Unit 1: Preliminary Work W/ Taxpayer Data

Question 1

Tax professionals are expected to

Answer 1

Perform due diligence in collecting, verifying, and gathering taxpayer data. Other expectations include reviewing prior year tax returns for compliance, accuracy, and completeness.

Question 2

A tax preparer is required by law to

Answer 2

Notify a taxpayer of an error or omission if discovered on a prior year tax return, and consequences if no correction is made

Question 3

Tax professionals are not responsible for

Answer 3

Correcting mistakes that taxpayers have created in terms of errors or omission in their filing

Question 4

Upon reviewing previous tax returns, a preparer needs to determine whether there are items that affect the current year’s return, with topics such as:

Answer 4

1. Carryovers
2. Net operating losses
3. Tax credits
4. Prior year depreciation and asset basis
   pg 27

Question 5

Taxpayer Biographical Information

Answer 5

1. Legal Name
2. Residency status and/or citizenship
3. Dependents
4. Taxpayer identification number (SSN, ITIN, or ATIN)

Question 6

TIN

Answer 6

Taxpayer Identification Number

Question 7

3 Types of TIN’s

Answer 7

1. Social Security Number (SSN)
2. Individual Taxpayer Identification Number (ITIN)
   3.Adoption Taxpayer Identification Number (ATIN)

Question 8

Social Security Number (SSN)

Answer 8

• U.S. Citizens and lawfully admitted noncitizens authorized to work in the United States are eligible for a Social Security number
• if you can’t obtain an SSN, you must apply for an ITIN

Question 9

ITIN

Answer 9

Individual Taxpayer Identification Number

Question 10

When should you get an ITIN?

Answer 10

1. If you cannot get an SSN
2. If you are a nonresident alien (depending on specific circumstances)
3. If you do not have lawful status in the United States
4. For federal tax reporting

Question 11

Nonresident aliens with a U.S. tax liability generally have

Answer 11

ITIN’s!

Question 12

The exception of a Nonresident alien needing an ITIN would be…

Answer 12

1. U.S. Soldier or citizen marries a foreigner, & they wish to file jointly.
   
   • the alien spouse needs an ITIN to proceed with filing jointly
2. U.S. citizen living abroad and married to foreigner, filing jointly, alien spouse needs ITIN
3. Living abroad and not a U.S. citizen and conducting business and investments in U.S. - ITIN requirement

Question 13

Form W-7

Answer 13

Required form to apply for an ITIN

Question 14

3 Ways to Apply for an ITIN

Answer 14

1. Form W-7
2. Using an IRS - authorized certified acceptance agent (CAA)
3. In Person at a designated IRS Taxpayer Assistance Center

Question 15

Is renewal necessary for an ITIN?

Answer 15

Yes, otherwise they will expire if not used or within 3 years of the time that you retrieve one

Question 16

What does the ITIN Procedure include?

Answer 16

1. Enhanced documentation
2. Older ITIN’s will expire if not used
3. Newer ITIN’s will expire within 3 years if not used
4. IRS does not accept passports of dependents as stand alone documents that lack a date of entry in the United States
5. Engage in cerices of CAA (Certified Acceptance Agent)

Question 17

Certified Acceptance Agent (CAA)

Answer 17

1. Can authenticate a passport or birth certificate for taxpayers who want to request an ITIN, but don’t wish to mail their original documents to the IRS.

Question 18

Adoption Taxpayer Identification Number (ATIN)

Answer 18

Designed explicityly for adopted children who are not eligible for an SSN.

Question 19

How to retrieve an ATIN?

Answer 19

1. Use Form W-7A: Application for Taxpayer Identification Number for Pending U.S. Adoptions

Question 20

(Part 1)
If your adopted child does not have an SSN, you may request an ATIN if

Answer 20

1. The child is placed in the taxpayers home for legal adoption
2. The adoption is a domestic adoption or the adoption is a foreign legal adoption and the child has a permanent resident alien card or certificate of citizen ship

Question 21

(Part 2)
If your adopted child does not have an SSN, you may request an ATIN if

Answer 21

1. The taxpayer cannot obtain the child’s existing SSN, even though he has made a reasonable attempt to obtain it from the birth parents, the placement agency, and other persons
2. The taxpayer cannot obtain an SSN for other reasons such as the adoption not being final

Question 22

When does the ATIN expire?

Answer 22

After two years from the date it is issued

*An extension can be issued using IRS FORM 15100: Adoption Taxpayer Identification Number Extension Request

Question 23

The ATIN cannot be used for…

Answer 23

To obain…
1. Earned Income Tax Credit
2. Child Tax Credit
3. American Opportunity Tax

Question 24

Special Rules for Deceased Children #1

Answer 24

If the child is born and is deceased within the same tax year and has not been granted an SSN, the taxpayer may still claim that child as a dependent.

Question 25

Special Rules for Deceased Children #2

Answer 25

1.The tax return must be filed on paper with a copy of the birth certificate or a hospital medical record attached.

1a. Birth certificate must show the child was born alive. Stillborn infants do not qualify.
1b. The taxpayer would enter “DIED” in the space for the dependent’s SSN on the tax return

Question 26

Taxpayer responsibilities include

Answer 26

1. Keeping copies of tax returns for at least 3 years from the date they were filed or the date they were due
2. Maintaining other records for as long as they may be needed for he administration of any provision of federal tax law, for at least 3 years from the date they were filed or the date they were due

Question 27

(Part 1)

Taxpayers should keep record of

Answer 27

1. Documentation identifying sources of income - separation of business and personal income
2. Tracking of expenses to claim deductions
3. track of the basis of property - show original cost or other basis of property they own and any improvements made

Question 28

(Part 2)

Taxpayers should keep record of

Answer 28

1. Support items reported on tax returns: During IRS Audit, burden of proof is on taxpayer to prove expenses in order to deduct them
2. Prepare tax returns: Good records help taxpayers file accurate returns quickly

Question 29

Are taxpayers responsible for the end accuracy of the contents of their return?

Answer 29

Yes, even though the tax professional prepares your taxes, they are working with the readily available information at hand and can only do so much due diligence.

Question 30

(Part 1) Necessary records taxpayers should include

Answer 30

1. Income: Forms W-2, 1099, bank statements, pay stubs, bokerage statements, schedules K-1
2. Expenses: Sales slips, invoices, receipts, credit card statements, canceled checks or other proof of payments, written communications from qualified charities, Forms 1098 to support mortgage interest and real estate taxes paid (if the taxes are paid through impound account).

Question 31

(Part 2) Necessary records taxpayers should include

Answer 31

1. Home Purchases and sale: Closing statements, HUD Statements, purchase and sales invoices, proof of payment, insurance records, receipts for improvement costs
2. Investments: Brokerage Statements, mutual fund statements, forms 1099 - DIV

Question 32

Form 1040 (Updated Changes in 2022)

Answer 32

Additional lines were added for the 2022 tax year

Page 1 of the form now includes an updated digital asset statement and new lines 1a through 1z in order to decrease the number of write-ins related to employment related income

Question 33

Form 1040 Employment related income lines are

Answer 33

1a: Amounts from Form(s) W-2, box 1
1b: household employee wages not reported on form(s) W2
1c: Tip income not reported on line 1a

1d: Medicaid waiver payments not reported on form(s) W-2

1e: Taxable dependent care benefits from Form 2441, line 26

1f: Employer - provided adoption benefits from form 8839, line 29

1g: Wages from form 8919, line 6

1h: Other earned income

1i: Nontaxable combat pay election. This entry was moved from line 27b to line 1i b/c nontaxable combat pay can be used to figure earned income for the EITC and ACTC

1z: add lines 1a through 1h

Question 34

Form 1040 (More Changes in 2022)

Answer 34

Line 6c new line added with a checkbox for taxpayers who use the lump-sum eection method when figuring taxable Social Security benefits and eliminates the need for the Write in “LSE”

Question 35

2022 Federal Income Tax Brackets and Rates for “Single”

Answer 35

10% Tax Rate: $0 - $10,275
12% Tax Rate: $10,276 - $41,775
22% Tax Rate: $41,776 - $89,075
24% Tax Rate: $89,076 - $170,050
32% Tax Rate: $170,051 - $215,950
35% Tax Rate: $215,951 - $539,900
37% Tax Rate: $539,901 - or more

Question 36

2022 Federal Income Tax Brackets and Rates for “HOH”

Answer 36

10% Tax Rate: $0 - $14,650
12% Tax Rate: $14,651- $55,900
22% Tax Rate: $55,901 - $89,050
24% Tax Rate: $89,051- $170,050
32% Tax Rate: $170,051 - $215,950
35% Tax Rate: $215,951 - $539,900
37% Tax Rate: $539,901 - or more

Question 37

2022 Federal Income Tax Brackets and Rates for “MFJ/QSS”

Answer 37

10% Tax Rate: $0 - $20,550
12% Tax Rate: $20,551 - $83,550
22% Tax Rate: $83,551 - $178,150
24% Tax Rate: $178,151 - $340,100
32% Tax Rate: $340,101 - $431,900
35% Tax Rate: $431,901 - $647,850
37% Tax Rate: $647,851 - or more

Question 38

2022 Federal Income Tax Brackets and Rates for “MFS”

Answer 38

10% Tax Rate: $0 - $10,275
12% Tax Rate: $10,276 - $41,775
22% Tax Rate: $41,776 - $89,075
24% Tax Rate: $89,076 - $170,050
32% Tax Rate: $170,051 - $215,950
35% Tax Rate: $215,951 - $323,925
37% Tax Rate: $323,925 - or more

Question 39

Tax Return Due Date for Individual Tax Returns

Answer 39

• April 15 unless due date falls on a saturday or holiday, the due date is then extended until the next business day.
• IRS Accepts a postmark as proof of timely filed return

-2022 Tax due date is April 18, 2023 B/C of the emancipation day holiday in DC.

• Extended deadline for 2022 - October 2023 because OCT 15 falls on Sunday in 2023