Maria’s husband died in 2023. She hasn’t remarried. Her dependent son lived with her all of 2025, and she paid more than half the cost of keeping up the home. What is the most favorable filing status Maria can use for 2025?
Qualifying surviving spouse For the year a spouse dies, the survivor can usually file jointly. For the next two years, a survivor with a dependent child who lives in the home, and who pays more than half the cost of the home, can file as a qualifying surviving spouse. 2025 is the second year after 2023, so Maria qualifies, and that status uses the joint-return rates and standard deduction.
All of the following are tests a child must meet to be a qualifying child, EXCEPT:
Gross income test A qualifying child must meet the relationship, age, residency, support and joint return tests. There’s no gross income test for a qualifying child. The gross income test belongs to a qualifying relative.
Dan, who is single, sold his main home in 2025 for a gain of $300,000. He owned it and lived in it for the past 10 years and hasn’t excluded gain on another home sale in the last two years. He never used the home for business or rental. How much of the gain is taxable?
$50,000 Under section 121, a single taxpayer who owned and lived in a main home for at least two of the five years before the sale can exclude up to $250,000 of gain. Dan’s gain is $300,000, so $50,000 is taxable.
Lena inherited stock from her father. His basis was $10,000, and the fair market value on the date of his death was $40,000. No alternate valuation was elected. Three months later Lena sold the stock for $45,000. How should she report the sale?
$5,000 long-term capital gain Inherited property generally takes a basis equal to its fair market value on the date of death, so Lena’s basis is $40,000 and her gain is $5,000. Inherited property is always treated as held for more than one year, so the gain is long-term no matter how soon she sells.
Jen and Omar are married and file separate returns for 2025. Omar itemizes his deductions. Which statement about Jen is correct?
She must itemize, and her standard deduction is zero When married people file separately and one of them itemizes, the other can’t take the standard deduction. Their standard deduction is zero, so they must itemize, even if their itemized deductions are small.
Which education credit can be claimed for any number of years, including for a single course taken to improve job skills?
Lifetime learning credit The lifetime learning credit has no limit on the number of years it can be claimed, and it covers courses to get or improve job skills, not just degree programs. The American opportunity credit is limited to four tax years and requires at least half-time enrollment in a degree or credential program.
Sara, a US citizen, has two bank accounts in Canada. During 2025 the highest balance in one was $6,000 and in the other $5,000, at different times of the year. Neither account was ever above $10,000 on its own. What is her FBAR obligation?
She must file FinCEN Form 114, because the combined maximum values were over $10,000 An FBAR is required when the aggregate of the maximum values of a US person’s foreign financial accounts is more than $10,000 at any time during the year. You add up each account’s highest balance, even if they peaked at different times. $6,000 plus $5,000 is $11,000, so Sara must file FinCEN Form 114 electronically with FinCEN.
All of the following can be shareholders of an S corporation, EXCEPT:
A nonresident alien individual S corporation shareholders must be eligible: generally US citizens or resident individuals, estates, and certain trusts and exempt organizations. A nonresident alien can’t be a shareholder. If one acquires stock, the S election terminates.
Ray contributes land to a partnership in exchange for a 25% interest. His adjusted basis in the land is $30,000 and its fair market value is $50,000. The land isn’t subject to any debt. What is Ray’s basis in his partnership interest?
$30,000 Generally no gain or loss is recognized when property is contributed to a partnership for an interest. The partner’s basis in the interest equals the money plus the adjusted basis of the property contributed. Ray’s basis is $30,000.
A domestic LLC has two members and has never filed an entity classification election. How is it treated for federal tax purposes?
As a partnership, filing Form 1065 Under the default classification rules, a domestic LLC with two or more members is treated as a partnership unless it elects otherwise on Form 8832 or Form 2553. A single-member LLC is disregarded by default.
In 2025, a sole proprietor spends $200 on a business dinner with a client, where business is discussed and the owner is present. On a different day she spends $300 on tickets to take the same client to a basketball game. Neither expense is lavish. How much can she deduct?
$100 Business meals that meet the rules are generally 50% deductible, so the dinner gives $100. Entertainment expenses, such as tickets to sporting events, aren’t deductible at all. The total deduction is $100.
A business sells equipment it bought for $50,000. It had taken $30,000 of depreciation, leaving an adjusted basis of $20,000. The sale price is $45,000. How is the $25,000 gain treated?
$25,000 ordinary income from depreciation recapture Equipment is section 1245 property. Gain on its sale is ordinary income up to the depreciation taken. The depreciation was $30,000 and the gain is only $25,000, so the whole gain is recaptured as ordinary income.
A tax-exempt organization has gross income of $5,000 from an unrelated trade or business for the year. What return must it file to report this income?
Form 990-T An exempt organization with $1,000 or more of gross income from an unrelated trade or business must file Form 990-T. This is in addition to any annual information return in the Form 990 series.
Kim actively participates in managing her rental house, which has a $30,000 loss for the year. She isn’t a real estate professional, has no other passive income, and her modified adjusted gross income is $120,000. She files as single. How much of the rental loss can she deduct this year?
$15,000 Active participants can deduct up to $25,000 of rental real estate losses against other income. The allowance drops by 50% of modified AGI over $100,000. Kim’s MAGI is $20,000 over, so the allowance falls by $10,000 to $15,000. The other $15,000 is carried forward.
Under Circular 230, how much continuing education must an enrolled agent complete in each three-year enrollment cycle?
72 hours, with at least 16 hours each year including 2 hours of ethics Enrolled agents need 72 hours of continuing education every three years. At least 16 hours must be completed each year, and 2 of those must be on ethics. Over the cycle that’s 66 hours of qualifying CE plus 6 hours of ethics.
A client ends her relationship with an enrolled agent and asks for her records back. She hasn’t paid the agent’s fee. Under Circular 230, what must the agent generally do?
Return the client’s records needed to comply with her federal tax obligations, though the agent may keep copies Circular 230 §10.28 says a practitioner must, at the client’s request, promptly return any and all client records needed for the client to comply with federal tax obligations. A fee dispute generally doesn’t change that. The practitioner may keep copies.
A paid tax return preparer must keep a copy of each return prepared, or a list of the taxpayers’ names and identifying numbers, for how long?
3 years after the close of the return period Under IRC section 6107(b), a preparer must keep a completed copy of each return, or a list of taxpayer names and identifying numbers, and make it available to the IRS for 3 years after the close of the return period.
A taxpayer wants her bookkeeper to be able to receive and inspect her confidential tax information, but not to represent her before the IRS. Which form should she file?
Form 8821 Form 8821, Tax Information Authorization, lets a taxpayer name any person to inspect or receive their confidential tax information. It doesn’t authorize that person to represent the taxpayer. Representation requires Form 2848, which can name only people eligible to practice.
A taxpayer in the United States receives a statutory notice of deficiency (a “90-day letter”). Generally, how long does she have to file a petition with the US Tax Court?
90 days A taxpayer generally has 90 days from the date of the notice of deficiency to petition the Tax Court, or 150 days if the notice is addressed to someone outside the United States. Filing on time lets her dispute the tax before paying it.
Which form does a taxpayer sign to authorize an electronic return originator (ERO) to enter or generate the taxpayer’s PIN as the signature on an e-filed individual return?
Form 8879 Form 8879, IRS e-file Signature Authorization, is how the taxpayer authorizes the ERO to use a PIN as the electronic signature. The ERO keeps it and doesn’t send it to the IRS unless asked.
United States · Licensing exam