months of the year -Did not provide over half of his or her own support -Meets the relationship criteria -Is a U.S. citizen, U.S. national, or resident of the United States -Must have a valid Social Security number credit for other dependents - correct answer--A nonrefundable credit that allows taxpayers to claim a tax credit of up to $500 for dependents who cannot qualify for the Child Tax Credit. -meant for those taxpayers that have dependents but don't qualify for the child tax credit such as dependents over age of 17 qualifying person for Credit for Other Dependents - correct answer--A dependent -A U.S. citizen, U.S. national, or resident of the United States with an SSN. ATIN, or ITIN education credits - correct answer--Tax credits available to help the taxpayer offset the costs of higher education by reducing the amount of income tax -refundable credit for taxpayers or their dependents who have qualified educational expenses. -claim the credit, the taxpayer, spouse, or dependent (who are actually claimed on the tax return) must have more qualified expenses than scholarship on their 1098-T. qualifying for education credits taxpayers - correct answer--Cannot be claimed as a dependent (person claiming them will get the credit) -Dependent must be enrolled in a secondary-education institute -Cannot be filing MFS -Must be resident aliens/U.S. Citizens -Must have qualifying expenses
-Cannot be a dependent of another person california returns - correct answer-For every federal return, there may be a state return that comes along in this case. VITA at UCLA only prepares California state returns. California Resident vs. Non-resident - correct answer-Based on intent and the facts that are presented by the client california resident - correct answer--Present in CA for other than temporary purposes or lives in CA but located outside CA temporarily -Files Form CA 540 and must report worldwide income California Non-resident - correct answer--Present in CA for temporary or transitory purpose -Ex: Out of state students -Files Form CA 540NR and must report CA income only Nonrefundable California Renter's Credit - correct answer-nonrefundable credit for California residents paying rent on property taxpayer qualifies for Nonrefundable California Renter's Credit if - correct answer-- Was not a minor living with a parent or a guardian. -Paid rent for half or more of the tax year on principal residence. -The rented property is not exempt from property tax (University apartments do not qualify) foreign student/nonresident return - correct answer-nonresident is an individual who is not a US citizen how does VITA help international students? - correct answer-with F-1/J-1 visas file their nonresident tax return (1040-NR) tests to determine whether or not someone is a resident/alien - correct answer- Green Test/ Substantial Presence Test (SPT) Green Card Test - correct answer-if an individual has a green card anything during the tax year, they are considered residents green card - correct answer-alien registration card issued by US Citizen and Immigration Services Substantial Presence Test - correct answer-determines if an individual has stayed in the US for a substantial amount of time
Individual qualifications of the Substantial Presence Test - correct answer--must be present in the US for 31 days of the current tax year and present in the US for 183 days during the past 3 years -exclude days spent for medical purposes or commute for work exemption for individual under Substantial Presence Test - correct answer--students present under an F, J M, or Q visa -teachers present under J or Q visa -individual is exempt from the Substantial Presence Test and will be considered a nonresident for a certain # of years non-resident and exempt individuals - correct answer--must file form 8843 for themselves and spouse/kids individual exemption years for students - correct answer-Years 1-5: exempt from SPT and file as nonresident After Year 5: use SPT and may file as resident individual exemption years for teachers - correct answer-Years 1-2: exempt from SPT and file as nonresident After Year 5: Use SPT and may file as resident nonresident filing statuses - correct answer--nonresident considered married regardless of which country they are officially married in -"married nonresident alien" filing status is equal to MFS but VITA is able to assist nonresidents in this case nonresident filing status for married - correct answer-if married to US citizen or resident alien, both can elect to file 1040 under MFJ -vita advise them to go to a professional because signed declaration must be made dependents for Non-resident aliens - correct answer--non-resident aliens cannot claim dependents -exception are non-residents from Canada, Mexico, S Korea, and India income for non-resident aliens - correct answer--non-residents only report income that they made in the US -interest income for banks are exempt for all non-resident -must file Schedule OI or Schedule Other Information treaties for non-resident aliens - correct answer--often times non-resident aliens will have treaties from their countries -agreements made between the US and respective country that allows favorable tax treatment of certain income -tax treaties located in Publication 4011 Schedule OI - correct answer--helps identify which country the individual is from and what treaties they are trying to claim -Form used to report details about the nonresident individual such as native country, travel dates, days present, and tax treaty amounts
Form 8843 - correct answer--The form will indicate how many days the individual should not be included -Indicates the type of visa the individual was on -Does not necessarily need income to file the form (can be standalone) -Due on June 15th, 2020 instead of April 15th 3 nonresident filling statuses - correct answer--Single nonresident alien -Married nonresident alien (considered MFS, out of scope) -Qualifying widower (very uncommon) -An individual is considered married regardless of the country -Resident alien and a nonresident can elect to filing MFJ (we do not do) tax treaty - correct answer--Agreements made between the U.S. and the respective country that allows a favorable tax treatment of certain income -Nonresident aliens cannot take the standard deduction; they must itemize income for nonresidents - correct answer--Only income earned in the U.S. is taxed for nonresident aliens -However, if a treaty exists between the U.S. and the respective country, adjustments must be made China treaty - correct answer--Exempts $5,000 of income from wages -Interest income on personal bank accounts such as Wells Fargo and Chase are exempt Canada treaty - correct answer--Allows a $10,000 exemption of wages (any wage UNDER $10,000) -Interest income on personal bank accounts such as Wells Fargo and Chase are exempt India treaty - correct answer--Allows the individual to take the standard deduction -Interest income on personal bank accounts such as Wells Fargo and Chase are exempt how does VITA help nonresident? - correct answer-students with f visas teachers and professors with j visas resident alien - correct answer-foreign nationals who are generally subject to tax in the same manner as a US citizen SPT mathmatical test - correct answer-183= 3rd year (days x 1/6) + 2nd year (days x 1/3) + 1st year (current year days x 1) Form 1042-S - correct answer-A form used to report and to describe income earned by a nonresident and their withholdings Form 1042-S lines - correct answer--Income Code (16, 19, 20) -Gross Income -Exemption Code -Withholdings
1042-S Method - correct answer--Assuming the individual filled out the proper forms regarding taxes from UCLA and/or their department, their scholarship income will be shown on -income code 16 -should match their 1098-T and BruinBill -put into scholarship income nonresident alien students - correct answer--do not have to pay FICA taxes -In the case that the employer withheld FICA taxes, students can file Form 843 to request an abatement -Exemptions no longer exist (or it became $0 technically) for both residents and nonresident aliens Nonresident Returns: California 540NR - correct answer--Used to report only California income -Non-residents for federal purposes, tend to be nonresidents for California CA540NR method - correct answer--California pulls all numbers from Federal (Column A) -Must adjust using Column B and C to get columns D (Federal income + recognized adjustments from CA) -Final taxable portion of income us Column E two types of W-2s - correct answer--Tax treaty already applied: Fill "Income Exempt from Tax" only -Tax treaty not applied: Fill "General Information" AND "Income Exempt from Tax"