Contents

Introduction viiStrategies for Success on the Registered Tax Return Preparer Exam xi

Part 1 � e Income Tax Return 1

Chapter 1 Filing Information 3 Chapter 2 Filing Status 13 Chapter 3 Personal and Dependency Exemptions 25

Part 2 Income and Assets 39

Chapter 4 Wages, Salaries, and Other Earnings 41 Chapter 5 Interest Income 53 Chapter 6 Dividends and Other Corporate Distributions 65 Chapter 7 Rental Income and Expenses 73 Chapter 8 Retirement Plans, Pensions, and Annuities 85 Chapter 9 Social Security and Equivalent Railroad

Retirement Benefi ts 101Chapter 10 Other Types of Income 109Chapter 11 Self-Employment Activities 121Chapter 12 Basis of Property 141Chapter 13 Sale of Property 151Chapter 14 Sale of Home 169Chapter 15 IRA and HSA Contributions 181Chapter 16 Education-Related Adjustments 191Chapter 17 Business-Related Adjustments 199Chapter 18 Alimony 209

Part 3 Deductions and Credits 217

Chapter 19 Standard and Itemized Deductions 219Chapter 20 Medical and Dental Expenses 225Chapter 21 Tax Payments 235Chapter 22 Interest Payments 243Chapter 23 Charitable Contributions 255

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vi Contents

Chapter 24 Nonbusiness Casualty and Theft Losses 269Chapter 25 Miscellaneous Itemized Deductions 279Chapter 26 Employee Business Expenses 289Chapter 27 Earned Income Credit 305Chapter 28 Child and Dependent Care Credit 317Chapter 29 Child Tax Credit 325Chapter 30 Education Credits 331Chapter 31 Other Tax Credits 339

Part 4 Other Taxes 357

Chapter 32 Figuring the Regular Tax 359Chapter 33 The Alternative Minimum Tax 369Chapter 34 The Kiddie Tax 377Chapter 35 Other Taxes 387

Part 5 Completion of the Filing Process 397

Chapter 36 Tax Payments and Refund Options 399Chapter 37 Completing and Filing the Return 413

Part 6 Practices and Procedures 423

Chapter 38 Preparer Responsibilities and Penalties 425

Part 7 Ethics and Circular 230 437

Chapter 39 Rules Governing Authority to Practice before the IRS 439

Chapter 40 Duties and Restrictions Relating to Practice before the IRS 447

Chapter 41 Sanctions for Violating Circular 230 459

Answers to Review Questions 469Appendix: IRS Resources 507Index 509

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PART 1PART 1PART 1

Th e Income Tax Return

CHAPTER 1 FILING INFORMATION

CHAPTER 2 FILING STATUS

CHAPTER 3 PERSONAL AND DEPENDENCY EXEMPTIONS

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CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1CHAPTER 1

Filing Information

Filing an income tax return is a yearly obligation for most U.S. citizens and residents. However, not everyone is required to fi le a return, and even some who do not have to fi le 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. Th ere are diff erent versions of Form 1040, U.S. Individual Income Tax Return, for individuals. Th e 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.

Personal InformationIn 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.

Taxpayer’s Name Th e name of the taxpayer and that of his or her spouse (if married and fi ling jointly) must be included on the return. See Chapter 2 for information on fi ling status. Th ere is no requirement that the husband’s name appear fi rst.

Address Usually the address is a street address. However, a post offi ce box number can be used if there is no mail delivery to the home. A foreign address may be used if the taxpayer is located outside of the United States.

Daytime Phone Number Th e phone number is optional information that can be entered at the end of the return. Th e IRS may use this phone number to contact the taxpayer to speed up the processing of the return.

Taxpayer Identifi cation Number Enter the taxpayer’s Social Security Number (SSN) (and the SSN of the taxpayer’s spouse, if the taxpayer is married fi ling jointly). Nonresident and resident aliens who are ineligible for a SSN must include their Individual Taxpayer Identifi cation Number (ITIN).

Date of Birth Th e 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.

ALERT: If the tax-payer’s name has changed due to marriage or divorce, the taxpayer should report the change to the Social Security Administration before fi ling the return.

ALERT: If the taxpayer plans to move after the return is fi led, the taxpayer should complete Form 8822, Change of Address, at the time of the move. This will ensure that refunds and other IRS communica-tions reach the taxpayer at the new address.

ALERT: An ITIN can be obtained by fi ling Form W-7, Application for IRS Indi-vidual Taxpayer Identifi ca-tion Number. The taxpayer generally submits Form W-7 to the IRS together with the fi rst income tax return he or she fi les. See the form’s instructions for more details.

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4 Wiley Registered Tax Return Preparer Exam Review 2012

Disability 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.

Occupation List occupation information at the end of the return near the sig-nature line.

Filing Requirements and Th resholdsCertain taxpayers must fi le a tax return while others may want to fi le even though they aren’t required to do so.

A person must fi le a tax return if gross income is at least a threshold amount (called the “fi ling threshold”) for the person’s fi ling status (explained in Chapter 2) and age. Th is is so even if the person is a U.S. citizen or resident living outside of the United States.

General Filing Thresholds

Table 1.1 lists the fi ling threshold amounts.

Example

Stan is single, age 45, with interest income of $1,200 and wages of $20,000. He must fi le a return.

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. Taxpayers using the married fi ling jointly fi ling status can each make their own decision.

TABLE 1.1 Filing Threshold Amounts

Filing status (see Chapter 2 for details) Age at end of 2011*

2011 Gross income at least

Single Under 6565 or older

$9,500$10,950

Married � ling jointly Both spouses under 65One spouse 65 or olderBoth spouses 65 or older

$19,000$20,150$21,300

Married � ling separately Any age $3,700

Head of household Under 6565 or older

$12,200$13,650

Qualifying widow(er) with dependent child

Under 6565 or older

$15,300$16,450

*Those born on January 1 are treated as age 65 on the previous December 31. Thus, a person born on January 1, 1947, is treated as attaining age 65 in 2011.

DEFINITION: Gross income is all income received that is not spe-cifi cally 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 benefi ts. A portion of Social Security benefi ts are taxable if the taxpayer lived with his or her spouse at any time during the year but fi les separately, or is a single or head-of-household fi ler with gross income, plus one-half of Social Security benefi ts and tax-exempt interest that exceeds $25,000 ($32,000 if married fi ling jointly).

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Filing Information 5

Example

Sarah is single, age 70, with interest income of $1,200 and Social Security benefi ts of $20,000. She does not have to fi le a return. Her Social Security benefi ts are not counted as gross income because they are not taxable.

FYI: Where do these numbers come from? Th e gross income thresholds refl ect the standard deduction amount for each fi ling status and the personal exemption amount.

A person must also fi le a tax return if he or she:

7 Is self-employed and has net earnings from self-employment of at least $400.

7 Had wages of $108.28 or more from a church or church-controlled orga-nization that is exempt from employer Social Security and Medicare taxes.

7 Received advance earned income credit from an employer (advance pay-ment is not available after 2010).

7 Owes any special taxes. Th ese include: ▫ Th e alternative minimum tax (AMT). ▫ Additional tax (penalties) on individual retirement accounts (IRAs) or other tax-favored accounts.

▫ Employment taxes for household employees. ▫ Social Security and Medicare tax on tips not reported to an employer or uncollected Social Security and Medicare or Railroad Retirement Tax Act (RRTA) tax on tips reported to an employer.

▫ Recapture of the fi rst-time homebuyer credit or other credit. ▫ Additional taxes on Health Savings Accounts (HSAs), Archer Medical Savings Accounts, and Coverdell Education Accounts.

Special Rules for Dependents

Th e usual fi ling thresholds discussed above do not apply to a person who is treated as a dependent of another taxpayer. A dependent is an individual whose exemption may be claimed on another person’s income tax return. Th e rules for dependents are discussed in Chapter 3. Filing requirements for dependents turn not only on gross income but also on earned and unearned income.

Table 1.2 shows the fi ling threshold for dependents.

Example

A taxpayer’s dependent child, who is single, age 17, and is not blind, earned $5,500 from a part-time job throughout the year and also received bank interest of $500. A tax return for the child must be fi led because he or she had gross income that exceeded the fi ling threshold.

ALERT: If the only reason for fi ling a return is to report the additional tax on IRAs or other tax-favored accounts, you can fi le Form 5329, Additional Taxes on Qualifi ed Plans (Including IRAs) and Other Tax-Favored Accounts, by itself; no income tax return needs to be fi led. See Chapter 35 for information on Form 5329.

DEFINITIONS: Earned income is income from the performance of personal services. Examples include salary and wages, earnings from self-employment, tips, and taxable scholar-ships and grants.

Unearned income is income from investments and other sources not involv-ing personal services. Examples include taxable interest, ordinary divi-dends, capital gain distri-butions, unemployment benefi ts, taxable Social Security benefi ts, pen-sions and annuities, and distributions of unearned income from trusts.

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6 Wiley Registered Tax Return Preparer Exam Review 2012

Filing a Return Even If Not Required

Even though a return is not required, there are some situations in which fi ling may still be a good idea:

7 Requesting a refund. If the taxpayer overpaid tax (e.g., there was too much withholding from wages), the only way to obtain a refund is to fi le a return.

7 Obtaining refundable credits. Some tax credits are refundable, which means they can be paid to the taxpayer in excess of taxes owed. Refundable credits include the earned income credit, the additional child tax credit, the adoption credit, and the American Opportunity credit. Refundable credits are explained in Chapters 27 through 31.

7 Establishing a capital loss. If a taxpayer had an overall capital loss on investments or other property transactions for the year, he or she should fi le a return, along with Schedule D, Capital Gains and Losses and any other necessary forms or schedules, to show the loss. Doing this enables the taxpayer to establish a capital loss carryforward (explained in Chapter 13).

Deadlines, Extensions, and PenaltiesFiling Deadline

Th e income tax return is due by the fi fteenth day of the fourth month after the close of the tax year, which is April 15. However, this date is extended if

TABLE 1.2: Filing Threshold for Dependents for 2011

Marital status Under 65/not blind 65 or older or blindSingle Unearned income over

$950, orEarned income over $5,800, orGross income more than the larger of (1) $950, or (2) earned income up to $5,500, plus $300

Unearned income over $2,400 ($3,850 if 65 or older and blind), orEarned income over $7,250 ($8,650 if 65 or older and blind), orGross income more than the larger of (1) $2,400 ($3,850 if 65 or older and blind), or (2) earned income up to $5,500, plus $1,750 ($3,200 if 65 or older and blind)

Married Unearned income over $950, orEarned income over $5,800, orGross income of at least $5 and spouse � les a separate return and itemizes deductions, orGross income more than the larger of (1) $950, or (2) earned income up to $5,500, plus $300

Unearned income over $2,100 ($3,250 if 65 or older and blind), orEarned income over $6,950 ($8,100 if 65 or older and blind), orGross income at least $5 and spouse � les a separate return and itemizes deductions, or

Gross income was more than the larger of (1) $2,100 ($3,250 if 65 or older and blind) or (2) earned income up to $5,500, plus $1,450) ($2,600 if 65 or older and blind)

ALERT: If a depend-ent child under age 19 or a full-time student under age 24 at the end of the year has income only from interest, dividends, and capital gain distributions and is subject to kiddie tax (the kiddie tax is a tax imposed on certain children with investment income of $1,900 or more), the child’s parent may be able to elect to report the income on the parent’s return (discussed in Chap-ter 34). In such a case, the child does not have to fi le a return.

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Filing Information 7

April 15 falls on a weekend or national holiday. Emancipation Day is a holiday in Washington, D.C., that is usually observed on April 17, and this occasionally extends the fi ling deadline.

U.S. citizens and resident aliens are allowed an automatic two-month extension of time to fi le (until June 15) if they are living outside the United States or Puerto Rico on the ordinary due date for fi ling the tax return and either: (1) their main place of business is outside the United States or Puerto Rico, or (2) they are on duty on military or naval service outside of the United States or Puerto Rico.

Requesting an Extension

If, for any reason, a taxpayer cannot meet the fi ling deadline, he or she must make an extension request by the fi ling deadline. Th is request provides an auto-matic six-month extension. Th us, anyone who timely requests an extension will not be penalized if their return is fi led by October 15. Th is date is extended if October 15 falls on a weekend.

Filing an extension does not extend the time to pay any balance due.

Request an extension by fi ling Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Form 4868 may be fi led elec-tronically or on paper. Taxpayers who are paying all or part of their taxes due can obtain an extension by paying using a credit or debit card through an IRS-approved processor. Paying by credit or debit card is discussed in Chapter 36.

Penalty for Late Payment

When requesting an extension, estimate the taxes that will be due when the return is fi led. It is advisable for taxpayers to pay as much of the amount expected to be owed in order to minimize or avoid a late-payment penalty. Th e late-payment penalty is usually ½ of 1% of the tax not paid by the due date. It is charged for each month or part of a month that the tax is unpaid; the maximum penalty is 25%.

Example

Edwin obtains a fi ling extension and fi les his return on August 1, 2011. He pays the balance of the taxes he owes, $3,000, when he fi les his return. The late payment penalty is $60 ($3,000 × 0.5% × 4 months).

Penalty for Late Filing

A late fi ling penalty can apply if the return is not fi led on time (postmarked or e-fi led by midnight of the fi ling deadline) and no fi ling extension is obtained. Th e penalty is usually 5% of the amount due for each month or part of a month that the return is late. Th e maximum penalty is 25%. If the return is more than 60 days late, the minimum penalty is $135 or the balance of the tax due on the return, whichever is smaller.

TIP: The IRS can waive the late fi ling pen-alty if there is reasonable cause for fi ling late. Attach a personal statement (there is no IRS form for this) to the late-fi led tax return explaining the reasonable cause. Com-mon reasonable causes are illness of the taxpayer or an immediate family member and incapacity. Whether the cause stated is reasonable is a subjec-tive determination made by the IRS.

ALERT: Individuals serving in a combat zone have an automatic exten-sion of time to fi le. This extension lasts at least 180 days after the later of (1) the last day they are in a combat zone, or (2) the last day they were hospi-talized due to an injury in a combat zone.

TIP: The taxpayer should pay as much of the tax that is expected to be owed as possible by the original due date, usually April 15, in order to avoid or minimize a late pay-ment penalty (explained in Chapter 36).

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8 Wiley Registered Tax Return Preparer Exam Review 2012

Which Version of Form 1040 to UseThere are three different base income tax returns for individuals: Form 1040EZ, Income Tax Return for Single and Joint Filers with No Dependents, Form 1040A, U.S. Individual Income Tax Return, and Form 1040. There is also Form 1040NR, U.S. Nonresident Alien Income Tax Return, for nonresident aliens (discussed later in this chapter). Use the return that will enable a taxpayer to report all the income and claim all the deductions and credits to which he or she is entitled.

Form 1040EZ

Form 1040EZ is the simplest return that can be filed. However, its utility is very limited.

7 Only those who are single or married filing jointly and who are under age 65 and not blind can use this form.

7 It cannot be used to claim dependents. 7 These are the only types of income that can be reported:

▫ Wages and salary ▫ Interest income ▫ Unemployment benefits

7 Taxable income must be less than $100,000. 7 The standard deduction is built into the return; no separate adjustments to gross income or other deductions can be claimed.

7 The only credit that can be claimed is the earned income credit.

Form 1040A

Form 1040A is more extensive than Form 1040EZ but not as broad as Form 1040.

7 It can be used regardless of filing status, and dependents may be claimed. 7 These types of income are reported:

▫ Wages and salary ▫ Interest and ordinary dividends ▫ Capital gain distributions ▫ Unemployment compensation ▫ Income from annuities, pensions, and IRAs ▫ Social Security benefits

7 Taxable income must be less than $100,000. 7 These adjustments from gross income can be claimed:

▫ An IRA deduction ▫ Student loan interest deduction

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Filing Information 9

▫ Tuition and fees deduction ▫ Deduction for educator expenses

No itemized deductions are allowed. 7 Only these credits can be claimed:

▫ Child and dependent care credit ▫ Earned income credit ▫ Credit for the elderly and the disabled ▫ Child tax credit ▫ Adoption credit ▫ Retirement savings contribution credit ▫ Education credits

7 Form 1040A can be used to report estimated tax payments and estimated tax penalties, the advance earned income credit, and the inclusion of a child’s unearned income on a parent’s return (explained in Chapter 34).

Form 1040

Form 1040 is the most comprehensive return. It must be used for anyone who itemizes deductions, reports business income, or has income, deductions, credits, and other taxes not allowed to be reported on either of the other tax return options. Anyone can use Form 1040, even if a simpler return is permissible.

Special Filing Rules for AliensTh e type of tax return to fi le depends on an alien taxpayer’s status. Th ere are three types of aliens: resident aliens, nonresident aliens, and dual-status taxpayers.

See IRS Pub. 519, U.S. Tax Guide for Aliens, for a complete discussion on deter-mining status. Figure 1.1 provides an overview.

Resident Aliens

Resident aliens generally are taxed the same as U.S. citizens. Th ey follow the rules explained earlier in this chapter and can fi le Form 1040EZ, 1040A, or 1040 as appropriate.

Nonresident Aliens

Nonresident aliens with income that must be reported to the United States, including income eff ectively connected with a U.S. trade or business, fi le Form 1040NR, or Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents.

ALERT: If a taxpayer fi les an amended return, he or she must use Form 1040X Amended U.S. Indi-vidual Income Tax Return, regardless of whether he or she fi led a 1040EZ, 1040A, 1040, or 1040NR originally.

DEFINITIONS: Resident aliens are non-U.S. citizens who have met either the green card test or the substantial presence test for the calendar year. This is explained in Figure 1.1.

Nonresident aliens are aliens who did not meet the green card test or the substantial presence test at any time during the calendar year.

Dual-status taxpayers are aliens (non-U.S. citizens) who are residents for part of the year.

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10 Wiley Registered Tax Return Preparer Exam Review 2012

FIGURE 1.1 Nonresident Alien or Resident Alien?

Start here to determine your status for 2010

Yes No

Were you a lawful permanent resident of the United States (had a“green card”) at any time during 2010?

Were you physically present in the United States on at least 31days during 2010?3

presence in 2009, and2010, counting all days of presence in 2010,

Were you physically present in the United States on at least 183days during the 3-year period consisting of 2008, 2009, and

1⁄3 the days of1⁄6 the days of presence in 2008?3

Were you physically present in the United States on at least 183days during 2010?

Can you show that for 2010 you have a tax home in a foreigncountry and have a closer connection to that country than to theUnited States?

You are aRESIDENT alien for U.S. tax purposes.

You are aNONRESIDENTalien for U.S.tax purposes.

Yes

Yes

Yes

No

No

No4

No

Yes

Dual-Status Aliens

Dual status occurs most frequently in the year an alien taxpayer arrives or departs from the United States. Dual-status aliens are subject to diff erent rules for the part of the year they are residents and the part of the year they are non-residents. Th e rules for dual-status aliens are complex but are explained more thoroughly in Pub. 519.

Th e base tax form a dual-status alien should fi le depends on residency status at the end of the year. A dual-status alien who is a resident at the end of the year must fi le Form 1040 (dual-status aliens are not allowed to fi le Form 1040A or 1040-EZ) and attach Form 1040NR or 1040NR-EZ as a statement. A dual-status taxpayer who is a nonresident at the end of the year may fi le either Form 1040NR or Form 1040NR-EZ, as appropriate, and attach Form 1040 as a statement.

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Filing Information 11

Special Elections

First-Year Choice. In some cases, a taxpayer who does not meet either the green card test or the substantial presence test in the current year, but who meets the substantial presence test in the following year, may elect to be treated as a resident for part of the current year.

Election for Nonresident Alien or Dual-Status Taxpayer Married to a U.S. Citizen or Resident Alien to Choose Resident Alien Status. Normally, both spouses must be U.S. citizens and/or residents to file a joint U.S. income tax return. However, if married on the last day of the year, the nonresident alien spouse or dual-status taxpayer-spouse can elect to be treated as a resident alien and file a joint return. Doing this requires the nonresident alien/dual-status taxpayer to include his or her worldwide income for the entire year on the joint return. Refer to Pub. 519 for more information.

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12 Wiley Registered Tax Return Preparer Exam Review 2012

1. Sara, who is single, has gross income of $7,000 and self-employment income of $500. Which statement best describes her fi ling situation. Sara:

a. Must fi le a tax return.

b. May fi le a tax return.

c. Is not required to fi le a tax return.

d. Should not fi le a tax return.

2. Carlos, who is required to fi le a tax return, wants to obtain a filing extension. Which of the following actions is required?

a. Paying all of the taxes due.

b. Giving a good reason for wanting the extension.

c. Having a paid preparer submit the extension request.

d. Requesting the extension no later than the fi ling deadline.

3. Harrison, an employee earning $75,000, does not fi le his return on time and does not obtain a fi ling exten-sion. He fi les his return on August 15 and pays his balance due, $4,000 at that time. The $4,000 is 25% of his total tax liability. Harrison is:

a. Subject to a late fi ling penalty.

b. Subject to a late payment penalty.

c. Subject to both a late fi ling penalty and late pay-ment penalty.

d. Not subject to any penalty because the return was fi led and payment made before October 15.

4. Ed is a U.S. citizen who is single, age 70, and has gross income of $65,000 (including Social Security benefi ts of $20,000). He owns his home on which he pays mortgage interest and property taxes. He also makes charitable contributions. Because of these payments, it is benefi cial for him to itemize his deductions. Which tax return should he use?

a. Form 1040EZ

b. Form 1040A

c. Form 1040

d. Form 1040NR

5. Madeline and Owen are U.S. residents who are mar-ried, with one dependent child. They do not have enough deductions to itemize. Based on these facts alone, which is the simplest tax return they can fi le?

a. Form 1040EZ

b. Form 1040A

c. Form 1040

d. Form 1040NR

Review QuestionsReview QuestionsReview Questions

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INDEXINDEXINDEX

Aacademic period, 196, 333, 335accountable plan, 203, 300–302, 317accrual method, 76,123, 133, 236achievement awards, 43, 118acquisition debt, 243–248, 250acquisition indebtedness, 114ACTC. See additional child tax credit (ACTC)active participant, 183–86active participation, 79–80

exception from, 80activity bonds, interest on private, 376additional child tax credit (ACTC), 327–28. See also

child tax creditaddress, foreign, 3address, taxpayer’s, 3adjusted gross income (AGI). See also modifi ed

adjusted gross income (MAGI)child and dependent care credit, 318–22deductions, miscellaneous itemized, 279dependency exemptions, 29–30earned income credit, 306qualifi ed retirement plans, 83, 179Social Security disability benefi ts, 101standard and itemized deductions, 219

adjustment item, 370–71adoption

assistance, 43costs, 43credit, 339, 349–51expenses, 285expenses, employer-paid, 16fees, 349related expenses, not qualifi ed, 350

Adoption Taxpayer Identifi cation Number (ATIN), 29advanced lean-burn technology vehicles, 344advanced pay

fi ling threshold, 5advance rent, 73age 59 1/2, distributions before, 86, 91–92, 95, 97age 70 1/2, minimum distributions after, 86, 92–93,

95–96age and itemized deductions, 219AGI. See adjusted gross income (AGI)

agricultural activity codes, principal, 132agricultural payments, 133aiding and abetting, 432air circulating fans, advanced main, 342aliens

dual-status taxpayers, 9–11nonresident, 9–11resident, 9–11special fi ling rules for, 9–10

alimonyalimony deduction, 212alimony recapture, 213–14Alimony Worksheet, 213child support, 209–11community income, 212IRA contributions, 182payments for payer’s property, 212payments that are alimony, 209–10payments that are not treated as alimony, 210–12property settlements, 211

allocated tips, 45–46, 393–94alternative minimum tax (AMT), 5, 16, 244, 287

AMT exemption, 372–74AMT tax rates, 373–74for a child, 380comparing AMT to regular tax, 374deferral items, 371–72defi ned, 369exclusion items, 372fi guring the, 370–71incentive stock option (ISO), 370itemized deductions, certain, 370kiddie tax, child subject to, 373long-term capital gains and qualifi ed dividends,

373–74minimum tax credit, 374municipal bond interest, 370overview of, 369–70personal and dependency exemptions, 370, 372phase-out of exemption, 372–73refi nancing a mortgage, 370reporting AMT, 374standard deduction, 370triggers, common AMT, 370

bindex.indd 509 1/19/2012 4:03:55 PM

510 Index

alternative minimum taxable income (AMTI), 369alternative motor vehicle credit for qualified fuel cell

vehicle, 343–44alternative tax net operating loss deduction

(ATNOLD), 371–72alternative trade adjustment assistance (ATAA), 119American Opportunity Credit, 16, 193, 331–35American Samoa, 101amortizable premium on taxable bonds, 284AMT. See alternative minimum tax (AMT)AMTI. See alternative minimum taxable income

(AMTI)annuity contracts, exchanges of, 156annuity starting date, 86–87annulment, 22appraisal

cost, 273fees, 280for FMV, cost of the, 260

Archer medical savings accounts (MSAs), 5, 43ATAA. See alternative trade adjustment assistance

(ATAA)athletic events, 257ATIN. See Adoption Taxpayer Identification

Number (ATIN)ATIP. See Attributed Tip Income Program (ATIP)ATNOLD. See alternative tax net operating loss

deduction (ATNOLD)attorneys, 440Attributed Tip Income Program (ATIP), 45, 393au pair for care wages, 320

Bbabysitter wages, 320back pay, 42backup withholding, 61BAH. See Basic Allowance for Housing (BAH)bank account fees for personal accounts, 285bank accounts, frozen, 55bankruptcy, 114bargain sales, defined, 260barter, 116–15BAS. See Basic Allowance for Subsistence (BAS)Basic Allowance for Housing (BAH), 47Basic Allowance for Subsistence (BAS), 47basis of property

adjusted basis, 143–45basis other than cost, 145–48business use, converting property to, 148community property, 147–48

cost basis, 142–43FMV equal to or greater than the donor’s adjusted

basis, 147FMV less than the donor’s adjusted basis, 146–47gifts, 146inheritances, 147–48property inherited from decedent who died in

2010, 147property received for services, 145property received in like-kind exchanges, 145–46what is it?, 141–42

blindnessitemized deductions and, 219tax records and statement certifying partial, 220

bond(s)defined, 57interest, taxable, 57–59municipal, 53, 57, 59sold between interest dates, 57state and municipal, 59–60traded flat, 54U.S. Savings Bonds, 57–59U.S. savings bonds, interest on, 16

bonus depreciation, 77–78bonuses, 42breeding fees, 133bribes and kickbacks, 118brokerage firms, 65, 67, 142, 157Build America bonds, 349bullying of a child, 174business assets gains and losses

depreciation recapture, 164–65qualified Section 1202 Stock, 162–63reporting, 165–66Section 1231 gains and losses, 163–64Section 1244 stock, 162

business expenses. See also self-employmentbusiness losses, 132business vehicle expenses, deducting, 126business vehicles, depreciating, 129–30car and truck expenses, 125–24casualty and theft losses, 132contract labor, wages and employee benefits, 126depreciation, 127–26depreciation, basis for, 128–29depreciation, claiming, 128home office deduction, 130–31how to prove certain, 301listed property, 128mileage rate, standard, 126

bindex.indd 510 1/19/2012 4:03:55 PM

Index 511

recapture, 130reporting employee, 303Schedule C, 124–26Section 179 Deduction and Bonus Depreciation,

129start-up costs, 127

business gifts, 295business losses, 132business-related adjustments. See also moving

expenses; self-employed taxpayersexpenses of fee-based government officials, 207expenses of performing artists, 207expenses of reservists, 207to gross income, 207write-in deductions, 207

business use, converting property to, 148business vehicles

depreciating, 129–30expenses, deducting, 126

Ccampaign contributions and expenses, 285cancellation of debt (COD)

about, 113–15bankruptcy, 114COD income, exclusion for certain, 114–15forms issued by lender/creditor, 114home mortgage debt, 114home sale and lender cancels mortgage, 177home’s FMV and, 176insolvency, 114student loans, cancellation of, 114–15

capital assets, 153capital expenses, 285capital gain election, defined, 251capital gain property, defined, 260capital gains

credit for tax on undistributed, 355distributions, 66–70dividends and other corporate distributions,

66–67, 69–70home sale, 172, 177long-term, 155net long-term, 361netting, and losses, 160–61Qualified Dividends and Capital Gains

Worksheet, 69undistributed, on mutual funds and REITs, 67

capital gains and qualified dividends, long-term, 373–78

capitalizing, 76capital loss

deduction, 16establishing, 6on the sale of personal-use asset, 154

capital loss from sale of stock, 271car and truck expenses, 125–26car expenses, 297car pools, 119carryovers, 266–67cars. See motor vehicle(s)car usage, 43car value, 274cash

distributions from corporations, 65dividends, 66method, 122

cash contributions, 263–6casino winnings, 115casualty, what is it?, 269–71casualty and theft losses, 132casualty and theft losses, nonbusiness, 222casualty loss, proof of, 270–71cell phones, 128certified public accountants (CPAs), 440charitable contribution deduction

kiddie tax and, 385charitable contributions, 221–22

appraisal for FMV, cost of the, 260athletic events, 257carryovers, 266–67charity benefit events, 257contributions, cash, 263–64contributions, conservation, 261–62contributions, noncash, 264–65contributions, when to deduct, 265–66contributions subject to special rules, 260–62contributions that cannot be deducted, 262–63deductible contributions, 256–59deductions, limits on, 266–67donations to specific people, 257foreign charitable organizations donations, 256foreign exchange student, 258Form 8283, Noncash Charitable Contributions,

265foster parent, unreimbursed expenses of, 259membership fees for dues, 257–58out-of-pocket expenses, 264property contributions, 260–62property donated, 260

bindex.indd 511 1/19/2012 4:03:55 PM

512 Index

charitable contributions (continued)qualifying organizations, 255–56recordkeeping and substantiation, 263–65taxpayer’s services rendered to benefit an

organization, 259travel expenses, 260

charity benefit events, 257child (child’s). See also kiddie tax

additional child tax credit (ACTC), 327–28 (See also child tax credit)

adopted, and medical/dental expenses, 226–27age of, 35AGI and child and dependent care credit, 317,

322alimony and child support, 209–11AMT for a child, 380ATIN, 29bullying a, 174child tax credit and MAGI, 326–27custodial accounts for, 61defined, 27dependency exemptions, 26–29, 35and dependent care credit, 320of divorced or separated parents, 226foster, 20income, tax treatment of, 379–80income tax treatment of, figuring out, 380–82investment income, 377–85investment income of, 61, 377–83IRS Pub. 972, Child Tax Credit, 327ITIN, 29joint return and qualifying child, 35kiddie tax, child subject to, 373medical and dental expenses, 226–27minor, 417qualifying, 26–28, 30–31, 35, 317as qualifying relative, 26qualifying widow(er) with dependent child, 20,

318residency of qualifying, 35Social Security Number, 29with special needs, 349SSN for child, 29step, 20support, 28, 33, 37, 109, 209–9, 379tax credit, 16, 325–31 (See also additional child

tax credit (ACTC))taxpayers with no qualifying child, 310taxpayers with qualifying child, 305, 308–10tax return for minor child, 417

TIN of qualifying child, 327widow(er) with, 20

Children’s Health Insurance Program (CHIP), 354Child Tax Credit Worksheet, 327CHIP. See Children’s Health Insurance Program

(CHIP)church employment filing threshold, 5Circular 230, sanctions for violating

disciplinary action, 459–60disciplinary actions, scenarios of, 464–66due diligence, 465–66false opinion, 463false statements, 464–66gross incompetence, 463Incompetence and Disreputable Conduct—Section

10.53, 461–63knowledge of client’s mistake, 466monetary penalties, 460–61Office of Professional Responsibility (OPR), 459Receipt of Information—Section 10.53, 464reckless conduct, 463Sanctions—Section 10.50, 459–61Violations Subject to Sanction—Section 10.52, 463

Circular 230, Regulations Governing Practice Before the Internal Revenue Service. See also Internal Revenue Code (IRC); tax preparer responsibilities

Assistance from or to a Disbarred or Suspended Person—Section 10.24, 450

Best Practices—Section 10.33, 455Conflicting Interests—Section 10.29, 452–53Covered Opinions—Section 10.35, 456Diligence as to Accuracy—Section 10.22, 448–50EA or RTRP, application process to become, 443EA or RTRP, renewal of status for, 443–44EA or RTRP, who is eligible to become an, 443Fees—Section 10.27, 451Information To Be Furnished To The IRS—Section

10.20, 447–48Knowledge Of Client’s Omission—Section 10.21,

448Negotiating Checks—Section 10.31, 454Notaries—Section 10.26, 451“practice before the IRS,” what does it mean?, 440“practice before the IRS,” who may?, 440–44Practice by Former Government Employees—

Section 10.25, 450Practice of Law—Section 10.32, 454Preparer Tax Identification Number (PTIN), 439,

444

bindex.indd 512 1/19/2012 4:03:56 PM

Index 513

Procedures to Ensure Compliance— Section 10.36, 456–57

Prompt Disposition of Pending Matters—Section 10.23, 450

Requirements for Other Written Advice—Section 10.37, 457

Return of Client’s Records—Section 10.28, 451–52

Solicitation (Including Advertising)—Section 10.30, 453–54

Special Enrollment Examination (SEE), 443Standards for Tax Returns and Other

Documents—Section 10.34, 455–57what is it?, 439

citizenship, 308citizenship and dependency exemptions, 35civil fraud and taxes, 408civil penalties, 63clean renewable energy bonds, 349clean renewable energy bonds, new, 349clergy, 46client records, 451club dues, 285COBRA. See Consolidated Omnibus Budget

Reconciliation Act (COBRA)coverage, 231–32recapture worksheet, 233

COD. See cancellation of debt (COD)combat pay, 45, 182combat pay, nontaxable, 307, 311combat zone, living in, 7commercial annuities

taxable portion of annuity payment, calculating, 96–97

commissions, 42Commodity Credit Corporation loans, 133common law rules, 48community

income, 212property, 147–48property rules, 16

commutingcosts to work, 295expenses, 285

company vehicle usage, 42Compensated Work Therapy programs, 47conservation contributions, 261–62Consolidated Omnibus Budget Reconciliation Act

(COBRA), 354consumer rebates, 119

corporate stock, 65cost

basis of property, 142–43of cleaning up or making repairs, 273–74of goods sold, 124of yachts, hunting lodges, fishing camps, etc.,

295court award or settlement. See damagescourt costs, 349Coverdell education savings account, 5, 58covered opinions, 456–58CPAs. See certified public accountants (CPAs)credit card insurance program benefits, 118credit for excess Social Security or Railroad

Retirement Tax, 354–55credit for qualified retirement savings

contributionscredit, reporting the, 341income limit, 340–41requirements, 340

credit for tax on undistributed capital gains, 355credit for the elderly or disabled, 344–47

citizenship, 344credit, figuring and reporting the, 345–47doctor’s certification, 346filing status, 344–45income limits, 345requirements, 344

credit to holders of tax credit bonds, 349criminal penalties, 63crop insurance, 133custodial accounts for children, 61custodial parent, 29, 36–37, 326

waiver by, 36–37

Ddamages, 112–13date of birth, 3day camp costs, 320day care, 33death benefits, accelerated, 98death threats, 174debt income, cancellation of, 113–15deceased spouse, 26deceased taxpayer, 417deductible contributions, 256–59deductions

limits on, 266–69, 275not subject to 2% limit, 282–85subject to 2% limit, 279–82

bindex.indd 513 1/19/2012 4:03:56 PM

514 Index

deductions, miscellaneous itemizedalternative minimum tax (AMT) liability, 287appraisal fees, 280deductions not subject to 2% limit, 282–85deductions subject to 2% limit, 279–82expenses, other, 280expenses not subject to 2% limit, 284–85gambling losses, 283hobby losses, 280Impairment related work expenses, 284income-producing property, casualty and theft

losses on, 282–83income repayment, 281investment expenses, 280IRA custodial fees, 280itemized expenses, how to deduct miscellaneous,

287job search expenses, 280legal expenses, 281legal fees, 281loss of deposits, 281loss on IRAs, 281nondeductible expenses, 285–86repayments of more than $3,000, 283–84social security benefits repayment, 281–82tax advice, 280tax preparation fees, 279–80

Defense of Marriage Act, 21degradation, 75de minimis (minimal) benefits, 43Department of Health and Human Services

(DHHS), 401dependency exemptions

about, 25–35adjusted gross income (AGI), 29–30child, 26–29, 35citizenship, 35criteria for, 26educational credits, 331, 334joint return, 35qualifying child, 26–29, 35qualifying relatives and other dependents, 31–33,

35relationships qualifying for, 31support agreements, multiple, 33–35tie-breaker rule, 29–31waived, 334

dependentcare, 317care benefits, 43

care credit, 16under a multiple support agreement, 227

dependent childqualifying widow(er) with a, 20support payments, 35

dependentsspecial rules for, 5–6standard deduction for, 220–21

depletion deduction, 372depreciation, 371designated Roth IRA accounts, 95. See also Roth

IRAsdeterioration, progressive, 270DHHS. See Department of Health and Human

Services (DHHS)direct deposits of taxes, 402–3direct expenses, 131disability, 4. See also Social Security disability

benefitsdisabled

or elderly, credit for the, 344–47totally and permanently, 344

disasterlosses, 276–77relief grants or payments, 118

disposition of property, gain or loss on the, 371distributions

liquidating, 68of stock and stock rights, 68–69

dividendsbackup withholding, 69cash, 66exempt-interest, 69interest labeled by payers as, 54interest on life insurance, 54ordinary, 69ordinary vs. qualified, 66–67payments, 65qualified, 65–67, 69reinvestments, 67reporting on the tax return, 69–70when to report, 70

divorcemarital status, 21–22property sale on, 156special rules for, 36–37

documentary evidence, 300dollar limit

for child and dependent care credit, 321donations to specific people, 257

bindex.indd 514 1/19/2012 4:03:56 PM

Index 515

doors, exterior, 342drilling costs, intangible, 372drug conviction, felony, 335dual-status

taxpayers, 9–11taxpayer-spouse, 11

due diligencepaper trail showing, 431requirements, four EITC, 431

dues for clubs and associations, 295

Eearned income

child and dependent care credit, 319–20credit, 306–7defined, 5Foreign Earned Income Exclusion, 49–50limit, 311–12taxable earned income, 328traditional IRAs, 182

earned income credit (EIC)adjusted gross income (AGI), 306citizenship, 308combat pay, nontaxable, 307, 311credit, claming it on the return, 312–13credit, figuring the, 311–12credit, reporting the, 312credit, who can claim, 306–308credit, who cannot claim, 310–11earned income, 306–7earned income limit, 311–12EIC, previously disallowed, 313EIC table for 2011, 313EIC workshops, 312filing status, 308Form 8867, due diligence requirements of,

314Form 8867, Paid Preparer’s Earned Income Credit

Checklist, 314income credit, defined, 305investment income, 307IRS regulation 1.6695-2 (proposed), 314preparer responsibilities, paid, 314taxpayer identification number, 308taxpayers with no qualifying child, 310taxpayers with qualifying child, 305, 308–309

EAs. See enrolled agents (EAs)education

expenses, work-related, 297–298redemptions, 58

related tax benefits, 331education, employment-related, 298educational assistance, 44

tax-free, 392Educational Savings Account (ESA), 192, 392education benefits, tax-free, 332education credits

and adjustment recapture, 392American Opportunity Tax Credit, 331–35comparison of, 333credit, figuring the, 336credit recapture, 336Lifetime Learning Credit, 331, 333, 335–36,

374qualified education expenses, 335–36requirements for, 331–32

educator, 194expenses deduction, 193–94

e-filing of tax return, 418–19EFTPS. See Electronic Federal Tax Payment System

(EFTPS)EIC. See earned income credit (EIC)EIN. See Employer Identification Number (EIN)elderly or disabled, credit for the, 344–47electric

drive motor vehicle credit, plug-in, 344vehicle conversion kit, 344vehicle credit, plug-in, 344

Electronic Federal Tax Payment System (EFTPS), 400, 415

electronic return originator (ERO), 419electronic return signatures, 417, 419eligible student, 333employee business expenses

business expenses, how to prove certain, 301business expenses, reporting employee, 303–business gifts, 295car expenses, 297cost of yachts, hunting lodges, fishing camps, etc.,

295documentary evidence, 300dues for clubs and associations, 295education expenses, work-related, 297–298entertainment expenses, 293–95entertainment expenses, when are they

deductible?, 294expenses, miscellaneous, 299–300gifts or entertainment, 295home office, 299incidental expenses, 293

bindex.indd 515 1/19/2012 4:03:56 PM

516 Index

employee business expenses (continued)meals and incidental expenses, 293overview, 289–90per diems, 302plans, accountable and nonaccountable, 301–2recordkeeping and substantiation, 300reimbursements, 300–2tools and equipment, 299transportation expenses, local, 295–97travel away from home, 290–93travel expenses, deductible, 291–94uniforms and work clothes, 299work-related education expenses, 297–298work-related expenses, other, 298–300

employee compensation. See also fringe benefitssupplemental wages, 42tip income, 44–46wages and salaries, 39

employee control, 50–51employee vs. independent contractor, 50–51Employer Identification Number (EIN), 122,

127employer-paid adoption expenses, 16energy conservation

bonds, qualified, 349subsidies and payments, 118

energy-efficient building property, 342energy-efficient property, residential, 343energy improvements to residence, 241energy property credit, nonbusiness, 341–43enrolled actuaries, 440enrolled agents (EAs), 440enrolled retirement plan agents, 441entertainment expenses, 293–95entertainment expenses, when are they deductible?,

294ERO. See electronic return originator (ERO)ESA. See Educational Savings Account (ESA)exchange, 151ex-dividend date, 66expenses

nondeductible, 285–86not subject to 2% limit, 284–85other, 280paid by tenant, 74

Ffair market value (FMV)

barter, 116–18basis of property, 143, 145–48

equal to or greater than the donor’s adjusted basis, 147

of home or residence, 176less than the donor’s adjusted basis, 146–47personal property, 128–27sales of property, 152, 155

fair rental value, 32–33farmers

breeding fees, 133farm income, 132–33farming expenses, 133–35farm rental income and expenses, 135farm supplies, 133Schedule F, Profit or Loss From Farming, 121,

133–35, 387Schedule F, who files?, 132soil and water conservation expenses, 133

farmers and fisherman, income averaging for, 364FBAR. See foreign bank account reporting (FBAR)federal and state level itemizing, 222Federal Civil Service Retirement System, 89Federal Deposit Insurance Corporation, 62Federal Employees Health Benefits Program

(FEHBP), 354Federal Employees Retirement System, 89Federal estate tax, 96

on income in respect of a decedent, 284Federal income tax

withheld, 61withholding, 393

Federal Insurance Contributions Act (FICA), 42, 44, 135

federal mortgage subsidy, 178recapture, 349

Federal Reserve System, 62federal rules

on marital status, 21Federal Unemployment Tax Act (FUTA)

household employment taxes, 393FEHBP. See Federal Employees Health Benefits

Program (FEHBP)fellowship, 332

grant or scholarship, 109–10FICA. See Federal Insurance Contributions Act

(FICA)filing

deadline, 3, 6–7extension, requesting, 7requirements, 4–6return even if not required, 6

bindex.indd 516 1/19/2012 4:03:56 PM

Index 517

filing statusearned income credit, 308Form 1040, 13Form 1040EZ, 13–14head of household, 17–19making changes in, 23married filing jointly, 14–15married filing separately, 15–16qualifying widow(er) with a dependent child, 20single, 14

filing thresholdadvanced pay, 5church employment, 5for dependents in marriage, 6for dependents on single person, 6gross income, 4–5head of household, 4married, 4self-employment, 5single person, 4widow(er), 4

fines and penalties, 285529 plans, 332FMV. See fair market value (FMV)FMV, decrease in, 273–74foreclosure, 114foreign

account reporting, 61–63charitable organizations donations, 256earned income exclusion, 49–50earned income tax worksheet, 364exchange student, 258housing expenses, 49income taxes, 238tax credit, 346–48taxes, 61

foreign bank account reporting (FBAR), 61Foreign Earned Income Tax Worksheet, 364Foreign Service, 173forest health protection payments, 133forestry conservation bonds, qualified, 349Form 23, Application for Enrollment to Practice

before the IRS, 443Form 433-A, Collection Information Statement for

Wage Earners and Self-Employed Individuals, 401

Form 433-B, Collection Information Statement for Businesses, 401

Form 433-F, Collection Information Statement, 401Form 656, Offer in Compromise, 401

Form 843, Claim for Refund and Request for Abatement, 355

Form 1040, U.S. Individual Income Tax Return, 3, 9, 157

Adjustments to Gross Income, 185alimony, reporting, 111alimony deduction, 212alimony income, 212alimony recapture, 214allocated tips, 45alternative trade adjustment assistance (ATAA),

119AMT, reporting, 374barter income, 117business-related adjustments to gross income, 199capital gain distributions, 69–70child’s interest and dividends, 382child tax credit, 327earned income credit, 305educator expenses deduction, 194employee business expenses, 289filing status, 13filing status, making changes in, 23gambling losses, reporting, 116gambling winnings, reporting, 115interest in foreign bank account, 62IRA deductible contributions, 185itemized deductions, 221–223jury duty pay, 116legal fees, 281moving expenses deduction, 207Penalty of Perjury Declaration, 416Qualified Dividends and Capital Gain Tax

Worksheet, 160–59, 361qualified Roth IRA distribution reporting, 91recapture of tax-free educational assistance, 193rental income and expenses, reporting, 82Schedule A, Itemized Deductions, 78, 82, 116, 136,

157education related adjustments, 194employee business expenses, 289miscellaneous itemized deduction, 279mortgage interest, deducting, 247tax payments, 235

Schedule B, Interest and Ordinary Dividends, 413

Schedule C, Part I, Income, 124Schedule C, Profit or Loss from Business (Sole

Proprietorship), 48, 81–82, 112, 115–14, 121, 123, 187, 396

bindex.indd 517 1/19/2012 4:03:56 PM

518 Index

Form 1040 (continued)Schedule C-EZ, Net Profit From Business (Sole

Proprietorship), 82, 122–23Schedule D, Capital Gains and Losses, 157–60,

177, 361, 382Schedule E, Supplemental Income and Loss, 74,

76, 82–83, 112, 135Schedule F, Profit or Loss From Farming, 121,

133–35, 199, 387Schedule H, Household Employment Taxes, 320,

393Schedule J, Income Averaging for Farmers and

Fishermen, 133Schedule K-1, Partnerships, S corporations, trusts,

and estates, 157Schedule K-1, Partner’s Share of Income,

Deductions, Credits, etc, 414Schedule R, Credit for the Elderly or the Disabled,

345Schedule SE, Self-Employment Tax, 122, 136, 200,

387scholarship or fellowship grant, 109–10Self-Employed Health Insurance Deduction

Worksheet, 201–202Social Security disability benefits, 106student loan interest, 196taxable “other income,” 109taxes, other, 387–95tax-exempt interest, 101taxpayer’s self-employment tax, 312traditional IRA distributions, 90unemployment compensation, reporting, 112write-in deductions, 207

Form 1040A, U.S. Individual Income Tax Returnabout, 8–9alimony deduction, 212alimony income, 212child tax credit, 327earned income credit, 305interest and ordinary dividends, 59IRA deductible contributions, 185jury duty pay, 116qualified Roth IRA distribution reporting, 91Schedule R, Credit for the Elderly or the Disabled,

345Social Security disability benefits, 106traditional IRA distributions, 90–91

Form 1040EZ, Income Tax Return for Single and Joint Filers with No Dependents, 8, 60

alimony deduction, 212

alimony income, 212child and dependent care credit, 322earned income credit, 305education credits, 334filing status, 13–14jury duty pay, 116Social Security disability benefits, 106

Form 1040NR, U.S. Nonresident Alien Income Tax Return, 8, 317

Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents, 9

Form 1040-PR, Self-Employment Tax Form — Puerto Rico (Spanish Version), 441

Form 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico), 441

Form 1040X, Amended U.S. Individual Income Tax Return, 9, 206, 223, 382

Form 1065, U.S. Return of Partnership Income, 122Schedule K-1, Partner’s Share of Income,

Deductions, Credits, etc., 111, 119, 282Form 1096, Annual Summary and Transmittal of

U.S. Information Returns, 70Form 1098, Mortgage Interest Statement, 244–45,

251Form 1098-C, Contributions of Motor Vehicles,

Boats, and Airplanes, 261Form 1098-E, Student Loan Interest Statement, 196Form 1098-MA, Mortgage Assistance Payments,

348Form 1098-T, Tuition Statement, 192, 334Form 1099-A, Acquisition or Abandonment of

Secured Property, 114, 157, 176Form 1099-B, Proceeds from Broker and Barter

Exchange Transactionsbarter, 117brokerage firm and assets sold, 142sales, reporting, 157–58

Form 1099-C, Cancellation of Debt, 114, 176Form 1099-DIV, Dividends and Distributions, 65–

70, 157, 346, 362Form 1099-G, Certain Government Payments, 112–

11, 119Form 1099-INT, Interest Income, 53–54, 59–61, 346Form 1099-K, Merchant Card and Third Party

Network Payments, 121, 124Form 1099-MISC, Miscellaneous Income

alimony income, 212employee or independent contractor, 50–51

bindex.indd 518 1/19/2012 4:03:56 PM

Index 519

self-employment, 121, 125tax payments, 237

Form 1099-OID, Original Issue Discount, 56, 59Form 1099-PATR, Taxable Distributions Received

From Cooperatives, 133Form 1099-R, Distributions From Pensions,

Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

retirement plans, pension and annuities, 85–86, 90, 96, 98

tax payments, 237tax return filing, 420

Form 1099-S, Proceeds from Real Estate Transactions, 157, 241

Form 1116, Foreign Tax Credit, 157, 346Form 1127, Application for Extension of Time for

Payment of Tax Due to Undue Hardship, 400Form 2106, Employee Business Expenses, 207

employee business expenses, 289miscellaneous itemized expenses, 287

Form 2106-EZ, Unreimbursed Employee Business Expenses, 207

employee business expenses, 289miscellaneous itemized expenses, 287

Form 2120, Multiple Support Declaration, 33Form 2210, Schedule AI, Annualized Income

Installment Method, 405Form 2210, Underpayment of Estimated Tax by

Individuals, Estates, and Trusts, 405Form 2439, Notice to Shareholder of Undistributed

Long-Term Capital Gains, 67, 355Form 2441, Child and Dependent Care Expenses,

317, 322Form 2555, Foreign Earned Income, 48, 307Form 2555-EZ, Foreign Earned Income Exclusion,

48, 307Form 2848, Power of Attorney and Declaration of

Representative, 426–27Form 3520, Annual Return to Report Transactions

with Foreign Trusts and Receipt of Certain Foreign Gifts, 63

Form 3800, General Business Credit, 344Form 3903, Moving Expenses, 202–203Form 3921, Exercise of Incentive Stock Option Under

Section 422(b), 375Form 4137, Social Security and Medicare Tax on

Unreported Tip Income, 393Form 4506, Request for Copy of Tax Return, 427Form 4506-T, Request for Transcript of Tax Return,

427

Form 4562, Depreciation and Amortizationbusiness expenses, 122business purchases of property, 129depreciation of income-producing property,

75–76Form 4684, Casualties and Thefts, 282–83Form 4797, Sales of Business Property

business assets, gains and losses on, 165–66farmers, 132home used for business, sale of, 177income-producing property, casualty or theft loss

on, 283sales of business property, 160sales reporting on tax return, 157

Form 4835, Farm Rental Income and Expenses, 135Form 4868, Application for Automatic Extension of

Time to File U.S. Individual Income Tax Return, 7, 414

Form 4952, Investment Interest Expense Deduction, 252

Form 4972, Tax on Lump-Sum Distributions, 89, 363Form 5213, Election to Postpone Determination as

to Whether the Presumption That an Activity is Engaged in for Profit, 137

Form 5329, Additional Taxes on Qualified Plans (including IRAs), and Other Tax-Favored Accounts, 389, 391–92

Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, 5, 96

Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, 177, 351, 353, 395

Form 5695, Residential Energy Credits, 144, 343Form 5754, Statement by Person(s) Receiving

Gambling Winnings, 283Form 6198, At-Risk Limitations, 83Form 6251, Alternative Minimum Tax—Individuals,

365, 369–74, 374Form 6252, Installment Sale Income, 177Form 8275-R, Regulation Disclosure Statement,

432Form 8283, Noncash Charitable Contributions, 265

Section A, Donated Property of $5,000 or Less and Certain Publicly Traded Securities, 419

Section B, Donated Property Over $5,000 (Except Certain Publicly Traded Securities), 419

Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, 37, 309, 313, 326, 419

Form 8396, Mortgage Interest Credit, 348

bindex.indd 519 1/19/2012 4:03:56 PM

520 Index

Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return, 354, 419

Form 8554, Application for Renewal of Enrollment to Practice Before the Internal Revenue Service, 444

Form 8582, Passive Activity Loss Limitations, 82Form 8594, Asset Acquisition Statement, 143Form 8606, Nondeductible IRAs, 91, 94–96, 185Form 8615, Tax for Certain Children Who Have

Investment Income of More Than $1,900, 378–83

Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts, 374

Form 8812, Additional Child Tax Credit, 327Form 8814, Parents’ Election to Report Child’s

Interest and Dividends, 382Form 8815, Exclusion From Series EE and I Savings

Bonds, 58–59Form 8818, Optional Form To Record Redemption of

Series EE and I U.S. Savings Bonds Issued After 1989, 58

Form 8821, Tax Information Authorization, 426Form 8822, Change of Address, 3Form 8828, Recapture of Federal Mortgage Subsidy,

178Form 8829, Expenses for Business Use of Your Home,

131Form 8834, Qualified Plug-in Electric and Electric

Vehicle Credit, 344Form 8839, Qualified Adoption Expenses, 350Form 8857, Request for Innocent Spouse Relief, 418Form 8867, Paid Preparer Earned Income Credit

Checklist, 314, 431Form 8879, IRS e-signature Authorization, 419Form 8880, Credit for Qualified Retirement Savings

Contributions, 341Form 8885, Health Coverage Tax Credit, 353Form 8888, Allocation of Refund (Including Savings

Bond Purchases), 402Form 8889, Health Savings Accounts (HSAs), 188Form 8903, Domestic Production Activities

Deduction, 183Form 8910, Alternative Motor Vehicle Credit, 144,

344Form 8911, Alternative Fuel Vehicle Refueling

Property Credit, 144Form 8912, Credit to Holders of Tax Credit Bonds,

349Form 8919, Social Security and Medicare Tax on

Wages, 394

Form 8919, Uncollected Social Security and Medicare Tax on Wages, 51

Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, 344

Form 8944, Preparer e-file Hardship Waiver Request, 418

Form 8948, Preparer Explanation for Not Filing Electronically, 418

Form 8949, Sales and Other Dispositions of Capital Assets, 158–59

Form 9465, Installment Agreement Request, 401Form HUD-1, Settlement Statement, 249Form RRB-1001, Nonresident Questionnaire, 105Form RRB-1099, Payments by the Railroad

Retirement Board, 104–6Form SS-8, Determination of Worker Status for

Purposes of Federal Employment Taxes and Income Tax Withholding, 51, 394

Form SSA-1099, Social Security Benefit Statement, 101–102, 103–5

Form W-2, Wage and Tax Statementactive participation status, 183combat pay, nontaxable, 307, 311employee vs. independent contractor, 50–51fringe benefits, 42group-term life insurance, 43health and long-term care insurance, 42retirement plan, 43scholarship and grants, 110self-employed health insurance deduction, 200Social Security and Medicare taxes, 48statutory employees, 48tax payments, 237tax return filing, 420tips, allocated, 45wages, supplemental, 42wages and salaries, 39–42

Form W-2G, Certain Gambling Winnings, 115, 237, 283, 420

Form W-4V, Voluntary Withholding Request, 104, 112, 133

Form W-7, 29Form W-9, 60Form W-12, IRS Paid Preparer Tax Identification

Number (PTIN) Application and Renewal, 444foster

care payments, 119child, 20parent, unreimbursed expenses of, 259

found property, 118

bindex.indd 520 1/19/2012 4:03:56 PM

Index 521

421(k) retirement plan, 85, 93–96credit for, 339–41Roth contributions to 401(k), 43Solo 401(k)s, 138, 182

fourth-quarter convention, 128fringe benefits

achievement awards, 43adoption assistance, 43car usage, 43de minimis (minimal) benefits, 43dependent care benefits, 43educational assistance, 44group-term life insurance, 43health insurance, 42health-related employer contributions, 43long-term care insurance, 42moving expense reimbursements, 43retirement plan contributions, 43stock options, 44transportation, 44working condition benefits, 44

frivolous, defined, 455fuel cell property, 343fuel cell vehicle, alternative motor vehicle credit for

a qualified, 343–48full recapture, 395FUTA. See Federal Unemployment Tax Act

(FUTA)

Ggain, figuring, 276gains and losses, when to report, 276–77gambling losses, 116, 283gambling winnings, 115GDS. See general depreciation system (GDS)general depreciation system (GDS), 128geothermal heat pumps, 343GI bill, 32gifts

basis of property, 146income, tax-free, 109, 118–19Model Gifts of Securities to Minors Act, 61for opening account, 54or entertainment expenses, 295sales property, 155Uniform Gifts to Minors Act, 61

government benefits, 118–20government employee, defined, 450government officials, expenses of fee-based, 207green card test, 9, 11

gross incomedefined, 4filing threshold, 4–5qualifying relative and, 32

group-term life insurance, 43

HHague Adoption Certificate, 351half-year convention, 128HAMP. See Home Affordable Modification Program

(HAMP)HCTC. See U.S. Treasury-Health Coverage Tax

Credit (HCTC)HDHP. See high-deductible health plan (HDHP)head of household

filing status, 17–19filing threshold, 4

health coverage tax credit, 232, 353–54health insurance

employer-provided, 39–42high-deductible health plan (HDHP), 188premiums, 125premiums covering employees, 200self-employed, 200–202

health reimbursement arrangements (HRAs), 43health-related employer contributions, 43health savings accounts (HSAs), 5, 43

additional tax on, 391contributions, 188–89distributions, 189eligibility, 188tax-advantaged savings account, 181

HH. See single, head of household (HH)high-deductible health plan (HDHP), 188hobby losses, 280hobby loss limitation

losses and expenses, 136profit motive, determining, 137profit motive, presumption of, 137

home, cost of keeping up, 17–18Home Affordable Modification Program (HAMP),

118homebuyer credit, 351–53homebuyer credit, first-time, 5, 177–78homebuyer credit repayment, first-time, 394–95home equity, interest on, 244home improvements, 229home mortgage debt, 112home mortgages interest, 243–47home office, 299

bindex.indd 521 1/19/2012 4:03:56 PM

522 Index

home office deduction, 130–31homeowner expenses, 131home sale

abandonment, foreclosures and repossessions, 176

basis, adjustments to, 170basis, determining, 169–70business use or rental of personal residence,

175–76cancellation of debt (COD) income, 177capital gain, 172, 177exceptions to ownership and user tests, 173federal mortgage subsidy, 178first-time homebuyer credit, 177–78gain or loss, figuring, 170–71home sale exclusion, 171–76home sales, reporting, 176–77nonqualified use, 174–75partial exclusion, 173–72personal residence, 170–71, 175principal residence, 169, 171–78recapture of credit, 177–78repayment of credit, accelerated, 177–78repayment of credit over 15 years, regular, 177Schedule D, 177settlement costs, 169–70unrecaptured section 1250 gain, 175

home security system, 285hot water boilers, 342houseboat, 203household

employees, 5, 317, 320employment taxes, 392–93

household pets, 205housing

allowance, 46exclusion and deduction, 49–50expenses, foreign, 49

HRAs. See health reimbursement arrangements (HRAs)

HSAs. See health savings accounts (HSAs)husband-wife partnerships, 122hybrid vehicles, 343–44

IImpairment related work expenses, 230–31, 284

of self-employed individual, 284incapacitated spouse, 417incentive stock option (ISO), 44, 370–71income, other types of

alimony, 110–11barter, 116–17bribes and kickbacks, 118car pools, 119credit card insurance program, benefits from, 118damages, 112–13debt income, cancellation of, 113–15found property, 118gambling losses, 116gambling winnings, 115inheritances, 119jury duty pay, 116limited liability companies (LLCs), 111–12nontaxable income, 118–19partnerships, 111–12prizes and awards, 118rebates, 119rewards, 118royalties, 112scholarship or fellowship grant, 109–10S corporations, 111–12strike and lockout benefits, 118taxable recoveries, 110tax-free income items, 119unemployment compensation, 112welfare and other government benefits, 118–19

income, tax-freegifts, 109, 118–19inheritances, 109, 119

income averaging for farmers and fishermen, 364income expenses, tax-exempt, 286income-producing property, 75

casualty and theft losses on, 282–83income repayment, 281independent contractor vs. employee, 50–51indirect expenses, 131individual retirement accounts (IRAs)

accumulations, excess, 95–96additional taxes on, 388–91contributions, excess, 95conversions, 94–95distribution, early, 95distribution penalty, 92distributions, qualified charitable, 92–93distributions, required minimum, 92distributions, traditional, 90–891early distribution penalty, 389–90excess accumulations, 391excess contributions, 390–91income from, 85

bindex.indd 522 1/19/2012 4:03:56 PM

Index 523

inheritances, 119mandatory 20% withholding on lump-sum

distributions, 399nondeductible, 91–92nonqualified retirement plans, 90nonspouse beneficiary, 94qualified domestic relations orders, 94rollovers, 93–94rollovers by someone other than the taxpayer, 94rollovers that include nontaxable amounts, 94rollovers to designate Roth accounts, 93–94Roth accounts, designated, 95Roth distributions, 90Roth IRAs, 185–86self-employed taxpayer, 182, 199SEP-IRAs, 186–87SIMPLE IRAs, 187–88special additional taxes, 95–96surviving spouse, 94tax penalties, 5tax refund, applying, 185traditional IRAs, 181–85

Individual Taxpayer Identification Number (ITIN), 3, 308

for child, 29Form W-7, 29

information returns, 157–54inheritances

basis of property, 147–48income, other types of, 119income, tax-free, 109, 119individual retirement accounts (IRAs), 119sales property, 155–56

injured spouse allocation, 404innocent spouse relief

tax return, 417–18insolvency, 114insulation, 342insurance

and other disbursements, 274–75payments for living expenses, 274–75proceeds from death of insured, 109

intelligence community, 173interest, 53

bearing account, 60carried over to current year, 252in foreign bank account, 62–63on private activity bonds, 372on a return, reporting, 60–61on U.S. savings bonds, 16

interest income, taxablebonds traded flat, 54frozen bank accounts, 55gift for opening account, 54interest labeled by payers as dividends, 54interest on below-market loans, 54interest on federal and state tax refunds and legal

settlements, 54interest on life insurance dividends and prepaid

premiums, 54sources, 53–54U.S. obligations, 53when to report, 55

interest paymentsacquisition debt, 243capital gain election, defined, 251home equity, interest on, 244home mortgages interest, 243–47interest carried over to current year, 252investment interest, 251–52loan origination fees (points), 248–50mortgage assistance payments, 245mortgage insurance premiums, 250–51mortgage interest, 245–46mortgage interest credit, 245mortgage premium insurance, 250original issue discount, 250prepaid interest, 245prepayment penalty, 245qualified home, 244refunds of interest, 245sale of home, 247special situations, 245–47

Internal Revenue Code (IRC). See also Circular 230, sanctions for violating; Circular 230, Regulations Governing Practice Before the Internal Revenue Service; preparer responsibilities

aiding and abetting, 432civil charges under section 6713, Disclosure or Use

of Information by Preparers of Returns, 428criminal charges under section 7216, Disclosure or

Use of Information by Preparers of Returns, 428due diligence, paper trail showing, 431due diligence requirements, four EITC, 431reasonable basis standard, 429Regulation Section 1.6662-4(d)(3)(iii), 430Section 6694 Penalties, 428–29, 433Section 6695 Penalties, 433–34Section 6701 Penalties, 434

bindex.indd 523 1/19/2012 4:03:56 PM

524 Index

Internal Revenue Code (IRC) (continued)Section 6713 Penalties, 434Section 6716 Penalties, 434Section 7525 on limited privilege for tax advice

furnished by EAs and CPAs, 447substantial authority, determining whether there

is, 429substantial authority standard, 429tax liability, penalty for understatement of, 430willful or reckless conduct, penalty for an

understatement due to, 430investment

in an annuity, unrecovered, 285expenses, 280interest, 251–52payments, 221related seminars and meetings, 286

investment incomechild’s, 61, 377–83earned income credit, 307

involuntary conversion, 395involuntary conversions, 156IRA custodial fees, 280IRAs. See individual retirement accounts (IRAs)IRAs, loss on, 281IRC. See Internal Revenue Code (IRC)IRS Circular 230, Regulations Governing Practice

Before the Internal Revenue Service, 433IRS Form 2587, Application for Special Enrollment

Examination, 443IRS Form 4070A, Employee’s Daily Record of Tips,

44–45IRS Individual Taxpayer Identification Number

(ITIN), 3IRS interactive sales tax calculator, 239IRS Internal Revenue Bulletin 1997-13, 464IRS Notice 746, Information About Your Notice,

Penalty and Interest, 406IRS Notice 2011-91, Certain Enrolled Retirement

Plan Agents Not Required to Obtain a PTIN, 444

IRS Proper Worker Classification Audio Program, 50

IRS Pub. 15-B, Employer’s Tax Guide to Fringe Benefits, 40

IRS Pub. 17, Your Federal Income Tax for Individuals, 432

IRS Pub. 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, 48, 207, 307

IRS Pub. 78, Cumulative List of Organizations, 256

IRS Pub. 225, Farmer’s Tax Guide, 132–33IRS Pub. 334, Tax Guide for Small Business, 121IRS Pub. 463, Travel, Entertainment, Gift, and Car

Expenses, 129, 138IRS Pub. 502, Medical and Dental Expenses

Including the Health Coverage Tax Credit, 354IRS Pub. 502, Worksheet F, 233IRS Pub. 514, Foreign Tax Credit for Individuals, 348IRS Pub. 519, U.S. Tax Guide for Aliens, 9–11IRS Pub. 521, Moving Expenses, 203IRS Pub. 523, Selling Your Home, 176IRS Pub. 525, Taxable and Nontaxable Income, 44

Recoveries of Itemized Deductions worksheet, 110IRS Pub. 526, Charitable Contributions, 138IRS Pub. 527, Rental Real Estate, 78IRS Pub. 530, Tax Information for Homeowners, 348IRS Pub. 535, Business Expenses, 127, 202IRS Pub. 536, Net Operating Losses, 132IRS Pub. 537, Installment Sales, 177IRS Pub. 538, Accounting Periods and Methods, 124IRS Pub. 544, Sales and Other Dispositions of Assets,

146, 154, 162, 164IRS Pub. 550, Investment Income and Expenses, 66,

153, 162, 165IRS Pub. 551, Basis of Assets, 141IRS Pub. 555, Community Property, 16, 148IRS Pub. 559, Survivors, Executors, and

Administrators, 147IRS Pub. 560, Retirement Plans for Small Business

(SEP, SIMPLE, and Qualified Plans), 138, 187IRS Pub. 575, Pensions and Annuities, 364, 389IRS Pub. 587, Worksheet to Figure the Deduction for

Business Use of Your Home, 131IRS Pub. 590, Individual Retirement Arrangements

(IRAs), 92, 184, 389IRS Pub. 597, Information on the United States –

Canada Income Tax Treaty, 256IRS Pub. 915, Social Security and Equivalent

Railroad Retirement Benefits, 103IRS Pub. 926, Household Employer’s Tax Guide—For

Wages Paid in 2011, 393IRS Pub. 946, How to Depreciate Property, 127IRS Pub. 947, Practice Before the IRS and Power of

Attorney, 441IRS Pub. 950, Introduction to Estate and Gift Taxes,

147IRS Pub. 971, Innocent Spouse Relief, 418IRS Pub. 972, Child Tax Credit, 327IRS Pub. 1244, Employee’s Daily Record of Tips and

Report to Employer, 44

bindex.indd 524 1/19/2012 4:03:56 PM

Index 525

IRS Pub. 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns, 419

IRS Pub. 1346, Electronic Return File Specifications and Record Layouts for Individual Income Tax Returns & Suggested Solutions, 420

IRS Pub. 4600, Safeguarding Taxpayer Information, 428

IRS Pub. 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, 154, 176

IRS Pub. 4895, Basis of Inherited Property Held by Decedents Who Died in 2010, 147

IRS Pub. Truth About Frivolous Tax Arguments, 455

IRS regulation 1.6695-2 (proposed), 314IRS resources

IRS Electronic Reading Room, 507IRS Tax Map, http://taxmap.ntis.gov/taxmap/,

508IRS Web site, www.irs.gov, 420, 507www. irs.gov/efi le/article/0,,id=180182,00.html,

420www.irs.gov/foia/article/0,,id=110353,00.html,

507www.irs.gov/pub/irs-pdf/f1040a.pdf, 507www.irs.gov/pub/irs-pdf/f1040sa. pdf, 507www.irs.gov/pub/irs-pdf/pcir230.pdf, 508www.irs.gov/ pub/irs-utl/friv_tax.pdf, 455www.pay.gov, 443

IRS’s Large Business and International Division, 62ISO. See incentive stock option (ISO)itemized expenses, how to deduct miscellaneous,

287ITIN. See IRS Individual Taxpayer Identification

Number (ITIN)

Jjob search expenses, 280joint accounts, 60Joint Board for the Enrollment of Actuaries, 440joint return

dependency exemptions, 35dependency exemptions and, 35married status, 14–15personal exemptions and, 25qualifying child and, 35

jury duty pay, 116

Kkickbacks and bribes, 118

kiddie tax. See also childabout, 6, 334, 362, 373alternative minimum tax (AMT) for a child, 380charitable contribution deduction, 385child’s interest and dividends, parent’s election to

report, 382, 384election, impact of making the, 384–85election, which parent can make the, 384Form 8615, 378–83general rules of, 377–79investment income, child’s, 377–83marital status of parent, 384tax treatment of child’s income, 379–80tax treatment of child’s income, figuring out,

380–82kidnapping, 28kindergarten tuition, 320

Llandscaping, 274last month rule, 189late filing

penalty for, 7reasonable cause and, 7

late payment, penalty for, 7lean-burn technology vehicles, advanced, 344lease cancellation payment, 74leasehold improvements, 77legal expenses, 281legal fees, 281legal fees for personal reasons, 286lender/creditor forms, 114life insurance

cancellation, sale, or surrender of a policy, 96death benefits, accelerated, 96policies, exchanges of, 156policies acquired for value, 97premiums, 32, 286proceeds not paid in installments, 97–98proceeds paid in installments, 97whole life policy, sale of, 98whole life policy, surrender of, 98

Lifetime Learning Credit, 193, 331, 333, 335–38, 374like-kind exchange, 145–46, 151, 156like-kind properties, 145–46limited liability companies (LLCs), 111–12, 122Link2Go (www.pay1040 com), 400listed property, 128living expenses, personal, 286living expenses paid to employee, 291

bindex.indd 525 1/19/2012 4:03:56 PM

526 Index

LLCs. See limited liability companies (LLCs)loan origination fees (points), 248–50loans between individuals, 57lobbying expenses, 286lockout and strike benefits, 118lodging cost, 33long-term capital gains, 155

and qualified dividends, 373–74long-term care insurance, 42

premiums, deductions for, 228loss (losses)

of deposits, 281on deposits, 272disaster, 276–79figuring the, 273–74on IRAs, 281nondeductible, 270from other activities on Schedule K-1, 284–85when to deduct, 276

lost or mislaid cash or property, 286lump-sum distribution, 88, 362–63

tax on, 362–66

MMACRS. See Modified Accelerated Cost Recovery

System (MACRS)MAGI. See modified adjusted gross income (MAGI)marital status

annulments, 22determining, 20–21divorces, 21–22federal rules, 21legal marriage, 21of parent and kiddie tax, 384separation, 22unmarried, special rules for the, 36–37

money market funds, 54marriage

common-law, 21legal, 21penalty relief, temporary, 15

marriedfiling status, 14–16filing threshold, 4filing threshold for dependents, 6head of household status, 17

married couples filing joint federal income tax return, 237–42

married filing jointly (MFJ), 184filing status, 14–15

married filing separately (MFS), 184filing status, 15–16, 223, 318

material participation, 79–83, 122–23meals, 286meals and incidental expenses, 293Medicaid, 119medical and dental expenses

about, 221, 225–27child, adopted, 226–27child of divorced or separated parents, 226COBRA coverage, 231–32COBRA recapture worksheet, 233damages, 230dependent under a multiple support agreement, 227health coverage tax credit, 232home improvements, 229impairment- related work expenses, defined, 231itemized deduction, 225–27long-term care insurance premiums, deductions

for, 228medical costs of a deceased spouse or dependent,

227medical costs of a deceased taxpayer, 227medical expenses, deductible, 227–28medical expenses, deducting, 229–30medical expenses, nondeductible, 228–29medical expenses, qualified, 227–29medical expenses, sizable, 226medical expenses, whose are deductible, 225–27self-employed health insurance, 231special situations, 230–33work expenses, impairment-related, 230–31

medical benefits, 32medical expenses, student, 334medical savings account (MSA)

additional tax on, 391Medicare, 32, 119

taxes, 5, 44, 236tax on wages, uncollected, 394

MeF. See modernized e-file platform (MeF)membership fees for dues, 257–60mentally or physically incapable of self-care, 319MFJ. See married filing jointly (MFJ)MFS. See married filing separately (MFS)midwestern tax credit bonds, 349mileage rate, standard, 126military

about, 46–47, 173retirement plan, 47spouse, 417

bindex.indd 526 1/19/2012 4:03:56 PM

Index 527

minimum tax credit, 374minor child, 417Model Gifts of Securities to Minors Act, 61modernized e-file platform (MeF), 418Modified Accelerated Cost Recovery System

(MACRS), 78, 127–28, 164modified adjusted gross income (MAGI). See also

adjusted gross income (AGI)active participation exception, 80child tax credit, 326–27education credits, 332–36education redemptions, savings bonds, 58student loan interest deduction, 194–95traditional IRAs, 183–84tuition and fees deduction, 191–93

modified carryover basis, 147money market funds, 67mortgage

assistance payments, 118, 245insurance premiums, 250–51interest, 74, 245–46interest credit, 245, 339, 348premium insurance, 250refinancing a, 370secured by a residence, 114subsidy recapture, federal, 349

motor vehicle(s)advanced lean-burn technology, 344alternative motor vehicle credit for qualified fuel

cell, 343–44business vehicle expenses, deducting, 126business vehicles, depreciating, 129–28company vehicle usage, 42electric drive motor vehicle credit, plug-in, 344electric vehicle conversion kit, 344electric vehicle credit, plug-in, 344expenses, deducting, 126financing interest, 126Form 8834, Qualified Plug-in Electric and Electric

Vehicle Credit, 344Form 8910, Alternative Motor Vehicle Credit, 144,

344Form 8911, Alternative Fuel Vehicle RefuelingProperty Credit, 144Form 8936, Qualified Plug-in Electric Drive Motor

Vehicle Credit, 344fuel cell vehicle, alternative motor vehicle credit

for a qualified, 343–44hybrid, 343–44information, 126

lean-burn technology vehicles, advanced, 344motor vehicles, net disaster losses on, 220motor vehicles, new, 220net disaster losses on, 220new, 220plug-in electric drive motor vehicle credit, 344plug-in electric vehicle credit, 344sport utility vehicles (SUVs), 129

motor vehicles. See also vehicle creditsmove after filing return, 3moving expense reimbursements, 43moving expenses

business-related move, 203deductible expenses, 205–6deduction, claiming the, 206–7distance test, 203–4expenses, nondeductible, 206spouses, special rule for, 205time test, 204–5time test, exceptions to, 205

MSAs. See Archer medical savings accounts (MSAs)multifamily homes, 77multiple support agreements, 33–35municipal bond interest, 370municipal bonds, 53, 57, 59mutual funds, 65–67, 70

Nname, taxpayer’s, 3name change, 3National Tobacco Settlement payments, 133natural gas furnaces, 342net operating loss (NOL) deduction, 371net unrealized appreciation (NUA), 90Nobel prize, 118NOL. See net operating loss (NOL)nominee, defined, 60nominees, 60nonacademic fees, 334nonaccountable plan, 203nonbusiness bad debts, 151nonbusiness casualty and theft losses

appraisal cost, 273capital loss from sale of stock, 271car value, 274casualty, definition, 269–71casualty loss, proof of, 270–71cost of cleaning up or making repairs, 273–74deduction limits, 275deterioration, progressive, 270

bindex.indd 527 1/19/2012 4:03:56 PM

528 Index

nonbusiness casualty (continued)disaster losses, 276–78FMV, decrease in, 273–74gain, figuring, 276gains and losses, when to report, 276–77insurance and other disbursements, 274–75insurance payments for living expenses, 274–75landscaping, 274loss, figuring the, 273–74loss, when to deduct, 276losses, nondeductible, 270loss on deposits, 272Ponzi-type investment scheme, 272reimbursement as expected, 277reimbursement less than expected, 277reimbursement more than expected, 277reimbursements, receiving, 277stolen property, recovered, 277theft, definition, 271–72theft loss proof, 272

nonbusiness energy property credit, 341–43noncash contributions, 264–65noncustodial parent, 36–37nondeductible expenses, 285–86nondeductible IRAs, 91–92nondividend distributions, 67–68Non–Form 1040 series preparers, 441nonqualified dividends, 66nonqualified education expenses, 109nonresident

aliens, 9–11alien spouse, 11

nonresidential real property, 75nontaxable

income, 118–19recovery, 110

not-for-profit rentals, 82NUA. See net unrealized appreciation (NUA)nursery school tuition, 320Nutrition Program for the Elderly, 119

Ooccupation, 4Office of Professional Responsibility (OPR), 439, 459official extended duty, qualified, 351–52Official Payments Corporation (www.

officialpayments.com/fed), 400OID. See original issue discount (OID)oil furnaces, 342OPR. See Office of Professional Responsibility (OPR)

ordinary dividends, 69organizations, qualifying, 255–56original issue discount (OID), 55–57, 250out-of-pocket expenses, 264

PPAL. See passive activity loss (PAL)parents

special rules for divorced, separated, unmarried, 36–37

parking fees, 126partially or fully taxable recovery, 110partnerships, 111–12passive activity loss (PAL), 82, 112passive loss limitations

active participation exception, 80carryforwards, 80introduction, 80–81passive activities, 80

PBGC. See Pension Benefit Guaranty Corporation (PBGC)

Peace Corps, 173penalty for late filing, 7penalty for late payment, 7Pension Benefit Guaranty Corporation (PBGC), 353performing artists, expenses of, 207personal and dependency exemptions, 370, 372personal exemptions

deceased spouse, 26joint returns, 25separate returns, 25–26

personal individual retirement account (IRA)credit for, 339–45

personal information, 3–4personal property, 127personal property taxes, 236, 241personal residence

converted to rental property, 73home sale, 170–171, 175–76rental of, 78

personal use of rental property, 77–79phase-out of exemption, 372–73phone number, taxpayer’s daytime, 3physically or mentally incapable of self-care, 319physical presence test, 49plug-in electric drive motor vehicle credit, 344plug-in electric vehicle credit, 344points, 170points to acquire a mortgage, 75Ponzi-type investment scheme, 272

bindex.indd 528 1/19/2012 4:03:56 PM

Index 529

preferred stock, 66prepaid interest, 245Preparer Tax Identification Number (PTIN), 416,

439, 444prepayment penalty, 245pre-school tuition, 320presidential election fund, 4principal

place of business, 130–31residence, 71, 169, 171–78residence, taxpayer’s, 342

privilege, defined, 448prizes and awards, 118professional accreditation fees, 286propane furnaces, 342property

contributions, 260–62donated, 260settlements, 211sold abroad, 152

PTIN. See Preparer Tax Identification Number (PTIN)

Puerto Rico, 101Pulitzer prize, 118

QQCD. See qualified charitable distributions (QCD)QDRO. See qualified domestic relations orders

(QDRO)QJV. See qualified joint venture (QJV)QTP. See qualified tuition program (QTP)qualified-

dividends, 65–67, 69, 361dividends and capital gain tax worksheet, 363educational expenses, 109, 192, 195–94, 331–35,

335–36employee annuity, 93employee plan, 93home, 244leasehold, 77leasehold improvements, 78medical expense, 189official extended duty, 351–52Roth IRA distribution reporting, 91small business stock, 162tuition and fees, 192

qualified charitable distributions (QCD), 92–93Qualified Dividends and Capital Gain Tax

Worksheet, 69, 361qualified domestic relations orders (QDRO), 94–95

qualified joint venture (QJV), 122qualified retirement plans

401(k), 85, 93–96403(b), 85, 89, 93, 95457 plan, 89, 93additional taxes on, 388–91adjusted gross income (AGI), 87, 183annuity starting date, 86–87corrective distributions of excess plan

contributions, 86distribution before age 59 1/2, 86, 91–92, 95, 95distributions, taxable, 85early distribution penalty, 389–90excess accumulations, 391excess contributions, 390–91federal Civil Service Retirement System, 89governmental section 457 plan, 89losses, 90lump-sum distributions, 88lump-sum distributions, options for tax treatment

of, 88–89lump-sum distributions for taxpayers born before

January 2, 1936, methods of taxation of, 89–90

minimum distributions after age 70 1/2, 86, 92–93, 95–96

net unrealized appreciation (NUA), 90nonperiodic payments, 87–88outliving or dying before recovery of cost, 87pension plans, 85periodic payments, 86qualified employee annuity, 93qualified employee plan, 93simplified employee pensions (SEPs), 85simplified method, 87taxable amount, determining, 88

qualified tuition program (QTP), 332, 392qualifying-

organizations, 255–56person for head of household, 17–19relative, 26–27, 31–33, 35relatives and other dependents, 31–33, 35

qualifying childabout, 26–28, 30–31, 35child and dependent care credit, 317–21child tax credit, 325–28citizenship, 326dependency exemptions, 26–29, 35joint return and, 326living with taxpayer, 326

bindex.indd 529 1/19/2012 4:03:56 PM

530 Index

qualifying widow(er) (QW), 184with dependent child, 20, 318

Rraffles, 115Railroad Retirement benefits, 101, 104–5Railroad Retirement tax, 45

credit for excess, 354–55Railroad Retirement Tax Act (RRTA)

tax, 5RBS WorldPay, Inc. (www.payUSAtax.com),

400real estate

at-risk limitations, 82buying or selling midyear, 240–41tax deduction, worksheet for figuring, 240taxes, 236, 239taxes, standard deduction for, 239

real estate investment trust (REIT), 67, 70, 355real estate professionals

material participation, 81–82qualification test, 81

real property, 127rebates, 119recapture, 130recordkeeping

and documentation for tax return, 420requirements for tax return, 415self-employment, 138of tip income, 44–45

recordkeeping and substantiationcharitable contributions, 263–65employee benefit expenses, 300

recoverynontaxable, 110partially or fully taxable, 110taxable, 109–10

recovery of cost, outliving or dying before, 87redemption

or retirement of bonds, 152of stock, 152

refinancing a mortgage, 370refund

requesting, 6refundable credits, obtaining, 6refunds of mortgage interest, 245registered tax return preparers (RTRPs), 440regular place of business, 290regular tax to AMT, comparing, 374reimbursement

as expected, 277less than expected, 277more than expected, 277receiving, 277

REIT. See real estate investment trust (REIT)related party, 154related person, 302relatives, payments to, 321rent, uncollected, 76rental agreement, 33rental expense deductions

benefit taxes, local, 77deductible, 74depreciation, 75–76insurance premiums, 75expenses incurred when property is vacant, 76expenses of property not rented for profit, 76improvements, other, 77mortgage interest, 74multifamily homes, 77personal-use property, ordering rule for claiming

deduction for, 78–79points to acquire a mortgage, 75rental of personal residence for less than 15 days,

78rental of personal residence for more than 14

days, 78rental of property that is used personally, 77rental property, conversions of, 79repairs and improvements, 76tax return preparation, 76travel expenses, 75Worksheet for Figuring Rental Deductions for a

Dwelling Unit Used as a Home, 78rental income

advance rent, 73expenses paid by tenant, 74payments for canceling lease, 74property or services, 74

rental income and expensesat-risk losses, 83not-for-profit rentals, 82passive losses, 82–83reporting, 82–84

rental loss allowance, 16rental property converted to principal residence,

73rentals, not-for-profit, 82rental value of housing, 46rent check, 73

bindex.indd 530 1/19/2012 4:03:56 PM

Index 531

repayments of more than $3,000, 283–84repossession, 114required minimum distribution (RMD), 92–93, 96–97Reserve Officers’ Training Corps (ROTC), 47reservists, expenses of, 207residence, taxpayer’s principal, 342residency of qualifying child, 35resident aliens, 9–11residential

energy credits, 341–43energy-efficient property, 343real property, 75

resident test, bona fide, 48–49restaurant, 77restaurant improvements, 77retail improvements, 77retirement plan contributions, 43retirement saving contribution credit, 16Return Preparer Office (RPO), 439–40review questions, answers to, 469–506

chapter 1, 469–72chapter 2, 470–73chapter 3, 471–72chapter 4, 473–74chapter 5, 474–75chapter 6, 475–76chapter 7, 476–77chapter 8, 477–78chapter 9, 478–79chapter 10, 479–80chapter 11, 480–82chapter 12, 481–82chapter 13, 482–83chapter 14, 483–84chapter 15, 484–85chapter 16, 485–86chapter 17, 486chapter 18, 487chapter 19, 487–88chapter 20, 488–89chapter 21, 490chapter 22, 490–91chapter 23, 491–92chapter 24, 492–93chapter 25, 493–94chapter 26, 494–95chapter 27, 495–96chapter 28, 493–97chapter 29, 497chapter 30, 498

chapter 31, 498–499chapter 32, 499–500chapter 33, 500–1chapter 34, 501chapter 35, 502chapter 36, 503chapter 37, 503–6chapter 38, 504–5chapter 39, 505chapter 40, 505–6chapter 41, 506

Rev. Proc. 87-43, 50rewards, 118RMD. See required minimum distribution (RMD)rollovers, 93–94room and board, 334ROTC. See Reserve Officers’ Training Corps

(ROTC)Roth contributions to 401(k), 43Roth IRAs

about, 185–86contributions, 186designated, 95distribution reporting, qualified, 91distributions, reporting, 91Form 1040, Adjustments to Gross Income, 185individual retirement accounts (IRAs), 185–84IRA, nondeductible, 181MAGI limits for contributions, 186

royalties, 112RPO. See Return Preparer Office (RPO)RRTA. See Railroad Retirement Tax Act (RRTA)RTRPs. See registered tax return preparers

(RTRPs)

Ssafe harbor rule, 404sale, 151sale of home, 247sales property

capital or ordinary gains and losses, 153–54gain or loss, calculating, 152–53gifts, 155holding period for capital assets, 155holding periods, special, 155–56inheritance, 155–56involuntary conversions, 156life insurance policies and annuity contracts,

exchanges of, 156like-kind exchange, 156

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532 Index

sales property (continued)nontaxable or tax deferred transactions, 156party sales, related, 154–55property sold abroad, 152sale proceeds, 152sales, exchanges, and transfers, 151–56transfers to spouse incident to divorce, 156

sales reporting on tax returncapital loss limits and carryovers, 161gains and losses reporting on Form 8949, 158gains from involuntary conversions of assets held

for personal purposes, 161–62information returns, 157–58netting capital gains and losses, 160–61Schedule D, 157–60special reporting situations, 161–62wash sale rule, 161

sales tax, standard deduction for, 239same-sex couples, 21Saver’s Credit, 339–341Savings Incentive Match Plan for Employees

(SIMPLE), 187Savings Incentive Match Plan for Employees

Individual Retirement Accounts (SIMPLE IRAs), 138, 183, 187–88

scholarship(s)about, 27, 332, 336, 379or fellowship grant, 109–10tax-free, 392

school construction bonds, qualified, 349S corporations, 111–12SECA. See Self-Employment Contributions Act

(SECA)Section 83(b) election, 145Section 1031 exchange, 146Section 1231 transactions, 163securities sales, 155security deposit, 73SEE. See Special Enrollment Examination (SEE)self-created works, 153self-employed health insurance, 231self-employed health insurance deduction

deduction, conditions for, 201deduction, figuring the, 201–202deduction, who can claim, 200Self-Employed Health Insurance Deduction

Worksheet, 201–202Worksheet 6-A, Self-Employed Health Insurance

Deduction Worksheet, 201–202self-employed retirement plan contribution, 184

self-employed taxpayersbusiness adjustments, other, 207health insurance premium deduction, 200–202moving expenses, 203–7self-employment tax, deduction for portion of,

199–100self-employment. See also business expenses

accounting method, 123benefits, 137–38filing threshold, 5health insurance, 200–202health insurance premiums, 125husband-wife partnerships, 122income, 46, 48income, other, 124information returns, 124material participation, 122–23recordkeeping, 138reporting income, 123–24retirement savings options, 138Schedule C, Part I, Income, 124Schedule C, Profit or Loss From Business, 123Schedule C-EZ, 122–23Schedule C vs. C-EZ, who files, 121–22

Self-Employment Contributions Act (SECA), 387

self-employment (SE) taxabout, 184, 387–88figuring, 136Schedule SE, Self-Employment Tax, 122, 136, 200,

387SE tax, 122, 135–36

Self-Select PIN method, 419SEP. See Simplified Employee Pension (SEP)separated, special rules for, 36–37separation, 22SEP-IRAs. See Simplified Employee Pension

Individual Retirement Accounts (SEP-IRAs)SEPs. See simplified employee pensions (SEPs)Servicemembers’ Group Life Insurance, 47severance pay, 42short-term debt instruments, 57short-term gains, 155sick pay, 42SIMPLE. See Savings Incentive Match Plan for

Employees (SIMPLE)SIMPLE IRAs. See Savings Incentive Match Plan

for Employees Individual Retirement Accounts (SIMPLE IRAs)

Simplified Employee Pension (SEP), 186, 199

bindex.indd 532 1/19/2012 4:03:56 PM

Index 533

Simplified Employee Pension Individual Retirement Accounts (SEP-IRAs), 138, 183, 186–87

simplified employee pensions (SEPs), 85single

filing threshold, 4filing threshold for dependents, 6head of household status, 17

single, head of household (HH), 184small business stock, exclusion of gain on the sale of

qualified, 372Social Security and Medicare (FICA) taxes

about, 5, 44–46, 48household employment taxes, 392–93on wages, uncollected, 394

Social Security benefitsof $417 or more a month, 344about, 4, 16benefits, repayment of, 104benefits received while residing abroad, 103–4check covering multiple individuals, 103income, excess, 103income compared to base amount, 102lump-sum election, 104repayment, 281–82special payment issues, 103–4taxable portion of, determining, 101–102taxable portion of benefits, determining, 103tax on wages, uncollected, 394tip income, 44

Social Security disability benefitsadjusted gross income (AGI), 105benefits, reporting on the return, 106deduction of $3,000 or less, 106deduction of more than $3,000, 106deduction related to benefits, 105disability payments, repayment of, 105legal fees, 105repayment of more than gross benefits, 105–6

Social Security Equivalent Benefit (SSEB), 104–5Social Security Number (SSN), 3

child’s, 29earned income credit, 308interest bearing account, 60mailing payments, 400

Social Security tax, 236credit for excess, 354–55

solar electric property, 343solar panels, 343solar water heating property, 343Solo 401(k)s, 138, 182

special additional taxes, 95–96Special Enrollment Examination (SEE), 443special needs child, 349sport utility vehicles (SUVs), 129spouse

deceased, 26dual-status taxpayer-, 11incapacitated, 417nonresident alien, 11surviving, 26

spouse who is physically or mentally incapable of selfcare, 319–22

SSEB. See Social Security Equivalent Benefit (SSEB)SSI. See Supplemental Security Income (SSI)SSN. See Social Security Number (SSN)standard and itemized deductions

advantages of itemizing deductions, 222–23age and, 219blindness and, 219charitable contributions, 221–22employee business expenses, 222federal and state level itemizing, 222investment payments, 221itemized deductions, overview of, 221–23married filing separately filing status, 223medical and dental expenses, 221miscellaneous itemized deductions, 222motor vehicles, net disaster losses on, 220motor vehicles, new, 220nonbusiness casualty and theft losses, 222standard deduction, 219–21standard deduction amount, 221standard deduction for dependents, 220–21taxpayers who must itemize deductions, 222tax payments, 221

standard deduction, 370start-up costs of business, 127state and local taxes, 236–39state and municipal bonds, 59–60state benefit funds, contributions to, 238state bonds, 59State lotteries, 115statutory employees, 48step child, 20stepped up basis, 147stock

options, 44rights, 6sold, 70splits, 6

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534 Index

stolen property, recovered, 277strike and lockout benefits, 118student, eligible, 333student loan

about, 331cancellation of, 114–15interest deduction, claiming, 196

student loan interest deductiondeduction, who can claim the, 194–95modified adjusted gross income (MAGI), 194–95spouse filing MFS cannot claim, 16Student Loan Interest Deduction Worksheet, 195what type of loan qualifies, 195–92Worksheet, 195

substantial presence test, 9, 11summer school tuition, 320Supplemental Security Income (SSI), 27, 105, 118support

agreements, multiple, 33–35child, 379defined, 27, 32payment, 32–33

surviving spouse’s exemption, 26SUVs. See sport utility vehicles (SUVs)TTAA. See trade adjustment assistance (TAA)TANF. See Temporary Assistance for Needy Families

(TANF)taxable bond interest, 57–59taxable income

capital gains, 361components of, 360Foreign Earned Income Tax Worksheet, 364income averaging for farmers and fishermen, 364kiddie tax, 6, 334, 362qualified dividends, 361qualified dividends and capital gains tax

worksheet, 363tax calculation, 366tax computation worksheet, 360, 362tax liability, 365–66tax on lump-sum distribution, 362–64tax table, 361

taxable interest income, 53–55taxable recoveries, 109–10tax advice, 280tax balance due, paying, 400–2tax benefit rule, 110tax calculation, 366tax computation worksheet, 360, 362

tax credit bonds, credit to holders of, 349tax credits, nonrefundable and refundable, 339–56taxes

checks, bounced, 409civil fraud and, 408direct deposits, 402–3estimated, 404–6frivolous tax returns, 409interest and penalties, 406–8refund, obtaining, 402–4refund problems, 403–4

tax-exempt interest, 4tax-free education benefits, 332tax-free income, 78tax-free income items, 119tax home, 290tax home of spouse, 291tax identification number (TIN), 61

of qualifying child, 327tax liability, 365–66tax on lump-sum distribution, 362–64Taxpayer Advocate Service, 442Taxpayer Identification Number, 3taxpayers

claiming EIC with no qualifying child, 310claiming EIC with qualifying child, 305, 308–9deceased, 417records, 127services rendered to benefit an organization, 259who must itemize deductions, 222

tax payments, 221balance due, paying, 400–2doubt as to liability, 401doubt as to uncollectibility, 401effective tax administration, 401fees and charges, 236hardship extension, 400–1income taxes, 236installment agreement, 401IRAs, mandatory 20% withholding on lump-sum

distributions, 399IRS interactive sales tax calculator, 239married couples filing joint federal income tax

return, 237–38offer in compromise, 401–2options when funds are not currently available,

400–2real estate tax deduction, worksheet for figuring,

240real estate taxes, standard deduction for, 239

bindex.indd 534 1/19/2012 4:03:57 PM

Index 535

realty, buying or selling midyear, 240–41sales tax, standard deduction for, 239short-term extension, 400state benefit funds, contributions to, 238taxes, deductible and nondeductible, 236taxes, foreign income, 238taxes, personal property, 236, 241taxes, real estate, 236, 239taxes, Social Security and Medicare, 236taxes, state and local, 236–39taxes, tests for deducting, 235–36withholding information and, 399

tax penalties, 406–8tax penalty worksheet, 407tax preference items, 370–71tax preparation fees, 279–80tax preparer responsibilities. See also Circular

230, sanctions for violating; Circular 230, Regulations Governing Practice Before the Internal Revenue Service; Internal Revenue Code (IRC)

client records, 451covered opinions, 456due diligence requirements, four EITC, 431for earned income credit (EIC), 314for e-filed tax returns, 419Form 2848, Power of Attorney and Declaration of

Representative, 426–27Form 8821, Tax Information Authorization, 426Form 8867, Paid Preparer Earned Income Credit

Checklist, 431penalties related to return preparation, 428–34privilege, defined, 448taxpayer information, safeguarding, 427–28tax representation, authorization for, 426–27unconscionable fees, 451violations of taxpayer confidentiality and civil

and/or criminal penalties, 428tax return

completing the, 413–15deceased taxpayer, 417e-filing of, 418–19electronic return signatures, 417, 419explain and review the, 414filing deadlines and extensions, 414–15frivolous, 409incapacitated spouse, 417innocent spouse relief, 417–18liability, joint and several, 417military spouse, 417

minor child, 417modernized e-file platform (MeF), 418Penalty of Perjury Declaration on Form 1040, 416preparer’s responsibility for e-filed returns, 419Preparer Tax Identification Number (PTIN), 416recordkeeping and documentation, 420recordkeeping requirements, 415refund inquiries, advising taxpayers on, 420rejected returns, resubmitting, 420Self-Select PIN method, 419signing situations, special, 417signing the, significance of, 416–17U.S. Postal Service, 414

tax return preparerdefined, 429Preparer Tax Identification Number (PTIN), 416

tax table, 361teacher’s certification costs, 297temporary absences, 28Temporary Assistance for Needy Families (TANF),

17temporary marriage penalty relief, 15ten-year averaging, 364theft, what is it?, 271–72theft loss proof, 272tie-breaker rule and dependency exemptions, 29–31TIN. See tax identification number (TIN)tip income

allocated, 45–46recordkeeping of, 44–45reporting to employer, 45Social Security and Medicare tax on, 5

TIPS. See Treasury Inflation-Protection Securities (TIPS)

tips, allocated, 393–94Title VII of the Civil Rights Act of 1964, 112tolls, 126tools and equipment, 299trade adjustment assistance (TAA), 353Trade Adjustment Assistance Act, 353traditional IRAs

age, 182contribution limits, 182–83contributions, 182contributions, deadline for making, 185deductible contribution, calculating maximum,

183–84distributions, 90–91earned income, 182

transit passes, 44

bindex.indd 535 1/19/2012 4:03:57 PM

536 Index

transportation, 44expenses, local, 295–97

travelallowances, 291away from home, 290–91expenses, 260expenses, deductible, 291–92

Treasury Form TD F 90–22.1, Report of Foreign Bank and Financial Accounts, 62–63

Treasury Inflation-Protection Securities (TIPS), 59TRICARE. See U.S. military health system

(TRICARE)truck and car expenses, 125–26tuition and fees deduction

deduction, claiming the, 192–93eligibility, 192modified adjusted gross income (MAGI),

191–93qualified education expenses, 192recapture, 193spouses cannot claim, 16

Uunconscionable fees, 451undistributed capital gains of mutual funds and

REITs, 67unearned income, 5unemployment compensation, 112Uniform Gifts to Minors Act, 61uniforms and work clothes, 299unrecaptured section 1250 gain, 175U.S. citizens with foreign income, 48–50U.S. Department of Education financial aid program,

192U.S. military banking facility, 62U.S. military health system (TRICARE), 354U.S. Postal Service, 414U.S. Retirement Plan Bonds, 89U.S. Savings Bonds, 57–59, 101U.S. Treasury Bills, 54U.S. Treasury-Health Coverage Tax Credit (HCTC),

354utility rebates, 119

Vvacation(s), 42

all-expenses-paid, 42homes, 71, 169, 175, 203

VA Form 21-0172, Certification of Permanent and Total Disability, 346

variable housing allowance (VHA), 47vehicle credits. See also motor vehicles

alternative motor vehicle credit for a qualified fuel cell vehicle, 343–44

electric vehicle conversion kit, 344plug-in electric drive motor vehicle credit,

344plug-in electric vehicle credit, 344

veterans, totally and permanently disabled, 346Veterans’ benefits, 119VHA. See variable housing allowance (VHA)victim of violence in neighborhood, 174vow of poverty, 46

WW-7, Application for IRS Individual Taxpayer

Identification Number, 3waiver by custodial parent, 36–37wash sale rules, 154, 161welfare and other government benefits, 118–19whistleblowers rewards, 118whole life policy

sale of, 98surrender of, 98

widow(er)filing status, 14filing threshold, 4

wind energy property, 343work clothes and uniforms, 299workers’ compensation, 112work expenses, impairment-related, 230–31working condition benefits, 44work-related expenses

child and dependent care credit, 320education expenses, 297–298other, 298–300

worthless securities, 152write-in deductions

business-related adjustments, 207

Zzone academy bonds, qualified, 349

bindex.indd 536 1/19/2012 4:03:57 PM