2012 Continuing Education Course Sample - A & B Office 2012 Sample.pdf · 2012 Syllabus CTEC...

Page I of 154Copyright © 2012 A & B Offi ce, Income Tax School. All Rights Reserved

A & B OfficeIncome Tax Training School

IRS & CTEC20 Credit Hours • 15 Hours Internal Revenue Service

• 5 Hours California

2012

Course Completion Deadline: January 15, 2013

Table of Contents

Federal:1. What’s New 1 2. Individual Income Tax Return 223. Itemized Deductions 40 4. Business Income 29 5. Business Deductions 72 6. Ethics and Responsibilities of Tax Professionals 115

California:7. California Tax 131 • Update 131 • Taxation of California Residents 143

Final Test Questions and Guide 1

Interactive Self-Study CE Course

Continuing Education Course

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Page II of 154Copyright © 2012 A & B Office, Income Tax School. All Rights Reserved

April 2012

Dear Tax Professional,

Thank you for your interest in A & B Office Income Tax School’s California Registered Tax Return Preparer continuing education course. This course fulfills the new IRS and California Tax Education Council requirements. This year we have developed a special program for Registered Tax Return Preparer (RTRP’s) who must comply with both CTEC and IRS guidelines beginning in 2012. Our unique course satisfies the new IRS 15 hours and CTEC 5 hours requirements; 20 hours of total CE. We hope that this all-inclusive course, developed exclusively for California tax professionals, will help point your 2012/2013 tax year research and education in the right direction.

As you know, nothing can replace professional expertise and experience. Tax laws and regulations, more than ever, change quickly and frequently and the application of these laws can vary widely based upon the specific facts and circumstances involved.

This study material was completed in April of 2012. By the time you read this material, the government’s new rulings and recent developments might change the landscape for the remaining months of 2012. It is impor-tant for you to determine whether the information and interpretations provided in the following pages are accu-rate. Most importantly, consider how the new tax law would apply to your practice and to your clients.

Again, we thank you for your interest in A & B Office and in our complete line of CE and professional enrichment courses. If you have any questions, please don’t hesitate to contact us at (818) 453-0674.

Sincerely,

The Authors and Staff of A & B Office Income Tax Training School.

We are proud to be the first school to provide CTEC your education & credit hour(s) information INSTANTLY!

DISCLAIMER OF LIABILITY: All information in this course (collectively, “Information”) is for educational and infor-mational purposes only and is not necessarily legal, tax advice, or opinions of any specific matters. Tax laws and regulations change frequently, and their application can vary widely based upon the specific facts and circumstances involved. The provi-sion of Information by A & B Office (the school) is not intended to create, and your receipt does not constitute, any form of relationship between the school and you. You, and not the school, are responsible for the applicability and accuracy of this information as it relates to your practice or to your clients.

A&B OfficeIncome Tax Training School

12432 Oxnard St. North Hollywood, CA, 91606

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Page III of 154Copyright © 2012 A & B Office, Income Tax School. All Rights Reserved

A & B Office Income Tax Training School

IRS & CTEC Continuing Education Course2012 Syllabus

CTEC REQUIREMENTS:Once you become a California Registered Tax Preparer, you must complete and pass a 20 hours continuing education course annually. All registered tax preparers must complete the 20 hours course by October 31st in order to maintain an active status. Upon completion of our CTEC-approved continuing education course, we will provide each student a Certificate of Comple-tion as proof of passing the course - CTEC course No. 1057-CE-0001. The course consists of 10 hours of federal taxation, plus 2 hours of ethics, plus 3 hours of Federal Tax Law updates, and finally 5 additional hours of California taxation and other related topics. CTEC and the IRS define each study hour to be 50 minutes. Our school reports all passing students to CTEC electronically and instantly. The only pre-requisite to take this 20 hours course is to be a registered tax preparer in California and have a valid CTEC identification number.

IRS REQUIREMENTS:California Senate Bill 944 took effect January 1, 2012. CTEC announced that to help lighten the load on CRTP’s they will not be forced to complete “double” educational requirements. CTEC conformed its federal continuing education rules to the IRS. CTEC changed continuing education requirements from 12 hours federal, 4 hours state, 2 hours ethics, plus 2 hours federal and/or state to 15 hours federal and five hours state of California. The new federal hours are: three hours of updates on federal tax law, two hours of ethics and ten hours of federal tax law. Our 2012 CE course satisfies these educational requirements.

COURSE DESCRIPTION:Availability: The 20 hours CRTP course is available for 2012; the final test must be submitted online, mailed, or faxed by January 15, 2013. Grading plan: Examinations are open book with true or false and multiple-choice questions. The passing grade is 70% or better. If you do not pass the first time, you may re-take the test after paying a small processing fee. Stu-dents must finish the 20 hour income tax course and achieve a 70% score or greater on the final test in order to be awarded a Certificate of Completion. You will be notified of your Certificate of Completion by e-mail. Course components and alloca-tion: The 20 hour course final exam has a weight of 100%. Second opportunity: Re-taking the final test. If you do not pass the exam you will have a second opportunity to do so. You will receive an e-mail or a letter with instructions on how to take a second test; a small processing fee will apply. If you fail the second test, you will need to buy a new course.

CONTINUING EDUCATION CORRESPONDENCE COURSE:This course is appropriate for tax professionals at all organizational levels. This course provides continuing education to enhance your competence in preparing income tax returns for individuals and small businesses. The material for this course may be downloaded from our website or it could be mailed to the student for an additional fee. The student can study the course at their own pace, e-mailing the school with any material-related questions. Test Directions: At the end of this course, you will find the final test questions and test guide. Upon completion of the course, please sign in to our website and use the test guide to transfer your answers to the online version of the test. Note that you must take and submit your final test on our website. When you finish the test you will automatically receive your score and you will be able to print your Certificate of Completion instantly; the certificate will also be saved in your account’s home page under Certificates and Documents. You can re-print your certificate at any time.

MISCELLANEOUS ITEMS:Bond. Upon completing the 20 hours continuing education course, preparers must obtain a $5,000 Tax Preparer Bond from an insurance/surety company and forward this information to CTEC. Visit our website for more information. Record retention: The school will retain a record of course participants and final exam scores for a minimum of four years. Academic honesty: Students are expected to conduct themselves in a honorable manner when studying the course. Our school is committed to ensuring that the integrity of all courses is not violated. Students found in violation of this policy will face disciplinary action.

CANCELLATIONS AND REFUNDS:If the school cancels or discontinues the course, the school will make a full refund of all charges. After the student has com-pleted and passed the course, and a certificate of completion is issued, the course is officially complete and no refunds will be issued. If the course was purchased as a correspondence course, the student has a right to a full refund of all charges less the amount of shipping & handling if he/she cancels the course agreement (in writing) prior to midnight of the tenth (10) calen-dar day after the course was mailed. Refunds will be paid within 30 days of cancellation or withdrawal.

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F E D E R A L LAW1. What’s New

This section summarizes important tax changes that took effect in 2011 and 2012. Many of these changes and updates can also be considered a recap of existing tax law.

1. NEW TAX LEGISLATION On December 17, 2010, President Obama signed into law the Tax Relief Unemployment Insurance Reau-thorization, and Job Creation Act of 2010. The Act, in essence, is an extension of the 2001/2003 Bush-era tax cuts for two years. Also, the legislation includes a payroll tax liability for 2011 and a change in the exemption amount and maximum tax rate for estate taxation.

2. TEMPORARY EXTENSION OF TAX RELIEF Temporary Extension of 2001 Tax Relief [Act §101]. The Act, by modifying the sunset provision in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), extends for two years, from De-cember 31, 2010, until December 31, 2012 the following provisions: • Reduction in Income Tax Rates For Individuals. Under pre-Act law, the 10% individual income tax bracket was set to expire at the end of 2010. Upon expiration, the lowest tax rate would have been 15%. The Act extends the 10% individual income tax bracket for an additional two years, through 2012. Under pre-Act law, the 25%, 28%, 33%, and 35% individual income tax brackets would have expired at the end of 2010. Upon expira-tion, the rates would have become 28%, 31%, 36%, and 39.6% respectively. The Act extends the 25%, 28% , 33%, and 35% individual income tax brackets for an additional two years, through 2012. • Repeal of Phase-out for Personal Exemptions. Prior to EGTRRA, provided a phase-out of the perso-nal exemption for certain higher income individuals. For 2006 through 2009, EGTRRA reduced the phase-out amount and then repealed the personal exemption phase-out (PEP) for 2010. The Act extends the repeal of PEP for an additional two years, through 2012. The personal exemptions for 2012 and 2011 is $3,800 and $3,700 re-spectively. • Phase-out of Overall Limitation on Itemized Deductions. Prior to EGTRRA, the amount of itemized deductions that a taxpayer could claim was reduced, to the extent the taxpayer’s AGI is above a certain amount. EGTRRA phased-out this reduction for 2006 through 2009 and then repealed this limitation on itemized deduc-tions for 2010. The Act extends the repeal for an additional two years, through 2012. The phase-out does not apply for 2011 and 2012. The basic standard deduction for the following years is:

• Modifications to the Child Tax Credit. Generally, taxpayers with income below certain threshold amounts may claim the child tax credit to reduce federal income tax for each qualifying child under the age of 17. Increased the credit from $500 (2001) to $1,000 (which was phased in over time). The credit is allowable against the regular tax and, for taxable years beginning before January 1, 2011 is allowed against the minimum tax.

2012 2011 2010Single or MFS $ 5,950 $ 5,800 $ 5,700MFJ or QW 11,900 11,600 11,400HOH 8,700 8,500 8,400

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2. Individual Income Tax Return (Form 1040)

1. THE BIG PICTURE HaveyouevercompletelyreadForm1040lately?Well,youshouldunderstandthestructureofthisformtosimplifyyourworkandseewhereeachtransactionfitsinthebigpicture.Movingforwardyouwillknowinadvancewherethetransactionbelongs.Forexample,willtheactionincreasetheincome,reducethetax,orincreasetherefundand/orpayment?Inotherwords,weencourageyoutocarefullystudyeachtaxsituationinordertostimulateyourmindandskills-you’llbebetterpreparedtohandlespecialissueswhentheyarise.

(1)Thisisanimportantline.Youwillneeditfrequently(forreference)whenpreparingoranalyzingtaxreturns. (2)Noticethatchildanddependentcarecreditshaveadoubleeffectonareturn.Onewhenreducingthetax, andtheotherisarefundtothetaxpayer.

Income Fromallsources:Wages,interest,dividends,alimony received,businessincome,capitalgains,IRAdistributions, pensions,rentalincome,socialsecuritybenefits,otherincome,etc. (lines7through21). XXX

Less Adjustments to Income Educatorexpenses,movingexpenses,onehalf ofself-employmenttax,alimony,IRAcontribution, studentinterestloan,tuitionandfees,penaltyonearly withdrawalofsavingsandothers(lines23through36). (XXX)

Adjusted Gross Income (AGI) XXX

Tax and Credits: Less:Standardoritemizeddeductions(line40) (XXX) Less:Exemptionforeachperson(line42) (XXX) Taxable Income XXX Tax(line44) XXX Plus:AlternativeMinimumTax(line45) XXX Plus:Othertaxes.Self-employment,unreportedsocialsecurity, additionaltaxonIRA’s,others(lines56through59) XXX

Less:Childanddependentcare,educationcredits,child taxcredit,plusothers(lines47through53) (XXX) Less:Payments: Withheldfromemployers,estimatedpayments,earnedincome credit(EIC),additionalchildtaxcredit(2),AmericanOpportunity Credit,first-timehomebuyer,excesssocialsecurity,andothers (lines61through71) (XXX)

Refund or Amount you Owe XXX

(1)

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3. Itemized Deductions1. NEW TAX LAW FOR 2011 Mileage rate changes.Thestandardmileagerateforthemedicalexpensedeductionwasincreasedforthesecondhalfof2011.Seemedicalexpensemileageratechartinpage21.Thestandardmileagerateforbusi-nessexpensesdeductionwasincreasedforthesecondhalfof2011.Thecharitablestandardmileagerateremainedat14¢fortheentireyear. State and local sales taxes.Theprovisionallowinganitemizeddeductionforstateandlocalsalestaxesinsteadofincometaxeshasbeenextendedthroughtaxyear2011. Charitable organizations with loss of tax-exempt status.TheIRSannouncedapproximately275,000organizationshavelosttheirtax-exemptstatusin2011. Charitable contribution of IRA distributions.Theprovisionallowingqualifiedcharitabledistribu-tions(QCD’s)fromIRAshasbeenextendedthroughtaxyear2011.TaxpayersmakingaQCDinJanuary2011canelecttohavethedistributiontreatedasa2010QCD.

2. MEDICAL EXPENSES Medicalexpensesaredeductibleasitemizeddeductionstotheextenttheyexceed7.5%ofAGI. Alternative minimum tax.MedicalexpensesaredeductibleforAMTpurposestotheextenttheyex-ceed10%ofAGI.Enteronline2,Form6251,thesmallerofline4,ScheduleA,or2.5%ofAGI.MedicalStan-dardMileageRate:before7/1:$ 19¢after6/30:23.5¢. AGI Limit for Medical Expenses. QualifiedmedicalexpensesaredeductibleasitemizeddeductionsonScheduleA,Form1040,totheextenttheexpensesexceed7.5%ofthetaxpayer’sAGI. What Medical Expenses Are Deductible.Medicalexpensesarethecostsofdiagnosis,cure,mitigation,treatment,orpreventionofdisease,andthecostsfortreatmentsaffectinganypartorfunctionofthebody.Theyincludethecostsofequipment,supplies,anddiagnosticdevicesneededforthesepurposes.Theymustbeprimar-ilytoalleviateorpreventaphysicalormentaldefectorillness.Studythefollowingexamples:

Deductible medical expenses Non-deductible medical expense (Includes, but not limited to) (Includes, but not limited to)•Abortion.•Acupuncture.•Alcoholismtreatment.•Ambulance.•Artificiallimb.•Artificialteeth.•Bandages,evenwithoutaprescription.•Birthcontrolpillsprescribedbyadoctor.•Braces.•Braillebooksandmagazines. •Breastpumpsandsuppliesusedforlactation.•Breastreconstructionsurgeryfollowingamastectomyforcancer.•Capitalexpenses.•Chiropractor.

•Babysitting,childcare,andnursingservicesforanormalhealthybaby.•Carinsurancepremiumsthatprovidemedicalinsurancecoverageforallpersonsinjuredbecausethepartofthepremiumforthetaxpayer,spouse,anddependentsisnotstatedseparatelyfromthepartofthepremiumformedicalcareforothers.•Cosmeticsurgerysuchasfacelifts,hairtransplants,hairremoval(electrolysis),teethwhitening,andliposuction,unlessthesurgeryisnecessarytoimproveadeformityfromacongenitalabnorma-lity,injury,ordisfiguringdisease.•Dancinglessonstoimprovegeneralhealth.•Diaperservice,unlessneededtorelievetheeffectsofadisease.•DrugsthatareillegalintheUnitedStates,orimportedillegallyintotheUnitedStates.

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4. Business Income (and Loss) Thischaptermainlyfocusesonthesoleproprietorshipasitrelatestogeneraltaxissuesandconditions.

1. WHAT’S NEW •UseScheduleCtoreportincomeanddeductionsfrombusinessorprofessionoperatedasasole proprietor.Anactivityisabusinessiftheprimarypurposeisforincomeorprofit, andthetaxpayerisinvolvedintheactivitywithcontinuityandregularity. •UseScheduleCtoreportwagesandexpensesofemployee. •Ifataxpayerownsandoperatesmorethanonesoleproprietorship,donotcombinetheactivities. Rather,fileaseparateScheduleCforeachbusinessactivity.Combiningseparate activitiesononeScheduleCcouldresultinnegligencepenalties.(Rev.Rul.81-90). •Ifataxpayerreceivesincomeasbothaself-employedindividualandanemployeeinthesameline ofwork,andexpensescannotbespecificallyidentifiedaseitherforself-employment orasanemployee-thenexpensesmustbeallocatedbetweenScheduleCandForm2106 andtheEmployeeBusinessExpenses.

2. FORMS OF DOING BUSINESS Thelegalformofyourbusinessdeterminesthewayyoureportbusinessincomeandloss,thetaxesyoupay,theabilityofthebusinesstoaccumulatecapital,andtheextentofyourpersonalliability.Itisbeyondthescopeofthisstudymaterialtodiscusstheprosandconsofeachform.Ifyouaregoingintobusinessalone,yourchoicesare:operatingasasoleproprietor,incorporating,andformingalimitedliabilitycompany(LLC).Ifyouaregoingtooperatewithassociates,youmaychoosetooperateasapartnership,acorporation,oranLLC.Ifyouareconcernedwithlimitingyourpersonalliability,yourchoiceisbetweenacorporationoranLLC.AnLLCgivesyoutheadvantageoflimitedliabilitywithouthavingtoincorporate.Asasoleproprietor,youreportbusi-nessprofitorlossonyourpersonaltaxreturn.Ifyouareapartner,youreportyourshareofpartnershipprofitonForm1065.Ifyouincorporate,thecorporationpaystaxonbusinessincome.Youaretaxedonsalariesanddivi-dendspaidtoyoubythecorporation.YoumayavoidthisdoublecorporatetaxbymakinganScorporationelec-tion,whichallowsyoutoreportcorporateincomeandloss.IfyouoperatethroughanLLCwithnoco-owners,youwillreportincomeandlossesasasoleproprietor.IfyouoperateanLLCwithassociates,theLLCreportsasapartnership(Form1065),andyoureportyourshareofincomeorloss.However,undercheck-the-boxrules,theLLCmayelectonForm8832toreportasanassociationtaxableasacorporation.

Schedule C or Partnership Iftwoormoreengageinabusinesstogetherwiththeintentonsharingprofits,theactivityisapartner-ship,notasoleproprietorship.PartnershipsfileForm1065,U.S.ReturnofPartnershipIncome,unlesstheyelecttobetaxedasacorporationbyfilingForm8832,EntityClassificationElection. Husband and wife business. Aqualifiedjointventurewhoseonlymembersareahusbandandwifemayelectnottobetreatedasapartnershipforfederaltaxpurposes.Ajoinventureisqualifiedif: 1)theonlymembersofthejointventurearehusbandandwife, 2)bothspousesmateriallyparticipateinthetradeofbusiness, 3)ajointreturnisfiledforthetaxyear,and 4)bothspouseselecttohavetheprovisionapply.

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5. Business Deductions1. WHAT’S NEW Cell Phone as a nontaxable fringe benefit. Employer-providedcellphonesandreimbursementsofemployee-ownedcellphonesmaybeconsiderednontaxablefringebenefitsifthecellphoneusageisfortheemployer’sconvenience.Strictrecordsofbusinessversuspersonalusearenolongerrequired.Thisretroactivechangeiseffectivefortaxyearsbeginningafter2009. Deduction for start-up costs.Businessstart-upandorganizationalcostsaregenerallycapitalexpendi-tures.However,youcanelecttodeductupto$5,000ofbusinessstart-upand$5,000oforganizationalcostspaidorincurredafterOctober22,2004.The$5,000deductionisreducedbytheamountyourtotalstart-upororganiza-tionalcostsexceed$50,000.Anyremainingcostsmustbeamortized.

2. ORDINARY AND NECESSARY BUSINESS EXPENSES Adeductiblebusinessexpenseisanyexpensethatisboth: •Ordinary.Commonandacceptedinthetaxpayer'slineofwork,and •Necessary.Helpfulandappropriateforwork. Anexpenseneednotberequiredinordertobeconsiderednecessary.Factsandcircumstancesmustbeconsideredineachcasetodeterminewhetheranexpenseisordinaryandnecessary.Thefollowinglistofexpensesisnotintendedtobeallinclusive,noristhetaxtreatmentdescribedapplicableineverytrade,business,orem-ploymentsituation. Amortization.Amethodofrecovering(deducting)capitalcostsoverafixedperiodoftime.Itissimilartothestraight-linedepreciationmethodwithouttheMACRShalf-yearormid-quarterconventions. Attorney fees.SeeLegalandprofessionalfees,pages78and103. Car and truck expenses.Ifyouuseyourcarforbusinesspurposes,youordinarilycandeductcarex-penses.Yougenerallycanuseoneofthetwofollowingmethodstofigureyourdeductibleexpenses:standardmileagerateandactualcarexpenses.

Per Diem Rates (High-Low Method) Thehigh-lowsubstantiationmethodcanbeusedbyemployerstopayemployeesaperdiemtravelallow-ance(hotels,meals,andincidentals)insteadofusingvariousratesthatapplyatdifferentlocations. •OnlytworatesapplyintheContinentalUnitedStates(CONUS). •Usedbyemployers,notbyemployeesorself-employedtaxpayers. •Reimbursementswithinthelimitsareconsideredsubstantiated.

Bad Debts Ataxpayerhasabaddebtwhenmoneythatcannotbecollectedisowedtothetaxpayer.Tobedeductible,abaddebtmusthavecostbasis.Also,theamountowedtothetaxpayermusthavebeenincludedinthetaxpayer’sincome.Examplesinclude: •Usingthecashmethod,ataxpayercannotdeductuncollectibleaccountsreceivablethathave notbeenincludedinincome. •Unpaidchildsupportisnotabaddebtbecausetheunpaidamounthasnotbeenincludedin income.

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6. Ethics and Responsibilities of Tax Professionals

1. WHAT’S NEW Registered Tax Return Preparer (RTRP).Thisisanewdesignationallowingindividualswhoarenotenrolledagents,CPA’s,orattorneystoapplyforaPreparerTaxIdentificationNumber(PTIN)whichallowstheindividualtoprepareandsignclients'incometaxreturns. Provisional PTIN.UnenrolledindividualswhoapplyforandreceiveaPTINmaypreparetaxreturnsunderthatPTINuntilDecember31,2013,atwhichtimetheywillneedtopassacompetencytestadministeredbytheIRS.UnenrolledindividualswhodonothaveaPTINatthetimetheIRSreleasesitscompetencytestmustpassthetestbeforereceivingaPTIN. Supervised preparers.Anindividualwhoissupervisedbyanenrolledagent,CPA,orattorneymayap-plyforaPTIN.Suchindividualscannotsignataxreturnasapaidpreparer. Centralized Authorization File (CAF).ThisisanIRSfilethatcontainsinformationaboutthirdpartiesauthorizedtopracticebeforetheIRS.

Treasury Circular 230 TreasuryCircular230containsrulesgoverningtherecognitionofpersonsrepresentingtaxpayersbeforetheInternalRevenueService.ThepublicationalsosetsforthrulesrelatingtotheauthoritytopracticebeforetheIRS,dutiesandrestrictionsrelatingtosuchpractice,sanctionsforviolatingtheregulations,andrulesapplicabletodisciplinaryproceedings.

Practice Before the Internal Revenue Service PracticebeforetheIRSinvolvesallmattersconnectedwithapresentationtotheIRSoranyofitsofficersoremployeesrelatingtoataxpayer'srights,privileges,orliabilitiesunderthetaxlaw.Suchpresentationsincludepreparingandfilingtaxreturnsorotherdocuments,correspondingwiththeIRS,andrenderingwrittenadvicewithrespecttoanyentity,transaction,planorarrangementhavingapotentialfortaxavoidanceorevasion.Prac-ticebeforetheIRSalsoincludesrepresentingaclientatconferences,hearings,andmeetings.

Who is a Practitioner? IndividualsauthorizedtopracticebeforetheIRSincludeenrolledagents,CPA’s,andRegisteredTaxReturnPreparers(RTRP).Certainlimitedauthorityisalsogiventootherindividuals.Note:Enrolledactuariesandenrolledretirementplanagents(ERPA’s)arealsoauthorizedunderCircular230topracticebeforetheIRS.ThiscoursedoesnotaddressenrolledactuariesorERPA’s. Enrolled Agent (EA). AnEAisapersonwhohasearnedtheprivilegeofpracticingbeforetheIRS.AnyEAwhoisnotcurrentlyundersuspensionordisbarmentfrompracticebeforetheIRSisauthorizedtoprac-ticebeforetheIRS.

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7. California Tax Law Update

1. WHAT’S NEW

Final Filing Date. Since Monday, April 16 is a legal holiday in Washington DC (Emancipation Day), California will accept returns and payments as timely if received on or before Tuesday, April 17, 2012. Tax Decrease. The personal income tax rate decreased by 0.25 percent. Dependent Exemptions Credit. Dependent exemption credit increased from $99 to $315 per depen-dent. Child and Dependent Care Expenses Credit. The Child and Dependent Care Expense Credit is now non-refundable. Voluntary Contributions. Personal income taxpayers may contribute to the following three new funds: • Municipal Shelter Spay-Neuter Fund. • ALS/Lou Gehrig’s Disease Research Fund. • Child Victims of Human Trafficking Fund. Estimated Use Tax Table. Personal income taxpayers may use the Estimated Use Tax Table in the 2011 California 540, 540A, and 5402EZ. Use tax booklets to report the use tax due on individual non-business items purchased for less than $1,000 each, instead of using the Use Tax Worksheet. This option is only available if taxpayers are permitted to report use tax on their income tax returns and taxpayers are not required to use the Use Tax Worksheet. Simply include the use tax liability that corresponds to the taxpayer’s California Adjusted Gross Income and the taxpayer will not be assessed additional use tax on the individual non-business items purchased for less than $1,000 each. Do not use the Estimated Use Tax Table, to estimate and report the use tax due on purchases of items for use in business or on purchases of individual non-business items purchased, for $1,000 or more each. 2011 Corporation Tax Law Changes. California adopted and amended statute that changes how multistate corporations are taxed in California. The following areas of law have changed: • Market assignment. Requires a taxpayer to assign sales, other than sales of tangible personal property, based on market rather than costs of performance when a single-sales factor formula election has been made. • Finnigan rule. For taxable years beginning on or after January 1, 2011, the Finnigan Rule is adopted in assigning sales from tangible personal property. Finnigan refers to a method of calculating the sales factor numerator in a unitary group of corporations. • Gross receipts. The definition of gross receipts was amended. “Gross receipts” means the gross amounts realized (the sum of money and the fair market value of other property or services received) on either of the following: • The sale or exchange of property. • The performance of services. • The use of property or capital (including rents, royalties, interest, and dividends in a transaction that produces business income, in which the income, gain, or loss is recognized (or would be recognized if the transaction were in the United States) under the Internal Revenue Code (IRC).

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A&B OfficeFinal Test Questions & Study Guide

2012 IRS & CTEC 20-Hr CourseTEST DIRECTIONS: This is the final test and study guide. This test guide will assist you when answering and completing the online version of this test. Some students find it convenient to answer the questions on the following pages first, and then transfer their answers to the online version for grading (same questions).

NOTICE: • You MUST take this test and submit your answers on our website before January 15th, 2013 . • You will be able to SAVE your answers and return to the online test as many times as needed. • You will be able to navigate through the test and check your answers before you submit it. Please read and follow all instructions on our website. • When you finish the online test you will automatically receive your score; CTEC and the IRS will also be notified of your score and education credits.

Upon passing the test, you will be able to print your Certificate of Completion instantly. You will have access to both IRS and CTEC certificates. Certificates will be saved in your account’s home page under Certificates and Documents, and you will be able to re-print them at any time. Should you fail the test, you will be given the option to pay a small re-take fee; you will then be able to re-take the same test.

We are proud to be the first school to report your continuing education and credit hour(s) information to CTEC INSTANTLY!

Good Luck!

Chapter 1

1. The basic standard deduction for the 2012 tax year, placed upon married couples that will be filing jointly, is: A. $11,900 B. $11,600 C. $ 8,500 D. $ 8,700

2. The Child Tax Credit is a basic and important credit that may be worth as much as $_______ for each qualifying child in 2011. This credit is always based on income levels and EGTRAA provisions. A. $ 500 B. $1,500 C. $2,500 D. $1,000

3. In order to qualify for the Dependent Care credit, you must meet three criteria, which of the following is NOT one of these criteria? A. You must have income during the year. B. The child and dependent care expenses must be incurred to allow you to work. C. If you are married, you and your spouse can live in separate homes. D. You must maintain a home in which you and at least one qualifying person live.

4. When the Bush tax cuts expire the “marriage tax penalty” will return, increasing taxes for many married couples. New tax law (EGTRAA), will extend the size of the _____% regular income tax bracket for married couples filing jointly for the next two years.

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