Income
If an employee thinks their Form W-2 is incorrect, what should they do?
Notify their employer and ask for it to be corrected in a timely manner. If not successful, file a substitute W2 when they file their tax return.
Information you need to know to determine whether a taxpayer is required to file a return?
Marital status, age at end of tax year, gross income for the year and is taxpayer a dependent
Are scholarships and fellowships taxable?
It depends.
Generally, it is excludible if the scholarship/fellowship is used for qualified education expenses. If the scholarship/fellowship is used for room and board and or living expenses, it is taxable.
What happens if an individual is a qualifying child of more than one taxpayer or more than one taxpayer claims the same qualifying child?
The tiebreaker rules come into play.
How much is the penalty if a paid preparer fails to meet the Child Tax Credit due diligence requirements?
The penalty is $520 for failing to meet each of the CTC/ACTC/ODC due diligence requirements on one return. Total possible penalty of $2080.
What is the standard deduction filing requirement for a Dependent?
Greater of earned income + 350 or 1050. Limited to 12000.
For tax purposes, when is a person’s marital status determined?
On the last day of the tax year, generally December 31.
Where on the 1040 tax form can you find the regular standard deduction amounts?
Line 8
What additional requirements must be met for a taxpayer to be eligible to claim the Child Tax Credit for their qualifying child.
The child must be a qualifying child
The child must be the taxpayers dependent
The child must be under 17 years old at the end of the tax year
The child must be a citizen, national or resident of the United States.
What is the purpose of Form 2120, Multiple Support Declaration?
If two or more persons provided more than half the support for a person, they can agree among themselves who will claim the dependent. The person not claiming has to sign and agree not to claim the dependent.
How can the gross income for a qualifying relative test be satisfied?
Qualifying relative gross income must be less than $4,150
How much is added to the standard deduction if the taxpayer (or spouse) is age 65 or older, blind?
1300 if married, 1600 for all other filing statuses. Add amount for each – age and blind.
Which is usually a better deal and why?
Deductions or Credits
Credits: Tax credits reduce tax dollar for dollar.
Deductions reduce taxable income.
Is the Child Tax Credit refundable or nonrefundable?
Generally nonrefundable. The ACTC may come into play if the CTC is not fully used.
What is the difference between injured spouse allocation and innocent spouse relief?
Injured spouse allocation – protects the taxpayer’s share of the refund from being taken for the other spouse’s separate debts for federal or state income tax, unpaid student loans, unpaid child or spousal support or unemployment repayments. Innocent spouse relief protects a taxpayer who has filed a joint return and their spouse has underestimated income and/or overestimated expenses/credits and the taxpayer did not know this to be false.
What is interest income and dividend income? How are they reported to the taxpayer?
Interest income is income paid for the use of money. It is paid on 1099INT.
Dividend income is income paid to shareholders of corporations. It is paid on 1099DIV.
What is the filing requirement for MFS?
How much capital loss can a taxpayer generally deduct per year?
Up to 3000 of long term capital loss can be deducted per year.
What are the four tiebreaker rules the IRS applies when more than one taxpayer claims the same qualifying child?
1) if only one of the taxpayers is the child’s parent, the parent claims.
2) if parents do not live together and both parents claim, the parent with the biggest number of nights, claims.
If time is the same, the parent with the highest AGI claims.
3) if no parent claims, the person with the highest AGI claims.
4) If a parent can claim the child but does not, the person with the highest AGI as long as it is higher than parents AGI.
A taxpayer wrote a check for a $500 donation to their church. Is their canceled check sufficient documentation to support the deduction? Why or why not?
No, the gift exceeded $249 so the taxpayer needs a written substantiation from the donee organization,
At what threshold amount must interest or dividend income be reported on Form 1040A, Schedule B?
When total taxable interest or ordinary dividend income exceeds $1,500.
Under what circumstances might a taxpayer be required to file a return, even though they do not meet the gross income filing requirements?
If they owe social security/Medicaid on unreported tips, received HAS, MSA distributions, had self-employment profit of $400 or more, or received the premium tax credit.
What are the six qualifications that must be met for any taxpayer to be eligible to claim the Earned Income Tax Credit?
1) have earned income
2) have a valid SSN
3) not be MFS
4) Be a US citizen or resident alien for the entire year
5) not file Form 2555 for foreign earned income
6) have investment income of 3500 or less
What requirements must be met for a taxpayer to use the qualifying widow(er) status?
The death must have occurred in either of the last two tax years and the taxpayer cannot have remarried. The taxpayer and the deceased spouse must have been entitled to file a joint return in the year the spouse died. The taxpayer must pay over half the cost to maintain a home for dependent son, daughter, including step children.
Why is it important to distinguish between taxpayers who are active participants in an employer-maintained retirement plan and those who are not?
If not an active participant, the IRA contribution is not limited. If an active participant, the IRA contribution may be limited.