Volunteer Income Tax Assistance 2012 Tax Law Training Basic and Intermediate Certification January,...

Volunteer Income Tax Assistance

2012 Tax Law TrainingBasic and Intermediate Certification

January, xx 2013

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Index to Lessons Day 1 – VITA, Filing and Income Day 2 – More income, Deductions and Credits Day 3 – Payments, California and Test

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Lesson Index Day 1

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Course Introduction 1Screening and Interviewing 2Interviewing Film from IRS 2ASTRETCH BREAKFiling Basics & ITIN's 3Personal Exemptions 4ADependency Exemptions Child 4ALUNCH BREAKDependency Exemptions Relative 4AFiling Status 5Unique filing situations 7STRETCH BREAKIncome - Wages, Interest & Dividend 8AIntroduction to TaxWise TW1

What is Earn It! Keep It! Save It! EKS is a coalition, led by the United Way of the

Bay Area, comprised of over 200 partners offering free tax preparation services throughout the 7 counties in the Bay Area

Last year, the coalition prepared nearly 60,000 taxes for low-income filers

This colossal collaboration is only successful because you signed up to volunteer and are here to learn and help serve!

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What’s in it for you?

You will gain first hand knowledge of our tax code and learn how to prepare a tax return

You will have a direct impact in the community you are volunteering in

You are one of thousands of volunteers across the country doing this work

You are helping bring back thousands of dollars into our local economy!

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Why Does This Work Matter? The EKS coalition is only serving 5% of eligible low-

to moderate- income tax filers in the Area Together, the coalition is helping families save

hundreds of dollars in tax preparation fees. $$ that could be used to buy groceries for 2 weeks.

EKS tax sites do not have a bottom line to worry about- so we make sure that the client gets back every dollar they deserve! We get paid by the smile – not the form.

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Lesson 1:Course Introduction

Materials: 4012 – Resource Guide (Spiral Bound Book) 4491 – Student Training Guide (On CD) 4491-W – Problems/Exercises Workbook Form 6744 – Test/Retest (Yes – this is the real test) Pub. 17 – Reference Material – Available later

Write your name on all your materials!

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You Can Do It!

Try not to get overwhelmed! There is a lot of material to cover (we are

doing taxes) but there is also a lot of support There is no need to memorize – the test is all

open book This training will teach you where to find the

information you need to complete accurate tax returns

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Purpose of this Training

Understand how/where to use your resources Understand and apply tax law Prepare accurate tax returns Understand use of software and e-filing Understand the Quality Review Process Learn VITA policies and procedures

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Housekeeping

Restrooms and Facility Rules Class Schedule

Distribute agenda

Breaks and Lunch Emergencies – Evacuation Plan Promptness Homework

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Expectations

Keep pace with the class Ask questions Complete assignments Successfully pass open book test

No need to memorizeLearn where to look for the answers

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Training Course

How is the course structured? The course will cover tax law and also allow for

practice with the TaxWise software The training is process-based and follows the

process you will use at your tax site At the end of the course, you will take a

certification tests – All volunteers must pass an ethics test All preparers must pass the Basic / Intermediate

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What Returns Can I Prepare?

There are restrictions on the types of returns that can be prepared at VITA sites Review Scope Chart in 4012

You can only prepare returns that are in scope for your certification level

Check with your Site Coordinator if you have questions

Can refer taxpayers to other sites All AARP Sites are certified at the advanced level

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Am I Legally Liable for Returns?

Volunteer Protection Act of 1997Immunity for volunteers serving nonprofit organizations or government for harm caused by the acts and omissions if: The volunteer was acting within the scope of his or her

responsibilities The volunteer was properly licensed, certified, or authorized to act. The harm was not caused by willful, criminal, or reckless

misconduct, gross negligence or a conscious, flagrant indifference to the rights or safety of the individual harmed

Let your Site Coordinator know if you suspect fraud Handwritten or altered W-2s Undocumented earnings that lead to refundable credits Similar returns or suspicious activity

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Standards of Conduct for Volunteers

Treat taxpayers professionally and with courtesy Safeguard the privacy and confidentiality of taxpayer

information Do not disclose personal tax information Do not openly discuss taxpayers by name Do not take taxpayer information outside his/her presence

Apply tax law equitably and accurately Only prepare returns within your scope /

certification Do not accept payment of any kind Do not solicit business (OK to solicit for sponsor site) Review and Sign Volunteer Agreement

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Materials Training:

4491 – Student Training Guide on CD 4491-W – Problems/Exercises Workbook Form 6744 – Test/Retest

Tax Site: 4012 – Resource Guide (Spiral Bound/Flippy Book – coming

soon) Pub. 17 – Reference Material Form 13614-C – Intake/Interview Sheet 1040 Instructions (coming soon) California Volunteer Manual (coming soon)

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Volunteer Support

You are not on your own at the site Site Coordinator Other volunteers IRS, CA, and TaxWise hotlines for volunteer use

Back of 4012 Do not give these numbers to taxpayers!

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TaxWise

Your sites will use TaxWise Online to prepare and electronically transmit returns

Blue and Yellow sections in 4012 for reference For training you will have your own login and can

work from home (with MS Internet Explorer 8 only)

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Course Introduction Wrap-Up

Questions?

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Lesson 2: Screening and Interviewing

Materials: Intake and Interview Sheet (13614-C) 4012 (pages 4-7)

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Five-Step Interview Process Cultivate a comfortable environment

Introduce yourself and explain process Try to create a rapport with the taxpayer – let them ask questions

Use active listening Look for nonverbal cues and encourage dialogue

Review intake and interview form and verify information Screen for eligibility and review required documents

Complete intake form with missing info Don’t make assumptions – ask the taxpayer!

Advise Taxpayer about next steps

Remember to use your reference materials!

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Form 13614-C – Review Job Aid

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Interview and Intake Form 13614-C

Starting point for interaction with the taxpayer Review the intake and interview form with the

taxpayer. Mark it up! Always interview and probe the taxpayer

Verify and confirm all information on Part I & II Ask all questions in their entirety, even if already filled out by

client and confirm accuracy Confirm taxpayer’s identity and SSN or ITIN with original

documents and photo ID Ask questions pertaining to items in Part III & IV

Ensure records/evidences are available for each item if taxpayer answer “Yes”

Ask if there were any questions that they didn’t understand Complete Section B based on interview

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Screen for Eligibility

Verify taxpayer’s identity with photo ID Confirm Social Security Number (SSN) or

Individual Taxpayer Identification Number (ITIN)

Review supporting documents and intake and interview sheet for any out-of-scope items Always check with your Site Coordinator if in

doubt

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VITA Qualifications Taxpayer Requirements:

Have Photo IDs Have original Social Security (SSN) or Individual Taxpayer Identification Number

(ITIN) documents Have income of $51,000 or less

Ask your site coordinator about income restrictions at your site Cannot do taxpayer tax returns if they:

Do not meet the above requirements Would like to file Married Filing Separately (too complicated in California) Are Domestic Partners or Married in California (too complicated) Sold properties such as home and/or commercial Have rental income from rental real properties such as home or commercial Have debt cancellations other than foreclosures Have foreign income Have income received while members of the U.S. Armed forces

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Interviewing Techniques

Speak clearly, simply, and loud enough Build rapport Reassure the taxpayer (“I understand”) Ask effective questions, e.g., probing and

open-ended Allow the taxpayer time to respond Involve the taxpayer in the process Ask if they have questions

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Key Interview Questions

Living Situation Who lives in home? Number of months lived in home? Relationship? Dependent?

If married, lived together all year? If not full year, how long and when?

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Completing the Interview

Two options after the interview: Advise taxpayer return is out of scope (return

intake form and other documents to taxpayer) or Assist taxpayer with their return

After return is completed, thank taxpayer: Ensure return is quality-reviewed Return all documents and completed return to

taxpayer Ask your Site Coordinator about what to do with intake

sheets

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Documents

Notes about documents: At the start of the interview/screening, it is helpful to compile

and sort the documents that the taxpayer has brought You might want to arrange them in the order they appear on the

intake sheet or 1040 Keep all Social Security cards, ITINs, and supporting documents

on the table until the return has been quality reviewed and printed for the taxpayer

The reviewer will need to reconfirm the data entered in TaxWise Be sure to return all original documents to the taxpayer

Ask your Site Coordinator about what to keep If a return cannot be completed the same day, return all

materials to the taxpayer. Do not keep documents at the site!

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Screening/Interviewing Wrap-Up

Screening and Interviewing Questions?

Watch a great interview video:http://www.youtube.com/watch?v=

su1KyDojrk8

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http://www.youtube.com/watch?v=su1KyDojrk8

http://www.youtube.com/watch?v=su1KyDojrk8

Lesson 3: Filing Basics

Materials: 4012 – Resource Guide Pub 17 – Chapter 1 4491 – Student Training Guide

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Overview

This lesson will help you determine: Who must file a tax returnWho should file a tax returnVerify taxpayer’s identity

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Who Must or Should File

Determining factors Age Gross income (what to include/exclude) Filing status

Some situations when taxpayer must file Also times when taxpayer should file – if

they will get a refund

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Who Must File

Turn to 4012- Section A Review Chart A Exclude Social Security benefits (see exemptions)

For Dependents – Chart B Other Situations – Chart C

Self Employment above $400 Special Taxes

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Who Should File – Chart D

Some taxpayers might not need to file, but should file to get money back, if they: Had tax withheld Made estimated payments Qualify for EITC Qualify for other refundable credits

You can always begin the return in TaxWise and then assess if it is beneficial to file

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Must/Should File Quiz 1

Bob is 27 years old. His gross income was $9,875. Is he required to file?

Answer: Yes, his gross income was over the minimum

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Janet and Harry are married and usually file jointly. During the year, she turned 66 and he turned 64. Their gross income was $16,200. Are they required to file?

Answer: No, gross income was less than the minimum

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Juanita can file as Qualifying Widow with Dependent Child. She is 47 years old. Her gross income was $15,900. Is she required to file?

Answer: Yes, her gross income was over the minumum

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Miranda, a senior in high school, is claimed on her parents’ return. The W-2 from her part time job showed $2,000 as wages and federal tax withheld of $155. Her grandparents gave her a $3,000 bank CD as a birthday present. She has no other income. Must or should Miranda file?

Answer: Miranda should file to get back her withholding The CD is a gift and is not counted as income

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Verify Taxpayer Identity

To verify identity, you need to see original identity documents (photo ID, SSN, ITIN, or SSA) It is important to have original SSN or ITIN to confirm

spelling of name and reduce rejects Taxpayer Identification Numbers

Social Security Number (SSN) Individual Taxpayer Identification Number (ITIN) Adoption Taxpayer Identification Number (ATIN)

Make sure SSNs on W-2 and other forms match the documentation you review

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Identity Theft Identity theft occurs when thieves use your personal information (such as your

Social Security number or driver's license number) to gain access to money, credit, goods or services in your name without your permission.

The IRS takes this issue very seriously. People whose identities have been stolen spend months or even years correcting the problems thieves have made.

When assisting taxpayers who are or may be victims of identity theft, refer them to the Identity Protection Specialized Unit at 1-800-908-4490.

Preparing tax returns for taxpayers who bring in a current CP01A Notice or Identity Protection Personal Identification Number (IP PIN) is within scope of the VITA/TCE programs.

If taxpayer has been assigned an IP PIN, they must use it when they file or the return will reject. Enter on Main PIN on main information sheet

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Individual Taxpayer Identification Number (ITIN)

IRS issues ITINs to individuals who do not have a Social Security Number but who need to file taxes Undocumented immigrants and others

An ITIN: Is formatted like the SSN and contains nine digits Starts with a number 9

Note that someone with an ITIN might have a mismatched SSN on the W-2 Always enter the SSN that appears on the W-2

ITIN filers are not eligible for the EITC

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What if someone needs an ITIN?

If the client needs and ITIN, refer the client prior to preparing their taxes to a Certifying Acceptance Agent VITA Site

There are many CAA sites throughout our 7 counties

Taxpayer applies for an ITIN by completing IRS form W-7 and attaching a tax return

If you are volunteering at a CAA Site, talk to your site coordinator for appropriate protocol.

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Forms and Recordkeeping

TaxWise will automatically use full 1040 Returns will be electronically filed whenever

possible Faster and safer

Advise taxpayers to keep a copy of their return and all related forms and documents Three years from date return was due or filed or Two years from date tax was paid

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Questions?

Filing Basics

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Lesson 4A (5 and 6 in 4491)Personal and Dependency Exemptions

Materials: Pub 4012, Tab C Pub 17, Chapter 3

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Caution!Pub 4012 TAB-C

The Filing Status and Exemptions sections of the tax return may only take a few minutes to complete but they encompass some of the most complex tax law issues.

Determining the correct filing status and whether a taxpayer has a “Qualifying Child” or a “Qualifying Relative” can impact many other areas of the return.

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ExemptionsPub 4012 TAB C

o Purpose of Exemptionso Reduce Federal taxable incomeo Reduce State Tax

o Types of Exemptionso Personal (taxpayer and spouse)o Dependent

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Personal Exemptions

o One for taxpayer o One for spouse when filing jointly

o Even if spouse died during tax yearo Restrictions

o No exemption if TP or spouse can be claimed as a dependent by someone else

o If MFS, spouse must have no income

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Dependent Exemptions (Pub 4012 TAB C)

o Limitations

o Cannot be claimed if TP is a dependent of someone else

o Dependent cannot have filed jointly (except for a refund)

o Dependent must be a citizen or resident of US, Canada or Mexico

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Dependent Exemptions (Pub 4012 TAB C)

o Dependency exemption tests

o General tests

o Qualifying child tests

o Qualifying relative tests

o Qualifying child of more than one

o Tables 1, 2 and 3 (always read footnotes too)

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Qualifying Test Exemptions (PUB 17 CHPT 3)

o Qualifying child

o Full-time student/school defined

o Child of divorced or separated parents

o Qualifying child of more than one person

o Examples

o Qualifying relative

o Not a qualifying child test

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Qualifying Child of More than One Person

o Chart on page C-3 – Pub 4012

o If qualifying child of more than one person – only one person can claim

o If child’s parent, qualifying child of parent

o Special rules for cases where no parent can claim a child or no parent chooses to claim a child, determined by AGI

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Support Details (PUB 17 CHPT 3)

o Support test for a qualifying relative

o Total support

o Examples

o Worksheet for determining support

o Do not include in total support

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Dependents – Quiz #1

Mary’s daughter Betty is 21 and unemployed so she lives at home. She was a student taking 15 units for the first 5 months in 2009 and then dropped out. Can Mary claim Betty as a dependent?

Yes, meets all criteria. See next slide for definition addition to your table

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Full Time Students

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Add this to your Pub 4012, Page C-4

1. Mary and her son (12) live with her boyfriend, Tim all year. He’s not the dad. She has no income. Can Tim claim the child as his dependent?

Yes – meets all the criteria for a dependent “relative”.

Dependents – Quiz #2A

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2. See #1. Is there any chance that Mary is a dependent of Tim as well?

Yes – meets all the criteria for a dependent “relative”. No age limits

Dependents – Quiz #2B

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3. See #1. But Mary and son moved in on May 20th last year. Can Tim claim the child as a dependent?

No – Fails the ‘all year’ provision of step Step 3.

Dependents – Quiz #2C

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3. See #1. But Mary and son moved in on May 20th last year. Can Tim claim the child as a dependent?

4. See #1. But Mary makes $12,000 with $400 in withholding. Can Tim claim any dependents?

No – Tim is dependent child of another taxpayer

Dependents – Quiz #2D

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Dependents – Quiz #3

Ann and Ed were divorced in 2009 and have a son, Teddy, aged 12. Teddy lives with Ann except one weekend a month. Ed pays a lot of child support (according to him).

Who has the primary right to claim Teddy as a dependent?

Ann – She is the custodial parent.

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Exemption Wrap-upo Questions?o Comments?o Concerns?

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Lesson 5 (4 in 4491): Filing Status

Materials: Pub 4012 – Tab BPub 17 – Section 2 – pages 21-26

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Importance of Filing Status

Determines: Necessity to file a return Standard deduction Eligibility for certain credits Tax rate

Select the status that gives the lowest tax allowable

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Five Options for Filing Status

In order from most beneficial to least beneficial:

Married Filing Jointly (MFJ) Qualifying Widow(er) with Dependent Child (QW) Head of Household (HOH) Single Married Filing Separately (MFS)

Reminder: This is out of scope for VITA

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Filing Status Factors

Marital status as of the end of the year (12/31)

Others living in the home Relationships Dependency Who pays for the costs of the household If widow(er)

Date of death of spouse? Any dependents?

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Marital Status

A taxpayer is considered unmarried if on the last day of the tax year they were: Unmarried Legally separated under a decree Divorced under a decree before Dec. 31st

Taxpayers are considered married for the entire year if: They were married on the last day of the year or The spouse died during the year and the surviving spouse

did not remarry

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Single

Taxpayer should file Single if they: Were not married on last day of the tax year Do not support any related dependents Do not qualify for another filing status

Some unmarried taxpayers will qualify for other filing statuses that result in lower taxes

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Married Filing Jointly

Married on last day of year or Spouse died during tax year and the taxpayer has

not remarried

Please note: Common law marriage is not recognized in California Registered Domestic Partnership returns are out-of-

scope for VITA Issues with separate filing statuses for State and Federal

along with community property issues

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Married Filing Separately

Taxpayer and spouse choose to file separately Married Filing Separately is out of scope for VITA in

California Community Property State is complicated Special treatment required

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Head of Household

Taxpayers may qualify for Head of Household if they:

Are unmarried or considered unmarried; and Paid more than half the cost of keeping up a home;

and Had a qualifying person living in their home for more

than half the year Exceptions for education and military service Exception for dependent parents

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Head of Household – Not Married

Taxpayers may qualify for Head of Household if they:

Had a qualifying person living in their home for more than half the year

See 4012 C-5 for relatives. Must be blood or marriage relationship

Note that parents do not have to live with TP

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Head of Household: Married but ‘Considered Unmarried’

To be considered unmarried for HOH status, a taxpayer must:

File a return separate from their spouse; and Live apart from their spouse for the entire last six months of the

year, and Pay over half the costs of maintaining their home; and Have provided the main home of a dependent son or daughter

for more than half the year; and Be able to claim an exemption for the son or daughter. (Exception

for taxpayers who allow noncustodial parents to claim a child that would otherwise qualify as a dependent for HOH)

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Head of Household: Cost of Keeping Up a Home

To qualify, the taxpayer must pay over half the cost of keeping up a home for the year

Costs include: Rent, mortgage, home expenses (insurance, taxes, repairs),

utilities, and food eaten in the home Does not include

Clothing, education, medical treatments, vacations, life insurance, or transportation

*Please note that any public benefits received (TANF, etc.) to pay for part of the cost of keeping up a home cannot count as money the taxpayer paid but need to be included in calculating if they paid half the costs.

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Head of Household: Benefits

Higher standard deduction

Lower tax rate

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Qualifying Widow(er) with Dependent Child

A taxpayer whose spouse died in one of the past two tax years and who has a dependent child, may claim QW if they:

Would be entitled to claim a joint return in the year the spouse died Spouse has not remarried Have a child who qualifies as a dependent for the current tax year Provided over half the support to maintain a home for the childAdvantages:

Highest Standard Deduction Use MFJ Tax Rates – better than HOH

Notes: Taxpayer can file MFJ in the year the spouse died Can only file QW for 2 years

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Status – Quiz #1Betty’s husband left her 3 years ago and has not been heard of since. She has not divorced him yet. She supports her 2 children, ages 7 and 4 in a home she rents. Her parents help with money for clothes and medical insurance for the children. Can she file as Head of Household?Yes – She meets all criteria of Step 3 on Page -2. Clothes and medical insurance are not a cost of “keeping up your home.

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Status – Quiz #2Pedro is not married. He sends $10,000 a year to support his parents in Mexico. That’s all the money they get to live on. Pedro got them ITIN numbers from the IRS two years ago and claims them as dependent relatives. What status should Pedro use to file?Head of Household. Parents do not have to live with you, but do have to be your dependents. And parents in Mexico can be dependents (not Philippines).

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Status – Quiz #3Ann and Ed were divorced in 2006 and have a son, Ted, aged 12. Ted lives with Ann except one weekend a month. Ed pays minimal child support but the Divorce agreement states that Ed can claim the dependency exemption. Can Ann file with Head of Household status?Yes. Child lived with her more than ½ the year. See far right top box on B-3.

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Filing Status

How do I determine the correct filing status? Use your reference materials!

4012- Tab 2 Pub 17 – Section 2

If you are unsure or have questions, ask your site coordinator or another volunteer

Filing status is one of the most important parts of the return

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Filing Status Wrap-Up

Questions? Comments? Concerns?

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Lesson 7: Unique Filing Situations

Materials: 1040 Pub. 17, Chapters 5 - 8

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Unique Filing Status

Who is a resident or nonresident alien Who can claim a spousal exemption for

nonresident alien Support, residency and citizen tests for

dependents Special Rules for Head of Household when

spouse is a nonresident alien

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Resident Aliens - Tests

Green Card Test Same Tax rules as citizens

Substantial Presence Test - Complicated See 4012 Tab A

Exceptions for students If fail test – Refer to professional

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Resident Aliens – Filing Status

Married Filing Separately (not VITA) Married filing Jointly (signing issue if non

resident) Head of Household – special rules apply for

considered not married. See Pub 17 Cannot file as Single if legally married!

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NonResident Aliens - Exemptions

Spousal Exemption Foreign born children if US Citizens

Otherwise Mexico and CANADA only Adoption

Must live with all year

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Lesson 8A: Income (Wages, Interest, Dividends)

Materials: 1040 4012, Tab D and Tab 2 Pub. 17, Chapters 5 - 8

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The 1040 Formula

The Form 1040 page 1:+ All income from all sources = gross income-- Adjustments (e.g. student loan interest paid,

IRA contributions, etc.)= Adjusted Gross Income (AGI)

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1040 Formula, cont. page 2= AGI-- Personal Exemptions ($3,700 for taxpayer and

spouse)-- Dependency Exemptions ($3,700 for each

dependent)-- Standard or Itemized Deduction= Taxable Income (determines how much tax is

owed)

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1040 Formula, cont.

= Tax Owed+ Any Nonrefundable Tax Credits (to $0 tax liability)+ Refundable Tax Credits+ Any payments (withheld income taxes)= Refund or Amount Due

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Income Overview (Pub 4012, TAB D)

o Income is reported on lines 7-16 on the 1040

•Gross income is all income that is not exempt from tax

o Review 4491 8-2o Taxable Income

•Earned income vs. unearned income

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Nontaxable or Exempt Income

Some income is nontaxable (see 4012, Tab D) Gifts and inheritances Public Benefits – TANF and Food Stamps SSI Child Support Veteran’s Benefits

Certain exempt income is still shown on the return Tax-exempt interest income

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Income Overview

How do I determine a taxpayer’s income?o Review intake and interview sheeto Review forms

• Add form numbers to job aido Ask questions!

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Wages Wages, salaries, tips, severance pay,

bonuses, and commissions

Reported on Form W-2Verify SSN and tax yearReview all boxes on W-2Enter in TaxWise as it appears See 4012, Tab 2

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Form W2

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Form W2 - TaxWise

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Box Numbers Match

Key it As you see it!

Form W2

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Key it as you see it!

Social Security Wages may be different than Taxable Wages – Why? 401K and 403B tax deferred retirement

Interest Income

o Bank and corporate interest (Most Common)o Taxed by Federal and CA

o US Government interest (Rare)o Taxed by Federal, not taxed by CA

o California municipal bond interest (Rare)o Not taxed by Federal or CA

o Non-California municipal bond interest (Rare)o Not taxed by Federal, taxed by CA

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Interest Income

o Interest income reported on 1040 Form Line 8 and 8a

• Both taxable and tax-exempt interest must be reported on the 1040

o Form 1099-INT or Brokerage Statement o Inputting into TaxWise

• Review 4012, Tab 2• Enter on Interest Statement, not Schedule B

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1099-INT

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TaxWise Interest Statement

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o Dividends are reported on Form 1040 line 9 and 9a

o Types of dividends: oOrdinary oQualified (eligible for lower tax rate)

oCapital gain distributionso Reported on 1099-DIV

Dividend Income

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Dividend Income

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TaxWise Dividend Statement

Ordinary Dividends

Qualified Dividends

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Lesson 8A: Income (Wages, Interest, Dividends)

Questions?

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Lesson TW-1TaxWise

Materials:4012, Tab Blue and Yellow TabsSample problem or Pub 4491-W

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Introduction to Concepts

Learn some key points

Obtain Log-in info for home use

Do an actual return today!

Learn by doing

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TaxWise Objectives

A ‘form based’ package that is FAST used by small CPA professional firms

Resource material is in Pub 4012 Yellow Tabs all TaxWise and Blue Tabs are on-line

TaxWise specific Almost all locations are now using On-Line

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Lesson TW-1 TaxWise Overview

Order of Business for TaxWise 1

Don’t use ‘Interview’!! ‘Main Info Page’ first – complete Red Items

This populates a lot of tax forms for you Items will go red based on data put in – Like last

name after you enter a first name. Then not red sections in Main Info Page

Like Spouse and Dependents

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Order of Business for TaxWise 2

Then Income Forms All W-2’s first – Then other income like Interest and

Dividends

Other forms will load automatically

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Main Information Sheet

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Forms Tree

“Get the Red Out”

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Order of Business for TaxWise 3 After Income, “Work the Tree”

Get the Red Out! Credits – will go red after all income

entered Then Refunds / Payment Due State return is then very easy Finally Run Diagnostic STOP for Quality Review

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Key Items to Remember USE ALL CAPS (no confusion)

Hint – make your Password all Caps

No punctuation ( , & # . spaces) Use Decimal points for $ OK (will round) Updates when leaving most fields

Can take a moment – be patient

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Color coding: (See 8-5 in Pub 4012)

Red underline—estimated entry or requiredBlack underline—direct inputYellow/Green underline—CalculatedBlue underline—Overridden or Estimated

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Learn By Doing We’ll do a full tax return today.

It’s easiest to ‘Learn by Doing’

Here is your handout:

Let’s fill in some numbers ….

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Learn By Doing Let’s fill in some numbers:

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A) Two Numbers f

rom your sign in

A) Two Numbers f

rom your sign in

B) Two Numbers

from your si

gn in

B) Two Numbers

from your si

gn in

C) A New password for you like

MYNAMEØØ

C) A New password for you like

MYNAMEØØ

Donna Hunter Taxes for Today Single W-2 for Wages Interest Payment as income

Will use Donna’s Return again next week and final week – so finish at home

And bring back this sheet with your Login Information

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TaxWise On Line119

New Shot Here

TaxWise Login https://twonline.taxwise.com/training

Your Client ID is entered first (2465334)

Your User Name is ‘User##’ where ## is unique to you per the sign in sheet. Good for 21 days ONLY

Your Password for first time is ‘User##’ Change to at least 8 characters w/ 1 letter and 1 number Use suggested password or, Make it easy and write it down – need next week

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TaxWise On Line – New Return

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TaxWise On Line122

Enter SS# twice Then Tax Forms

TaxWise Training Social Security #’s First 3 numbers are 022 (from the handout) Next 2 are two digits from your User Name Last 4 digits are the same for all and are 7983

022-##-7983 Use this for all practice problems and testing,

changing only first 3 numbers

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Your User##


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Donna Hunter TaxWise Refund of $1xxx03

HOMEWORK Complete Donna – go to www.johnrlee.com/VITA. A movie there

on how to do this if you have problems. See bottom of Page 2 of Donna handout

HomeWork Start the ‘test’ – See handout

Bonus: Start Quincy Scott exercise in 4491-W

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2012 Tax Law TrainingDay 2

January xx, 2013

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Lesson Index Day 2

127

Homework / ReviewIncome - State Refund & Alimony 8B&8CBusiness Income - 1099 MISC and Sch C 9IRA Distribution - 1099-R & Penalty 11Unemployment and Social Security 13 & 14STRETCH BREAK N/AOther Income - Gambling Line 21 15Earned Income Credit (EIC) 29TaxWise EIC Exercise 29aLUNCH BREAK N/AAdjustments to income 17A&BStandard Deduction 19Itemized Deductions & Sales Tax 20Credit for Dependent Care Expenses 22STRETCH BREAK N/ATaxWise II TW2

Homework Review

Review answers Questions?

128

Lesson 8B: Income Other Basic

Materials: 1040 4012, Tab D and Tab 2 Pub. 17, Chapters 5 - 8

129

Tip Income

All tip income is taxable, whether reported to an employer or not

Ask if tips are included on the W-2 Allocated tips are shown in Box 8

Any non-reported tips should be added to line 7 of the 1040, link to Wkt 1

130

Scholarships May be fully, partially, or non-taxable Tax free if:

Degree Candidate at eligible institution and Used to pay qualified education expenses

Tuition/Fees Books Supplies/Equipment

4012, Tab D (D-3) Scholarship income used to pay for room and board

is taxable

131

Scholarships (continued)

If reported on W-2, enter on Form W-2 in TaxWise

If reported on 1098-T Subtract tuition, fees and books to find taxable

amount (usually room and board) In TaxWise, enter the net in Wkt 1

TaxWise will enter on 1040, line 7

132

Scholarships (continued)

133

Lesson 8B – Intermediate Income - State Income Tax Refundso Reported on 1099-G

o Same form as unemploymento Not taxable if taxpayer:

o Claimed standard deduction last year, oro Used sales tax as itemized deduction

o Some/all may be taxable if taxpayer:o Used state income tax as itemized deduction in

the prior yearo Need to check ‘Yes’ or ‘No’ circle in TaxWise

o If yes, link to worksheet from line 10134

Lesson 8B – Intermediate Income - State Income Tax Refundso Reported on 1099-G

o Same form as unemploymento Not taxable if taxpayer:

o Claimed standard deduction last year, oro Used sales tax as itemized deduction

o Some/all may be taxable if taxpayer:o Used state income tax as itemized deduction in

the prior yearo Need to check ‘Yes’ or ‘No’ circle in TaxWise

o If yes, link to worksheet from line 10135

Alimony

o What is Alimony?o Child support is NOT alimonyo Required by divorce/separation agreemento Paid in cash, checks or money orders

o How do I report alimony?o Recipient reports as income (taxable)o Payer reports as an adjustment (deductible)

o Where do I report alimony?o When received, Form 1040, Line 11 (income)o When paid, Form 1040, Line 31a (adjustment)

136

Lesson 8B – Intermediate Income

Questions?

137

Lesson 9: Intermediate -Business and self-employment Income

Materials: 4012, Tab 2

138

Schedule C-EZ

o Schedule C-EZ: In-Scope

o Schedule C : In-Scope o If less than $10k expenseso Preferred Use

139

VITA Schedule C Limits

o No limits on gross receiptso Business expenses of $5,000 or lesso Only one business per taxpayer o Business conducted on a cash basiso No net loss, inventory, employees,

depreciation, or deduction for business use of home

140

Schedule C

o Income usually reported to Taxpayer on Form 1099-MISCo Box 7: Non-employee compensationo Very important to use only 1099-MISC that is

shown with Sch C

o DO NOT REPORT ON LINE 21 OF FORM 1040 – IT IS NOT MISCELLANEOUS INCOME

141

Schedule C - TaxWise

o Block B-Business Codes o TaxWise Help

o Line 1-Gross Receiptso Link to 1099-Misc (may be more than one) OR

o Link to Scratch Pad if no 1099-Misc

142

Business Expenses

o Advertisingo Business mileage, exclude commute mileso Parking and tollso Commissions and feeso Interesto Legal and professional services

143

Business Expenses (continued)

Repairs and supplies Rent, office expense and insurance Taxes Telephone and utilities Business meals and entertainment (limited

to 50%)

144

Business Expenses (continued)

See F-4 of Pub 4012

145

This is done incorrectly a lot of the time. No commuting mileage!

Due Diligenceo Preparer should take steps to determine that

Business/Self-Employed income is correct and complete, especially if it is TP’s only income and qualifies TP for refundable tax credits.

o Know the law, don’t just rely on softwareo Ask the right questions to get all the facts

• Does TP have records for receipts/expenses, appointment calendar or job schedule

• Does TP have required industry licenses/permits• Did TP receive cash payments in general (no 1099-MISC)

Due Diligence (continued)

o “Red Flags”: Round numbers, no business expenses, no business records, income amount that results in maximum credits

o Preparers have the right and responsibility to ask for all necessary information to prepare a correct and complete return.

• Once due diligence is met, Volunteer may prepare return in “good faith” based on information provided by taxpayer without requiring certain documents

Quiz o If the taxpayer claims mileage, which of

the following are also deductible?o Gaso Vehicle insuranceo Parking and tollso Depreciation

148

Self-Employment (SE) Taxeso If business realizes a net profit of $400 or more,

taxpayer is liable for SE tax

o TaxWise automatically computes Tax on Sch SEo About 15% OF NET INCOMEo Social Security + Medicare Tax o Puts tax on page 2 of the 1040

o Taxpayer gets a deduction for ½ of SE tax as an adjustment on form 1040

149

Business Income

Questions?

150

Lesson 11: Retirement Income

Materials: 4012, Tab 2

151

Retirement Income - Objectives

Identify Income reported on 1099-R form

Understand penalties and exclusions

How to report income on the 1040 Return

152

Retirement Income 1099-R form See page 2-17 of 4012

Fill it in only if taxable amount is determined (otherwise – Advanced)

Make sure the code in box 7 is correct

If it is Code 1, then Penalty is done for you.

If Code 2 or 7, no penalty153

Retirement Income But – Disability Retirement is different! Will received one of the following:

W-2 if taxpayer has not reached minimum retirement age set by the employer

1099-R if the taxpayer has reached minimum retirement age set by the employer (or even if not)

Code 3 is in Box 7 if Disability Must force TaxWise Just Remember to use 4012

Page 2-17

154

IRA Withdrawals Most early withdrawals - 10% penalty Some reasons are OK and no penalty

Medical, New Home, School, Disability, Death

You can work the issue if needed Use Form 5329 – (good reason to keep

4491 Chapt 27) and it’s in 4012 pg 6-4

155

Any Questions

Retirement Income

156

Lesson 13: Unemployment Compensation

Materials: Pub. 17, Chapter 12

157

Unemployment Compensation

o Compensation received under federal or state unemployment compensation laws

o Unearned incomeo Generally taxable including Family Leave (but

not maternity disability)o Reported on Form 1040, line 19

158

Form 1099-G

o Taxpayer receives Form 1099-G

o Shows total paid & withholding, if any

o Link to 1099-G from 1040 Line 19

159

Unemployment Compensation

Questions?

160

Lesson 14: Social Security

Materials: 4012, Tab 2 Pub. 17, Part 2

161

Social Security

Some portion of social security benefits may be taxable (up to 85% - MFS) Depends on filing status and other income

Generally, if social security is the only source of income, then there is no tax and the individual does not need to file

162

Social Security Reporting Forms

Social Security

o Reported on SSA-1099

Railroad Retirement Tier 1

o Reported on RRB-1099 (Blue)

o Same rules as Social Security

163

Social Security Income in Tax Wise

o 4012, Tab 2 (2-12)

o Link from 1040, Line 20a to 1040 Wkt1

o Enter data as indicated for both Taxpayer and Spouse

o Add Medicare B and Part D together and enter on Medicare line

o Carries automatically to Schedule A deduction

164

Railroad Retirement Income in Tax Wiseo Link from 1040, Line 20a to 1040 Wkt1

o Enter data on the line provided for Railroad Retiremento Do not use Social Security line

o Add Medicare B and Part D together and enter on Medicare line o Carries automatically to Schedule A deduction

165

Taxability: Social Security

May be taxable on the federal return if one-half of social security plus all other income (including tax-exempt interest) is more than: $xx,000 – Married Filing Jointly $xx,000 – Single, Head of Household or QW

Not taxed by California

166

Lump Sum Benefits

Payments could be for current tax year and prior tax years Yearly amounts show in description box of SSA-

1099 Payments can be:

Reported in the current year, or Spread over earlier years

167

Tips for Entering into Tax Wise

o Don’t forget to look for Federal withholding

o Always enter Medicare Part B & D even if the taxpayer isn’t planning on itemizing – something may change

168

Social Security

Questions?

169

Lesson 15: Other Income

Materials: 4012, Tab D Pub. 17, Chapter 12

170

Common Types

o Prizes and Awards

o Gambling Winnings

o Jury Duty Pay

171

Where do I find it?

o Tax Payer/Intake Sheet

o W-2G (Gambling)

o 1099 Miscellaneous (Box 3, not Box 7)

172

Where do I Report it?

o Line 21 will want a Worksheet if more than one type.

o W-2G (Gambling) will transfer

o Always add wording to Line 21

173

WARNING - Reminder Caution!

1099 Miscellaneous Box 7 (Non-Employee Income)

Must be reported as Business

Income on Form C-EZ, not on 1040 line 21 !

174

Other Income

Questions?

175

Lesson 17A: Adjustments to Income - Basic

Materials:o Pub 4012 Tabs E & 3o Pub 17 Chapter 17

176

Lesson 29: Earned Income Credit

Materials:o Pub 4012, Tab Ho 1040 line 64Ao Pub 17, Chapter 36

177

EIC

178

Eligibility Pub 4012 TAB H

o Taxpayer must have earned incomeo AGI is limited o Refundable credit (1040 payments)o Taxpayer & dependents must have a

valid social security card

179

Calculate EIC

o TaxWise calculates EIC!

o On Main Info, assume children will qualify for EIC – Check the box - TaxWise schedules will ask necessary questions

o List children from youngest to oldest

180

With Qualifying Child Pub 4012 TAB H

o Child must have valid-for-work SSN

o Relationship

o Age

o Unmarried (with exceptions)

o Residency

o Cannot be claimed by another

o Does not need to meet support test

o Increased credit for second/third child

181

General Eligibility Pub 4012 TAB H

o Cannot be “Married Filing Separate”

o Must have valid SSN - NO ITIN

o Citizen/ resident alien

o Investment income limited

o Cannot be qualifying child of another

182

EIC without Children Pub 4012 TAB H

o Dependency

o Age

o Residency

o If taxpayer fails to qualify with child(ren) may qualify without children following rules above.

183

Schedule EIC Pub 4012 TAB 6

o Select Sch EIC from the Forms Tree

o If there are any red marks on Line 4, answer 4a OR 4b, not botho Do not click on any boxes that aren’t still in

red.

184

Note:Do not check this box just because it’s red. That will disallow EIC and you’ll never know why.

185

Disallowed EIC

Special rules apply if the taxpayer was previously denied EIC

Make sure the taxpayer didn’t answer YES to being disallowed because of an error correction on a previous return

188

Other Considerations PUB 17 Chapter 36

o For EIC, support is not an issue – an exception to the Uniform definition

o Under rules for divorced/separated parents, only custodial parent qualifies

189

Tie-Breaker Rules Pub 4012 TAB H

o VITA will never invoke Tie-Breakero That’s an IRS function

o Priority order is:o Parento Parent with whom child lived longesto Parent with highest AGIo If no-one is the parent, person with highest AGI

190

EIC Quiz 1

Sara (age 43) earned $5,000. Her unmarried daughter, Jane (age 18) lived with her all year. Matt (age 25 and unrelated) earned $14,000 and lived in the home all year. Matt is not Jane’s father, but provided more than half her support.

Who is eligible to claim EIC?

191

EIC Quiz 1 - Answer

o Jane is Sara’s qualifying childo Sara can claim EIC using Janeo Jane is not Matt’s qualifying childo Matt cannot claim EIC credit for taxpayers

without a qualifying child because his income is too high.

192

EIC Quiz 2

Mike (40) earned $18,000. His two sons, Joe and George (ages 16 and 18) lived with him all year. Mike’s sister, Susan (36) earned $11,000 and lived with Mike and his sons over half the year.

Who is eligible to claim EIC?

193

EIC Quiz 2 - Answer

o Both boys are qualifying children of both Mike and Susan

o Mike and Susan can decide who will claim which (or both) of the children.

194

EIC Quiz #2 – Follow up #1

Who would be eligible if Mike and Susan cannot agree who will claim the children?

Answer: Mike would be the one eligible for both children because he is their parent.

195

EIC Quiz #2 – Follow up #2

Who would be eligible if the boys were nephews of both Mike and Susan and they disagreed on who would claim the EIC?

Answer: Mike would be the one eligible because he had the higher income.

196

Earned Income Credit


197

Lesson 17A: Adjustments – Basic


198

Definitions

o Adjustments: Subtractions from total income

o Total income minus adjustments = Adjusted Gross Income (AGI)

199

Early Withdrawal Penalty

o Early withdrawal penalty should be shown on the 1099-INTo Enter on the Interest Statement

o TaxWise will calculate automatically

o This is the only Adjustment in scope Basic

200

Lesson 17B: Adjustments – Intermediate


201

In-Scope Adjustments

o Educator Expenseso Self-employment taxo Alimony paido IRA Contributionso Student Loan Interesto Tuition and fees deductiono Jury duty pay

202

Educator Expenses

Up to $250 documented expenses for supplies

K-12 Educators only

Must be a teacher over 900 hours during year

203

Self-Employment Tax

One half self-employment tax

TaxWise calculates from Sch C and Sch SE

No work on your part!

204

Alimony Paid

o See 4012, Tab Eo Must be paid under a

Divorce/Separation Agreemento Need SSN of recipient

o Recipient must claim as incomeo Remember: Child Support is not alimony

and is not reported on the tax return

205

IRA Contributions

o Adjustment is only for Traditional IRAso Any IRA that is not a ROTH or SIMPLE IRA

o Other contributions might be eligible for Retirement Savings Credit

o May be able to deduct contributions

206

IRA Contributions

Contributions are limited to the lower of: $5,000 ($6,000 if 50 or over) or Taxable compensation

Deduction is limited if taxpayer is covered by a retirement plan at work Check box 13 on W-2

207

IRA Adjustment

o Eligibility requirementso Under 70 1/2 at end of the tax yearo Must have taxable income (earned income)o Contribution made in Tax Year or by April 15 of

following year.

o Enter in TaxWise IRA worksheeto Review 4012, Tab Eo Not too often at VITA (most are 401k)

208

Student Loan Interest

o Interest paid on loan for qualified higher education expenses

o Reported on 1098-Eo Only include the interest paid

o Maximum adjustment of $2500o Review 4012, Tab E-3o Enter on TaxWise 1040 wkt 2

209

Tuition and Fees Deduction

o Can claim up to $4000 per returno Reported on 1098-T

o Be sure to subtract any scholarshipso Student must be taxpayer; spouse or dependento Review 4012, Tab E-4o Compare with Education Credits and select best

alternative (do when the rest of the return is complete)o Credits are almost always more beneficial for lower income

210

Jury Duty Pay

o If received jury pay and paid that income back to the employer, it can be claimed as an adjustment (like never see this)o Income reported on Line 21

o Enter on line 35 under “Other”

211

Adjustments to Income


212

Lesson 19: Standard Deduction and Tax Computation

Materials:o PUB 4012 - Tab F & 4o PUB 17 - Chapter 20

213

Deductions

AGI minus Deductions and Exemptions equals Taxable Income.

Choice of Standard Deduction or Itemized Deductions

214

Standard Deduction Pub 4012 TAB F

Allowed reduction of Adjusted Gross Income based on:Filing StatusAge (65 and over)Blindness (need certified statement)Dependency

Allowed deduction changes each year

215

Standard Deductions (Pub 4012 TAB F)

Allowed as alternative to Itemized Deductions

No recordkeeping required

Deductions fixed

TaxWise calculates automatically based on data – goes to Form 1040 Line 40

216

Standard Deduction for a Dependent

For individual filing a return, but claimed as a dependent on another$ or:Earned Income + $ up to $

Additional allowances for over 65 or blind are still valid – TaxWise calculates this automatically from data entered

217

Exceptions

Married Filing Separately (Out of Scope) Spouse has itemized – TP must itemize

Spouse took Standard – TP must take Std

Non-Resident Alien MUST itemize. (Out of Scope)

218

Tax Computation

Adjusted Gross Income (AGI) – (Standard or Itemized) Deduction – Exemptions= Taxable Income

Tax liability determined by: Tax tables using income and filing status Calculations if AGI over $100,000

TaxWise calculates automatically

219

Standard Deduction and Tax Computation


220

Lesson 20: Itemized Deductions

Materials:o PUB 4012 - TAB F & TAB 4o PUB 17 – PART FIVE

221

Deductions

o Taxpayer may take the Standard Deduction or itemize deductions

o If itemizing, Schedule A must be prepared

o Generally, taxpayers can benefit from itemizing if they have mortgage interest or high unreimbursed medical expenses

o Review interview, 4012, Tab F-3

222

Schedule A Itemized Deductions

o Medical and Dental expenses

o Certain taxes you paid

o Mortgage Interest

o Gifts to Charity

o Casualty & Theft Losses (OUT OF SCOPE)

o Miscellaneous Deductions

223

Medical and Dental Expenses (Pub 17 Ch 21)

o Only deduct amount that is more than 7.5% of their AGI

o Must be paid by the Taxpayer during the tax yearo Cannot be reimbursed expenses

o Expenses paid for TP, SP or Dependents

o Not all medical expenses can be decuctedo Review Pub 17, page 147

224

Medical and Dental Deductable Expenses

o Medical, dental and hospital billso Prescriptionso Addiction programso Medical insurance premiumso Long-term care insurance premiumso Transportation for medical careo Eyeglasses and hearing aids

225

Non-Deductable Expenses

Some expenses are not deductible: o Cosmetico Funeral expenseso Health club dueso Non-prescription drugso Life Insuranceo Vitaminso Veterinary expenses

226

Deductible Taxes

o Must be imposed on the taxpayer

o Must be paid by the taxpayer in the current tax year

o Review Pub, 17, Chapter 22 (page 153)

227

Deductible Taxes

o State/Local Income taxes or Sales taxes

o Sales Tax usually higher – use worksheet

o Real Estate taxes – generally reported by mortgage company on Form 1098o Not fees or parcel taxo Not for a Business

o Personal Property taxes (on based on value of property)

o Motor Vehicle Taxes – See registration

228

State Income Tax

o State income tax actually paid during the year:o State income taxes withheldo State estimated tax payments made during

the yearo State income tax paid with the prior year tax

returno Includes state disability insurance (SDI)

229

State Sales Tax 1040/540 Instr.

o Sales Tax Table – built into TaxWiseo Income is AGI plus non-taxable incomeo The table covers California’s base sales

tax rate onlyo Local sales tax rate additionalo Add sales tax for major purchaseso Use TaxWise Sales Tax Worksheet

230

Non-Deductable Taxes

o Federal income and excise taxes

o Social Security, Medicare (deducted from pay check)

o Federal Unemployment (FUTA)

o Railroad retirement taxes (RRTA)

o Customs duties

o Federal estate and gift taxes

231

Deductible Interest

Home Mortgage Interest/Points from Form 1098 Points not reported on Form 1098 Points on Refinance - Amortized Qualified Mortgage Insurance premium (Not

allowed by CA) Review Pub 17, page 157

Investment Interest (out of scope)

232

Non-Deductible Interest

o Interest on personal loans, including car loans

o Interest on personal debts

o Finance charges on personal credit cards

233

Gifts to Charity

Taxpayers must itemize to deduct gifts to charity

Qualifying organizations include: Religious, charitable, educational, scientific, etc. Review Pub 17, Chapter 24 (page 164)

Non-Deductible includes: Chamber of Commerce, political candidates,

lobbying orgs, homeowners associations, raffle tickets, etc.

234

Gifts to Charity

Deductible items includes: Monetary donations Fair market value of clothing and furniture Unreimbursed transportation expenses

235

Gift Documentation

For cash donations: Need check or written documentation from charity

For non-cash donations: Less than $250

Receipt (name, address, date, description, value) $250 - $500

Above plus good and services in return and good faith estimate

Over $500 – out of scope

236

Casualty Loss or Theft

Out-of-scope for VITA You may deduct non-business casualty or

theft losses only if amount of each separate casualty or theft loss is over $100, and total amount of all losses during the year is more than 10% of AGI

237

Miscellaneous Deductions

Only the portion that exceeds 2% of AGI can be deducted

Review Pub 17, Chapter 28

238

Miscellaneous Deductions – cont’d

Deductible Expenses include: o Union dues and professional society dueso Professional books or magazineso Uniforms not adaptable to general useo Small tools and supplies required for worko Educator expenses over $250o Expenses of looking for a new job

239

Miscellaneous Deductions

Certain miscellaneous deductions are not subject to the 2% limit: Gambling losses (but limited to the amount of

winnings)

Some miscellaneous expenses are not deductible: Political contributions Lost cash or property

240

Itemized Deductions


241

Lesson 22: Dependent Care Credit

Materials:o Pub 4012, Tabs G and 5o Pub 17, Chapter 32

242

Definitions

Credit – a dollar-for-dollar reduction of the tax liability

Non-refundable credit – can reduce the tax to zero, but does not provide a refund above tax paid

Refundable credit – can reduce the tax to zero and provide a refund beyond tax paid

243

What is Dependent Care Tax credit?

o A tax credit for work-related dependent care expenses

o Dependent must be a “qualifying person”o Dependent child under 13o Spouse or Dependent unable to care for

themselves

o Credit is 20 - 35% of qualifying expenses

244

Limitations on the Credit

o Amount depends on earned income and

AGI

o A maximum applies

o The Federal credit is non-refundable

245

Does the Tax Payer qualify? Pub 4012 Tab G

o Tax payer must pass 5 tests:

o Qualifying Person Test

o Earned Income Test

o Work-related Expense Test

o Joint Return Test

o Provider Identification Test

o Use Decision Tree, Tab G

246

How is the credit determined? Pub 4012 Tab 5

o Examine the Intake Sheet

o Question the tax payer

o In TaxWise complete Main Info. Sheet section

6c and check DC box

o Complete Fed Form 2441 & CA Form 3506

o Note special rules for student parents

247

Dependent Care Credit TaxWise

Click this DC Box to get form to load for

that child

248


Dependent Care Credit

This is two lines!Zipcode only for line 2 OK

249

Put SS# or EIN in here


It will figure out the Type

Will need to enter the qualified amount – Usually the same.

250


Voila!

251

California CDC Differences

Care must be provided in California Primary home must be in California CA requires provider telephone number and

address where care is given CA credit is not refundable

252

CDC Pitfalls

DC box for dependent not checked on Main Info screen

Non-qualifying person Provider Information incomplete Benefits in W2 Box 10 are greater than

qualified expenses

253

TaxWise TW2 –Some More

254

Key Items to Remember USE ALL CAPS (no confusion) No punctuation marks (, & # .) Use Decimal points for $ (will round)

Do not use “Interview” Do not fill in the electronic intake form

255

TaxWise – Part 2 “Estimating” – Get out Red you don’t need

Use ‘Ctrl + Spacebar’ or F3 This toggles the red Do not confuse with ‘Override’. I won’t teach you

that!

Adding forms ‘Add forms’ button then search Hit the ‘+’ button by an existing form to duplicate

256

TaxWise – Part 2

257

Changing Social Security Amounts

2- SS and Medicare change!!

1- Enter this and then …

TaxWise – Part 2

Changing Social Security Amounts Government

employees Click box on the

W2 to take of calculations

258

TaxWise – Part 2

Linking Use the chain looking icon which pops up

Getting Help Help icon next to linking and estimating

Jumping to the next red field ‘Ctrl + e’ (Add that to page 7-2 in your 4012)

259

Learn By Doing We’ll do a full tax return today.

It’s easiest to ‘Learn by Doing’

Scott - just about all the things you can encounter EIC Dependent Adult Child Care

260

TaxWise Login https://twonline.taxwise.com/training

Your Client ID is entered first XXXXX

Your User Name is ‘User##’ where ## is unique to you per the sign in sheet

Your NEW Password from the first class

261

Scott Taxes for Today Start a new Return for Quincy Scott and Family Open 4491-W

Be sure to evaluate dependencies page 39 Watch line notes on page 42

AGI is $47,672 Credits Line 54 are $1,663 ‘Total Tax’ Liability is $123 Tax Refund is $6,183 (Ignore split refund for

today)

262


2012 Tax Law TrainingDay 3

January xx, 2013

263

Lesson Index Day 3

264

Homework / ReviewEducation Credits 23Child Tax Credits 25Other Credits - Retirement 27Other Taxes 28Payments 30STRETCH BREAKRefund / Tax Owed 31California TaxWise Issues CAQuality Review of Tax Return 32BConcluding the Interview 33LUNCH BREAKTesting Guidelines (Using Form 6744) TestCourse Evaluation Handout

Lesson 23 Intermediate: Education Credits

265

Education Credits Objectives for this Section

Who Qualifies for Credit(s)

Which credit they can they claim

What is included as Education Expenses

How to do it in TaxWise

266

Education Credits Hope Credit was expanded end of 2010

(American Opportunity Credit)First 4 years of college includedUp to 40% is a refundable credit

Lifetime Learning the same as alwaysAny not covered by American Opportunity Improve job skills20% of expenses

267

Education Credits- Basic Rules Rules on Page G-3 of Resource Guide Must be for yourself, spouse or your

dependent Certain expenses added - “course

materials” – G4 middle books et al Excludes Room and Board Should be on a 1098-T (see next slide)

268

Education CreditsSubtract

NOTE!

269

Education Credits – American Opportunity

Rules on Page G-3 of 4012 Guide First 4 years (was 2) Includes required books and supplies Must be a degree program Must be at least ½ time Student No Drug conviction

270

Education Credits – Lifetime Rules on Page G-3 of Resource Guide Any college or vocational courses Must acquire or improve job skills Does not have to be a degree program Drug conviction N/A

271

Education Credits – Exercise

272

Education Credits – TaxWise Form 8863

273

Education Credits – TaxWise First section is American Opportunity

Second is Lifetime Learning

Part III and IV deal with Refundable / Nonrefundable portions 40% Could be Refundable

274

Education Credits Any Questions?

275

Lesson 25: Child Tax Credit andAdditional Child Tax Credit

276

Child Tax Credit - Objectives Determine the taxpayer’s eligibility for the

credit(s)

Determine which taxpayer can claim the additional credits

Understand how to look for it in TaxWise

277

Child Tax Credit Credit of $1000 per child

Non refundable – must owe tax BUT! Some is refundable if your income is low

Still more Qualifying Person tests!! Child under 17 at Year End – no student extension Must be directly related and a dependent The Credit goes with Dependency (divorced parents –

remember Justine Jackson?)

278

Use Resource Guide Credits Tab G – page G-7 & G-8 TaxWise handles most issues

Knows age and relationship Be sure to use the right code in the dependent section

Look for the Additional Child Tax Credit (refundable portion) When you run out of taxes to make any credit Must make over $3000 ($12,000 in prior years) 279

Child Tax Credit - TaxWise

280

As Soon as you put in age

And Relationship, Mo in Hm and

Code

TaxWise marks this box for you

Child Tax Credit

Tax is $623

Use all other Credits First

281

Additional Child Tax Credit What if you don’t owe enough tax to get

all the credit? For low income people Must earn > $3000 or > 3 children Adds back part or all of what you missed

by not owing any tax

282

283

Tax is $668

Child Tax Credit is $668

Add’l Child Tax Credit is $332

TaxWise Generates a Form 8812

Child Tax Credits

That’s all you have to do Get the Main Information Sheet right!

Thanks, TaxWise®!

284

Child Tax Credits


285

Materials:o Pub 4012, Tabs G and 5o Pub 17 Part Six

Lesson 27: Retirement Savings Credit and Miscellaneous Credits

286

Non-Refundable Credits

o Dollar for dollar reduction of tax liability.

o Generally applied against federal tax in the order they are listed on 1040 page 2, credits.

o Can reduce tax liability to zero.

287

Non-Refundable Credits

o Retirement Savings Contributions Credit

o Residential Energy Credits

o Credit for the Elderly or Disabled

288

Retirement Savings Credit

o For qualifying taxpayers who made

contributions to a qualified retirement plan.

o IRS allows double benefit – deduction and

credit for contributing

o Review 4012, Tab G

289

Retirement Savings Credit

o Review Form 8880 (4012, Tab 5-5)

o TaxWise will automatically add form if:o IRA contribution entered, 1040, line 32

o W-2s with qualifying entries in Box 12

o Retirement plan box checked on W-2

o Be sure to add ROTH IRA to wkst first

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Credit for the Elderly and Disabledo Very rare due to severe income limitations

o TaxWise computes automatically

o Schedule R

o CAUTION: Check to see that SSA/RRB has

been entered correctly

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Miscellaneous Credits


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Lesson 28: Other Taxes

Materials:oPub 4012 - Tab 2oPub 17, Ch 10, 17, 32, 36

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What are Other Taxes?

Self-employment taxes Social Security and Medicare on tip Income Additional taxes on IRAs and other qualified

retirement plans

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Self Employment Tax

Social Security and Medicare tax on individuals who are self-employed Must pay if made over $400 Church employee of $108.28 or more

Included in Schedule C

TaxWise handles automatically

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Unreported Tip Tax (Pub 4012, Tab 2)

o Pay on unreported tips of over $20/month

o Subject to Social Security & Medicare Taxes

o Report on Form 4137

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Early IRA Withdrawal Penalty

Distribution Code shown on Form 1099, Box 7 will identify Tax on income plus 10% penalty on

withdrawal amount Taxpayer might qualify for an exception to

the penalty – need to refer to paid preparer

TaxWise will calculate based on code

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Early IRA Withdrawal Penalty Exception

Some reasons are OK and no penalty Medical, New Home, School, Disability,

Death You can work the issue if needed Use Form 5329 – (good reason to keep 4491

Chapt 27) and it’s in 4012 pg 6-4

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Other Taxes


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Lesson 30: Payments

Materials:o Pub 4012, Pages 10-13, Tab 6 o Pub 17, Chapter 4o 1040 page 2

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Types of Payments

Federal income tax withheld from W-2s, 1099s Estimated payments (Quarterlies) Refundable Earned income credit Refundable Additional child tax credit Refundable education credit Payments made with a request for extension Money applied from prior year (Very Rare)

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Withholding PUB 17 CHPT 4

o Collected by employer

o Set aside from pensions

o Set aside from bonuses, commissions

o Set aside from gambling winnings

o $600 or more

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Reporting Withholding

o TaxWise – collects and totals automatically from data entry on individual forms

o Shown on 1040, pg 2; Payments section -Line 61

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Estimated Payments

o Taxpayers may require estimated payments:o Self-employedo Those with investment incomeo Projected balance due >$1,000 (penalty)

o Payments made periodically by taxpayer

o Must ask taxpayer if payments madeo Need to know “When” and “How Much” for each

paymento Ask for Form 1040ES from 2008

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Payments from Extension to File

o Taxpayer requests extension to file

o Must pay estimated balance due with extension

o Amount paid with Extension reported on final return, Form 1040, line 68

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Payments


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Lesson 31: Refund or Amount of Tax Owed

Materials:o Form 1040 Lines 72-76o 4012, Tabs 6 & 13

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Refund Options Pub 4012 Tab 13

o Direct Deposito Faster and safero Specify account typeo Enter both routing and account numberso To split between 2 or 3 accounts - use Form 8888o See 4012, page 13-6

o Refund by check – mark box to have refund mailed

o Apply to next year’s tax

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Refund Offsets

Refunds can be decreased due to: o Unpaid federal taxeso EIC reviewo Unpaid state taxeso Child supporto Student loan debto Other non-tax debts

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Payment Options Pub 4012 Tabs 6 & 13

o Check or money order - use 1040V

o Electronic fund transfer - use ACH form

o Credit card (additional fee)o Instalment payments ($105 or $52 fee)

o Use form 9465o Interest & penalties apply

o TP can request 60-120 day deferment but interest & penalties still apply

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California

Similar to Federal except shows up on CA540, page 2

If refund, options to Direct Deposit into same account as Federal or separate account

If Taxes due payment options are similar to Federal Instalment payments to be worked out with FTB

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Tax Penalty 1040 LN 76

A penalty might be assessed.

o If tax owed > $1000 (some exceptions)

o Calculation of penalty is out of scope (form 2210)

o Inform TP of possible penalty and Override to $0

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If Return Shows A Penalty

o Open Federal Form 2210

o CA Form 5805

o Follow steps shown to eliminate penalty

o Advise the TP that the IRS & FTB may assess a penalty at a later date.

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Third Party Designee

Taxpayer may designate another person that can discuss their return with the IRS

o Adult child of elderly parentso Family member of overseas TPo May NOT be VITA volunteer

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W-4 Withholding

You might want to advise taxpayer to adjust their withholding (either large balance or large refund)

Can use withholding calculator on IRS.gov Adjust withholding with life events:

Marriage Children Purchase of home

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Refund or Amount of Tax Owed


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Lesson CA: California Taxes

CA Tax Law GENERALLY follows Federal Filing Status the Same NOT Taxable

Social Security Unemployment and Family Leave US Savings Bond Interest

IS Taxable Foreign Income Municipal and State Bond from other states

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CA Taxes

o TaxWise Saves the Day!o Social Security, Unemployment and Self

Employment are automatically excluded o SDI and State Tax Deduction are also

automatically excluded o Interest and Dividends may need manual

adjustment on 540 CA CA worksheet

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CA Adjustments Interest Income(By the way, these are rare at VITA sites)

o Bank and corporate interesto Taxed by Federal and CA – No Action

o US Government interesto Taxed by Federal, not taxed by CA – Manually remove

o California municipal bond interesto Not taxed by Federal or CA – Automatic of shown as

Tax Freeo Non-California municipal bond interest

o Not taxed by Federal, taxed by CA – Manually Add

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CA Renter’s Credit - Requirements

o Paid rent at least 6 months on principle residence in CA

o CA resident for entire yearo Property not exempt from property taxo Did not claim homeowners property tax

exemption

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CA Renter’s Credit - Limits

o Credit is non-refundableo So check to see if any net tax liability

o In 2011 income limit is:o $ for single or MFSo $ for other filing statuses

o Credit amount is:o $ for single or MFSo $ for other filing statuses

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CA Renter’s Credit

o CA 540 Pg 1 Question regarding payment of rent – Must be completed (red box)

o Must complete CA Rent Wkt if “Yes”o If no tax liability (See line xx), just say “No”

and save some work

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CA Head of Household

o CA will populate the tree with form 3333o No real new informationo Choose Youngest Child / Dependento Answer all RED and Slowly

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CA Banking and e-Filing

o CA 540 Page 3 will require some boxes and buttons

o Make sure FED is done first!o Answer all RED and Slowlyo If FED and State are not both refunds, best to

pay with check or mail check to home. (Avoid Bank as TWO will be difficult)

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Lesson 32B: Quality Review

Materials: Pub 4012, Tab 13 Form 13614C Section C

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Quality Review

The quality review process is very important! We want to make sure all returns are accurate and that errors are fixed before filing.

To begin: Introduce yourself Explain the process Ask if the taxpayers has questions

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Who Conducts the Quality Review?

Two methods:

o Designated Reviewer

o Peer Review

* All quality reviewers must be certified at the Intermediate level!

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What do We Check in Quality Review

o Verify that the IRS Interview and Intake Form is complete

o Verify the identity of the taxpayero Verify spelling of names, SSN and DOB for TP and

Dependentso Verify Filing Status – ask enough questions to confirmo Verify income from all source documents is included

o Ask the question: “Is there any other income?”

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What do We Check, Continued

o Verify adjustments to Income

o Verify deductions Schedule A

o Verify credits - including required forms

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Quality Review Process

Check Numbers and Spelling: SSNs, Names, and DOBs W-2s, 1099s, 1098s, etc

Confirm numbers Make sure all information is entered

Expenses – credits, adjustments, deductions Bank account information

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What if there are problems?

Make corrections as you review the form Indicate changes on the Intake and Interview

Sheet

Advise the taxpayer if the changes alter refund or balance due

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Common Errors

1. Entry of SSN 2. Incorrect name spelling – especially Spouse3. Employer EIN and name4. Entry of 1099R information5. Completion of EIC Worksheet

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Top Problems using TaxWise

1. OVERRIDES! No reason to do so2. Use of punctuation – will fail e-file3. Not linking to 1099MISC from Schedule C

and putting on Line 214. Incorrect use of scratch pads5. State adjustment for interest & dividends6. Proper completion of Sch EIC worksheet

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Did we say QR all returns - YES?


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Lesson 33: Concluding the Interview

Materials:o Pub 4012 Tabs 13, 14

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Finishing the Return

Once the return is quality reviewed, you are ready to finish the return!

o Use Practitioner Pin o Run diagnostics o Create the e-fileo Print the return

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Final Stepso Assemble the return for the taxpayero Point out the perjury statement above signature line – that they are

agreeing to everything in the return and that they are responsible for the return (not the preparer)

o Have taxpayer sign both copies of Form 8879o One for their records, one for the site (procedure varies by site – ask

coordinator)o If joint return, both TPs must sign Form 8879so Attach forms that have federal withholding (W2 and 1099R) to site

copy of 8879 o Return all other documents to taxpayer. Do NOT retain any other

taxpayer documents.

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Taxpayer Packet

Assemble the packet 1040 on top Place forms and schedules etc. in proper

sequence Ask if they want CA stapled with federal Give them a tax record envelope – write their

name, the site, and tax year Ask them to bring it back next year!

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Review Return

Go over the packet of materials with the taxpayer

Go line by line through the 1040 and explain income, adjustments, deductions, taxes, and credits

Ask if they have questions

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Refunds and Balances Due

Give client an idea when they will receive their refund – Pub 4012, page 14-1

Remind client with a balance due to use the 1040 V and mail by April 15th

If a large balance is due advise client on options (adjust withholding or estimated payments)

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Record Keeping - TP

o Tell taxpayer to keep copy of the following for five years:

o Form 1040 and all schedules

o All W-2s and 1099s

o Any additional applicable papers

o Signed copy of 8879

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Record Keeping – Site

Keep a signed copy of the 8879 (with attached copies of W-2s and 1099-Rs) – recommended but not required

Keep the intake form

Both are kept locked at the site

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Closing the Interview

Remind the taxpayer that the return will be electronically submitted

We will contact them if there is a problem If they hear nothing, the return was accepted

Ask if they have any final questions

Thank them for coming!

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Concluding the Interview


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Lesson Test : Certification

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Certification Take the test today! - 2 to 3 hours from

scratch. You can ask Instructor questions. We cannot

give you the answer directly. Several problem scenarios can best be

answered by doing their return on TaxWise. We can review the return.

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Certification Best to do in the book and then enter your

answers on line Question is either from the front or the Retest

in the back – similar questions http://linklearn.webtechteam.com Need a new ID and Login - Again! Keep it because your certificate is there

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http://linklearn.webtechteam.com/

Certification Here is a handout to use and follow

along with the film http://www.johnrlee.com/temp/Testing.PDF

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http://www.johnrlee.com/temp/Testing.PDF

Certification

Testing Demo Film

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http://johnrlee.com/temp/Testing.html

Certification Emergency Link and Backup Slides

Go to end

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http://www.johnrlee.com/temp/Testing.html

(1) Click here toCreate an Account

(2) After youCreate an Account, use your Login and Password on subsequent visits.

You can also add this page to your Favorites for easier access.

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You select your Login and Password. Make sure you write it down!

All of the items with a red asterisk (*) are required. This information transfers to your Volunteer Agreement.

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Can Zip Through the training slides – Choose ‘Summary’ from Main Menu

Check to Sign your Volunteer AgreementClick on a Tab for the Test

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Open PDF of your Volunteer Agreement, Print, fill out missing information, Sign, then hand to your Site Coordinator!

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Certification Zip through the mandatory training

module on Ethicshttp://linklearn.webtechteam.com

Hints:Thurstons owe $626

Sawyers get Refund $6,219

358

Evaluations

United Way Course Evaluation forms

359

Testing

Hints

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Volunteer Income Tax Assistance 2012 Tax Law Training Basic and Intermediate Certification January,...

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Transcript of Volunteer Income Tax Assistance 2012 Tax Law Training Basic and Intermediate Certification January,...