Tax Section 4 - Tax Updates

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Student Instructions:

1. Read the reading material and answer the questions on this page.

2. Submit the answers to the Assignment Online (the questions on this page).

3. Complete a short quiz on the reading material: Short Quiz online. You have 40 minutes to complete this quiz. You must study the reading material. You won't have time to look up questions in the reading material. If you don't pass, you can retry - Every time you try the questions will be different.

   So just to recap: for every section or topic you will submit an assignment (step 2) and a short quiz (step 3). Once these two items are submitted, a certificate will be issued to you.

Why Are you confused? Ok, when something is underlined, it usually means it is a live link. You can click on a live link and it will take you somewhere else. In this case you can click on this link to go answer the questions online. Many people are calling asking what to do, because they only see these options underlined, with no "click here" stickers all over the place. Step 1 above is asking you to read the material and answer the questions on this page. That means you scroll down to end of the page starting with question 1 all the way to the last question. Then you come back and complete step 2 which is asking you to submit the Answer sheet online (see? it is underlined, that means that you can click on it and it will take you to the answer sheet online. By the way, Read. Then do Step 3. Notice they are underlined, that means it is a live link that you can click on to go to. Once you do section 1, go on to section 2, and continue following the same steps with all sections until you complete section 7.

Another frequent question is: Where is the reading material? There is no missing it. If you are reading the questions, starting with question 1, right before it, it says "Use publication x to complete this topic. You can click on the underlined options as that means it is a live link to get the publication online.

Important: If you fail a topic you can try again until you pass. However, you cannot try again until 24 hours later. This will give you enough time to study and review the reading material.

Section 4 - Updates

Please use the IRS Tax Changes to complete this section.

1. For single filers in tax year 2009 the AMT exemption amount has increased to

A. $46,700
B. $70,950
C. $35,475
D. $6,700

2. If you claim a regular tax deduction for any state or local sales or excise tax on the purchase of a new motor vehicle, that tax is

A. Not allowed as a deduction for the AMT.
B. Also allowed as a deduction for the AMT.
C. 90% of the tax is allowed as a deduction for the AMT.
D. Only amount above $100 are allowed as a deduction for the AMT.

3. In 2009, the rules regarding the age of a child whose investment income may be taxed ate the parent's tax rate have changed to the following:

A. The rules continue to apply to a child under age 18 at the end of the year.
B. The rules will apply in certain cases to a child who was age 19 at the end of 2009 and did not have earned income that was more than half of the child's support.
C. The rules will apply in certain cases to a child who was a full-time student over age 19 and under 24 at the end of 2009 and did not have earned income that was more than half of the child's support.
D. Any of the above.

4. Beginning in 2009, the following statement is not correct regarding the definition of a qualifying child.

A. To be your qualifying child, a child must be younger than you unless the child is permanently and totally disabled.
B. A child cannot be your qualifying child if he or she files a joint return, unless the return was filed only as claim for refund.
C. If the parents of a child can claim the child as a qualifying child but no parent so claims the child, no one can claim the child as a qualifying child unless that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child.
D. Your child is a qualifying child for purposes of the child tax credit even if you cannot claim an exemption for him or her.

5. For tax year 2009, qualified individuals with small businesses may be eligible to maker smaller estimated tax payments. If you qualify, your required annual payment for 2009 is the smaller of 90% of the tax shown on your 2008 tax return or 90% of the tax shown on your 2009 tax return. You are a qualified individual if

A. More than 50% of your gross income was from a business that had an average of fewer than 500 employees in 2008.
B. Your adjusted gross income in 2008 was less than $500,000 ($250,000 if you are filing married filing separately for 2009).
C. Both A and B above.
D. Less than 50% of your gross income was from a business that had an average of fewer than $500 employee in 2008.

6. The following are are itemized deductions you can take on Schedule A for 2009, except

A. State or local sales and excise taxes imposed on the purchase of a new motor vehicle after February 16, 2009, and before 2010.
B. The convenience fee you are charged by the card processor to pay using your credit or debit card.
C. Long-Term care premiums.
D. None of the above

7. The following is a true statement regarding the economic recovery payment.

A. The $250 payments are being made to most people who receive social security benefits, supplemental security income (SSI), railroad retirement benefits, or veterans disability compensation or pension benefits. 
B. The $250 payments are being made to most people who live in a U.S. state, the District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, or the Northern Mariana Islands.
C. Any economic recovery payment you receive during 2009 is not taxable.
D. All of the Above.

8. You may be able to take this credit if you have earned income from work. even if your federal income tax withholding is reduced during 2009 because of the credit, you must claim the credit on your return to benefit from it.

A. Making work pay credit.
B. Government retiree credit.
C. Economic recovery credit.
D. All of the above.

9. You can take this credit if you receive a pension or annuity payment in 2009 for service performed for the U.S. Government or any U.S. state or local government (or any instrumentality of one or more of these) and the service was not covered by social security.

A. Making work pay credit.
B. Government retiree credit.
C. Economic recovery credit.
D. All of the above.

10. The Making work pay credit is 6.2% of your earned income but cannot be more than $400 for single filers or $800 for married filing joint filers. This credit will be reduced if

A. You receive a $250 economic recovery payment during 2009.
B. Your modified AGI is more than $75,000 or $150 if married filing jointly.
C. You take the government retiree credit.
D. Any of the above.

11. For tax years 2009 and 2010, changes have been made to the Hope credit. All of the following statements are true regarding the changes, except

A. The modified credit is now referred to as the American opportunity tax credit (AOC).
B. The AOC can now be claimed for the first two years of post-secondary education.
C. The term "qualified tuition and related expenses" has been expanded to include expenditures for "course materials" which includes books, supplies, and equipment needed for a course of study whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.
D. The maximum amount of the AOC increases to $2,500 per student.

12. The following change is in effect beginning in tax year 2009 for the Health Coverage Tax Credit.

A. Increase in the amount of the health coverage tax credit (HCTC for coverage months beginning after April 2009 and before 2011 the credit increases to 80%.
B. Effective as of February 17, 2009, qualified health insurance is expanded to include coverage under an employee benefit plan funded by a voluntary employees' beneficiary association.
C. For coverage months beginning after February 2009 and before 2011, training and waiver requirements have changed for TAA recipients, making it easier for them to be eligible for the HCTC.
D. All of the above.

13. A new law that went into effect November 6, 2009 that extended the First-time Homebuyer Credit to April 30, 2010. The maximum credit amount remains at $8,000 for a first-time homebuyer. A first-time homeowner is

A. A buyer who has never owned a home.
B. A buyer who has not owned a primary residence during the three years up to the date of purchase.
C. A buyer who owns a primary residence and has never purchased a secondary residence.
D. A buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years.

14. The following is a restriction on purchases that occur after November 6 that go into effect with the new law for the first-time homebuyer credit.

A. Dependents are not eligible to claim the credit.
B. No credit is available if the purchase price of a home is more than $800,000.
C. A purchaser must be at least 18 years of age on the date of purchase.
D. All of the above

15. Gain from the sale or exchange of the main home is no longer excludable from income if allocable to periods of nonqualified use. Generally, nonqualified use means any period after 2008 where neither your nor your spouse (or former spouse) used the property as a main home (with certain exceptions). A period of nonqualified use does not include:

A. Any portion of the 5-year period ending on the date of the sale or exchange that is after the last date you (or your spouse) use the property as a main home. 
B. Any period during which you or your spouse is not serving on qualified official extended duty.
C. Any portion of the 15-year period ending on the date of the sale.
D. Any of the above.

16. Generally, a personal casualty or theft loss must exceed ______ to be allowed in 2009. This is in addition to the 10% of AGI limit that generally applies to the net loss.

A. $1,000
B. $850
C. $500
D. $100

17. For tax years beginning after July 2, 2008 (the 2009 calendar year for most taxpayers), new rules apply to allow the custodial parent to revoke a release of claim to exemption that was previously released to the noncustodial parent on Form 8332, or similar form. The revocation is effective no earlier than the tax year following the year in which the custodial parent provides, or makes reasonable efforts to provide, the noncustodial parent with written notice of the revocation. Therefore, if the custodial parent provides notice of revocation to the noncustodial parent in 2009, the earliest tax year the revocation can be effective is the tax year beginning in

A. 2009
B. 2010
C. 2011
D. 2012

18. Beginning January 1, 2009, you may be reimbursed for reasonable expenses of qualified bicycle commuting. Reasonable expenses include the purchase of a bicycle of and bicycle improvements, repair, and storage. The exclusion for a calendar year is ______ multiplied by the number of qualified bicycle commuting months during that year.

A. $230.
B. $120.
C. $60.
D. $20.

19. The non-business energy property credit, which expired after 2007, has been reinstated. You may be able to claim a non-business energy property credit of ______ of the cost of certain energy-efficient property or improvements you placed in service in 2009.

A. 30%
B. 20%
C. 10%
D. 50%

20. Beginning in 2009, there is _______ on the credit amount for qualified solar electric property costs, qualified solar water heating property costs, qualified small wind energy property costs, and qualified geothermal heat pump property costs.

A. A 30% limitation.
B. A 20% limitation.
C. No limitation.
D. 10% limitation.

21. The Affordable Care Act was enacted on March 23, 2010. However, it does not contain tax provisions that take effect this year.

True False

22. This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low and moderate income workers.

A. Excise Tax on Indoor Tanning Services.
B. Small Business Health Care Tax Credit.
C. Affordable Care Act.
D. Non-Business Energy Property Credit.

23. Health coverage for an employee's children is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. This coverage is available for an employee's

A. Children under 14 years of age.
B. Children under 17 years of age.
C. Children under 24 years of age.
D. Children under 27 years of age.

24. If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is

A. Excluded from income up to the amount of VA disability benefits you would have been entitled to receive.
B. Excluded from income up to the amount of VA disability benefits you actually received.
C. Include in income up to the amount of VA disability benefits your received.
D. Totally excluded from your income.

25. If you do not file your return by the due date (including extensions) you may have to pay a failure-to-file penalty. The minimum penalty is

A. $135.
B. 100% of the unpaid tax.
C. The smaller of A or B above.
D. The greater of A or B above.

26. The new deduction for sales and excise taxes imposed on purchase of new motor vehicle can be used to increase the amount of your standard deduction.

True False

27. You must use Schedule L (Form 1040A or 1040) to figure your standard deduction if

A. You paid state or local real estate taxes in 2009.
B. You have a net disaster loss on Form 4684, line 18.
C. You paid state or local sales or excise taxes (or certain other taxes or fees in a state without a sales tax) on the purchase of any new motor vehicle (s) after February 16, 2009, and before January 1, 2010.
D. Any of the above.

28. For 2009, the standard mileage rate for the cost of operating your car for medical reasons or as part of a deductible move is

A. 14 cents per mile.
B. 24 cents per mile.
C. 55 cents per mile.
D. None of the above.

29. If you pay a household employee cash wages of less than _____ in 2009, you do not have to report and pay social security and Medicare taxes on that employee's 2009 wages.

A. $1,700
B. $1,600
C. $1,000
D. $7,000

30. The Affordable Care Act provides a one-time $2500 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan's coverage gap.

True False

31. For 2009, qualified individuals with small businesses may be eligible to make smaller tax payments. If you qualify, your required annual payment for 2009 is the smaller of 90% of the tax shown on your 2008 tax return or 90% of the tax show on your 2009 tax return. You are a qualified individual if

A. More than 50% of your gross income was from a business that had an average of fewer than 500 employees in 2008.
B. Your adjusted gross income in 2008 was less than $500,000 ($250,000 if you are filing married filing separately for 2009).
C. Both A and B above.
D. None of the above.

32. If you pay your income tax (including estimated tax payments) by credit card, you can deduct the convenience fee you charged by the card processor to pay using your credit or debit card.

True False

33. If you are entitled to an economic recovery payment, you will get it automatically. You don't need to apply for it.

True False

34. Generally, you will use new Schedule M (Form 1040A or 1040) to figure both the making work pay credit and the government retiree credit. Both credits are refundable. If you are filing Form 1040EZ,

A. You can take the making work pay credit on that form and do not have to file Schedule M.
B. You cannot take the credit. You must file Form 1040A or 1040 to take the credit.
C. Payments you made may give you a refund even if you had not tax withheld.
D. None of the above.

35. An individual who redeems qualified U.S. savings Bonds to pay for higher education expenses is not able to exclude the interest income from gross income.

True False

36. For tax years 2009 and 2010, the following are changes that have been made to the Hope Credit, except

A. The modified credit is now referred to as the American opportunity tax credit (AOC).
B. The maximum amount of the AOC increased to $2,500 per student.
C. The AOC can only be claimed for 2 years of post-secondary education.
D. Generally, 40% of the AOC is now a refundable credit, which means that you can receive up to $1,000 even if you owe no taxes.

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Revised: 05/14/12