Estimated Taxes for Individuals
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Questions and Answers

What is required for the IRS to accept an electronically filed tax return?

  • A federal employee identification number (FEIN)
  • A personal identification number issued by the state
  • A unique customer reference number (UCRN)
  • An Identity Protection Personal Identification Number (IP PIN) (correct)

Which individual is NOT required to have a valid Taxpayer Identification Number (TIN) on a federal income tax return?

  • The taxpayer
  • Any dependents listed on the return
  • The spouse if married
  • The tax preparer (correct)

Which of the following statements about ITINs is TRUE?

  • ITINs can be used for purposes other than federal tax reporting.
  • ITINs are required for nonresident aliens with U.S. tax liabilities. (correct)
  • ITINs allow individuals to work legally in the United States.
  • ITIN holders are eligible for Earned Income Tax Credit.

What must a taxpayer do if they cannot obtain a Social Security number (SSN)?

<p>Apply for an Individual Taxpayer Identification Number (ITIN) (A)</p> Signup and view all the answers

What action could potentially lead to civil and criminal charges for a tax preparer?

<p>Wrongfully disclosing a taxpayer’s confidential information (B)</p> Signup and view all the answers

What special form is needed for an Adoption Taxpayer Identification Number (ATIN) request?

<p>Form W-7A (A)</p> Signup and view all the answers

Who is generally NOT eligible to obtain a Social Security number?

<p>Individuals awaiting immigration status approval (D)</p> Signup and view all the answers

What is the primary purpose of an Individual Taxpayer Identification Number (ITIN)?

<p>For federal tax reporting only (D)</p> Signup and view all the answers

What is required to apply for an ITIN using Form W-7?

<p>Original documentation such as a passport or birth certificate (D)</p> Signup and view all the answers

In what situation can a foreign person apply for an ITIN without filing a tax return?

<p>For claiming tax treaty benefits (B)</p> Signup and view all the answers

Which of the following is NOT true regarding the Adoption Taxpayer Identification Number (ATIN)?

<p>An ATIN can be used to obtain the Child Tax Credit (D)</p> Signup and view all the answers

What is the role of a Certified Acceptance Agent (CAA)?

<p>To assist individuals in obtaining ITINs (C)</p> Signup and view all the answers

Under which circumstance can an ATIN be requested for an adopted child?

<p>If the taxpayer cannot obtain an existing SSN for the child (B)</p> Signup and view all the answers

What must be included in the Form W-7 when applying for an ITIN?

<p>Original documents proving identity (D)</p> Signup and view all the answers

How can a taxpayer extend the validity of an ATIN?

<p>By submitting Form 15100 (D)</p> Signup and view all the answers

Which statement regarding a child who dies within the same tax year is correct?

<p>The child can be claimed as a dependent if an SSN is not obtained (B)</p> Signup and view all the answers

What resource did Tosha H. Knelangeon primarily use to prepare for the EA exams?

<p>PassKey study guide and workbook (B)</p> Signup and view all the answers

Which student emphasized the ease of understanding the PassKey textbook for someone with little knowledge of tax and accounting?

<p>Jake Bavaro (A)</p> Signup and view all the answers

What does Vishnu Kali Osirion suggest purchasing in addition to the main study material for better exam preparation?

<p>The accompanying workbook (D)</p> Signup and view all the answers

Which characteristic of the PassKey resources is highlighted by multiple students?

<p>Comprehensive and detailed explanations (B)</p> Signup and view all the answers

Which statement best describes the general sentiment regarding the effectiveness of PassKey materials?

<p>Most users expressed confidence in passing due to these resources. (C)</p> Signup and view all the answers

What did William Collins specifically use to study for the EA SEE 2 exam?

<p>PassKey Part 2 textbook (A)</p> Signup and view all the answers

What aspect of the PassKey resources was highlighted by Sharlene D. as particularly beneficial?

<p>The organized layout and examples (A)</p> Signup and view all the answers

How did E.De La Garza suggest one could prepare for the EA exam while managing expenses?

<p>By utilizing the PassKey system (A)</p> Signup and view all the answers

What action can taxpayers take to request an abatement of interest?

<p>File Form 843 or submit a request by letter. (B)</p> Signup and view all the answers

Under what circumstances will interest abatement generally be granted?

<p>In cases of mathematical errors made by the IRS. (B)</p> Signup and view all the answers

Who is responsible for filing and signing the late tax returns for a deceased taxpayer?

<p>An appointed executor must file on behalf of the deceased. (C)</p> Signup and view all the answers

How can taxpayers ensure they have enough tax withheld to avoid estimated tax payments?

<p>Use Form W-4 to adjust withholding amounts. (A)</p> Signup and view all the answers

What does the federal income tax system primarily rely on for revenue collection?

<p>A pay-as-you-go mechanism through withholding or estimated payments. (D)</p> Signup and view all the answers

What must a taxpayer use to request an increase in tax withholding through their employer?

<p>Form W-4. (A)</p> Signup and view all the answers

What are estimated tax payments primarily used to cover?

<p>Income tax, self-employment tax, and alternative minimum tax. (B)</p> Signup and view all the answers

What is the penalty for individual taxpayers related to estimated taxes?

<p>Different penalty amounts apply to individual and business entities. (A)</p> Signup and view all the answers

What is the minimum tax due for a taxpayer to generally have to make estimated tax payments?

<p>$1,000 after withholding and tax credits (A)</p> Signup and view all the answers

In order to avoid an estimated tax penalty, what percentage of the prior year's tax liability must higher-income taxpayers pay?

<p>110 (C)</p> Signup and view all the answers

What was Massimo's tax liability for 2023, which impacts his estimated payments for 2024?

<p>$30,000 (D)</p> Signup and view all the answers

What will happen if Yvonne's total tax liability after withholding is under $1,000?

<p>She will not face an underpayment penalty (B)</p> Signup and view all the answers

What is the tax liability condition that defines if Massimo needs to pay estimates for 2024?

<p>Adjusted gross income over $150,000 (A)</p> Signup and view all the answers

What must a taxpayer do to avoid penalties if they expect a significantly higher income next year?

<p>Estimate and pay at least 110% of the previous year's tax (A)</p> Signup and view all the answers

If a taxpayer's total tax withholding exceeds the total tax liability, which of the following statements is true?

<p>They are guaranteed a refund. (B)</p> Signup and view all the answers

What consequence does Granville face for not filing his 2023 tax return by March 1, 2024?

<p>He will be required to make a payment of estimated taxes by January 15, 2024. (D)</p> Signup and view all the answers

Which of the following farmers is required to pay quarterly estimated taxes?

<p>Aaron, due to his diverse sources of income. (D)</p> Signup and view all the answers

What condition must be met for the safe harbor provision for estimated payments to apply to partnerships?

<p>The majority of the partnership's income must be from farming or fishing. (B)</p> Signup and view all the answers

Which of the following is NOT a reason for backup withholding to be required by the IRS?

<p>The taxpayer receives less than $600 in interest payments. (D)</p> Signup and view all the answers

What type of businesses are generally not eligible for the special estimated tax payments rule?

<p>C corporations, regardless of their activity. (C)</p> Signup and view all the answers

What is one of the conditions that might require backup withholding?

<p>Failing to report dividends or interest adequately. (B)</p> Signup and view all the answers

Which situation allows a taxpayer to avoid penalties for underpaying estimated taxes?

<p>Paying their full tax amount owed before the due date. (C)</p> Signup and view all the answers

In the examples provided, which payment types are subject to backup withholding?

<p>Wages, rents, and interest payments. (D)</p> Signup and view all the answers

Flashcards

PassKey EA Review

A comprehensive study resource for the EA exam.

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The process of preparing for the Enrolled Agent Exam.

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Successfully completing the EA exam on the first attempt.

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Success achieved using only the study guide and workbook.

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Textbooks for EA Exam

Textbooks helpful for preparing for the EA exam, both basic and advanced sections.

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PassKey System Cost-Effectiveness

A recommended study resource for passing the EA exam at a reasonable price.

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Real-World Application of Tax Law

Presenting tax law principles in a relatable and understandable way.

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IP PIN

A Personal Identification Number used by the IRS to verify electronic tax returns.

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Taxpayer Identification Number (TIN)

A unique number required for all individuals on a tax return.

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Social Security Number (SSN)

A government-issued number mainly for U.S. citizens or legal residents.

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Individual Taxpayer Identification Number (ITIN)

A tax identification number for U.S. tax purposes for those not eligible for an SSN.

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Adoption Taxpayer Identification Number (ATIN)

A TIN specifically for individuals in the adoption process.

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ITIN Eligibility

Persons who are not eligible for an SSN, for U.S tax reporting purposes.

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ITIN Restrictions

An ITIN does not grant work eligibility or affect immigration status.

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Tax Information Sensitivity

Taxpayer information is highly confidential and must be protected.

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ITIN Application (Form W-7)

A paper application for a US Individual Taxpayer Identification Number required for foreign taxpayers. It cannot be submitted electronically.

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ITIN Exceptions

Limited situations where foreign individuals can apply for an ITIN without filing a tax return (e.g., tax treaty benefits, third-party reporting).

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Required Documents (ITIN)

Original documents like passports, birth certificates, or certified copies, are needed for Form W-7 application; notarized copies are rejected.

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Certified Acceptance Agent (CAA)

Authorized individuals/organizations that assist foreign individuals in obtaining ITINs. A list is available on IRS website.

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ATIN Requirements

Requirements include legal adoption, domestic or foreign, and lack of existing SSN from birth parents, adoption agency, etc.

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ATIN Expiration

ATINs expire after 2 years; extensions can be requested using Form 15100.

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What is the 'pay-as-you-go' tax system?

The federal income tax system requires individuals to pay most of their tax liability throughout the year as they earn income.

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How can you avoid estimated tax payments?

Ensure enough tax is withheld from your income to cover your liability. This is known as the Safe Harbor Rule.

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What is Form W-4?

A form used by employees to adjust their withholding amounts from their paychecks.

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What happens when a taxpayer dies without a will?

A probate court appoints an executor to handle the deceased's financial affairs, including filing tax returns.

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What form is used to request abatement of interest?

Form 843, Claim for Refund and Request for Abatement, can be used to request abatement of interest.

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When is interest abatement granted?

Interest abatement is only granted in exceptional circumstances, mainly if the IRS made a mathematical error.

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Who is responsible for filing a deceased person's tax returns?

The executor (appointed by the court) is responsible for filing the deceased's tax returns.

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What are estimated taxes for individuals used for?

Estimated tax payments can be used to pay income tax, self-employment tax, and alternative minimum tax.

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Estimated Tax Payments

Payments made throughout the year to cover your expected tax liability instead of paying the entire sum at once.

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Tax Liability

The total amount of tax you owe based on your income and deductions.

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Withholding

Taxes deducted from your paycheck by your employer.

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Tax Credits

Reductions in your tax liability that directly reduce the amount of taxes you owe.

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Safe Harbor Rule

A rule that allows higher-income taxpayers to avoid underpayment penalties by paying a certain percentage of their prior year's tax liability.

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Estimated Tax Penalty

A penalty imposed for failing to pay enough estimated taxes throughout the year.

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Prior-Year Return

Your tax return from the previous year.

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Current-Year Return

Your current year's tax return, the one you're filing now.

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Special Estimated Tax Rule

Some farmers and fishermen may not have to make quarterly estimated tax payments, only a single payment by January 15th, if most of their income comes from farming or fishing and they meet certain conditions.

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Who can benefit from the special rule?

Individuals who earn a majority of their income from farming or fishing, meeting specific requirements.

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Who is NOT eligible for the special rule?

C corporations, those who earn most of their income from activities unrelated to farming or fishing, and those who fail to meet the special rule's conditions.

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What if I can't file my return by March 1st?

You may need to make a single payment of estimated taxes by January 15th to avoid underpayment penalties, even if most of your income is from farming or fishing.

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Backup Withholding

The IRS may withhold a portion of your payments if there's a mismatch in your information, you have unpaid taxes, or you fail to report certain income sources.

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What kind of payments can be subject to backup withholding?

Various payments like wages, interest, dividends, rents, royalties, payments to independent contractors, and more.

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Why might backup withholding occur?

It can happen due to a mismatch in information, unpaid tax debts, or failing to report all interest, dividends, and other income.

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What should I do if I'm subject to backup withholding?

You can file Form W-9 with your correct information, resolve any outstanding tax debts, or report all your income to avoid backup withholding.

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Study Notes

Estimated Taxes for Individuals

  • Federal income tax is a "pay-as-you-go" system; most taxes are paid during the year through withholding or estimated payments.
  • Estimated taxes can cover income tax, self-employment tax, and alternative minimum tax.
  • Use Form W-4 (Employee's Withholding Certificate) to adjust withholding; submitted to employer, not IRS.
  • Safe Harbor Rule: Avoid estimated taxes by ensuring sufficient withholding; if expected tax liability exceeds $1,000.
    • Taxpayer must generally make estimated payments if total withholding and credits are less than the smaller of:
      • 100% of the prior year's tax liability.
      • 90% of the current year's tax liability.
  • Higher-Income Safe Harbor: If adjusted gross income (AGI) exceeds 150,000(150,000 (150,000(75,000 for married filing separately), pay the smaller of:
    • 90% of current year's expected tax liability.
    • 110% of prior year's tax shown on return.
  • No penalty if total tax (minus tax credits/withholding) is under $1,000.
  • Penalties may apply if tax is not paid by the deadline (April 15th for individuals).
  • Specific rules and deadlines for different income sources (e.g., farming, self-employment).

Taxpayer Identification Numbers (TINs)

  • IRS requires valid TIN for all individuals on a tax return (taxpayer, spouse, dependents).
  • Types of TINs:
    • Social Security number (SSN)
    • Individual taxpayer identification number (ITIN)
    • Adoption taxpayer identification number (ATIN)
  • Eligibility for SSN: Generally U.S. citizens or lawful non-citizens authorized to work in the U.S.
  • ITIN: For U.S. tax reporting, non-U.S. citizens. This does not affect immigration status or permit work in the U.S.
  • ATIN: For adopted children; requested with Form W-7A; expires after two years, unless extended.
  • Form W-7 for ITIN applications typically requires original documents (passport, birth certificate).
  • Certified Acceptance Agents (CAAs) assist foreign individuals with ITIN application.

Special Rules for Deceased Taxpayers

  • If a child is born and dies in the same tax year, and does not have an SSN, the child can still be claimed as a dependent.
  • Interest abatement is granted in unusual circumstances (e.g., mathematical errors).

Identity Protection Personal Identification Number (IP PIN)

  • Taxpayers can request an IP PIN for secure e-filing.
  • IP PIN service availability does not depend on past identity theft victimization.

Important Considerations

  • Taxpayer information is confidential; wrongful disclosure has significant consequences.
  • Taxpayers should be aware of special rules by income source.

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EA Review Part 1: Individuals PDF

Description

This quiz covers the basics of estimated taxes for individuals in the United States, including the pay-as-you-go system and the Safe Harbor Rule. It highlights the importance of Form W-4 in adjusting withholding and outlines requirements for making estimated payments based on prior and current year's tax liabilities.

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