A. Tax updates. 

B. Tax law review. 

C. Tax ethics.

This topic is like an introduction to taxation. In this topic you will find the very basic tax principles that are necessary to prepare tax returns but it is meant more of a review of these tax principles. Upon reading the material for this topic, you will encounter almost every topic which is covered in the basic certification course including the mentioning of publications used in this course. This is the federal tax law part of the your reading material. The new tax education requirements make you responsible for the completion of tax updates, tax law, tax ethics and California preparers are required to complete California specific topics. You can skim though it first to see what all is covered and then read it carefully.

A. In 1895, the U.S. Supreme Court decided that the income tax was unconstitutional because it was not apportioned among the states in conformity with the Constitution.

B. In 2004, the U.S. was forced to eliminate a corporate tax provision that had been ruled illegal by the World Trade Organization.

C. Both A and B above.

A. Information that is needed to file your tax returns which is only to your vantage. 

B. The most correct information requested on the tax forms and worksheets.

C. Information that they already don't have there such as income gained from self employment.

The information asked on your tax return is needed to carry out the tax laws of the United States and to figure and collect the right amount of tax. It is imperative that you supply the taxing agencies with the most correct information requested on the tax forms and worksheets. Form 1040EZ, 1040A and Form 1040 ask you for information about yourself, your spouse if you are married, and your dependents.

A. To calculate the amount of tax you should pay. 

B. To calculate the correct amount of tax to collect. 

C. To determine if you qualify for the credits and deductions you are claiming on your tax return.

A. Returned to the taxpayer and thus the filing of your tax return will be delayed. 

B. Considered late if such information is missing because usually the Internal Revenue Service will simply send back the entire return for corrections to be made. 

C. Set aside until the IRS has time to contact you for the required information.

Everyone who makes money must file a tax return for the most part. Some will be exempt from filing if their income does not fall within certain guidelines. Filing your tax return will most probably be obligatory. However, sometimes it will be in your best interest to file even if filing is not mandatory.

A. Gross income. 

B. Your filing status.

C. Your filing status and age.

If you are a U.S. citizen and also a bona fide resident of Puerto Rico, you generally must file a U.S. income tax return for any year in which you meet the filing requirements. Your income requirements include income from sources within Puerto Rico. Your income also includes income you received for your services as an employee of the United States or any U.S. agency.

A. $10,500. 

B. $4,000. 

C. $600. 

A. Under age 19. 

B. Not withheld any federal income tax under backup withholding. 

C. Both A and B above. 

A. Employment. 

B. Unemployment benefits. 

C. Retirement. 

A. Can get money back. 

B. Had income tax withheld. 

C. Want to avoid any possibility of the Internal Revenue Service contacting you. 

A. Form 1040EZ plus Schedule H. 

B. Form 1040A plus Schedule H.

C. Form 1040 plus Schedule H.

A. Child and Dependent Care Expenses Credit. 

B. The Earned Income Tax Credit.

C. The Foreign Tax Credit.

A. To have supported a home for your dependent for more than half the cost of maintaining the home. 

B. To have earned more than $10,000 per year.

C. To have supported a house for a child but not for a parent.

A. Single

B. Married Filing Separately.

C. Married Filing jointly only. 

A. You owe special taxes such as the alternative minimum tax (AMT).

B. You owe taxes on individual retirement accounts (IRAs).

C. You had social security or Medicare taxes on tip income that you did not report to your employer. 

A. You did not make enough money to even file a tax return.

B. You filled out a Form W4.

C. You want to avoid any kind of withholding. 

A. You qualify for the Earned Income Credit, only if you have dependents.

B. You qualify for the Earned Income Credit, even if you have no dependents.

C. You at least make $5,000. 

A. Over $3,000.

B. Over $5,000.

C. Over the standard deduction amount for a single taxpayer. 

If you are a child or other dependent, you must file a tax return for 2016 if your gross income was more than the larger of $1,050 or your earned income up to $6,300 plus $350. If you are a dependent, you must file a tax return for 2016 if you income is over the standard deduction amount for a single taxpayer. The filing status amount for 2016 for a single taxpayer is $6,300. Therefore, if a dependent earned at least $6,300 and taking into account the $350 for tax year 2016, he or she must file a tax return.

A. To interview the tax client.

B. Keeping good records.

C. To send worksheets to the IRS. 

As a new tax preparer you must remember that the most important thing in taxation is keeping good records. Any calculations you make to issue credits and deductions must be documented in some form of worksheet. In a way, you as the tax preparer are the credits and deductions issuer.

A. You are avoiding trouble and creating a paper trail that will help you and your client in case of an audit.

B. You will be able to cover any fraud your client is trying to commit.

C. You are protecting yourself in case of a lawsuit for missing important information. 

A. You have met the requirement of paying more than half the cost of keeping up the home.

B. You paid more than 30 percent of the upkeep.

C. You created a paper trail for every credit or deduction you claim on your tax return. 

A. Creating a backup set of records electronically or burning a copy to a CD or DVD.

B. Storing them in a safe place that is away from the original set.

C. Storing your backup records to the cloud where they will not burn or destroyed by any natural disaster. 

A. Can legally charge any amount for the copies, even $900 if you want to.

B. Can charge for the copy but you must be able to produce it upon request but the charge must be nominal.

C. Are not legally required to provide a copy upon your tax client's request since you already provided a copy originally.

A. Had no gross income.

B. Is not filing a tax return.

C. Was not a dependent of another taxpayer. 

There are two types of exemptions to take on your tax return. The exemptions which you may be able to take are personal exemptions for yourself and your spouse and of course exemptions for your dependents. Remember, you can claim an exemption for a qualifying child or qualifying relative if you meet the dependent taxpayer test, the joint tax return test and the citizen or resident test. Generally, if you are a nonresident alien (other than a resident of Canada or Mexico, or certain residents of India or Korea), you can qualify for only one personal exemption for yourself and in this case, you would not be able to claim an exemption for your spouse or for your dependents. If you file a separate tax return, you can claim an exemption for your spouse only if your spouse had no gross income, is not filing a tax return and was not a dependent of another taxpayer.

A. The child sleeps in the company of either parent, when the child does not sleep at a parent's home.

B. The child's sleeping somewhere else is considered temporary for tax purposes.

C. The child sleeps in the company of the parent, when the child does not sleep at a parent's home. 

If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived with for the greater number of nights during the rest of the year. A child is treated as living with a parent for a night if the child sleeps at a parent's home, with the parent either present or not present. Additionally, a child is treated as living with a parent for a night if the child sleeps in the company of the parent, when the child does not sleep at a parent's home. This is true for example, when the parent and the child are on vacation or visiting relatives and they are away from the home. Makes sense.

A. The residency test.

B. Be under 19 at the end of the year and has to be younger than you or your spouse.

C. A child who is not permanently and totally disabled must be younger than you and your spouse. 

A. Only if he lives with you all year as a member of your household.

B. And does not have to live with you all year as a member of your household to meet the member of household or relationship test.

C. And he may be your qualifying relative, even though he does not live with you. 

A. Would be considered support towards the child.

B. Would not be considered support towards the child.

C. Would be considered support towards the child only if the child stores the lawnmower in his room. 

A. The people not related to her cannot claim an exemption because they are not related.

B. Neither you or your brother meet the more than 50% support test.

C. The people not related to her can each claim an exemption for her. 

A. The child will not have to file a return.

B. The child may still have to file a return.

C. The child must also file if his earned income is more than $1,050. 

A dependent is someone you support and you must have provided at least half of the person's total support in order to claim them as dependents. You can get an exemption for each dependent that you claim on your tax return. If that dependent can be claimed as a dependent by you, that dependent cannot claim him or herself or anyone else as a dependents.

A. Your uncles and aunts.

B. Cousins.

C. Your uncle or aunt's children. 

A. The member of household test.

B. The relationship test.

C. The head of household test. 

A. Dependent is able to be claimed on someone else's tax return.

B. Dependent claims someone else on his or her tax return.

C. He files as married filing jointly. 

A. "Can anyone else claim you as a dependent on another tax return?".

B. "Did anyone claim you or is going to claim you  on their tax return?".

C. "Is someone going to claim you as a dependent?". 

A. Must have lived with you for half of the year.

B. Must have lived with you for more than half of the year.

C. Must have lived with you for the entire year. 

A. The child cannot have provided more than half of his or her own support for the year.

B. You have provided exactly half of the dependent's support.

C. You must have provided at least $1 if the dependent is your child. 

A. Your child must be single.

B. The child cannot file a joint return for the year.

C. The child can file a joint tax return for the year but only to claim a refund of overwithheld taxes.  

A. "Not a Qualifying Child Test".

B. "Not a Qualifying Relative Test".

C. "Not a Dependent Test".  

A. Gross income test.

B. Joint return test.

C. Member of household test.  

A. Use a tax interview packet to prepare the tax return without relying on your memory.

B. Ask your client more information that is needed to prepare her tax return.

C. Call your client after the interview to gather information that is missing from your tax interview packet.  

A. You cannot claim any dependents if you, or your spouse when filing jointly, could be claim as a dependent on someone else's tax return.

B. You cannot claim a married individual who files a joint tax return as a dependent unless to claim for a refund only of taxes withheld.

C. You cannot claim a person as a dependent unless this person is either a United States citizen, United States resident alien, United States national, or a resident of Canada or Mexico.  

A. There is not distinction on tax returns when following the rules.

B. They are considered foster children for tax purposes.

C. They must have an adopted tax child number.  

Different rules and exemptions can apply for claiming an exemption for certain adopted children. Adopted children are your children and there is not distinction on tax returns when following the rules. Likewise, there are exceptions for temporary absences, children who are born or died during the year, children of divorced or parent who lived apart or who are legally separated.

A. Can be used if the kidnapper is related to the child.

B. Cannot be used if the person who kidnapped the child is related to the child.

C. Cannot be used if it is uncertain if the child is alive or deceased.

A. On job training

B. Correspondence schools.

C. Internet schools.

A. But you cannot take an exemption for your spouse or for your dependents.

B. And you can take an exemption for your spouse or for your dependents.

C. But you are not able to file a tax return in the United States.

A. Have to live with you in order to claim their exemption.

B. Do not have to live with you in order to claim their exemption.

C. Do not have to be able to claim an exemption for him or her in order for them to be your qualifying relative.

Neither have you provided more than half of the support when you and your brother each provide 20% of your mother's support for the year and the remaining 60% of her support is provided equally by two people who are not related to her. However, you can join forces with others who provided support and write up a multiple support agreement.

A. You have to have provided at least 10% of your dependent's support.

B. The others sign a statement agreeing not to take the exemption.

C. Both A and B above.

A. Either you or your uncle and the other two friends can take the exemption for your mother if the other persons sign a statement agreeing not to take the exemption.

B. Your uncle and the other two friends can take the exemption for your mother.

C. You can take the exemption for your mother.

Children of divorced or separated parents

Your dependent can technically be living at home even though he or she is not there physically. If your child is considered temporarily absent from home, you can still claim him as living with you if he is away because of illness, education, business, vacation or in your child is in the military. You may be eligible to the exemption and even file as head of household if the child who is your qualifying person has been kidnapped. You can do so if the child who qualifies you is presumed by law enforcement authorities to have been kidnapped. The person that allegedly kidnapped your child cannot be a member of your family or of the child's family. In the year of kidnapping, the child lived with you for more than half of the part of the year before the kidnapping. Also, you would have qualified for the exemptions if the child had not been kidnapped.

A. You cannot consider him or her as being on temporary absence

B. You have to claiming him or her as being absent permanently.

C. You can make a request for more time to be considered for his or her absense.

If more than one filing status applies to you, choose the one that will give you the lowest tax. Your filing status is the filing status that applies to you at the last day of the year. If you obtained a divorce on December 26, 2016 and at the time of your divorce in 2016 you intended to and did remarry each other on August of 2017. You and your spouse must file your tax return as Married Filing Jointly or Married Filing Separately. Nice try! The Internal Revenue Service is already in the know about this trick. There is an easier way to do this. Choose the filing status which  will give you the lowest tax but do it legally. You and your spouse must file your tax return as married filing jointly or married filing separately. The Internal Revenue Service is well aware of "get married in December and divorce in January" trick. Unbelievable that this was a trick that some taxpayers pulled some time ago. Anyways, choose the best filing status that applies to you and do it honestly. No tricks!

A. Must file a joint tax return with your new spouse.

B. Must file a joint tax return with your new spouse and another joint report with your deceased spouse.

C. You must file a joint married filing separate report with your new wife.

A. You can look up the amount that corresponds with your filing status.

B. You look in the correct tables.

C. You use the correct tax rates aned you can determine the correct tax to pay.

A. Would choose the filing status that gives you the greater benefit.

B. Would choose the filing status that gives you the lower tax.

C. Would choose the filing status that gives you the higher credits and deductions.

A. Has far less responsibilities than does a person who is head of household.

B. Has far more responsibilities than does a person who is head of household.

C. Has far more responsibilities than does a person who is married.

Head of household

In qualifying for head of household filing status and in calculating the expenses of keeping up a home, include in the cost of upkeep expenses such as rent, mortgage interest, real estate taxes, insurance on the home, repairs and utilities, and food eaten in the home. The cost of upkeep expenses for calculating the cost of upkeep expenses would not include the rental value of a home you own.

If you live apart from your spouse and meet certain tests, you may be able to file as head of household, even if you are not divorced or legally separated. One of the requirements to file as Head of Household, you must not have lived with your spouse at any time during the last six months of the year. Very important to know is that if you are married and if you qualify, you can practically use any filing status except single. If you are married, you would not use the qualifying widow (or widower) filing status, of course.

If your child is considered temporarily absent from home, you can still claim him as living with you if he is away because of illness, vacation, education, military service or if the child is away on a business trip.

If your qualifying relative is not related to you in one of the ways for relatives who do not have to live with you, and they are a qualifying relative only because he or she lived with you all year as a member of your household, then they are not a qualifying person for you to use the head of household filing status. Almost in all cases, if you cannot take an exemption for a qualifying relative, they cannot be a qualifying person for you to benefit from the head of household filing status. It is in your best interest for you to opt for the head of household filing status. This filing status can give you a greater tax benefit than the single or married filing separately filing statuses.

You should be concerned with filing the appropriate form for the tax situation. Even if everything does fit into Form 1040, you should file the correct forms with the Internal Revenue Service. You can use Form 1040EZ if your filing status is Single or Married Filing Jointly, your taxable income is less than $100,000, and you are not a debtor in a Chapter 11 bankruptcy case filed after October 16, 2005. There is a fantastic analogy in a Tax Act blog "The Difference Between Form 1040, 1040A and 1040EZ" for using the various tax forms. Filing the three different kinds of returns 1040EZ, 1040A, and 1040 is like having three water glasses of different sizes where Form 1040EZ would be an 8 ounce glass, 1040A would be a 12 ounce glass and Form 1040 would be a 24 ounce glass. Just like you can use a 24 ounce glass to drink 8 ounces, 12 ounces or 24 ounces of water, you can use Form 1040 to file tax returns that can be filed on Form 1040EZ and Form 1040A. However, just like you cannot drink 24 ounces of water from an 8 ounce or 12 ounce glass (in one filling), you cannot file a Form 1040 or 1040A tax return on a Form 1040EZ or a Form 1040 tax return on a Form 1040A. You get the idea?

Form 1040EZ is the easiest tax form there is. Form 1040EZ is usually the first tax form that a taxpayer files after they get their first job. There are many items that allow your to use Form 1040EZ. You can only file as single or married filing jointly when you use Form 1040EZ. You are not allowed to claim any dependents on Form 1040EZ. You must also be under age 65 and not blind on January 1, 2017. The items of income you can report on Form 1040EZ can only be from wages, salaries, tips, taxable scholarships and fellowship grants. You can only report your unemployment compensation or Alaska Permanent Fund dividends on Form 1040EZ. Just how Form 1040EZ is a very simple form to fill out, it is also very limited as to what you can include.

You also cannot file a tax return using Form 1040EZ if you owe tax from the recapture of an education credit. If you can claim a credit for excess social security and tier 1 RR TAX tax withheld you will not be able to file Form 1040EZ either. There will also not be any space for any retirement Savings Contributions Credit or the Saver's Credit on Form 1040EZ. Therefore, if you have any of these,  you will not be able to file Form 1040EZ. Credits are limited only the Earned Income Credit with no children.

You can use Form 1040A if you only had income from wages, salaries, or tips. You can use 1040A if your only adjustments to income you want to claim is a student loan interest deduction. You can also file 1040A if you received dependent care benefits or if you owe tax from the recapture of an education credit or the Alternative Minimum tax. However, you cannot use Form 1040A if you received income from self-employment such as from your business or your farm. If you have self employment income, you must use Form 1040 and the other corresponding tax forms.

An Individual Tax Identification Number (ITIN) does not entitle you to social security benefits and neither does it allow you to work legally under U.S. law. An ITIN is only intended to serve the purpose of identifying the individual filing a tax return or being claimed on a tax return for various purposes such as when claiming an exemption. It in the same format as a social security number. Although an individual taxpayer identification number (ITIN) is like a social security number in format, unlike a social security number which serves many purposes, the ITIN number only serves one - identifying the holder. The individual tax identification number (ITIN) does not entitle the holder for social security benefits or to legally work in the United States. If you are working in the United States illegally and someday will have a status adjustment, you should keep all your paystubs to report all your wages to the Social Security Administration to the correct social security number when your legal status becomes adjusted. This is such an oxymoron! In one part of the tax law we are stating that using someone else's taxpayer identification is tax identity fraud and in another part we are letting them file tax returns with form W-2s that have fraudulent social security numbers on them.

Everyone needs a number. TIN numbers are unique. Names are not unique to an individual and that is why we use numbers instead. Search for a name on Facebook, including both the first name and last name and you will probably get at least ten people with the same name. If you are a nonresident or resident alien and you do not have and are not eligible to get an SSN, you must apply for an ITIN. You must have an Individual Tax Identification Number (ITIN) in order to file their tax return. It must be noted and it is extremely important that this identification is only used for tax filing purposes. A Taxpayer Identification Number (ITIN) is an identification number issued by the Internal Revenue Service that is only made available for certain nonresident and resident aliens, their spouses, or dependents who are not eligible to get a Social Security Number (SSN). It is in the same format of the social security number with nine digits. Many undocumented taxpayers make the mistake of giving this number to their employers but they should never do this. The employer is under the obligation to end their employment on the spot if the employee shows them this Internal Revenue Service issued identification card. This is like making a confession to their employer that they are indeed working illegally in the country. In turn if the employer continues their employment, such employer would run into trouble with the immigration service. This could mean huge penalties for the employer for not complying with the immigration laws. 

A TIN must be furnished on returns, statements, and other tax related documents. This number must be furnished when filing your returns or when claiming tax treaty benefits. Also a TIN must be on a withholding certificate if the beneficial owner is claiming tax treaty benefits other than from income from marketable securities. This number must also be on a withholding certificate if the beneficial owner is claiming exemption for effectively connected income or exemption for certain annuities.

However, let's say you qualify for an SSN instead. You should apply for a SSN by completing Form SS-5, Application for a Social Security Card, and also submit evidence of identity, age and citizenship or lawful alien status. The IRS requires a Taxpayer Identification Number (TIN) as an identification number for the administration of the tax laws. You can acquire this number from the Social Security Administration (SSA) or by the Internal Revenue Service (IRS). Only the Social Security Administration can issue a Social Security number and all other taxpayer Identification numbers are issued by the Internal Revenue Service (IRS). It seems that we mentioned all the possible TINs and here they are again just in case we missed them. The taxpayer identification numbers available are social security number (SSN), the Employer identification number (EIN), Individual taxpayer identification number (ITIN), the taxpayer Identification number for pending U.S. Adoptions (ATIN), and the preparer tax identification number (PTIN). The previously assigned temporary IRS Preparer Tax Identification Numbers are not longer valid.

The ITIN number is not a SSN! It is only used to file your tax returns with it. You should probably also not use your ITIN to open credit with it. Maybe it would work and since SSNs are not yet in the 900 series, doing so does not seem to pose a legal problem. However, the purpose of an ITIN is to file your tax returns.

In addition, a Taxpayer Identification Number (TIN) must also be provided when claiming exemptions for your dependents or your spouse. You generally must list on your tax returns the Social Security number (SSN) or Individual Taxpayer Identification number (ITIN) for any person for whom you are claiming an exemption. You can use either the Social Security Number that was issued by the Social Security Administration or the Individual Taxpayer Identification number (ITIN) that was issued by the Internal Revenue Service (IRS). If the child was born or if the child died in the same year, you don't need a social security number. If the child was born in that year, you should probably apply for a number since it only takes about two to four weeks to receive the Social Security Number from the Social Security Administration or the Taxpayer Identification Number (TIN) from the Internal Revenue Service (IRS). These time frames vary depending on the SSA or IRS specifications or service areas.  If the child died in the same year he or she was born, then instead of a Social Security Number or an Individual Identification Number (ITIN), attach a copy of the child's birth certificate and write "Died" in the appropriate exemption line of the tax return.

So just to recap, you can acquire a Taxpayer Identification Number in various different ways. If you need a Social Security Number from the Social Security Administration, you will need to complete Form SS-5, Application for a Social Security Card. In addition to filling out Form SS-5, you must also submit evidence of your identity, age, and of your U.S. citizenship or lawful alien status. You can get Form SS-5 by calling the Social Security Administration office or on the Web. If you have a business you can acquire an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This number is also known as a federal identification number. This number is normally used to identify your business entity. You can acquire this Employer Identification number even for your sole proprietor business but normally it is only given to a sole proprietorship if the sole proprietor has employees. Sole proprietors can use their Social Security number to report their business activities to the Internal Revenue Service (IRS) and are not obligated to get an Employer Identification number (EIN). The Employer Identification Number is also used by estates and trusts whom are required to report their income on Form 1041, U.S. Income Tax Return for Estates and Trusts.

You can get an Individual Taxpayer Identification Number (ITIN) by completing IRS Form W-7, IRS Application for Individual Taxpayer Identification Number. Additionally, you are required to furnish documentation substantiating your foreign or alien status and your true identity or the true identity of your spouse or your dependents. You can walk in your documents to an IRS office, mail it to the IRS, or you can process your application through  an Acceptance Agent authorized by the Internal Revenue Service. Acceptance Agents such as colleges, financial institutions and accounting firms who are authorized by the Internal Revenue Service (IRS) assist applications in obtaining their Individual Identification Numbers (ITINs). Once they gather the application and all the required paperwork, they will forward everything to the Internal Revenue Service for processing.

Foreign entities that are not individuals (i.e., foreign corporations, etc.) and that are required to have a federal Employer Identification Number (EIN) in order to claim an exemption from withholding because of a tax treaty (claimed on Form W-8BEN), need to submit Form SS-4 Application for Employer Identification Number to the Internal Revenue Service in order to apply for such an EIN. Those foreign entities filing Form SS-4 for the purpose of obtaining an EIN in order to claim a tax treaty exemption and which otherwise have no requirements to file a U.S. income tax return, employment tax return, or excise tax return, should comply with the special instructions when filling out Form SS-4. When completing line 7b of Form SS-4, the applicant should write "N/A" in the block asking for an SSN or ITIN, unless the applicant already has an SSN or ITIN. When answering question 10 on Form SS-4, the applicant should check the "other" block and write or type in immediately follow it with "For W-8BEN Purposes Only", or "For Tax Treaty Purposes Only", "Required under Reg. 1.1441-1(e)(4)(viii)" or "897(i) Election".

An Employer Identification Number (EIN) is also known as a federal tax identification number, and is used to report estate and trust income on Form 1041 and also to identify a business entity. Most businesses have this number and they usually must have it in order to open a bank account unless they want to be forced to use their own complete personal name as the business name. Both legal and natural persons must apply for an employer identification number (EIN). We said everyone needs a number and that includes the legal persons too.

New regulation is that you cannot claim a child who is not related to you unless that child is placed with you by an authorized placement agency. If you have a child who was placed with you by an authorized placement agency, you may be able to claim an exemption for that child. However, if you cannot get an SSN or an ITIN for the child, you must get an adoption taxpayer identification number (ATIN) from the Internal Revenue Service for the adopted child. An adoption taxpayer identification number (ATIN) is a issued by the Internal Revenue Service in order for taxpayers to be able to claim their children in the process of adoption.

A. By scanning your signature and pasting it your tax return. 

B. Using a personal identification number (PIN) 

C. By sending the signature form in advance. 

D. By calling the IRS information center and let them know that you will be sending your tax return electronically. 

The Practitioner PIN method allows you to authorize your tax practitioner to enter or generate a taxpayer PIN for signing a tax return. You can electronically sign your tax returns by selecting a five-digit PIN. If the taxpayer is married, a PIN is needed for the taxpayer and a PIN is also needed for the spouse when filing a Married Filing Jointly tax return. The newer version of the PIN starting in 2010 will also include Form 1040, Form 4868 and another twenty-one Form 1040-related tax returns. With this new option , now the tax preparer can also electronically sign Form 4868 to request an extension of time to file a tax return. The new method also allows you to authorize the Electronic Return Originator to enter or generate your PIN. Regardless of the manner that your PIN is generated, to file your tax return electronically, you must sign the tax return electronically using the personal identification number (PIN).

·         A. Prevents delays in processing your tax return.

·         B. Prevents delays in issuing tax refunds.

·         C. Safeguards your social security benefits.

·         D. All of the above.

If you changed your name because of marriage, divorce, etc., be sure to report the change to the Social Security Administration (SSA) before you file your tax return. This prevents delays in processing your tax return and also will prevent any delay in issuing your refund. By the way, you want to update your files with the Social Security Administration (SSA) to safeguard your social security benefits. Notify the Social Security Administration before you file your tax return with the IRS if you or your dependents changed your names. The name and the name of your dependents with the Social Security Administration must match the name with the reports you file with the Internal Revenue Service. Avoid filing your tax return without double checking your Social Security Administration records first because you will encounter the most difficult problem to try to fix the mismatch with the Internal Revenue Service (IRS) if you entered the wrong identifying information for you or your dependents. You should do everything in your power to avoid any kind of letter from the IRS especially a letter something so simple as a a social security number and name mismatch. It will especially be very difficult to straightening out the problem if they disallowed a credit such as the Earned Income Credit because of a social security mismatch. This is where an ounce of prevention is worth a pound of cure. If you change your name, do yourself a favor and let everyone know. Just like you would not want your friends and family calling you by your old name, you also don't want the Internal Revenue Service (IRS) and the Social Security Administration (SSA) calling your by your old name.

Everyone is on the look out for identity theft crime. Identity theft occurs when someone uses your personal information, such as your name, social security number (SSN), or other identifying information, without your permission, to commit fraud or other crimes such as getting a job or filing a tax return to receive a refund. To reduce your risk, protect your Social Security Number by ensuring that your employer is protecting your SSN and be careful when choosing a tax preparer. Preparers should ensure that they notify their clients of the precautions they are taking to safeguard their personal information. There are many commercials by many identity theft companies letting the public know of the identity theft problem. Therefore, it is in your best interest to instill a trust in your client's mind as to how you are protecting their person information and their social security number. There have been reports of tax preparers abusing their client's personal information and many taxpayers are already aware of the negative possibilities. 

If you file a separate tax return, you can claim an exemption for your spouse only if your spouse had no gross income and is not filing a tax return and was not a dependent of another taxpayer. You generally cannot claim a married person as a dependent if he or she files a joint tax return, unless he or she files only to claim for a refund and no tax liability would exist for either spouse on separate tax returns. Additionally, you generally cannot claim a married person as a dependent if he or she files a joint tax return only if they file a joint tax return to get a refund of the withheld taxes. 

If you choose married filing separately as your filing status, certain rules apply such as you cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance program is limited to $2,500.

Married individuals always have the legal right to files their returns as either married filing jointly or married filing separately. However, if one spouse does not report the correct tax, both spouses may be responsible for any individual taxes assessed by the Internal Revenue Service. You may want to file separately if you believe your spouse is not reporting all of his or her income or if you do not want to be responsible for any taxes due if your spouse does not have enough tax withheld or does pay enough estimated tax. We often wonder why we even have married filing separately filing status. Many tax professionals tell you right off not to file Married Filing Separately. Why? Basically, if you file Married Filing Separately, you end up paying more tax and end up qualifying for less tax credits and deductions. Married Filing Separately is notorious for not being chosen as a filing status by many tax professionals and taxpayers. This is so much so that some tax professionals don't care to learn the ins and outs of the married filing separate filing status.

You see now why the married filing separately filing status is no so popular? For example, if you choose this filing status, the retirement savings contributions credit is reduced at half income levels than if you filed jointly. Married filing jointly is definitely the more advantageous selection of filing status. Furthermore, the deduction for personal exemptions, and your itemized deductions could be reduced at half income levels than if you filed jointly. Your capital loss deduction limit is $1,500 for choosing to file separately instead of the $3,000 on a joint return. Moreover, if your spouse itemizes her deductions, you cannot claim the standard deduction on your tax return which would be half the amount allowed on a joint tax return. So apparently married filing separately is not the way to go. There are many drawbacks in choosing married filing separately as your filing status. However, sometimes married filing separately is the only option for you and you would not have a choice. So if you have any of the credits or deductions mentioned above it behooves you to make file jointly. If you and your spouse are not talking, this is a perfect time to make peace at least temporarily. 

If you were married on or before December 31, 2015, you can either be Married filing jointly or Married Filing separate for tax year 2015. However, you can probably qualify for Head of Household filing status if you can be considered unmarried for 2015 and otherwise meet the other requirements.

Don't believe them if anyone tells you that if you are married, you must file a married filing joint tax return. That is why we have the married filing separate filing status. Both you and your spouse must include all of your income, exemptions, and deductions on your tax return. In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint tax return. You can request innocent spouse relief and be relieved from the responsibility of tax, interest or penalties from your spouses tax return. Not all tax, interest and penalties qualify for relief. Under Separation of Liability relief, you divide the understatement of tax plus interest and penalties on your joint return between you and your spouse. If you qualify for the Separation of Liability relief, you would be only responsible for the amount allocated to you. Equity relief is your last resort and the IRS will consider if equitable relief is an option. Equitable relief is from an understatement or underpayment of tax. It is always your legal right to file as married filing separate regardless if doing so does not allow for most favorable tax outcome.

If you file a joint tax return, both you and your spouse are generally responsible for the tax and any interest or penalties due on the tax return. You may want to file separate if you believe that your spouse is not reporting all of his or her income. If you do not want to be responsible for any taxes due if you spouse does not have enough tax withheld or does not pay enough estimated tax, you may want to file as "married filing separate". If things were great for you and your spouse at first and now things changed and you are having second thoughts on your decision to trust him or her, you can keep things separate, even filing your tax returns. There are many spouse relief options available to you on behalf of the Internal Revenue Service which you can request to remedy the situation.

On a joint return, you and your spouse report your combined income and deduct your combined allowable expenses. You can file a joint tax return even if one of you had no income or deductions. In order to file jointly, you and your spouse must agree to file jointly. You must both sign the tax forms.

If your spouse died at the end of 2015 and you remarried at the end of 2015 to another spouse you would still file married filing jointly but with a new spouse. If you are remarried to a new spouse, your deceased spouse would have no choice but to file married filing separately. Remember, even people who have died may be obligated to file a tax return. Then for two years after that and if you have not remarried, you can probably qualify for the qualifying widow (or widower) filing status if you have a qualifying child.

You can choose the Married Filing Jointly filing status if you are married and both you and your spouse agree to file together. When you file as Married Filing Jointly, you report your combined income and deduct your combined allowable expenses. You can file using the Married Filing Jointly filing status even if one of you had no income or deductions. Married taxpayers have a choice to either file jointly or to file separately. The better choice always seems to be to opt for the Married Filing Jointly filing status. The other options are the Married Filing Separate and the Head of Household filing status. There are a number of worksheets and rules that you must follow to determine if you as a married person can file a Head of Household. There are many credits and deductions which you can qualify for by filing Married Filing Jointly or Head of Household that you would not qualified or be allowed to be claimed when you file as Married Filing Separately. One thing is for sure. If you have a choice, choosing Married filing Jointly is much better than using Married Filing Separately for various reasons. One of these reason is that you would like to keep everything including your tax return filing, separate from your spouse.

If you obtain a court decree of annulment, which holds that no valid marriage ever existed, you are considered unmarried even if you filed joint returns for earlier years. In essence, you are considered to have never married in the first place. Your marriage never existed and thus has become void. Therefore, you should amend your tax returns if you have filed returns as married filing jointly or married filing separate for years for which this annulment of the marriage applies. There's a difference between a divorce and an annulment. A court grants a divorce to mark the end of a marriage that was was valid, whereas an annulment is for a marriage that at no time was valid. The Internal Revenue Service holds to this idea in applying the tax laws to annulments. For example, Jay and Thelma married in 2015, filed a joint return for that year, and had their marriage annulled after the filing deadline. Because their marriage was declared null and void from its very inception, they're considered to be unmarried at the end of 2015. Consequently, they were ineligible to file jointly or even as married filing separately and therefore they must undue their joint return by filing a an amended returns as unmarried taxpayers. This means that they will probably be liable for taxes at the single rate and will probably be liable for interest or penalties.

A. Are married and living together. 

B. You are separated under an interlocutory decree of divorce. 

C. You are married and living apart but not legally separated under a decree of divorce or separate maintenance. 

The IRS recognizes common-law marriages as legal marriages. This includes being known in your society as being married as husband and wife. If on the last day of your tax year you are living together in a common law marriage that is recognized in a state where you now live or in the state where the common law marriage began, you would be considered married for the entire year. If you have a valid common-law married that the IRS recognizes, then you can file a federal married filing jointly or married filing separate tax return. Now the Internal Revenue Service also recognizes same sex marriages too.

For federal tax purposes, individuals of the same sex are married if they were lawfully married in a state or foreign country whose laws authorize the marriage even if the state or foreign country in which they now live does not recognize same-sex marriage. This is different than the registered domestic partnership rules from previous years. Federal tax law never recognized registered domestic partnership so individuals would file a return using married filing jointly for certain states but single for federal tax purposes. All same-sex couples who are legally married will be recognized as such for federal tax purposes, even if the state where they reside does not recognize their union. Same-sex couples are entitled to the same federal tax benefits as all married couples. With this rule also comes the obligation to file if the taxpayers are legally married just as all other married couples. Now, they too have to file as either "married filing jointly' or "married filing separately". If two individuals of the same sex are married, they generally must use the married filing jointly and married filing separate status.

Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. If you have a choice, you use the method that gives you the lower tax and higher deduction. Some persons are not eligible for the standard deduction. Your standard deduction is zero and you should itemize any deductions you have if your filing status is married filing separately and your spouse itemizes deductions on his or her tax return. Also, your standard deduction is zero and you should itemize any deductions you have if you are filing a tax return for a short tax year because of a change in your annual accounting period. In addition, if you are a non-resident or dual-status alien during the year, you should itemize your deductions and your standard deduction is zero. 

If your itemized deductions are less than the amount of your standard deduction, you can elect to itemize deductions on your federal tax return rather than take the standard deduction. Furthermore, you can itemize your deductions if the tax benefit of being able to itemize your deductions on your state tax return is greater than the tax benefit you lose on your federal tax return by not taking the standard deduction. At no time are you obligated to take the standard deduction. It is for the most part more beneficial to take advantage of the larger figure but not always as in the case with the state calculations. You are not obligated to itemized your deductions just because your total deductions are more than the standard deduction amount. You always have a choice to not itemize if you are able to choose either of the two.  You can itemize your deduction for federal and not for state or vise versa if it is more beneficial to do so.

When filing married filing separate, you must itemize your deductions if you spouse itemizes deductions even if you normally would not itemize or if it would not be in your best interest to do so. For example, Marvyn is married to Clara and for 2015, due to some marital problems, they filed married filing separate. Clara will itemize her deductions of $11,000 because she had qualifying car expenses. Marvyn wants to use the standard deduction on his tax return, because his total itemized deductions amount is only $4,100 for 2015 and it is less than the standard deduction amount. Since Clara will itemize her deductions, Marvyn also has to itemize his deductions but only use the the $4,100 amount.

If you do not itemize deductions, you are entitled to a higher standard deduction if you are 65 or older at the end of the tax year. You are considered 65 on the day before your 65th birthday. Therefore, you can take a higher standard deduction for 2015 if you were born before January 1, 1951. This why it is important to ask all pertinent information on your client. A lot of us look very young, so be safe and ask for the date of birth and not if we are 65 or over. Also someone could be only 45 years old and if you ask them if they are over 65, for sure will have made a new enemy. This is especially true if your client is a woman.

After that, Kevin can file as Qualifying Widower if he qualifies. He can use the Qualifying Widower filing status for two years after the last year that he filed married filing jointly with this wife. The qualifications for the Qualifying Widower filing status are similar to the head of household filing status. You have to have a qualifying child who lived with you for all of the tax year. You must have paid more than half the cost of the costs of maintaining a home for this child. The qualifying child cannot be a foster child but the child can be your stepchild. You can benefit from taking the Qualifying Widow (or widower) filing status because you qualify for the married filing jointly tax rates if you use this filing status. Using the qualifying widow (or widower) filing status will entitle you to use the highest standard deduction amount. The married filing jointly and the qualifying widow (or widower) filing statuses qualify for the highest standard deduction amounts. You can use Form 1040 to file using the qualifying widow (or widower) filing status and you can use Form 1040A if your taxable income is less than $100,000.

The federal standard deduction amount for a dependent who earned $4,000 from her job is $4,350. This is so because the dependent earned only $4,000. Therefore the standard deduction for the dependent would be $4,000 plus $350. The standard deduction for the dependent cannot be more than the regular standard deduction of $6,300 for a single person in 2015. The standard deduction for the dependent would also not be less than $1,000 for the tax year. In this case, the standard deduction would be the larger of $1,000 or her earned income plus $350. This calculation is for dependents who are not over 65 years old or blind. If the dependent is over 65 or blind the standard deduction would be additional $1,000. Therefore, if the dependent is both over 65 years old and blind the standard deduction amount would increase by an additional $2,000.

A person who is a dependent may still have to file a tax return. This depends on the amount of the dependent's earned or unearned income and also gross income. Age is a factor in determining if you must file a tax return if you are age 65 or older, you are a dependent or if you have gross income of more than $4,000 at the end of the tax year.

You can check "Single" box on line 1 if on December 31, 2015 you were never married or you were legally separated according to your state law under a decree of divorce or separate maintenance. You can also check "Single" if you were widowed before January 1, 2015 and you did not remarry before the end of 2015 and you did not have a qualifying child to claim qualifying widow(er) filing status.

The Earned Income Credit has been the most abused tax credit. If you take the EIC even though you are not eligible and it is determined that your error is due to reckless or intentional disregard of the EIC rules, you will not allowed to take the earned income credit for 2 years even if you are otherwise eligible to do so in this year. As a tax professional you need to have many caveats in mind when it comes to the Earned Income Credit rules. When you prepare tax returns for a fee you have to determine the eligibility for the Earned Income Credit or face steep penalties. $500 per taxpayer can really add up. They say that an ounce of prevention is worth a pound of cure. You don't want to be in front of an Internal Revenue Service agent frantically trying to figure out how you are going to come up with the due diligence proof for the 2,000 tax returns you prepared last year. Imagine two thousand tax returns times $500? That is a million dollars that you would owe the Internal Revenue Service. Let's say you can negotiate the million dollars with the IRS. The negotiated figure is still a lot of money. You must do everything in your power to prevent any more Earned Income Tax Credit abuse. It is the law.

There are many tax and legal consequences if you choose to disregard the EITC rules. For example, you must file Form 8862 if your EIC for a year after 1996 was reduced or disallowed for any reason other than a math or clerical error. File Form 8862 if for 2 years after the most recent tax year for which there was a final determination that your EIC claim was due to reckless or intentional disregard of the EIC rules. Also file Form 8862 if the reason your EIC was reduced or disallowed in an earlier year was because it was determined that a child listed on your Schedule EIC was not your qualifying child. Additionally, if your EIC credit was denied for 10 years due to fraud, then you must file Form 8862 along with your tax return.

Let's take an example when you must use Form 8862 in preparing a tax return for your client. In 2015, your client was age 24, single, and living at home with his parents. He worked and he was not a student and earned $7,500. His parents cannot claim him as a dependent. When he files his tax return, he cannot claim the Earned Income Credit because he is not at least age 25. Your tax preparation software would most likely catch this mistake because your client is not at least age 25. However, let's say you not only did not fill out the Form 8862 diligence worksheet, but you also did not fill out the correct age in you tax software. As a result, you give your client the Earned Income Credit. This is a tax preparation mistake an also a negligent disregard of the EIC due diligence rules. When the Internal Revenue Service asks for the due diligence requirement record, they will fine you $500 for that client if you fail to provide it. You must always use Form 8862 or the questions contained in Form 8862 before you issue any Earned Income Tax Credit amounts.

Everyone must do their part and provide documentation for everything that has transpired as far as what income was received. There are steep penalties for everyone for failing to comply. Your employer must provide or send Form W-2 to you no later than January 31, 2016. If you do not get a Form W-2, you still have to report your earnings on your tax return. You should not file your tax return without Form W-2. Also, if your employer has not sent you a copy of your W-2 yet, then they most probably have not sent a copy to the IRS so asking the IRS for a copy is probably not an option. Besides, if they do have a copy, a copy would not be made available to you since it is too early in the tax year. Your employer has until January 31, 2016 to mail your Form W-2 to you, but has until March 2, 2016 to submit the forms to the Social Security Administration and to the Internal Revenue Service. The good news is that once you ask your employer for Form W-2 and if he refuses, you can file a substitute form to report your wages to the Internal Revenue Service on Form 4852. You have to allow enough mail processing time after January 31, 2016 and or visit the employer to make your request before you can file Form 4852. The point is that you must wait until after January 31, 2016 in order to file your substitute wage form. Another requirement is that you ask your employer for a copy before your use Form 4852. Form 4852 is not a form you would file if you are ready to file your tax return on January 7th, for example.

·         A. You are responsible to report this income in your tax return.

·         B. The IRS has name you the owner of such income.

·         C. The income is in your name, but it actually belongs to someone else.

·         D. You can choose whomever you want as the owner of this income.

We will be reviewing some basic tax preparation concepts regarding income, deductions and credits on your tax return. One of these basic tax preparation items is interest income. When you receive interest income as a nominee, it means that the income is in your name, but it actually belongs to someone else. You are responsible to report any interest income on your tax return. Your bank is normally only obligated to send you an interest statement if the interest amount is over $10. However, this does not mean that you are not obligated to report your interest if it is less than $10 or if your bank did not send you a statement at the end of the year. The under $10 amount that your bank did not send you a form because it was not required is still taxable income. All amounts of taxable interest income is to be reported on your tax return.

If you received interest income as a nominee, you received this income for someone else. Therefore, you are not required to report this amount on your own tax return. You must use Form 1040A or Form 1040 if you received interest as a nominee. You must also use Form 1040A or Form 1040 if you received a 2015 Form 1099-INT of U.S. savings bond interest that includes amounts your reported before 2014. If you owned or had authority over one or more foreign financial accounts with a combined value over $10,000 at any time during 2015, then you must use either Form 1040A or Form 1040 to report it. 

Qualified dividends are eligible for a lower tax rate than other ordinary income. Some dividends may be reported as qualified dividends in box 1b of Form 1099-DIV but are not qualified dividends such as dividends received as a nominee. Dividends you received on any share of stock which you held for less than 61 days during the 121 day period that began 60 days before then ex-dividend date are also not qualified dividends. Neither are qualified dividends any payments you receive in lieu of dividends, but only if you know or have reason to know that those payments are not qualified dividends.