EA Practice Test 4

1. Which of the following statements is TRUE regarding the filing of Form 4868, Application for an Automatic Extension of Time to File?

Interest is not assessed on any income tax due if Form 4868 is filed.

Form 4868 provides the taxpayer with an automatic six-month extension to file and pay.

Filing Form 4868 does not exempt a taxpayer from paying interest or late payment penalties if the tax owed is not paid by the due date. This means that even with an extension to file, the taxpayer is still responsible for paying any taxes owed on time to avoid additional charges.

Explanation

Filing Form 4868 does not exempt a taxpayer from paying interest or late payment penalties if the tax owed is not paid by the due date. This means that even with an extension to file, the taxpayer is still responsible for paying any taxes owed on time to avoid additional charges.

2. Dottie is a U.S. resident who paid estimated tax in 2009 totaling $2,500. In 2010, Dottie quit her business as a self-employed contractor and is now unemployed. She expects to have zero tax liability in 2010. Which of the following statements is true?

Dottie is still required to make estimated tax payments in 2010.

Dottie is not required to make estimated tax payments in 2010

Dottie must pay a minimum of $2,500 in estimated tax in 2010, or she will be subject to a penalty.

Dottie is not required to make estimated tax payments in 2010 because she expects to have zero tax liability. Estimated tax payments are typically made by individuals who anticipate owing taxes at the end of the year. Since Dottie does not expect to owe any taxes, she is not required to make these payments.

Explanation

Dottie is not required to make estimated tax payments in 2010 because she expects to have zero tax liability. Estimated tax payments are typically made by individuals who anticipate owing taxes at the end of the year. Since Dottie does not expect to owe any taxes, she is not required to make these payments.

3. Rory filed his 2010 Form 1040 on February 20, 2011. Later, he finds an error that would result in a larger refund. What is the last day that Rory can amend his 2010 tax return and still receive a refund?

April 15, 2010

February 20, 2011

April 15, 2014

April 15, 2013

Rory can amend his 2010 tax return and still receive a refund until April 15, 2014. This is because the deadline for filing an amended tax return to claim a refund is generally three years from the original due date of the return, which in this case is April 15, 2011. Therefore, Rory has until April 15, 2014, to correct the error and claim a larger refund.

Explanation

Rory can amend his 2010 tax return and still receive a refund until April 15, 2014. This is because the deadline for filing an amended tax return to claim a refund is generally three years from the original due date of the return, which in this case is April 15, 2011. Therefore, Rory has until April 15, 2014, to correct the error and claim a larger refund.

4. Which of the following is NOT an acceptable reason for extending the statute of limitations for a refund (past the normal deadline)?

A bad debt from a worthless security

Living outside the country for three years

Exceptions for military personnel

An injured spouse claim

An acceptable reason for extending the statute of limitations for a refund is a bad debt from a worthless security. This means that if someone has incurred a loss due to a debt from a security that has no value, they may be eligible for an extension on the deadline to claim a refund.

Explanation

An acceptable reason for extending the statute of limitations for a refund is a bad debt from a worthless security. This means that if someone has incurred a loss due to a debt from a security that has no value, they may be eligible for an extension on the deadline to claim a refund.

5. Charles had a $4,500 tax liability in 2009. In 2010, Charles expects to owe approximately $3,200 in federal taxes. In 2010, he has $1,200 in income tax withheld from his paycheck. Which of the following statements is true?

Charles does not need to pay estimated taxes in 2010.

Charles is required to make estimated tax payments in 2010.

Charles is required to adjust his withholding. He cannot make estimated tax payments because he is an employee.

None of the above.

Charles is required to make estimated tax payments in 2010 because his expected tax liability for the year is $3,200, which exceeds the $1,200 that he has withheld from his paycheck. Estimated tax payments are required when the amount withheld from a person's income is not enough to cover their expected tax liability for the year. Therefore, Charles will need to make additional payments to ensure he meets his tax obligations for the year.

Explanation

Charles is required to make estimated tax payments in 2010 because his expected tax liability for the year is $3,200, which exceeds the $1,200 that he has withheld from his paycheck. Estimated tax payments are required when the amount withheld from a person's income is not enough to cover their expected tax liability for the year. Therefore, Charles will need to make additional payments to ensure he meets his tax obligations for the year.

6. Which statement pertaining to estimated tax payments is NOT correct?

An individual whose only income is from self-employment will have to pay estimated payments.

If insufficient tax is paid through withholding, estimated payments may still be necessary.

Estimated tax payments are required when the withholding taxes are greater than the overall tax liability.

Estimated tax is used to pay not only income tax, but self-employment tax and Alternative Minimum Tax as well.

not-available-via-ai

Explanation

not-available-via-ai

7. Audrey is self-employed and expects to owe $2,500 in taxes for 2010. Her tax liability for her prior tax year was zero, because her business had a loss. Which of the following is true?

Audrey is required to pay estimated tax in 2010.

Audrey is NOT required to pay estimated tax for 2010.

Audrey must pay at least $1,500 in estimated tax for 2010.

None of the above.

Since Audrey's tax liability for the prior year was zero due to her business loss, she is not required to pay estimated tax for the current year. Estimated tax payments are typically required when an individual expects to owe a certain amount in taxes, but since Audrey's prior year tax liability was zero, she is exempt from making estimated tax payments for 2010.

Explanation

Since Audrey's tax liability for the prior year was zero due to her business loss, she is not required to pay estimated tax for the current year. Estimated tax payments are typically required when an individual expects to owe a certain amount in taxes, but since Audrey's prior year tax liability was zero, she is exempt from making estimated tax payments for 2010.