Title Page
Copyright Page
Table of Contents
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part 1 Getting Ready to File
Chapter 1 Understanding the U.S. Tax System
Figuring Out the U.S. Tax System
You can reduce your taxes
Beyond April 15: What you don’t know can cost you
The costs of procrastination
The consequences of poor advice
Understanding Your Income Tax Rates
Adding up your total taxes
Following your marginal income tax rate
States want in on the income tax action, too
The second tax system: Alternative Minimum Tax
Noting the Forever Changing Tax Laws
The Tax Cuts and Jobs Act of 2017
The SECURE acts of 2019 and 2022
Possible upcoming changes
Chapter 2 Tax Return Preparation Options and Tools
Going It Alone: Preparing Your Own Return
Taking Advantage of IRS Publications
Perusing Tax-Preparation and Advice Guides
Using Software
Accessing Internet Tax Resources
Internal Revenue Service
Research
Tax preparation sites
Hiring Help
Deciding whether you really need a preparer
Unenrolled preparers
Enrolled agents (EAs)
Certified public accountants (CPAs)
Tax attorneys
Finding Tax Preparers and Advisors
Chapter 3 Getting and Staying Organized
Maintaining the Burden of Proof
Keeping Good Records
Ensuring a complete and accurate tax return
Setting up a recordkeeping system
Deciding when to stash and when to trash
Reconstructing Missing Tax Records
Property received by inheritance or gift
Researching newspaper ads
Consulting local real estate board and broker records
Obtaining assessed values
Using the Consumer Price Index (CPI)
Securities received by inheritance or gift
Improvements to a residence
Obtaining a Certificate of Occupancy
Getting an estimate
Casualty losses
Business records
Using duplicate account statements
Understanding the Cohan Rule
Chapter 4 What Kind of Taxpayer Are You?
What Rendition of 1040 Shall We Play?
Form 1040
Form 1040-SR
Form 1040-NR
Choosing a Filing Status
Single
Married filing jointly
Married filing separately
Head of household
Qualifying widow(er) with dependent child
Counting your dependents
Deciding who is your dependent
Test 1: Member of your household or relative
Test 2: Married person
Test 3: Citizen or resident
Test 4: Income
Test 5: Support
Securing Social Security numbers for dependents
Filing for Children and Other Dependents
Defining Who Is a Qualifying Child
Age test
Relationship test
Residency test
Support test
Filing a Return for a Deceased Taxpayer
Must I File?
When to file
If you don’t file
Where to file
How to file
Electronic filing
Filing by mail or other private delivery service
A Final Bit of Advice
Part 2 Tackling the Main Forms
Chapter 5 All The Form 1040s: Income Stuff
Starting at the Very Beginning: The Top of 1040
Choosing your filing status
Adding your name(s), address, and Social Security number(s)
Electing to give to the next presidential campaign
Disclosing digital assets
Calculating your standard deduction
Listing your dependents
Lines 1–9: Income
Lines 1a–1z
Line 1a: Total amount from Form(s) W-2, box 1
What those W-2 boxes mean
Line 1b: Household employee wages not reported on Form(s) W-2
Line 1d: Medicaid Waiver Payments not reported on Form(s) W-2
Line 1g: Wages from Form 8919
Line 1h: Other earned income
Line 1i: Nontaxable combat pay election
Line 1z: Add lines 1a through 1h
Line 2a: Tax-exempt interest
Line 2b: Taxable interest income
Line 3a: Qualified dividends
Line 3b: Ordinary dividends income
Lines 4a and 4b: Total IRA distributions
Form 1099-R, Box 1: Gross distribution (Form 1099-R)
Form 1099-R, Box 2a: Taxable amount
Form 1099-R, Box 7: Distribution code
Distributions before 59½
Transfers pursuant to divorce
Inherited IRAs
Determining who is an eligible designated beneficiary
Designated beneficiaries and the ten-year rule under the SECURE Act of 2020
Non-designated beneficiaries
Withdrawal of nondeductible contributions
Loss on an IRA
Lines 5a and 5b: Total pensions and annuities
Pensions and annuities
Simplified Method
General Rule
Lump-sum distributions
Capital gains treatment
Special averaging method
Form 1099-R
Tax on early distributions
Minimum distributions
Disability income
Lines 6a and 6b: Social Security benefits
Form SSA-1099
How much is taxable?
Base Income Worksheet
Worksheet I
Worksheet II
Tier-one adjustment
Tier-two adjustment
Taxable portion
Repayment of benefits
Repayment of benefits received in an earlier year
Line 7: Capital gain (or loss)
Line 8: Other income from Schedule 1, line 10
Bartering
Cancelled debt
Life insurance
Other stuff
Deductions
Line 9: Your total income
Chapter 6 Form 1040, Schedule 1, Part I: Additional Income
Schedule 1, Part I, Line 1: Taxable Refunds, Credits, or Offsets
Schedule 1, Part I, Lines 2a and 2b: Alimony Received (by You)
Schedule 1, Part I, Line 3: Business Income (or Loss)
Schedule 1, Part I, Line 4: Other Gains (or Losses)
Schedule 1, Part I, Line 5: Rental Real Estate, Partnerships, and More
Schedule 1, Part I, Line 6: Farm Income (or Loss)
Schedule 1, Part I, Line 7: Unemployment Compensation
Schedule 1, Part I, Line 8: Other Income
Line 8a: Net operating losses (NOLs)
Line 8b: Gambling income
Line 8c: Cancellation of debt
Line 8d: Foreign earned income and housing exclusion
Line 8e: Income from Form 8853 (Taxable Archer MSAs and Long-Term Care Insurance Contracts)
Line 8f: Income from Form 8889 (Health Savings Account distributions)
Line 8g: Alaska Permanent Fund dividends
Line 8h: Jury duty pay
Line 8i: Prizes and awards
Line 8j: Activity not engaged in for profit income
Line 8k: Stock options
Line 8l: Income from the rental of personal property
Line 8m: Olympic and Paralympic medals and USOC prize money
Lines 8n and 8o: Section 951(a) inclusion and Section 951A(a) inclusion
Line 8p: Section 461(l) excess business loss adjustment
Line 8q: Taxable distributions from an ABLE account
Line 8r: Scholarship and fellowship grants not reported on Form W-2
Line 8s: Nontaxable amount of Medicaid waiver payments included on Form 1040, line 1a or 1d
Line 8t: Pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan
Line 8u: Wages earned while incarcerated
Line 8z: Other income
Schedule 1, Part I, Line 9: Total Other Income
Schedule 1, Part I, Line 10: Combine Lines 1 through 7 and 9
Chapter 7 Form 1040, Schedule 1, Part II: Adjustments to Income Stuff
Figuring Out Your Adjusted Gross Income (AGI)
Line 11: Educator expenses
Line 12: Certain business expenses of certain types of workers
Line 13: Health Savings Account deduction (Form 8889)
Line 14: Moving expenses for members of the Armed Forces (Form 3903)
Line 15: Deductible part of self-employment tax
Line 16: Self-employed SEP, SIMPLE, and qualified plans
Looking through your self-employed retirement plan options
Computing your maximum retirement deductions
Line 17: Self-employed health insurance deduction
Line 18: Penalty for early withdrawal of savings
Lines 19a, b, and c: Alimony paid
This is alimony
This isn’t alimony
Rules and exceptions to alimony
Line 20: Your and your spouse’s IRA deduction
Types of compensation needed to qualify for an IRA
Contribution limits
Age limits
Deductible IRA contributions
Are you covered by your employer’s plan?
Nondeductible IRA contributions (Form 8606)
The Roth and other IRAs
Converting traditional IRAs to Roth IRAs
Your spouse’s IRA deduction
If your spouse is employed
If your spouse isn’t employed
Contribution age limits for you and your spouse
Line 21: Student loan interest deduction
Line 22: Reserved for future use
Line 23: Archer MSA deduction
Lines 24a - z: Other adjustments
Jury pay returned to your employer
Deductible expenses related to income reported on line 8l from the rental of personal property engaged in for profit
Non-taxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8m
Reforestation amortization and expenses
Repayment of supplemental unemployment benefits under the Trade Act of 1974
Contributions to section 501(c)(18)(D) pension plans
Contributions by certain chaplains to section 403(b) plans
Attorney fees and court costs for actions involving certain unlawful discrimination claims (see instructions)
Attorney fees and court costs in connection with an award from the IRS for information that helped them find tax law violations
Housing deduction from Form 2555
Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041)
Other adjustments
Form 1040, Line 11: Adjusted Gross Income
Chapter 8 Form 1040, Schedule 2: Additional Taxes
Schedule 2, Part I: Tax
Line 1: Alternative Minimum Tax (Form 6251)
Line 2: Excess advance premium tax repayment (Form 8962)
Line 3: Add lines 1 and 2
Schedule 2, Part II: Other Taxes
Line 4: Self-employment tax (Schedule SE)
Line 5: Unreported Social Security and Medicare tax on unreported tip income
Line 6: Uncollected social security and Medicare tax on wages (Form 8919)
Line 7: Total additional Social Security and Medicare tax
Line 8: Additional tax on IRAs or other tax-favored accounts (Form 5329)
Line 9: Household employment taxes (Schedule H)
Line 10: Repayment of first-time homebuyer credit (Form 5405)
Line 11: Additional Medicare Tax (Form 8959)
Line 12: Net investment income tax (Form 8960)
Line 13: Uncollected Social Security and Medicare or RRTA tax on tips . . .
Line 14: Interest on tax due on installment income from certain residential sales
Line 15: Interest on the deferred tax on gain from certain installment sales
Line 16: Recapture of low-income housing credit (Form 8611)
Line 17: Other additional taxes
Line 19: Reserved for future use
Line 20: Section 965 net tax liability installment from Form 965-A
Bringing Us to Line 21
Chapter 9 Form 1040, Schedule 3: Adding Up Your Credits and Payments
Schedule 3, Part I: Nonrefundable Credits
Line 1: Foreign tax credit (Form 1116)
Line 2: Credit for child and dependent care expenses (Form 2441)
Line 3: Education credits (Form 8863)
Line 4: Retirement savings contribution credit (Form 8880)
Lines 5a and 5b: Residential energy credits (Form 5695)
Line 6: Other nonrefundable credits
Lines 7 and 8: It’s time to add!
Schedule 3, Part II: Other Payments and Refundable Credits
Line 9: Net premium tax credit (Form 8962)
Line 10: Amount paid with request for extension to file (Form 4868)
Line 11: Excess Social Security and RRTA tax withheld
Line 12: Credit for Federal Tax Paid on Fuels (Form 4136)
Line 13: Other payments or refundable credits
Lines 14 and 15: And even more math
Chapter 10 Finishing Up the 1040
Arriving at Taxable Income
Form 1040, line 10: Adjustments to income
Form 1040, line 11: Arriving at adjusted gross income
Form 1040, line 12a: Standard deduction or itemized deductions (Schedule A)
Form 1040, Line 13: Qualified business income deduction (Forms 8995 or 8995-A)
Form 1040, line 14: Add lines 12 and 13
Line 15: Taxable income
Calculating Your Tax Liability
Form 1040, line 16: Tax
Capital gains and qualified dividends tax worksheet
Qualified dividends and long-term capital gains
The kiddie tax: Forms 8615 and 8814
Those tiny boxes on line 16: Forms 8814 and 4972
Form 1040, line 17: Amount from Schedule 2, line 3
Form 1040, line 18: Add lines 16 and 17
Form 1040, line 19: Child tax credit or credit for other dependents from Schedule 8812
Line 20: Amount from Schedule 3, line 8
Form 1040, line 21: Add lines 19 and 20
Form 1040, line 22: Subtract line 21 from line 18
Form 1040, line 23: Other taxes, including self-employment tax
Form 1040, line 24: Add lines 22 and 23. This is your total tax.
Calculating Your Payments and Refundable Credits
Form 1040, line 25: Federal income tax withheld
Form 1040, line 26: 2023 estimated tax payments and amount applied from 2022 return
Form 1040, line 27: Earned income credit (EIC)
Form 1040, line 28: Additional child tax credit from Schedule 8812
Form 1040, line 29: American Opportunity Credit (Form 8863, line 8)
Form 1040, line 30: Reserved for future use
Form 1040, line 31: Amount from Schedule 3, line 15
Form 1040, line 32: Total other payments and refundable credits
Form 1040, line 33: Total payments
Refund or Amount You Owe
Form 1040, line 34: The amount that you overpaid
Form 1040, lines 35a, b, c, and d: Amount that you want refunded to you
Form 1040, line 36: Amount of line 34 you want applied to your 2024 estimated tax
Form 1040, line 37: The AMOUNT YOU OWE line
Line 36: Estimated tax penalty (Form 2210)
Finishing Up
Part 3 Filling Out Schedules and Other Forms
Chapter 11 Itemized Deductions: Schedule A
Claiming the Standard Deduction
Older than 65 or blind
Standard deduction for dependents
Locating Your Itemized Deductions
Separate returns and limits on deductions
But if you change your mind
Lines 1–4: Medical and Dental Costs
Medical and dental expense checklist
Deductible travel costs
Special medical expense situations
Meals and lodging
Insurance premiums
Reimbursements and damages
Special schooling
Nursing home
Improvements to your home
Figuring your medical and dental deduction
Lines 5–7: Taxes You Paid
Line 5a and 5b: State and local taxes
Line 5a: State and local income taxes or general sales taxes
Line 5b: State and local real estate taxes
Cooperative apartment
Special assessments
When you buy or sell real estate
The downside of property tax refunds and rebates
Line 5c: Personal property taxes
Line 5d: Add lines 5a through 5c
Line 5e: Enter the smaller of line 5d or $10,000 ($5,000 if married filing separately)
Line 6: Other taxes (foreign income taxes)
Line 7: Add lines 5e and 6
Lines 8–10: Interest You Paid
Lines 8a through 8e: Home mortgage interest and points
Where is the data?
Limitations on deductions
Interest on refinanced loans
Mixed-use mortgages
Points
Qualified mortgage insurance premiums
Total deductible mortgage interest and points
Line 9: Investment interest
Lines 11–14: Gifts to Charity
Qualifying charities
Nonqualifying charities
Contributions of property
Used clothing and household goods
Cars, boats, and aircraft
Charitable deduction limits
IRA qualified charitable distribution (QCD)
For the world’s great humanitarians
Adding up all your deductible contributions
Line 15: Casualty and Theft Losses (Form 4684)
Do you have a deductible loss?
Figuring the loss
Line 16: Other Itemized Deductions
Line 17: Total Itemized Deductions
Line 18: Check the Box
Chapter 12 Interest and Dividend Income: Form 1040, Schedule B
Part I, Lines 1–4: Interest Income
Understanding Forms 1099-INT and 1099-OID
Identifying the interest income on Forms 1099-INT and 1099-OID
Dealing with market discounts and bond premiums
Completing lines 1–4
Line 1: Taxable interest
Line 2: Total interest
Line 3: U.S. Savings Bonds — education program
Interest-free loans
Part II, Lines 5–6: Dividend Income
Line 5: Name, payer, and amount
Line 6: Total dividends
Your 1099-DIV: Decoding those boxes
Reduced tax rates on dividends
Part III, Lines 7–8: Foreign Accounts and Trusts
Chapter 13 Business Tax Schedules: C and F
Schedule C
Giving Basic Information (A–E)
Accounting Method Stuff (Boxes F–H)
Marking Information Returns (Boxes I and J)
Part I, Lines 1–7: Income
Line 1: Gross receipts or sales
Line 2: Returns and allowances
Line 3: Subtraction quiz
Line 4: Cost of goods sold
Line 5: Gross profit
Line 6: Other income
Line 7: Gross income
Part II, Lines 8–27b: Expenses
Line 8: Advertising
Line 9: Car and truck expenses
No help from Uncle Sam with commuting expenses
Second job
Temporary job site
Standard mileage rate or actual expenses?
Depreciation
Leased autos
Line 10: Commissions and fees
Line 11: Contract labor
Line 12: Depletion
Line 13: Depreciation
To file (or not to file) Form 4562
IRS depreciation percentages
Additions or improvements to property
Half-year convention versus mid-quarter convention depreciation
Section 179: The $1,160,000 depreciation deduction
Listed property: Cars used 50 percent or more in your business
Listed property: SUVs, vans, and heavier trucks
Listed property: Cars used 50 percent or less for business
Alternative fuel and hybrid vehicles
Line 14: Employee benefit programs
Line 15: Insurance (other than health)
Line 16a: Mortgage interest
Line 16b: Other interest
Line 17: Legal and professional services
Line 18: Office expense
Line 19: Pension and profit-sharing plans
Lines 20a and b: Rent or lease
Line 21: Repairs and maintenance
Line 22: Supplies
Line 23: Taxes and licenses
Lines 24a–b: Travel and meals
Your tax home and travel expenses
Trips that mix business with pleasure
Trips primarily for personal reasons
Convention expenses
Standard meal and incidental allowance — or “my city costs more than your city”
Line 25: Utilities
Line 26: Wages
Line 27a: Other expenses
Line 27b: Energy efficient commercial buildings deduction
Line 28: Total expenses
Line 29: Tentative profit (loss)
Line 30: Form 8829
Line 31: Net profit (or loss)
Lines 32a and b: At-risk rules
Start-up expenses
Operating Loss
Schedule F: Profit or Loss from Farming
Figuring out Schedule F
Line C: Accounting method
Part I: Farm Income — Cash Method
Part II: Farm Expenses — Cash and Accrual Method
Identifying tax issues specific to farmers and fishermen
Estimated taxes
Operating at a loss
Your Social Security tax
Investment credits
Fuel credits or refunds
Electric and clean fuel–burning vehicles
Sale of a farm or equipment
Chapter 14 Capital Gains and Losses: Schedule D and Form 8949
Claiming Capital Sales: Collectibles and Real Estate
Noting the Different Parts of Schedule D
Form 8949: Sales and Other Dispositions of Capital Assets
Calculating Your Adjusted Basis
What’s the starting point?
Dealing with purchased property
Looking at property received via inheritance, gift, divorce, or for services
Making adjustments to your basis
Part I, Lines 1–7: Short-Term Capital Gains and Losses
Line 4: Form 6252 short-term gain, and Forms 4684, 6781, and 8824 short-term gain or
Line 5: Net short-term gain or from Schedules K-1: Partnerships, S Corps, and estates/trusts
Line 6: Short-term capital loss carry-over
Line 7: Net short-term gain or
Part II, Lines 8–15: Long-Term Capital Gains and Losses
Line 8: Columns (d), (e), (g), and (h)
Line 11: Long-term gains and losses carried from other forms
Form 2439, Notice to Shareholders of Undistributed Long-Term Capital Gains
Form 4797, Sales of Business Property
Form 6252, Installment Sale Income
Line 12: Net long-term gain or from different entities
Line 13: Capital gain distributions
Line 14: Long-term capital loss carry-over
Line 15: Combine lines 8–14 in column (h)
Part III, Lines 16–22: Summary of Parts I and II
Line 16: Combine lines 7 and 15
Line 17: Comparing lines 15 and 16
Line 18: 28 percent gains
Line 19: 25 percent gains
Line 20: Yes or no
Line 21: Capital losses
Line 22: Qualified dividends
Using Schedule D for Home Sales
Computing your profit
Reporting a profit that exceeds the exclusion
Following the home office and rental rules
Using Form 8949 and Schedule D for Other Stock Matters
Worthless securities
Wash sales
Small business stock
Stock options
Incentive stock options (ISOs)
Employee stock purchase plans
Nonstatutory stock options
Options that have expired
Short sales
Stock for services
Appreciated employer securities
Reporting Nonbusiness Bad Debts
Day traders
Mark-to-market traders
Checking On Cryptocurrency
Chapter 15 Supplemental Income and Loss: Schedule E
Part I: Income or Loss from Rental Real Estate and Royalties
Questions A and B
Line 1: Physical address and type of each property
Line 2: Vacation home questions
Lines 3–4: Income
Lines 5–19: Expenses
Line 5: Advertising
Line 6: Auto and travel
Line 7: Cleaning and maintenance
Line 8: Commissions
Line 9: Insurance
Line 10: Legal and other professional fees
Line 11: Management fees
Line 12: Mortgage interest paid to banks (Form 1098)
Line 13: Other interest
Line 14: Repairs
Line 15: Supplies
Line 16: Taxes
Line 17: Utilities
Line 18: Depreciation expense or depletion
Line 19: Other
Lines 20–21: Calculating your income or loss per property
Line 20: Total expenses
Line 21: Subtract line 20 from line 3 (rents) and/or 4 (royalties)
Line 22: Deductible rental real estate loss after limitation, if any, on Form 8582
Worksheet to determine whether you need to file Form 8582
The $25,000 special allowance
The tax shelter rules
Lines 23–26: IRS math quiz
Part II: Income or Loss from Partnerships and S Corporations
Line 27: The at-risk and other tax shelter rules
Lines 28–32: Name . . . and so on!
Passive income and loss
Nonpassive income and loss
Part III: Income or Loss from Estates and Trusts
Passive income and loss
Nonpassive income and loss
Part IV: Income or Loss from Real Estate Mortgage Investment Conduits
Part V: Summary
Chapter 16 Giving Credits Where Credits Are Due
Child- and Dependent-Care Expenses: Form 2441 (1040)
Parts I and II
Part III
Credit for the Elderly or the Disabled: Schedule R (1040)
Education Credits (Form 8863)
Child Tax Credit and Credit for Other Dependents
Retirement Savings Contributions Credit (Form 8880)
Residential Energy Credits (Form 5695)
Adoption Credit (Form 8839)
Understanding the adoption credit and exclusion rules
Figuring out Form 8839
Motor Vehicle Credits (Form 8936)
Earned Income Credit (EIC)
Chapter 17 Other Schedules and Forms to File
Estimated Tax for Individuals (Form 1040-ES)
Calculating your Safe Harbor estimated tax payments
Completing and filing your Form 1040-ES
Moving Expenses (Form 3903)
Nondeductible IRAs (Form 8606)
Part I: Traditional IRAs
Part II: Conversions from traditional IRAs, SEPs, or SIMPLE IRAs to Roth IRAs
Part III: Distributions from Roth IRAs
Forms 8615 and 8814, the Kiddie Tax
Form 8829, Expenses for Business Use of Your Home
Considering the “simplified” home office deduction
Measuring your home office
Figuring your allowable home office deduction
Determining your home office’s depreciation allowance
Line 37: Your home’s value
Line 38: Land not included
Line 39: Basis of building
Line 40: Business portion of your home
Line 41: Depreciation percentage
Line 42: Depreciation allowable
Deducting what’s left
Form W-4, Employee Withholding
Household Employment Taxes: Schedule H
Schedule SE: Self-Employment Tax Form
Part 4 Audits and Errors: Dealing with the IRS
Chapter 18 Dreaded Envelopes: IRS Notices, Assessments, and Audits
Understanding the IRS Notice Process
Receiving your typical notice
Deciphering a notice
Assessing Assessment Notices
General assessment notices — the CP series forms and other notices
Income verification notice — Form CP-2501
Request for tax return — Forms CP-515 and CP-518
We are proposing changes to your tax return — CP-2000
Backup withholding notice
Federal tax lien notice — Form 668(F)
Requesting a Collection Due Process Hearing
Property levy notice — Form 668-A(c)
Wage levy notice — Form 668-W(c)
Handling Non-Assessment Notices
Paying interest on additional tax
Receiving a delinquent tax return notice
Understanding What You Must Know about Audits
Surviving the Four Types of Audits
Office audits
Field audits
Correspondence audits
Random statistical audits
Questioning Repetitive Audits
Getting Ready for an Audit
Winning Your Audit
Understanding the Statute of Limitations on Audits
Extending the statute of limitations
The statute of limitations on tax collection is . . .
Appealing the results of an audit
Receiving a Statutory Notice of Deficiency
Chapter 19 Fixing Mistakes the IRS Makes
Seeing the Types of Mistakes the IRS Makes
Corresponding with the IRS: The Basics
Sending a Simple Response to a Balance Due Notice
Sending Generic Responses to Generic Notices
Misapplied payments
Misunderstood due date
Due date for filing or paying fell on Saturday, Sunday, or legal holiday
Valid extension of time to file
Late filing
Wrong income
Exempt income
Retirement account
Municipal bonds
Double-counted income
Lost return
Refund return
Balance due return
Lost check
Tax assessed after statute of limitations
Partially corrected error
Erroneous refund
You returned a refund check
You didn’t return a refund check sent to you by mistake
Data-processing error
Incorrect 1099
Wrong year
Never received prior notices
Getting Attention When the IRS Appears to Be Ignoring You
Getting to know your local Taxpayer Advocate
Meeting the criteria for a Taxpayer Advocate case
Contacting the local Taxpayer Advocate
Finding Your Refund When It Doesn’t Find You
How to locate your refund
Uncashed refund checks
Interest on refunds
Refunds and estimated tax payments
Joint refunds
Joint estimated payments
Deceased taxpayer
Statute of limitations
Protective claims
Refund offset program
Chapter 20 Fixing Your Own Mistakes
Amending a Return
More expenses than income (net operating losses)
The tax benefit rule
Solving When You Can’t Pay Your Taxes
Requesting an installment agreement
Making an offer
Declaring bankruptcy
Planning ahead to avoid these problems
Abating a Penalty
The Internal Revenue Manual (IRM)
Court cases that define reasonable cause
Ignorance
Litigation
Timely mailed and presumed received
Return executed but misplaced
Return misplaced by the IRS
Mailing of return on time
Honest belief
Illness
Reliance on accountant
Excuses that won’t fly
Delegation of authority
Incarceration
IRS rulings and announcements
Partnership returns — Rev. Proc. 84-35
Erroneous advice given by IRS employees over the telephone
Erroneous written advice by IRS
IRS criteria for determining reasonable cause
Penalty appeals
Abating Interest
When interest is incorrectly charged
When the IRS wrongly refunds
When the IRS causes a delay
When the IRS doesn’t send a bill
When the IRS sends a bill
When the 36-month rule expires
Protecting Yourself with Innocent Spouse Relief
Determining if you’re eligible
Receiving relief by separation of liability
Obtaining equitable relief
Noting additional innocent spouse rules
Figuring out injured spouse relief
The Taxpayer Bill of Rights: In the Beginning
The Taxpayer Bill of Rights: Parts 2 and 3
Part 5 Year-Round Tax Planning
Chapter 21 Tax-Wise Personal Finance Decisions
Including Taxes in Your Financial Planning
Taxing Mistakes
Seeking advice after a major decision
Failing to withhold enough taxes
Overlooking legitimate deductions
Passing up retirement accounts
Ignoring tax considerations when investing
Not buying a home
Allowing your political views to distort your decision making
Ignoring the financial aid (tax) system
Neglecting the timing of events you can control
Shifting income
Bunching or shifting deductions
Not using tax advisors effectively
Comprehending the Causes of Bad Tax Decisions
“Financial planners” and brokers’ advice
Advertising
Advice from websites and publications
Overspending
Financial illiteracy
Chapter 22 Trimming Taxes with Retirement Accounts
Identifying Retirement Account Benefits
Contributions are (generally) tax-deductible
Special tax credit for lower-income earners
Tax-deferred compounding of investment earnings
Don’t go overboard
Naming the Types of Retirement Accounts
Employer-sponsored plans
401(k) plans
403(b) plans
SIMPLE plans
Self-employed plans
SEP-IRAs
Self-employed/i401(k) plans
Defined-benefit plans
Individual Retirement Accounts (IRAs)
“Regular” IRAs
Nondeductible IRA contributions
Roth IRAs
Penalty-free IRA withdrawals
Annuities
Taxing Retirement Account Decisions
Transferring existing retirement accounts
Taking money out of retirement accounts
When should you start withdrawing from retirement accounts?
Naming beneficiaries
Perplexing pension decisions
Chapter 23 Small-Business Tax Planning
Organizing Your Business Accounting
Leave an “audit” trail
Separate business from personal finances
Keep current on income and payroll taxes
Minimizing Your Small-Business Taxes
Business tax reform – The Tax Cuts and Jobs Act
Twenty percent deduction for pass-through entities
Depreciation versus deduction
Car costs
Travel, meal, and entertainment expenses
Home alone or outside office space?
Independent contractors versus employees
Insurance and other benefits
Retirement plans
Know your interest deduction and net operating loss limitations
Deciding to Incorporate or Not to Incorporate
Liability protection
Corporate taxes
Limited liability companies (LLCs)
S Corporations
Where to get advice
Investing in Someone Else’s Business
Buying or Selling a Business
Chapter 24 Your Investments and Taxes
Tapping into Tax-Reducing Investment Techniques
Buy and hold for “long-term” capital gains
Pay off high-interest debt
Fund your retirement accounts
Use tax-free money market and bond funds
Invest in tax-friendly stock funds
Greater fund distributions = more taxes!
Timing of fund purchases affects tax bill
Understanding the tax virtues of index funds
Uncovering Tax-Favored Investments to Avoid
Limited partnerships
Cash-value life insurance
Analyzing Annuities
Selling Decisions
Selling selected shares
Selling securities with (large) capital gains
Selling securities at a loss
Selling mutual fund shares and the average cost method
Selling stock options and taxes
Selling securities whose costs are unknown
Chapter 25 Real Estate and Taxes
Surveying Real Estate Tax Breaks
Mortgage interest and property tax write-offs
Home ownership capital gains exclusion
Grasping that house losses aren’t deductible
Converting rental property to save on taxes
Home office deductions
Purchasing Your Humble Home
Exploring the tax savings in home ownership
Deciding how much to spend on a home
Tracking your home expenditures
Reporting revenue if you sometimes rent
Making Tax-Wise Mortgage Decisions
15-year or 30-year mortgage?
How large a down payment?
When to refinance?
Selling Your House
Not wanting to sell at a loss
Converting a home into rental property
Looking at house sales, taxes, and divorce
Investing in Real Estate
Deciding whether real estate investing is for you
Enjoying rental property tax breaks
Operating-expense write-offs
Rolling over capital gains on rental or business real estate
Setting up a real estate corporation
Chapter 26 Children and Taxes
Bringing Up Baby
Getting Junior a Social Security number
Taking advantage of childcare tax goodies
Dependent-care tax credit
Dependent-care spending accounts
Child tax credit
Adoption tax credit
Tabulating the costs and benefits of a second income
Navigating Education Tax Breaks and Pitfalls
The (hidden) financial aid tax system
College cost tax deductions
Section 529 plans — state tuition plans
Education Savings Accounts
American Opportunity and Lifetime Learning Credits
Taxes and paying for college
Being Aware of Taxes on Your Kids’ Investments
Taxes for kids under 18 and dependent college students
Tax-wise and not-so-wise investments for educational funds
Invest in mutual funds and exchange-traded funds
Think twice about Treasury bonds
Don’t bother with cash-value life insurance
Make sure your money grows
Chapter 27 Estate Planning
Figuring Whether You May Owe Estate Taxes
Understanding the federal estate tax exemption and rate
State estate and inheritance taxes
Determining your taxable federal estate
Reducing Expected Estate Taxes
Giving it away
How much can you give away?
What should you give?
Leaving all your assets to your spouse
Establishing a bypass trust
Buying cash-value life insurance
Setting up trusts
Living trusts
Charitable trusts
Getting advice and help
Part 6 The Part of Tens
Chapter 28 Ten Tips for Reducing Your Chances of Being Audited
Double-Check Your Return for Accuracy
Declare All Your Income
Don’t Itemize
Earn a Moderate Amount of Money
Don’t Cheat and Put Down Your Protest Sign
Stay Away from Back-Street Refund Mills
Be Careful with Hobby Losses
Don’t Be a Nonfiler
Don’t Cut Corners if You’re Self-Employed
Carry a Rabbit’s Foot
Chapter 29 Ten Overlooked Opportunities to Trim Your Taxes
Make Your Savings Work for You
Invest in Wealth-Building Assets
Fund “Tax-Reduction” Accounts
Make Use of a “Back-Door” Roth IRA
Work Overseas
Check Whether You Can Itemize
Trade Consumer Debt for Mortgage Debt
Consider Charitable Contributions and Expenses
Scour for Self-Employment Expenses
Read This Book, Use Tax Software, Hire a Tax Advisor
Chapter 30 Ten (Plus One) Tax Tips for Military Families
Some Military Wages May Be Tax-Exempt
Rule Adjustments to Home Sales
Tax Benefits for Your Family if You’re Killed in Action
Deadlines Extended During Combat and Qualifying Service
Income Tax Payment Deferment Due to Military Service
Travel Expense Deductions for National Guard and Reserves Members
No Early Retirement Distribution Penalty for Called Reservists
No Education Account Distribution Penalty for Military Academy Students
Military Base Realignment and Closure Benefits Are Excludable from Income
State Income Tax Flexibility for Spouses
Deductibility of Some Expenses When Returning to Civilian Life
Chapter 31 Ten Interview Questions for Tax Advisors
What Tax Services Do You Offer?
Do You Have Areas that You Focus On?
What Other Services Do You Offer?
Who Will Prepare My Return?
How Aggressive or Conservative Are You Regarding Tax Strategies?
What’s Your Experience with Audits?
How Does Your Fee Structure Work?
What Qualifies You to Be a Tax Advisor?
Do You Carry Liability Insurance?
Can You Provide References of Clients Similar to Me?
Appendix Glossary
Index
EULA
