Dan Lanciani wrote:

- quote -

The exempt interest is not included in gross income for
purposes of who has to file, but taxable social security is
included in gross income for who has to file. It's who came
first, the chicken or the egg.

Example for t/p age 65 and single. Filing requirement is GI
of at least $9150. T/p has pension of $9000 and muni bond
interest of $9000. SSA benefits are $18000. Taxable SSA is
$1000 (one half of the excess above $25,000). GI is now
$10,000 and the taxpayer has to file and pay tax.

--
Alan
http://taxtopics.net

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Each year I prepare my mother's tax return and in almost all
cases no tax is due. By the table in the instructions she
is not even required to file, but I always figured it was
better to have the return on record.

On those rare occasions when some small tax is due the cause
is generally muni bond interest helping to push some social
security into the taxable range. Taking the table in the
instructions literally it appears that filing is not
required even in this circumstance. The footnote explicitly
says not to consider social security income, and muni exempt
interest is not part of gross income (is it?). I always had
the vague notion that filing must be required if a tax would
be due, but it doesn't actually say that anywhere.

Am I missing something or is possible to have a situation
where you are not required to file but pay tax if you elect
to file? If so I wonder if I am doing my mother a
disservice by filing, though the amount is very small.

In either case, are there other problems with not filing?
For example, my mother generally has a bond or two come due
so there may be a significant 1099B total gross sales, but
little-to-no actual gain. Does the IRS care that this is
never matched with a schedule D?

Dan Lanciani
ddl[at]danlan.*com

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