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1040 Exam Prep Newsletter
For tax preparers who are serious about becoming a Registered Tax Return Preparer |
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Greetings!
Greeting fellow tax return preparers! This is issue No.12 of the 1040 Exam Prep Newsletter, the publication that aims to tune you in to the registered tax return preparer process by providing the information you need to success in the competency exam.
I am aware that a great number of tax return preparers who must meet the competency examination requirements to become registered tax return preparers may not have been students students for a long-time and they may feel challenged by the process of preparing for and/or taking the exam.
If this is your case, it is understandable that you would be apprehensive and are wondering whether you will succeed in passing the RTRP competency exam.
From my experience, absolutely anybody can pass the exam at the first attempt with the appropriate preparation, even if you have not taken an exam for a long time.
The key to your success in passing the RTRP exam is to reach a mix of solid knowledge foundation on the subject of tax, confidence, and stamina. During the time you will spend inside the testing room, you will be tested on your overall preparation and that includes more than just your knowledge of how to prepare an accurate and complete income tax return.
Your preparation should include working on developing your mindset to allow you be focus, concentrate, and remain positive, fresh, relaxed, and shining your best energy in order to deliver your best performance in your exam. That also requires some preparation.
Your goal should be to leave the testing room feeling satisfied that you did your very best.
Last Tuesday issue of this 1040 Exam Prep Newsletter presented a brief scan of Form 1040-page 1. As a follow up, this issue is about Page 2 of Form 1040.
In the practice section of the Newsletter, a question in multiple-choice and/or true/false format continues to be provided. Want to get it right inside the testing room? You should master the exam topics outside the room, first!! So, to get it right, you've got to get it!
In the "Grasping concepts" section, today's term is "casualty losses".
I hope you enjoy this issue of 1040 Exam Prep Newsletter! Please, visit our blog and access other similar articles..
http://1040examprep.com/blog/
Cheers,
Norma Wahnon
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Newsletter Issue # 12: [Registered Tax Return Preparer Exam Articles Series] Becoming Familiar with Form 1040 - Page 2. |
A close look at the list of IRS recommended study materials for the IRS Competency Exam to become A RTRP.
Becoming familiar with Form 1040 - Page 2
As an extension of the previous article "Becoming familiar with Form 1040 - Page1, we analyze here the Page 2 of Form 1040.
Inasmuch as the IRS competency examination is oriented toward Form 1040 tax return preparation, a thorough understanding of the tax concepts as weas the mechanic of income tax return preparation using Form 1040 is crucial to success
in the IRS exam.
- Tax and Credits;
- Other Taxes;
- Payments;
- Refund;
- Amount You Owe; and
- Signing information part.
Form 1040 Page 2 starts with adjusted gross income which was the result obtained on Page 1. Remember that the amount of Adjusted Gross Income is calculated in Page 1 of Form 1040 by subtracting allowable deductions from gross income to obtain the AGI. This amount is transferred form the last line of Page 1 to the first line on Page 2 of the form.
Following the algebraic sum of the entries made in each line on Page 2 of Form 1040, three important amounts are determined on this page (Page 2):
- Taxable income
- Tax liability
- Tax refund or tax due
Taxable income is determined by subtracting two amounts from the AGI or Adjusted Gross Income:
- The greater of the Standard Deduction or the total Itemized Deductions (from Schedule A), and
- The personal and the dependents' exemptions
The amount obtained is the Taxable Income. A tax rate is applied to this amount to obtain the tax liability.
The tax rate is obtained from either the Tax Tables or from the Tax Rate Schedule.
From the tax liability amount obtained in the last step we will deduct both tax credits, if applicable, and income taxes withheld and prepaid, to arrive at the amount of TAX DUE or TAX REFUND.
Tax due or tax refund is the end result of the Form 1040 calculations.
Understanding all the parts of Form 1040 is a must for the IRS Competency Exam as well as for the tax return preparer's professional practice. Keeping a mental picture of the parts and lines of this form will help you immensely to understand the mechanism of the income tax return preparation process for individuals.
Next article of this series: "Becoming familiar with Circular 230" |
To get it right, you've got to get it! |
Practice, practice and more practice
Topic: Alimony deduction
Tana's divorce decree requires Tana to make the following transfers to Tana's former spouse during the current year:
- Alimony payments of $3,000.
- Child support of $2,000.
- Property division of stock with a basis of $4,000 and a fair market value of $6,500.
What is the amount of Tana's alimony deduction?
a. $3,000
b. $7,000
c. $9,500
d. $11,500
ANSWER:
RULE: Alimony payments to a former spouse are adjustments to arrive at AGI. Child support payments are NOT alimony and are NOT deductible. Property settlements are NOT alimony and are NOT deductible.
Choice "a" is correct. Only the amount of alimony ($3,000) is allowed as Tana's alimony deduction.
Choice "b" is incorrect. The basis of property division of stock ($4,000) is NOT alimony and is NOT deductible, but the $3,000 in alimony paid is deductible.
Choice "c" is incorrect. The fair market value of property division of stock ($6,500) is NOT alimony and is NOT deductible, but the $3,000 in alimony paid is deductible.
Choice "d" is incorrect. The fair market value of property division of stock ($6,500) and the child support ($2,000) are NOT alimony and are NOT deductible, but the $3,000 in alimony paid is deductible.
(Source: AICPA Newly-Released Regulation Questions) |
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Learning tax concepts: definitions
Tax Term:
Casualty loss (Perdida fortuita).
A casualty is defined as "the complete or partial destruction of property resulting from an identifiable event of a sudden, unexpected or unusual nature" (e.g., floods, storms, fires, auto accidents). Individuals may deduct a casualty loss only if the loss is incurred in a trade or business or in a transaction entered into for profit or arises from fire, storm, shipwreck, or other casualty or from theft.
Individuals usually deduct personal casualty losses as itemized deductions subject to a $100 nondeductible amount and to an annual floor equal to 10 percent of adjusted gross income that applies after the $100 per casualty floor has been applied (the $100 floor was modified to $500 for 2010; for 2011 is $100). Special rules are provided for the netting of certain casualty gains and losses .
 | | From 1040 Exam Prep e-Books Series |
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