EA Individuals Review - Part 1 Flashcards
3 Different Types of TINs
- SSN (Social Security Number
- Individaul Taxpayer Identification Number (ITIN)
- Adoption Taxpayer Identification Number (ATIN)
Qualifications of a 1040 EZ
- Taxable Income is below 100K
- Filing status is S or MFJ
- Taxpayer is under 65 and not blind
- Taxpayer not claiming any dependents
- Interest income is $1500 or less
- Claims no adjustments to income and no credits other than the Earned Income Credit
Qualifications of a Form 1040A
Two page form, taxable income less than 100K and no Self-employment. Can’t itemize deductions and limited to certain adjustments and credits
Qualifications of a Form 1040
“Long Form”
- Taxable income exceeds 100K
- Itemize Deductions
- Reporting Self Employment Income
- Reporting Income from the Sale of Property
Form 1040 NR
Used by nonresident aliens to report US source income.
Form 1040X
Amended US individual Income Tax Return
Tax Rates
10%, 15%, 25%, 28%, 33%, 35%, 39.6%; higher the income, higher the tax rate
Due Dates and Extensions
April 15, Form 4868 is filing extension extended to Oct 15
Filing Deadline Exceptions
- Federal Disaster Areas
- June 15 Deadlines (two month extension)
Nonresident aliens who have income that is not subject to US withholding
US Citizens or Legal US residents living outside the US or Puerto Rico and main place of business outside US or Puerto Rico
Taxpayers on active military duty - Taxpayers out of the Country can request an additional two month extension on top of six month extension
Combat Zones have extension from the day they started serving until 180 days after they leave combat area
Relief from Joint Tax Liability
Innocent Spouse Relief - erroneous items due to a spouse or former spouse
Separation of Liability Relief - Same applies but no longer married to, or separated from, widowed or lived apart for 12 months
Equitable Relief - Facts are reviewed and it is determined if it would be unfair to hold taxpayer accountable for understated tax
Injured Spouse Claims
Filed a joint return
Paid federal income tax or claimed a refundable tax credit
All or part of refund was or is expected to be applied to spouse’s past financial obligations
Not be responsible for debt
Claims for refunds
File Form 1040X Extended Statute for Claiming Refunds: - Bad debt from worthless security - Payment or accrual of foreign tax - A net operating loss carry back - A carry back of certain tax credits - Exceptions for military - In Federally declared disaster areas - Affected by terrorism or military action
Statute of Limitations for IRS Assessment and Collection
IRS required to assess tax or audit a return in 3 yrs after date of filed return, if return is filed late, IRS has 3 years from the later of the
Due date of the return
The date the return was filed
If never filed, there is not deadline for assessment
IRS has 6 yrs to assess tax on a return if understatement is identified by 25% or more, if fraudulent there is no deadline
Estimated Taxes
“Pay as you go”, self employment
Safe Harbor Rule - Making sure to make estimated tax payments, taxes are withheld from income, 150k or less, 75K if MFS
100% of tax liability of prior return
90% of tax liability on current year return
150K or more, 75K MFS or more (higher income)
110% on prior year
90% on current year
Estimated Taxes Due Dates
Apr 15 June 15 Sept 15 Jan 15 (of following year) Payments are not required if there is zero Tax liability
Estimated Taxes for Farmers and Fisherman
- Estimated tax does not have to be paid if files return and pays all tax owed by 1st day of 3rd month (March 1st)
- Does not have to pay estimated tax if his current year income tax withholding is 2/3 of total tax liability on current return or 100% of total tax liability of prior year return
- IF required to pay estimated tax, only one payment is required by the 15th day at end of tax year (Jan 15)
Backup Withholding
Backup withholding rate is 28%
- Individual did not provide payer with a TIN
- IRS notified payer that TIN/SSN is incorrect
- IRS notified payer to start withholding on interest and dividends bc the payee failed to report income in prior years
- Payee failed to certify that he was not subject to backup withholding for under-reporting of interest and dividends.
Recordkeeping
Suggested that you keep copies of tax return for at least 3 years Identify sources of income Keep track of expenses Keep track of the basis of property Support items reported on tax returns Prepare tax returns Keep records of: Income Expenses Home Investments
Penalties and Interest
Failure to File Penalty - Usually 5% of unpaid taxes for each month return is late. Will not exceed 25% of unpaid taxes.
Failure to Pay - Penalty of 1/2 of 1% of taxes for each month that taxes are not paid, can be as much as 25% of unpaid taxes. Increases to a full 1% per month for any tax that remains unpaid the day after a demand for payment is issued, or ten days after notice of intent to levy certain assets is issued.
If both apply in any month, the 5% file penalty is reduced by the pay penalty. If taxpayer files return more than 60 days after due date or extended due date, minimum penalty is the smaller of 135$ or 100% of unpaid tax.
Taxpayer Filing Status
Single Married Filing Jointly (MFJ) Married Filing Separately (MFS) Head of Household (HOH) Qualifying Widow (QW)
Changing Filing Status
Can’t change from a joint return to a separate return after due date of the return. To change from a separate to joint, must file an amended 1040X, up to 3 years from the due date of the separate returns
Same Sex
Must file as either MFJ or MFS. Can amend returns from before Sept 16, 2013 to MFJ or MFS but not required to do so, can file a claim for refund within three years return was due or two years from the date tax was paid whichever is later
Special Rules for Head of Household
Divorced or Noncustodial Parents - Release of dependency exemption
Death or Birth During the Year - Can still file HOH if child is born or dies during the year
Dependent Parents - Can claim HOH even if parent does not live with child, must pay more than half the cost of keeping up parent’s main home during past year
Non Resident Alien Spouses - Taxpayer married to nonresident alien spouse may elect to file HOH
Annulment
Marriage is declared null and void. Couple is considered unmarried even if they filed joint returns for earlier years. Amend returns filing Form 1040X