Unit 1 - Preliminary Work With Taxpayer Data

Question 1

SSN

Answer 1

Social Security Number

Question 2

ITIN

Answer 2

Individual Taxpayer Identification Number

Apply for # - nonresident aliens with us tax liability

Nonresident spouse of us citizen filing joint return

Taxpayers with ITIN don’t qualify for the earned income tax credit

Number is for tax reporting only

Question 3

ATIN

Answer 3

Adoption taxpayer identification number

For children not yet eligible for a SSN

REQUESTED USING FORM W-7A (application for taxpayer identification number for pending US adoptions.)

Expires 2 years after issued. Extension can be requested form 15100

ATIN cannot be used for
* earned income tax credit
* child tax credit
* American opportunity tax credit

Question 4

IP PIN

Answer 4

Identity protection personal identification number

Question 5

Using prior years tax returns

Answer 5

Tax professionals are required to review prior year tax returns for accuracy and completeness.

If errors discovered - required to inform tax payer of mistake and consequences

Question 6

What from previous tax returns can affect current year returns

Answer 6

Carryovers

Net operating losses

Tax credit carryovers (AMT Tax credit or Adoption credit)

Prior year depreciation and asset basis

Question 7

Taxpayers biographical information needed

Answer 7

Legal name, DOB, marital status

Residency status and/or citizenship

Dependent information

Taxpayer identification number (TIN)
SSN. ITIN. ATIN

Question 8

Types of taxpayer identification numbers (TINs)

Answer 8

Social Security number SSN

Individual taxpayer identification number ITIN

adoption taxpayer identification number. ATIN

Question 9

ITIN application process

Answer 9

Fill out form W-7 (Application for IRS individual taxpayer identification number)

Prove foreign status and verify identity

3 ways to apply

• form W-7
• use an IRS authorized certified acceptance agent (CAA) - they can authenticate a passport or birth certificates so they don’t have to mail the original documents
• in person at designated IRS taxpayer assistance center

ITINs expire unless renewed

Question 10

Special rules - deceased child

Answer 10

BORN AND DIED IN SAME YEAR - can still claim as a dependent

Paper return, include birth certificate or hospital medical record.

Stillborn doesn’t qualify

No SS… in space, write DIED

Question 11

Individual record keeping requirements

Answer 11

At least 3 years from date due or filed (later)

Records of …

Income

Expenses

Home purchase and sale

Investments

Question 12

Form 1040

Answer 12

It is the primary tax form used by US taxpayers to file their annual income tax returns.

It includes three numbered schedules

Question 13

Form 1040 - schedule 1

Answer 13

Reports additional income and adjustments to income

Taxable, alimony, unemployment, compensation, and gambling winnings.

Adjustments to income like the student loan, interest, deduction, the self-employed health, insurance, deduction, and the deduction for educator expenses

Question 14

Form 1040 - schedule 2

Answer 14

Additional taxes owed

Alternate minimum tax, self-employment tax, or household employment taxes

Question 15

Form 1040 - schedule 3

Answer 15

Additional payments and credits… Two main sections…

Nonrefundable credits

Other payments and refundable credits

Question 16

Form 1040-SR

Answer 16

For seniors 65 and older

Same as 1040 but easier to read and bigger font

Question 17

Form 1040-NR

Answer 17

Nonresident aliens report us source income only

Would need an ITIN

Not a us citizen or national, not passed the green card test, or substantial presence test.

Used by foreign investors, or non resident taxpayers who earn money in the US.

Question 18

Nonresident alien tax rate

Answer 18

Flat 30%, unless there is a tax treaty…

Question 19

Form 1040-X

Answer 19

Amended US individual income tax return

This form is to correct errors in a previously filed form 1040 form 1040 SR or 1040 NR

Can be filed electronically

Question 20

Federal income tax rates

Answer 20

7 tax brackets

10, 12, 22, 24, 32, 35, and 37

Tax rate applies ONLY to the additional income within that bracket.

Question 21

AMT

Answer 21

Alternative minimum tax (its a parallel tax)

Taxpayer has to pay the regular tax or AMT (whichever is greater tax)

Question 22

Tax return due date

Answer 22

April 15 or if it is on a Saturday Sunday or legal holiday the due date is extended until the next business day

Must be postmarked by that date and mailed

It’s called the mailbox rule

E-filed tax returns are given an electronic postmark to indicate the day they are accepted and transmitted to the IRS

Question 23

Filing for an extension

Answer 23

File form 4868 called the application for automatic extension of time to file

Can be filed electronically

Must be filed by the original due date

Grants you an additional six months to file tax return, due date October 15

Does not extend the time to pay any tax due, taxpayers must estimate and pay taxes by the original filing deadline

Question 24

Filing deadline exceptions

Answer 24

Filing status is suspended until the end of the postponement.

Federal disaster areas (located in, records located in, relief worker)

Auto 2 month extension:

 NR aliens with no WAGE income

 On active military service duty outside the USA 

 US citizens and residents living outside the us or PR and main place of business is outside too

Must attach statement of what qualified them for 2 month extension

Still must pay interest on any tax not paid by April 15

Question 25

IRS Penalties and interest

Answer 25

Failure to file

Failure to pay

Failure to pay properly estimated tax

Interest on the amount due

Question 26

Failure to file

Answer 26

A taxpayer does not file their tax return by the return due date or extended due date an extension to file is requested and approved

5% of the unpaid taxes for each month or part of a month that a return is late

The penalty is based on the tax that is not paid by the due date

Penalty will not exceed 25% of taxpayers unpaid taxes

Returns more than 60 days late. The penalty equals the lesser of $485 or 100% of the tax due on the return.

Question 27

Failure to pay penalty

Answer 27

An extension does not give you a payment extension. Tax payments are still due by April 15.

Failure to pay penalty equals 1/2 of one percent of unpaid taxes for each month or part of a month after the due date

A taxpayer may request penalty abatement due to reasonable cause

Question 28

Interest on the penalty amount due

Answer 28

In addition to penalties, the tax pay will also be charged interest on the amount due

Interest rate is determined quarterly and is the federal short term rate +3%. Interest compounds daily.

Question 29

Estimated taxes for individuals

Answer 29

The federal income tax is a pay as you go tax and people need to pay most of their tax during the year.

There is no underpayment penalty if the total tax liability on the return is under $1000

No estimated tax payments are required if they had zero tax liability in the prior year

Safe Harbor rule : need tax withheld to be lessor of
100% prior year tax liability
90% current year expected liability

Safe harbor rule for higher income (150,000)
110% prior year tax liability
90% expected

Question 30

Estimated tax filing and due dates

Answer 30

Taxpayer must complete form 1040 – ES the estimated tax for individuals to pay estimated tax

If a payment is mailed, the date of the US postmark is considered the date of payment

First payment due April 15

Second payment due June 15

Third payment due September 15

Fourth payment due January 15 of the following year

Question 31

Request a waiver of the estimated tax penalty

Answer 31

Use form 2210, underpayment of estimated tax by individuals estates and trust.

This is called the annualized income installment method

Question 32

Estimated taxes for farmers and fisherman

Answer 32

Special rules apply to the payment of estimated tax by qualified farmers and fisherman, those who file on schedule F.

If at least 2/3 of the taxpayers gross income in the current year comes from farming or fishing activities….

Taxpayer does not have to pay estimated tax if you files his return and pays all tax due by 1 March

If the taxpayer must pay estimated tax, he is required to make only one estimated tax payment by January 15

Question 33

Backup withholding

Answer 33

There are times and entity is required to withhold a certain amount from a payment and remit the tax amount to the IRS.

 An accurate Social Security number or taxpayer identification number

 Delinquent tax or failure to report all interest and dividends and other income

Current Back Up withholding rate is 24% for all US citizens and legal US residence.

Non-resident alien withholding is 30% unless an exemption or tax treaty applies.

Question 34

Earned income

Answer 34

All taxable income earned through work such as wages, salary, tips, and other forms of employee compensation, including self-employment earnings from business or farm ownership

Question 35

Unearned income

Answer 35

Other types of income, such as interest, income, dividends, capital gains, retirement, income, gambling, winnings, and prizes

Question 36

Filing thresholds

Answer 36

The determination of whether a taxpayer must file a federal income tax return by their gross income

Question 37

Filing threshold – single

Answer 37

$13,850

65 or older equals an additional $1850.

Question 38

Filing threshold – married filing jointly

Answer 38

$27,700

65 and older equals an additional $1500 for each spouse that age

Question 39

Filing threshold – qualifying surviving spouse

Answer 39

$27,700

65 and older equals an additional $1500 for each spouse that age

Question 40

Filing threshold – married filing separate

Answer 40

Five dollars regardless of the age

Question 41

Filing threshold – head of household

Answer 41

$20,800

65 and older equals an additional $1850

Question 42

Filing threshold – self-employment

Answer 42

Any earnings from self-employment of at least $400 NET (income minus expenses) you must file a return

Question 43

Filing threshold – church employee

Answer 43

Church employee income of $108.28 or more you must file a return

Question 44

Kiddie Tax

Answer 44

Determines if a child or dependent needs to file a tax return

The first $1250 of unearned income is not taxed

The second $1250 is taxed at the child’s rate

Anything above $2500 is then taxed at the parents rate

Question 45

When are dependence required to file a tax return?

Answer 45

Earned income – the threshold is the same as single. $13,850.

Unearned income – anything greater than $1250 requires the child to file a return

Question 46

Schedule C

Answer 46

Taxpayers report their business income on schedule C, profit or loss from business.

For reporting income and expenses related to the business

Question 47

Schedule F

Answer 47

Specifically for reporting profit or loss from farming or fishing

Question 48

Form 1099 – NEC

Answer 48

This form is used to report payments to an independent contractor who is paid at least $600 during the year

Question 49

Form 1099 - MISC

Answer 49

This form is used to report other types of payments such as rents royalties, prizes, and awards

Question 50

Why should you file a tax return if you were not legally obligated?

Answer 50

You could still be eligible for a tax refund or qualify for any refundable tax credits, such as the earned income tax credit

Question 51

Additional filing requirements that require you to file a tax return

Answer 51

1. Taxpayer owes Social Security tax or Medicare tax on unreported tips
2. Taxpayer must pay the alternative minimum tax.
3. Taxpayer owes additional tax for retirement plan such as IRA 401(k) or 403B
4. Taxpayer received a distribution from a Medicare advantage and essay, archer, MSA, or health savings account HSA.
5. Taxpayer owes household employee taxes… Can File schedule H by itself
6. Must recapture an education, credit, investment credit, or other credit
7. Taxpayer received advanced payments of the premium tax credit. Should receive forms 1095 – a

Question 52

Relief from joint tax liability

Answer 52

Filing a joint return, both are legally responsible for the entire tax liability

A taxpayer can file a claim for spousal relief under three different grounds

1. Innocent spouse relief.
2. Separation of liability relief.
3. Equitable relief.

Form 8857, request for innocent spouse relief, is used to request all three types of relief

Question 53

Innocent spouse relief

Answer 53

A taxpayer can seek innocent spouse relief from the IRS if they later become aware of a tax liability in the believe that it is not theirs and can prove they did not know about it.

File form 8857, request for innocent spouse relief

Question 54

Separation of liability relief

Answer 54

Taxpayer must either no longer be married or legally separated from their spouse, be widowed, or have lived apart for at least a year from the spouse with whom they filed a joint return.

Cannot have had knowledge of the tax item leading to the deficiency signed under duress

File form 8857 to request separation of liability relief

Question 55

Equitable relief

Answer 55

Taxpayer doesn’t qualify for innocent spouse, relief, or separation of liability relief.

IRS will review the fax and circumstances to see if it would be unfair to hold the taxpayer liable.

Spousal abuse is an example

Question 56

Injured spouse claim

Answer 56

Taxpayers spouse has passed financial obligations with the IRS that a refund would be applied to

Injured spouses file form 8379, injured spouse, allocation, to request their portion of the refund on a joint return

To be considered an injured spouse, must meet the following

1. Have filed a joint return
2. Have paid federal income tax, or claimed a refundable tax credit.
3. Or part of the refund was or is expected to be applied to the spouses past obligation
4. Not be responsible for the debt.

Question 57

RSED

Answer 57

Refund statute expiration date

If you find an error on a previously filed return and want to refund, the amended return must be filed within three years of the date the return was filed.

Or two years from the date, the tax was paid whichever is later

If you file your tax returns late, for example, you file five years of returns, you can only get a refund on the returns within a three-year period

Question 58

Extended statute for filing late and claiming refunds

Answer 58

In some cases, I filed tax return, and claiming a tax refund beyond the deadline will be honored

Fire, casualty, natural disaster, or other disturbances

Financial disability, death, serious illness, incapacitation, or unavoidable absence of the taxpayer

Question 59

Extended statute for a bad debt from worthless securities

Answer 59

Up to seven years prior

Question 60

Extended statute for a payment or accrual of foreign tax

Answer 60

Up to 10 years prior

Question 61

Statute of limitations for IRS assessment and collection

Answer 61

The IRS is required to assess tax within three years after the return is filed or the due date of the return.

Unless the IRS can proof fraud or a substantial understatement of gross income

Question 62

Substantial understatement of gross income

Answer 62

Gross income is understated by more than 25%

The IRS has six years to assess tax on the return

Question 63

Fraudulent tax return

Answer 63

There is no statute of limitations for an additional assessment of tax on a fraudulent tax return or if a taxpayer never files a return

Question 64

CSED

Answer 64

Collection statute expiration date

The IRS can attempt to collect unpaid taxes for up to 10 years from the date the taxes are assessed

The bill date is the assessment date not the date it is filed