Unit 1 Flashcards
What 7 items need to be done as the preliminary work to prepare the current year’s tax return?
- Obtain prior year’s tax return
- Obtain taxpayer biographic information (DOB, age, marital status, dependents).
- Citizenship status
- If it’s an individual or a business
- Notes that will affect future returns
- State income refund
- Amount for credit
- Gain/loss carryover
- Charitable gift carryover - Affirm all required taxes are filed
- Special filing requirements
What 2 tests must a resident alien meet?
- Green card test
OR
- Substantial Presence test
What items are nondeductible expenses?
Personal/living/family expenses are not deductible.
Rent Insurance premiums Automobile upkeep Personal interests Food Clothing Domesti help
What 2 forms must be filed for foreign assets?
- Report of Foreign Bank and Financial Accounts (FBAR)
2. Form 8938
What is the requirement to file the FBAR?
Aggregate amount over $10K
File online with Financial Crimes Enforcement Network by 4/15
What is the requirement to file Form 8938?
File when aggregate value is over $50K at the last day of the year
OR
More than $75K at any time during the year
What are the requirements to file as a Qualifying Widow(er)?
Available for 2 years after
- Did not remarry
- Qualified to file for MFJ
- Maintained household by furnishing more than 50% of household costs
What are the requirements to file as Head of Household?
- May not file as Qualifying Widower
- Maintain household that is the principal residence of a qualifying individual
- Must furnish more than 50% of maintaining household
Married individual living with nonspouse qualifies if:
- File separately
- Pays 50% toward maintaing household
- Spouse is not a member of household for past 6 months
- Home is the principal home of child/stepchild/qualified foster child for more than half of the year
- Can claim child as dependent
Which 5 people are not allowed for standard deduction?
- Person who itemizes
- Nonresident alien
- Filing “short period” return
- MFS if spouse itemizes
- Partnerships, estates, trusts
What are the additional standard deductions?
- Age 65 or older
- Legally blind
If both, they are entitled twice the amount
What is the basic standard deduction for a child under 19 or student under 24?
The greater of
$1,050
OR
Earned income for the year PLUS $350 (up to $12K)
What are the 3 requirements to file a tax return?
- Gross income above certain threshold
- Net earnings from self-employment is more than $400
- Depends with GI > standard deduction/unearned income >$1,050
What is the gross income threshold?
Standard deduction less amount for being blind
MFS cannot include standard deduction
Exception for MFS $5 threshold
Include in gross income - gain on personal residence, foreign earned income
What form is filed for an automatic 6-month extension?
Form 4868
What is the automatic extension for military personnel on duty outside US/Puerto Rico?
Automatic 2-month extension without filing Form 4868.
If Form 4868 is filed - it’s another 4 month extension.
When are nonresident alien’s tax returns due?
Due June 15
It’s due on April 15 if wages are subject to withholding
What is the penalty of failure to pay tax liability and failure to file?
Failure to file - 5% per month, up to 25%
Failure to pay - 0.5% per month, up to 25%
What are the 2018 standard deduction amounts for each tax filing status?
MFJ - $24K basic, $1.3K additional Widower - $24K basic, $1.3K additional HOH - $18K basic, $1.6 additional Single - $12K basic, $1.6K additional MFS - $12K basic, $1.3K additional
What are the requirements for a qualifying child?
- Relationship test
- Age - under 19 or under 24 FT student
- Principal residence - same for more than half the year
- Not self-supporting - cannot provide more than 50% of own support
What are the requirements for a qualifying relative?
- Relationship/residence
- by blood, adoption, or marriage
- resides with claimant for entire year - GI is less than $4,150
- Claimants provides 50% of economic support
- Not qualifying child
What is the standard deduction for dependent with unearned income?
Limited to the greater of:
$1,050
or
Earned income + $350
What is Kiddie Tax?
When a dependent’s net unearned income is taxed at ordinary, capital gain rates of estates, trusts
Does not apply if dependent has earned income exceeding half of the support
What are examples of earned income?
Salaries
Wages
Tips
Taxable scholarships
What is the minimum allowed reduction in unearned income that a dependent is allowed?
At least $2,100 reduction in unearned income.
Calculation of Net Unearned Income
Unearned Income
LESS (the sum of $1,050 + $1,050 or allowable deduction with production of unearned income)
What is the tax rate for most types of US source income received by a foreign taxpayer?
30% tax rate
What items are excluded from gross income?
Nontaxable scholarships
Tax-exempt bond interest
Nontaxable social security benefits
What amount is the gross income threshold for married filing separately?
$5
How long is the extension if a taxpayer filed Form 4868?
Automatic 6-month extension
How long is the extension for military personnel on duty outside US/Puerto Rico without filing Form 4868?
Automatic 2-month extension.
If Form 4868 is filed - it allows another 4 months extension.
When is a nonresident alien’s tax return due?
Due June 15
It’s due April 15 if wages are subject to withholding
What is the penalty for failure to file penalty?
5% per month, up to 25%
What is the penalty for failure to pay?
0.5% per month, up to 25%
How long must employment taxes be kept?
At least 4 years from due date of return
What are the 2018 standard deduction amounts?
MFJ $24K - additional $1.3K Widow(er) $24K - additional $1.3K Head of Household $18K - additional 1.6K Single $12K - additional 1.6K MFS $12K - additional $1.3K
What 3 items are excluded from gross income?
Nontaxable scholarships
Tax-exempt bond interest
Non-taxable social security benefits
4 test for a qualifying child
- Relationship
- Age - under 19 or FT student under 24
- Principal residence - same for more than 50% of the year
- Not self-supporting - cannot provide over half of own support
4 tests for a qualifying relative
- Relationship/residence
Relationship - by blood or adoption/marriage
Resides with claimant for entire year - Gross income of potential dependent must be < $4,150
- Not self-supporting
- Dependents not a qualifying child of any taxpayer
What are the 4 special rules for qualifying dependent?
- Treated as having NO dependents.
- If MFJ - do not qualify as dependent of another
files jointly to claim refund without regard to citizenship test - US citizen/resident/national Canadian resident/Mexican resident
- Correct tax ID
What is the standard deduction for a dependent with unearned income?
Limited to the greater of:
$1,050
OR
Earned income +$350
A dependent is allowed at least $2,100 reduction in unearned income
What is “Kiddie Tax”?
When unearned income from a dependent under 19 or FT student under 24 - is taxed at ordinary, capital gain rates of estates, trusts.
The Kiddie Tax does not apply if dependent has earned income exceeding half of support
What are examples of earned income?
- Salaries
- Wages
- Tips
- Taxable scholarships
What are examples of unearned income?
Interest Dividends Capital gains Trust distributions Debt cancellation Pensions/Annuities Social security Royalties
The calculation for net unearned income
Unearned income
LESS ($1,050 + ($1,050 or allowable deduction with production to income))
What is the substantial presence test?
Must be in the US more than 31 days during the current year
