SU 1 - Filing Requirements
When is an taxpayer considered a resident alien?
A taxpayer is considered a resident alien if they either pass the green card test or the substantial presence test.
What is the definition of a Dual-Status Alien?
A dual-status alien is a taxpayer that was both a nonresident and a resident alien during the year.
What is the substantial presence test?
A taxpayer is considered a U.S. resident if (s)he was physically present in the U.S. for at least 31 days during 2020 and 183 days during 2020, 2019, and 2018. Counting all days of physical presence in 2020 but only 1/3 the number of days of presence in 2019 and only 1/6 the number days in 2018.
Ms. N, who is married, wants to file as head of household for the current year. Which of the following will prevent her form filing as head of household? A. Her spouse lived in her home for the final 6 months of the current year. B. She and her husband did not commingle funds for support purposes. C. She paid more than half the cost of keeping up her home for the tax year. D. Her home was, for more than 6 months of the year, the principal home of her son, whom she can claim as a dependent.
A. Her spouse lived in her home for the final 6 months of the current year. Required: The item that will prevent the taxpayer from filing as head of household. Discussion: A married person may qualify for head of household status if the conditions for "considered unmarried" are met. A married individual who lives with a dependent apart from the spouse will be considered unmarried and qualify for head of household status if, for the tax year, (1) the individual files separately, (2) the individual pays more than 50% toward maintaining the household, (3) the spouse is not a member of the household for the last 6 months; (4) the household is the principal home of the individual's child, stepchild, or qualified foster child for than half the year; and (5) the individual can claim the child as a dependent. Answer (B) is incorrect because the fact that she and her husband didn't commingle funds for support purposes will not prevent her from filing as head of household. Answer (C) & (D) are incorrect because both are requirements that must be met in order to file as head of household.
Ms. Maple, a single women age 65, retired in 2020. Prior to her retirement, she received a $6,000 bonus plus $5,050 in wages. After her retirement, she received $9,000 in Social Security benefits. Which of the following is true? A. Ms. Maple does not have to file a 2020 income tax return. B. Ms. Maple has to file a 2020 income tax return. C. Ms. Maple has to file a 2020 income tax return but may exclude the $6,000. D. Ms. Maple has to file a 2020 income tax return but may exclude the $9,000 in Social Security benefits from income.
A. Ms. Maple does not have to file a 2020 income tax return. Required: The true statement concerning filing an income tax return. Discussion: In general, a taxpayer does not have to file return if his or her gross income is less than his or her standard deduction [Publication 501 and Sec. 6012(a)]. For single individuals who are 65 or over, the standard deduction increases by $1,650. Therefore, the filing threshold will be $14,050, ($12,400 basic standard deduction + $1,650 additional standard deduction). Ms. Maple's income does not qualify her Social Security benefits for gross income inclusion in determining her filing requirement.
John and Joanne are the sole support of the following individuals, all U.S. citizens, none of whom lives with them. None of these individuals files a joint return or has any gross income. Jennie, John's mother Julie, Joanne's stepmother Jonathan, father of John's first wife How many dependents may John and Joanne claim on their joint return? A. 0 B. 3 C. 2 D. 1
B. 3 To qualify for dependency, the taxpayer must provide over 50% of the support of a U.S. citizen who meets certain relationship tests stated in Sec. 152(a). Section 152 allows dependency for fathers, mothers, stepfathers, and stepmothers. Relationships established by marriage are not ended by death or divorce (Publication 501). Thus, each of the individuals listed qualifies under the relationship test of Sec. 152.
If a nonresident alien receives income that is effectively connected with U.S. trade or business, which itemized deductions may be taken? A. Mortgage interest on a primary residence. B. Casualty and theft losses from a federally declared disaster. C. Federal income taxes. D. A charitable contribution to a charitable organization in Germany.
B. Casualty and theft losses from a federally declared disaster. Nonresident aliens can deduct certain itemized deductions if income is received that is effectively connected with U.S. trade or business. These deductions include state and local income taxes, charitable contributions to U.S. organizations, casualty and theft losses, and miscellaneous deductions.
In 2020, Lisa was married and had two dependent children. Her husband died in April, and she didn't remarry before the end of 2020. Which filing status should Lisa use for her tax return in 2020? A. Head of Household B. Married Filing Jointly C. Single D. Qualifying Widow(er) with Dependent Child
B. Married Filing Jointly Two individuals are treated as legally married (Publication 504) for the entire tax year if, on the last day of the tax year, they are 1. Legally married and cohabiting as husband and wife 2. Legally married and living apart but not separated pursuant to a valid divorce decree or separate maintenance agreement 3. Separated under a valid divorce decree that is not yet final If a spouse dies, status is determine when the spouse dies unless the surviving spouse remarries before the end of the tax year (Publication 17).
Which dependent relative does NOT have to live in the same household as the taxpayer claiming head of household filing status? A. Daughter B. Mother C. Uncle D. Sister or Brother
B. Mother Required: The relative who does not have to live in the same household as the taxpayer claiming head of household filing status. Discussion: Section 2(b) provides head of household status for an unmarried taxpayer who maintains a household that constitutes the principal place of abode of the taxpayer is entitled to claim the parent as a dependent. The taxpayer is considered as maintaining a household only if (s)he furnishes over half of the cost of maintaining it. In the case of anyone other than the taxpayer's father or mother, such person(s) must actually occupy the taxpayer's own household for the taxpayer to be considered a head of household (Publication 17).
Jean Blanc, a citizen and resident of Canada, is a professional hockey player with a U.S. hockey club. Under Jean's contract, he received $68,500 for 165 days of play during the current year. Of the 165 days, 132 days were spent performing services in the United States and 33 playing hockey in Canada. What is the amount to be included in Jean's gross income on his Form 1040-NR? A. $34,200 B. $68,500 C. $54,800 D. $0
C. $54,800 A nonresident alien must include in U.S. gross income that income from U.S. sources effectively connected with the conduct of a trade or business in the United States (Sec. 871). Under Sec. 864, the performance of personal services in the U.S. constitutes a trade or business in the United States. If income is derived therefrom, it is considered to be from U.S. source (Publication 17). According to the IRS and the courts, services of a professional hockey player are allocable to U.S. and non-U.S. time periods during the preseason training camp, the regular season, and post-season playoffs, but not the off-season. Therefore, Jean must include the portion of his income that is attributable to the performance of personal services in the U.S., i.e., 80% (132/165 days). Eighty percent of $68,500 is $54,800, which must be reported as U.S. income.
Which of the following is NOT a requirement that must be met in determining whether a taxpayer is considered unmarried for head of household filing-status purposes? A. An individual must file a separate return. B. An individual must pay more than one-half the cost of keeping up a home for the tax year. C. An individual's home must be, for the entire year, the main home of his or her child, stepchild, or qualified foster child whom (s)he or the noncustodial parent can properly claim as a dependent. D. An individual's spouse must not have lived in their home for the last 6 months of the tax year.
C. An individual's home must be, for the entire year, the main home of his or her child, stepchild, or qualified foster child whom (s)he or the noncustodial parent can properly claim as a dependent. Required: The item that is not a requirement in determining if a taxpayer is unmarried for head of household filing-status purposes. Discussion: In determining if a taxpayer qualifies for head of household filing status, the taxpayer is considered unmarried if all the following requirements are met: 1. The taxpayer filed a separate return. 2. The taxpayer paid more than half the cost of keeping up the home for the tax year. 3. The taxpayer's spouse did not live in the home during the last 6 months of the tax year. 4. The home was, for more than half the year, the main home of the taxpayer's child, stepchild, or adopted child whom the taxpayer or the noncustodial parent can properly claim as a dependent. 5. The tax payer must be able to claim the child as a dependent. Therefore, this answer is correct because the requirement is that the home be the main home of the child, stepchild, or qualified foster child for more than half the year, not the entire year [Publication 17 and Sec. 2(b)].
John Stith, whose father died June 15, 2020, is the executor of his father's estate. John is required to file a final income tax return for his father. When is this return due if he does not file for an extension (ignoring Saturdays, Sundays, and holidays)? A. October 15, 2020 B. March 15, 2021 C. April 15, 2021 D. June 15, 2021
C. April 15, 2021 Required: The due date for a decedent's final return. Discussion: The final return of a decedent is due by the date on which the return would have been due had death not occurred. Thus, the final return is generally due by April 15 (Publication 17).
Which of the following statements is true regarding the filing of a Form 4868., Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, for your 2020 tax return? A. Interest is not assessed on any income tax due if a Form 4868 is filed. B. Form 4868 provides the taxpayer with an automatic 8-month extension to file. C. Even though you file Form 4868, you will owe interest and may be charged a late payment penalty on the amount you owe if you do not pay the tax due by the regular due date. D. A U.S. citizen who is out of the country on April 15 will be allowed an additional 12 months to file as long as "Out of the Country" is written across the top of Form 4868.
C. Even though you file Form 4868, you will owe interest and may be charged a late payment penalty on the amount you owe if you do not pay the tax due by the regular due date. Required: The true statement regarding filing Form 4868 Discussion: An automatic extension of 6 months is provided for an individual who files Form 4868 or uses a credit card to make a required tax payment on or before the initial due date. The tax liability, however, must be paid when the return must be filed. Automatic extension for filing the return does not extend time for payment. Interest will be charged from the original due date, and penalties may accrue (Publication 17). Answer (A) is incorrect because interest will accrue from the original due date. Answer (B) is incorrect because Form 4868 provides a 6-month extension, not an 8-month extension. Answer (D) is incorrect because no such exception applies. Form 4868 provides for a 6-month extension. A longer extension is only available for those serving in military or naval duty outside the U.S.
Which of the following is true regarding the filing of Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return? A. Filing Form 4868 provides an automatic 2-month extension of time to file an pay income tax. B. Any U.S. citizen who is out of the country on April 15, 2021, is allowed an automatic 6-month extension of time to file his or her 2020 return and pay any federal income tax due. C. Interest is charged on tax not paid by the due date of the return even if an extension is obtained. D. Electronic filing cannot be used to get an extension of time to file.
C. Interest is charged on tax not paid by the due date of the return even if an extension is obtained. Required: The true statement regarding Form 4868. Discussion: An automatic extension of 6 months is provided for an individual who files Form 4868 or uses a credit card to make the required tax payment on or before the initial due date. Tax liability must be paid on the original due date of the tax return. Automatic extension for filing the return doesn't extend time for payment. Interest will be charged from the original due date. If the required payment is made by the regular due date for the return, the return can be filed anytime before the 6-month extension period dates. Answer (A) is incorrect because filing Form 4868 provides a 6-month extension of time to file the individual tax return, but it does not provide an extension of time for the payment of tax due. Answer (B) is incorrect because a U.S. citizen or resident who is on military or naval duty outside the U.S. on April 15 is only given a 2-month extension for time to file. Answer (D) is incorrect because an extension request using Form 4868 may be filed electronically.
Mr. Todd, who is 43 years old, has lived apart from his wife since May 2020. For 2020, his two children, whom he can claim as dependents, lived with him the entire year, and he paid the entire cost of maintaining the household. Assuming that Mr. Todd cannot qualify to file a joint return for 2020, he must, nevertheless, file a return if his gross income is at least. A. $5 B. $24,800 C. $12,400 D. $18,650
D. $18,650 Required: The minimum amount of gross income a taxpayer must earn to be required to file a return. Discussion: Generally, a taxpayer must file a tax return if the taxpayer's gross income equals or exceeds his or her standard deduction [Sec. 6012(a)]. Standard deductions in 2020 are $24,800 for married filing jointly, $18,650 for head of household, and $12,400 for single individuals (Publication 501). A taxpayer who has two children and files as head of household must file a return if his or her gross income equals or exceeds $18,650. Answer (A) is incorrect because the amount of $5 is a special threshold for MFS taxpayers. Answer (B) is incorrect because the amount of $24,800 is the standard deduction for MFJ taxpayers. Answer (C) is incorrect because the amount of $12,400 is the standard deduction for Single taxpayers.
For 2020, Jane is unmarried and paid more than half the cost of keeping up her home. All of the following dependents would qualify Jane to file as Head of Household EXCEPT A. Jane's grandson, who lived with her but was absent from her home for 9 months in 2020 while attending boarding school B. Jane's father, whom she can claim as a dependent and whose main home for 2020 was a home for the elderly for which Jane paid more than one-half the cost. C. Jane's married son, who could properly be claimed as a dependent on his father's return only. D. Jane's sister, whom Jane can claim as a dependent and who live with Jane until she died in May 2020.
C. Jane's married son, who could properly be claimed as a dependent on his father's return only. Required: The person who does not qualify as the taxpayer's dependent for head of household filing-status purposes. Discussion: A taxpayer qualifies for head of household filing status if (s)he is not married or is considered unmarried at the close of the tax year, is not a surviving spouse, and maintains a household that is also the principal place of abode for more than half of the year for any one of certain qualifying individuals. A married son, stepson, daughter, or stepdaughter is a qualifying individual only if the taxpayer is entitled to claim the person as a dependent or the taxpayer by written declaration allows the noncustodial parent to claim the person as a dependent. Jane must have been able to claim the married son as a dependent in order to qualify as head of household. Answer (A) is incorrect because time spent at school is deemed temporary and does not apply to the 6-month test. Answer (B) is incorrect because a taxpayer can maintain a separate household for a parent, such a rest home and still qualify as a head of household. Answer (D) is incorrect because brothers and sisters are qualifying relatives for head of household.
In the current year, Sam Dunn provided more than half the support for his wife, his father's brother, and his cousin. Sam's wife was the only relative who was a member of Sam's household. None of the relatives had any income, nor did any of them file an individual or a joint return. All of these relatives are U.S. citizens. Which of these relatives should be claimed as a dependent or dependents on Sam's current-year joint return? A. Only his wife. B. His wife, his father's brother, and his cousin. C. Only his father's brother. D. Only his cousin
C. Only his father's brother. Section 152(a) lists those relatives who may be claimed as dependents if they receive over half of their support from the taxpayer. The taxpayer's uncle is included in this list, so Sam's father's brother may be claimed by him as a dependent (Publication 501).
All of the following concerning extension of time to file are correct EXCEPT A. An automatic 6-month extension can be requested by filing Form 4868. B. If the required payment is made by credit card by the regular due date for the return, the return can be filed any time before the 6-month extension period ends. C. Requesting an automatic 6-month extension before the regular due date for the return postpones the requirement to make payment of any tax due. D. A U.S. citizen or resident who is on military or naval duty outside the U.S. (or Puerto Rico) on April 15 is given an automatic 2-month extension without the necessity of filing Form 4868.
C. Requesting an automatic 6-month extension before the regular due date for the return postpones the requirement to make payment of any tax due. Required: The incorrect statement regarding the extension of time to file. Discussion: An individual who is required to file an income tax return is allowed an automatic 6-month extension of time to file the return by filing Form 4868. However, no extension of time is allowed for payment of the tax due. A taxpayer desiring an extension of time to file his or her tax return and avoid the failure to penalty must file Form 4868, accompanied by the payment of tax estimated to be owed for the year and not yet paid., by the normal due date of the tax return (Publication 17). Answer (A) is incorrect because an automatic extension is available by either filing Form 4868 or using a credit card to make the required tax payment by the due date of the return. The taxpayer may file the return any time before the 6-month extension period ends. Answer (B) is incorrect because it is a correct statement concerning extension of time to file. Answer (D) is incorrect because it is a true statement concerning citizens or residents outside the U.S. or Puerto Rico who are on military or naval duty. Additionally, filing Form 4868 during the 2 months will allow another 4-month extension.
The spouse who revokes the resident status of the nonresident alien spouse must attach a signed statement declaring that the choice is being revoked. The statement revoking the choice must include all of the following EXCEPT A. The name, address, and Social Security number (or taxpayer identification number) of each spouse. B. The name and address of any person who is revoking the choice for a deceased spouse. C. The reason for status termination. D. A list of states, foreign countries, and possessions that have community property laws in which either spouse is domiciled or where real property is located from which either spouse receives income.
C. The reason for status termination The reason for status termination is not required to be included on the signed statement declaring that the choice is being revoked.
Which of the following is NOT a requirement you must meet to claim house of household filing status? A. Your spouse did not live in your home during the last 6 months of the tax year. B. You paid more than half of the cost of keeping up your home for the entire year. C. Your home was the main home of your foster child for the entire year. D. You are unmarried or considered unmarried on the last day of the year.
C. Your home was the main home of your foster child for the entire year. Required: The item is not a requirement in determining if a taxpayer is unmarried for head of household filing-status purposes. Discussion: In determining if a taxpayer qualifies for head of household filing status, the taxpayer is considered unmarried if all the following requirements are met: 1. the taxpayer files separately 2. the taxpayer paid more than 50% toward maintaining the household 3. the taxpayer's spouse did not live in the home during the last 6 months of the tax year 4. The home was, for more than half the year, the main home of the taxpayer's child, stepchild, or eligible foster child 5. The taxpayer must be able to claim the child as a dependent The requirement is that the home be the main home of the child, stepchild, or eligible foster child for more than half the year [Publication 17 and Sec. 2(b)].
For 2020, Mr. and Mrs. Randall filed a joint return. During the year, they provided more than 50% of the support for the following individuals: - The Randalls' single son, age 18, was a full-time student for 4 months. He lived with them all year and earned $5,250, which was spent on his support. - The Randalls' single daughter, age 25 and a full-time student for 12 months, lived with them all year. She earned $3,050, which was spent on her support. - The Randalls' granddaughter, age 3, lived with them from June through December. - Mrs. Randall's mother, age 68, a Canadian citizen living in Canada, received Social Security benefits of $5,350. - Mrs. Randall's cousin, age 16, lived with them all year and earned $1,850, which was spent on her support. How many dependents may Mr. and Mrs. Randall claim on their tax return? A. 2 B. 4 C. 3 D. 5
D. 5 To qualify as a dependent, the taxpayer must provide over 50% of the support of a U.S. citizen who meets certain relationship or residence tests stated in Sec. 152(a). Each of the individuals listed qualifies under the relationship test of Sec. 152, except for the cousin. However, the cousin meets the residence requirement because (s)he lived with the taxpayers for the entire year. Section 151 (c) imposes additional limitations on the dependency claim. These include a limit on gross income for each dependent of less than the statutory amount ($4,300), unless (s)he is a child of the taxpayer and is under 19 years of age or a full-time student under 24 years of age (Publication 501).
Which taxpayer information is necessary to have before preparing a tax return? A. Immigration status B. Age of an individual C. Marital status D. All of the information is needed
D. All of the information is needed Required: The information that is necessary to have before preparing a tax return. Discussion: Taxpayer personal information (e.g., date of birth, age, marital status, dependents, etc.) is used to verify the identity of the taxpayer and related dependents. The age of an individual determines if (s)he qualifies for additional deductions (65 and over), retirement distributions, dependency, etc. MFJ status often increases beneficial dollar limits for deductions and credits. If a taxpayer is an alien (not a U.S. citizen), (s)he is considered a nonresident alien, unless either the green card test or the substantial presence test for the calendar year is met.
When preparing a current-year tax return, which of the following benefits are derived from the use of the previous year returns? I. Prevents gross mathematical errors II. Identifies significant changes III. Increases efficiency A. I and II only B. I and III only C. II and III only D. I, II, and III
D. I, II, and III Required: The benefits of having the previous year's return available when preparing the return of the current year. Discussion: Use of the prior-year returns helps to prevent gross mathematical errors or identify significant changes. The accuracy of the prior-year return increases efficiency in completing the current-year return. These are just a few of the benefits of obtaining a copy of the previous year's return (Publication 17).
Joe is 37 years old. His wife died during the tax year, and he has not remarried. His deceased wife had no income. He has two minor children living with him. Joe paid all the costs for keeping up his home for the tax year, and he had paid for all of the support of his wife and these children. The filing status with the lowest tax rate for which Joe qualifies is? A. Qualifying widower with dependent child B. Married filing separately C. Head of household D. Married filing jointly
D. Married filing jointly Required: The filing status with the lowest rate for the taxpayer. Discussion: Publication 501 states, "if your spouse died during the year, you are considered married for the whole year for filing status purposes. If you didn't remarry before the end of the tax year, you can file a joint return for yourself and your deceased spouse. For the next 2 years, you may be entitled to the special benefits described later under Qualifying Widow(er)" Publication 17). Answer (A) is incorrect because Qualifying Widower with dependent child, or surviving spouse. status is only available for 2 years following the year of the death of spouse. Answers (B) & (C) are incorrect because Joe qualifies for married filing joint status the year of his wife's death.
John and Linda Smith are a childless married couple with no other dependents who lived apart for all of the current year. On December 31 of the current year, they were legally separated under a decree of separate maintenance. Based on the facts, which of the following is the only filing-status choice available to them for the current year? A. Married filing joint return B. Married filing separate return C. Head of household D. Single
D. Single Required: The proper filing status for the taxpayer. Discussion: The determination of whether an individual is married is made as of the close of the taxable year, so John and Linda are both single for the current year (Publication 17). Couples under a separate maintenance agreement are not considered married. Answer (A) & (B) are incorrect because they are unmarried at the end of the year. Answer (C) is incorrect because they are not maintaining a home as a principal place of abode for a child or other dependent.
What are examples of Earned Income and Unearned Income?
Earned Income - Wages - Salaries - Tips Unearned Income - Interest - Dividends - Capital Gains - Trust distributions - Debt Cancellation - Pension or annuities - Social Security - Royalties - Taxable Scholarships
What is Kiddie Tax and what are the rules for NUI calculations?
For 2020, NUI of a dependent under 19 (under 24 for full-time students) at the close of the tax year is taxed at the parents marginal rate. NUI is unearned income minus the sum of $1,100(first clause) and the greater of $1,100 standard deduction, $1,100 itemized deduction, or the amount of allowable deductions that are directly connected with the production of unearned income.
When must individuals living in the U.S. report specified foreign financial assets? When must individuals living outside the U.S. report specified foreign financial assets? And what form is used?
Individuals living inside the U.S. must report when the aggregate value of the assets is greater than $50,000 at the last day of the year or more than $75,000 at any time during the year. Individuals living outside the U.S. must report when the aggregate value of the assets is greater than $200,000 at the last day of the year or more than $300,000 at any time during the year. This amount doubles for married individuals filing jointly that live outside the U.S.. The form used is Form 8838
What is the Green Card Test?
It is when a taxpayer is a resident for tax purposes if (s)he was a lawful permanent resident (immigrant) of the U.S at any time during the year.
What are the differences between Form 8838 and the FBAR?
The FBAR is not filed with an individual's federal income tax return and must be filed online with the Financial Crimes Enforcement Network by April 15th each year. Form 8838 is filed with any annual return, whether it is an income tax return or an information return, listed as follows: Form 1040, Form 1040-NR, Form 1040-SR, Form 1041, Form 1041-N, Form 1065, Form 1120, and Form 1120-S. In addition, the filing thresholds are different and the foreign financial assets are not limited to bank and financial accounts.
What is the standard deduction for a dependent with unearned income?
The standard deduction for a dependent with unearned income is limited to the greater of $1,100 or the amount of earned income plus $350.
When must a U.S. citizen, resident, or person doing business in the United States who has an ownership interest in, or signatory authority or other authority over, a financial account in a foreign country report it and what is that report called?
When the aggregate value of the financial accounts is in excess of $10,000 at any time during the calendar year. The form that must be reported is a Form FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR).
