Dividends & Capital Gains

[Christian]

Due to a change in the law awhile back a few of my older clients no longer owe any tax on their returns because it is dividend and or capital gain income. A daughter of one client decided not to file a return for her mother pointing out she had owed no tax in two prior years and her situation had not changed materially. I am sure she would have owed no tax but question (to myself) if she might not receive a CP-2000 down the road. What do y'all think ?

[Abby Normal]

If the dividends and sales proceeds add up to more than the filing limit, I would think they'd get a CP2000. Do they owe state tax?

I like to file regardless so the year will be closed in 3 years.

[kcjenkins]

I like to remind clients that while their situation might not have changed much, sometimes tax law frequently does!

[Janitor Bob]

I always remind such clients that the IRS also gets a copy of these 1099s...and even if they owe no taxes, if the IRS does not receive a return to which their computers can match the 1099 information, they may receive a CP2000 if they do not file at all.

[mcb39]

I just finished two for two young girls who owe no tax, but both did work while in school. Grandma made investments when they were small and now, for whatever reason, decided to cash them in and they are registered in the girls' socials. What a nightmare. Also, Grandma did not give the receipts to the girls. Normally, I don't charge for student children of my clients and I spent hours on these. When I talked to Mom yesterday, I told her to tell her Mother that she didn't do me any favors.

On the other hand, you have to take the bad with the good and I have had a lot of "good" this year.

[Janitor Bob]

you take the good...you take the bad...you take them both, and there you have____________________

[Cathy]

A client may indeed owe income tax even if all of their income is from capital gains or qualified dividends. It's only the part of the taxable income that falls in the 10% or 15% bracket that the tax rate is -0-. Also, if a client's only income is capital gains, and some of the capital gains falls in the 10% or 15% bracket, it's my understanding that a return must be filed to indicate to IRS why they don't owe taxes.....under the "Who Must File a 2013 Return" requirements based on the standard deduction plus the exemption amounts for the taxpayer (and spouse if MFJ).

If all of the capital gains falls within the -0- bracket, then no return is necessary for the tax year of 2013.

For the 2014 tax year, we need to remember that even though a client's gross income meets the test necessary for not being required to file a return, A TAX RETURN FOR THE TAX YEAR OF 2014 MUST BE FILED if a client has received a subsidy in 2014 for health insurance obtained under the AFFORDABLE CARE ACT.

[Christian]

I rather suspect the mother will get a CP-2000 notice which I told her daughter may occur. If so, sometime next year I will receive a summer call telling me "Mama got a notice from the IRS ! " and will need to file a return for her after all.

[michaelmars]

If all of the capital gains falls within the -0- bracket, then no return is necessary for the tax year of 2013.

NOT exactly correct, the gain can be -0- but if the sales price is over the limit to file and the cost isn't supplied to the irs then they will get an assessment based on the full sales price. These returns need to be filed to show the irs that the gain is -0- and besides, any loss gets carried over so that's a good thing.

[SCL]

Due to a change in the law awhile back a few of my older clients no longer owe any tax on their returns because it is dividend and or capital gain income. A daughter of one client decided not to file a return for her mother pointing out she had owed no tax in two prior years and her situation had not changed materially. I am sure she would have owed no tax but question (to myself) if she might not receive a CP-2000 down the road. What do y'all think ?

the question is about filing requirement and what is "gross income"...in this case, I don't think there is a filing requirement...

"gross proceeds" of any stock sale is another question.

my mo is to file (one) consistent return (for the record) that shows no return was required.

then, when I don't file next year, the base line has been established.

[joanmcq]

If the dividends weren't qualified, they're taxed at a different rate too.

I got a client two years ago who had been told he had no filing requirement by a prior preparer.....and then got demand notices from CA. Turns out he may not have given the 1099-div to prior preparer since he didn't bring them to me either, but were on the CA notice. I had to pull transcripts and then client managed to get the 1099s from his broker within a day or so.