All of the following statements describe how individual taxpayers may choose to deduct state and local general sales taxes, EXCEPT:

Question

A general sales tax is a sales tax imposed on retail sales of a broad range of items at a single rate.
In order to deduct the actual amount of sales tax paid, the taxpayer must keep receipts supporting their deduction amount.
Sales taxes paid on items used in a trade or business are deducted on Schedule A (Form 1040).
Taxpayers who do not save all their receipts may use the amount found in the Optional State and Local Sales Tax Table

Answer 1

The statement that is incorrect is:

"Sales taxes paid on items used in a trade or business are deducted on Schedule A (Form 1040)."

This statement is misleading because sales taxes paid on items used in a trade or business are generally deducted as business expenses, which would be reported on Schedule C (Form 1040) for sole proprietors or on the appropriate business tax forms for other types of businesses, rather than on Schedule A, which is used for itemized deductions for personal expenses.

Answer 2

Which of the following statements about the relationship between domicile and residency is correct?
All taxpayers have one state of domicile, but they may have more than one state of residency.
A taxpayer is always a resident of their state of domicile.
All taxpayers have one state of residency, but they may have more than one state of domicile.
A taxpayer is always domiciled in any state where they are a resident.

Answer 3

The correct statement about the relationship between domicile and residency is:

"A taxpayer is always a resident of their state of domicile."

Domicile refers to the state where a person has their permanent home or principal establishment and to which they intend to return. A person can have multiple residences (homes in different states), but they can only have one legal domicile at a time. Being a resident of a state typically means that the individual lives in that state for a significant part of the year, but they can only have one state of domicile.

Answer 4

Prior to 2023, Edgar was a lifelong resident of Montana:
On January 15, he decided that he wanted to move to Idaho and began an online job search for positions in Idaho.
On March 12, he verbally accepted a job offer from a company in Boise, Idaho.
On July 31, he closed on a house in Idaho.
On September 9, he transported his household goods from his Montana apartment to his new Idaho house and began living there.
On what date did Edgar's domicile change from Montana to Idaho?
January 15.
March 12.
July 31.
September 9.

Answer 5

Edgar's domicile would change from Montana to Idaho on September 9.

This is because domicile is not simply about where one intends to live or where one has accepted a job; it is determined by where an individual has established their permanent home. In this case, Edgar began living in his new house in Idaho on September 9, which signifies his move and establishment of residency there. Until he physically moved and living in Idaho, he remained domiciled in Montana despite his job search or job offer.

Answer 6

What does Internal Revenue Code Section 7525 privileged communication apply to?
Corporate tax matters.
Criminal tax matters.
Tax advice.
State tax law.

Answer 7

Internal Revenue Code Section 7525 applies to tax advice.

This section provides a form of privilege for communications between a taxpayer and a federally licensed tax practitioner (such as a certified public accountant or an attorney) regarding tax matters, similar to the attorney-client privilege. However, it specifically relates to tax advice and does not extend to criminal tax matters or state tax law.

Answer 8

To meet one of the due diligence requirements of a paid tax preparer, it is not enough to ask more questions; tax preparers must also:
Immediately document the questions asked and the client's responses.
Ask clients for two references to verify the information.
Perform employment verification checks on all Earned Income Credit clients.
Audit the return.

Answer 9

To meet one of the due diligence requirements of a paid tax preparer, it is not enough to ask more questions; tax preparers must also:

Immediately document the questions asked and the client's responses.

This documentation is crucial for substantiating the due diligence efforts taken by the tax preparer, especially when preparing returns that claim certain credits, like the Earned Income Tax Credit (EITC). Proper documentation helps ensure compliance with IRS requirements and provides a record in case of any audits or inquiries.

Answer 10

How does a tax preparer's high ethical standards protect taxpayers?
It provides taxpayers with an accurate return, including all tax benefits to which they are entitled.
It promises they will be free from IRS penalties.
It eliminates the need for preparer due diligence notes.
It guarantees their returns will not be questioned by the IRS.

Answer 11

A tax preparer's high ethical standards protect taxpayers in that:

It provides taxpayers with an accurate return, including all tax benefits to which they are entitled.

By adhering to high ethical standards, a tax preparer ensures that they accurately report income, deductions, and credits. This diligence can help taxpayers maximize their legitimate tax benefits while minimizing the risk of errors or fraudulent claims, which could lead to issues with the IRS. However, it does not guarantee freedom from penalties or confirm that returns will not be questioned, as these outcomes depend on compliance with tax laws and IRS scrutiny.