Chapter 11 Exam 1 Review

What is the minimum and maximum age for taxpayers with no qualifying children to qualify for the EIC?

At least 25-under age 65 at the end of the tax year

What credits can a non-custodial parent claim when he is claiming a dependent due to receiving a form 8332?

1. Dependent Exemption - if qualifies 2. Child tax credit, if child qualifies

What is the additional standard deduction amount if you are 65 or over or blind. You get this add'l amount added to your standard deduction for each case, over 65 and also blind.

$1550 for 65 or over $1550 for blind ex: Single standard deduction = $6300 plus for 65 and over = $1550 plus for blind = $1550 Total standard deduction for being over 65 and blind is $9400

What is the maximum amount you can claim for the Saver's Credit

$2000

How much does IRS charge for an installment agreement?

$225 added to the amount due

How much investment income can a taxpayer have before they are disqualified from taking the EIC?

$3400 or more

An employer may provide how much group term life insurance coverage as a tax free employee fringe benefit, and how is any overage of that amount taxed.

$50,000 any amount over, the additional premium amount for over $50K is taxed as income and included in their W-2 box 1

What is the maximum tax year contribution to either a Roth or Traditional IRA What would limit a taxpayer's contribution

$5500 $6500 if age 50 and over limited to taxpayers compensation If MFJ limited to combined compensation or maximum age limitation individually.

What is a QUALIFIED retirement plan

401K, 403(b), 457 plan, simple IRA or SEP IRA A Roth IRA is considered a qualified plan for the Saver's Credit

What ways can a taxpayer receive their refund from the IRS

1. Check issued by mail 2. Direct deposit to a checking/savings/ retirement account/HSA account/Cloverdell 3. Apply all or part to next years estimated tax payments 4. Purchase us Savings bonds

What are the payment options to pay a balance due amount on a taxpayer's return?

1. Check, money order or credit card 2. Installment agreement for 9465 3. Electronic Federal Tax payment system EFTPS

What are the 5 qualifying child test ad one special test for a qualifying child of more than one person if you pass the 3 general test for dependency tests? DJC

1. Relationship test - related to you in one of the familial ways listed. 2. Age Test - under age 19 or under 24 for students - no age for disabled. 3. Residency test - must have lived with you for more than half the year, unless exception. 4. Support test - The CHILD cannot have provided more than half of their own support. 5. Joint return test - Cannot file a joint return, unless filing to recover withholding paid. Must not be required to file. 6. Special test for a qualifying child of more than one person. JARRSS

What filing Status' are available for single Tax payers. List any requirements that must be met for qualification for that status.

1. Single - not married at the end of the year 2. Head of Household - A. Not married, unless separated from spouse for the last 6 months. B. Must provide more than half the cost of maintaining a home. C. Must have a dependent

What makes a dependent child qualify for the child tax credit

1. under age 17 at the end of the tax year. 2. Be related to Taxpayer by son, daughter, sibling or descendent of one. Stepchild, foster child 3. lived with taxpayer for more than half the tax year. 4. Child did not provide more than half their own support. 5. Is a US Citizen, US National or US resident alien. Cannot be a non-resident alien residing in Canada or Mexico even if the child qualifies as a dependent. 6. Is younger than the taxpayer or younger than at least one of the taxpayers if MFJ. 7. Does not file a joint return except to receive a refund, and no tax liability would have existed if the child and their spouse filed separately. 8. Is claimed as a dependent of the taxpayer claiming the Child Tax credit.

How many times can a taxpayer deposit a refund into a single account?

3

In order for a rollover to be tax-free as a rollover and not taxed as a distribution, what time frame must a taxpayer adhere to when depositing into another account?

60 Days - Remember to count the day of withdrawal and the day of the deposit when calculating the 60 period.

When a injury or sickness becomes permanent, instead of being issued a W-2, what form do they now start receiving?

A 1099 R with a distribution code 3 - disability pension. When this happens the disability income is still listed on line 7, but when the employee becomes the same age as the company's minimum retirement age, it is then reported on lines 16A and 16B of the 1040.

What is the difference between a refundable and non-refundable credit?

A non-refundable credit can reduce your tax liability to zero, but cannot give you a refund. a refundable credit reduces the tax liability to zero and can also give you a refund if it goes past zero.

What determines if your receive a 50%, 20% or 10% of your contribution to a retirement account for the saver's credit

AGI

What are the two major differences between qualifying to open an IRA and a Roth account

Age limitations and income limitations: There are no age limitations for a Roth, but it is limited to AGI limits for a taxpayers filing status.

How many rollovers can a single taxpayer do even if multiple accounts are owned

As of Jan 2015 one rollover per calendar year regardless of how many accounts are owned.

What is a De Minimis Benefit and what 2 forms of De Minimis benefits are taxed at their value.

Are low value cost items making it difficult to keep adequate records. However, if cash or gift certificates are received as De Minimis benefits they are taxed at their value. The taxpayer must include them in their income regardless of the amount of their value.

What would disqualify a tax payer from the Saver's Credit? Name 3

Being a Full-time student Under age 18 Cannot be a dependent on another's return

To set up an IRA or Roth account what must a taxpayer have?

Both must have taxable compensation

On a 1099INT form, what two boxes are reported on line 8a 1040

Box 1 plus box 3 is entered on line 8a 1040 form

What is the box 12 code for combat pay on a Military W-2 and What will box 14 list and is it included in line 7 of the 1040?

Box 12 code is Q and box 14 will list the name of the presidentially approved name of the combat zone. It is not subject to income tax and thus is not listed in box 1 nor on line 7 of the 1040. However, the amounts are still subject to Social Security and Medicare taxes and are listed in boxes 3 and 5.

Where are tips that are allocated by the employer to each employee (taxpayer) listed on the W-2?

Box 8 - Allocated tips collected by the employer and divided by the employer to employees

Are Mutual Fund distributions taxed as short-term or long-term capital gains rates?

Capital gain distributions are taxed as long-term capital gains, regardless of how long the taxpayer owned the shares in the mutual fund. They are taxed at the same reduced capital gain tax rates as qualified dividends.

What tax credits require tax preparers to do due diligence in figuring the credit, and what is the tax penalty amount for being willfully negligent in any investigation. What is the form for recording your due diligence and filing your results with the IRS?

Child Tax Credit Additional Child Tax Credit Earned Income Credit American Opportunity Credit $510 per tax return occurance with no limit Form 8867 Due Diligence form

Explain these distribution codes and their tax liability when listed on a 1099R in box 7: Code 1 Code 7 Code G Code J

Code 1 - Early distribution - no exception applies - Taxable Code 7 - Normal distribution - Taxable Code G - Direct Rollover - non-taxable Code J - Early distribution from a Roth IRA - Code J means that you met the five year holding period, but because this was an early withdrawal without any known exceptions, the earnings are taxable and a 10% early distribution penalty may also apply.

When a W-2 box 12 lists code J with a dollar amount, how were the premiums paid before tax or after tax?

Code J indicates the amount is not taxable, because the premiums were paid for with after taxed payroll dollars. IF the premiums were paid for with before taxed payroll dollars the amount would be taxable.

What Military type pay is not subject to income tax

Combat pay

How can a taxpayer qualifying for the child tax credit recover the full amount of the child tax credit if their credit was limited by their tax liability, and what form must you file with their return?

Continue with the additional child tax credit and file form 8812 with the taxpayer's return.

Where do the three copies we deal with in a tax return go? Copy B, C and 2 for record keeping

Copy B - filed with return or kept with Taxpayer's e-copies Copy C - Kept by the taxpayer for taxpayer's record Copy 2 - filed with taxpayers state return and/or kept with taxpayer's e-copies.

3 General tests for Dependency

Dependent taxpayer test - cannot be or qualify as someone else's dependent

What is the one thing a taxpayer must have before considering the rest of the EIC qualifications?

Earned income. W-2 Income and net earnings from self employment ok.

True or False Interest accumulated in an IRA account must be reported on a taxpayers return for the year it was earned?

False Interest is allowed to accumulate in an IRA account until distribution. It is tax-deferred.

Complete this sentence: Us Savings Bonds are taxable at the _________________________ level, but by law are not taxable at the ____________level.

Federal level (taxable) State level (not taxable)

If a child is a qualifying child of parents and non-parents, who does the dependency go to according to IRS rules?

If only one of the taxpayers is the parent of a qualifying child, only this parent is allowed to claim the qualifying child as their dependent.

What form is earned interest reported on to the taxpayer. If they don't get this form is their interest unreported taxable?

Form 1099INT All interest received is taxable and must be reported

If a Divorced or separated parent is required to or chooses to give the dependent exemption to the non-custodial parent. What form must be filled out and filed with the non-custodial parent's return?

Form 8332

If a taxpayer receives a non-qualified Roth distribution what form must you use to calculate what portion is a return of contributions and what part, if any, is taxable earnings?

Form 8606

What would the filing status be for each of two single adults living together, not married and have children together.

Head of Household for the adult who provides more than half the cost of maintaining the home and at least one qualifying child. The other adult not providing more than half the cost of maintaining would have to file single.

If a qualifying child lived with both parents an equal amount of time what is used as a tie-breaker?

If a child is a qualifying child of more than one parent, the dependency goes to the custodial parent, if the child lived with both parents an equal amount of time, the dependency goes to the parent with the highest AGI

What must be done with tips employees collect, but do not exceed the $20 reported to their employers.

Include it in income on line 7 on the 1040.

Municipal bonds, commonly referred to as "muni bonds," are debt securities that states, cities, counties, and other governmental entities issue. These bonds raise money for public purposes, such as the construction of schools, highways, and other special projects. Are these type of bonds taxable by federal or state?

Interest is not taxable for federal tax purposes. States usually do not tax their own muni bonds; thus, these bonds are often exempt from both federal and state taxes. Check to see if state laws require a tax other State Muni bonds

What are the 4 qualifying test for qualifying a child for the EIC?

JARR Relationship Age - under 19 Residency - lived with taxpayer in us more than half the tax year. Joint return - no joint return except to claim a refund

What line on form 1040 are IRA distributions reported?

Line 15a - Total distribution amount from 1099R Line 15b - Taxable portion if any

What line on form 1040 are Pension and Annuities reported?

Line 16a - Total distribution amount from 1099R 16b - taxable portion if any

What line of the 1040 is unemployment reported and how is repayment of unemployment benefits (if any) reported?

Line 19 - the amount repaid is subtracted from box 1 and "repaid" and amount repaid listed on dotted line portion of line 19

What line of the 1040 is the result of the Saver's credit calculation reported on and what form is sent to the IRS to receive the credit?

Line 51 of the 1040 and form 8880 is sent to the IRS with the 1040 to receive the credit.

What line of the 1040 is federal withholdings reported?

Line 64

What line on the 1040 are children of divorce or separated children listed if they did not live with them due to divorce and are claiming an exemption for them under the special rule for divorced or separated parents.

Line 6c

If a taxpayer was disallowed the EITC by the IRS, because they claimed an EITC for a child that was not their qualifying child, what must they do to claim the EITC the year after being disallowed?

Must file form 8862 Information To Claim Earned Income Credit After Disallowance

When would a loan from a retirement account become taxable and what is the code on a 1099R that reflects the status of the loan.

Loans are not taxable income as long as they are paid back in full. However, when the loan is not paid back in a timely manner (determined by the company) the proceeds are reported on a 1099R with a code listed as L and it becomes taxable.

What are the two forms of capital gains? Hint has to do with time frames :)

Long-term capital gains Short-term capital gains

What filing status would disqualify a taxpayer from taking the EIC?

MFS

What filing status would be most advantageous for a taxpayer whose spouse died before the end of the tax year?

Married filing jointly

When a person is being claimed as a dependent on another's return can that person claim a personal exemption for themselves if they file a return?

NO

Can a taxpayer with qualifying children use the rules for taxpayers without a qualifying child?

No - cannot mix or migrate.

A Non-dividend distribution is also known as a __________________, and are they taxable?

Nontaxable distributions are also called a "return of capital." It is a return of the taxpayer's investment in the stock of the company. A distribution that is not paid out of the earnings and profits of a corporation. They are considered fully or partially non-taxable as dividends only, because the paying corporation's current and accumulated earnings and profits are less than the distributions

What are the two types of Dividends reported on a 1099DIV?

Qualified Ordinary

What makes a Roth distribution qualified?

Qualified distributions from your Roth IRA generally require that the account is at least five years old and that you meet one of the following requirements: Over 59½ Making a first-time home purchase Disability or death

What are the differences of a Traditional IRA and a Roth accounts when it comes to RMD (required minimum distributions)

RMD is required on a traditional IRA after age 70 1/2 Roth accounts do not require a minimum distribution until after death

Where would all the non-refundable credits be on the 1040?

Tax and credits section starting on line 40

Is the EIC a refundable or non-refundable credit?

Refundable it can reduce your tax liability and continue to give you a refund

If taxpayer's address is different from what is listed on the taxpayer's W-2 and is incorrect, what address do you include on the return and what actions does the taxpayer need to take?

Report the correct address on the return (IRS will use it to update their records) and the employee will need request an update to their employee records reflecting the correct address.

Of the 6 qualifying child test which test is the exception for children of divorced or separated parents? It applies to non-custodial parents.

Residency test applies to the non-custodial parent if the following are met. 1. The child was in the custody of one or both parents for more than half the year 2. More than half of the child's support was provided by the parents.

When would a self-employed taxpayer be required to file a tax return even though they are under the income amount required for filing?

When the taxpayer had $400 or more in net earnings (gross less expenses) or church employee income of $108.28

How are Short-term capital gains taxed and how are Long-term capital gains taxed?

Short-term capital gains are taxed as ordinary income and Long-term capital gains are taxed at capital gains rates of 0%, 15% or 20%.

When can a 1040 EZ be used?

Single and married taxpayers with no dependents reporting wage income.

If a custodial parent gives away their right to claim their dependent to a non-custodial parent, and the custodial parent qualifies for Head of Household filing status. What is their filing status now?

Still Head of Household - the non-custodial parent retains the child as their qualifying child for the head of household filing status. The child is not listed in the dependent section, but a box is checked in the filing status section indicating the child is being used as qualifying for HOH status only and the child's name is listed. NO SSN of the child is listed on the return.

How are qualified dividends taxed and what are the three rates?

Taxed as capital gains Taxed at the 0% rate if the regular tax rate is 10% or 15% Taxed at the 15% rate if the regular tax rate is greater than 15% but less than 39.6% 15% but less than 39.6% Taxed at the 20% rate if the regular tax rate is 39.6%

On an 9465 Installment agreement, who determines the amount and date of a monthly payment arrangement?

Taxpayer

Can you have an ITIN and claim the EIC

Taxpayers and qualifying children must have a SSN, no ITINs

What portion of the child tax credit is a refundable credit?

The Additional Child Tax Credit is the only portion that is a refundable credit. The Child tax credit is a non-refundable credit.

Who owns the assets in a Mutual Fund?

The assets are owned by the Fund, not the taxpayer. The fund buys and sells assets and the taxpayers share in the profits.

What boxes would state income and state withholdings be listed on a W-2?

The boxes for state start at box 15 on the W-2 with state wages reported in box 16 and state withholdings in box 17. Local taxes begin in box 18-20

What is a good rule to adhere to when advising clients about rollovers?

Transfer when you can Rollover if you must A taxpayer can do unlimited transfers of their accounts tax-free, but only one rollover per Calendar year are free, both must still meet the 60-day time limit to continue to be tax-free

What are the age requirements for setting up and contributing to an IRA and a Roth retirement account?

The taxpayer must be under age 70½. They cannot set up or contribute to a traditional IRA in the year they reach age 70½. There is no age limitation on setting up or contributing to a Roth account

What kind of tips are listed in box 7 Social security tips?

These are tips reported by the employee to the employer. An employee is required to keep a log of tips totaling $20 or more and report them to their employer and the employer reports these in box 7. This box is subject to social security tax. They are included in boxes 1 and 5, but not in box 3.

At what rate are ordinary dividends tax at?

They are taxed as ordinary income - what ever your tax rate lands at for that tax year the dividends were earned.

IF a child fails the qualifying child tests, what may they be instead, and what are the main differences between the two? 3 major differences.

They may be a Qualifying Relative Differences: 1. IF they are not a relative listed, they must be a member of the taxpayer's household ALL year. 2. The TAXPAYER must provide more than half of the individual's support. 3. The individual's gross income for the year must be less than the exemption amount $4050 for 2016

What are the taxable differences between an IRA and a Roth retirement account when it comes to distributions and contributions?

Traditional IRA contributions are deductible Roth contributions are non-deductible Traditional IRA distributions are taxable QUALIFIED Roth distributions are non-taxable

When would IRS be required to accept an installment agreement from a taxpayer requesting one on form 9465?

When all of the following apply: 1. Balance due does not exceed $10,000 2. In the last 5 years taxpayer(s) have filed tax returns on time and paid any tax due and have no other installment agreements. 3. Taxpayer agrees to pay in full in three years or less 4. Agrees to comply with tax laws while the installment agreement is in effect. 5. IRS determines Taxpayer cannot pay the tax due in full when it is due and taxpayer releases any information to IRS to make that determination.

What is the line 13 rule pertaining to a 1099DIV form and box 2a?

When box 2a has a dollar amount listed and there are no dollar amounts listed in boxes 2b, 2c or 2d you can report box 2a directly on form 1040 line 13 and check the box indicated schedule D and form 8949 are not required.

On what form are interest and dividends reported on, and when must you include this form with a tax return instead of only on lines 8a and 9a 1040

When a taxpayer has any of the following: When a taxpayer has taxable interest income greater than $1,500 When a taxpayer is excluding U.S. savings bond interest When a taxpayer has ordinary dividends greater than $1,500 If a taxpayer owns and receives interest from a foreign account Note: The taxpayer does not need to include Schedule B if the total amount of their taxable interest plus ordinary dividends is greater than $1,500 provided interest or dividend income individually is not greater than $1,500, and none of the other reasons for completing a Schedule B exist.

When should a taxpayer use QW tax status

When a taxpayer's spouse died the previous tax year and the taxpayer also has dependents (can't be grandchildren) the taxpayer can use QW filing status for 2 years after the year their spouse died.

When can a taxpayer report their child's income on their own return?

When the child's only income is interest or dividends, and the child is under age 19 or 24 if full-time student.

When does a taxpayer need to request a corrected W-2 from their employer and when can the taxpayer e-file their return. How will their new W-2 be reflected as corrected?

When their SSN, name or dollar amount is reported on the W-2 incorrectly. The corrected W-2 will reflect a corrected state by checking the box "Corrected W-2 at the top of the W-2 Form.

When is Bond interest taxable?

When they are received, either at maturity or when they are cashed out early.

Can a taxpayer use form 1040EZ and claim an EIC credit?

Yes

Can a taxpayer split their refund into different accounts?

Yes - 3 max

Is the Saver's Credit limited to your tax liability and based on your answer is this credit a refundable or non-refundable credit?

Yes - Non-refundable

Can a Military Taxpayer include non taxable combat pay for the purposes of the EIC? If so how much can they include?

Yes, but it must all be included, no partial amounts

How does the unaffordable coverage exemption work?

Your monthly income times 8.13% If your plan contribution is over the resulting 8.13% of your monthly income, you can claim an exemption from the shared responsibility payment penalty ex: monthly income 2000 X 8.13% = 162.60 rounded up to 163.00 your contribution to your plan is $186, you are exempt from a shared responsibility payment penalty under unaffordable coverage.

What tax form would disqualify a taxpayer from taking the EIC?

form 2555 foreign earned income

Where would all the refundable tax credits be on the 1040?

in the Payments section starting on line 64

On what line of the 1040 is wages, salaries, tips on form W-2 reported

line 7

If a taxpayer's only income is Social Security benefits, are they required to file?

no - only if they have other income (W-2, 1099 misc, 1099R, etc) If they have other income, part of their Social Security benefits may be taxable.