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Happy Thursday! Take note of the black-out period for the RTRP competency exam....
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On the blog's weekly article post, we continue on the topic of practice and procedures section of the IRS outline for RTRP competency exam.
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Norma Wahnon
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In addition to Internal Revenue Code Section 6695 - "Other assessable penalties with respect to the preparation of tax returns for other persons", analized in Part I of this articles series, there are other sections of the Internal Revenue Code under Title 26 that set penalties for tax return preparers, which are summarize in this article.
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Mutiple Choice Practice QuestionAdjusted Gross Income
Cole earned $3,000 in wages, incurred $1,000 in unreimbursed employee business expenses, paid $400 as interest on a student loan, and contributed $100 to a charity. What is Cole's adjusted gross income?
a. $3,000
b. $2,600
c. $2,500
d. $1,600
Solution:
Choice "b" is correct. Adjusted Gross Income (AGI) is gross income less adjustments or deductions to arrive at AGI. $3,000 in wages is part of gross income. The only adjustment listed is $400 in student loan interest, resulting in an AGI of $2,600.
Choice "a" is incorrect. Student loan interest is a deduction to arrive at AGI.
Choice "c" is incorrect. Charitable contributions are itemized deductions subtracted from AGI.
Choice "d" is incorrect. Unreimbursed employee business expense is an itemized deduction subtracted from AGI.
(Source: Questions and answers published by AICPA)
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Tax term definition section |
Tax term definition
"Community property"
The difference between common law and community property systems centers around the property- rights possessed by married persons. In a common law system, each spouse owns whatever he or she earns. Under a community property system, one-half of the earnings of each spouse is considered owned by the other spouse. Assume, for example, Alice and Jeff are husband and wife and their only income is the $50,000 annual salary Jeff receives. If they live in New York (a common law state), the $50,000 salary belongs to Jeff. If, however, they live in Texas (a community property state), the $50,000 salary is divided equally, in terms of ownership, between Jeff and Alice.
Louisiana, Texas, New Mexico, Arizona, California, Washington, Idaho, Nevada, and Wisconsin have community property systems. In Alaska, spouses can choose to apply the community property rules. The rest of the states are classified as common law jurisdictions
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