Tax Quiz: March
Test your tax knowledge with these questions from the experts at the National Association of Tax Professionals.
To help keep your tax knowledge sharp during the busy season, we'll add a tax question or two every week. Our latest are on owners who rent, and the limits on reporting some unusual income.
A tipped employee is taxed only on the amount of tips he/she actually keeps. Our waiter must maintain records of tip-outs along with his other tip income (cash tips, charged tips, split tips, tip pool, etc.). Since he has over-reported his tips to his employer, he needs to provide a corrected Form 4070 to his employer, who then needs to issue him a corrected Form W-2. Source: NATP
This association can be considered a social club under Section 501(c)(7), but first must file Form 1024 requesting tax-exempt status and be approved for this status before claiming the club is an exempt organization. Once this is done, the club files Form 990, 990-EZ or 990-N.
The IRS has the authority to waive the tax if the taxpayer can establish that the shortfall between the required distribution and the amount actually distributed was due to reasonable error and steps are being taken to remedy the shortfall [IRC Sec. 4974(d); Reg. 54.4974-2, Q-7]. To request a waiver, the taxpayer should attach a statement of explanation and complete Form 5329 according to the instructions for Part VIII.