Chapter 5: Study Questions...earned income, and with or without children. Pages 5.3, 5.5-5.9 d) This...

Copyright © 2019, The Income Tax School, Inc. – All Rights Reserved SQLA - 5.1

Chapter 5: Study Questions

1. Joe qualifies for credits but they will not increase his refund. His preparer explains nonrefundable credits can reduce his tax liability to zero but can never add to his refund. Which of the following credits is a nonrefundable credit?

a) Child and dependent care credit b) Additional child tax credit c) Earned income credit d) Excess Social Security withheld

a) Correct. Child and dependent care credit is a nonrefundable credit as determined

by the IRS. Pages 5.1-5.2 b) This answer is incorrect. Additional child tax credit is a refundable credit as determined

by the IRS. c) This answer is incorrect. Earned income credit is a refundable credit as determined by

the IRS. d) This answer is incorrect. Excess Social Security withheld is a refundable credit as

determined by the IRS.

2. Tony’s friend Sandy, who has children, claimed she had a large refund because of the earned income credit. Tony, who has no children, wants to know if this is something he is eligible to claim. Which of the following is the most accurate statement regarding who can claim the earned income credit?

a) Only taxpayers who have children b) Only taxpayers who have no children c) Only taxpayers who have earned income, with or without children d) Only taxpayers who have earned income and investment income only

a) This answer is incorrect. Earned income credit is a refundable credit available to

taxpayers who meet certain rules. b) This answer is incorrect. Earned income credit is a refundable credit available to

taxpayers who meet certain rules. c) Correct. Earned income credit is a refundable credit available to taxpayers with

earned income, and with or without children. Pages 5.3, 5.5-5.9 d) This answer is incorrect. The earned income tax credit is available to taxpayers who

worked and had earned income under a specific limit. The taxpayer can receive income from other sources such as interest from a savings account; however, investment income may negatively impact the taxpayer’s eligibility for EIC if it is above a certain amount.


3. Judith, Tony’s tax preparer, explains to Tony he must have earned income to be eligible and gives him some examples. All of the following are examples of earned income except:

a) Wages, salaries, and tips b) Net earnings from self-employment c) Gross income received as a statutory employee d) Unemployment compensation

a) This answer is incorrect. Wage, salaries, and tips are examples of earned income. b) This answer is incorrect. Net earnings from self-employment is an example of earned

income. c) This answer is incorrect. Gross income received as a statutory employee is an example

of earned income. d) Correct. Unemployment compensation is not considered earned income for

purposes of the earned income credit. Page 5.5

4. Tony received various types of income last year. Which of the following is an example of earned income for purposes of the earned income credit?

a) Interest and dividends b) Alimony c) Pensions and annuities d) Union strike benefits

a) This answer is incorrect. Interest and dividends are not earned income for purposes of

the earned income credit. b) This answer is incorrect. Alimony is not an example of earned income for purposes of

the earned income credit. c) This answer is incorrect. Pensions and annuities are not earned income for purposes of

the earned income credit. d) Correct. Union strike benefits are earned income for purposes of the earned

income credit. Page 5.5


5. Allison lives in a community property state with her two children (ages 9 and 11). She has been separated from her husband for more than a year. The portion of her husband’s earned income that is income to Allison (under community property laws) is $15,292. Allison’s earned income is $12,000. Allison also received unemployment compensation of $780. For earned income credit purposes, what is Allison’s earned income?

a) $27,292 b) $12,000 c) $12,780 d) $28,072

a) This answer is incorrect. In determining earned income (for the purposes of earned

income credit) in a community property state, only the taxpayer’s own earned income is used. Do not include income from the spouse that is considered income under community property rules.

b) Correct. In determining earned income (for the purposes of earned income credit) in a community property state, only the taxpayer’s own earned income is used. Do not include income from the spouse that is considered income under community property rules. Allison’s earned income is $12,000. Pages 5.5-5.6

c) This answer is incorrect. This answer adds Allison’s earned income and the amount of unemployment compensation Allison received. The rules for calculating income for purposes of the earned income credit specifically exclude unemployment compensation.

d) This answer is incorrect. In determining earned income (for the purposes of earned income credit) in a community property state, only the taxpayer’s own earned income is used. Also, unemployment compensation is excluded from earned income for purposes of calculating the earned income credit.

6. Emily, who has a 10-year-old daughter, separated from her husband in November. In the

past when she and her husband filed a joint return, they received earned income credit. She is concerned about whether or not she is still eligible for EIC. Her tax preparer explains there are many factors to determine this, including her filing status. Which filing status would make Emily ineligible for EIC?

a) Head of Household b) Married Filing Separately c) Single d) Qualifying Widow(er)

a) This answer is incorrect. Head of Household filing status is eligible for EIC. b) Correct. A taxpayer using the Married Filing Separately filing status is not eligible

for EIC. There are many credits that a taxpayer is either not eligible for or are reduced by using the Married Filing Separately filing status. Pages 5.3, 5.10

c) This answer is incorrect. Single filing status is eligible for EIC. d) This answer is incorrect. Qualifying Widow(er) filing status is eligible for EIC.


7. Emily’s tax preparer explains that all children are not qualifying children for purposes of the earned income credit. All of the following tests are used to determine if a child is a qualifying child for EIC except:

a) Relationship test b) Age test c) Residency test d) Support test

a) This answer is incorrect. The relationship test is a test for a qualifying child for purposes

of EIC. b) This answer is incorrect. The age test is a test for a qualifying child for purposes of EIC. c) This answer is incorrect. The residency test is a test for a qualifying child for purposes of

EIC. d) Correct. For purposes of EIC, a qualifying child is not required to meet a support

test. Page 5.11

8. Mrs. Miller loves children and has several living with her. She meets the income level for EIC but does not know how many qualifying children she has. Any of the following would be qualifying children for EIC purposes except:

a) The taxpayer’s roommate’s child b) Foster child c) Stepchild d) Grandchild

a) Correct. The taxpayer’s roommate’s child does not meet the relationship test for

purposes of earned income credit. Pages 5.11-5.12 b) This answer is incorrect. An eligible foster child meets the relationship test for purposes

of earned income credit. c) This answer is incorrect. A stepchild meets the relationship test for purposes of earned

income credit. d) This answer is incorrect. A grandchild meets the relationship test for purposes of earned

income credit.

9. Edward has a foster child through an authorized placement agency and cares for him like his own. In order for Edward to be able to claim his foster child for purposes of EIC, the child must have lived with Edward for how long?

a) At least some part of the year b) More than the child lived with anyone else c) The entire year d) More than six months

a) This answer is incorrect. A foster child that lives with the taxpayer for some part of the

year does not meet the IRS requirement for purposes of EIC. b) This answer is incorrect. A foster child that lives with the taxpayer more than the child

lived with anyone else does not meet the IRS requirement for purposes of EIC. c) This answer is incorrect. A foster child that lives with the taxpayer all year meets the IRS

requirement for purposes of EIC, but this is not the minimum requirement. d) Correct. To meet the IRS requirement for purposes of EIC, the eligible foster child

must have lived with the taxpayer for more than six months of the year. Pages 5.11-5.13


10. For purposes of EIC, a child meets all the rules to be a qualifying child of more than one person (one person is a parent, the other a grandparent). According to the tiebreaker rules, which person will be allowed to claim the child for purposes of EIC if the individuals do not mutually agree on who will claim the child as a qualifying child?

a) The grandparent can claim the child for purposes of EIC. b) The parent can claim the child for purposes of EIC. c) The individual who has legal custody of the child can claim the child for purposes of EIC. d) The person with the lower AGI can claim the child for purposes of EIC.

a) This answer is incorrect. The child is treated as the qualifying child of the parent if only

one of the persons is the child’s parent. b) Correct. The tiebreaker rules state if the choice is between a parent and a non-

parent, the parent will be allowed to claim the child for purposes of EIC. Pages 5.14-5.15

c) This answer is incorrect. According to the tiebreaker rules, the individual who has legal custody of the child does not have the first right to treat the child as a qualifying child for purposes of EIC.

d) This answer is incorrect. The tiebreaker rules state if neither person is the child’s parent, the person with the highest AGI will be allowed to claim the child for purposes of EIC. However, if one of the persons is the child’s parent, then the rule is different.

11. David, who is single and has no children, asks his tax preparer about EIC. The preparer

explains that David must meet all the following qualifications to be eligible for EIC in tax year 2018 except:

a) He must have an AGI of less than $15,270. b) He must be at least age 25 but under age 65 at the end of 2018. c) He may not be a qualifying child of another person. d) He must be married filing a joint return.

a) This answer is incorrect. Having an AGI of less than $15,270 is a qualification to be

eligible for EIC. b) This answer is incorrect. Being at least age 25 but under age 65 at the end of 2018 is a

qualification to be eligible for EIC. c) This answer is incorrect. The taxpayer not being a qualifying child of another person is a

qualification to be eligible for EIC. d) Correct. There is no requirement that a taxpayer must be married filing a joint

return to be eligible for EIC. Pages 5.3, 5.7-5.8


12. Lucinda is a single mom with two children, ages 5 and 9. Lucinda has AGI of $19,174, which includes earned income of $18,942 and interest income of $232. She supports her family without any additional help from other sources. Based on the information above, what is the amount of Lucinda’s EIC?

a) $ 0 b) $3,379 c) $5,608 d) $5,660

a) This answer is incorrect. Lucinda qualifies for the earned income credit. b) This answer is incorrect. $3,267 is the amount if Lucinda had only one qualifying child. c) Correct. EIC is based on the lower amount of EIC between AGI and earned

income. Pages 5.5, 5.9, EIC tables d) This answer is incorrect. $5,660 is the amount Lucinda would have received if the EIC

was based on her earned income.

13. Rosana is a single mom with three children, ages 2, 4, and 6. Rosana has AGI of $28,951 which consists of W-2 wages of $21,951, unemployment compensation of $2,500, union strike benefits of $1,800, and alimony of $2,700. Based on the information above, what is the amount of Rosana’s EIC?

a) $5,732 b) $5,353 c) $4,258 d) $4,827

a) This answer is incorrect. This uses only the W-2 wages to figure the EIC amount. b) This answer is incorrect. This uses earned income of $23,751 ($21,951 + $1,800) to

figure the EIC amount. c) Correct. The EIC is figured using the EIC tables to look up and compare the EIC

amount ($4,258) using her AGI ($28,951) and the EIC amount ($5,353) using her earned income ($21,951 + $1,800 = $23,751). Her EIC is the lesser of the two amounts. Pages 5.5, 5.9, EIC tables

d) This answer is incorrect. This incorrectly includes the unemployment compensation of $2,500 in earned income (and uses the higher EIC amount based on the wrong amount of earned income) to figure the EIC amount.


14. When Peter filed his tax return, the IRS disallowed the EIC he was expecting. Peter has one child. Which of the following reasons could cause a disallowance of the EIC?

a) Peter filed as Head of Household but should have used Married Filing Separately. b) The child did not live with Peter for the required period. c) The child’s age exceeds the statutory limit. d) Any of the reasons listed in the answer choices would be grounds for the IRS to

disallow EIC.

a) This answer is incorrect. If the taxpayer used an incorrect filing status and should have used Married Filing Separately, the IRS would disallow EIC, but this is not the best answer.

b) This answer is incorrect. If the child did not live with the taxpayer for the required period, the IRS would disallow EIC, but this is not the best answer.

c) This answer is incorrect. If the child’s age exceeds the statutory limit, the IRS would disallow EIC, but this is not the best answer.

d) Correct. The IRS would disallow EIC if the taxpayer used an incorrect filing status and should have used Married Filing Separately, if the child did not live with the taxpayer for the required period, or if the child’s age exceeds the statutory limit. Page 5.32

15. Suppose all of the following taxpayers meet the income and residency tests for EIC and none

of them have a qualifying child. All of the taxpayers could qualify for the EIC except:

a) A 67-year-old taxpayer and his 59-year-old wife b) A 32-year-old single taxpayer c) A 24-year-old taxpayer and his 24-year-old wife d) A 23-year-old taxpayer and her 27-year-old husband

a) This answer is incorrect. They meet all of the tests to qualify for EIC. If filing a joint

return, only one person (taxpayer or spouse) has to meet the age requirement. b) This answer is incorrect. A 32-year-old single taxpayer would qualify. c) Correct. The age requirement for a taxpayer without a qualifying child is at least

25, but under 65 at the end of the tax year. A 24-year-old-taxpayer and his 24-year-old wife would not qualify. Neither meets the age requirement of at least 25 years of age. If filing a joint return, at least one person (taxpayer or spouse) must meet this age requirement. Page 5.22

d) This answer is incorrect. They meet the age test and qualify for EIC. If filing a joint return, only one (taxpayer or spouse) has to meet the age requirement.


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Chapter 5: Learning Activity Scenario – Ronald Roberts Complete a tax return for Ronald Roberts. Ronald Roberts (age 42, DOB: 7/16/76, SSN: 434-00-1352) lived with his child, Robert (age 17, DOB: 12/2/01, SSN: 434-00-0009), at 3316 Sunny Dale Drive, your City, Your State –Your Zip. Ronald is an insurance salesman and wishes to designate $3 of his taxes for the Presidential Election Campaign Fund. Ronald has been divorced from Robert’s mother, Maggie, for four years and has custody of Robert. Robert lived with his father all year. Ronald and Maggie have agreed that each would claim Robert as a dependent on his or her tax return in alternating years. Ronald is entitled to claim Robert as a dependent on his return; however, he has signed Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, to allow Maggie to claim Robert as a dependent on her return. In addition to W-2 income, he received interest from a savings account; his tax documents follow. Ronald and his son were covered by health insurance for the entire year.

Hint: Please review the “Special Rule for Divorced or Separated Parents or Parents Who Live Apart” on page 5.18.

a Employee’s social security number 434-00-1352 OMB No.1545-0008

b Employer identification number (EIN) 54-5303201

1 Wages, tips, other compensation 21022.00

2 Federal income tax withheld 798.00

c Employer’s name, address, and ZIP code Safetech, Inc. 981 Jasper Drive Your City, Your State – Your ZIP

3 Social security wages 21022.00

4 Social security tax withheld 1303.36

5 Medicare wages and tips 21022.00

6 Medicare tax withheld 304.82

7 Social security tips

8 Allocated tips

d Control number

9 Verification code 10 Dependent care benefits

e Employee’s first name and initial

Ronald

Last name Suff.

Roberts

11 Nonqualified plans

12a See instructions for box 12 C o d e

3316 Sunny Dale Drive Your City, Your State – Your ZIP f Employee’s address and ZIP code

13 Statutory Retirement Third-party employee plan sick pay

12b C o d e

14 Other

12c C o d e

12d C o d e

15 State Employer’s state ID number 16 State wages, tips, etc. 21022.00

17 State income tax 925.55

18 Local wages, tips, etc. 19 Local income tax 20 Locality name

YS 545303201

Form W-2 Wage and Tax Statement 20XX

Department of the Treasury – Internal Revenue Service

Copy B - To Be Filed With Employee’s FEDERAL Tax Return. This information is being furnished to the Internal Revenue Service.


CORRECTED (if checked)PAYER’S name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no.

Franklin Commerce Bank P.O. Box 10135 Your City, Your State – Your ZIP

Payer’s RTN (optional)

OMB No. 1545-0112

XX Form 1099-INT

Interest Income 1 Interest income

$ 83.312 Early withdrawal penalty

$

Copy B

For Recipient

This is important tax information and is

being furnished to the Internal Revenue

Service. If you are required to file a

return, a negligence penalty or other

sanction may be imposed on you if

this income is taxable and the IRS

determines that it has not been reported.

PAYER’S federal identification number

56-0138602

RECIPIENT’S identification number

434-00-1352 3 Interest on U.S. Savings bonds and Treas. obligations

$ RECIPIENT’S name

Ronald Roberts Street address (including apt. no.)

3316 Sunny Dale Drive City or town, state or province, country and ZIP or foreign postal code

Your City, Your State – Your ZIP

4 Federal income tax withheld

$

5 Investment expenses

$ 6 Foreign tax paid

$

7 Foreign country or U.S. possession

8 Tax-exempt interest

$

9 Specified private activity bond interest

$ 10 Market Discount

$

11 Bond premium

$

FATCA filing requirement

□ 12 Bond premium on Treasury obligations

$ 13 Bond premium on tax-exempt bond

$ Account number (see instructions)

14 Tax-exempt and tax credit bond CUSIP no.

15 State 16 State identification no.

17 State tax withheld

$ $

Form 1099-INT (keep for your records) www.irs.gov/form1099int Department of the Treasury – Internal Revenue Service

Review the learning activity for Ronald Roberts. Does Ronald qualify for earned income credit? Yes, his son meets the age requirements and lived with him all year, and Ronald worked and made less than $40,320. What would happen if his interest income was $8,331? He would be ineligible for Earned Income Credit because his investment income would be over the limit of $3,500.


Chapter 5: Learning Activity Questions

1. Answer the following question based on the tax return you prepared for Ronald Roberts.

Select the total wages:

A) $21,820B) $21,022C) $21,105D) $22,746


Select the Adjusted Gross Income (AGI):

A) $21,105B) $21,022C) $21,820D) $22,746


Select the standard deduction:

A) $18,000B) $12,000C) $13,600D) $24,000


Select the taxable income:

A) $ 9,105B) $ 3,022C) $ 3,105D) $21,105



Select the tax from the Tax Tables:

A) $ 913 B) $ 0 C) $ 313 D) $2,263


Select the amount of EIC:

A) $3,067 B) $ 0 C) $3,083 D) $5,197


Select the total payments:

A) $ 798 B) $3,865 C) $4,259 D) $5,995


Select the refund:

A) $3,865 B) $3,552 C) $ 798 D) $ 485

Department of the Treasury—Internal Revenue Service (99)1040 U.S. Individual Income Tax Return OMB No. 1545-0074 IRS Use Only—Do not write or staple in this space.

Filing status: Single Married filing jointly Married filing separately Head of household Qualifying widow(er)

Your first name and initial Last name Your social security number

Your standard deduction: Someone can claim you as a dependent You were born before January 2, 1954 You are blind

If joint return, spouse's first name and initial Last name Spouse's social security number

Spouse standard deduction: Someone can claim your spouse as a dependent Spouse was born before January 2, 1954 Full-year health care coverage

Spouse is blind Spouse itemizes on a separate return or you were dual-status alien or exempt (see inst.)

Home address (number and street). If you have a P.O. box, see instructions. Apt. no. Presidential Election Campaign

(see inst.) You Spouse

City, town or post office, state, and ZIP code. If you have a foreign address, attach Schedule 6. If more than four dependents, see inst. and here

Dependents (see instructions): (2) Social security number (3) Relationship to you (4) if qualifies for (see inst.):

(1) First name Last name Child tax credit Credit for other dependents

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true,

correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.SignHere Your signature Date Your occupation If the IRS sent you an Identity Protection

PIN, enter it here (see inst.)

Spouse's signature. If a joint return, both must sign. Date Spouse's occupation If the IRS sent you an Identity Protection

Joint return?See instructions.Keep a copy foryour records.


Preparer's name Preparer's signature PTIN Firm's EIN Check if:

3rd Party Designee

Firm's name Phone no. Self-employed

PaidPreparerUse Only

Firm's address

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. US1040$1 Form 1040 (2018)

BCA

3316 SUNNY DALE DRIVE

RICHMOND VA 23260-

ROBERTSRONALD

ROBERT ROBERTS

1040 UNCLE SAM LOOP RICHMOND VA 23226-

434-00-1352

X

X

X

INSURANCE SALESMAN

TAX PREPARER XTAX PREPARER P55555555

PROFESSIONAL PREPARERS, INC

55-5555555

555-555-5555

Form 1040 (2018) Page 21 Wages, salaries, tips, etc. Attach Form(s) W-2 . . . . . . . . . . . . . . . . . . . . . . . . 1

2a Tax-exempt interest . . . . . . . . 2a b Taxable interest . . . . . 2b

3a Qualified dividends . . . . . . . . . 3a b Ordinary dividends . . . . 3b

4a IRAs, pensions, and annuities . . . . 4a b Taxable amount . . . . . 4b

Attach Form(s)W-2. Also attachForm(s) W-2G and1099-R if tax waswithheld.

5a Social security benefits . . . . . . 5a b Taxable amount . . . . . 5b

6 Total income. Add lines 1 through 5. Add any amount from Schedule 1, line 22 . . . . . 6

7 Adjusted gross income. If you have no adjustments to income, enter the amount from line 6; otherwise,subtract Schedule 1, line 36, from line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Standard

Deduction for— 8 Standard deduction or itemized deductions (from Schedule A) . . . . . . . . . . . . . . . . . . . . . . . 8

9 Qualified business income deduction (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . 9• Single or married filing separately, $12,000 10 Taxable income. Subtract lines 8 and 9 from line 7. If zero or less, enter -0- . . . . . . . . . . . . . . . 10

11 a Tax (see inst) (check if any from: 1 Form(s) 8814 2 Form 4972 3 )

b Add any amount from Schedule 2 and check here . . . . . . . . . . . . . . . . . . . . . . . . 11

• Married filing jointly or Qualifying widow(er), $24,000

12 a Child tax credit/credit for other dependents b Add any amount from Schedule 3 and check here 12• Head of household, $18,000 13 Subtract line 12 from line 11. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . 13

14 Other taxes. Attach Schedule 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

15 Total tax. Add lines 13 and 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

• If you checked any box under Standard deduction, see instructions. 16 Federal income tax withheld from Forms W-2 and 1099 . . . . . . . . . . . . . . . . . . . . . . . . . 16

17 Refundable credits: a EIC (see inst.) b Sch 8812 c Form 8863

Add any amount from Schedule 5 . . . . . . . . . . . . . . . . . . . . . . 17

18 Add lines 16 and 17. These are your total payments . . . . . . . . . . . . . . . . . . . . . . . . . 18

19 If line 18 is more than line 15, subtract line 15 from line 18. This is the amount you overpaid . . . . . . . . . . . . 19Refund

20a Amount of line 19 you want refunded to you. If Form 8888 is attached, check here . . . . . . . . . . . . 20a

b Routing number c Type: Checking SavingsDirect deposit?See instructions.

d Account number

21 Amount of line 19 you want applied to your 2019 estimated tax . . . . . . . 21

Amount You Owe 22 Amount you owe. Subtract line 18 from line 15. For details on how to pay, see instructions . . . . . . . . . . 22

23 Estimated tax penalty (see instructions) . . . . . . . . . . . . . . . . 23

Go to www.irs.gov/Form1040 for instructions and the latest information. Form 1040 (2018)

RONALD ROBERTS 434-00-1352 21,022 83

21,105

21,105 18,000 0 3,105

313

313

313

313 798

3,067 3,067 3,865 3,552 3,552

SCHEDULE EIC OMB No. 1545-0074Earned Income Credit(Form 1040)

Qualifying Child InformationComplete and attach to Form 1040 only if you have a qualifying child.

Department of the TreasuryInternal Revenue Service (99) Go to www.irs.gov/ScheduleEIC for the latest information.

AttachmentSequence No. 43

Name(s) shown on return Your social security number

See the instructions for Form 1040, line 17a, to make sure that (a) you can take the EIC, and (b) you have aBefore you begin: aqualifying child.

Be sure the child's name on line 1 and social security number (SSN) on line 2 agree with the child's social security card.Otherwise, at the time we process your return, we may reduce or disallow your EIC. If the name or SSN on the child'ssocial security card is not correct, call the Social Security Administration at 1-800-772-1213.

You can't claim the EIC for a child who didn't live with you for more than half of the year.

If you take the EIC even though you are not eligible, you may not be allowed to take the credit for up to 10 years. See the instructions for details.It will take us longer to process your return and issue your refund if you do not fill in all lines that apply for each qualifying child.

Qualifying Child Information Child 1 Child 2 Child 3

Enter qualifying child information on , Dependents tab. First name Last name First name Last name First name Last name

1 Child's nameIf you have more than three qualifyingchildren, you have to list only three to getthe maximum credit.

2 Child's SSNThe child must have an SSN as defined inthe instructions for Form 1040, line 17a,unless the child was born and died in2018. If your child was born and died in2018 and did not have an SSN, enter"Died" on this line and attach a copy ofthe child's birth certificate, deathcertificate, or hospital medical recordsshowing a live birth.

3 Child's year of birthYear Year YearIf born after 1999 and the child is If born after 1999 and the child is If born after 1999 and the child is

younger than you (or your spouse, if younger than you (or your spouse, if younger than you (or your spouse, if

filing jointly), skip lines 4a and 4b; filing jointly), skip lines 4a and 4b; filing jointly), skip lines 4a and 4b;go to line 5. go to line 5. go to line 5.

4 a Yes. No. Yes. No. Yes. No.

Was the child under age 24 at the end of2018, a student, and younger than you (oryour spouse, if filing jointly)?

Go to line 4b. Go to line 4b. Go to line 4b.Go toline 5.

Go toline 5.

Go toline 5.

b Was the child permanently and totally Yes. No. Yes. No. Yes. No.disabled during any part of 2018?

Go to The child is not a Go to The child is not a Go to The child is not aline 5. qualifying child. line 5. qualifying child. line 5. qualifying child.

5 Child's relationship to you

(for example, son, daughter, grandchild,niece, nephew, eligible foster child, etc.)

6 Number of months child livedwith you in the United Statesduring 2018

If the child lived with you for more thanhalf of 2018 but less than 7 months,enter "7."

months months monthsDo not enter more than 12 Do not enter more than 12 Do not enter more than 12

If the child was born or died in 2018 andyour home was the child's home for more than half the time he or she was aliveduring 2018, enter "12." months. months. months.

For Paperwork Reduction Act Notice, see your tax Schedule EIC (Form 1040) 2018return instructions.BCA

12

RONALD ROBERTS 434-00-1352

ROBERT ROBERTS

434-00-0009

2001

SON

Paid Preparer’s Due Diligence Checklist OMB No. 1545-0074

Form8867 Earned Income Credit (EIC), American Opportunity Tax Credit (AOTC), Child Tax Credit (CTC) (including the AdditionalChild Tax Credit (ACTC) and Credit for Other Dependents (ODC)), and Head of Household (HOH) Filing Status

To be completed by preparer and filed with Form 1040, 1040NR, 1040SS, or 1040PR. AttachmentDepartment of the TreasuryInternal Revenue Service Go to www.irs.gov/Form8867 for instructions and the latest information. Sequence No. 70Taxpayer name(s) shown on return Taxpayer identification number

Enter preparer’s name and PTIN

Part I Due Diligence Requirements

Please check the appropriate box for the credit(s) and/or HOH filing status claimed EIC CTC/ AOTC HOHon this return and complete the related Parts I–V for the benefit(s), and/or HOH filing ACTC/ODC

status claimed (check all that apply).

1 Did you complete the return based on information for tax year 2018 provided Yes Noby the taxpayer or reasonably obtained by you? . . . . . . . . . . . .

2 If credits are claimed on the return, did you complete the applicable EIC and/or CTC/ACTC/ODC worksheets found in the Form 1040, 1040SS, 1040PR, or1040NR instructions, and/or the AOTC worksheet found in the Form 8863instructions, or your own worksheet(s) that provides the same information,

Yes No N/Aand all related forms and schedules for each credit claimed? . . . . . . .

3 Did you satisfy the knowledge requirement? To meet the knowledgerequirement, you must do both of the following. Interview the taxpayer, ask questions, and document the taxpayer’s responses to determine that the taxpayer is eligible to claim the credit(s) and/or HOH filing status. Review information to determine that the taxpayer is eligible to claim the credit(s) and/or HOH filing status and the amount of any credit(s) claimed. Yes No

4 Did any information provided by the taxpayer or a third party for use inpreparing the return, or information reasonably known to you, appear to beincorrect, incomplete, or inconsistent? (If “Yes,” answer questions 4a and4b. If "No," go to question 5.) . . . . . . . . . . . . . . . . . . . . Yes No

a Did you make reasonable inquiries to determine the correct, complete, andconsistent information? . . . . . . . . . . . . . . . . . . . . . . Yes No

b Did you document your inquiries? (Documentation should include thequestions you asked, whom you asked, when you asked, the informationthat was provided, and the impact the information had on your preparationof the return.) . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No

5 Did you satisfy the record retention requirement? To meet the recordretention requirement, you must keep a copy of your documentationreferenced in 4b, a copy of this Form 8867, a copy of any applicableworksheet(s), a record of how, when, and from whom the information usedto prepare Form 8867 and any applicable worksheet(s) was obtained,and a copy of any document(s) provided by the taxpayer that you relied on todetermine eligibility for the credit(s) and/or HOH filing status or to computethe amount of the credit(s) . . . . . . . . . . . . . . . . . . . . . Yes No

List those documents, if any, that you relied on.

6 Did you ask the taxpayer whether he/she could provide documentation tosubstantiate eligibility for the credit(s) and/or HOH filing status and theamount of any credit(s) claimed on the return if his/her return is selected foraudit? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No

7 Did you ask the taxpayer if any of these credits were disallowed or reducedin a previous year? . . . . . . . . . . . . . . . . . . . . . . .(If credits were disallowed or reduced, go to question 7a; if not, go to question 8.) Yes No N/A

a Did you complete the required recertification Form 8862? . . . . . . . . Yes No N/A

8 If the taxpayer is reporting self-employment income, did you ask questionsto prepare a complete and correct Form 1040, Schedule C? . . . . . . . Yes No N/A

For Paperwork Reduction Act Notice, see separate instructions. Form 8867 (2018)BCA


TAX PREPARER P55555555

X X

X

X

X

X

X

SCHOOL RECORDS

X

X

X

Form 8867 (2018) Page 2 Part II Due Diligence Questions for Returns Claiming EIC (If the return does not claim EIC, go to Part III.)

CTC/EIC ACTC/ODC AOTC HOH

9 a Have you determined that this taxpayer is, in fact, eligible to claim the EIC forthe number of children for whom the EIC is claimed, or to claim the EIC if thetaxpayer has no qualifying child? (Skip 9b and 9c if the taxpayer is claiming

Yes Nothe EIC and does not have a qualifying child.) . . . . . . . . . . . .b Did you ask the taxpayer if the child lived with the taxpayer for over half of

Yes Nothe year, even if the taxpayer has supported the child the entire year? . .c Yes NoDid you explain to the taxpayer the rules about claiming the EIC when a child

N/Ais the qualifying child of more than one person (tiebreaker rules)? . . . .

Part III Due Diligence Questions for Returns Claiming CTC/ACTC/ODC (If the return does not claim CTC, ACTC, or ODC, goto Part IV.)


10 Have you determined that each qualifying person for the CTC/ACTC/ODC is the Yes Notaxpayer’s dependent who is a citizen, national, or resident of the United States

11 Did you explain to the taxpayer that he/she may not claim the CTC/ACTC if Yes Nothe taxpayer has not lived with the child for over half of the year, even if the

taxpayer has supported the child, unless the child’s custodial parent has N/Areleased a claim to exemption for the child? . . . . . . . . . . . .

12 Did you explain to the taxpayer the rules about claiming the CTC/ACTC/ODC for Yes Noa child of divorced or separated parents (or parents who live apart), including N/Aany requirement to attach a Form 8332 or similar statement to the return? . . . .

Part IV Due Diligence Questions for Returns Claiming AOTC (If the return does not claim AOTC, go to Part V.)CTC/

EIC ACTC/ODC AOTC HOH

13 Did the taxpayer provide the required substantiation for the credit, includinga Form 1098-T and/or receipts for the qualified tuition and related expenses

Yes Nofor the claimed AOTC? . . . . . . . . . . . . . . . . . . . . .Part V Due Diligence Questions for Claiming HOH (If the return does not claim HOH filing status, go to Part VI.)


14 Have you determined that the taxpayer was unmarried or consideredunmarried on the last day of the tax year and provided more than half of the

Yes Nocost of keeping up a home for the year for a qualifying person? . . . . . Part VI Eligibility Certification

You will have complied with all due diligence requirements for claiming the applicable credit(s) and/or HOH filingstatus on the return of the taxpayer identified above if you:

A. Interview the taxpayer, ask adequate questions, document the taxpayer’s responses on the return or in your notes,review adequate information to determine if the taxpayer is eligible to claim the credit(s) and/or HOH filing status and todetermine the amount of the credit(s) claimed;

B. Complete this Form 8867 truthfully and accurately and complete the actions described in this checklist for any applicablecredit(s) claimed and HOH filing status, if claimed;

C. Submit Form 8867 in the manner required; andD. Keep all five of the following records for 3 years from the latest of the dates specified in the Form 8867 instructions

under Document Retention.

1. A copy of Form 8867;2. The applicable worksheet(s) or your own worksheet(s) for any credit(s) claimed;3. Copies of any documents provided by the taxpayer on which you relied to determine eligibility for the credit(s) and/or

HOH filing status;4. A record of how, when, and from whom the information used to prepare this form and the applicable worksheet(s)

was obtained; and

5. A record of any additional questions you may have asked to determine eligibility to claim the credit(s), and/or HOH filingstatus and the amount(s) of any credit(s) claimed and the taxpayer’s answers.

If you have not complied with all due diligence requirements, you may have to pay a $520 penalty for each failure tocomply related to a claim of an applicable credit or HOH filing status.

15 Do you certify that all of the answers on this Form 8867 are, to the best of Yes Noyour knowledge, true, correct, and complete? . . . . . . . . . . . .

Form 8867 (2018)


X

X

X

X

X

EIC Eligibility Worksheets – Roberts

To take the EIC, follow the steps below.Step 1 – All Filers 1. If, in 2018:

3 or more children lived with you, is your AGI less than $49,194 ($54,884 if Married Filing Jointly)?

2 children lived with you, is your AGI less than $45,802 ($51,492 if Married Filing Jointly)?

1 child lived with you, is your AGI less than $40,320 ($46,010 if Married Filing jointly)?

No children lived with you, is your AGI less than $15,270 ($20,950 if Married Filing Jointly)?

x Yes. Continue No. You can’t take the credit. 2. Do you, and your spouse if filing a joint return, have a Social Security number that allows you to

work and is valid for EIC purposes? x Yes. Continue No. You can’t take the credit. Enter “No” in the space to the left of line 17. 3. Is your filing status Married Filing Separately? Yes. x No. Continue You can’t take the credit. 4. Are you filing Form 2555 or 2555-EZ (relating to foreign earned income)? Yes. x No. Continue You can’t take the credit. 5. Were you or your spouse a nonresident alien for any part of 2018? Yes. See Nonresident aliens, under x No. Go to Step 2. Definitions and Special Rules.Step 2 – Investment Income 1. Add the amounts from Form 1040:

Line 2a Line 2b + 83 Line 3b +

Schedule 1, Line 13* + Investment Income = 83

*If line 13 is a loss, enter -0-. 2. Is your investment income more than $3,500? Yes. Continue x No. Skip question 3; go to question 4.

3. Are you filing Form 4797 (relating to sales of business property)? Yes. See Form 4797 filers, later, under No. Definitions and Special Rules. You can’t take the credit. 4. Do any of the following apply for 2018?

You are filing Schedule E. You are reporting income from the rental of personal property not used in a trade or business. You are filing Form 8814 (relating to election to report child’s interest and dividends on your

return). You have income or loss from a passive activity.

Yes. You must use Worksheet 1 x No. Go to Step 3 in Pub. 596 to see if you can take the credit.

Step 3 – Qualifying Child 1. Are you claiming at least one child who meets the conditions to be your qualifying child

and, unless the child was born and died in 2018, has a valid SSN as defined later? x Yes. Continue No. Skip questions 2 and 3; go to Step 42. Are you filing a joint return for 2018? Yes. Skip questions 3 and Step 4; x No. Continue go to Step 5. 3. Could you be a qualifying child of another person in 2018? (Check “No” if the other person

is not required to file, and isn’t filing, a 2018 tax return or is filing a 2018 return only to claim a refund of withheld income tax or estimated tax paid (see Pub. 596 for examples).)

Yes. x No. Skip Step 4: go to Step 5. You can’t take the credit. Enter “No” in the space to the left of line 17.Step 4 – Filers Without a Qualifying Child1. Is the amount on Form 1040, line 7, less than $15,270 ($20,950 if Married Filing Jointly)? Yes. Continue No. You can’t take the credit. 2. Were you, or your spouse if filing a joint return, at least age 25 but under age 65 at the end

of 2018? (Check “Yes” if you were born after December 31, 1953, and before January 2, 1994). If your spouse died in 2018 or you are preparing a return for someone who died in 2018, see Pub. 596 before you answer.

Yes. Continue No. You can’t take the credit. 3. Was your main home, and your spouse’s if filing a joint return, in the United States for more

than half of 2018? Members of the military stationed outside the United States, see Members of the military, later, before you answer.

Yes. Continue No. You can’t take the credit. Enter “No” in the space to the left of line 17. 4. Are you filing a joint return for 2018? Yes. Skip questions 5 and 6; go to No. Continue to Step 5 5. Could you be a qualifying child of another person in 2018? (Check “No” if the other person

isn’t required to file, and isn’t filing, a 2018 tax return or is filing a 2018 return only to claim a refund of withheld tax or estimated tax paid (see Pub 596 for examples).)

Yes. No. Continue

You can’t take the credit. Enter “No” in the space to the left of line 17.6. Can you be claimed as a dependent on someone else’s 2018 tax return? Yes. No. Go to Step 5.

You can’t take the credit.

Step 5 – Earned Income 1. Are you filing Schedule SE because you were a member of the clergy or you had church

employee income of $108.28 or more? Yes. See Clergy or Church x No. Complete the following worksheet. Employees, whichever applies.

1. Enter the amount from Form 1040, line 1 1. 21,0222. Enter any amount included on Form 1040, line 1, that is a taxable

scholarship or fellowship grant not reported on a Form W-2 2. 3. Enter any amount included on Form 1040, line 1, that you received for

work performed while an inmate in a penal institution. (Enter “PRI” and the same amount on the dotted line next to Form 1040, line 1.) 3.

4. Enter any amount included on Form 1040, line 1, that you received as a pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan. (Enter “DFC” and the same amount on the dotted line next to Form 1040, line 1.) This amount may be shown in box 11 of Form W-2. If you received such an amount but box 11 is blank, contact your employer for the amount received. 4.

5. Enter any amount included on Form 1040, line 1, that is a Medicaid waiver payment you exclude from income. (See the instructions for Schedule 1, line 21.) 5.

6. Add lines 2, 3, 4, and 5 6. 7. Subtract line 6 from line 1 7. 21,0228. Enter all of your nontaxable combat pay if you elect to include it in earned

Income. Also enter “NCP” and the amount of your nontaxable combat pay In the space to the left of line 17 on Form 1040. See Combat pay, nontaxable, later. 8.

Electing to include nontaxable combat pay may increase or decrease your EIC. Figure the credit with and without your nontaxable combat pay before making the election.

9. Add lines 7 and 8. This is your earned income 9. 21,022

2. Were you self-employed at any time in 2018, or are you filing Schedule SE because you were a member of the clergy or you had church employee income, or are you filing Schedule C or C-EZ as a statutory employee?

Yes. Skip question 3 and Step 6; go to x No. Continue Worksheet B. 3. If you have:

3 or more qualifying children, is your earned income less than $49,194 ($54,884 if Married Filing Jointly)?

2 qualifying children, is your earned income less than $45,802 ($51,492 if Married FilingJointly)?

1 qualifying child, is your earned income less than $40,320 ($46,010 if Married Filing Jointly)?

No qualifying children, is your earned income less than $15,270 ($20,950 if MarriedFiling Jointly)?

x Yes. Go to Step 6 No. You can’t take the credit. Step 6 – How to Figure the Credit 1. Do you want the IRS to figure the credit for you? Yes. See Credit figured by the IRS, x No. Go to Worksheet A. later

EIC Worksheet A – Roberts

Before you begin: Be sure you are using the correct worksheet. Use this worksheet only if you answered “No” to Step 5, question 2. Otherwise, use Worksheet B.

Part 1 All Filers Using Worksheet A

1. Enter your earned income from Step 5. 1. 21,022

2. Look up the amount on line 1 above in the EIC Table (right after Worksheet B) to find the credit. Be sure you use the correct column for your filing status and the number of children you have. Enter the credit here.

If line 2 is zero, . You can’t take the credit. Enter “No” in the space to the left of Form 1040, line 17.

2. 3,083

3. Enter the amount from Form 1040, line 7. 3. 21,105

4. Are the amounts on lines 3 and 1 the same? Yes. Skip line 5; enter the amount from line 2 on line 6. No. Go to line 5.

Part 2 Filers Who Answered “No” on Line 4

5. If you have:

No qualifying children, is the amount on line 3 less than $8,500 ($14,200 if Married Filing Jointly)?

1 or more qualifying children, is the amount on line 3 less than $18,700 ($24,350 if Married Filing Jointly)?

Yes. Leave line 5 blank; enter the amount from line 2 on line 6. No. Look up the amount on line 3 in the EIC Table to find the

credit. Be sure you use the correct column for your filing status and the number of children you have. Enter the credit here.

Look at the amounts on lines 5 and 2. Then, enter the smaller amount on line 6. 5. 3,067

Part 3 Your Earned Income Credit

6. This is the earned income credit.

Enter this amount on Form 1040, line 17a. Reminder –

If you have a qualifying child, complete and attach Schedule EIC. 6. 3,067

If your EIC for a year after 1996 was reduced or disallowed, see Form 8862, who must file, earlier, to find out if you must file Form 8862 to take the credit for 2018.



1. Matt and Heather are not sure if they qualify for the child tax credit. Which of the following would prevent them from having a qualifying child for purposes of the child tax credit?

a) Age 17 or older at the end of the yearb) A citizen or resident of the United Statesc) Lived with the taxpayer for more than half of the yeard) Has one of the following relationships to the taxpayer:

• Son or daughter or stepson or stepdaughter• Brother or sister or stepbrother or stepsister• Adopted child• Any descendant of any of the above (for example, grandchild)• Eligible foster child

a) Correct. A child age 17 or older at the end of the year would not be a qualifying childfor purposes of the child tax credit. Page 6.3

b) This answer is incorrect. Being a citizen or resident of the United States is a requirementfor a qualifying child for purposes of the child tax credit.

c) This answer is incorrect. A child that lived with the taxpayer for more than half of the yearcould be a qualifying child for purposes of the child tax credit if all the other requirementsare met.

d) This answer is incorrect. A son or daughter, stepson or stepdaughter, brother or sister,stepbrother or stepsister, adopted child, any descendant of any of the aforementioned,such as a grandchild, or eligible foster child could be a qualifying child for purposes of thechild tax credit.

2. Jack and Carolyn have three children ages 7, 9, and 17. Their modified AGI is $85,000 ontheir joint tax return. What is the amount of their child tax credit/credit for other dependents(assuming they otherwise qualify for these credits) if their tax liability is $6,198?

a) $4,000b) $6,000c) $4,500d) $2,000

a) This answer is incorrect. This amount is the child tax credit they can claim for the twochildren under age 17.

b) This answer is incorrect. This amount is the child tax credit for three qualifying children.c) Correct. Only children under age 17 are eligible for the child tax credit which is 2 x

$2,000 = $4,000. And the child who is 17 is eligible for the credit for other dependentswhich is $500 per eligible qualifying child. Their tax liability is greater than thenonrefundable credits, so they can take $4,500 CTC/ODC on their tax return.Pages 6.2-6.5

d) This answer is incorrect. This amount is the child tax credit for only one qualifying child.


3. Hank receives dependent care benefits from his employer for his son. Which of the following situations would make the benefits taxable?

a) When the taxpayer pays too much for dependent care b) When the taxpayer doesn’t use all the dependent care benefits c) When the taxpayer earns too much money d) When the benefits are used

a) This answer is incorrect. Dependent care assistance is nontaxable when used to pay

dependent care expenses. b) Correct. Dependent care assistance is nontaxable when used to pay dependent care

expenses. Any amount not used for dependent care would then become fully taxable. Page 6.19

c) This answer is incorrect. The percentage of credit goes down as income goes up, with 20% of eligible expenses as the smallest amount allowed.

d) This answer is incorrect. Dependent care assistance is not taxable when the benefits have been used.

4. To claim the dependent care credit, Hank needs information about the person or organization

that provides the care. The following information about the dependent care provider is required on Hank’s tax return except:

a) The dependent care provider’s name b) The dependent care provider’s identification number c) The dependent care provider’s address d) The dependent care provider’s date of birth

a) This answer is incorrect. The dependent care provider’s name, as well as other

information, is required on the tax return. b) This answer is incorrect. The dependent care provider’s identification number is required

on the tax return, but so is other information. c) This answer is incorrect. The dependent care provider’s address is required on the tax

return, in addition to other information. d) Correct. The dependent care provider’s name, identification number, and address

are all required pieces of information on the tax return. The date of birth is not needed to claim the dependent care credit. Pages 6.17-6.18

5. Gina tells her tax preparer that her brother has come to live with her since the death of their

parents. She has to pay a monthly fee to a care provider for him. She wants to know if she will be able to claim this on her taxes. Expenses for the following are allowed for purposes of the dependent care credit except:

a) Care for a dependent under the age of 13 b) The taxpayer’s spouse who is physically or mentally unable to care for himself c) A dependent who is physically or mentally unable to care for himself d) A dependent who attends overnight camp during the summer months

a) This answer is incorrect. A taxpayer may deduct dependent care expenses for a

dependent under the age of 13. b) This answer is incorrect. A taxpayer may deduct dependent care expenses for a taxpayer’s

spouse who is physically or mentally unable to care for himself. c) This answer is incorrect. A taxpayer may deduct dependent care expenses for a

dependent who is physically or mentally unable to care for himself. d) Correct. A taxpayer may not deduct dependent care expenses for a dependent who

attends overnight camp. Pages 6.13, 6.15


6. Martin is 69 years old. Martin thinks he is eligible to claim the credit for the elderly or the disabled. The taxpayer must meet the following criteria in order to claim the credit for the elderly or the disabled except:

a) U.S. citizen or resident b) Age 65 or older by the end of the tax year c) If under age 65:

• Retired on permanent and total disability; • Did not reach mandatory retirement age during the tax year; and • Received taxable disability benefits in the tax year.

d) If filing Married Filing Separately, only lived with spouse during the first six months of the tax year

a) This answer is incorrect. Being a U.S. citizen or resident is a requirement for claiming the

credit for the elderly or the disabled. b) This answer is incorrect. Being age 65 or older by the end of the tax year is a requirement

for claiming the credit for the elderly or the disabled. c) This answer is incorrect. Being under age 65 and either retired on permanent or total

disability, did not reach mandatory retirement age during the tax year, or received taxable disability benefits in the tax year are requirements for claiming the credit for the elderly or the disabled.

d) Correct. Filing Married Filing Separately and only lived with the spouse during the first six months of the year does not meet the requirements for claiming the credit for the elderly or the disabled. If filing Married Filing Separately, the taxpayer could not have lived with the spouse at any time during the tax year. Page 6.21

7. Mr. and Mrs. Smith are both under 65, but Mrs. Smith is retired on permanent and total

disability. Regarding the credit for the elderly or the disabled, what is the AGI limit for a Married Filing Jointly couple, both under age 65, with one qualifying spouse?

a) $17,500 b) $20,000 c) $12,500 d) $25,000

a) This answer is incorrect. This AGI limit is for taxpayers whose filing status is Single, Head

of Household, or Qualifying Widow(er). b) Correct. Regarding the credit for the elderly or the disabled, the AGI limit is $20,000

for a Married Filing Jointly couple, both under 65, with one qualifying spouse. Page 6.22

c) This answer is incorrect. This AGI limit is for taxpayers whose filing status is Married Filing Separately and they did not live with their spouse at any time during the tax year.

d) This answer is incorrect. This AGI limit is for taxpayers whose filing status is Married Filing Jointly and both spouses qualify.


8. Scott receives dividends from securities which pay foreign taxes. Which one of the following statements is correct?

a) Scott can claim the foreign tax credit as a nonrefundable tax credit. b) Scott can claim the foreign tax credit as a refundable tax credit. c) Scott can use the foreign taxes paid to decrease the amount of foreign income reported on

his return. d) Scott can claim the foreign taxes paid on Schedule A, line 6 as an itemized deduction and

claim the foreign tax credit on Schedule 3 (Form 1040), line 48.

a) Correct. The foreign tax credit is a nonrefundable credit. Pages 6.44-6.45 b) This answer is incorrect. The foreign tax credit is not refundable. c) This answer is incorrect. The taxpayer cannot use the foreign taxes paid to reduce the

amount of foreign income reported on his return. d) This answer is incorrect. Foreign taxes paid can be claimed on Schedule A as an itemized

deduction OR claimed as a foreign tax credit on Form 1040, but not both for the same taxes paid.

9. Scott’s tax preparer knows the foreign tax credit may be claimed in which of following ways?

a) On Schedule 3 (Form 1040), line 48 and Schedule A (Form 1040), line 6 b) Only on Schedule 3 (Form 1040), line 48 c) Only on Schedule A (Form 1040), line 6 d) On Schedule 3 (Form 1040), line 48 or Schedule A (Form 1040), line 6

a) This answer is incorrect. Taxpayers can not take both the credit and the deduction. b) This answer is incorrect. The foreign tax credit may be claimed on Schedule 3 (Form

1040). However, it is not the best answer. c) This answer is incorrect. The foreign tax credit may be claimed on Schedule A. However,

it is not the best answer. d) Correct. He can claim this credit on Schedule 3 (Form 1040), line 48 or take it as an

itemized deduction on Schedule A under “Other taxes.” Attach Form 1116 if required. Pages 6.44-6.45


10. Beth works at the local Children’s Hospital. Last year, a set of triplets arrived from Africa, at the Children’s Hospital. The infants were abandoned by their parents and all 3 suffered from a very rare blood disorder. Beth worked closely with the children and soon decided to adopt all 3. Beth’s tax preparer has determined that Beth is eligible for the adoption credit; however, she must determine if the infants are classified as special needs children for adoption purposes. All of the following would be considered when determining if a child is an eligible child with special needs except:

a) The child’s ethnic background b) How long the child has been a resident of the United States c) The child’s age d) Whether the child is a member of a minority or sibling group

a) This answer is incorrect. The child’s ethnic background is one of the factors used to

determine if a child is a special needs child for purposes of the adoption credit. b) Correct. How long the child has been a resident of the United States is not a factor

in determining if a child is a special needs child for purposes of the adoption credit. However, an “eligible child” must be a citizen or resident of the United States. Page 6.23

c) This answer is incorrect. The child’s age is one of the factors used to determine if a child is a special needs child for purposes of the adoption credit.

d) This answer is incorrect. Whether the child is a member of a minority or sibling group is one of the factors used to determine if a child is a special needs child for purposes of the adoption credit.

11. Beth’s preparer further explains that qualified expenses related to the adoption credit are

deductible on her tax return. Which of the following is considered a nonqualified expense for purposes of the adoption credit?

a) Fees paid for a surrogate parent arrangement b) Travel expenses while away from home c) Attorney fees d) Court fees

a) Correct. Fees paid for a surrogate parent arrangement is not a qualified expense for

purposes of the adoption credit. Page 6.23 b) This answer is incorrect. Travel expenses while away from home would be a qualified

expense for purposes of the adoption credit. c) This answer is incorrect. Attorney fees would be a qualified expense for purposes of the

adoption credit. d) This answer is incorrect. Court fees would be a qualified expense for purposes of the

adoption credit.


12. Barry’s son graduated from high school and started college last year. Barry is overwhelmed by the costs and wants to know if he can claim any of these when he files his tax return. His preparer explains he may be able to take the American Opportunity Credit. Which of the following is a qualified expense for the American Opportunity Credit?

a) Meals b) Student health fees c) Tuition d) Room and board

a) This answer is incorrect. Meals are not a qualified expense for the American Opportunity

Credit. b) This answer is incorrect. Student health fees are not a qualified expense for the American

Opportunity Credit. c) Correct. Tuition is a qualified expense for the American Opportunity Credit.

Pages 6.25, 6.27, 6.31 d) This answer is incorrect. Room and board is not a qualified expense for the American

Opportunity Credit.

13. Barry’s preparer also explains conditions related to the American Opportunity Credit. Which of the following is a condition of eligibility for the American Opportunity Credit?

a) The expenses can only be used for years one and two of post-secondary education. b) The student must be free of felony drug convictions. c) The student does not need to be pursuing a degree or other recognized educational

credential. d) The student must be taking a full course load during the year.

a) This answer is incorrect. The American Opportunity Credit is available for the first four

years of post-secondary education. b) Correct. To be eligible for the American Opportunity Credit, the student must be free

of felony drug convictions. Page 6.33 c) This answer is incorrect. The student must be enrolled in a degree or other recognized

educational credential at an eligible institution. d) This answer is incorrect. The requirement is that the student be carrying at least half the

normal full-time workload for the course of study in which the student is enrolled.

14. Barry’s preparer also explains how his tax situation changes as Barry’s son progresses through college and considers graduate school. How many years may a student claim the Lifetime Learning Credit?

a) For one year only b) For two years only c) For four years only d) For an unlimited number of years

a) This answer is incorrect. The Lifetime Learning Credit is not just available to students for

one year only. b) This answer is incorrect. The Lifetime Learning Credit is not just available to students for

two years only. c) This answer is incorrect. The Lifetime Learning Credit is not just available to students for

four years only. d) Correct. The Lifetime Learning Credit is available to students for an unlimited

number of years. Page 6.40


15. Melanie paid $4,000 for college tuition for her 4th and final year of college. She is 25 years old and had not been convicted of a felony for possessing or distributing a controlled substance at the end of 2018. Her AGI for 2018 is $28,000. Her filing status is Single and her total tax is $1,733. She does not have any other nonrefundable credits for the tax year. Determine the type of credit she is eligible for that benefits her the most and calculate the amount of credit.

a) American Opportunity Credit – $2,500 b) American Opportunity Credit – $1,500 c) American Opportunity Credit – $1,000 d) Lifetime Learning Credit – $800

a) This answer is correct. The American Opportunity Credit is available for the first

four years of college. The question states Melanie’s tuition is for her 4th year. She would be eligible for the American Opportunity Credit. The American Opportunity Credit is 100% of the first $2,000, and 25% of the next $2,000 of qualified education expenses. Although her tax total tax is $1,733, 40% of the American Opportunity Credit is refundable. Pages 6.34-6.36

b) This answer is incorrect. This is only the nonrefundable amount. This is not the full amount she is eligible for.

c) This answer is incorrect. This is only the refundable amount. This is not the full amount she is eligible for.

d) This answer is incorrect. Melanie is eligible for the Lifetime Learning Credit. However, this credit does not give her the most benefit.

16. Harold is 30 years old and single. During the 2018 tax year, he contributed $2,500 toward his

traditional IRA account. His AGI for the year is $27,000. He has no other nonrefundable credits for the tax year. If Harold otherwise qualifies for the Retirement Savings Contributions Credit, how much would his credit be?

a) $ 400 b) $ 200 c) $ 0 d) $1,000

a) This answer is incorrect. This amount uses the wrong applicable decimal amount

(percentage) from Form 8880 to compute the credit. b) Correct. The applicable decimal amount (percentage) for a Single taxpayer with an

AGI of $27,000 is 0.1 (10%). After completing Form 8880, using the maximum contribution amount allowed of $2,000, Harold may claim a credit of $200 (10% of $2,000). Pages 6.49-6.50

c) This answer is incorrect. Harold is entitled to claim the Retirement Savings Contributions Credit.

d) This answer is incorrect. This amount uses the wrong filing status (and thus, applicable decimal amount) from Form 8880 to compute the credit.


17. Julia and her husband Bill have two children who are in college. One is a freshman and the other is a sophomore. With the costly expense of having two children in college at the same time, they are hoping they will get some type of a break on their taxes. If they otherwise qualify, what is the maximum amount Julia and Bill may be able to claim on their tax return for the American Opportunity Credit?

a) $4,000 b) $2,000 c) $2,500 d) $5,000

a) This answer is incorrect. The maximum amount which Julia and Bill may be able to claim

for the American Opportunity Credit for each child is not $2,000. b) This answer is incorrect. $2,000 is the maximum credit the taxpayer may be able to claim

if using the Lifetime Learning Credit. c) This answer is incorrect. This is the maximum credit amount that the couple may be able

to claim for one child. d) Correct. The taxpayer may be able to claim an American Opportunity Credit of up to

$5,000 ($2,500 x 2) for qualified education expenses for two eligible students. Page 6.34

18. Jesse’s son had signed up for a second term at the junior college he was attending but decided

to drop out after a few weeks and attend the police academy instead. Which of the below statements is correct?

a) Jesse can claim either the American Opportunity or the Lifetime Learning Credit for

qualified education expenses not refunded when his son withdrew. b) Jesse cannot claim any expenses since the student withdrew. c) Jesse can claim only expenses paid for a completed school term. d) Jesse can claim only a Schedule A itemized deduction since the term was not completed.

a) Correct. The taxpayer can claim either the American Opportunity or the Lifetime

Learning Credit for qualified education expenses not refunded when the student withdraws. Since the taxpayer did not receive a refund of expenses, he has paid the expenses. Page 6.27

b) This answer is incorrect. The taxpayer is not prohibited from deducting qualified education expenses that were not refunded when the student withdrew. Since the taxpayer did not receive a refund of expenses, he has paid the expenses, and thus, meets the requirement to claim a credit.

c) This answer is incorrect. The taxpayer may claim expenses even if the student withdrew. d) This answer is incorrect. The taxpayer may claim the American Opportunity Credit or the

Lifetime Learning Credit. He may not claim the expenses as an itemized deduction on Schedule A.


19. When Will’s daughter, Meredith, started college, she paid the expenses herself from a studentloan and money she had earned during high school. Meredith still lives at home and Will claimsher as a dependent on his tax return. Who is eligible to claim the American Opportunity Creditor the Lifetime Learning Credit?

a) Meredith can file her own tax return, with Will claiming her as a dependent, and claim theAmerican Opportunity or Lifetime Learning Credit.

b) Will can claim the expenses Meredith paid since he claims her as a dependent onhis tax return.

c) Only Meredith can claim the expenses that she paid for education.d) Since Will claims Meredith and Meredith does not file taxes, no one can claim the education

expenses.

a) This answer is incorrect. If Meredith has income and files a tax return, she cannot beclaimed as a dependent on her parent’s tax return for her to be able to claim the AmericanOpportunity or Lifetime Learning Credit.

b) Correct. Education expenses paid by a student can be claimed under the AmericanOpportunity or the Lifetime Learning Credit by a taxpayer if he claims the student asa dependent on his tax return. Page 6.26

c) This answer is incorrect. Meredith could claim the education credits if she met theconditions. However, Meredith is claimed as a dependent on Will’s tax return; therefore,she cannot claim the education credits.

d) This answer is incorrect. This is not consistent with the eligibility rules for claimingeducation credits.

20. Sarah works a full-time job and goes to school part-time. The only way she could afford to takeclasses was to borrow money through a student loan. Can Sarah claim the Lifetime LearningCredit?

a) If Sarah otherwise qualifies, borrowed funds used for education can be claimed asexpenses for the credit.

b) She cannot claim the credit because loan proceeds are not considered a paid expense foreducation.

c) Sarah cannot claim the credit until she is actually making payments on the loan.d) Sarah does not qualify for the Lifetime Learning Credit because she only attends part-time.

a) Correct. A taxpayer can claim the Lifetime Learning Credit for qualified educationalexpenses paid with the proceeds of a loan. Page 6.28

b) This answer is incorrect. A taxpayer is not prohibited from claiming the Lifetime LearningCredit for expenses paid with loan proceeds.

c) This answer is incorrect. The taxpayer can use the expenses to figure the LifetimeLearning Credit for the year in which the expenses are paid. The credit must be taken inthe year the expenses are paid, not when the loan is repaid.

d) This answer is incorrect. The student only needs to be enrolled in one or more classes tobe eligible for the credit.


Chapter 6: Learning Activity Scenario – Bonnie and Max Barnum Complete a tax return for the Barnums. Bonnie (age 44, DOB: 7/31/74, SSN: 144-00-0295) and Max Barnum (age 59, DOB: 9/30/59, SSN: 144-00-0099) live at 54133 Hillandale Dr., Your City, Your State – Your Zip. Bonnie attended a local college to finish her fourth and final year of study to obtain her degree; she was enrolled at least half-time for an academic period. She paid $1,568 for tuition. Bonnie had not been convicted of a felony for possessing or distributing a controlled substance. Bonnie received a Form 1098-T from the college for 2018 and 2017. For 2017, box 2 was filled in and box 7 was checked. The family had health insurance for the entire tax year. They both wish to designate $3 of their taxes for the Presidential Campaign Fund. Bonnie is a line worker and Max is a store manager.

Children: Max, Jr., age 11, DOB: 4/1/2007, SSN: 144-00-0080 Clara, age 9, DOB: 2/28/2009, SSN: 144-00-0081 Mary, age 9 months, DOB: 3/31/18, SSN: 144-00-0082

Child Care:

Wee World, EIN 54-2323456 411 West Street Your City, Your State – Your Zip

All three children were cared for and the total the Barnums paid was $8,400. They paid $5,000 for Max Jr. and Clara. They paid $3,400 for Mary. Their financial and tuition statements follow.


FILER’S name, street address, city, state, ZIP code and telephone number 1 Payments received for qualified tuition and related expenses

$ 1,568.00

OMB No. 1545-1574

18

Form 1098-T

Tuition Statement Cavalier College

13800 West Broad Street Your City, Your State – Your Zip

2 Amounts billed for qualified tuition and related expenses

$

FILER’S federal identification no. 54-7654321

STUDENT’s social security number 144-00-0295

3 If this box is checked, your education institution has changed its reporting method for 2018 □ Copy B

For Student STUDENT’s name 4 Adjustments made for a

prior year 5 Scholarships or grants

This is important tax information

and is being furnished to the

Internal Revenue Service. This form

must be used to complete Form 8863

to claim education credits. Give it to the

tax preparer or use it to prepare the tax return.

Bonnie Barnum

$ $ Street Address (including apt. no.) 54133 Hillandale Dr

6 Adjustments to scholarships or grants for a prior year

7 checked if the amount in box 1 or 2 includes amounts for an academic period beginning January– City, state, and ZIP code

Your City, Your State – Your Zip $ March 2019 ▶ Service Provider/Acct. No. (see instructions)

8 Check if at least half-time student

9 Checked if a graduate student . . . . .

10 Ins. Contract reimb/refund

Form 1098-T (keep for your records) www.irs.gov/form1098t Department of the Treasury- Internal Revenue Service





c Employer’s name, address, and ZIP code BOSS MFG Rt. 1 Box 1 Your City, Your State – Your Zip






8 Allocated tips

d Control number

9 Verification code 10 Dependent care benefits 1800.00


Bonnie

Last name Suff.

Barnum



54133 Hillandale Dr. Your City, Your State – Your Zip f Employee’s address and ZIP code


12b C o d e

14 Other

12c C o d e

12d C o d e



18 Local wages, tips, etc.

19 Local income tax

20 Locality name YS 53-0032033





1 Wages, tips, other comp. 40056.00






d Control number

Dept. Corp. Employer use only

c Employer’s name, address and ZIP code Clothes R Us 4329 Downtown Ave. Your City, Your State – Your ZIP b Employer’s FED ID number 53-0032032

a Employee’s SSA number 144-00-0099


8 Allocated tips

9 10 Dependent care benefits 11 Nonqualified plans See instructions for box 12

12a | 14 Other 12b |

12c | 12d | 13

Stat. emp. Ret. plan 3rd party sick pay

e/f Employee’s name, address and ZIP code Max Barnum 54133 Hillandale Dr. Your City, Your State – Your ZIP 15 State YS

Employer’s state ID no. 53-0032032

16 State wages, tips, etc. 40056.00



19 Local income tax

20 Locality name

Federal Filing Copy

W-2 Wage and Tax 20XX OMB No. 1545-0008

Statement

Copy B to be filed with employee’s Federal Income Tax Return


CORRECTED (if checked) PAYER’S name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no. My Town Bank P.O. Box 1228 Your City, Your State – Your ZIP


OMB No. 1545-0112

XX Form 1099-INT


$ 729.84 2 Early withdrawal penalty

$

Copy B

For Recipient









13-5554444



$ RECIPIENT’S name Bonnie Barnum Street address (including apt. no.) 54133 Hillandale Drive\ City or town, state or province, country and ZIP or foreign postal code Your City, Your State – Your ZIP

4 Federal income tax withheld $

5 Investment expenses $

6 Foreign tax paid $


8 Tax-exempt interest $

9 Specified private activity bond interest $

10 Market Discount $

11 Bond premium $


□ 12 Bond premium on Treasury obligations $

13 Bond premium on tax-exempt bond $

Account number (see instructions)



17 State tax withheld $

$ Form 1099-INT (keep for your records) www.irs.gov/form1099int Department of the Treasury – Internal Revenue Service

CORRECTED (if checked) PAYER’S name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no.

MERRETT LINK 441 W. Main St. Your City, Your State – Your ZIP

1a Total ordinary dividends $ 154.38

OMB No. 1545-0110

XX

Form 1099-DIV

Dividends and

Distributions 1b Qualified dividends $

2a Total capital gain distr. $

2b Unrecap. Sec. 1250 gain $

Copy B

For Recipient

This is important tax information and is being furnished to

the Internal Revenue Service. If you are

required to file a return, a negligence

penalty or other sanction may be imposed on you if


determines that it has not been reported

PAYER’S Federal identification number 12-2511443

RECIPIENT’S identification number 144-00-0099

2c Section 1202 gain $

2d Collectibles (28%) gain $

RECIPIENT’S name Max Barnum

3 Nondividend distributions $


5 Section 199A distributions $

6 Investment expenses $ Street address (including apt. no.)

54133 Hillandale Drive 7 Foreign tax paid $

8 Foreign country or U.S. possession City or town, state or province, county, and ZIP or foreign postal code

Your City, Your State – Your ZIP 9 Cash liquidation distributions $

10 Noncash liquidation distributions $


□ 11 Exempt-interest dividends $

12 Specified private activity bond interest dividends $

Account number (see instructions)

13 State

14 State identification no.

15 State tax withheld $

$ Form 1099-DIV (keep for your records) www.irs/form1099div Department of the Treasury – Internal Revenue Service



1. Answer the following question based on the return you prepared for Bonnie and Max Barnum.


A) $60,850 B) $61,734 C) $61,580 D) $61,004


Select the total income:

A) $61,734 B) $60,850 C) $61,580 D) $61,004



A) $60,850 B) $61,734 C) $61,580 D) $61,004


Select the standard deduction amount:

A) $24,000 B) $18,000 C) $12,000 D) $25,300



A) $37,734 B) $36,434 C) $49,734 D) $43,734




A) $4,255 B) $4,146 C) $4,866 D) $4,337


Select the total tax:

A) $4,146 B) $ 0 C) $3,205 D) $2,365


Select the additional child tax credit:

A) $4,200 B) $ 0 C) $6,000 D) $3,635



A) $8,956 B) $5,321 C) $4,694 D) $8,840


Select the refund:

A) $8,408 B) $4,694 C) $8,956 D) $4,262




















3rd Party Designee



Firm's address


BCA

54133 HILLANDALE DR

HENRICO VA 23228-

MAX

BARNUMBONNIE

MAX BARNUM JR

CLARA BARNUM

MARY BARNUM


144-00-0295

BARNUM 144-00-0099

X X

X

X

144-00-0080 SON X

144-00-0081 DAUGHTER X


LINE WORKER

STORE MANAGER



55-5555555

555-555-5555
























d Account number





NO

X

BONNIE & MAX BARNUM 144-00-0295 60,850 730 154

61,734

61,734 24,000 0 37,734

4,146

4,146

2,365 4,146

4,694 3,635 627

4,262 8,956 8,956 8,956

SCHEDULE 3 OMB No. 1545-0074

(Form 1040) Nonrefundable CreditsAttach to Form 1040.Department of the Treasury

Internal Revenue Service Go to www.irs.gov/Form1040 for instructions and the latest information. Attachment Sequence No. 03

Name(s) shown on Form 1040 Your social security number

Nonrefundable 48 Foreign tax credit. Attach Form 1116 if required . . . . . . . . . . . . . . . 48Credits 49 Credit for child and dependent care expenses. Attach Form 2441 . . . . . . . . . 49

50 Education credits from Form 8863, line 19 . . . . . . . . . . . . . . . . . . 5051 Retirement savings contributions credit. Attach Form 8880 . . . . . . . . . . . 5152 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5253 Residential energy credit. Attach Form 5695 . . . . . . . . . . . . . . . . . 5354 Other credits from Form a 3800 b 8801 c 5455 Add the amounts in the far right column. Enter here and include on Form 1040, line 12 55

For Paperwork Reduction Act Notice, see your tax return instructions. Schedule 3 (Form 1040) 2018

BCA

BONNIE & MAX BARNUM 144-00-0295

840 941

1,781

OMB No. 1545-0074

Form 2441 Child and Dependent Care ExpensesAttach to Form 1040 or Form 1040NR.

Department of the TreasuryInternal Revenue Service (99)

Go to www.irs.gov/Form2441 for instructions and thelatest information.

Attachment Sequence No. 21


You cannot claim a credit for child and dependent care expenses if your filing status is married filing separately unless you meet therequirements listed in the instructions under "Married Persons Filing Separately." If you meet these requirements, check this box.

Enter care provider's information on "Ln 1 - Care Providers" tab below.Part I Persons or Organizations Who Provided the Care—You must complete this part.

(If you have more than two care providers, see the instructions.)1 (a) Care provider's (b) Address (c) Identifying number (d) Amount paid

name (number, street, apt. no., city, state, and ZIP code) (SSN or EIN) (see instructions)

No Complete only Part II below.Did you receivedependent care benefits? Yes Complete Part III on the back next.

Caution: If the care was provided in your home, you may owe employment taxes. For details, see the instructions for Schedule 4(Form 1040), line 60a; or Form 1040NR, line 59a.Part II Credit for Child and Dependent Care Expenses2 Information about your qualifying person(s). If you have more than two qualifying persons, see the instructions.

(a) Qualifying person's name

Enter qualifying person's information on "Ln 2 - Qualifying Person" tab below.First Last

(b) Qualifying person'ssocial security number

(c) Qualified expenses youincurred and paid in 2018 for

the person listed in column (a)

3 Add the amounts in column (c) of line 2. Don't enter more than $3,000 for one qualifyingperson or $6,000 for two or more persons. If you completed Part III, enter the amount fromline 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

4 Enter your earned income. See instructions . . . . . . . . . . . . . . . . . . . 45 If married filing jointly, enter your spouse's earned income (if you or your spouse was a

student or was disabled, see the instructions); all others, enter the amount from line 4 . . 56 Enter the smallest of line 3, 4, or 5 . . . . . . . . . . . . . . . . . . . . . . . 67 Enter the amount from Form 1040, line 7; or Form

1040NR, line 36 . . . . . . . . . . . . . . . . . 78 Enter on line 8 the decimal amount shown below that applies to the amount on line 7

If line 7 is: If line 7 is:

But not Decimal But not DecimalOver over amount is Over over amount is

$0—15,000 .35 $29,000—31,000 .2715,000—17,000 .34 31,000—33,000 .2617,000—19,000 .33 33,000—35,000 .25 8 x19,000—21,000 .32 35,000—37,000 .2421,000—23,000 .31 37,000—39,000 .2323,000—25,000 .30 39,000—41,000 .2225,000—27,000 .29 41,000—43,000 .2127,000—29,000 .28 43,000—No limit .20

9 Multiply line 6 by the decimal amount on line 8. If you paid 2017 expenses in 2018, seethe instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

10 Tax liability limit. Enter the amount from the CreditLimit Worksheet in the instructions . . . . . . . . . . 10

11 Credit for child and dependent care expenses. Enter the smaller of line 9 or line 10here and on Schedule 3 (Form 1040), line 49; or Form 1040NR, line 47 . . . . . . . . . 11

For Paperwork Reduction Act Notice, see your tax return instructions. Form 2441 (2018)BCA

54-2323456


WEE WORLD411 WEST STREET

23228-HENRICO VA 8,400

MAX BARNUM JR 144-00-0080 2,500

CLARA BARNUM 144-00-0081 2,500

4,200 20,794

40,056 4,200

61,734

0.20

840

4,146

840

Form 2441 (2018) Page 2

Part III Dependent Care Benefits12 Enter the total amount of dependent care benefits you received in 2018. Amounts you

received as an employee should be shown in box 10 of your Form(s) W-2. Don'tinclude amounts reported as wages in box 1 of Form(s) W-2. If you were self-employed ora partner, include amounts you received under a dependent care assistance programfrom your sole proprietorship or partnership . . . . . . . . . . . . . . . . . . . . 12

13 Enter the amount, if any, you carried over from 2017 and used in 2018 during the graceperiod. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

14 Enter the amount, if any, you forfeited or carried forward to 2019. See instructions . . . . 14 ( )15 Combine lines 12 through 14. See instructions . . . . . . . . . . . . . . . . . . 1516 Enter the total amount of qualified expenses incurred

in 2018 for the care of the qualifying person(s) . . . 1617 Enter the smaller of line 15 or 16 . . . . . . . . . 1718 Enter your earned income. See instructions . . . . 1819 Enter the amount shown below that applies

to you.If married filing jointly, enter yourspouse's earned income (if you or yourspouse was a student or was disabled,see the instructions for line 5). . . . . 19If married filing separately, seeinstructions.All others, enter the amount from line 18.

20 Enter the smallest of line 17, 18, or 19 . . . . . . . 2021 Enter $5,000 ($2,500 if married filing separately and

you were required to enter your spouse's earnedincome on line 19) . . . . . . . . . . . . . . . 21

22 Is any amount on line 12 from your sole proprietorship or partnership?No. Enter -0-.

Yes. Enter the amount here . . . . . . . . . . . . . . . . . . . . . . . . 2223 Subtract line 22 from line 15 . . . . . . . . . . . 2324 Deductible benefits. Enter the smallest of line 20, 21, or 22. Also, include this amount

on the appropriate line(s) of your return. See instructions . . . . . . . . . . . . . . 2425 Excluded benefits. If you checked "No" on line 22, enter the smaller of line 20 or 21.

Otherwise, subtract line 24 from the smaller of line 20 or line 21. If zero or less, enter -0- . . 25

26 Taxable benefits. Subtract line 25 from line 23. If zero or less, enter -0-. Also, include thisamount on Form 1040, line 1; or Form 1040NR, line 8. On the dotted line next to Form1040, line 1; or Form 1040NR, line 8, enter "DCB" . . . . . . . . . . . . . . . . . 26

To claim the child and dependent carecredit, complete lines 27 through 31 below.

27 Enter $3,000 ($6,000 if two or more qualifying persons) . . . . . . . . . . . . . . 2728 Add lines 24 and 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2829 Subtract line 28 from line 27. If zero or less, stop. You can't take the credit.

Exception. If you paid 2017 expenses in 2018, see the instructions for line 9 . . . . . . 2930 Complete line 2 on the front of this form. Don't include in column (c) any benefits shown

on line 28 above. Then, add the amounts in column (c) and enter the total here . . . . . . 3031 Enter the smaller of line 29 or 30. Also, enter this amount on line 3 on the front of this

form and complete lines 4 through 11 . . . . . . . . . . . . . . . . . . . . . . 31

Form 2441 (2018)


1,800

1,800

8,400 1,800 20,794

40,056

1,800

5,000

X

1,800

1,800

6,000 1,800

4,200

6,600

4,200


(Form 1040) Additional Child Tax CreditAttach to Form 1040 or Form 1040NR.

Attachment Sequence No. 47

Department of the TreasuryInternal Revenue Service (99)

Go to www.irs.gov/Schedule8812 for instructions and the latestinformation.


Part I All FilersCaution: If you file Form 2555 or 2555-EZ, stop here; you cannot claim the additional child tax credit.

1 If you are required to use the worksheet in Pub. 972, enter the amount from line 10 of the Child Tax Creditand Credit for Other Dependents Worksheet in the publication. Otherwise:

1040 filers: Enter the amount from line 8 of your Child Tax Credit and Credit for Other Dependents Worksheet (see the instructions for Form 1040, line 12a). 1

1040NR filers: Enter the amount from line 8 of your Child Tax Credit and Credit for Other Dependents Worksheet (see the instructions for Form 1040NR, line 49).

2 Enter the amount from Form 1040, line 12a, or Form 1040NR, line 49 . . . . . . . . . . . . . . . . 2

3 Subtract line 2 from line 1. If zero, stop here; you cannot claim this credit . . . . . . . . . . . . . . 3

4 Number of qualifying children under 17 with the required social security number: X $1,400.Enter the result. If zero, stop here; you cannot claim this credit . . . . . . . . . . . . . . . . . . 4

TIP: The number of children you use for this line is the same as the number of children you used for line 1of the Child Tax Credit and Credit for Other Dependents Worksheet.

5 Enter the smaller of line 3 or line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

6 a Earned income (see separate instructions) . . . . . . . . . . . . . . . 6a

b Nontaxable combat pay (see separateinstructions) . . . . . . . . . . . . . . . 6b

7 Is the amount on line 6a more than $2,500?

No. Leave line 7 blank and enter -0- on line 8.

Yes. Subtract $2,500 from the amount on line 6a. Enter the result . . . 7

8 Multiply the amount on line 7 by 15% (0.15) and enter the result 8

Next. On line 4, is the amount $4,200 or more?

No. If line 8 is zero, stop here; you cannot claim this credit. Otherwise, skip Part II and enter thesmaller of line 5 or line 8 on line 15.

Yes. If line 8 is equal to or more than line 5, skip Part II and enter the amount from line 5 on line 15.Otherwise, go to line 9.

Part II Certain Filers Who Have Three or More Qualifying Children9 Withheld social security, Medicare, and Additional Medicare taxes from

Form(s) W-2, boxes 4 and 6. If married filing jointly, include your spouse’samounts with yours. If your employer withheld or you paid AdditionalMedicare Tax or tier 1 RRTA taxes, see separate instructions . . . . . . . 9

10 1040 filers: Enter the total of the amounts from Schedule 1 (Form1040), line 27, and Schedule 4 (Form 1040), line 58,

plus any taxes that you identified using code “UT” andentered on Schedule 4 (Form 1040), line 62. 10

1040NR filers: Enter the total of the amounts from Form 1040NR,lines 27 and 56, plus any taxes that you identified usingcode “UT” and entered on line 60.

11 Add lines 9 and 10 . . . . . . . . . . . . . . . . . . . . . . . . 11

12 1040 filers: Enter the total of the amounts from Form 1040, line17a, and Schedule 5 (Form 1040), line 72.

1040NR filers: Enter the amount from Form 1040NR, line 67. 12

13 Subtract line 12 from line 11. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . 13

14 Enter the larger of line 8 or line 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Next, enter the smaller of line 5 or line 14 on line 15.

Part III Additional Child Tax Credit15 This is your additional child tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Enter this amount onForm 1040, line 17b, orForm 1040NR, line 64.

For Paperwork Reduction Act Notice, see your tax return instructions. Schedule 8812 (Form 1040) 2018BCA


6,000

2,365 3,635

3 4,200

3,635 60,850

X 58,350 8,753

X

3,635

Education Credits OMB No. 1545-0074

Form 8863 (American Opportunity and Lifetime Learning Credits)Attach to Form 1040.

Department of the Treasury

Internal Revenue Service (99) Go to www.irs.gov/Form8863 for instructions and the latest information. Attachment Sequence No. 50


Complete a separate Part III on page 2 for each student for whom you're claiming either creditbefore you complete Parts I and II.

Part I Refundable American Opportunity Credit1 After completing Part III for each student, enter the total of all amounts from all Parts III, line 30 . . . . . 12 Enter: $180,000 if married filing jointly; $90,000 if single, head of

household, or qualifying widow(er) . . . . . . . . . . . . . . . . . . 23 Enter the amount from Form 1040, line 7. If you're filing Form 2555, 2555-

EZ, or 4563, or you're excluding income from Puerto Rico, see Pub. 970for the amount to enter . . . . . . . . . . . . . . . . . . . . . . 3

4 Subtract line 3 from line 2. If zero or less, stop; you can't take anyeducation credit. . . . . . . . . . . . . . . . . . . . . . . . . . 4

5 Enter: $20,000 if married filing jointly; $10,000 if single, head ofhousehold, or qualifying widow(er) . . . . . . . . . . . . . . . . . . 5

6 If line 4 is:• Equal to or more than line 5, enter 1.000 on line 6 . . . . . . . . . . . .• Less than line 5, divide line 4 by line 5. Enter the result as a decimal . . . . . . . . . 6

(rounded to at least three places) . . . . . . . . . . . . . . . . . .7 Multiply line 1 by line 6. Caution: If you were under age 24 at the end of the year and meet

the conditions described in the instructions, you can't take the refundable American opportunitycredit; skip line 8, enter the amount from line 7 on line 9, and check this box . . . . . . . . 7

8 Refundable American opportunity credit. Multiply line 7 by 40% (0.40). Enter the amount here andon Form 1040, line 17c. Then go to line 9 below . . . . . . . . . . . . . . . . . . . . . . . 8

Part II Nonrefundable Education Credits9 Subtract line 8 from line 7. Enter here and on line 2 of the Credit Limit Worksheet (see instructions) 9

10 After completing Part III for each student, enter the total of all amounts from all Parts III, line 31. Ifzero, skip lines 11 through 17, enter -0- on line 18, and go to line 19 . . . . . . . . . . . . . . . 10

11 Enter the smaller of line 10 or $10,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

12 Multiply line 11 by 20% (0.20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1213 Enter: $134,000 if married filing jointly; $67,000 if single, head of

household, or qualifying widow(er). . . . . . . . . . . . . . . . . . 1314 Enter the amount from Form 1040, line 7. If you're filing Form 2555, 2555-

EZ, or 4563, or you're excluding income from Puerto Rico, see Pub. 970for the amount to enter . . . . . . . . . . . . . . . . . . . . . . 14

15 Subtract line 14 from line 13. If zero or less, skip lines 16 and 17, enter -0-on line 18, and go to line 19. . . . . . . . . . . . . . . . . . . . . 15

16 Enter: $20,000 if married filing jointly; $10,000 if single, head ofhousehold, or qualifying widow(er) . . . . . . . . . . . . . . . . . . 16

17 If line 15 is:• Equal to or more than line 16, enter 1.000 on line 17 and go to line 18• Less than line 16, divide line 15 by line 16. Enter the result as a decimal (rounded to at least three places) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

18 Multiply line 12 by line 17. Enter here and on line 1 of the Credit Limit Worksheet (see instructions) 1819 Nonrefundable education credits. Enter the amount from line 7 of the Credit Limit Worksheet

(see instructions) here and on Schedule 3 (Form 1040), line 50 . . . . . . . . . . . . . . . . . 19For Paperwork Reduction Act Notice, see your tax return instructions. Form 8863 (2018)BCA


1,568

180,000

61,734

118,266

20,000

1.000

1,568

627

941

941

Form 8863 (2018) Page 2Name(s) shown on return Your social security number

Complete Part III for each student for whom you're claiming either the American opportunity credit or lifetime learning credit. Use additional copies of page 2 as needed for each student.

Part III Student and Educational Institution Information. See instructions.20 Student name (as shown on page 1 of your tax return) 21 Student social security number (as shown on page 1

of your tax return)

22 Educational institution information (see instructions)a. Name of first educational institution b. Name of second educational institution (if any)

(1) Address. Number and street (or P.O. box). City, town or (1) Address. Number and street (or P.O. box). City, town orpost office, state, and ZIP code. If a foreign address, see post office, state, and ZIP code. If a foreign address, seeinstructions. instructions.

Yes No Yes No(2).

Did the student receive Form 1098-T from this institution for 2018?

(2).

Did the student receive Form 1098-Tfrom this institution for 2018?

Yes No Yes No(3)

.

Did the student receive Form 1098-Tfrom this institution for 2017 with box2 filled in and box 7 checked?

(3)

.

Did the student receive Form 1098-Tfrom this institution for 2017 with box2 filled in and box 7 checked?

(4) Enter the institution's employer identification number (EIN) (4) Enter the institution's employer identification numberif you're claiming the American opportunity credit or if you (EIN) if you're claiming the American opportunity credit orchecked "Yes" in (2) or (3). You can get the EIN from Form if you checked "Yes" in (2) or (3). You can get the EIN1098-T or from the institution. from Form 1098-T or from the institution.

No — Go to line 24.23

.

Has the Hope Scholarship Credit or American opportunitycredit been claimed for this student for any 4 tax years before 2018?

Yes — Stop! Go to line 31 for this student.

Yes — Go to line 25. No — Stop! Go to line 31 for this student.

24

.

Was the student enrolled at least half-time for at least oneacademic period that began or is treated as having begunin 2018 at an eligible educational institution in a programleading towards a postsecondary degree, certificate, orother recognized postsecondary educational credential?See instructions.

25 Did the student complete the first 4 years of postsecondary Yes — Stop!education before 2018? See instructions. Go to line 31 for this No — Go to line 26.

student.26 Was the student convicted, before the end of 2018, of a Yes — Stop!

felony for possession or distribution of a controlled Go to line 31 for this No — Complete lines 27substance? student. through 30 for this student.

You can't take the American opportunity credit and the lifetime learning credit for the same student in the sameyear. If you complete lines 27 through 30 for this student, don't complete line 31.

American Opportunity Credit27 Adjusted qualified education expenses (see instructions). Don't enter more than $4,000 . . . . . . . . 2728 Subtract $2,000 from line 27. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . 2829 Multiply line 28 by 25% (0.25) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2930 If line 28 is zero, enter the amount from line 27. Otherwise, add $2,000 to the amount on line 29 and

enter the result. Skip line 31. Include the total of all amounts from all Parts III, line 30, on Part I, line 1 . . . 30

Lifetime Learning Credit31 Adjusted qualified education expenses (see instructions). Include the total of all amounts from all

Parts III, line 31, on Part II, line 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Form 8863 (2018)

13800 WEST BROAD STREETRICHMOND VA 23226-


BONNIE BARNUM 144-00-0295

CAVALIER COLLEGE

X

X

54-7654321

X

X

X

X

1,568

1,568
























X X

X

X

X

X

X

SCHOOL RECORDS

X

X

X



























was obtained; and




Form 8867 (2018)


X

X

X

X

X

US 2441 Additional Care Providers and Qualifying Persons 2012018

Name: SSN:

Persons or Organizations Who Provided the Care

1 (a) Care provider's (b) Street address (c) ID number (d) Amount

name Zip code, city, and state SSN or EIN paid

EIN

Code:

EIN

Code:

EIN

Code:

EIN

Code:

EIN

Code:

EIN

Code:

EIN

Code:

EIN

Code:

Qualifying Persons

* Qualified expenses are those you incurred and PAID in 2018

2 (a) Qualifying person's name (b) Social (c) Qualified

security expenses

First name number * See above.

a . . . . . . . . . . . . . . . . .

a . . . . . . . . . . . . . . . . .

a . . . . . . . . . . . . . . . . .

a . . . . . . . . . . . . . . . . .

a . . . . . . . . . . . . . . . . .

a . . . . . . . . . . . . . . . . .

a . . . . . . . . . . . . . . . . .

a . . . . . . . . . . . . . . . . .

© 2018 Universal Tax Systems, Inc. and/or its affiliates and licensors. All rights reserved. US2441W1


MARY BARNUM 144-00-0082 3,400

Before you begin:

Go to Part 2.

Enter this amount on Form 1040, line 12a, or Form 1040NR, line 49.

TIP

additional child tax credit



1. Alan’s financial advisor explained in general how pension payments are determined. Pension plan payments are made regularly and are based on many factors. All of the following are factors used in determining a retiree’s pension payment except:

a) Years of service with the employer b) Prior compensation c) The company’s stated retirement age d) Whether the person was an active employee at the time he reached retirement age

a) This answer is incorrect. The years of service with the employer is one of the factors. b) This answer is incorrect. The level of prior compensation is one of the factors. c) This answer is incorrect. The company’s stated retirement age is one of the factors. d) Correct. Whether or not the person was an active employee at the time he reached

retirement age is not a factor when determining a retiree’s pension payment. Page 7.2

2. Warren is comparing several types of retirement plans, including annuities. Warren

understands that an annuity is a series of payments under a contract made at regular intervals over a period of time. What is the minimum period of time that is acceptable?

a) More than one year b) More than two years c) More than five years d) More than ten years

a) Correct. More than one year is correct since the payments must be paid over a

period of more than one year. Page 7.2 b) This answer is incorrect. The minimum period of time is not more than two years. c) This answer is incorrect. The minimum period of time is not more than five years. d) This answer is incorrect. The minimum period of time is not more than ten years.

3. Judy wants to learn more about qualified employee plans. All of the following are qualified

employee plans except:

a) A stock bonus plan b) A savings plan c) A pension plan d) A profit sharing plan

a) This answer is incorrect. A stock bonus plan is a qualified employee plan based on IRS

rules. b) Correct. A savings plan is not a qualified employee plan according to IRS rules.

Page 7.4 c) This answer is incorrect. A pension plan is a qualified employee plan based on IRS rules. d) This answer is incorrect. A profit sharing plan is a qualified employee plan based on IRS

rules.


4. Since the plan is easy to manage and has little paperwork, Bob offers a SEP retirement plan to his employees. To be eligible for a SEP, the taxpayer must meet all of the following qualifications except:

a) The taxpayer must have earned at least $55,000 in the last 3 out of 5 years with the

same employer. b) The taxpayer has reached age 21. c) The taxpayer has worked for the employer for at least 3 of the past 5 years. d) The taxpayer has received at least $600 in compensation from the employer during the tax

year.

a) Correct. The IRS rules governing a SEP do not include that the taxpayer must have earned at least $55,000 in the last 3 out of 5 years with the same employer. Page 7.3

b) This answer is incorrect. Age 21 or older is one of the qualifications for a SEP. c) This answer is incorrect. The time worked for the employer is one of the qualifications for

a SEP. d) This answer is incorrect. The $600 compensation minimum is one of the qualifications for

a SEP.

5. Andrew wants to make a SIMPLE retirement plan available to his employees, but he does not understand the eligibility requirements. Which of the following requirements must be met by Andrew’s employees to participate in the SIMPLE plan?

a) Have earned at least $5,000 every year for the past 3 years b) Have earned at least $5,000 for at least 3 out of the past 5 years c) Have earned at least $5,000 for the past 2 years and be expected to earn at least

$5,000 in the current year d) Have earned at least $5,000 last year

a) This answer is incorrect. The number of years is wrong for a SIMPLE plan. b) This answer is incorrect. The number of years is wrong for a SIMPLE plan. c) Correct. The number of years and the conditions meet the IRS rules of eligibility for

establishing a SIMPLE plan. Page 7.4 d) This answer is incorrect. The earnings amount is correct; however, the time requirement

is wrong.

6. Wanda (age 49) retired on disability. Before retirement, her employer paid 85% of her disability insurance premiums. Last year, Wanda received $1,200 per month from disability (for 12 months). How much of Wanda’s disability payments should be reported as taxable income?

a) $14,400 b) $12,240 c) $ 2,160 d) $ 0

a) This answer is incorrect. The amount of disability payments earned for the year was

$14,400. The taxpayer paid 15% of the premiums; therefore, she would not be taxed on the entire amount.

b) Correct. The amount of disability payments earned for the year was $14,400. The employer paid 85% of the premiums; therefore $12,240, or 85%, is taxable to Wanda. Pages 7.5-7.6

c) This answer is incorrect. The amount of disability earned for the year was $14,400. The taxpayer paid only 15% of the premiums; therefore, this amount is not taxable to Wanda.

d) This answer is incorrect. The taxpayer paid only 15% of the premiums; therefore, she must pay some taxes on the disability payments received during the year.


7. Roberta received a Form 1099-R with a distribution code 7. How should Roberta’s distribution

be treated for tax purposes?

a) The distribution is subject to a 10% penalty. b) The distribution is eligible for the 10-year option method. c) The distribution is a normal distribution and is not subject to a penalty. d) The distribution should be treated as a rollover.

a) This answer is incorrect. If the distribution code were 1, the distribution would be subject

to a 10% penalty. b) This answer is incorrect. The distribution code needs to contain an “A” to be eligible for

the 10-year option method. c) Correct. This answer is correct because the distribution code 7 is the code for a

normal distribution and is not subject to a penalty. Page 7.9 d) This answer is incorrect. The distribution code needs to contain a “G” to indicate the

distribution should be treated as a rollover.

8. Gino retired in January and started receiving his pension in February. Gino made after-tax contributions to his pension plan over the years of his employment. Which of the following is an accurate statement?

a) Gino may receive all his distributions tax free. b) Gino must pay taxes on the entire amount of the distribution. c) Gino may recover his cost by calculating the tax-free portion of his distribution

based on the annuity starting date. d) Gino may receive distributions totally tax free until he recovers the entire cost of the plan.

After he recovers the entire cost of his plan, his payments will become fully taxable.

a) This answer is incorrect. Gino’s distributions are not tax free. Part of his distribution is taxable.

b) This answer is incorrect. Not all of Gino’s distribution is taxable since he made contributions to the plan. A portion of the distribution received will be tax free.

c) Correct. Gino will base the annual tax-free portion of his annuity based on his annuity starting date. He should use a worksheet to assist him in the calculation. Page 7.11

d) This answer is incorrect. Gino must determine his tax-free cost recovery on an annual basis. He cannot receive his distributions tax free until he recovers his entire cost.


9. Some years before retirement, Adam contributed after-tax dollars to his retirement plan. All the following plans require Adam to use the General Rule to recover the cost of his retirement plan except:

a) IRA b) Private annuity c) Purchased commercial annuity d) Nonqualified employee plan

a) Correct. Taxpayers receiving an IRA distribution are not required to use the General

Rule to recover their basis in the IRA. Nondeductible contributions are the only IRA contributions that are considered to be part of basis. When recovering basis from an IRA distribution, the taxpayer should rely on his copies of Form 8606 to determine the nontaxable portion of the distribution. Page 7.11

b) This answer is incorrect. The taxable portion of a private annuity must be calculated using the General Rule according to IRS rules.

c) This answer is incorrect. The taxable portion of a purchased commercial annuity must be calculated using the General Rule according to IRS rules.

d) This answer is incorrect. The taxable portion of a nonqualified employee plan must be calculated using the General Rule according to IRS rules.

10. Matt can use the General Rule to recover his retirement plan contributions if he meets all of the

following conditions except:

a) His annuity start date is before 11/19/1996 and after 7/1/1986. b) He does not qualify for the Simplified Method. c) He chooses not to use the Simplified Method. d) His annuity start date is before 11/19/1995 and after 7/1/1985.

a) This answer is incorrect. This is one of the qualifications that will allow the taxpayer to use

the General Rule to calculate the taxable portion of his distribution. b) This answer is incorrect. This is one of the qualifications that will allow the taxpayer to use

the General Rule to calculate the taxable portion of his distribution. c) This answer is incorrect. This is one of the qualifications that will allow the taxpayer to use

the General Rule to calculate the taxable portion of his distribution. d) Correct. The dates in this answer are not valid. Page 7.11


11. Sam (age 45) is considering an IRA withdrawal, but his tax preparer tells him it would be taxable in the year it is received unless it qualifies for an exception. All of the following are allowable exceptions except:

a) Withdrawals for hardships b) Withdrawals of contributions by the due date of the return c) Withdrawals of excess contributions by the due date of the return d) A rollover from one IRA into another

a) Correct. A hardship withdrawal does not qualify for an exception to being taxed.

Pages 7.14-7.16 b) This answer is incorrect. There would be no taxable transaction if the taxpayer makes a

contribution to an IRA and then later decides (before the due date of the return) to withdraw the contribution. If the taxpayer waits until after the due date of the return, he may be subject to a 10% penalty in addition to federal and state taxes.

c) This answer is incorrect. There would be no taxable transaction if the taxpayer withdraws excess contributions prior to the due date of the return. If the taxpayer waits until after the due date of the return, he will be subject to a 6% penalty due on the withdrawal.

d) This answer is incorrect. There would be no taxable transaction if the taxpayer rolls one IRA into another IRA. The most efficient method of completing a rollover is to allow an institution to institution rollover. This would eliminate the need for the institution to withhold taxes and the need for the taxpayer to make up the difference in the taxes withheld in the rolled over amount. If the taxpayer fails to make up the difference in the taxes withheld in the rolled over amount, he would be subject to taxes and possibly a penalty on the amount withheld for federal and state taxes.

12. Kevin is 66 years old and his wife, Sally, is 58 years old. Kevin is retired and receives Social

Security in the amount of $10,000 per year. Sally withdrew $12,000 from her IRA. Kevin and Sally are filing a joint return; they have no other income to report. What is their tax liability?

a) $ 0 b) $1,200 c) $1,800 d) $3,000

a) This answer is incorrect. The taxpayer owes a penalty on Sally’s early distribution. b) Correct. The calculation below illustrates the manner in which the tax liability is

determined for the taxpayers. Page 7.15

AGI $12,000 (Kevin’s Social Security is not taxable) Standard deduction - $24,000 Additional standard deduction - $ 1,300 (Kevin is over 65) Taxable income $ 0 Penalty on early withdrawal + $ 1,200 ($12,000 x 10%) Total tax liability $ 1,200

c) This answer is incorrect. The penalty due on the early distribution to Sally is not 15%. d) This answer is incorrect. The 25% penalty applies only to SIMPLE IRA distributions that

did not meet an exception to the penalty and were distributed prior to the employee reaching two years of participation in the plan.


13. John took an early distribution from his IRA before age 59½ and doesn’t want to pay the 10% penalty. All of the following would qualify as an exception to the 10% penalty imposed for an early IRA distribution except:

a) 01 – Qualified retirement plan distributions due to separation from service on or after

the year of reaching age 55. b) 02 – Distribution made as part of a series of substantially equal periodic payments (made

at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified employee plan, payments must begin after separation from service).

c) 03 – Distribution due to total and permanent disability. d) 04 – Distribution due to death (does not apply to modified endowment contracts).

a) Correct. This answer is correct since most IRA accounts are not affiliated with an

employer. The taxpayer usually initiates opening an IRA account and makes the contributions to the account. Thus, the separation of service is not an allowable exception for an IRA. Page 7.15

b) This answer is incorrect. The IRS allows distributions made as part of a series of substantially equal periodic payments for your life or the joint lives of you and your designated beneficiary as an exception to the 10% penalty.

c) This answer is incorrect. The IRS allows distributions due to total and permanent disability as an exception to the 10% penalty.

d) This answer is incorrect. The IRS allows distributions due to death as an exception to the 10% penalty.

14. Bruce received a lump-sum distribution of the entire balance from his employer’s qualified

retirement plan. Which of the following would disqualify the distribution’s eligibility for favorable lump-sum treatment?

a) The distribution was paid to the plan participant to purchase a main home. b) The distribution was paid because of the plan participant’s death. c) The distribution was paid after the participant reached age 59½. d) The distribution was paid because the employee separated from service.

a) Correct. A distribution made to purchase a main home does not qualify for lump-

sum distribution treatment. Page 7.16 b) This answer is incorrect. The death of a plan participant is one of the conditions that

qualifies for lump-sum distribution treatment. c) This answer is incorrect. The distribution was received after the plan participant reached

age 59½ is one of the conditions that qualifies for lump-sum distribution treatment. d) This answer is incorrect. The distribution was paid due to employee separation from

service is one of the conditions that qualifies for lump-sum distribution treatment.


15. Linda (age 51) and Joseph (age 65) are married. Although they lived together all year, Linda has decided to file a separate return from Joseph. Linda and Joseph have the following income:

Linda: $60,000 in earnings from her job

Joseph: $15,500 in earnings from his job $11,200 in Social Security benefits

How much of Joseph’s Social Security will be taxable on his return?

a) $ 0 b) $ 5,600 c) $ 9,520 d) $11,200

a) This answer is incorrect. Since Joseph and Linda are filing separate returns but lived

together during the tax year, Joseph’s Social Security is taxable up to a certain amount. b) This answer is incorrect. More than 50% of Joseph’s Social Security benefits are taxable

since Joseph is filing a MFS return and lived with his spouse during the tax year. c) Correct. Because Joseph’s filing status is Married Filing Separately and he lived

together with his spouse, the base amount for determining the taxability of Social Security is $0. 85% of Joseph’s Social Security benefits are taxable. $11,200 x 85% = $9,520. Pages 7.26-7.27

d) This answer is incorrect. Social Security benefits are never 100% taxable.


Chapter 7: Learning Activity Scenario – Tom and Karen Brown Complete a federal tax return for the Browns. Tom (age 69, DOB: 12/16/49, manager, SSN: 224-00-8893) and Karen Brown (age 56, DOB: 9/6/62, clerk, SSN: 234-00-1212) live at 4522 Gayton Road, Your City, Your State –Your Zip. Their son, Tom Jr. (age 17, DOB: 9/13/01, SSN: 400-00-0001), lives with them. Mr. and Mrs. Brown both want to designate $3 to the Presidential Election Campaign Fund. The Browns itemized on their return last year and received a state refund of $98. They are not itemizing on this year’s return. They won $100 in the lottery this year. The Brown family had health coverage for the entire year. See their financial statements on the following pages. Tom has a joint and survivor (beneficiary) pension plan. Beginning with January 2018, he started receiving payments from his pension every month for the entire year. This is the first year Tom received distributions. How much of Tom’s pension is taxable? Not All of Tom’s pension is taxable; $21,588 is taxable and $252 is a tax-free recovery of his cost in the plan. Tom must use the Simplified Method to determine the taxable and tax-free portions. Does Tom have Social Security benefits that are taxable? Yes, Tom has Social Security benefits which are taxable. How is Karen’s withdrawal from her pension taxed? All of Karen’s withdrawal from her pension is taxed, plus there is an additional tax of 10% for early withdrawal. Does Tom or Karen’s age affect the way the federal return is figured? Tom’s age affects the federal return; he is over 65 and is allowed an additional $1,300 on their standard deduction. Karen’s age affects the federal return; she is under 59½ and, therefore, has to pay an additional tax of 10% for the early withdrawal from her retirement plan. List the types of income on this return. Types of income include: Wages for Tom (W-2); Wages for Karen (W-2); Interest income for Tom (1099-INT); Dividends for Tom and Karen (1099-DIV); State tax refund (they itemized that year); Pension payment for Tom (1099-R); Early withdrawal from retirement plan Karen (1099-R); Social Security benefits for Tom (SSA-1099); Lottery winnings.


CORRECTED (if checked)PAYER’S name, street address, city or town, state or province, country and ZIP or foreign postal code, and phone no. Jackson’s Retirement Plan P.O. Box 547 Your City, Your State – Your ZIP

1. Gross distribution $ 21840.00

OMB No. 1545-0119

20XX Form 1099-R

Distributions from pensions, annuities,

retirement or Profit-sharing plans,

IRAs, insurance contracts, etc.

2a.Taxable amount $ 2b.Taxable amount Total not determined distribution

COPY B Report this income

on your federal income tax return. If

this form shows federal income tax withheld in box 4, attach this copy to

your return.

This information is being furnished to

the Internal Revenue Service.

Payer’s TIN 54-6689521

Recipient’s TIN 224-00-8893

3. Capital gain (included in box 2a) $

4.Federal income tax withheld $ 4368.00

Recipient’s name Tom Brown Street address (including apt. no.) 4522 Gayton Road City or town, state or province, country, and ZIP or foreign postal code Your City, Your State – Your ZIP

5.Employee contributions /Designated Roth contributions or insurance premiums $

6. Net unrealized appreciation in employer’s securities $

7. Distribution Code(s)

7

IRA/SEP/ SIMPLE

8. Other

% 9a. Your percentage of total distribution %

9b Total employee contribution $ 6500

10. Amount allocable to IRR within 5 years $

11. 1st year of FACTA filing requirement desig. Roth contrib.

12. State tax withheld $ 2100.00 $

13. State/Payer’s state number YS 30546689521

14. State distribution $ 21840.00 $

Account number (see instructions) 15. Local income tax withheld $ $

16. Name of locality 17. Local distribution $ $

Form 1099-R www.irs.gov/form1099r Department of the Treasury – Internal Revenue Service

CORRECTED (if checked)

PAYER’S name, street address, city or town, state or province, country, and ZIP or foreign postal code, and phone no. Income For Life Retirement Plan Suite 4017, Joplin Road Your City, Your State – Your ZIP

1. Gross distribution $ 2800

OMB No. 1545-0119

20XX Form 1099-R

Distributions from pensions, annuities,

retirement or Profit-sharing plans,

IRAs, insurance contracts, etc.

2a.Taxable amount $ 2800 2b.Taxable amount Total not determined distribution

COPY B Report this income

on your federal income tax return. If

this form shows federal income tax withheld in box 4, attach this copy to

your return.

This information is being furnished to

the Internal Revenue Service.

Payer’s TIN 63-6689521

Recipient’s TIN 234-00-1212

3. Capital gain (included in box 2a) $

4.Federal income tax withheld $ 560.00

Recipient’s name Karen Brown Street address (including apt. no.) 4522 Gayton Road City or town, state or province, country and ZIP or foreign postal code Your City, Your State – Your ZIP

5.Employee contributions /Designated Roth contributions or insurance premiums $

6. Net unrealized appreciation in employer’s securities $

7. Distribution Code(s)

1

IRA/SEP/ SIMPLE

8. Other

% 9a. Your percentage of total distribution %

9b Total employee contribution $

10. Amount allocable to IRR within 5 years $

11. 1st year of FACTA filing requirement desig. Roth contrib.

12. State tax withheld $

13. State/Payer’s state number YS 40546689521

14. State distribution $ 2800 $

Account number (see instructions) 15. Local income tax withheld $ $

16. Name of locality 17. Local distribution $ $

Form 1099-R www.irs.gov/form1099r Department of the Treasury – Internal Revenue Service


FORM SSA-1099 SOCIAL SECURITY BENEFITS STATEMENT

20XX PART OF YOUR SOCIAL SECURITY BENEFITS SHOWN IN BOX 5 MAY BE TAXABLE INCOME SEE THE REVERSE FOR MORE INFORMATION

Box 1. Name Tom Brown

Box 2. Beneficiary’s Social Security Number 224-00-8893

Box 3. Benefits Paid in 20XX $16849.00

Box 4. Benefits Repaid to SSA in 20XX – 1 = (previous year)

Box 5. Net Benefits for 20XX (Box 3 minus Box 4) $16849.00

DESCRIPTION OF AMOUNT IN BOX 3 Paid by check or direct deposit - $15241.00 Medicare Part B premiums deducted from your benefits - $1,608

DESCRIPTION OF AMOUNT IN BOX 4

Box 6. Voluntary Federal Income Tax Withheld Box 7. Address 4522 Gayton Road Your City, Your State – Your Zip Box 8. Claim Number (Use this number if you need to contact SSA)

DO NOT RETURN THIS FORM TO SSA OR IRS


Community Bank 11414 Midlothian Turnpike Your City, Your State – Your ZIP


OMB No. 1545-0112

XX Form 1099-INT



$

Copy B

For Recipient








PAYER’S TIN

54-1478541

RECIPIENT’S TIN



Tom Brown Street address (including apt. no.)

4522 Gayton Road City or town, state or province, country and ZIP or foreign postal code



$



$



$



$

11 Bond premium

$








$ $



CORRECTED (if checked) PAYER’S name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no.

Our Mutual Fund One Money Place Your City, Your State – Your ZIP

1a Total ordinary dividends

$ 432.00

OMB No. 1545-0110

XX

Form 1099-DIV

Dividends and

Distributions 1b Qualified dividends $

2a Total capital gain distr. $

2b Unrecap. Sec. 1250 gain $

Copy B

For Recipient

This is important tax information and is being furnished to

the Internal Revenue Service. If you are

required to file a return, a negligence

penalty or other sanction may be imposed on you if


determines that it has not been reported

PAYER’S TIN

13-5669213

RECIPIENT’S TIN

224-00-8893

2c Section 1202 gain $

2d Collectibles (28%) gain $

RECIPIENT’S name

Tom & Karen Brown

3 Nondividend distributions $


5. Section 199A dividends 6 Investment expenses $ Street address (including apt. no.)

4522 Gayton Road

7 Foreign tax paid $

8 Foreign country or U.S. possession City or town, state or province, county, and ZIP or foreign postal code


9 Cash liquidation distributions $

10 Noncash liquidation distributions $


□

11 Exempt-interest dividends

$

12 Specified private activity bond interest dividends


13 State

14 State identification no. 15 State tax withheld

$ $

Form 1099-DIV (keep for your records) www.irs/form1099div Department of the Treasury – Internal Revenue Service


Copy B To Be Filed with Employee’s FEDERAL Tax Return.

20XX OMB No.1545-0008

a Employee's SSN 224-00-8893 b Employer ID no. (EIN) 54-8995232

1 Wages, tips, other comp. 47986.00






c Employer’s name, address, and ZIP code Harrison & Associates 19232 Patterson Ave. Your City, Your State – Your ZIP d Control number e Employee’s name, address, and ZIP code Suff. Tom Brown 4522 Gayton Road Your City, Your State – Your ZIP 7 Social security tips

8 Allocated tips

9

10 Dependent care benefits

11 Nonqualified plans 12a Code See inst. for box 12 12b Code 12c Code 12d Code

13 Statutory employee Retirement Plan Third-party sick pay

14 Other

15 State Employer’s state ID number YS | 54-8995232




19 Local tax 20 Locality name

Form W-2 Wage and Tax Statement This information is being furnished to the Internal Revenue Service

Dept. of the Treasury - IRS






c Employer’s name, address, and ZIP code Works 4 Me 15 Works Lane Your City, Your State – Your Zip





7 Social security tips 8 Allocated tips

d Control number



Karen

Last name Suff.

Brown



4522 Gayton Road Your City, Your State – Your Zip f Employee’s address and ZIP code


12b C o d e

14 Other

12c C o d e

12d C o d e



18 Local wages, tips, etc. 19 Local income tax

20 Locality name

YS 65-8952320






1. Answer the following question based on the tax return you prepared for Tom and Karen Brown.

Does Tom have Social Security benefits that are taxable?

A) Yes, the entire amount of his Social Security benefits is taxable. B) Yes, but only 50% of his Social Security benefits are taxable. C) Yes, but only 85% of his Social Security benefits are taxable. D) No, none of his Social Security benefits are taxable.


Tom’s withdrawal from his pension is:

A) Not taxable B) Partly taxable as calculated using the Simplified Method C) Fully taxable D) 50% taxable


Does Tom or Karen’s age affect the way the federal return is calculated?

A) Tom – no; Karen – no B) Tom – no; Karen – yes C) Tom – yes; Karen – no D) Tom – yes; Karen – yes



A) $ 47,986 B) $ 65,929 C) $105,591 D) $ 90,569



A) $105,591 B) $ 91,017 C) $105,339 D) $105,491




A) $105,591 B) $105,491 C) $ 91,017 D) $105,339


Select the standard deduction:

A) $19,600 B) $24,000 C) $25,300 D) $26,600



A) $80,039 B) $81,339 C) $78,739 D) $85,739



A) $ 9,485 B) $10,046 C) $ 9,441 D) $ 9,540



A) $9,485 B) $9,265 C) $8,965 D) $9,765




A) $10,890 B) $15,818 C) $15,258 D) $14,725


Select the refund:

A) $6,553 B) $6,333 C) $5,993 D) $5,460
















Spouse's signature. If a joint return, both must sign. Date If the IRS sent you an Identity Protection




3rd Party Designee



Firm's address


BCA

4522 GAYTON RD

RICHMOND VA 23236-

KAREN

BROWNTOM

TOM BROWN JR


224-00-8893

BROWN 234-00-1212

X X

X

X

X

400-00-0001 SON X

MANAGER Spouse's occupation

CLERK



55-5555555

555-555-5555
























d Account number





FORM 1099

TOM & KAREN BROWN 224-00-8893 65,929 70 432

24,640 24,388 16,849 14,322

105,339 198

105,339 25,300 0 80,039

9,485

9,485

500 500 8,985 280 9,265 15,818

15,818 6,553 6,553


(Form 1040) Additional Income and Adjustments to IncomeAttach to Form 1040.Department of the Treasury



Additional 1–9b Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1–9b

Income 10 Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1011 Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1112 Business income or (loss). Attach Schedule C or C-EZ . . . . . . . . . . . . . . 1213 Capital gain or (loss). Attach Schedule D if required. If not required, check here 1314 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . . . 1415a Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15b16a Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16b17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 1718 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 1819 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . . . 1920a Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20b21 Other income. List type and amount 2122 Combine the amounts in the far right column. If you don't have any adjustments to

income, enter here and include on Form 1040, line 6. Otherwise, go to line 23 . . . . . 22Adjustments 23 Educator expenses . . . . . . . . . . . . . . . . . 23to Income 24 Certain business expenses of reservists, performing artists,

and fee-basis government officials. Attach Form 2106 . . . 2425 Health savings account deduction. Attach Form 8889 . . . 2526 Moving expenses for members of the Armed Forces.

Attach Form 3903 . . . . . . . . . . . . . . . . . 2627 Deductible part of self-employment tax. Attach Schedule SE . 2728 Self-employed SEP, SIMPLE, and qualified plans . . . . . 2829 Self-employed health insurance deduction . . . . . . . . 2930 Penalty on early withdrawal of savings . . . . . . . . . 3031a Alimony paid b Recipient's SSN 31a32 IRA deduction . . . . . . . . . . . . . . . . . . 3233 Student loan interest deduction . . . . . . . . . . . . 3334 Reserved . . . . . . . . . . . . . . . . . . . . . 3435 Reserved . . . . . . . . . . . . . . . . . . . . . 3536 Add lines 23 through 35 . . . . . . . . . . . . . . . . . . . . . . . . . . 36


BCA

TOM & KAREN BROWN 224-00-8893

98

LOTTERY WINNINGS 100

198


(Form 1040) Other TaxesAttach to Form 1040.Department of the Treasury



Other 57 Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . . . 57

Taxes 58 Unreported social security and Medicare tax from: Form a 4137 b 8919 58 59 Additional tax on IRAs, other qualified retirement plans, and other tax-favored

accounts. Attach Form 5329 if required . . . . . . . . . . . . . . . . . 59 60a Household employment taxes. Attach Schedule H . . . . . . . . . . . . . . 60a

b Repayment of first-time homebuyer credit from Form 5405. Attach Form 5405 ifrequired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60b

61 Health care: individual responsibility (see instructions) . . . . . . . . . . . . 61 62 Taxes from: a Form 8959 b Form 8960

c Instructions; enter code(s) 62 63 Section 965 net tax liability installment from Form

965-A . . . . . . . . . . . . . . . . . 63 64 Add the amounts in the far right column. These are your total other taxes. Enter

here and on Form 1040, line 14 . . . . . . . . . . . . . . . . . . . . . 64For Paperwork Reduction Act Notice, see your tax return instructions. Schedule 4 (Form 1040) 2018

BCA

NO


280

280
























X

X

X

X

X

X

X

X

X

SCHOOL RECORDS



























was obtained; and




Form 8867 (2018)


X

X

X

X

Simplified Method Worksheet – Tom Brown

Before you begin: If you are the beneficiary of a deceased employee or former employee who died before August 21, 1996, include any death benefit exclusion that you are entitled to (up to $5,000) in the amount entered on line 2 below.

More than one pension or annuity. If you had more than one partially taxable pension or annuity, figure the taxable part of each separately. Enter the total of the taxable parts on Form 1040, line 4b. Enter the total pension or annuity payments received in 2018 on Form 1040, line 4a.1. Enter the total pension or annuity payments from Form 1099-R, box 1. Also, enter this

amount on Form 1040, line 4a; or Form 1040NR, line 17a. 1. 21,8402. Enter your cost in the plan (contract) at the annuity starting date.

Note: If you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year’s worksheet on line 4 below (even if the amount of your pension or annuity has changed). Otherwise, go to line 3. 2. 6,500

3. Enter the appropriate number from Table 1 below. But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below. 3. 310

4. Divide line 2 by the number on line 3 4. 20.97 5. Multiply line 4 by the number of months for which this year’s payments

were made. If your annuity starting date was before 1987, skip lines 6 and 7 and enter this amount on line 8. Otherwise, go to line 6. 5. 252

6. Enter the amount, if any, recovered tax free in years after 1986. If you completed this worksheet last year, enter the amount from line 10 of last year’s worksheet. 6. 0

7. Subtract line 6 from line 2 7. 6,500 8. Enter the smaller of line 5 or line 7 8. 252 9. Taxable amount. Subtract line 8 from line 1. Enter the result, but not less than zero.

Also, enter this amount on Form 1040, line 4b; or Form 1040NR, line 17b. If your Form 1099-R shows a larger amount, use the amount on this line instead of the amount from Form 1099-R. If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers in Pub. 575 before entering an amount on your tax return. 9. 21,588

10. Was your annuity starting date before 1987? Yes. Stop. Do not complete the rest of this worksheet. No. Add lines 6 and 8. This is the amount you have recovered tax free through

2018. You will need this number if you need to fill out this worksheet next year. 10. 252 11. Balance of cost to be recovered. Subtract line 10 from line 2. If zero, you will not have

to complete this worksheet next year. The payments you receive next year will generally be fully taxable. 11. 6,248

Table 1 for Line 3 Above

IF the age at annuity starting date was …

AND your annuity starting date was -- before November 19, 1996,

enter on line 3 …after November 18, 1996,

enter on line 3 … 55 or under 300 360 56-60 260 310 61-65 240 260 66-70 170 210 71 or over 120 160

Table 2 for Line 3 Above IF the combined ages at annuity starting date were …

THEN enter on line 3 …

110 or under 410 111-120 360 121-130 310 131-140 260 141 or over 210

Social Security Benefits Worksheet – Tom Brown

Before you begin: If you are Married Filing separately and you lived apart from your spouse for all of 2018, enter “D” to the right of the word

“benefits” on Form 1040, line 5a. Do not use this worksheet if you repaid benefits in 2018 and your total repayments (box 4 of Forms SSA-1099 and RRB-

1099) were more than your gross benefits for 2018 (box 3 of Forms SSA-1099 and RRB-1099). None of your benefits are taxable for 2018. For more information, see Repayments More Than Gross Benefits.

If you are filling Form 8815, Exclusion of Interest from Series EE and I U.S. Savings Bonds Issued After 1989, do not include the amount from line 2b of Form 1040 on line 3 of this worksheet. Instead, include the amount from Schedule B (Form 1040), line 2.

1. Enter the total amount from box 5 of ALL your Forms SSA-1099 and Forms RRB-1099.Also enter this amount on Form 1040, line 5a. 1. 16,849

2. Enter one-half of line 1 2. 8,425 3. Combine the amounts from:

Form 1040, Lines 1, 2b, 3b, 4b, and Schedule 1 (Form 1040), line 22 3. 91,017 4. Enter the amount, if any, from Form 1040, line 2a 4. 5. Enter the total of any exclusions/adjustments for:

Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5.

6. Combine lines 2, 3, 4, and 5 6. 99,442 7. Enter the amounts from Schedule 1 (Form 1040), lines 23 through 32, and any write-in adjustments you

entered on the dotted line next to Schedule 1 (Form 1040), line 36 other than any amounts identified as “DPAD” 7.

8. Is the amount on line 7 less than the amount on line 6? No. STOP. None of your Social Security benefits are taxable. Enter -0- on Form 1040, line 5b. Yes. Subtract line 7 from line 6 8. 99,442

9. If you are: • Married Filing Jointly, enter $32,000 • Single, Head of Household, Qualifying Widow(er), or Married Filing Separately and you lived apart

from your spouse for all of 2018, enter $25,000 • Note. If you are Married Filing Separately and you lived with your spouse at any time in 2018, skip lines

9 through 16; multiply line 8 by 85% (0.85) and enter the result on line 17. Then go to line 18. 9. 32,00010. Is the amount on line 9 less than the amount on line 8? No. STOP. None of your benefits are taxable. Enter -0- on Form 1040, line 5b. If you are Married

Filing Separately and you lived apart from your spouse for all of 2018, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 5a.

Yes. Subtract line 9 from line 8 10. 67,44211. Enter $12,000 if Married Filing Jointly; $9,000 if Single, Head of Household, Qualifying Widow(er), or

Married Filing Separately and you lived apart from your spouse for all of 2018. 11. 12,00012. Subtract line 11 from line 10. If zero or less, enter -0- 12. 55,44213. Enter the smaller of line 10 or line 11 13. 12,00014. Multiply line 13 by 50% (0.50) 14. 6,00015. Enter the smaller of line 2 or line 14 15. 6,00016. Multiply line 12 by 85% (0.85). If line 12 is zero, enter -0- 16. 47,12617. Add lines 15 and 16 17. 53,12618. Multiply line 1 by 85% (0.85) 18. 14,32219. Taxable benefits. Enter the smaller of line 17 or line 18. Also enter this amount on Form 1040, line 5b. 19. 14,322

TIP If you received a lump-sum payment in 2018 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit.


Chapter 8: Chapter Study Questions

1. Arnold has several adjustments to income he plans to claim on his tax return. Which of the following items will be decreased by the adjustments?

a) Taxable wages b) Total income c) Federal tax withholding d) Deductions

a) This answer is incorrect. Adjustments do not decrease taxable wages. Taxable wages,

salaries, tips, etc. are reported in full on Form 1040. b) Correct. Adjustments decrease a taxpayer’s total income to arrive at the adjusted

gross income (AGI). Page 8.1 c) This answer is incorrect. Adjustments do not decrease federal tax withholding. Federal

tax withheld from Forms W-2 and 1099 is reported in full on Form 1040. d) This answer is incorrect. Adjustments do not have an impact on deductions.

2. Arnold’s tax preparer explains the different types of adjustments to income available to

taxpayers. All of the following are adjustments to income except:

a) IRA deduction b) Student loan interest deduction c) Penalty on early withdrawal on an IRA d) Moving expenses

a) This answer is incorrect. The IRA deduction is an adjustment to income. b) This answer is incorrect. The student loan interest deduction is an adjustment to income. c) Correct. The penalty on the early withdrawal on an IRA is not an adjustment to

income. An early withdrawal penalty on an IRA is an additional tax, not an adjustment to income. Pages 8.2, 8.30

d) This answer is incorrect. Moving expenses for members of the Armed Forces is an adjustment to income.

3. Clark plans to open a retirement account and asks his preparer what IRA types are available

and how they will affect his taxes. Each of the following is a type of IRA except:

a) SIMPLE IRA b) Roth IRA c) Traditional IRA d) 403(b) plan

a) This answer is incorrect. The SIMPLE plan is an IRA. b) This answer is incorrect. The Roth IRA is a nondeductible IRA. c) This answer is incorrect. The traditional IRA is a deductible and nondeductible IRA. d) Correct. The 403(b) plan is an elective deferral retirement plan, not an IRA.

Pages 8.9-8.11, 8.23


4. Clark’s preparer explains that Clark may be able to contribute to an IRA until he reaches age 70½, provided he has taxable compensation and meets other conditions. All of the following are considered taxable compensation for purposes of an IRA except:

a) Wages b) Interest income c) Self-employment income d) Professional fees

a) This answer is incorrect. Wages are earned income, and therefore are taxable

compensation for purposes of an IRA. b) Correct. Interest income is not earned income, and therefore is not taxable

compensation for purposes of an IRA. Pages 8.11, 8.19 c) This answer is incorrect. Self-employment income is earned income, and therefore is

taxable compensation for purposes of an IRA. d) This answer is incorrect. Professional fees are earned income, and therefore are taxable

compensation for purposes of an IRA.

5. Alan (age 45) and Trisha (age 31) are Married Filing Jointly. Evaluate their income to determine how much they can contribute to an IRA.

Alan’s wages: $ 5,500Joint interest income: $15,900Stock proceeds: $36,000

a) $11,000 – Each b) $11,000 – Jointly c) $ 5,500 – Jointly d) $ 0

a) This answer is incorrect. The IRA contribution limit per person (for individuals under age

50) is $5,500. b) This answer is incorrect. The taxpayer’s total taxable compensation is less than $11,000.

The joint IRA contribution will, therefore, be limited. c) Correct. The taxpayer’s IRA contribution is limited to $5,500 per person or the total

taxable compensation, whichever may be less. The taxable compensation of $5,500 is less than $5,500 per person. Pages 8.11-8.12

d) This answer is incorrect. The taxpayers are eligible to make an IRA contribution based on their taxable compensation.


6. Billy (age 35) and LeeAnn (age 32) have decided to contribute $6,500 to their IRAs. LeeAnn’s wages are $50,000 per year. She is not covered by a pension plan at work. Billy is a stay-at-home dad. How much should they each contribute to their respective IRAs?

a) Since LeeAnn works, she must contribute a full $5,500 to her IRA, and Billy will contribute

the remaining $1,000 to his IRA. b) They must split it 50/50 between their respective IRA accounts. c) They can split the contribution in any manner they choose as long as neither

contributes more than $5,500 to their respective IRAs. d) They cannot contribute $6,500. LeeAnn is the only one with income; she can contribute

$5,500. Billy is unable to contribute to his IRA because he is not employed.

a) This answer is incorrect. There are no IRS rules governing how much the working spouse must contribute before allowing a nonworking spouse contribution.

b) This answer is incorrect. There are no IRS rules that dictate how the contribution must be split.

c) Correct. The IRS rules simply dictate a maximum limit allowed by each spouse. Pages 8.11-8.12

d) This answer is incorrect. The IRS allows contributions for the working employee up to the maximum contribution of $5,500 (under age 50) or to the extent of their taxable compensation; whichever is less. The IRS also allows a spousal IRA for the nonworking spouse with the same limitations.

7. Jack and Jane, Married Filing Jointly taxpayers, do not have a pension plan at work. At what

adjusted gross income level is their income too high to be eligible to make a Roth IRA contribution?

a) $ 10,000 b) $135,000 c) $189,000 d) $199,000

a) This answer is incorrect. The maximum AGI limit is more than $10,000 for a Married Filing

Jointly taxpayer. $10,000 is the limit for a Married Filing Separately taxpayer. b) This answer is incorrect. The maximum AGI limit is $135,000 for a Single or Head of

Household taxpayer. c) This answer is incorrect. Married Filing Jointly taxpayers can make a Roth IRA contribution

if their AGI is $189,000. d) Correct. A Married Filing Jointly taxpayer cannot contribute to a Roth IRA if his AGI

is $199,000 or more. Page 8.21


8. Brett, age 50, took an early IRA distribution to buy a sailboat. He receives Form 1099-R with distribution code 1 in box 7. Where should Brett report the required early withdrawal penalty?

a) Schedule 4 (Form 1040), line 59 b) Schedule 1 (Form 1040), line 30 c) The IRA deduction worksheet d) Form 1099-R

a) Correct. Schedule 1 (Form 1040), line 59 is the correct line for the early withdrawal

from an IRA. Page 8.23 b) This answer is incorrect. Schedule 1 (Form 1040), line 30 is used to report early withdrawal

penalty of savings. c) This answer is incorrect. The IRA deduction worksheet does not calculate an early

withdrawal penalty. d) This answer is incorrect. Form 1099-R is an income reporting instrument only.

9. Bonnie contributed more than the maximum allowable deduction to her IRA. On which form

should she report a nondeductible IRA contribution?

a) Form 1040 b) Form 5329 c) Form 8606 d) Not reported since it is nondeductible

a) This answer is incorrect. Form 1040 does not have a line for a nondeductible IRA

contribution. b) This answer is incorrect. Form 5329 does not have a place to report a nondeductible IRA

contribution. c) Correct. This form is designed to report nondeductible IRA contributions.

Pages 8.17-8.18 d) This answer is incorrect. The taxpayer is required to keep records of nondeductible IRA

contributions for future tax returns.

10. Walter just turned age 71 and plans to make his annual $1,000 contribution to his Roth IRA. What is the maximum age limit at which a taxpayer can make a contribution to a Roth IRA?

a) 59½ b) 70½ c) 65 d) No age limit

a) This answer is incorrect. 59½ is not the age limit at which a taxpayer is no longer eligible

to make contributions to a Roth IRA. Any distributions received after an individual attains age 59½ are not subject to a penalty tax.

b) This answer is incorrect. 70½ is not the age limit at which a taxpayer is no longer eligible to make contributions to a Roth IRA. After an individual reaches age 70½, minimum distributions from a traditional IRA must commence.

c) This answer is incorrect. 65 is not the age limit at which a taxpayer is no longer eligible to make contributions to a Roth IRA. Age 65 is considered normal retirement age under most qualified plans.

d) Correct. There is no age limit at which a taxpayer is no longer eligible to make contributions to a Roth IRA. Page 8.19


11. Mason’s Roth IRA has shown significant growth and he wants to make a withdrawal. He’s concerned he may have to pay a penalty. A penalty-free withdrawal can be made from a Roth IRA for all the following situations except:

a) The taxpayer becomes disabled b) To the beneficiaries if the taxpayer dies c) For a first-time homebuyer ($10,000 limit) d) To buy a new car

a) This answer is incorrect. A taxpayer may make withdrawals from his IRA should he

become disabled without being subject to a penalty. b) This answer is incorrect. An IRA payment made to beneficiaries due to the death of the

taxpayer is not subject to a penalty. c) This answer is incorrect. The taxpayer is allowed to withdraw up to $10,000 to pay qualified

first-time homebuyer amounts without being subject to a penalty. d) Correct. The taxpayer would be subject to a penalty if he withdrew money from his

IRA for the purchase of a vehicle. IRS rules do not allow for a penalty-free withdrawal of IRA funds for personal purchases such as a vehicle. Page 8.19

12. Mandel is a single taxpayer considering opening a Roth IRA. Which of the qualifications listed

below must Mandel meet in order to contribute to a Roth IRA?

a) The taxpayer must have had taxable compensation. b) The taxpayer’s modified AGI must be less than $199,000. c) The taxpayer cannot contribute to any other type of IRA. d) The taxpayer cannot have a pension plan at work.

a) Correct. In order for the taxpayer to qualify to make a contribution to a Roth IRA, he

must have had taxable compensation. Page 8.19 b) This answer is incorrect. $199,000 is the AGI limit for Married Filing Jointly taxpayers.

Mandel’s contribution will be eliminated if his modified AGI is $135,000 or more. c) This answer is incorrect. The taxpayer may contribute to other IRAs; however, the total

contribution cannot exceed the allowed maximum contribution. d) This answer is incorrect. The taxpayer is allowed to have a pension plan at work, in

addition to making contributions to a Roth IRA.

13. Nancy wants to open an IRA account for retirement but is unsure how the different types compare. How is a Roth IRA different from a traditional IRA?

a) Earnings may be distributed tax-free after age 59½. b) The taxpayer can contribute more to a Roth IRA than she can to a traditional IRA. c) The taxpayer is not penalized for early distributions from a Roth as they are with the

traditional IRA. d) There is no penalty if the taxpayer receives a distribution before age 59½.

a) Correct. Roth contributions are made after tax. The distributions are tax-free.

Traditional IRA contributions are not made after tax and distributions are, therefore, taxable. Pages 8.19, 8.23

b) This answer is incorrect. The contribution limits are the same for a Roth IRA as they are for a traditional IRA.

c) This answer is incorrect. Roth IRAs are subject to penalties for early withdrawals, as are traditional IRAs.

d) This answer is incorrect. Like the traditional IRA, the taxpayer may have to pay a penalty on a distribution before age 59½.


14. Vince and Amy want to make an IRA contribution. What is the deadline for them to make a contribution for tax year 2018?

a) December 31, 2018 b) January 31, 2019 c) April 15, 2019 d) January 1, 2018

a) This answer is incorrect. This date is the end of the tax year for most individual taxpayers,

but not the due date for an IRA contribution. b) This answer is incorrect. January 31 of 2019 is not the due date for an IRA contribution. c) Correct. The IRS allows the taxpayer to make IRA contributions until the original

due date of the return. The due date for 2018 returns is April 15, 2019. Page 8.22 d) This answer is incorrect. This date is the start of the tax year for most individual taxpayers.

IRA contributions are not due on this date.

15. Mr. Brown (age 60) and Mrs. Brown (age 54) received income from the following sources during the tax year: pension payments, Social Security benefits, savings account interest, and dividends. Their total AGI is $34,000. To reduce their tax liability, they ask you if they should contribute to their IRAs before the filing deadline and, if so, how much. How would you answer?

a) Yes; Mr. and Mrs. Brown should contribute $5,500 each to their respective traditional IRAs

and claim an IRA deduction to reduce their tax liability. b) Yes; Mr. and Mrs. Brown should contribute $6,500 each to their respective Roth IRAs and

claim an IRA deduction to reduce their tax liability. c) Yes; Mr. and Mrs. Brown should contribute $6,500 each to their respective traditional IRAs

and claim an IRA deduction to reduce their tax liability. d) No; Mr. and Mrs. Brown cannot contribute to their traditional or Roth IRAs this year.

a) This answer is incorrect. Contributing $5,500 each to their respective traditional IRAs is

not an option this year. b) This answer is incorrect. Contributing $6,500 each to their respective Roth IRAs is not an

option this year. c) This answer is incorrect. Contributing $6,500 each to their respective traditional IRAs is

not an option this year. d) Correct. They have no taxable compensation. Therefore, they cannot make IRA

contributions for the tax year, which would have reduced their tax liability. Pages 8.11-8.12, 8.19-8.20


Chapter 8: Learning Activity Scenario – Kelly and Ryan Wilson Complete a tax return for the Wilsons. Kelly (age 41, DOB: 02/14/1977, SSN: 766-00-5436) and Ryan (age 43, DOB: 03/20/1975, SSN: 677-00-5436) Wilson, 1355 North Ave., Your City, Your State –Your Zip, have two children, Cathy (age 11, DOB: 01/17/2007, SSN: 676-00-5436) and Roger (age 17, DOB: 12/01/2001, SSN: 677-00-5435). Neither wishes to designate $3 of their taxes for the presidential election campaign. The family was covered by a health insurance policy for the entire year. Ryan is a private nurse and Kelly is a kindergarten teacher. Ryan is still paying off student loans from college. He paid $2,350 in student loan interest this year. He has been making payments for fourteen months prior to this year. Kelly purchased $450 in supplies for her kindergarten students during the tax year. Kelly contributed $2,000 to a traditional IRA and Ryan contributed $3,000 to a Roth IRA. Kelly contributed $2,500 to her health savings account (HSA). She received $1,000 in HSA distributions during the year and used the funds for her qualified medical expenses. The coverage under the HDHP is for herself only. Further information regarding the Wilson’s finances follows.





c Employer’s name, address, and ZIP code Fayette County Parochial School 7532 Wingfield Avenue Your City, Your State – Your ZIP






8 Allocated tips

d Control number



Kelly

Last name Suff.

Wilson



1355 North Ave Your City, Your State – Your ZIP f Employee’s address and ZIP code


12b C o d e

14 Other

12c C o d e

12d C o d e

15 State Employer’s state ID number 16 State wages, tips, etc.

34946.0017 State income tax

1964.6418 Local wages, tips, etc. 19 Local income tax 20 Locality name

YS 65-6454159





a Employee’s SSN 677-00-5436



OMB No. 1545-0008



b Employer identification number 43-0334559



c Employer’s name address and ZIP code A Place to Work Temp Agency 9700 West Broad St. Your City, Your State – Your ZIP e Employee’s first name and initial Ryan

Last name Suff. Wilson

1355 North Ave. Your City, Your State – Your ZIP f Employee’s address and ZIP code d Control number

7 Social Security tips

8 Allocated tips

9 10 Dependent care benefits

11 Nonqualified plans 12a D

1667.13

14

12b

12c

12d

13 Statuary employee

Retirement plan

Third-party sick pay

15 State YS

Employer’s state ID number 0010511666




19 Local income tax 20 Locality name

Form

W-2 Wage and Tax Statement

20XX Copy B to be filed with employee’s Federal Income Tax Return

This information is being furnished to the Internal Revenue Service. If you are required to file a tax return, a negligence penalty or other sanction may be imposed on you if this income is taxable and you fail to report it.



Prudential Insurance Co of America P.O. Box 1228 Your City, Your State – Your ZIP


OMB No. 1545-0112

XX Form 1099-INT



$ 50.00

Copy B

For Recipient









13-5554444




Ryan and Kelly Wilson Street address (including apt. no.)

1355 North Avenue City or town, state or province, country and ZIP or foreign postal code



$



$



$



$

11 Bond premium

$








$ $




1. Answer the following question based on the tax return you prepared for Kelly and Ryan Wilson.


A) $71,561 B) $70,710 C) $66,911 D) $66,961



A) $71,511 B) $70,710 C) $66,661 D) $71,561



A) $64,411 B) $67,161 C) $66,711 D) $66,961



A) $43,161 B) $40,411 C) $42,711 D) $42,961




A) $4,470 B) $4,800 C) $4,746 D) $4,776



A) $4,770 B) $2,770 C) $1,970 D) $2,276



A) $7,850 B) $8,295 C) $9,245 D) $8,245


Select the refund:

A) $6,275 B) $3,475 C) $5,475 D) $5,969




















3rd Party Designee



Firm's address


BCA

1355 NORTH AVE

HENRICO VA 23228-

RYAN

WILSONKELLY

CATHY WILSON

ROGER WILSON


766-00-5436

WILSON 677-00-5436

X

X


677-00-5435 SON X

TEACHER

PRIVATE NURSE



55-5555555

555-555-5555
























d Account number





NO

KELLY & RYAN WILSON 766-00-5436 70,710 851

71,561

64,411 24,000 0 40,411

4,470

4,470

2,500 2,500 1,970

1,970 8,245

8,245 6,275 6,275


(Form 1040) Additional Income and Adjustments to IncomeAttach to Form 1040.Department of the Treasury



Additional 1–9b Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1–9b

Income 10 Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1011 Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1112 Business income or (loss). Attach Schedule C or C-EZ . . . . . . . . . . . . . . 1213 Capital gain or (loss). Attach Schedule D if required. If not required, check here 1314 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . . . 1415a Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15b16a Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16b17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 1718 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 1819 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . . . 1920a Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20b21 Other income. List type and amount 2122 Combine the amounts in the far right column. If you don't have any adjustments to

income, enter here and include on Form 1040, line 6. Otherwise, go to line 23 . . . . . 22Adjustments 23 Educator expenses . . . . . . . . . . . . . . . . . 23to Income 24 Certain business expenses of reservists, performing artists,

and fee-basis government officials. Attach Form 2106 . . . 2425 Health savings account deduction. Attach Form 8889 . . . 2526 Moving expenses for members of the Armed Forces.

Attach Form 3903 . . . . . . . . . . . . . . . . . 2627 Deductible part of self-employment tax. Attach Schedule SE . 2728 Self-employed SEP, SIMPLE, and qualified plans . . . . . 2829 Self-employed health insurance deduction . . . . . . . . 2930 Penalty on early withdrawal of savings . . . . . . . . . 3031a Alimony paid b Recipient's SSN 31a32 IRA deduction . . . . . . . . . . . . . . . . . . 3233 Student loan interest deduction . . . . . . . . . . . . 3334 Reserved . . . . . . . . . . . . . . . . . . . . . 3435 Reserved . . . . . . . . . . . . . . . . . . . . . 3536 Add lines 23 through 35 . . . . . . . . . . . . . . . . . . . . . . . . . . 36


BCA

KELLY & RYAN WILSON 766-00-5436

250

2,500

50

2,000 2,350

7,150

OMB No. 1545-0074

Form 8889 Health Savings Accounts (HSAs)Attach to Form 1040 or Form 1040NR.Department of the Treasury

Internal Revenue Service Go to www.irs.gov/Form8889 for instructions and the latest information.AttachmentSequence No. 52

Name(s) shown on Form 1040 or Form 1040NR Social security number of HSA beneficiary. If both spouses have HSAs, see instructions

Before you begin: Complete Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, if required.

Part I HSA Contributions and Deduction. See the instructions before completing this part. If you are filing jointlyand both you and your spouse each have separate HSAs, complete a separate Part I for each spouse.

1 Check the box to indicate your coverage under a high-deductible health plan (HDHP) during2018 (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Self-only Family

2 HSA contributions you made for 2018 (or those made on your behalf), including those madefrom January 1, 2019, through April 15, 2019, that were for 2018. Do not include employercontributions, contributions through a cafeteria plan, or rollovers (see instructions) . . . . . . 2

3 If you were under age 55 at the end of 2018, and on the first day of every month during 2018,you were, or were considered, an eligible individual with the same coverage, enter $3,450($6,900 for family coverage). All others, see the instructions for the amount to enter . . . . . 3

4 Enter the amount you and your employer contributed to your Archer MSAs for 2018 from Form8853, lines 1 and 2. If you or your spouse had family coverage under an HDHP at any timeduring 2018, also include any amount contributed to your spouse's Archer MSAs . . . . . . . 4

5 Subtract line 4 from line 3. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . 5

6 Enter the amount from line 5. But if you and your spouse each have separate HSAs and hadfamily coverage under an HDHP at any time during 2018, see the instructions for the amountto enter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

7 If you were age 55 or older at the end of 2018, married, and you or your spouse had familycoverage under an HDHP at any time during 2018, enter your additional contribution amount(see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

8 Add lines 6 and 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Employer contributions made to your HSAs for 2018 . . . . . . . 9

10 Qualified HSA funding distributions . . . . . . . . . . . . . 10

11 Add lines 9 and 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1112 Subtract line 11 from line 8. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . 1213 HSA deduction. Enter the smaller of line 2 or line 12 here and on Schedule 1 (Form 1040), line

25, or Form 1040NR, line 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Caution: If line 2 is more than line 13, you may have to pay an additional tax (see instructions).

Part II HSA Distributions. If you are filing jointly and both you and your spouse each have separate HSAs,complete a separate Part II for each spouse.

14 a Total distributions you received in 2018 from all HSAs (see instructions) . . . . . . . . . . 14a

b Distributions included on line 14a that you rolled over to another HSA. Also include any excesscontributions (and the earnings on those excess contributions) included on line 14a that werewithdrawn by the due date of your return (see instructions) . . . . . . . . . . . . . . . 14b

c Subtract line 14b from line 14a . . . . . . . . . . . . . . . . . . . . . . . . . . 14c15 Qualified medical expenses paid using HSA distributions (see instructions) . . . . . . . . . 15

16 Taxable HSA distributions. Subtract line 15 from line 14c. If zero or less, enter -0-. Also,include this amount in the total on Schedule 1 (Form 1040), line 21, or Form 1040NR, line 21. Onthe dotted line next to line 21, enter "HSA" and the amount . . . . . . . . . . . . . . . 16

17 a If any of the distributions included on line 16 meet any of the Exceptions to the Additional20% Tax (see instructions), check here . . . . . . . . . . . . . . . . . . . .

b Additional 20% tax (see instructions). Enter 20% (0.20) of the distributions included on line 16that are subject to the additional 20% tax. Also include this amount in the total on Schedule 4(Form 1040), line 62, or Form 1040NR, line 60. Check box c on Schedule 4 (Form 1040), line 62,or box b on Form 1040NR, line 60. Enter "HSA" and the amount on the line next to the box . . . 17b

For Paperwork Reduction Act Notice, see your tax return instructions. Form 8889 (2018)

BCA

KELLY WILSON 766-00-5436

X

2,500

3,450

3,450

3,450

3,450

3,450

2,500

1,000

1,000 1,000
























X

X

X

X

X

X

X

X

X

SCHOOL RECORDS



























was obtained; and




Form 8867 (2018)


X

X

X

X

IRA Deduction Worksheet (Schedule 1, Line 32) – Wilson Before you begin: Be sure you have read the 11-item list in the instructions for this line. You may not be able to use this worksheet.

Figure any write-in adjustments to be entered on the dotted line next to Schedule 1, line 36 (see the instructions for Schedule 1, line 36).

If you are Married Filing Separately and you lived apart from your spouse for all of 2018, enter “D” on the dotted line next to Schedule 1, line 32. If you do not, you may get a math error notice from the IRS.

Your IRA Spouse’s IRA1a. Were you covered by a retirement plan (see 1040 instructions)? b. If Married Filing Jointly, was your spouse covered by a retirement plan?

1a Yes No 1b Yes No

Next: If you checked “No” on line 1a (and “No” on line 1b if Married Filing Jointly), skip lines 2 through 6, enter the applicable amount below on line 7a (and line 7b if applicable), and go to line 8.

$5,500, if under age 50 at the end of 2018. $6,500, if age 50 or older but under age 70½ at the end of 2018.

Otherwise, go to line 2.

2. Enter the amount shown below that applies to you. Single, Head of Household, or Married Filing Separately and you lived

apart from your spouse for all of 2018, enter $73,000. Qualifying Widow(er), enter $121,000. Married Filing Jointly, enter $121,000 in both columns. But if you

checked “No” on either line 1a or 1b, enter $199,000 for the person who was not covered by a plan.

Married Filing Separately and you lived with your spouse at any time in 2018, enter $10,000. 2a 199,000 2b 121,000

3. Enter the amount from Form 1040, line 6. 3 71,561

4. Enter total of the amounts from Schedule 1, lines 23 through 31a, plus any write-in adjustments you entered on the dotted line next to Schedule 1, line 36 other than any amounts identified as “DPAD.” 4 2,800

5. Subtract line 4 from line 3. If Married Filing Jointly, enter the result in both columns.

5a 68,761 5b 68,761

6. Is the amount on line 5 less than the amount on line 2?

No. - None of your IRA contributions are deductible. For details on nondeductible IRA contributions, see Form 8606.

Yes. Subtract line 5 from line 2 in each column. Follow the instruction below that applies to you. If Single, Head of Household, or Married Filing Separately, and

the result is $10,000 or more, enter the applicable amount below on line 7 for that column and go to line 8.

i. $5,500, if under age 50 at the end of 2018. ii. $6,500, if age 50 or older but under age 70½ at the end of

2018. If the result is less than $10,000, go to line 7.

If Married Filing Jointly or Qualifying Widow(er), and the result is $20,000 or more ($10,000 or more in the column for the IRA of a person who was not covered by a retirement plan), enter the applicable amount below on line 7 for that column and go to line 8.

i. $5,500, if under age 50 at the end of 2018. ii. $6,500, if age 50 or older but under age 70½ at the end of

2018. Otherwise, go to line 7.

6a 130,239 6b 52,2397. Multiply lines 6a and 6b by the percentage below that applies to you. If the

result is not a multiple of $10, increase it to the next multiple of $10 (for example, increase $490.30 to $500). If the result is $200 or more, enter the result. But if it is less than $200, enter $200. Single, Head of Household, or Married Filing Separately, multiply by

55% (0.55) (or by 65% (0.65) in the column for the IRA of a person who is age 50 or older at the end of 2018).

Married Filing Jointly or Qualifying Widow(er), multiply by 27.5% (0.275) (or by 32.5% (0.325) in the column for the IRA of a person who is age 50 or older at the end of 2018). But if you checked “No” on either line 1a or 1b, then in the column for the IRA of the person who was not covered by a retirement plan, multiply by 55% (0.55) (or by 65% (0.65) if age 50 or older at the end of 2018).

7a 5,500 7b 5,500

8. Enter the total of your (and your spouse’s if filing jointly): Wages, salaries, tips, etc. Generally, this is the amount reported in box

1 of Form W-2. See page 92 of the 1040 instructions for exceptions. Alimony and separate maintenance payments reported on Schedule 1,

line 11. Nontaxable combat pay. This amount should be reported in box 12 of

Form W-2 with code Q.

8 70,7109. Enter the earned income you (and your spouse if filing jointly) received as a

self-employed individual or a partner. Generally, this is your (and your spouse’s if filing jointly) net earnings from self-employment if your personal services were a material income-producing factor, minus any deductions on Schedule 1, lines 27 and 28. If zero or less, enter 0. For more details see Pub. 590-A. 9

10. Add lines 8 and 9. 10 70,710CAUTION! If Married Filing Jointly and line 10 is less than $11,000 ($12,000 if

one spouse is age 50 or older at the end of 2018; $13,000 if both spouses are age 50 or older at the end of 2018), stop here and use the worksheet in Pub. 590-A to figure your IRA deduction.

11. Enter traditional IRA contributions made or that will be made by the due date of your 2018 return, not counting extensions, for 2018 to your IRA on line 11a and to your spouse’s IRA on line 11b. 11a 2,000 11b 0

12. On line 12a, enter the smallest of line 7a, 10, or 11a. On line 12b, enter the smallest of line 7b, 10, or 11b. This is the most you can deduct. Add the amounts on lines 12a and 12b and enter the total on Schedule 1, line 32. Or, if you want, you can deduct a smaller amount and treat the rest as a nondeductible contribution (see Form 8606).

12a 2,000 12b 0

Student Loan Interest Deduction Worksheet (Schedule 1, Line 33) – Wilson Before you begin Figure any write-in adjustments to be entered on the dotted line next to Schedule 1, line 36

(see the instructions for Schedule 1, line 36). Be sure you have read the Exception in the instructions for this line to see if you can use this

worksheet instead of Pub. 970 to figure your deduction. 1. Enter the total interest you paid in 2018 on qualified student loans (see the instructions for line 33).

Do not enter more than $2,500. 1. 2,350 2. Enter the amount from Form 1040, line 6. 2. 71,561 3. Enter the total of the amounts from Schedule 1, lines 23 through 32, plus any

write-in adjustments you entered on the dotted line next to Schedule 1, line 36, other than any amounts identified as “DPAD.” 3. 4,800

4. Subtract line 3 from line 2. 4. 66,761 5. Enter the amount shown below for the taxpayer’s filing status.

Single, Head of Household, or Qualifying Widow(er) – $65,000 Married Filing Jointly – $135,000 5. 135,000

6. Is the amount on line 4 more than the amount on line 5? No. Skip lines 6 and 7, enter -0- on line 8, and go to line 9. Yes. Subtract line 5 from line 4. 6.

7. Divide line 6 by $15,000 ($30,000 if Married Filing Jointly). Enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.000. 7.

8. Multiply line 1 by line 7. 8. 0 9. Student loan interest deduction. Subtract line 8 from line 1. Enter the result here and on

Schedule 1, line 33. Do not include this amount in figuring any other deduction on the return (such as on Schedule A, C, E, etc.). 9. 2,350

Child Tax Credit and Credit for Other Dependents Worksheet – Wilson

Before you begin: Figure the amount of any credits you are claiming on Form 5695, Part II line 30; Form 8910; Form 8936; or Schedule R.

* See the Form 5695 instructions to see if line 30 (nonbusiness energy property credit) applies for 2018.

Part 1 1. Number of qualifying children under 17 with the required social security number: 1 x $2,000. Enter the result. 1. 2,000 2. Number of other dependents, including qualifying children who are not under 17 or who do not

have the required social security number: 1 x $500. Enter the result. Caution: Do not include yourself, your spouse, or anyone who is not a U.S. citizen, U.S.

national, or U.S. resident alien. Also, do not include anyone you include on line 1. 2. 500

3. Add lines 1 and 2. 3. 2,500

4. Enter the amount from Form 1040, line 7, or Form 1040NR, line 35. 4. 64,411 5. 1040 Filers. Enter the total of any –

Exclusion of income from Puerto Rico; and Amounts from Form 2555, lines 45 and 50;

Form 2555-EZ, line 18; and Form 4563, line 15. 1040NR Filers. Enter -0-. 5. 0 6. Add lines 4 and 5. Enter the total. 6. 64,411 7. Enter the amount shown below for your filing status.

Married filing jointly – $400,000 All other filing statuses – $200,000 7. 400,000

8. Is the amount on line 6 more than the amount on line 7? No. Leave line 8 blank. Enter -0- on line 9. Yes. Subtract line 7 from line 6.

If the result is not a multiple of $1,000, increase it to the next multiple of $1,000. For example, increase $1,025 to $2,000, etc. 8.

9. Multiply the amount on line 8 by 5% (0.05). Enter the result. 9. 0 10. Is the amount on line 3 more than the amount on line 9?

No – STOP You cannot take the child tax credit or credit for other dependents on Form 1040, line 12a; or Form 1040NR, line 49. You also cannot take the additional child tax credit on Form 1040, line 17b; or Form 1040NR, line 64. Complete the rest of your Form 1040 or Form 1040NR.

Yes. Subtract line 9 from line 3. Enter the result. Go to Part 2. 10. 2,500 Part 2 11. Enter the amount from Form 1040, line 11; or Form 1040NR, line 45. 11. 4,470 12. Add the following amounts from -

Form 1040 or Form 1040NR

Schedule 3, line 48 Line 46

Schedule 3, line 49 Line 47 +

Schedule 3, line 50 +

Schedule 3, line 51 Line 48 +

Form 5695, line 30* +

Form 8910, line 15 +

Form 8936, line 23 +

Schedule R, line 22 +

= Enter the total.

12. 0 13. Subtract line 12 from line 11. 13. 4,470 14. Are you claiming any of the following credits?

Mortgage interest credit, Form 8396 Adoption credit, Form 8839 Residential energy efficient property credit, Form 5695, Part I District of Columbia first-time homebuyer credit, Form 8859 No. Enter -0-. Yes. If you are filing Form 2555 or 2555-EZ, enter -0-. Otherwise, complete the Line 14 Worksheet, later, to

figure the amount to enter here. 14. 015. Subtract line 14 from line 13. Enter the result. 15. 4,470 16. Is the amount on line 10 of this worksheet more than the amount on line 15?

No. Enter the amount from line 10. This is your child tax Yes. Enter the amount from line 15. See the TIP below. credit and credit for

other dependents. Enter this amount on Form 1040, line 12a, or Form 1040NR, line 49. 16. 2,500

TIP

You may be able to take the additional child tax credit on Form 1040, line 17b, or Form 1040NR line 64, only if you answered “Yes” on line 16 and line 1 is more than zero. First, complete Form 1040 through line 17a (also complete Schedule 5, line 72) or Form 1040NR through line 63

(also complete line 67). Then, use Schedule 8812 to figure any additional child tax credit.

Chapter 5: Study Questions...earned income, and with or without children. Pages 5.3, 5.5-5.9 d) This...

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Transcript of Chapter 5: Study Questions...earned income, and with or without children. Pages 5.3, 5.5-5.9 d) This...