Amended tax return

11

Liberty Tax Service Online Liberty Tax Service Online Basic Income Tax Course.Basic Income Tax Course.

Lesson 19 Lesson 19

22

Chapter 18 Homework 1Chapter 18 Homework 1

HOMEWORK 1: Sean D. (SSN 022-45-0947, born 12/12/1941) and Sue P. Summers (SSN 034-66-4362, born 2/9/1944) live at 22 Abbott Road, Sacramento, CA 94211. In 2007, they filed MFJ. They have no dependents. They will have a balance due for 2008 and want to figure the penalty themselves. They are eligible to use the short method on Form 2210. They will pay their balance due on the due date, April 15, 2009. Information from their 2007 and 2008 returns is as follows.

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2008 tax after credits (line 56 of Form 1040) - $6,7842008 withholding - $2,1002008 estimated tax payments - $2,0002007 tax - $6,1942007 AGI - $64,200

Sean and Sue do not want to pay a penalty for 2009. Their filing status, etc. will remain the same as in 2008. Their estimates for 2009 follow.

AGI expected for 2009 - $69,500Estimated federal withholding for 2009 - $3,950

1. Prepare Form 2210 for Sean and Sue.2. Prepare an Estimated Tax Worksheet and the payment-

vouchers for Sean and Sue. Use the 2009 Tax Rate Schedule and Standard Deduction Chart following.

44


55


Standard Deduction for 2009

66


77


88


99


1010


1111


1414


HOMEWORK 2: Use the information from your answer to Homework 2 in Chapter 7 for Gerald T. and Belle M. Harrison. Assume that the Harrison's were notified that their entire refund was used to pay Belle’s past due student loan payments. Gerald determines that if he filed a separate return he would claim all the dependent exemptions. Fill out an Injured Spouse claim for Gerald.

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HOMEWORK 3: John A. Terry (SSN 500-18-1128, born 1/18/1966) is single and lives at 205 Stamford Bridge Road, Ahoskie, NC 27910. His only income is from working as a mechanic for Chelsea Manufacturing. He has his HUD- 1 settlement statement showing he purchased a home on August 1, 2008 for $165,000. John meets the qualifications for the first-time home buyer credit. Prepare his tax return.

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1919


2020


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2424

Chapter 19: Extensions, Amended Returns, Electronic Filing, State Returns

Chapter Content Extension Requests Amended Returns Electronic Filing Form 8888 State Returns Key Ideas

Objectives Learn How to File an Extension Request Learn How to File an Amended Return Learn About Electronic Filing and How to File

Electronically Learn About Filing State Returns

2525

EXTENSIONSEXTENSIONSA. An extension is an extension of time to file and not

an extension of time to pay.1. If cannot file by due date, may get an automatic 6-month extension of time to file2. File Form 4868 for the 6-month extension of time to file3. With 6-month extension must file by October 15, 20094. Accurate estimated payment must be made by regular due date, can send with Form 48685. If cannot pay full amount, can still get extension but may owe interest on unpaid amount and possibly a penalty for paying late6. When you do file, enter payment made with Form

4868 on line 67 of Form 1040.

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EXTENSIONSEXTENSIONS

On Form 1040, page 2

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EXTENSIONSEXTENSIONSOUTSIDE THE UNITED STATESB. You are allowed an automatic 2-month extension to

file and pay federal income tax due if:1. You are U.S. citizen or resident, and2. On regular due date of return:

a. You are living outside U.S. and Puerto Rico, and your main place of business or post of

duty is outside U.S. and Puerto Rico, orb. You are in military or naval service on active

duty outside U.S. and Puerto Rico.

2828

WHEN TO FILE YOUR 2007 WHEN TO FILE YOUR 2007 RETURNRETURN

Table 19-1 shows the timelines for regular returns and extensions.

2929

PENALTIES FOR LATE PAYMENT PENALTIES FOR LATE PAYMENT AND LATE FILINGAND LATE FILING

Penalties For Late Payment And Late FilingD. There are penalties for paying late and filing late.

1. Failure-to-pay penalty is usually 1/2 of 1% of any tax (other than estimated tax) not paid by

regular due datea. Charged for each month or part of month

tax is unpaid

b. Maximum penalty is 25%c. May not be charged if you show “reasonable

cause”.

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FAILURE TO FILE PENALTYFAILURE TO FILE PENALTY

2. Failure-to-file penalty is usually charged if return is filed after due date (including extensions)

and is usually 5% of tax not paid by paid by regular due date

a. Charged for each month or part of month return is late

b. Maximum penalty is 25%c. If over 60 days late, minimum penalty is

$100 or balance of tax due on return, whichever smaller

d. May not owe penalty if good reason for filing late.

3131

AMENDED RETURNSAMENDED RETURNS

AMENDED RETURNS

A. If you discover errors on your return, you can file an amended return or claim for refund.1. Correct return if, after filing it, you find that you:

a. Did not report some incomeb. Claimed deductions or credits you should not

have claimedc. Did not claim deductions or credits you should

have claimedd. Should have claimed a different filing status

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B. To file an amended return, use Form 1040X.1. Cannot be filed electronically2. File separate Form 1040X for each year being

amended3. May need to amend state return as well

C. Form 1040X compares amounts from original return with corrected amounts.1. May result in additional tax due or refund

owed to you2. Complete and attach appropriate forms and

schedules or it will be returned.

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AMENDED RETURNSAMENDED RETURNSD. Mail your Form 1040X to IRS Service Center where

you now live.1. Use Table 19-2 to find out where to file Form 1040X.

E. File Form 1040X within 3 years after date you filed original return or within 2 years after date you paid tax, whichever is later.1. Time for filing a claim for refund is same as time

for filing Form 1040X2. If did not file original return when due, generally

can claim a refund by filing return within 3 years from time tax was paid3. May be limit on amount of refund.

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F. If amended return results in additional refund, interest will be paid on it.

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4040

AMENDED RETURNSAMENDED RETURNSWHEN TO FILE

Form 1040X. Generally, you must file your Form 1040X within 3 years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later.

The time for filing a claim for refund. The time for filing a claim for refund is the same as the time for filing a Form 1040X. Returns filed before the due date (without regard to extensions) are considered filed on the due date (even if the due date was a Saturday, Sunday, or holiday). The time periods can be suspended while you are financially disabled. See Publication, 556, Examination of Returns, Appeal Rights, and Claims for Refund, for more details. If you do not file a claim within the time period, you may not be entitled to a credit or a refund.

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AMENDED RETURNSAMENDED RETURNSLate-filed returns. If the original return was not filed

when it was due, a refund can generally be claimed by filing the return within 3 years from the date the return was due to get a refund. The return must be received by the IRS within the 3 year period. If the return is filed late, the postmark date does not determine the date of filing.

There may be a limit on the amount of your refund. If you file your claim within 3 years after the date you filed your return, the credit or refund cannot be more than the part of the tax paid within the 3-year period (plus any extension of time granted for filing your return) immediately before you filed the claim. This time period is suspended while you are financially disabled. Payments made before the due date (without regard to extensions) of the original return are considered paid on the due date.

4242


Dolly made estimated tax payments of $500 and got an Dolly made estimated tax payments of $500 and got an automatic extension of time to October 15, 2006, to automatic extension of time to October 15, 2006, to file her 2005 income tax return. She filed on file her 2005 income tax return. She filed on 10/15/06 and paid $200 additional tax. Dolly later 10/15/06 and paid $200 additional tax. Dolly later realized she had additional deductions or credits realized she had additional deductions or credits and wanted to amend her 2005 return to claim a and wanted to amend her 2005 return to claim a refund of $700. Will she be able to receive this refund of $700. Will she be able to receive this refund?refund?

YES OR NO?YES OR NO?

4343


Dolly made estimated tax payments of $500 and got an Dolly made estimated tax payments of $500 and got an automatic extension of time to October 15, 2006, to automatic extension of time to October 15, 2006, to file her 2005 income tax return. She filed on file her 2005 income tax return. She filed on 10/15/05 and paid $200 additional tax. Dolly later 10/15/05 and paid $200 additional tax. Dolly later realized she had additional deductions or credits realized she had additional deductions or credits and wanted to amend her 2005 return to claim a and wanted to amend her 2005 return to claim a refund of $700. Will she be able to receive this refund of $700. Will she be able to receive this refund?refund?

YESYES

Because she filed her claim within 3 years after sheBecause she filed her claim within 3 years after shefiled her return, she can get a refund of up to $700, thefiled her return, she can get a refund of up to $700, thetax paid within the 3 years plus the 6-month extensiontax paid within the 3 years plus the 6-month extensionperiod immediately before she filed the claim.period immediately before she filed the claim.

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If you file a claim more than 3 years after you file your If you file a claim more than 3 years after you file your return, but within 2 years from the time you paid the return, but within 2 years from the time you paid the tax, the credit or refund cannot be more than the tax tax, the credit or refund cannot be more than the tax you paid within the 2 years immediately before you you paid within the 2 years immediately before you file the claim.file the claim.

Example: Example:

Abbey filed her 2005 tax return on 4/15/06. She paid taxes of Abbey filed her 2005 tax return on 4/15/06. She paid taxes of $500. On 11/1/07 after an examination of her 2005 return, $500. On 11/1/07 after an examination of her 2005 return, she had to pay an additional tax of $200. On 5/11/09, she she had to pay an additional tax of $200. On 5/11/09, she files a claim for a refund of $300. However, because she files a claim for a refund of $300. However, because she filed her claim more than 3 years after she filed her return, filed her claim more than 3 years after she filed her return, her refund will be limited to the $200 she paid during the 2 her refund will be limited to the $200 she paid during the 2 years immediately before she filed her claim.years immediately before she filed her claim.

4545

AMENDED RETURNSAMENDED RETURNSEXCEPTIONS FOR SPECIAL TYPES OF REFUNDSEXCEPTIONS FOR SPECIAL TYPES OF REFUNDSThere are exceptions for special types of refunds anddeadline dates and limits may be different for:1. Qualified reservist distributions2. First-time home buyer credit3. Bonus depreciation for the Kansas City disaster area4. Recovery rebate (2008 only)5. Federal telephone excise tax (2006 only)6. Nontaxable combat pay7. Tax shelters8. A bad debt9. A worthless security10. Net operating loss carryback11. Carryback of certain business tax credits12. A claim based on an agreement with the IRS extending the

period for assessment of tax13. Foreign tax paid or accrued14. An injured spouse claim. Instead, file only Form 8379.

4646


A Form 1040X based on a bad debt or worthless A Form 1040X based on a bad debt or worthless security generally must be filed within 7 years after security generally must be filed within 7 years after the due date of the return for the tax year in which the due date of the return for the tax year in which the debt or security became worthless. A Form the debt or security became worthless. A Form 1040X based on a net operating loss carry-back or a 1040X based on a net operating loss carry-back or a general business credit carry-back generally must be general business credit carry-back generally must be filed within 3 years after the due date of the return.filed within 3 years after the due date of the return.

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PROCESSING CLAIMS FOR REFUNDS

Claims are Claims are usually processed shortly after they are processed shortly after they are filed. Your claim may be accepted as filed, filed. Your claim may be accepted as filed, disallowed, or subject to examination. If your claim disallowed, or subject to examination. If your claim is disallowed, you will receive an explanation of why is disallowed, you will receive an explanation of why it was disallowed.it was disallowed.

4848

AMENDED RETURNSAMENDED RETURNSINTEREST ON REFUNDINTEREST ON REFUNDIf you receive a refund because of your amended If you receive a refund because of your amended

return, interest will be paid on it from the due date return, interest will be paid on it from the due date of your original return or the date you filed your of your original return or the date you filed your original return, whichever is later, to the date you original return, whichever is later, to the date you filed the amended return. However, if the refund is filed the amended return. However, if the refund is not made within 45 days after you file the amended not made within 45 days after you file the amended return, interest will be paid up to the date the return, interest will be paid up to the date the refund is paid. Your refund may be reduced by an refund is paid. Your refund may be reduced by an additional tax liability that has been assessed additional tax liability that has been assessed against you. Also, your refund may be reduced by against you. Also, your refund may be reduced by any amounts you owe for past-due child support, any amounts you owe for past-due child support, debts to another federal agency, or for state tax. debts to another federal agency, or for state tax. Remember if your return is changed for any reason, Remember if your return is changed for any reason, it may affect your state income tax liability and it may affect your state income tax liability and require the filing of an amended state return.require the filing of an amended state return.

4949

AMENDED RETURNSAMENDED RETURNSFORM 1040XFORM 1040XAfter you have completed the background information on Form After you have completed the background information on Form

1040X, note that the lines 1-15 have 3 columns labeled A, B, 1040X, note that the lines 1-15 have 3 columns labeled A, B, and C. and C.

Column AColumn A: In this column enter amounts from your original return : In this column enter amounts from your original return or if you previously amended that return or if the return was or if you previously amended that return or if the return was changed by the IRS, enter the adjusted amounts.changed by the IRS, enter the adjusted amounts.

Column BColumn B: In this column enter the net increase or decrease for : In this column enter the net increase or decrease for each line you are changing. Show the decreases in each line you are changing. Show the decreases in parentheses. Explain each change in Part II. Reference the parentheses. Explain each change in Part II. Reference the reason to the line on the form where the change was made. If reason to the line on the form where the change was made. If you need more space, attach a statement. Also attach any you need more space, attach a statement. Also attach any schedule or form relating to the change.schedule or form relating to the change.

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AMENDED RETURNSAMENDED RETURNSColumn CColumn C: In this column either add the increase in : In this column either add the increase in

column B to column A or subtract the decrease in column B to column A or subtract the decrease in column B from column A. For any item you do not column B from column A. For any item you do not change, enter the amount from column A in column C.change, enter the amount from column A in column C.

Alan Arbor originally reported $11,000 as his adjusted Alan Arbor originally reported $11,000 as his adjusted

gross income on his 2007 Form 1040. He received gross income on his 2007 Form 1040. He received another W-2 for $500 after he filed his return. He another W-2 for $500 after he filed his return. He completes line 1 of Form 1040X as followscompletes line 1 of Form 1040X as follows: :

Column A Column B Column CColumn A Column B Column C $11,000 $500 $11,500$11,000 $500 $11,500He would also report any additional Federal income tax He would also report any additional Federal income tax

withheld on line 11 in column B.withheld on line 11 in column B.

5151

AMENDEDAMENDED RETURNS RETURNSIf you are providing additional information and not changing If you are providing additional information and not changing

amounts you originally reported, skip lines 1-33 and complete amounts you originally reported, skip lines 1-33 and complete Part II and, if applicable, Part III. To help you complete Form Part II and, if applicable, Part III. To help you complete Form 1040X use the following:1040X use the following:1. If you are changing income or deductions - start with line 11. If you are changing income or deductions - start with line 12. If you are changing only credits or other taxes - start with 2. If you are changing only credits or other taxes - start with line 6line 63. If you are changing only payments - start with line 103. If you are changing only payments - start with line 10

Lines 1-5 of Form 1040X pertain to income and deduction Lines 1-5 of Form 1040X pertain to income and deduction changes. Lines 6-10 deal with tax liability. Lines 11-18 are for changes. Lines 6-10 deal with tax liability. Lines 11-18 are for payments. Lines 19- 24 are for the figuring of your refund or payments. Lines 19- 24 are for the figuring of your refund or amount you owe. amount you owe.

Page 2 of Form 1040X consists of Part I (exemptions, lines 25-Page 2 of Form 1040X consists of Part I (exemptions, lines 25-33), Part II (explanation of changes to income, deductions, 33), Part II (explanation of changes to income, deductions, and credits), and Part III (presidential election campaign and credits), and Part III (presidential election campaign fund). fund).

Refer to the instructions for Form 1040X for specific line Refer to the instructions for Form 1040X for specific line instructions.instructions.

5252

ELECTRONIC FILINGELECTRONIC FILING

A. IRS e-filing is faster and more accurate than A. IRS e-filing is faster and more accurate than processing paper returns.processing paper returns.

1.1. Refer to Table 19-3 for benefits of electronic Refer to Table 19-3 for benefits of electronic filing.filing.

B. Electronic return consists of following:B. Electronic return consists of following:

1. Data transmitted1. Data transmitted

2. Taxpayer’s electronic signature using a PIN 2. Taxpayer’s electronic signature using a PIN

3. Does not include forms or schedules not accepted 3. Does not include forms or schedules not accepted by electronic filing system; sent with Form 8453by electronic filing system; sent with Form 8453

C. In most states, you can also electronically send state C. In most states, you can also electronically send state return simultaneously with federal return.return simultaneously with federal return.

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5454


REFUNDSREFUNDS

D. Refunds issued faster with e-filing.D. Refunds issued faster with e-filing.

1. Most within 3 weeks1. Most within 3 weeks

2. Many in about 14 days if direct deposit2. Many in about 14 days if direct deposit

3. RAL’s available from lending institutions provide 3. RAL’s available from lending institutions provide loan on your refund in 1-2 daysloan on your refund in 1-2 days

4. If you owe past-due amounts, may not get all of 4. If you owe past-due amounts, may not get all of refund.refund.

5555


OFFSET AGAINST DEBTSOFFSET AGAINST DEBTS

As with a paper return, you may not get all of your As with a paper return, you may not get all of your refund if you owe certain past-due amounts, such as refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child federal tax, state tax, a student loan, or child support.support.

BALANCE DUEBALANCE DUE

If you have a balance due with your return, you must If you have a balance due with your return, you must pay it by the due date of your return to avoid late-pay it by the due date of your return to avoid late-payment penalties and interest. You can make your payment penalties and interest. You can make your payment electronically, by credit card, or a direct payment electronically, by credit card, or a direct debit to your checking or savings account.debit to your checking or savings account.

5656


TAX PROFESSIONALTAX PROFESSIONAL

You can electronically file your return by You can electronically file your return by using using a tax professional or using your personal a tax professional or using your personal

computer. Many tax professionals computer. Many tax professionals file file returns electronically for their returns electronically for their clients. clients. You can prepare your own You can prepare your own return and have a return and have a tax professional tax professional electronically file it for you, or electronically file it for you, or you can have you can have the tax professional prepare and the tax professional prepare and electronically electronically file your return. The tax file your return. The tax professional professional who electronically transmits who electronically transmits returns to the IRS is authorized by the IRS to returns to the IRS is authorized by the IRS to

do so as an electronic return originator (ERO).do so as an electronic return originator (ERO).

5757


FORM 8879FORM 8879

When your tax return is completed, you electronically When your tax return is completed, you electronically “sign” the return by entering your self-selected PIN “sign” the return by entering your self-selected PIN using the computer keyboard. If you are filing a joint using the computer keyboard. If you are filing a joint return, both taxpayers must sign using a PIN. You return, both taxpayers must sign using a PIN. You can authorize your tax professional to input your PIN can authorize your tax professional to input your PIN as your signature by using Form 8879, as your signature by using Form 8879, IRS e-file IRS e-file Signature AuthorizationSignature Authorization..

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5959


Joel S. Pryce (SSN 091-72-2448) is filing an electronic return. Joel S. Pryce (SSN 091-72-2448) is filing an electronic return. Joel lives at 1322 Nineteenth St., St. Louis, MO 63103. Joel lives at 1322 Nineteenth St., St. Louis, MO 63103. Chuck Harris (PTIN, P00543444) from Liberty Tax Service Chuck Harris (PTIN, P00543444) from Liberty Tax Service (EIN 55-1234567) prepares his return as a paid preparer at (EIN 55-1234567) prepares his return as a paid preparer at the office at 12 Bonnie Rd., St. Louis, MO 63103. The the office at 12 Bonnie Rd., St. Louis, MO 63103. The following information for Joel is taken from the following information for Joel is taken from the electronically prepared Form 1040:electronically prepared Form 1040:

Line 38: $29,000Line 38: $29,000Line 61: $ 2,650Line 61: $ 2,650Line 62: $ 3,359Line 62: $ 3,359Line 73a: $ 709Line 73a: $ 709Line 75: 0Line 75: 0

The DCN for this return is 00-567890-55639-9. The DCN for this return is 00-567890-55639-9.

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ELECTRONIC FILINGELECTRONIC FILINGMAKING CHANGES TO FORM 8879Once you have signed Form 8879, the ERO cannot make

changes to this document that exceeds specific tolerances established by the IRS without preparing a new form. These tolerances are:

1. The amount of total income or AGI does not differ from the amount on the electronic portion of

the tax return by more than $50; or2. The amount of total tax, Federal income tax

withheld, refund, or amount you owe does not differ from the amount on the electronic portion of the tax return by more than $14.

If one of these amounts does exceed the tolerance limit, you will need to sign a new Form 8879 showing the changes before the return can be filed.

6363


Once the IRS has accepted your e-filed return, you are not able to make any changes to it such as canceling a direct deposit request. Sending in a paper return at this point would result in the IRS having a duplicate return for you and this could result in a delay of your refund. If you need to change your return after it has been accepted by the IRS, you should send a paper amended return. After the IRS has accepted the original return, the refund should be issued within 3 weeks. However, some refunds may be delayed because of compliance reviews to ensure that returns are accurate.

6464


Self-Select PINSelf-Select PIN

1. Allows taxpayers to sign 1. Allows taxpayers to sign e-filede-filed return return using a five-digit PINusing a five-digit PIN

2. PIN can be any five numbers you choose 2. PIN can be any five numbers you choose except all zeroesexcept all zeroes

3. PIN can be used if file taxes yourself or 3. PIN can be used if file taxes yourself or use tax professionaluse tax professional

4. You can authorize the preparer to enter 4. You can authorize the preparer to enter your PIN for youyour PIN for you

5. If filing a joint return, a PIN is needed for 5. If filing a joint return, a PIN is needed for each taxpayereach taxpayer

6565


PRACTIONER PINPRACTIONER PIN

The Practitioner PIN is the electronic The Practitioner PIN is the electronic signature program used by tax signature program used by tax professionals (EROs). Taxpayers that are professionals (EROs). Taxpayers that are eligible to file Form 1040, 1040A, or 1040EZ eligible to file Form 1040, 1040A, or 1040EZ and have their return prepared and have their return prepared professionally can use this method. professionally can use this method.

6666


FORM 8453FORM 8453 Form 8453, Form 8453, U.S. Individual Income Tax Transmittal for an IRS U.S. Individual Income Tax Transmittal for an IRS

e-file Returne-file Return, is a transmittal cover sheet used to send any , is a transmittal cover sheet used to send any required paper forms or supporting documentation to the required paper forms or supporting documentation to the IRS. The ERO mails Form 8453 to the IRS within three IRS. The ERO mails Form 8453 to the IRS within three business days after acceptance of the electronically filed business days after acceptance of the electronically filed return. return.

Use the same Declaration Control Number assigned to the e-Use the same Declaration Control Number assigned to the e-filed return for the DCN on Form 8453. Only the items listed filed return for the DCN on Form 8453. Only the items listed on Form 8453 maybe sent to the IRS.on Form 8453 maybe sent to the IRS...

6767

ELECTRONIC FILINGELECTRONIC FILINGFORM 8888FORM 8888

1. You can direct deposit refund to 3 separate 1. You can direct deposit refund to 3 separate accountsaccounts

2. E-file or paper return2. E-file or paper return3. Need correct routing #s and account #s3. Need correct routing #s and account #s

If you file Form 8888, you cannot:If you file Form 8888, you cannot:1.Choose to receive any part of your refund as a 1.Choose to receive any part of your refund as a paper check.paper check.2. Request a deposit of your refund to an account 2. Request a deposit of your refund to an account that is not in your namethat is not in your name3. Cross out or whiten out any numbers. If you do, 3. Cross out or whiten out any numbers. If you do,

the IRS will reject your direct deposit and the IRS will reject your direct deposit and send send you a paper check.you a paper check.4. Direct the refund into the account of others.4. Direct the refund into the account of others.

6868


You should check with your financial institution to get the You should check with your financial institution to get the correct routing and account numbers and make sure your correct routing and account numbers and make sure your deposit to the type of account will be accepted. The IRS is deposit to the type of account will be accepted. The IRS is not responsible for a lost refund if you enter the wrong not responsible for a lost refund if you enter the wrong account information and the refund is deposited into a account information and the refund is deposited into a wrong account. In that situation, the taxpayer must work wrong account. In that situation, the taxpayer must work directly with the respective financial institution to recover directly with the respective financial institution to recover their funds. Some financial institutions will not allow a joint their funds. Some financial institutions will not allow a joint refund to be deposited into an individual account (even refund to be deposited into an individual account (even though the IRS will allow a joint refund to be direct though the IRS will allow a joint refund to be direct deposited into the separate account of either one of them). deposited into the separate account of either one of them). If the direct deposit is rejected, a check will be sent instead. If the direct deposit is rejected, a check will be sent instead. The IRS is not responsible if a financial institution rejects a The IRS is not responsible if a financial institution rejects a direct deposit.direct deposit.

6969

ELECTRONIC FILINGELECTRONIC FILINGA deposit into an IRA using Form 8888 does not give you A deposit into an IRA using Form 8888 does not give you

an opportunity to specify for which year the an opportunity to specify for which year the contribution would apply in order to avoid exceeding contribution would apply in order to avoid exceeding annual contribution limitations.annual contribution limitations.

If the refund amount is adjusted by the IRS for any If the refund amount is adjusted by the IRS for any reason, they will make adjustments to Form 8888 reason, they will make adjustments to Form 8888 deposit requests accordingly with a “bottoms up” deposit requests accordingly with a “bottoms up” approach and adjust the last account listed first and approach and adjust the last account listed first and work it’s way up to the second and then to the first. work it’s way up to the second and then to the first. The IRS recommends electronic filing when using Form The IRS recommends electronic filing when using Form 8888 in order to receive the added benefit of the “extra 8888 in order to receive the added benefit of the “extra checking” for accuracy on parts of the return that occur checking” for accuracy on parts of the return that occur when e-filing, including the checking of the math and to when e-filing, including the checking of the math and to minimize some common problems. If the IRS adjusts minimize some common problems. If the IRS adjusts the refund expected by the taxpayer, a letter will be the refund expected by the taxpayer, a letter will be sent to the taxpayer notifying them of the amounts and sent to the taxpayer notifying them of the amounts and reason(s).reason(s).

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7171


The IRS may reject an electronically-filed return. If The IRS may reject an electronically-filed return. If rejected, return not considered filed by IRS. rejected, return not considered filed by IRS. Specific reject codes with explanations allow ERO Specific reject codes with explanations allow ERO to know exactly where error occurred. IRS sends to know exactly where error occurred. IRS sends acknowledgement or rejection notice to ERO within acknowledgement or rejection notice to ERO within 2 work days of original transmission.2 work days of original transmission.

7272


The most common reject codes are:The most common reject codes are: Code 501. On Schedule EIC, the qualifying SSN, Code 501. On Schedule EIC, the qualifying SSN,

and the corresponding name control (first four and the corresponding name control (first four letters of the last name) must match information letters of the last name) must match information received from the Social Security Administration.received from the Social Security Administration.

Code 502. The employer identification number Code 502. The employer identification number (EIN) from Form W-2, W-2GU, W-2G, 1099-R, or (EIN) from Form W-2, W-2GU, W-2G, 1099-R, or 2439, must match the IRS Master File.2439, must match the IRS Master File.

Code 503. Spouse’s SSN and name control must Code 503. Spouse’s SSN and name control must match the corresponding data on the IRS Master match the corresponding data on the IRS Master File.File.

Code 504. Dependent’s SSN and corresponding Code 504. Dependent’s SSN and corresponding dependent name control must match the data on dependent name control must match the data on the IRS Master File.the IRS Master File.

Code 507. Dependent’s SSN was previously used Code 507. Dependent’s SSN was previously used for the same purpose. for the same purpose.

7373

ELECTRONIC FILINGELECTRONIC FILINGFRAUD AWARENESSFRAUD AWARENESS

There are some indicators of fraudulent activities that are There are some indicators of fraudulent activities that are documented by the IRS. It is a good idea to be aware of documented by the IRS. It is a good idea to be aware of them so that you can avoid sending nonstandard forms to them so that you can avoid sending nonstandard forms to the IRS with your return or conduct yourself in a suspicious the IRS with your return or conduct yourself in a suspicious manner. Some indicators include:manner. Some indicators include: A typed, handwritten, duplicated, or corrected Form W-A typed, handwritten, duplicated, or corrected Form W-

22 A Form W-2 for a firm in the area that differs from other A Form W-2 for a firm in the area that differs from other

W-2 forms from the same firmW-2 forms from the same firm Suspicious person accompanying a taxpayer, and Suspicious person accompanying a taxpayer, and

observed on prior occasionsobserved on prior occasions Multiple refunds directed to the same address or post Multiple refunds directed to the same address or post

office boxoffice box Employment or earnings which are not well-documentedEmployment or earnings which are not well-documented Similar returns from different individuals.Similar returns from different individuals.

7474

STATE RETURNSSTATE RETURNS


Forty-two states (including the District of Columbia) have Forty-two states (including the District of Columbia) have individual income tax and require income tax returns individual income tax and require income tax returns from individuals required to file. Alaska, Florida, from individuals required to file. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Nevada, South Dakota, Texas, Washington, and Wyoming do not have individual income tax. New Wyoming do not have individual income tax. New Hampshire and Tennessee have taxes on interest and Hampshire and Tennessee have taxes on interest and dividend income in excess of limits that are based on dividend income in excess of limits that are based on filing status.filing status.

States with individual income tax also have specific forms and States with individual income tax also have specific forms and instructions on how to properly prepare the state return. instructions on how to properly prepare the state return. Each state has its own state tax website which can be Each state has its own state tax website which can be found atfound at http://www.taxadmin.org/fta/link/forms.html.http://www.taxadmin.org/fta/link/forms.html.

7575

STATE RETURNSSTATE RETURNSRESIDENCYRESIDENCYTo file a state income tax return, it is necessary to determine To file a state income tax return, it is necessary to determine

the following:the following:Your residency status in each state. You may be a full-year Your residency status in each state. You may be a full-year

resident, part-year resident, or nonresident. You may, in resident, part-year resident, or nonresident. You may, in certain cases, be both a part-year resident and a certain cases, be both a part-year resident and a nonresident in the same year. Your residency status is nonresident in the same year. Your residency status is important in deciding which state form to use. Some important in deciding which state form to use. Some states have separate forms for residents, part-year states have separate forms for residents, part-year residents, and nonresidents.residents, and nonresidents.

The income you have for each state that is taxable and the The income you have for each state that is taxable and the state that it is taxable to. Generally, if you receive state that it is taxable to. Generally, if you receive income from a state in which you live, you are taxed by income from a state in which you live, you are taxed by that state. If you live in one state but have wages in that state. If you live in one state but have wages in another state, you probably are subject to income tax in another state, you probably are subject to income tax in both states. When a taxpayer is taxed on the same both states. When a taxpayer is taxed on the same income in two states, they may qualify to take an “out-income in two states, they may qualify to take an “out-of-state” tax credit on one state’s return, usually the of-state” tax credit on one state’s return, usually the resident state return. Usually if you earn income in a resident state return. Usually if you earn income in a state, you are subject to tax by that state.state, you are subject to tax by that state.

7676

STATE RETURNSSTATE RETURNSMILITARY PERSONNELMILITARY PERSONNELAn active duty military person may get special An active duty military person may get special

treatment under state tax laws. His or her state of treatment under state tax laws. His or her state of residency is not determined in the same way. It residency is not determined in the same way. It generally depends on what the service person generally depends on what the service person established as a home state of record. This is established as a home state of record. This is originally based on where the person lived when originally based on where the person lived when they entered the service. Once this is established, they entered the service. Once this is established, the home of record does not change unless the the home of record does not change unless the service member changes it officially through the service member changes it officially through the military personnel office. military personnel office.

Treatment of military pay is taxable to the home state Treatment of military pay is taxable to the home state of record only if it is taxed at all. If the service of record only if it is taxed at all. If the service member has income, such as a rental property or member has income, such as a rental property or another job, from a state other than his home state, another job, from a state other than his home state, it is taxable in that state and may be taxable in the it is taxable in that state and may be taxable in the home-of-record state.home-of-record state.

7777


FORMAT OF STATE RETURNFORMAT OF STATE RETURN

The format of a state return is generally one of four The format of a state return is generally one of four types:types:1. One that uses the federal Form 1040 to carry over 1. One that uses the federal Form 1040 to carry over

information such as wages, interest, information such as wages, interest, dividends, dividends, etc. that are taxable.etc. that are taxable.2. One that starts with carrying over the federal AGI 2. One that starts with carrying over the federal AGI

(FAGI) from the federal return. The state then (FAGI) from the federal return. The state then makes adjustments to the FAGI to arrive at a makes adjustments to the FAGI to arrive at a state AGI.state AGI.

3. One that starts with the federal taxable income. 3. One that starts with the federal taxable income. This is basically the FAGI minus exemptions This is basically the FAGI minus exemptions

and and deductions.deductions.

4. One that starts with federal tax liability.4. One that starts with federal tax liability.

7878


Some areas in which state returns tend to differ from Some areas in which state returns tend to differ from the federal return are:the federal return are: Child care credit Child care credit PensionsPensions Capital gains Capital gains Moving expensesMoving expenses Active duty military income and military Active duty military income and military

retirement incomeretirement income Social securitySocial security Itemized deductionsItemized deductions DepreciationDepreciation

7979

EXTENSIONS, AMENDED RETURNS, EXTENSIONS, AMENDED RETURNS, ELECTRONIC FILING, STATE RETURNSELECTRONIC FILING, STATE RETURNS

KEY IDEASKEY IDEASo You can get an automatic 6-month extension of time You can get an automatic 6-month extension of time

to file by filing Form 4868 by the regular due date to file by filing Form 4868 by the regular due date for your return. An extension of time to file is not an for your return. An extension of time to file is not an extension of time to pay.extension of time to pay.

o You can file an amended return by using Form You can file an amended return by using Form 1040X. You must file your Form 1040X within 3 years 1040X. You must file your Form 1040X within 3 years after the date you filed your original return or within after the date you filed your original return or within 2 years after the date you paid the tax, whichever is 2 years after the date you paid the tax, whichever is later.later.

8080


o The processing of an electronic return is faster and The processing of an electronic return is faster and more accurate than the processing of paper returns. more accurate than the processing of paper returns. Form 8879 is the signature document for electronic Form 8879 is the signature document for electronic filed returnsfiled returns..

o Form 8453 is used as a transmittal cover sheet for Form 8453 is used as a transmittal cover sheet for documents required to be mailed.documents required to be mailed.

o If the IRS rejects your electronically filed return, it If the IRS rejects your electronically filed return, it means that the return is not filed with the IRS.means that the return is not filed with the IRS.

o Most of the common IRS reject codes for electronic Most of the common IRS reject codes for electronic filing involve SSN and name data that does not filing involve SSN and name data that does not match the IRS Master File and the SSA records.match the IRS Master File and the SSA records.

8181


o Form 8888 can be used to direct deposit a federal Form 8888 can be used to direct deposit a federal refund into 3 or more accounts at banks or financial refund into 3 or more accounts at banks or financial institutions. The preparer must be very careful institutions. The preparer must be very careful when using this form as with all direct deposits so when using this form as with all direct deposits so that the taxpayer’s refund is not “lost”.that the taxpayer’s refund is not “lost”.

o Forty-two states (including the District of Columbia) Forty-two states (including the District of Columbia) have individual income tax and require income tax have individual income tax and require income tax returns from individuals required to file.returns from individuals required to file.

o Some states also have separate local income tax Some states also have separate local income tax returns to be filed.returns to be filed.

o Active duty military personnel may get special Active duty military personnel may get special treatment under state tax laws.treatment under state tax laws.

8282

CLASSWORK 1CLASSWORK 1

CLASSWORK 1 TRUE OR FALSE:CLASSWORK 1 TRUE OR FALSE:1.1. Generally, to get an automatic extension of time to file, Generally, to get an automatic extension of time to file,

you must file Form 4868 by the regular due date of your you must file Form 4868 by the regular due date of your return.return.

2.2. Some items that may differ in a state return from a Some items that may differ in a state return from a federal return are capital gains and pensions.federal return are capital gains and pensions.

3.3. An extension of time to file is not an extension of time to An extension of time to file is not an extension of time to pay.pay.

4.4. If you live in one state but have wages in another state, If you live in one state but have wages in another state, you will pay taxes only in the state in which you reside. you will pay taxes only in the state in which you reside.

5.5. A U.S. citizen living in Europe on the due date of their A U.S. citizen living in Europe on the due date of their return receives an automatic 2-month extension. return receives an automatic 2-month extension.

8383

CLASSWORK 1CLASSWORK 16.6. For state filing purposes, your “home state” is usually For state filing purposes, your “home state” is usually

the state in which you reside. the state in which you reside.

7.7. You must file an amended return if you claimed You must file an amended return if you claimed deductions or credits you should not have claimed. deductions or credits you should not have claimed.

8.8. A handwritten Form W-2 might be an indication of fraud.A handwritten Form W-2 might be an indication of fraud.

9.9. Generally, you must file your Form 1040X within 2 years Generally, you must file your Form 1040X within 2 years after the date you filed your original return or within 3 after the date you filed your original return or within 3 years after the date you paid the tax, whichever is later. years after the date you paid the tax, whichever is later.

10.10. A legal marriage will automatically change the woman’s A legal marriage will automatically change the woman’s maiden name to her married name for tax purposes.maiden name to her married name for tax purposes.

11.11. A Form 1040X based on a worthless security must be A Form 1040X based on a worthless security must be filed within 3 years after the due date of the return for filed within 3 years after the due date of the return for the tax year in which the security became worthless.the tax year in which the security became worthless.

8484


12.12. If the IRS rejects an electronically filed return, the IRS If the IRS rejects an electronically filed return, the IRS considers the return filed but needing correction.considers the return filed but needing correction.

13.13. You may have a refund from an You may have a refund from an e-filede-filed return directly return directly deposited into your savings account. deposited into your savings account.

14.14. Once signed, Form 8879 cannot be changed if the Once signed, Form 8879 cannot be changed if the amount of total income differs from the amount on the amount of total income differs from the amount on the electronic portion of the return by more than $50. electronic portion of the return by more than $50.

15.15. An ERO can prepare your tax return, including Form An ERO can prepare your tax return, including Form 8879. 8879.

8585


16.16. When used, a signed Form 8879 must always be sent to When used, a signed Form 8879 must always be sent to

the IRS to follow up on the e-filed return. the IRS to follow up on the e-filed return.

17.17. You can enter your own PIN or authorize the tax You can enter your own PIN or authorize the tax

preparer employed by an ERO to enter it on your behalf.preparer employed by an ERO to enter it on your behalf.

18.18. Form 8888 is used to request a paper refund check from Form 8888 is used to request a paper refund check from IRS. IRS.

8686


CLASSWORK 1 TRUE OR FALSE:CLASSWORK 1 TRUE OR FALSE:1.1. Generally, to get an automatic extension of time to file, Generally, to get an automatic extension of time to file,

you must file Form 4868 by the regular due date of your you must file Form 4868 by the regular due date of your return. return. TT

2.2. Some items that may differ in a state return from a Some items that may differ in a state return from a federal return are capital gains and pensions.federal return are capital gains and pensions. T T

3.3. An extension of time to file is not an extension of time to An extension of time to file is not an extension of time to pay.pay. TT

4.4. If you live in one state but have wages in another state, If you live in one state but have wages in another state, you will pay taxes only in the state in which you reside. you will pay taxes only in the state in which you reside. FF

5.5. A U.S. citizen living in Europe on the due date of their A U.S. citizen living in Europe on the due date of their return receives an automatic 2-month extension. return receives an automatic 2-month extension. TT

8787

CLASSWORK 1CLASSWORK 16.6. For state filing purposes, your “home state” is usually the For state filing purposes, your “home state” is usually the

state in which you reside. state in which you reside. TT

7.7. You must file an amended return if you claimed You must file an amended return if you claimed deductions or credits you should not have claimed. deductions or credits you should not have claimed. TT

8.8. A handwritten Form W-2 might be an indication of fraud.A handwritten Form W-2 might be an indication of fraud. TT

9.9. Generally, you must file your Form 1040X within 2 years Generally, you must file your Form 1040X within 2 years after the date you filed your original return or within 3 after the date you filed your original return or within 3 years after the date you paid the tax, whichever is later. years after the date you paid the tax, whichever is later. FF

10.10. A legal marriage will automatically change the woman’s A legal marriage will automatically change the woman’s maiden name to her married name for tax purposes.maiden name to her married name for tax purposes. FF

11.11. A Form 1040X based on a worthless security must be filed A Form 1040X based on a worthless security must be filed within 3 years after the due date of the return for the tax within 3 years after the due date of the return for the tax year in which the security became worthless.year in which the security became worthless. FF

8888


12.12. If the IRS rejects an electronically filed return, the IRS If the IRS rejects an electronically filed return, the IRS considers the return filed but needing correction.considers the return filed but needing correction. FF

13.13. You may have a refund from an You may have a refund from an e-filede-filed return directly return directly deposited into your savings account. deposited into your savings account. TT

14.14. Once signed, Form 8879 cannot be changed if the Once signed, Form 8879 cannot be changed if the amount of total income differs from the amount on the amount of total income differs from the amount on the electronic portion of the return by more than $50. electronic portion of the return by more than $50. TT

15.15. An ERO can prepare your tax return, including Form An ERO can prepare your tax return, including Form 8879. 8879. TT

8989


16.16. When used, a signed Form 8879 must always be sent to When used, a signed Form 8879 must always be sent to

the IRS to follow up on the e-filed return. the IRS to follow up on the e-filed return. FF

17.17. You can enter your own PIN or authorize the tax You can enter your own PIN or authorize the tax

preparer employed by an ERO to enter it on your behalf.preparer employed by an ERO to enter it on your behalf. TT

18.18. Form 8888 is used to request a paper refund check from Form 8888 is used to request a paper refund check from

IRS. IRS. FF

9090


CLASSWORK 2 PROBLEM 1:CLASSWORK 2 PROBLEM 1:

1.1. Howard J. Pratt (SSN 403-82-1111, born 7/7/1960) is Howard J. Pratt (SSN 403-82-1111, born 7/7/1960) is single and lives at 396 Bay Street, Norfolk, VA 23501. He single and lives at 396 Bay Street, Norfolk, VA 23501. He has a Form W-2 with wages of $25,000 and no other has a Form W-2 with wages of $25,000 and no other income. His withholding is $2,300. His estimated total income. His withholding is $2,300. His estimated total tax liability for 2008 is $2,050. Complete Form 4868 for tax liability for 2008 is $2,050. Complete Form 4868 for him. him.

9191


9292


9393



2.2. Using the tax return for the D’Andrios found in Using the tax return for the D’Andrios found in Homework 2 from Chapter 8, complete Form 8879. Homework 2 from Chapter 8, complete Form 8879. Dominic will enter his own PIN (25644) and Lucille Dominic will enter his own PIN (25644) and Lucille authorizes the Liberty Tax Service preparer to enter authorizes the Liberty Tax Service preparer to enter her PIN (24599) for her. The DCN for the electronic her PIN (24599) for her. The DCN for the electronic return is 00-567890-55667-9 and the ERO’s EFIN/PIN return is 00-567890-55667-9 and the ERO’s EFIN/PIN is 56789012126.is 56789012126.

9494


9595


9696



3.3. Using the tax return for the D’Andrios found in Using the tax return for the D’Andrios found in Homework 2 from Chapter 8, prepare an amended Homework 2 from Chapter 8, prepare an amended federal return using the additional information federal return using the additional information provided in the following W-2 form that Lucille forgot provided in the following W-2 form that Lucille forgot to enter on the original return. to enter on the original return.

9797

CLASSWORK 2CLASSWORK 2CLASSWORK 2 PROBLEM 3CLASSWORK 2 PROBLEM 3

9898


9999


100100


101101


102102


103103


104104

QUESTION & ANSWERSQUESTION & ANSWERS

Amended tax return

Documents

Transcript of Amended tax return