Table of Contents Overview.... 1 Preliminary Matters....1 Preparer Tax Identification Number....1 Electronic Filing Identification Number....2 State Matters...5 Filing Requirements....5 Individuals....6 Dependents...7 Self-employed....8 Other Situations...9 Which Form to File...10 Form 1040EZ...10 Form 1040A....13 Form 1040...16 Due Dates....17 General Rule....17 Extensions...18 Heading...25 Tax Year...25 Name...26 Address...26 Identification Number...27 Separate Returns Nonresident Spouse....28 Undocumented Workers....28 Presidential Election Campaign Fund...29 Questions to Ask....29 Overview Review Questions...31 Overview Review Answers....................................... 33 Filing Status.... 35 Marital Status...35 Unmarried...35 Married....36 Filing Status...37 Single....37 Married Filing Jointly....37 NATP vii
Married Filing Separately....38 Head of Household....40 Qualifying Widow(er) With Dependent Child.... 44 Death or Birth....45 Questions to Ask....45 Filing Status Review Questions....47 Filing Status Review Answers....49 Exemptions.... 51 Dependency Qualifications....51 General Tests...51 Qualifying Child....53 Tiebreaker Test....60 Qualifying Relative....62 Child of Divorced or Separated Parents....66 Social Security Numbers for Dependents...68 Exemptions Review Questions...69 Exemptions Review Answers...73 Income.... 77 Rounding...77 Method of Accounting...78 Cash Method...78 Accrual Method....80 Wages, Salaries, Tips, etc.... 80 Form W-2....81 Tips....83 Household Employee...84 Garnished Wages....84 Scholarships....84 Interest Income....87 Taxable Interest....87 U.S. Savings Bonds... 92 Tax-exempt Interest....95 Dividends...96 Ordinary Dividends...96 Qualified Dividends....97 viii NATP
Nondividend Distribution....99 Reporting Requirements....99 Refunds, Credits, or Offsets... 99 Alimony....101 Business Income or (Loss)... 103 Capital Gain or Loss....103 Holding Period...105 Basis....106 Form 8949...108 Other Gains or (Losses)....112 IRA Distributions....112 Traditional IRA....113 Roth IRA....114 Reporting Requirements....115 Rollovers....116 Pension Distribution...117 Reporting Requirements....118 Rental Real Estate, Royalties, Partnerships, S Corporations, Trusts, etc... 119 Rental Income....119 Rental Expenses...122 Depreciation....129 Farm Income or (Loss)......................................... 130 Unemployment Compensation...130 Social Security Benefits....131 Other Income...137 Gambling Winnings....137 Prizes and Awards...138 Coverdell Education Savings Account or Qualified Tuition Program Distributions...138 Qualified ABLE Programs...140 Jury Duty....141 Canceled Debts....141 Hobby vs. Profit Motive....143 Factors Determining Profit Motive....144 Presumption of Profit....150 Impact of Hobby Determination....153 NATP ix
HSA Distributions....154 Taxable HSA Distributions....157 Other Income...158 Questions to Ask....159 Income Review Questions....161 Income Review Answers....169 Adjustments to Income... 179 Educator Expenses....179 Expenses of Reservists, Performing Artists, and Fee-basis Government Officials....180 Health Savings Account...180 Benefits....181 Eligible Individuals....181 High Deductible Health Plan....182 Contributions....187 Rollovers and Qualified HSA Funding Distributions...191 Moving Expenses....202 Standard Mileage Rate....203 Tests for Deductibility of a Move...203 Deductible Part of Self-employment Tax...203 Self-employed SEP, SIMPLE, and Qualified Plans....203 Self-employed Health Insurance Deduction....204 Penalty on Early Withdrawal of Savings....204 Alimony Paid....205 IRA Deduction....206 Student Loan Interest Deduction....212 Tuition and Fees Deduction....214 Domestic Production Activities Deduction...215 Pass-through Deduction....215 Other Adjustments...216 Questions to Ask....217 Adjustments to Income Review Questions....219 Adjustments to Income Review Answers....223 x NATP
Standard Deduction vs. Itemized Deductions.... 227 Standard Deduction...227 Age and Blindness Component of Standard Deduction...227 Standard Deduction Amounts....228 Itemized Deductions....232 Medical and Dental Expenses....233 Taxes...236 Interest....241 Charitable Contributions....244 Casualty and Theft Losses...263 Miscellaneous Deductions Subject to 2%....264 Miscellaneous Deductions Not Subject to 2%....273 Nondeductible Expenses....275 The Pease Limitation....275 Exemption Deduction....276 Questions to Ask....276 Standard Deduction vs. Itemized Deductions Review Questions.... 277 Standard Deduction vs. Itemized Deductions Review Answers.... 283 Tax and Nonrefundable Credits.... 291 Tax Computation....291 Kiddie Tax....291 Tax Table....292 Tax Computation Worksheet....292 Other Taxes....294 Alternative Minimum Tax....294 Excess Advance Premium Tax Credit Repayment....295 Nonrefundable Credits...300 Foreign Tax Credit....300 Child and Dependent Care Credit....301 Education Credits....307 Retirement Savings Contributions Credit...317 Child Tax Credit....322 Residential Energy Credit...327 Credit for the Elderly or the Disabled....329 Adoption Credit....330 NATP xi
District of Columbia First-time Homebuyer Credit...332 Questions to Ask....333 Tax and Nonrefundable Credits Review Questions....335 Tax and Nonrefundable Credits Review Answers....341 Other Taxes, Payments, and Refundable Credits... 347 Other Taxes....347 Self-employment Tax....347 Tax on Unreported Tips....347 Early Distribution Tax....348 Household Employment Tax....357 First-time Homebuyer Credit Repayment....357 Health Care Individual Responsibility....357 Additional Medicare Tax....366 Net Investment Income Tax....368 Federal Income Tax Withholding....369 Estimated Tax Payments....369 Refund Applied From Prior Year....370 Refundable Credits....370 Earned Income Tax Credit...370 Additional Child Tax Credit....376 American Opportunity Tax Credit...383 Net Premium Tax Credit....383 Amounts Paid With Extension....395 Excess Social Security Withheld....395 Credit for Federal Tax on Fuels...395 Other Payments...395 Due Diligence....396 Form 8867...396 Due Diligence Penalty....407 Questions to Ask....408 Other Taxes, Payments, and Refundable Credits Review Questions... 409 Other Taxes, Payments, and Refundable Credits Review Answers... 413 xii NATP
Completing the Return.... 419 Refund...419 Owe Tax....419 Estimated Tax Penalty....420 Submitting the Return....420 Amending the Return...421 Safeguarding Taxpayer Information....421 Wrongful Disclosure or Use....422 Knowing or Reckless Disclosure or Use...423 Completing the Return Review Questions....433 Completing the Return Review Answers....435 Case Study.... 437 Overview....437 Appendix... 449 Appendix A: Solution Case Study.... 449 Appendix B: Due Diligence Questionnaire.... 458 Appendix C: QBI Deduction Flowchart 199A.... 460 Appendix D: Draft Forms 2018 Form 1040 and Schedules... 461 NATP xiii