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

[SunnySpring]

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?

[jeffmcpa2010]

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]

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.  

[SunnySpring]

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.

[sjrcpa]

Are you sure about not receiving EIP3?

All the SS recipients I know of got EIP3 direct deposited to the same account where the SS is direct deposited.

[rbynaker]

You're thinking too hard.  The tax amount is not relevant, gross income is over $27,800.  File a return.

See "Filing Requirements" starting on page 9:

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

[SunnySpring]

I know about $27,800, and this couple's gross income is more than that.

That's why I started preparing the return, ending up with the tax amount "0"

[SunnySpring]

Yes, I am sure.  They showed me the bank statements for 12 months of 2021.  And there was NONE.

And as I said initially, they didn't need to file return for the years of 2019 and 2020.  Even before that, they never used their bank account for tax.

And I asked them if they received an envelope for Debit card for EIP payment, and they told me NO.

I am not worried about EIP3, and even if their memory lapsed and didn't remember their receipt of the debit card in lieu of Direct Deposit, I am sure that the IRS simply adjusted the RRC amount to "zero" and send a letter to  them, advising that the IRS records showed that the EIP has been paid to them, or something like that.

I simply need to be mindful of the implication of 1099-B.

The first requirement of the gross income over $27,800 is met.

The second requirement about 1099-B has to be met.

Yet, the return's bottom line is Tax amount ZERO.

That's how I got perplexed, but I got an answer from somebody, who asked me to check the tax rate.
From the worksheet, I found that the rate of "0"% was applied.

Gross income - Standard deduction = $25K.

Capital gains are more than $35K.

Qualified dividends are about $300.

The tax rate is determined to be "zero"

What I am not sure about is those last formula, reaching to the 0% as the tax rate.

[BobKamman]

You are following up on the answer from @jeffmcpa2010 that had nothing to do with the question.  

[jeffmcpa2010]

Might be your opinion @knowitallbob but others may differ as to whether my comments were germain to the OP's question.

[BobKamman]

Or germane, for that matter

[George4Tacks]

@SunnySpring Have the client call MetaBank to confirm not having received the card. 866.550.6382

I had at least one client that insisted they did not get it, but it ended up they did get the card and calling MetaBank https://www.metabank.com/ confirmed it and they got a new card and their money.

Another client put the check in their savings account and that it why they were sure it did not come.

IRS will hold up the return and the client will get a letter if this does not match up. They will adjust for the payment, but it does slow down the process. 

[joshuabarksatlcs]

RE: I am perplexed with this result.  Taxable income is about $25K, after Standard deduction.  But there is no tax. 

I for one thought Jeff's answer nailed it.  

[BobKamman]

I thought @rbynaker 's response nailed the part that was not germane

[joshuabarksatlcs]

RE: I am perplexed with this result.  Taxable income is about $25K, after Standard deduction.  But there is no tax. 

Jeff's answer nailed this, the "perplexedness".  (BTW, When something is quote-unquoted, no need to change the spelling or grammar.)  

RE:  Was I wrong when I thought that the couple has to file the return?

@rbynakernailed this.

Two awesome nails.

[joshuabarksatlcs]

Sort of like this....

I said: Oh, man, I have no clue why I like her so much.  Should I ask her out?

Jeff said: Because she is intelligent and beautiful.

rby said: Check with your wife.

Both would have nailed it, too.... 

[SunnySpring]

To; BobKamman

No, her/his response was about the requirement of $27,800, about which I already know, so her/his answer wouldn't help me at all.

What I wasn't sure is why the couple's tax is zero, when their axable income is more than $26K (which is from Capital gain).

And to this question, your answer makes sense, and when I checked the tax calculation, the tax rate is determined to be 0%.

[joshuabarksatlcs]

I can't speak for the  original Asker, but when I said: "Oh, man, I have no clue why I like her so much," there was an implied question, for which Jeff's answer would have nailed it. 

Enough said.  Time for another shot (of Bourbon).