Wiley Tax Preparer
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Wiley Tax Preparer

A Guide to Form 1040

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eBook - ePub

Wiley Tax Preparer

A Guide to Form 1040

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About This Book

Whether you're already a tax preparer or you're looking to become one, you need a firm grasp of the tax concepts on which individual taxation is based. We created the Wiley Tax Preparer as a refresher for the experienced tax preparer, and as a readable guide for the less-experienced tax preparer.

This timely guide is an essential tax resource providing you with useful information on tax principles and filing requirements that a preparer must know to complete a 1040 series return and associated schedules. You'll refer to it time and again, for information about:

Practices and Procedures

  • Penalties to be assessed by the IRS against a preparer for disregard of the rules and regulations
  • Furnishing a copy of a return to a taxpayer
  • Safeguarding taxpayer information

Treatment of Income and Assets

  • Taxability of wages, salaries, tips, and other earnings
  • Reporting requirements of Social Security benefits
  • Determination of basis of assets

Deductions and Credits

  • Medical and dental expenses
  • Types of interest and tax payments
  • Child and dependent care credit

Other Taxes

  • Alternative Minimum Tax
  • Self-Employment Tax

Preliminary Work and Collection of Taxpayer Data

  • Collecting a taxpayer's filing information and determining their status
  • Determine filing requirements, including extensions and amended returns
  • Personal exemptions and dependents

Completion of the Filing Process

  • Check return for completeness and accuracy
  • Tax withholding, payment and refund options, and estimated tax payments
  • Explaining and reviewing the tax return

Ethics and Circular 230

  • Preparer's due diligence for accuracy of representations made to clients and the IRS
  • Sanctions that may be imposed under Circular 230
  • Rules governing authority to practice before the IRS

If you're looking for a practical guide to the principles behind Form 1040, look no further. The Wiley Tax Preparer is the most accessible guide to understanding how complex tax laws affect individual taxpayers.

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The Income Tax Return
Filing Information
Filing an income tax return is a yearly obligation for most U.S. citizens and residents. However, not everyone is required to file a return, and even some who do not have to file may want to do so for various reasons. Tax returns are due by a set date—generally April 15 for most individual taxpayers. It is possible to obtain an automatic six-month extension if action is taken in a timely manner. If not, penalties can apply. There are different versions of Form 1040, U.S. Individual Income Tax Return, for individuals. The version to use depends on the taxpayer's income, deductions, credits, and other factors. Special rules apply to individuals who are not U.S. citizens or residents.
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ALERT: If the taxpayer's name has changed due to marriage or divorce, the taxpayer should report the change to the Social Security Administration before filing the return.
Personal Information
In order to complete a return, you need to know certain personal information about a taxpayer. You must enter some of the information directly on the tax return; other information is useful to you as a preparer.
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ALERT: If the taxpayer plans to move after the return is filed, the taxpayer should complete Form 8822, Change of Address, at the time of the move. This will ensure that refunds and other IRS communications reach the taxpayer at the new address.
Taxpayer's Name
The name of the taxpayer and that of his or her spouse (if married and filing jointly) must be included on the return. See Chapter 2 for information on filing status. There is no requirement that the husband's name appear first.
Usually the address is a street address. However, a post office box number can be used if the post office does not deliver mail to the home. A foreign address may be used if the taxpayer is located outside of the United States.
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ALERT: An ITIN can be obtained by filing Form W-7, Application for IRS Individual Taxpayer Identification Number. The taxpayer generally submits Form W-7 to the IRS together with the first income tax return he or she files. See the form's instructions for more details.
Daytime Phone Number
The phone number is optional information that can be entered at the end of the return. The IRS may use this phone number to contact the taxpayer to speed up the processing of the return.
Taxpayer Identification Number
Enter the taxpayer's Social Security Number (SSN) (and the SSN of the taxpayer's spouse even if filing a separate return). Nonresident and resident aliens who are ineligible for a SSN must include their Individual Taxpayer Identification Number (ITIN).
Date of Birth
The taxpayer's date of birth is not entered on the return but is used to determine eligibility for certain tax breaks, such as the additional standard deduction amount for those age 65 and over.
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TIP: A taxpayer can elect to contribute to the presidential election fund. It does not change the taxpayer's tax liability in any way. If the taxpayer wants to contribute, this is indicated in a check box on Form 1040. Taxpayers using the married filing jointly filing status can each make their own decision.
Disability information is not entered on the return but may alert you to possible tax breaks, such as an additional standard deduction amount for blindness or exemption from an early distribution penalty for IRA withdrawals before age 59½.
List occupation information at the end of the return near the signature line.
Filing Requirements and Thresholds
Certain taxpayers must file a tax return while others may want to file even though they aren't required to do so.
A person must file a tax return if gross income is at least a threshold amount (called the “filing threshold”) for the person's filing status (explained in Chapter 2) and age. This is so even if the person is a U.S. citizen or resident living outside of the United States.
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DEFINITION: Gross income is all income received that is not specifically tax free, including income from sources outside the United States. Examples of gross income include gain on the sale of a principal residence (even though the gain may be all or partially excluded) and the taxable portion of Social Security benefits (see Chapter 9).
General Filing Thresholds
Table 1.1 lists the filing threshold amounts.
Table 1.1 Filing Threshold Amounts
Filing status Age at end of 20121 2012 Gross income at least
Single Under 65
65 or older
Married filing jointly Both spouses under 65
One spouse 65 or older
Both spouses 65 or older
Married filing separately Any age $3,800
Head of household Under 65
65 or older
Qualifying widow(er) with dependent child Under 65
65 or older
1Those born on January 1 are treated as age 65 on the previous December 31. Thus, a person born on January 1, 1948, is treated as attaining age 65 in 2012.
Stan is single, age 45, with interest income of $1,200 and wages of $20,000. He must file a return because his gross income ($1,200 + $20,000 = $21,200) exceeds the filing threshold of $9,750 for 2012.
Sarah is single, age 70, with interest income of $1,200 and Social Security benefits of $20,000. She does not have to file a return. Her Social Security benefits are not counted as gross income because they are not taxable. Her gross income of $1,200 does not exceed the filing threshold for 2012 of $11,200 for a single taxpayer age 65 and over.
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ALERT: If the only reason for filing a return is to report the additional tax on IRAs or other tax-favored accounts, a taxpayer can file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, by itself; no income tax return needs to be filed. See Chapter 35 for information on Form 5329.
The gross income thresholds reflect the standard deduction amount for each filing status plus the personal exemption amount.
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