Do Senior couple, with Social Security and Capital Gains and Foreign tax credit, need to file?

Forum|Forum|4 years ago
March 6, 2022
1 reply
16 views

The couple, both over 80 years' old, didn't file tax return last year, because their income was only Social Security Benefits income. But this time, because they closed their "brokerage" accounts by selling all the securities, they received Form 1099-B and Form 1099-DIV, which included "Foreign taxes"

I thought that they need to file the return this time, and entered Schedule D (Form 8949) and Form 1116. Then when I looked at Form 1040, there was no tax computed.

I am perplexed with this result. Taxable income is about $25K, after Standard deduction. But there is no tax. Was I wrong when I thought that the couple has to file the return?

Maybe my understanding was wrong?

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J

jeffmcpa2010

Level 10

Research the capital gains tax rates for low income taxpayers.

Also - I generally file a return if the SALES on a 1099-B exceed the filing threshold, even if there is no tax due. I like having the return filed, and showing the basis of the assets sold and that the gain is below the taxable level. Usually quicker than answering an IRS letter a year and a half later.

BobKamman

Level 15

And of course you do the return for free, because it's not professional to charge people for unnecessary work. But this is not a situation where a return is not required -- for one thing, there would probably be tax due, were they not filing a joint return. It is a situation where the zero bracket for ltcg and qd applies.

The AUR program for IRS was more of a problem back when cost basis was not reported on the 1099-B. That may be the situation here, if the brokerage account has just been sitting there for more than 10 years.

S

SunnySpringAuthor

Level 4

Thank you for your prompt response to my question.

First one, you seem to be right, as the program indicates that the capital gain of more than $35K is more than taxable income, therefore, "0%" tax rate is a pplied, thus, No tax due.

But, their 1099-B contains "basis reported to IRS" and "basis not reported to IRS" and, unlike any seniors who would not be required to file return when their income source is only Social Security benefits, the couple I am working for had other "investment income" such as Interest and Dividend.

In addition, they didn't receipt EIP3. Therefore, even though their tax is "0" I thought they should file the return to receive $2800 (for two).

I agree with you, checking the tax rate applied, and about the fee... The couple has already showed their willingness to pay me the fee, as they are so eager to get it done as soon as possible.

Thank you.

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