welcome to the 2013 - 2014 volunteer basic tax … · • selections from irs publication 4012...

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Welcome to the 2013 - 2014 Volunteer Basic Tax Training

A Session

SaveFirst Volunteer Overview •  Basic Tax Training

•  A Session •  B Session

• Certification •  Volunteer Standards of Conduct Test (B session training) •  Tax Year 2013 IRS Basic Test •  Attend Testing Session or On Your Own •  Passing score: 80% or better •  Must pass before serving at the tax site.

• Volunteer Hours at Site •  January 20 – March 8 •  Complete Availability Form at End of Training

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The impact you will have as a SaveFirst volunteer this season

• Serve a record 6,800 families this year • Save Alabama families over $2 million in

commercial fees • Provide a quality, reliable service and an

alternative to a costly, predatory industry for hard-working families

• Watch the SaveFirst video!

https://vimeo.com/69241080

Resources

•  SaveFirst Basic Volunteer Training Agenda •  SaveFirst Basic Volunteer Training Notes •  SaveFirst Basic Training Summary Chart •  SaveFirst Basic Training Practice Exercise: Beth

Branch • Helpful Tips for New Topics on 2013 IRS Basic

Certification Exam (use on the test) •  Selections from IRS Publication 4012 Volunteer

Resource Guide •  Impact Alabama Staff

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Training Outline: A Session • 1) Tax Terminology •  2) Federal Income Tax Process and Form 1040 Overview •  3) Tax Preparation Process •  4) Exemptions •  5) Filing Status •  6) Filing Basics •  PRACTICE EXERCISE: BRANCH •  7) Income •  PRACTICE EXERCISE: BRANCH •  8) Standard Deduction •  9) Earned Income Tax Credit •  10) Child Tax Credit •  11) Child and Dependent Care Credit •  PRACTICE EXERCISE: BRANCH •  12) Volunteer Paperwork and Availability

Form 1040 •  Two-page form

•  Contains all of the information we will use to file tax returns! •  Automatically loaded in TaxWise

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Filing Status

• Affects tax liability • Based on marital status and family situation

•  Single • Married Filing Jointly • Married Filing Separately •  Head of Household • Qualifying Widow(er) with Dependent Child

Choose correct Filing Status on Lines 1-5

Exemption

• Amount the taxpayer can claim for himself, his spouse, and his dependents that decreases taxable income.

• $3,900 for each exemption

Total # of Exemptions found on line 6d

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Exemption

A taxpayer may claim 2 types of exemptions:

1) Personal exemption (lines 6a/6b) § Taxpayer can claim herself (and spouse)

2) Dependency exemption (line 6c) § Taxpayer can claim qualifying dependents

Dependent

• An individual whom the taxpayer supports financially or who lives with the taxpayer • Qualifying child, or • Qualifying relative

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Earned vs Unearned Income

1)  Earned: income received through work (wages, salary, tips, etc.)

2)  Unearned: income other than pay from work (interest, social security, retirement, etc.)

Income is entered on Lines 7-21 Total income is found on Line 22

Adjustment

• Decreases the amount of income on which the taxpayer will be taxed

Adjustments are entered on Lines 23-35 Total adjustments are found on Line 36

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Adjusted Gross Income (AGI)

• Amount of taxable income after adjustments are made

AGI found on Lines 37/38

(bottom of 1040 page 1)

Total Income (Earned and Unearned)

Adjustments ADJUSTED

GROSS INCOME

Deduction

• Amount subtracted from the AGI to further decrease taxable income •  Standard deduction: based on filing status, age, blind

status •  Itemized deductions: taxpayer can chose to enter

expenses if larger than standard deduction amount (or if filing status is Married Filing Separately and spouse itemizes)

Standard/Itemized Deduction(s)

found on Line 40

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Taxable Income

• Any income that is subject to federal income tax • Can include both earned and unearned income

Taxable Income found on Line 43

Adjusted Gross Income (AGI)

Deductions TAXABLE INCOME

Tax Liability

• Amount of tax owed for the year based on the taxable income

Tax Liability

(before credits are subtracted) found on Line 46 of 1040.

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Tax Credit

• Direct reduction of the taxpayer’s liability 1)  Nonrefundable credits 2)  Refundable credits

Nonrefundable Tax Credit

• Reduces the tax liability – only to zero. •  Child and Dependent Care Expenses •  Retirement Savings Contribution Credit •  Child Tax Credit

Nonrefundable Credits entered on Lines 47-53 Total Nonrefundable Credits found on Line 54

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Refundable Tax Credit

•  Reduces tax liability to zero, then taxpayer will receive the remainder of the credit value as a refund. •  Earned Income Credit, •  Additional Child Tax Credit

Refundable Tax Credits entered on Lines 64-67

Withholding

• Amount of money that can be taken from each form of income and received by the government each pay period

Total Withholding found on Line 62

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Training Outline: A Session •  1) Tax Terminology

• 2) Federal Income Tax Process and Form 1040 Overview

•  3) Tax Preparation Process •  4) Exemptions •  5) Filing Status •  6) Filing Basics •  PRACTICE EXERCISE: BRANCH •  7) Income •  PRACTICE EXERCISE: BRANCH •  8) Standard Deduction •  9) Earned Income Tax Credit •  10) Child Tax Credit •  11) Child and Dependent Care Credit •  PRACTICE EXERCISE: BRANCH •  12) Volunteer Paperwork and Availability

Federal Income Tax Process

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TOTAL INCOME

Earned Income

TOTAL INCOME

Earned Income

Unearned Income

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TOTAL INCOME

Earned Income

Unearned Income

TAXABLE INCOME

after adjustments, deductions, and

exemptions

TOTAL INCOME

Earned Income

Unearned Income

TAXABLE INCOME


exemptions

TAX LIABILITY

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TOTAL INCOME

Earned Income

Unearned Income

TAXABLE INCOME


exemptions

TAX LIABILITY

TAX CREDITS

AMOUNT OWED OR REFUNDED

Form 1040 Overview •  Filing Status •  Exemptions •  7: Wages •  8: Interest •  9: Dividends •  19: Unemployment •  20: Social Security •  21: Other Income •  30: Early Penalty •  37/38: AGI •  40: Deduction(s)

•  42: Exemptions •  43: Taxable Income •  46: Tax Liability •  48, 50, 51, 53: NR Credits •  54: Total NR Credits •  59b: Homebuyer Payment •  61: Total Tax •  62: Withholding •  64a, 65: R Credits •  72: Total Payments •  Refund •  Amount You Owe

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Training Outline: A Session •  1) Tax Terminology •  2) Federal Income Tax Process and Form 1040 Overview

• 3) Tax Preparation Process •  4) Exemptions •  5) Filing Status •  6) Filing Basics •  PRACTICE EXERCISE: BRANCH •  7) Income •  PRACTICE EXERCISE: BRANCH •  8) Standard Deduction •  9) Earned Income Tax Credit •  10) Child Tax Credit •  11) Child and Dependent Care Credit •  PRACTICE EXERCISE: BRANCH •  12) Volunteer Paperwork and Availability

Tax Preparation Process

• Part 1: Preliminary Interview • Part 2: Preparing the Return in TaxWise • Part 3: Quality Review (by Advanced

Volunteer or Site Coordinator) • Part 4: Finishing the Return • Part 5: Filing the Return

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Tax Preparation Process •  Part 1: Preliminary Interview

•  Taxpayer completes pages 1 and 2 of Intake/Interview Form

•  Verify photo ID(s) & Social Security cards(s) •  Ensure taxpayer cannot be a dependent of anyone else (Pub

4012: C-4 to C-6) •  Determine dependents (Pub 4012: C-3 to C-7) •  Complete part of Section II “To be completed by a Certified

Volunteer Preparer” •  Determine filing status (Pub 4012: B-1 to B-3) •  REVIEW pages 1-2 of I/I Form

•  Collect necessary forms •  “Yes” or “No” answer for all questions on pg 2

•  Write your full name at the bottom of page 3

Identification

• Photo IDs •  Verify photo IDs for taxpayer (and spouse)

• Social Security cards • Obtain and verify a SS card (original or copy)

•  Verify SS numbers for taxpayer (and spouse) •  Verify SS numbers for dependent(s)

•  Enter name EXACTLY as it appears on SS card!

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Acceptable Documents other than SS Card

•  SSA letter •  Name, SS number and statement that taxpayer applied

for a card

•  Form SSA-1099 statement •  ITIN card or letter

•  Issued for nonresidents who need to file tax returns but cannot receive SS cards

•  9XX-XX-XXXX (enter just like SS number)

• ATIN for dependent •  Issued for child while adoption is pending •  9XX-XX-XXXX (enter just like SS number)

Why conduct an interview?

• You get to know the taxpayer and build a relationship

• You might discover credits and deductions that could increase the taxpayer’s refund

• You might discover important income documents that must be recorded

• You may find that the return is out of scope • Required by the IRS for due diligence

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• Part 1: Preliminary Interview • Part 2: Preparing the Return in TaxWise

• Part 3: Quality Review • Part 4: Finishing the Return • Part 5: Filing the Return

Training Outline: A Session •  1) Tax Terminology •  2) Federal Income Tax Process and Form 1040 Overview •  3) Tax Preparation Process

• 4) Exemptions •  5) Filing Status •  6) Filing Basics •  PRACTICE EXERCISE: BRANCH •  7) Income •  PRACTICE EXERCISE: BRANCH •  8) Standard Deduction •  9) Earned Income Tax Credit •  10) Child Tax Credit •  11) Child and Dependent Care Credit •  PRACTICE EXERCISE: BRANCH •  12) Volunteer Paperwork and Availability

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Exemptions/Dependents – Line 6

•  Refer to Pub 4012 – Tab C •  C-1: Exemptions Summary •  C-2: Personal Exemptions Chart •  C-3: Overview of Rules for Claiming an Exemption for a

Dependent •  C-4: Overview of Rules for Qualifying Child of More Than One

Person •  C-5: Chart for Determining Dependency Exemption (Qualifying

Child) •  C-6/7: Chart for Determining Dependency Exemption for

Qualifying Relative •  C-8: Chart for Determining Dependency for Children of

Divorced or Separated Parents or Parents Who Live Apart

Personal Exemptions – Lines 6a/6b

• Each personal exemption decreases the taxable income by $3,900.

• Taxpayers can claim exemptions for: •  Taxpayer (themselves) UNLESS the taxpayer can

be claimed as a dependent by someone else. •  Spouse UNLESS the spouse can be claimed as a

dependent by someone else.

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Personal Exemptions

• Remember: It’s not whether the taxpayer IS claimed as a dependent, but whether the taxpayer CAN BE claimed as a dependent that determines whether the taxpayer can claim an exemption.

Dependency Exemptions – 6c

• Each dependency exemption decreases taxable income by $3,900.

• A taxpayer can claim exemptions for: •  qualifying children •  qualifying relatives

• These qualifying individuals typically live in the taxpayer’s home and generally receive significant financial support from him/her.

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Determining Dependency Exemptions

Turn to Tab C-5 in Pub 4012

ALWAYS USE THIS CHART TO DETERMINE THE NUMBER OF QUALIFYING PERSONS!

Qualifying Child or Relative?

•  If no one else can claim the taxpayer or spouse as a dependent, you need to determine if the other people living in the house can be Qualifying Children, and if not see if they can be Qualifying Relatives.

• Remember: Each dependent decreases the taxable income by $3,900!

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Determining Exemptions • Qualifying Child/Relative: follow Dependency

Exemption chart on C-5 to see if person is a Qualifying Child 1.  If you get through every step and answer No in Step 9,

then you can claim the person as a Qualifying Child. 2.  If answer YES in Step 9, then go to C-4 for chart on

Qualifying Child of More Than One Person 3.  If answer Yes in Step 7 AND parents are divorced or live

apart, use charts on C-3, C-4, and C-8. 4.  If answer NO to Steps 5-7, you will be directed to the

Chart for Dependency Exemption for Qualifying Relative on C-6/7 if not a Qualifying Child.

Qualifying Child: The Taxpayer Eligibility Test

Step 1 Can you or your spouse (if filing

jointly) be claimed as a dependent on someone else’s tax return this year?

If YES: Stop

If NO, go to Step 2

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Qualifying Child: The Marital Status Test

Step 2 Was this “child” considered married on

December 31, 2013?

If YES, go to Step 3

If NO, go to

Step 4

Qualifying Child: The Joint Return Test

Step 3

Is the “child” filing a joint return for this tax year?

(Answer “NO” if the child is filing a joint return only to claim a refund and no tax liability would exist for either spouse if

they had filed separate returns.)

If YES, Stop

If NO, go to

Step 4

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Qualifying Child: The Citizenship Test

Step 4 Was the “child” a U.S. citizen, U.S.

resident alien, U.S. national, or a resident of Canada, or Mexico?


If NO, Stop

Qualifying Child: The Relationship Test

Step 5

Was the “child” your son, daughter, stepchild, eligible foster child, brother,

sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (i.e. your grandchild, niece, or nephew)?

If YES, go to Step

6

If No, go to Table 2

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Qualifying Child: The Age Test

Step 6

Was the “child”: -  under age 19 at the end of the year

and younger than you (or spouse if MFJ)? OR

-  a full-time student under age 24 at the end of the year and younger than you (or spouse if MFJ)? OR

-  permanently and totally disabled* at any time during the year?


If NO, go to

Table 2

Qualifying Child: The Residency Test

Step 7

Did the child live with you as a member of your household, except for temporary absences for more

than half the year? (Answer “YES” if the child was born

or died during the year.)


(Use Table 3 if parents live

apart)

If NO, go to Table 2

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Residency Note

• A child is considered to have lived with you during periods of time when one of you, or both are temporarily absent due to illness, education, business, vacation or military service.

Qualifying Child: The Support Test

Step 8 Did the “child” provide more than half

of his or her own support* for the year?

If YES, Stop

If NO, go to Step 9

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Qualifying Child: The Other Adults Test

Step 9

Is the “child” a qualifying child

of any other person?

If YES, go to QC of More Than One Person Chart (C-3_

If NO, you can claim this child as a

dependent.

Practice

TRUE or FALSE: Every taxpayer can claim a personal

exemption for himself.

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Practice

TRUE or FALSE:

Every taxpayer can claim a personal exemption for himself.

FALSE

A taxpayer who can be claimed as a dependent by someone else CANNOT claim an exemption for

himself.

Practice Scenario #1.1

Rebecca is unmarried with one child, Colin. Colin is 8 years old and lives full time with his mother, who provides all of his support. He is a U.S. citizen, and no other adults live in their

household. Can Rebecca claim Colin as a dependent?

Use the Chart on C-5

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Practice Scenario #1.1: Answer

Rebecca is unmarried with one child, Colin. Colin is 8 years old and lives full time with his mother, who provides all of his support. He is a U.S. citizen, and no other adults live in their

household. Can Rebecca claim Colin as a dependent?

YES. Colin meets all the requirements to be claimed

as a qualifying child.


Paul is a U.S. citizen who is 26 years old, permanently disabled, unmarried, did not pay

for more than half of his support and lived with his parents for the entire year.

Can Paul be claimed as a dependent

by his parents?

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Practice Scenario #1.2: Answer

Paul is a U.S. citizen who is 26 years old, permanently disabled, unmarried, did not pay

for more than half of his support and lived with his parents for the entire year.

Can Paul be claimed as a dependent by his

parents? YES




Qualifying Child of More Than One Person

3.  If answer Yes in Step 7 AND parents are divorced or live apart, use charts on C-3, C-4, and C-8.

4.  If answer NO to Steps 5-7, you will be directed to the Chart for Dependency Exemption for Qualifying Relative on C-6/7 if not a Qualifying Child.

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Write these questions under

STEP 9!

• Did any other adult live in your home? • What was that other adult’s relationship to the

child?

• Could the other adult be claimed as a dependent by someone else?


•  Sometimes, a child meets all of the tests to be claimed by more than one taxpayer. •  Example: a mother and a grandmother

•  Parenthood and AGI are taken into consideration in determining who is eligible to claim the child.

Use the Chart on C-4

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If only one taxpayer is the child’s parent, the

child is the qualifying person of the parent.

Parenthood trumps all.


•  If two parents claim the same child on separate

returns, the exemption goes to the custodial parent (the parent the child lived with for the longer period).

•  If the parents are equal custodial parents, the exemption goes to the parent with the highest AGI.

Parenthood, then AGI.

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•  If neither parent can claim the child as a

qualifying child, the child is treated as the qualifying child of the person who had the highest AGI.

If no parent, then AGI.


•  If a parent can claim the child but agrees not to, then the

child is treated as the qualifying child of the person who had the highest AGI, but only if the person’s AGI is higher than the highest AGI of any of the child’s parents.

•  The taxpayer’s AGI must be higher than AGIs of all other taxpayers who are eligible to claim the child.

If no parent, then AGI (if higher than parents).

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Practice Scenario #2

Janet has a 2-year-old son Jacob and both live with Janet’s sister, Lisa. Janet’s AGI is $25,000

and Lisa’s AGI is $16,000. Both Janet and Lisa meet all of the tests to claim

Jacob.

If Janet agrees not to claim Jacob, is Lisa allowed to claim him on her tax return?

Practice Scenario #2: Answer

Janet has a 2-year-old son Jacob and both live with Janet’s sister Lisa. Janet’s AGI is $25,000 and

Lisa’s AGI is $16,000. Both Janet and Lisa meet all of the tests to claim Jacob. If Janet agrees not to

claim Jacob, is Lisa allowed to claim him on her tax return?

No. Lisa is not allowed to claim Jacob, even if Janet

agrees, because her AGI is less than Janet’s AGI.

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Qualifying Child of More Than One Person 3.  If answer Yes in Step 7 AND parents are divorced or

live apart, use charts on C-3, C-4, and C-8. 4.  If answer NO to Steps 5-7, you will be directed to the


What if the parents live apart?

• The custodial parent generally claims the dependency exemption for his/her child.

• The noncustodial parent can claim the exemption if the parents have signed an agreement. •  Form 8332 (REQUIRED for post-2008 divorce) • Other legally binding document (if divorce went

into effect BEFORE 2009)

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Division of Benefits: Form 8332

• Custodial parent gives noncustodial parent right to claim dependency exemption for •  Current Tax Year OR • Group of Years

• Custodial parent can revoke noncustodial parent’s right—revocation takes effect the tax year after signed

Division of Benefits: Form 8332

• Normally, only ONE TAXPAYER can claim a particular child for ALL of these benefits:

Dependency Exemption

Child Tax Credit

Head of Household

Child & Dependent Care Credit

Earned Income Credit

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Division of Benefits: Form 8332 • When parents sign a Form 8332:

Noncustodial parent gets: Custodial parent gets:


Child Tax Credit

Head of Household



Practice Scenario #3

Randy has been divorced since 2010. He has one child, Paul (age 5). Paul lives with

his mother who provides most of his support. Can Randy claim Paul as a

dependent?

Use Chart on C-4.

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Practice Scenario #3: Answer

Randy is divorced. He has one child, Paul (age 5). Paul lives with his mother who provides most of his

support. Can Randy claim Paul as a dependent?

NO.

Paul is the qualifying child of his mother; therefore, he cannot be the qualifying relative of Randy.

UNLESS Randy can claim Paul if Paul’s mother has signed a Form 8332 Division of Benefits OR if Paul’s mother is

not required to file a tax return.




Qualifying Child of More Than One Person 3.  If answer Yes in Step 7 AND parents are divorced or live

apart, use charts on C-3, C-4, and C-8. 4.  If answer NO to Steps 5-7, you will be directed to the


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Qualifying Relative: The Qualifying Child Test

Step 1 Is the person your qualifying child or the qualifying child of anyone

else?

If YES, not a qualifying relative.

If NO,

go to Step 2

Qualifying Relative: The Relationship Test

Step 2

Was the person your son, daughter, stepchild, foster child, or a descendant of any of them?

OR

Was the person your brother, sister, or a son or daughter of either of them?

OR

Was the person your father, mother, or an ancestor or sibling of either of them?

OR

Was the person your half brother, half sister, stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-

in-law?

If NO, go to Step

3.

If YES, go to Step

4

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Note

• The relatives listed in Step 2 are considered “Relatives who do not have to live with you.”

Qualifying Relative: The Residency Test

Step 3

Was the person any other person (other than your spouse) who lived with you ALL YEAR as a member of

your household?

If NO, you can’t claim this

person.


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Note

• There are exceptions for kidnapped children; a child who was born or died during the year; certain temporary absences – school, vacation, medical care, etc.

Qualifying Relative: The Gross Income Test

Step 4 Did the person have a gross taxable income of less than

$3,900 in 2013?

If NO, you can’t claim this person.

If YES,

go to Step 5

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Qualifying Relative: The Support Test

Step 5

Did YOU provide more than half of the person’s

total support for the year?

If YES, you can claim this

person as your

dependent

If NO, go to Step 6

Qualifying Relative: Multiple Support Tests

Step 6 Did another person provide more than half of the person’s total support?

If NO, go to Step 7

Step 7 Did two or more people together provide more than half the person’s total support?


Step 8 Did you provide more than 10% of the

person’s total support for the year? If YES,

go to Step 9

Step 9

Did the other person(s) providing more than 10% of the person’s total support for the year provide you with a signed statement (Form 2120) agreeing

not to claim the exemption?

If YES, you can claim an exemption for this

person

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Qualifying Relative: Multiple Support Tests

•  If a relative passes all except the support test, a taxpayer still may be able to claim the dependency exemption for him/her IF •  The taxpayer, together with another individual,

provided over 50% of the total support, AND •  The taxpayer contributed over 10% of the total

support, AND •  Each other person who contributed over 10% signs a

statement waiving his rights to claim the exemption (Form 2120).

Practice Scenario #4.1 Roderick, age 29, lives with his uncle. Last year, he

worked part-time and earned $2,100. His uncle provided for the rest of his support, including rent

and household costs.

Can his uncle claim Roderick as a dependent? Can Roderick claim a personal exemption?

Start with the Chart on C-4 and then C-5.

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Practice Scenario #4.1 Roderick, age 29, lives with his uncle. Last year, he

worked part-time and earned $2,100. His uncle provided for the rest of his support, including rent

and household costs.

Can his uncle claim Roderick as a dependent? YES. His uncle can claim Roderick as a qualifying relative.

Can Roderick claim a personal exemption? NO.

Roderick cannot claim a personal exemption because he can be claimed as a dependent.


Gina Brown provides all support for her uncle. Uncle Jim is unmarried, 72 years old, and lives in another city. He has no gross income for the calendar year. Can Gina claim Uncle Jim as a

dependent?

Start with the Chart on C-4 and then C-5.

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Gina Brown provides all support for her uncle. Uncle Jim is unmarried, 72 years old, and lives in another city. He has no gross income for the calendar year. Can Gina claim Uncle Jim as a

dependent?

YES. Jim meets all of the requirements to be a

qualifying relative of Gina.

Training Outline: A Session •  1) Tax Terminology •  2) 1040 Overview •  3) Tax Preparation Process •  4) Exemptions •  5) Filing Status •  6) Filing Basics •  PRACTICE EXERCISE: BRANCH •  7) Income •  PRACTICE EXERCISE: BRANCH •  8) Standard Deduction •  9) Earned Income Tax Credit •  10) Child Tax Credit •  11) Child and Dependent Care Credit •  PRACTICE EXERCISE: BRANCH •  12) Volunteer Paperwork and Availability

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Five Filing Statuses

• Single • Married Filing Jointly • Married Filing Separately • Head of Household • Qualifying Widow(er) with Dependent Child

Use Charts on B-1, B-2 and B-3

Single

•  If on December 31, 2013, the taxpayer was •  Not married OR •  Legally separated/divorced OR • Widowed

IMPORTANT: Some taxpayers considered single can also <ile under

a more advantageous status (HoH or QW). Be sure to check all options!

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Married Filing Jointly

•  If on December 31, 2013, •  They lived together as a married couple OR •  They lived apart but were not legally separated/

divorced OR • One spouse died during the year, and the

taxpayer did not remarry.

Married Filing Separately

• Married taxpayers can choose to file separately; HOWEVER, •  If one spouse itemizes, the other spouse must

itemize. •  Taxpayers filing with this status are not eligible to

claim several tax credits.

Be careful! This status generally results in a

HIGHER overall TAX.

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Why do some choose MFS?

• Sometimes MFS is chosen when one spouse does not want to be responsible for the other spouse’s tax obligations or filing separately may result in a lower total tax. •  RARELY happens!

• Sometimes to avoid an offset of their refund against their spouse’s outstanding debts (child support, student loans…) •  Recommend the other spouse files an Injured

Spouse Form

Note

•  If a spouse died during the tax year (2013), and the taxpayer did not remarry, they are considered married for the entire year.

• The surviving spouse is eligible to file as MFJ or MFS.

• Surviving spouses that remarry must file with the new spouse, as MFJ or MFS. •  The deceased spouse’s filing status becomes MFS.

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Head of Household

• Taxpayers can file HoH if they •  Are considered unmarried* AND •  Live with a dependent child or relative AND • Maintain half the costs of keeping a home.

*A legally married taxpayer can be considered unmarried and <ile as HoH if he/she has not lived with the spouse at any time during the last six

months of the tax year.

Head of Household: Qualifying Person

• See spiral notebook, page B-3, for a list of qualifying persons for Head of Household filing status.

• A qualifying relative who is unrelated to the taxpayer is NOT a qualifying person for Head of Household.

THIS IS IMPORTANT!

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Head of Household: Separated Parents

• Even if the custodial parent has given up his/her right to claim the dependency exemption for a child (Form 8332), he/she can file HoH using that child as his/her qualifying person.

• Noncustodial parent can never claim HoH.

Division of Benefits: Form 8332 • When parents sign a Form 8332:

Noncustodial parent gets: Custodial parent gets:


Child Tax Credit

Head of Household



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Qualifying Widow(er) with Dependent Child

• A taxpayer files QW if his/her •  Spouse died recently, AND •  The taxpayer did not remarry, AND •  The taxpayer has a dependent child (son,

daughter, stepson, stepdaughter), AND •  The taxpayer provides over half the costs to

maintain the main home for himself and the child.

Unmarried, Widowed Taxpayer?

•  If the spouse died during the current tax year (2013): Married Filing Jointly

•  If the spouse died during one of the two preceding

tax years (2011, 2012) and taxpayer has a qualifying child: Qualifying Widow(er)

•  If the spouse died three or more years before the current year (2010 or earlier): Single, Head of Household

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From Lowest to Highest Tax Burden

• Married Filing Jointly and Qualifying Widow(er) with Dependent Child

• Head of Household • Single • Married Filing Separately

Practice

• Use the Charts on B-1, B-2, B-3

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Practice #1 Lily left her husband in August 2013, but they

did not get divorced. She took her children with her, supported them during all of 2013,

and will claim them as dependents. Lily refuses to file a joint return with her husband.

Which filing status should she use?

Practice #1 Lily left her husband in August 2013, but they

did not get divorced. She took her children with her, supported them during all of 2013,

and will claim them as dependents. Lily refuses to file a joint return with her husband.


MFS. Because Lily lived with her husband for some part of

the last six months of the year, she cannot claim HoH.

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Practice #2

Em left her husband in February 2013, but they did not get divorced. She took her children

with her, supported them during all of 2013, and will claim them as dependents. Em refuses

to file a joint return with her husband.


Practice #2

Em left her husband in February 2013, but they did not get divorced. She took her children

with her, supported them during all of 2013, and will claim them as dependents. Em refuses to file a joint return with her husband. Which

filing status should she use?

Head of Household.

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Practice #3

Lane, a single woman, lives alone. She provides full support for her mother, Theresa, who lives

in a nearby town. Since Theresa had no income for the year, Lane paid all costs to maintain her home and will claim her as a

dependent.

What is Lane’s filing status?

Practice #3 Lane, a single woman, lives alone. She provides full

support for her mother Theresa who lives in a nearby town. Since Theresa had no income for

the year, Lane paid all costs to maintain her home and will claim her as a dependent. What is

Lane's filing status?

Head of Household. A taxpayer can claim H of H filing status on the basis of a dependent parent who does not live

with him/her only if the taxpayer pays ½ of the costs of keeping up the parent’s home.

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Practice #4

Brian and Ashley have been happily married since 1965. They have no children, but Brian’s

brother has lived with them for the last 10 years. Ashley passed away in March 2011. Even after her death, Brian continued to maintain the entire cost for the home and his brother still lived there.

What is Brian’s filing status?

Practice #4

Brian and Ashley have been happily married since 1965. They have no children, but Brian’s

brother lived with him for the entire year. Ashley passed away in March 2011. Even after her

death, Brian continued to maintain the entire cost for the home.

Head of Household

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Who Must File?

• To decide whether someone must file a tax return, you need to know the individual’s: •  Age • Gross income (approximate)

•  All the income received during the year in the form of money, goods, property and services not exempt from tax (earned and unearned – Tab D)

•  Do not include Social Security (unless MFS and lived with spouse at any time during year)

•  Filing status

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Who is Legally Required to File a Return?

• Use the Pub 4012, Tab A •  Chart A: For Most People Who Must File •  Chart B: For Children and Other Dependents •  Chart C: Other Situations When You Must File •  Chart D: Who Should File

Other Situations When You Must File

• Taxpayer owes special taxes • Taxpayer received Health Savings Account

distributions • Net self-employment earnings of at least

$400

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Who Should File

• Had income tax withheld from pay • Made estimated tax payments • Qualify for the Earned Income Credit • Qualify for Additional Child Tax Credit • Qualify for American Opportunity Credit

Using TaxWise

• Determine the exemptions and filing status first! • Training: www.twonline.taxwise.com/training • Client ID: 778068 • Username: Kelly Kotarek à KOTAREKK • Click “New Return” • Enter taxpayer’s SS number

•  Training: xxx-xx-0196 (& cannot start with a “9”)

• Click “Go to Interview”

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Filing Status

Personal Information

Make sure to ask if the Earned Income Credit was disallowed!

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Address

Special Processing

Special processing is out of scope for VITA!

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General Questions

Dependents: Click Edit

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Dependents

Dependents List • Dependent Codes:

•  1: Your Child who Lives with You •  2: Your Child who does NOT live with you due to

divorce/separation •  3: All Other Dependents •  4: Non-Dependents

• Make sure to check the Child and Dependent Care Expenses if it applies.

• Always check EIC, and then answer the questions on the worksheet later.

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After entering dependent information…

Switch to Tax Forms!

Loaded Forms & Refund Monitor

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Main Info Form

• Check all of the taxpayer’s information • Check the filing status • Check the information about the dependents,

including if the boxes for Dependent Care Expenses, Child Tax Credit and the Earned Income Credit should be checked

• Check the number of exemptions

Main Info Form

•  In the State Information Section, either check the box if you are not preparing a state return for the taxpayer or type in AL for either the full year resident or part-year resident box.

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Dependents Form

•  If taxpayer has dependents, fill out the Dependents Form before entering any income.

• Fill in all questions in red and ONLY those in red.

• Make sure the correct exemption appears: • Mark IS a qualifying child. • Mark IS NOT a qualifying relative.

BREAK

• 10 MINUTES

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Practice Exercises •  Review the interview notes and Intake/Interview

form for Beth Branch • Determine the following:

•  Personal exemptions •  Dependency exemptions •  Filing status

•  Log in to TaxWise •  www.twonline.taxwise.com/training (GREEN) •  Client ID: 778068 •  Username: SMITHJ •  Need to create password •  Complete the Interview, Main Info Form and Dependents

Form


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Taxable Income

• Wages •  Tips • Gambling Winnings •  IRA Distributions •  Some Social Security

Benefits • Awards and Prizes

•  Interest •  Alimony •  All Unemployment Compensation

•  Jury Duty Pay •  Etc

Nontaxable Income

•  Child Support •  Inheritances •  Life Insurance •  Supplemental Security Income

•  Insurance Payments

•  Gifts •  Public Assistance Payments

•  Veterans’ Disability Bene<its

•  Worker’s Compensation

For a more complete listing of income, see the chart on D-‐1.

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1040 Form in TaxWise

•  Information other than personal information, filing status and dependents is added to the 1040 by linking to specific forms.

Line 7: Wages, Salaries, Tips Form W-2

Link: Line 7 à W2

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Filling out a W-2 Form • Check taxpayer or spouse at top • Make sure to type in all information exactly as

you see it on the W-2 •  Do not change the address if it is different than the

taxpayer’s current address. •  The calculations on lines 3, 4, 5, 6 and 16

automatically fill in, so click the box at the top of the W-2 if you need to enter in different numbers than appear.

Employers must make this form available to employees by January 31st!

W-2 Form in TaxWise

LINK

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Filling out a W-2 Form

•  If Box 12, 13 (Retirement plan) or 14 is filled in, check to see if taxpayer qualifies for the Retirement Savings Contribution Credit • We will cover this credit at the next training!

W-2 Form in TaxWise

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Reported Tips

•  Tips totaling more than $20/month • Usually reported to employer • Already totaled in Box 1 of Form W-2.

• Allocated tips of any amount • Appear in Box 8 of W-2

•  Tips totaling less than $20/month • Not reported to employer • Must be reported to the federal government on

a Form 4137

Tips

•  If taxpayers have jobs in which tips are normally received (waiter, bellhop, hotel housekeeper, etc.), make sure to ask about any tips received. •  >$20/month at one job and reported to employer:

•  Appear on W-2, boxes 1, 5 and 7

•  >$20/month at one job and not reported: •  Report on line 4 of Form 4137 •  Subject to SS and Medicare taxes

•  <20/month at one job and not reported: •  Report on line 5 of Form 4137 •  NOT subject to SS and Medicare taxes

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Line 7: Tips Not Reported (Form 4137)

Link: Line 7 à Form 4137

(Enter in unreported tips on Line 4 or Line 5)

Reported Tips

•  Tips totaling more than $20/month • Usually reported to employer • Already totaled in Box 1 of Form W-2.

• Allocated tips of any amount • Appear in Box 8 of W-2

•  Tips totaling less than $20/month • Not reported to employer • Must be reported to the federal government on

a Form 4137

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Scholarships/Fellowships

• Scholarship money used by a student pursuing a degree to pay for tuition, fees, books, supplies, and equipment required of all students is nontaxable.

• Amount used for room and board is taxable.

Pub 4012, Tab D-3

Scholarships/Fellowships

•  If taxpayer received a W-2 for the scholarship, include the amount on the 1040, line 7 (just like a W-2).

•  If taxpayer did not receive a W-2 for the scholarship: •  Link: Line 7 à 1040 Wkt 1 •  Enter the amount on the line “Scholarship Income –

no W2” •  Amount should transfer to the 1040, line 7 and the

box “SSHIP” should be checked

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Household Employee Income

•  If a household employee earns less than $1,700 a year, the employer is not required to issue a W2.

• But, the amount of income must be entered on line 7 (just like taxable scholarship income).

Scholarships/Fellowships & Household Employee Income

Link: Line 7 à W2

Link: Line 7 à 1040 Wkt 1 (if no W2)

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Interest

• Money earns interest when it is: •  Deposited into accounts •  Used to buy certificates of deposit (CDs) or bonds

• Classified as unearned income

Interest: Savings and Checking Accounts, CDs

•  Interest is taxed in the year and is credited to a taxpayer’s account.

•  If an early withdrawal penalty is incurred, fill in the amount in Early Penalty line on the Interest Statement. •  This amount will carry over to Line 30 on the 1040.

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Line 8: Interest Form 1099-INT

Link: Line 8a à Sch B à 1b à Interest Stmt

Line 8: Interest (Form 1099-INT) Line 8a Sch B 1b Interest Stmt

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1099-INT Instructions

• Fill in the payer • Fill in Box 1 or 3 amount • Fill in any other info (early withdrawal penalty

or withholding) •  If interest is tax exempt:

•  NAEOB: enter E •  NAEOB Amount: enter amount from Box 8 of 1099-

INT

Dividends

• Unearned income • Payments made by corporations to

shareholders • Reported to federal government annually

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Line 9: Dividends Form 1099-DIV

Link: Line 9a à Sch B à 5a à Dividend Stmt

Line 9: Dividends (Form 1099-DIV) Line 9a Sch B 5a Dividend Stmt

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1099-DIV Instructions

• Fill in payer • Fill in ordinary (1a) and qualified (1b)

dividends • Fill in capital gains (2a)

• Make sure it carries over to the 1040, line 13

• Fill in withholding (4)

Line 10: 2012 State Tax Refund

• The 2012 State Tax Refund may be taxable and need to be reported.

• Answer question in Box under Line 9.

•  NO: Check no. •  YES: Out of Scope for Basic Volunteers. • An Advanced Certified Volunteer or Impact Staff

Member must complete.

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Line 19: Unemployment Compensation Form 1099-G

Link: Line 19 à 1099G Wkt

1099-G in TaxWise

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Social Security Benefits

• Some portion of the Social Security benefits may be taxable. • Generally, if SS benefits are the only source of

income, then they are not taxable.

• Supplemental Security Income (SSI) is never taxable. •  SSI is aimed at helping low-income elderly, blind,

and disabled individuals pay for their basic needs.

Line 20: Social Security Benefits Form SSA-1099

Link: Line 20a à 1040 Wkt1

Medicare premiums

Don’t miss withholding!

Total benefits

Lump-Sum Benefit

Payments

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Reporting SS Benefits

•  If the taxpayer also has other forms of income, link to the 1040 Wkt 1 .

OR

•  If the taxpayer has no other source of income (only SS benefits), consult the Chart on A-1. § Taxpayer MIGHT not need to file a return.

1040 Wkt1 in TaxWise

- Social security received this year - Medicare - Federal tax withheld

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Lump-Sum Benefit Payments •  Some taxpayers may have received a lump-sum benefit

payment (for current tax year and prior tax years). •  Found on Form SSA-1099 (Description of Amount in Box 3) •  Two options when entering into TW:

•  1st: Taxpayer may report the entire payment as it was received

•  2nd: Separate payments based on year received and record taxable benefits appropriately; with this option only the current year income will be adjusted

•  Taxpayer can choose 2nd option if it lowers the taxable benefits

Lump Sum Instructions •  1) Enter in SS, Medicare and Withholding •  2) Scroll down and enter the benefits for 2013 on the

gross amount received line •  3) Click on the amounts taxable from previous years

line and type F9 to pull up a Lump Sum Wkt •  4) Enter the earlier year for which the benefits were

received and the filing status •  5) Line 1: enter amount of benefits received in prior

year and amount for prior year received in current year

•  6) Line 3: Enter the AGI for prior year •  7) Close worksheet and repeat steps 4-6 for

additional prior years

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Lump Sum in TaxWise

Line 21: Gambling Winnings Form W-2G

Loaded Forms Menu: Add W2-‐G

(If taxpayer doesn’t have a W2G, Link: Line 21 à 1040 Wkt 7)

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W2-G in TaxWise

Loaded Forms Menu: Add W2-‐G

Without W2-G in TaxWise

If taxpayer doesn’t have a W2G, Link: Line 21 à 1040 Wkt 7

Enter amount of winnings on Line 1

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Other Income (Prizes & Awards)

Link: Line 21 à 1040 Wkt 7

Enter amount from Box 3 to Line 2

Other Income (Jury Duty Pay)

Link: Line 21 à 1040 Wkt 7

Enter amount on Line 14 If jury duty pay is given to employer, record on the

1040, Line 35.

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Out of Scope

• Self-Employment/Business Income (including Form 1099-MISC)

• Sale of Stock (Form 1099-B) •  IRA/Pension Income (Form 1099-R) • Any form we did not just cover in this training

Impact Staff or Advanced trained volunteers must prepare these for taxpayers at the sites.


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Standard Deduction

• Reduces amount of income that is taxed • Amount of deduction based on

•  Filing Status •  Age • Whether taxpayer/spouse is blind • Whether taxpayer is a dependent

• TaxWise calculates automatically

Standard Deduction for Most Filers

MFJ or QW $11,900

HoH $8,700

Single or MFS $5,950

Pub 4012, F-‐6

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Itemized Deductions

•  Instead of taking the standard deduction, a taxpayer can choose to itemize, which is to list certain deductible expenses separately, in order to receive a greater deduction.

Itemized Deductions

•  Itemized deductions include (but are not limited to): •  Un-reimbursed medical expenses •  Charitable contributions •  Home mortgage payments

• We will review more later. However, this will be out of scope for basic volunteers at the tax site.

• An advanced trained volunteer or Impact Staff member must complete an itemization at the tax site.

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•  Refundable tax credit that applies to individuals who work but make low to moderate incomes.

•  The EIC is the largest federal anti-poverty program and has been one of the most successful programs to lift families, especially families with children, out of poverty.

•  The EIC has been especially successful in providing an incentive for single mothers with children to find work.

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Maximum Credits Tax Year 2013: $6,044 with three or more qualifying children $5,372 with two qualifying children $3,250 with one qualifying child $487 with no qualifying children

Line 64a: Earned Income Credit (Form Sch EIC and Sch EIC Wkt)

Use the Charts in Tab I of the Pub 4012

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EIC Eligibility: Tab I-2

EIC Eligibility

•  Rules for everyone: •  Must have earned income (and AGI has limits) •  Valid SSNs and U.S. citizens/resident aliens •  Not MFS •  No foreign earned income •  Investment income less than $3,150 •  Taxpayer cannot be qualifying child of another person

•  If taxpayers meet the rules for everyone, then follow the chart based on if the taxpayer has a qualifying child or not.

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TaxWise

•  Sch EIC & Sch EIC Wkt

• Make sure you mark “EIC” in interview for each dependent! •  If you later determine that a child does not qualify for

the EIC, go back to the interview and uncheck the box.

• Use 4012 to determine if taxpayer qualifies for EIC and determine if each dependent is a qualifying child for the EIC.

•  Fill out all red lines on forms.

Qualifying Child of More than One Person

• Sometimes, a child meets all of the tests to be claimed by more than one taxpayer.

• Same rules for QUALIFYING CHILDREN OF MORE THAN ONE PERSON.

See Chart on I-5

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Who can claim the EIC?

1)  If only one taxpayer is the child’s parent, the child is the qualifying person of the parent.

2)  If separated parents both claim the child, the child is the qualifying child of the parent with whom the child lived with longer. (Remember the Division of Benefits – custodial parents gets EIC.)

Who can claim the EIC? 3)  If no parent is eligible to claim the child, the

only person allowed to claim the EIC is the taxpayer with the highest AGI who meets all of the tests.

4)  Another taxpayer may claim the child if the parent agrees ONLY IF the other taxpayer’s AGI is higher than the parent’s AGI and those of all other taxpayers who are eligible to claim the child.

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Disallowance

• EIC disallowed for •  Reckless or Intentional Disregard of the Rules: 2

years •  Fraudulent Claim: 10 Years

• To claim EIC again, a taxpayer must • Wait full period of disallowance •  Submit a Form 8862

IMPORTANT NOTE: Mathematical and clerical errors are NOT bases for disallowance.

Disallowance •  If the taxpayer had the EIC disallowed, make sure

to check the correct box when filling out the taxpayer’s information.

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Practice #1

Sharon, who has an earned income and AGI of $15,525, takes care of her sister’s son, Eric. If Eric is 12 years old and began living with Sharon in August 2013, can Sharon claim the

EIC?

Use the Charts on Tab I

Practice #1: Answers Sharon, who has an earned income and AGI of

$15,525, takes care of her sister’s son, Eric. If Eric is 12 years old and began living with Sharon in August 2013, can Sharon claim the

EIC?

NO. Sharon’s AGI is too high to claim the EIC alone, and

since Eric lived with her for less than half a year, he is not her qualifying child.

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Practice #2

Doug and Donna are married and live together with their 4-year-old son Sam. Their combined earned income is $25,000, but they

file separately. Doug reports an AGI of $11,000 on his return, and Donna reports AGI

of $14,000.

Can Doug and/or Donna claim the EIC?

Practice #2: Answers

Doug and Donna are married and live together with their 4-year-old son Sam. Their combined

earned income is $25,000, but they file separately. Doug reports an AGI of $11,000 on his return, and Donna reports AGI of $14,000.

Can Doug and/or Donna claim the EIC?

No. Neither can claim the EIC because both have a filing status

of Married Filing Separately.

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Practice #3

Doug and Donna are still married and still live together with Sam, but now they decide to file a joint return. Their combined earned income and AGI are $25,000. Can they claim the EIC

on this return?

Practice #3: Answers Doug and Donna are still married and still live together with Sam, but now they decide to file a joint return. Their combined earned income and AGI are $25,000. Can they claim the EIC

on this return?

Yes. Their joint income is low enough to claim the EIC

with one qualifying child (Sam).

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Practice #4

Tom is 64 years old, retired and collected $10,000 of social security during 2013. He

does not have any qualifying children.

Can he claim the EIC on his return?


Tom is 64 years old, retired and collected $10,000 of social security during 2013. He

does not have any qualifying children.

Can he claim the EIC on his return?

No. Tom does not have any earned income.

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Line 51: Child Tax Credit • One credit for each qualifying child under 17

years of age. • A taxpayer can claim a Child Tax Credit for a

child only if they CAN AND DO claim a dependency exemption for the child.

• Nonrefundable credit with a maximum of $1,000 per child. •  TaxWise will calculate this automatically. •  Amount actually claimed depends on taxpayer’s

tax liability, MAGI and filing status • MAGI: typically same as AGI

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Line 51: Child Tax Credit

•  If the taxpayer’s tax liability is zero, they cannot claim this credit because there is no tax to reduce.

• However, the taxpayers may be able to take the additional child tax credit.

• Tab G-7: Qualifying Child •  Under 17, U.S. citizen, claimed as your dependent,

“related” to you, did not provide over half their support, *lived with taxpayer for more than half the year.

Line 65: Additional Child Tax Credit

•  Refundable portion of the CTC. • Applied if taxpayer cannot take full Child Tax

Credit because tax liability is less than $1,000. •  Taxpayer must have at least one qualifying child

under the age of 17. • Must have at least $3,000 of earned income. •  TaxWise automatically calculates this credit. •  Taxpayers with three or more children may be

able to claim this credit, regardless of income level.

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Child & Dependent Care Expenses Credit • Nonrefundable credit • Applied to offset expenses paid so taxpayer

can work or look for work •  Dependent child under 13 •  Spouse who is incapable of self-care •  Dependent who is incapable of self-care

Pub 4012, G-3 and G-4

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C & DC Expenses Credit - Eligibility

• Care had to be for qualifying persons •  Taxpayer (and spouse) had to have earned

income •  A spouse is treated as having earned income for any

month the spouse is physically/mentally incapable of care, or is a full-time student.

•  Expenses must have been for work or to look for work

•  Payments can’t have been made to taxpayer’s spouse, dependent child or child under 19

• Must have care provider’s name, address, and SSN/EIN (due diligence)

Qualified Work-related Expenses

•  Expenses must be paid for the care of the qualifying person to allow the taxpayer (and spouse) to work or look for work

• Care includes the costs of services for the qualifying person’s well-being and protection

•  Expenses to attend Kindergarten or a higher grade: NOT AN EXPENSE

•  Expenses for summer day-camp qualify, but those for over-night camp are not!

• $3,000 limit for one qualifying person or $6,000 for two or more qualifying persons.

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Notes:

•  If you had expenses that met the requirements for 2012, except that you did not pay them until 2013, you may be able to claim them in 2013.

• Taxpayer’s who cannot provide all of the provider’s information or who have incorrect information may still be able to take the credit if they can show they used due diligence in trying to obtain the info. •  Record on Form 2441, but cannot E-file!

Line 48: C & DC Expenses Credit • Make sure to check the C & DC Expenses box in

the interview!

Link: Line 48 à 2441 Pg 1

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C & DC Expenses Credit: Part 1 •  1(a): Enter care provider (person or organization) •  1(b): Enter address •  1(c): Enter SSN or EIN (check EIN if organization) •  1(d): Enter total amount paid

C & DC Expenses Credit: Part 1

•  If there are more than 2 care providers: Link: Total of the line 1 amounts à 2441 Wkt 1

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C & DC Expenses Credit: Part 2 •  2(a-c): Carries forward from interview •  Enter the total amount of qualified expenses; make sure to

split the amount if expenses if they were for more than one child!


• Employer-provided dependent care benefits •  Include amounts the employer pays either directly

to the taxpayer or the care provider •  Appear in Box 10 of the W-2 •  Reduces the dollar amount of the credit •  Taxpayers must complete Part III of Form 2441,

even if they are not eligible for the credit

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Divorced/Separated Parents

• Custodial parent can claim the C & DC Expenses Credit, even if he/she did not claim the dependency exemption •  Reminder: Division of Benefits (Form 8832)

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Practice #1

Andrea and Bill, the parents of 7-year-old Charles, are divorced. For the entire year, Charles lived with his mother. She paid all the expenses of

keeping up the home, as well as bills for before-school and after-school child care totaling $1,800.

Nevertheless, as part of their divorce, Andrea signed a Form 8332 allowing Bill to claim the

dependency exemption for Charles. Who can claim the Child and Dependent Care Credit?

Pub 4012, Tab G-4

Practice #1: Answer Andrea and Bill, the parents of 7-year-old Charles, are divorced. For the entire year, Charles lived with his mother. She paid all the expenses of keeping up the home, as well

as bills for before-school and after-school child care totaling $1,800. Nevertheless, as part of their divorce, Andrea signed a Form 8332 allowing Bill to claim the

dependency exemption for Charles. Who can claim the Child and Dependent Care Credit?

Andrea.

She paid the expenses, and Form 8332 does not allow the noncustodial parent to claim this credit.

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Practice #2

Julie spent the following amounts on child care for her 10-year-old daughter Melissa. Are any of these eligible costs for the Child &

Dependent Care Expenses Credit?

1.  $300 for overnight camp 2.  $1000 to her ex-husband for after school-

care 3.  $1500 to her mother for after-school care 4.  $500 to her 15-year-old son for

babysitting




1.  $300 for overnight camp - NO 2.  $1000 to her ex-husband for after school-

care 3.  $1500 to her mother for after-school care 4.  $500 to her 15-year-old son for

babysitting

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1.  $300 for overnight camp - NO 2.  $1000 to her ex-husband for after school-

care - NO 3.  $1500 to her mother for after-school care 4.  $500 to her 15-year-old son for

babysitting

Practice #2: Answers Julie spent the following amounts on child care for

her 10-year-old daughter Melissa. Are any of these eligible costs for the Child & Dependent

Care Expenses Credit?

1.  $300 for overnight camp - NO 2.  $1000 to her ex-husband for after school-care

- NO 3.  $1500 to her mother for after-school care - YES 4.  $500 to her 15-year-old son for

babysitting

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Practice #2: Answers Julie spent the following amounts on child care for

her 10-year-old daughter Melissa. Are any of these eligible costs for the Child & Dependent

Care Expenses Credit?

1.  $300 for overnight camp - NO 2.  $1000 to her ex-husband for after school-care

- NO 3.  $1500 to her mother for after-school care - YES 4.  $500 to her 15-year-old son for

babysitting - NO

TaxWise Exercise: Branch

• Branch exercise •  Earned Income Tax Credit •  Child Tax Credit, Child •  Dependent Care Credit

• Twonline.taxwise.com/training • Client ID: 778068 • User ID: FARRISC

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Volunteer Forms to Complete

• Complete packet and turn in to trainers • Tax Site Availability Form

http://impactalabama.org/taxprep/

Welcome to the 2013 - 2014 Volunteer Basic Tax Training

Session

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“Stories of Impact”: Video Portraits of Alabama Families

•  The Charles Family: https://vimeo.com/76462362

•  The Miller Family: https://vimeo.com/76462364

Your service this tax season is incredibly important to hard-working Alabama families,

like the Charles and Miller families, all over the state.

Training Outline: B Session •  1) Miscellaneous Credits •  2) Form 8888 PRACTICE EXERCISE: BRANCH •  3) Alabama Return •  4) New Topics on 2013 IRS Basic Certification Exam:

Retirement Income •  5) New Topics on 2013 IRS Basic Certification Exam: •  6) New Topics on 2013 IRS Basic Certification Exam:

Itemized Deductions •  7) New Topics on 2013 IRS Basic Certification Exam: Higher

Education Expenses (Credits & Deductions) •  8) Volunteer Requirements and Standards of Conduct Test •  9) Intake/Interview & Quality Review

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Line 50: Retirement Savings Contribution Credit

• Nonrefundable credit for taxpayers who: •  Contributed to a qualified retirement plan

(traditional or Roth IRA) • Meet AGI and age limitations •  Cannot be claimed as dependents •  Are not full-time students

Pub 4012, Tab G-6

Retirement Savings Credit: Contributions Record • Contribution information could appear in Box

12 of Form W-2 (typically code D or E) or as a check in Box 13.

•  If contribution information is found is listed somewhere else, check your Site Coordinator Manual! •  Box 14 of Form W-2 •  Not reported on the W-2 (ask the taxpayer!)

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Line 50: Retirement Savings Contribution Credit

• How do I know if the taxpayer has made a qualifying contribution? •  Form W-2, Box 12 and one of the codes: D, E, F, G,

H, S, AA or BB •  Form W-2, Box 14 and codes for military

personnel: Q or E

Pub 4012, Tab G-6

Retirement Savings Credit: Testing Period

• Taxpayers must reduce their eligible contributions by the amount of distributions received during these years

• 2010 through 2013 until April 15

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Maximum Contribution Amount

• For MFJ taxpayers, both spouses may be eligible for a credit on a maximum annual contribution of $2,000 each.

•  If either spouse has received a distribution during a testing period, both spouses must reduce their eligible contribution by that amount!

Retirement Savings Credit: W-2

Link: Line 50 à 8880

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Filling out Form 8880

1)  Check the correct box for if either the taxpayer and spouse was a full-time student (make sure each W2 is labeled correctly as taxpayer or spouse)

2)  On line 4, enter the amount (if any) of distributions that were made before the due date OR enter F3 if no distributions were made

Form 8880 in TaxWise

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Practice #1

Bob, age 48, contributed $600 to an IRA in 2013. During the year, he worked full-time and had an AGI of $24,000. He is not a student. Is

Bob eligible to claim the Retirement Savings Contribution Credit?

Pub 4012, Tab G-6

Practice #1: Answer

Bob, age 48, contributed $600 to an IRA in 2013. During the year, he worked full-time and

had an AGI of $24,000. Is Bob eligible to claim the Retirement Savings Contribution

Credit?

Yes: Bob contributed to an IRA, meets the age and AGI limits, is not a dependent and is not a

full-time student.

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Elderly & Disabled Credit: Schedule R •  Taxpayer is § Over 65 AND/OR § Retired and on disability benefits before the

mandatory retirement age •  Elderly are seldom eligible because of income limits. • Mandatory retirement age is set by a taxpayer’s

employer. •  TaxWise automatically calculates this credit on a

Schedule R. Tab G-11 in Pub 4012

Schedule R in TaxWise

• TaxWise will calculate this credit if the date of birth is provided.

• Be sure to include the taxpayer’s Social Security benefits, regardless of their taxability, to ensure the calculation is correct!

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Line 59b: Repayment of First-time Homebuyers Credit (Form 5405)

•  Individuals who took $7,500 credit in 2008 to buy a home had to begin to repay in 2010

• At least $500 (1/15 of that owed) has to be paid and reported in “Additional Taxes” section on Line 59b

This is out of scope for Basic Volunteers. An Impact Staff or Advanced certified volunteer

must prepare this at the tax site.





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Refunds

• Taxpayers can choose to receive their refund either by check or direct deposit

• Checks take 6-8 weeks to be mailed. • Electronic deposits will be made in 1-2 weeks. • Remind taxpayers that they can choose to

allocate part of their refund to order savings bonds.

Save Your Refund

• For every $50 in bonds a taxpayer invests in savings bonds or places in other savings accounts, he/she receives a chance to win a cash prize at the end of tax season or to kick off the season next year!

John Q. Saver 123 Main Street Anywhere, WA 99000-0000 OR Jen Saver

123-45-6789 01 2009

FRB-MPLS 04-15-07

2 :C000090007 :04

!000000000000!C000000000I!

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Barriers to Savings

1.  20% of households earning less than $30,000 do not have any bank accounts

2.  Saving is a challenge with low income and

pressing financial needs 3.  Convenience/Automation have a huge

influence on rates of saving across income levels

We can lower the barriers to saving

1.  Savings bonds are an important savings tool for “unbanked” households

2.  Prize-Linked Savings programs work! And they work when you, as the preparer, share information and ASK.

3.  Tax time is a unique time to save – large refund amount and convenient savings opportunity.

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Bond Order Process

• Our Role •  Explain opportunity - describe savings bonds &

chance to order at tax site AND share information about the Save Your Refund prize-linked savings program

•  Seek decision – ask client to decide if, how much, & for whom to order bonds

•  Process order – complete IRS Form 8888

The Government will mail a physical bond to the taxpayer at the address listed on the return.

Savings Bonds

• All taxpayers can buy bonds for •  Themselves •  And/or 2 other people (kids, grandkids, spouses,

nieces/nephews, godchildren, etc.) • How it works

•  Taxpayer needs only name of gift recipient •  Client & gift recipient will be listed on bond as co-

owners •  Either party may redeem bond

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Rate of Return Comparison Savings Account* 1 Year CD*

Series I U.S. Savings Bond

Rate of Return .17% .73% 2.20%

Annual Fees $0 $0 $0

Minimum to Open $100 $1,000 $50

Rate Fixed No Yes Adjusts bi-annually

Minimum Holding Period

None 1 year 1 year

Early Redemption Penalty / Forfeiture

None All interest earned to

withdrawal date

3 months interest (redemptions

within 5 years of purchase)

ChexSystems (Application)

Yes Yes No

May Buy as a Gift No No Yes

Form 8888 in Taxwise

1) Click Add in the Loaded Forms Menu 2) Type in 8888 and click to add 3) Fill out Part II with the recipient(s) name and

amount first.

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Form 8888 in Taxwise 4) Then fill out either Part I (Direct Deposit) or Part III

(Paper Check). Note that a taxpayer may also choose to split their refund between multiple bank accounts (e.g. checking and savings).

Form 8888 in Taxwise

5) Subtract the amount of bonds purchased from the total refund to get the allocation.

Total refund – bond purchases = allocation (Total on Line 8 must equal the Federal refund)

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Important Note

•  If a taxpayer invests in savings bonds or splits their refund, ONLY fill out the routing and account numbers on the Form 8888.

•  If a taxpayer does not invest in savings bonds

or split their refund, fill out the routing and account numbers on the main page and on line 74.

Save Your Refund – Instructions to Enter • 1) Complete Form 8888 in TaxWise

• 2) Fill out the Save Your Refund Entry Form •  You must fill out all blanks; be sure to complete both

sides of the form! •  Don't forget the section "For SaveFirst use only“

• 3) Print an extra copy of the 8888 from TaxWise and attach to the SYR entry form •  File with taxpayer’s Intake/Interview paperwork at site

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Locating a Savings Bond

•  To check the status of a bond purchase for this year: go to Where’s My Refund on IRS.gov or call 1-800-829-1954.

•  If the taxpayer needs information about a savings bond purchase from a previous tax year: contact the Treasury Retail Securities Site at 1-800-245-2804.

Direct Deposit

• Encourage taxpayers to use direct deposit •  But, refunds will be delayed 4-6 weeks if the

routing and account numbers are not valid

• Refunds may only be deposited into their own accounts

• Refunds can be deposited in up to three accounts

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Direct Deposit • Routing number (9 digits): can look up online • Account number: do not include check number! • Do NOT include spaces or hyphens!

Refunds: Electronic Deposit

•  If a mistake is made that increases the amount of the refund, the IRS will send a letter explaining the changes in the adjustment.

•  If a taxpayer owes debts (child support or student loans), the IRS will decrease the refund after you E-file it. •  Encourage taxpayers to still E-file • We do not have access to any of this information!

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Tax Due

• To avoid a penalty, taxpayers with an amount owed must file their return by the due date even if they cannot pay the full amount with the return!

• Advise taxpayers to pay as much as possible by the due date.

• Once taxpayers receive a notice, they can pay the remaining amount in full or choose another payment option if needed.

Tax Due

• Payment options: •  Pay by check or money order with Form 1040-V

(Payment Voucher) •  Pay by direct debit from their bank account on a date

that they choose (up to the due date) •  Pay with a credit or debit card (convenience fee)

•  Taxpayers will be advised of the amount of this fee when they call the interactive voice response system

•  Electronic Federal Tax Payment System (EFTPS)

Even if taxpayers owe money, encourage them to E-file. Payments just need to be made by the due date!

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Electronic Federal Tax Payment System

•  File Form 9465, Installment Agreement, to pay the tax in monthly installments •  Fee plus interest and penalties

•  File an Online Payment Agreement (OPA) •  Pay in full within 60/120 days with no fee

•  Interest and penalties after the due date

Undue Hardship

• Taxpayers who can show they will have a substantial financial difficultly if they pay their tax on the due date are considered to have unique hardship.

• Can request an extension by filing Form 1127 by the due date •  Advise them to visit or call the local IRS office

• Undue hardship is MORE than inconvenience!

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Estimated Tax Penalty

• Out of Scope for all VITA volunteers! • Calculated on Form 2210 and reported in the

Amount You Owe section on Form 1040 • Taxpayers must make estimated tax payments

if they expect to owe at least $1,000 and their withholding and credits will be less than the smaller of: •  90% of the tax shown on the current return •  100% of the tax shown on the prior year return

Estimated Tax Penalty •  If Form 2210 appears in TaxWise, leave the form

and leave the estimated tax penalty line of Form 1040 blank. •  Do NOT send in Form 2210 with the paper return! Print

and give to the taxpayer! • Hint: Line 9 of Form 2210 should default to $0 to

prevent preparers from calculating the estimated tax penalty. If it is not “0”, change to “0.”

• Advise taxpayer to call or visit the IRS office if they have an estimated tax penalty. •  IRS will calculate the penalty and send a bill.

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Tax Due

• To avoid having tax due next year: •  Adjust withholding on Form W-4 (from employer) or

Form W-4P (pension) •  Taxpayers should submit a revised form when there

is a change in life events (marriage, child, etc.) •  Publication 919

• Make quarterly estimated tax payments (Form 1040-ES) •  Out of Scope for VITA!

Training Outline: B Session •  1) Miscellaneous Credits •  2) Form 8888 PRACTICE EXERCISE: BRANCH •  3) Alabama Return

•  + Finishing a Return

•  4) New Topics on 2013 IRS Basic Certification Exam: Retirement Income

•  5) New Topics on 2013 IRS Basic Certification Exam: •  6) New Topics on 2013 IRS Basic Certification Exam: Itemized

Deductions •  7) New Topics on 2013 IRS Basic Certification Exam: Higher


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Practice Exercise: Branch

• Complete the Retirement Savings Contribution Credit, Form 8888





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Alabama Return

Who Must File

Source: http://ador.alabama.gov/incometax/itfaq01.htm

Full Year Residents

Single MFS HoF MFJ

Gross Income $4,000 $5,250 $7,700 $10,500

Part Year Residents

Single MFS HoF MFJ

Gross Income $4,000 $5,250 $7,700 $10,500

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Creating a Return

n  On the Main Information page in TaxWise, type AL into the appropriate blank under state information so it creates an AL-40 Form.

n  Even if the taxpayer is a part-year resident or nonresident in another state, do not input that state into TaxWise, as it may create out-of-state tax forms that we are not qualified to file.

Filling Out a Return

n  Fill out the Federal return first – most of the information that you need for the AL return will carry over.

n  When you have finished the federal return, pull up the AL-40, page 1.

n  Scroll to the bottom and click “yes” to e-file the return.

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Personal Exemptions

Based on Filing Status

•  TaxWise calculates automatically •  Single and MFS: $1,500 • HoF and MFJ: $3,000 • Dependents: Taxpayers receive a personal

exemption in AL even if they CAN be claimed as a dependent by someone else.

Dependents Under Alabama law, a dependent is an individual other than the taxpayer and his or her spouse who received over 50% of his or her support from the taxpayer during the year and is also related to the taxpayer in one of the following relationships: *Alabama's dependency laws state that a qualified person

must be the taxpayer's son, daughter, step-son, step-daughter, legally adopted child, parent, grandparent,

grandchild, brother, sister, step-brother, step-sister, step-mother, step-father, mother-in-law, father-in-law, brother-in-

law, sister-in-law, son-in-law, father-in-law, and IF RELATED BY BLOOD, uncle, aunt, nephew, niece

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Dependents • Most federal dependents also qualify on the state

level EXCEPT: •  Foster children •  Non-related individuals who lived with the

taxpayer for the entire year*

You cannot claim a foster child, friend, cousin, yourself, or your spouse as a dependent on your

Alabama income tax return.

Dependents

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Determining AL Filing Status • A taxpayer’s filing status is the same on the AL

return as it is on the federal return, except for Qualifying Widow(er) and Head of Household.

• QW does not exist in Alabama •  TaxWise will automatically choose Head of Family on the

AL return •  Taxpayers can only file Head of Family on their AL

return if: •  They are unmarried or legally separated at the end of

2013 AND •  Their qualifying person is NOT a foster child

•  Same-sex married couples must file Single or Head of Family on their Alabama return

AL Filing Status

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Income • TaxWise automatically pulls the income from

the Federal return to the state return • However, TaxWise recognizes that there are

several types of income that are taxable federally, but not in Alabama. It will not transfer these amounts to the state return.

Non-taxable Income

• Types of non-taxable income that are not carried over to the AL return: • Unemployment Compensation • Social Security Benefits

  Though not taxable, amounts these amounts must be reported in the appropriate blanks on the AL-40,

Page 2.

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Standard Deduction •  In Alabama the standard deduction depends on the

filing status and AGI.

Filing Status Deduction Range

Single $2000-$2500

Head of Family $2000-$4700

Married Filing Jointly $4000-$7500

Married Filing Separately $2000-$3750

Itemized Deductions

• Because the standard deduction is so much lower on the state level than the federal level, many individuals may itemize on the state return, even if they don’t itemize on the federal level.

Talk to your supervisor if your taxpayer wants to itemize deductions to reduce

their state tax liability.

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Finishing the AL Return

• Questions at the bottom of the AL 40, page 2: 1) Did the taxpayer file an AL return during the previous tax year? 2) Who is the taxpayer's current employer? 3) Does the taxpayer have any income on their federal return that is not on their state return? 4) Paying a Balance/Receiving a Refund

1) Previous Year AL Return

• Did the taxpayer file an AL return for the previous tax year? •  Answer YES or NO

•  If NO, provide an explanation: •  Taxable income too low •  Lived in a different state •  Neglected to file

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2) Current Employer Information

• Who is the taxpayer's current employer? •  If multiple, select the W-2 with the higher

amount of wages.

• Need information from the taxpayer’s W-2 •  Enter the copy number of the W-2 for both the

taxpayer and spouse •  If the taxpayer is currently unemployed, leave “0”

in the blank

2) Current Employer Information

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3) Non-taxable Income

• Does the taxpayer have any income on their federal return that is not on their state return • Unemployment Compensation • Social Security Benefits

• You must input this information manually on the AL-40, Page 2.

3) Non-taxable Income

Answer “Yes” or “No”

Fill out the Description and Amount

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4) Paying a Balance/Receiving a Refund •  Taxpayers can have their refunds directly

deposited or they can receive a check. •  Taxpayers can have their liabilities directly

debited or they can send a check. •  If a taxpayer wants to send a check, TaxWise will

generate a voucher to send along with it. • Choose the correct option and ONLY enter the

account information onto IF: •  Taxpayer wants the state refund deposited to a

different account •  If taxpayer purchases savings bonds, you will need to

enter the account information again on the AL return. •  Taxpayer requests a direct debit

4) Paying a Balance/Receiving a Refund

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Training Outline

• 19) Finishing the Return • 20) Volunteer Standards of Conduct • 21) Additional Practice Exercises


• Part 1: Preliminary Interview • Part 2: Preparing the Return in TaxWise • Part 3: Quality Review • Part 4: Finishing the Return • Part 5: Filing the Return

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Tax Preparation Process •  Part 1: Preliminary Interview

•  Taxpayer completes pages 1 and 2 of Intake/Interview Form

•  Verify photo ID(s) & Social Security cards(s) •  Ensure taxpayer cannot be a dependent of anyone else (Pub

4012: C-4 to C-6) •  Determine dependents (Pub 4012: C-3 to C-7) •  Complete part of Section II “To be completed by a Certified

Volunteer Preparer” •  Determine filing status (Pub 4012: B-1 to B-3) •  REVIEW pages 1-2 of I/I Form

•  Collect necessary forms •  “Yes” or “No” answer for all questions on pg 2

•  Write your full name at the bottom of page 3


• Part 2: Preparing the Return in TaxWise •  Do not carry forward info from a prior year! •  Interview: enter Filing Status through dependents •  “Switch to Tax Forms” •  Fill out Main Info Form and Dependent Form(s) •  Complete the 1040 Form line by line, linking to

appropriate forms •  Complete AL 40 Pg 1 and Pg 2 •  Complete the forms: Gen Use, Gen Disclosure and Prep

Use •  Review the entire return and take care of any red forms

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Preparing the Return

Complete in the Form 1040: •  1-5: Filing Status •  6: Dependents List and Total # of Exemptions •  7: Wages, salaries, tips (Link to W2) •  8: Interest (Link to Sch B à 1b à Int Stmt) •  9: Dividends (Link to Sch B à 5a à Div Stmt) •  Answer question in Box under Line 9 about state

refund and itemized deductions last year


Complete in the Form 1040: •  19: Unemployment (Link to 1099G) •  20a: Social Security Benefits (Link to 1040

Wkt1) •  21: Other Income/Gambling (Link to 1040

Wkt1 to W2G or 1099-MISC) •  37: AGI (TW calculates) •  38: AGI (TW calculates)

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Complete in the Form 1040: •  40: Standard Deduction (TW calculates) •  42: Exemptions (TW calculates) •  48: Child/Dependent Care Expenses (Link to

2441) •  50: Retirement Savings (Link to 8880) •  51: Child Tax Credit (TW calculates) •  53: Credit for the Elderly/Disabled (Link to Sch

R)


Complete in the Form 1040: •  62: Federal Income Withheld (CHECK) •  64a: EIC (Sch EIC & Sch EIC Wkt) •  65: Additional Child Tax Credit (TW calculates) •  74: Amount to be refunded (Add 8888 for Savings

Bond Purchase) •  76: Amount you owe

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Main Info Form

•  In the PIN section, have each taxpayer enter a 5-number pin.

General Use Form

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General Disclosure Form

Prep Use Form

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Identity Protection Pin

You’ll enter this on the taxpayer’s return at the bottom of the Main Information sheet. This won’t affect the taxpayer’s return in any way, but it must be entered or the return will be rejected when it is submitted. This pin ensures that no one fraudulently files their return this year.

Common Errors

• Claiming children who are not the taxpayer’s qualifying children

• Selecting the incorrect filing status • Submitting returns with incorrect social security numbers

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Line 62: Withholding

• Check all W-2s and 1099 Forms and make sure the total amount matches!

• TaxWise automatically calculates this amount!


• Part 3: Quality Review

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Tax Preparation Process • Part 4: Finishing the Return

•  Make sure the preparer and quality reviewer names are listed on the I/I Form

•  Note the status of the return on the I/I Form •  Print return (1 if E-Filing & 2if paper filing) •  Assist with payment (voucher, addressing envelope…) •  Advise taxpayers they are ultimately responsible for all

information provided •  Taxpayer and spouse must sign and date federal and

Alabama returns and keep for their records •  File I/I Form (and Save Your Refund paperwork, if

applicable) in filing box •  Do NOT keep any personal documents!

Training Outline: B Session •  1) Miscellaneous Credits •  2) Form 8888 PRACTICE EXERCISE: BRANCH •  3) Alabama Return + Finishing the Return •  4) New Topics on 2013 IRS Basic Certification Exam:

Retirement Income •  6) New Topics on 2013 IRS Basic Certification Exam:

Higher Education Expenses (Credits & Deductions) •  7) New Topics on 2013 IRS Basic Certification Exam:

Itemized Deductions •  8) Volunteer Requirements and Standards of Conduct Test •  9) Intake/Interview & Quality Review

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Additional Topics – Out of Scope at Tax Site •  IRS changed VITA certification levels • 1st Year SaveFirst Volunteers maintain previous

Basic Certification standard • Some more advanced topics on your 2013 IRS

Basic Certification test, but you will not prepare at the tax sites

• We will briefly review now…

Additional Topics for 2013 VITA Basic Exam – Out of Scope at Tax Site 1.  IRAs/Pensions 2.  Higher Education Expenses 3.  Itemized Deductions

Use Handout: “Helpful Tips for New Topics

on 2013 IRS Basic Certification Exam”

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Additional Topics – Out of Scope at Tax Site

IRAs/PENSIONS •  Retirement income from an Individual Retirement

Account (IRA) or Pension reported on 1099-R •  From Form 1040, link from Line 16 Pension to a

Form 1099-R •  Gross Distribution •  Taxable Amount •  Boxes in line 2b

•  Taxable Amount Not Determined •  Total Distribution

•  Federal Income Tax Withheld •  Distribution Code(s) •  Total Employee Contributions

• Practice exercise: Sarah Brown •  See Handout “Helpful Tips for New Topics on 2013

IRS Basic Certification Exam” • Check Line 15/16 on 1040 Page 1 • Find Additional Tax on IRAs, Other Qualified

Retirement Plans, etc. •  Form 1040 > Page 2 > Other Taxes section > Line

58 • Form W4-P: Withholding Certificate for

Pension or Annuity Payments


IRAs/PENSIONS

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• On Your Own: Review the Sarah Brown exercise in your “Helpful Hints” handout and answer the questions for exercises 1 and 2.


IRAs/PENSIONS

Review answers together: •  1.1) What is the amount that appears on Form 1040 Line 16b Taxable Amount?

1500

•  1.2) What is the amount of Total Earned Income on Form 1040 page 1? 0 •  1.3) What is the amount of Total Income on Form 1040 Line 22? 1500 •  1.4) What is the amount of additional tax on IRAs, other qualified retirement

plans, etc. on Form 1040 Line 58? •  1.5) What is the amount of Federal income tax withheld on Form 1040 Line 62?

300 •  1.6) Sarah must pay a 10% additional tax on the distribution from her 401(k)

because she is under 59 ½ years old and does not qualify for an exception. TRUE

•  2.1) A taxpayer receives an annual distribution from their retirement account but does not have any tax withheld so they always has a balance due every year. He or she can submit a Form W4-P to have tax withheld on his or her pension. TRUE


IRAs/PENSIONS

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Additional Topics for 2013 VITA Basic Exam – Out of Scope at Tax Site 1.  IRAs/Pensions 2.  Higher Education Expenses

3.  Itemized Deductions




HIGHER EDUCATION EXPENSES

Tuition & Fees Deduction American Opportunity Credit Lifetime Learning Credit

Up to $4,000 deduction Up to $2,500 credit per eligible student Up to $2,000 credit per return

Available for all years Available for the 1st 4 years of college Available for all years

Student does not need to be pursuing a degree or credential

Student must be pursuing a degree or recognized education credential

Student does not need to be pursuing a degree or credential

Available for one or more courses Student must be enrolled at least half time Available for one or more courses

Felony drug conviction does not factor No felony drug conviction on student’s record Felony drug conviction does not factor

Expenses include only tuition and fees (no books)

Expenses include tuition, fees, and required course materials (books

Expenses include only tuition and fees (no books)

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Tuition and Fees Expenses

• Tuition amounts paid by the taxpayer are reported on a 1098-‐T and can be entered as an adjustment or a credit.

• Only out-‐of-‐pocket expenses can be claimed; you must subtract amounts paid with scholarships and grants.

Form 1098-T

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Education Credits

• Offset higher education expenses paid during the year for a taxpayer, spouse, or a dependent

• Two types of credits available: •  American Opportunity Credit

•  40% (up to $1,000) is refundable

•  Lifetime Learning Credit •  Nonrefundable credit

Education Credits: Eligibility

• Filing status cannot be MFS • Cannot be claimed as a dependent on someone else’s return

• Quali<ied expenses: tuition and fees required for enrollment

• Accredited institution • CAN claim on the basis of expenses paid with student loans

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Expenses That Do Not Qualify

• Room and board •  Insurance • Medical expenses (including student health fees)

• Transportation costs • Personal, living or family expenses • Expenses for a course involving sports, games or hobbies, unless it is required for the degree/certi<icate

Education Credits: Dependents

• When the student can be claimed as a dependent: •  Taxpayer must claim credit if taxpayer claims the

exemption. •  Student must claim credit if taxpayer does not

claim exemption. •  If the taxpayer claims the dependency

exemption, any amount paid by the student is considered to have been paid by the taxpayer.

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Qualified Expenses for Credit

• American Opportunity (Hope) Credit •  Quali<ied tuition and related expenses up to $4,000 per eligible student

•  Includes expenses for course materials (books, supplies, and equipment needed for a course of study, whether or not they were purchased from institution)


Qualified Expenses for Credit

• Lifetime Learning Credit •  Expenses include only tuition and fees •  Course-‐related books, supplies and fees are included ONLY if they must be paid to the institution as a condition of enrollment


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Education Credits: No Double Benefits

• The taxpayer CANNOT claim: •  Both the American Opportunity (Hope) and Lifetime Learning credits for the same quali<ied tuition expenses

•  A credit and the adjustment •  Expenses paid with a tax-‐free scholarship, grant, or other assistance, including Pell grants (in other words, the taxpayer must subtract these scholarships from the total expenses before claiming either credit)

Determining the Amount of the Credit

• Review the list of qualifying students and expenses and decide which credit is best.

• Enter each qualifying student and SSN on Form 8863

• Enter the students’ qualifying expenses •  Include only quali<ied expenses •  Are reduced by untaxed bene<its (scholarships, grants, etc.)

•  Are reduced by amounts paid in previous years •  Do not exceed the limit for the credit

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Education Credits in TaxWise


• Line 23: •  Yes à Lifetime Learning (Line 31) • No à American Opportunity (Line 24)

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OR

Practice Exercise: Marsha Brady

• “Helpful Tips” packet • Answer exercise 3 questions on your own using

packet

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Answers: Marsha Brady Scenario •  3.1) Which education benefit is Marsha not eligible to take? •  a) American opportunity credit •  3.2) Marsha is eligible to claim the American Opportunity Credit. •  False

•  3.3) Which of the following are Marsha’s qualified educational expenses for the lifetime learning credit?

•  a) $1,250 in tuition •  3.4) How much does Marsha have in qualified educational

expenses for the lifetime learning credit? •  $1,250

Additional Topics for 2013 VITA Basic Exam – Out of Scope at Tax Site 1.  IRAs/Pensions 2.  Higher Education Expenses 3.  Itemized Deductions



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Some Qualifying Expenses Below is a list of some of the qualifying expenses that may be included on the taxpayer’s return if they itemize. •  Unreimbursed doctor bills for the taxpayer, spouse, and dependents

•  Unreimbursed prescription drugs for the taxpayer, spouse, and dependents

•  Donations to a church or eligible nonproZit •  Gambling losses (up to the amount of winnings, i.e. if you had $500 in losses but you only had $300 in winnings, you can include only $300 in losses in your itemized deduction

•  Mortgage Interest •  Mortgage Insurance Premiums •  Real Estate Tax paid *This is NOT an exhaustive list.

Expenses NOT eligible for itemized deductions

• A taxpayer CANNOT claim the following expenses: •  Interest on a personal loan or credit card • Medical expenses that have already been

reimbursed • Monetary donation to a neighbor in need

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Medical Expenses in TaxWise (Click on the A Detail in the Loaded Forms Menu) Enter in the amounts for:

-  Medical miles -  Insurance premiums

paid -  Medicare (carries

over from 1040 Wkt1)

-  Other medical expenses (prescriptions, glasses, etc.)

Charitable Contributions in TaxWise (Click on the A Detail in the Loaded Forms Menu)

Enter in the amounts for: -  Charitable miles -  Charitable cash

contributions -  Uniforms required for

service

-  FMV of other than cash contributions

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Miscellaneous Deductions in TaxWise (Click on the Sch A in the Loaded Forms Menu) Enter the amounts and descriptions for: -  Miscellaneous: gambling losses

from W2-G (Line 28) -  Enter losses on bottom of W2-

G when you enter it as income. Losses will automatically transfer to this form from the W2-G

Taxes Paid in TaxWise (Click on the Sch A in the Loaded Forms Menu)

Enter in the amounts for: -  City/county real estate

taxes (6) -  Personal property taxes

(7) -  Ad valorem tax, make

sure to subtract $24.50 (amount of car tag) before entering (8)

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Home Mortgage Interest (Interest, Points and Premiums may be deductible.)

Home Mortgage Interest in TaxWise (Click on the Sch A in the Loaded Forms Menu)

Enter the amounts for: -  Home mortgage

interest and points (10)

-  Mortgage insurance premiums (13)

**Link to a Scratch Pad for multiple mortgages.

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Practice Exercise: McGregor

• USE TAXWISE • On your own: Prepare Interview section,

answer questions on the 8880, Schedule EIC, and Dependents worksheet; and enter all income from Ewan during the year.

When you finish entering this information, we

will prepare the itemization and education credits together.


• Together: prepare itemization and education credits

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Carl’s Higher Education Expenses •  Carl is Ewan’s Qualifying Child

•  Can Ewan claim the educational expenses paid for Carl at River College?

• Which education credit is Ewan eligible for? •  Carl is attending an eligible institution •  Carl is enrolled at least half-time •  Carl is in his first year of college •  Carl is pursuing a degree •  Carl does not have a felony conviction



•  Can Ewan claim the educational expenses paid for Carl at River College? YES

• Which education credit is Ewan eligible for? •  Carl is attending an eligible institution •  Carl is enrolled at least half-time •  Carl is in his first year of college •  Carl is pursuing a degree •  Carl does not have a felony conviction

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•  Can Ewan claim the educational expenses paid for Carl at River College? YES

• Which education credit is Ewan eligible for? American Opportunity Credit •  Carl is attending an eligible institution •  Carl is enrolled at least half-time •  Carl is in his first year of college •  Carl is pursuing a degree •  Carl does not have a felony conviction

Practice Exercise: McGregor •  Which of Carl’s expenses are qualifying expenses for

the American Opportunity Credit? •  Course-Related Books: $900 •  Room and Board: $7,000 •  Tuition and Fees from Form 1098: $6,000

•  Carl received scholarship or grant money. You must subtract the scholarship/grant amount from the tuition and fees amount to determine how much was paid out of pocket.

•  $6,000 - $5,000 = $1,000 •  Out of Pocket Tuition and Fees: $1,000 qualifying expense for

Education Credit •  Add up Carl’s total qualified expenses for the

American Opportunity Credit: _____

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Practice Exercise: McGregor •  Which of Carl’s expenses are qualifying expenses for

the American Opportunity Credit? •  Course-Related Books: $900 YES •  Room and Board: $7,000 NO •  Tuition and Fees from Form 1098: $6,000

•  Carl received scholarship or grant money. You must subtract the scholarship/grant amount from the tuition and fees amount to determine how much was paid out of pocket.

•  $6,000 - $5,000 = $1,000 •  Out of Pocket Tuition and Fees: $1,000 qualifying expense for

Education Credit YES •  Add up Carl’s total qualified expenses for the

American Opportunity Credit: $1,900


• Prepare itemized deductions in TaxWise together

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• Answer questions 4.1 – 4.6 on your own. We will review the answers when you are finished.

Practice Exercise: McGregor •  4.1) What is Ewan’s total tax deduction on Schedule

A, line 9? $______ •  4.2) What is Ewan’s total interest deduction on

Schedule A, line 15? $________. •  4.3) How should Ewan report his lottery activities? •  4.4) To compute the American opportunity credit,

which of Carl’s following expenses qualify? •  4.5) Does Ewan qualify for the retirement savings

contributions credit? •  4.6) What is the refundable amount of Ewan’s

American opportunity credit from the payments section of Form 1040, page 2? $________.

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Retirement Income •  6) New Topics on 2013 IRS Basic Certification Exam: Higher

Education Expenses (Credits & Deductions) •  7) New Topics on 2013 IRS Basic Certification Exam:


Volunteer Etiquette

• Follow the Quality Site Requirements. • Conduct a thorough interview. • Be sensitive to the taxpayer. • Keep personal information confidential. • Do only what you are trained and certified to

do.

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Ethical Violations

l  An ethical violation is a knowing breach of any of the volunteer standards of conduct

l  All VITA volunteers must undergo training on volunteer standards of conduct to avoid ethical violations

l  The IRS uses reviews called SPEC QSS to determine the accuracy rate and possible violations at tax sites.

Ethical Violations l  Consequences of intentional violations impact

both the volunteer and the organization l  The volunteer may be removed from VITA and face

criminal investigation l  SaveFirst might lose its IRS grants and the EFIN

number that allows it to operate tax sites • NOTE: If you make an accidental mistake, you are

protected as a volunteer by the VITA program. And ultimately, taxpayers are responsible for the information that is entered on their return.

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Quality Site Requirements

l  Every return must be prepared by a volunteer with the proper level of certification needed for that return. Returns should be assigned after the level of certification needed and the certification level of the preparer have been determined and match up.

l  Every volunteer has to use the Intake/Interview sheet in preparing a return.

Quality Site Requirements

l  The volunteer must verify the taxpayer has photo ID, social security cards for themselves and any dependents they are claiming, and all income documents as soon as possible.

l  Taxpayers should be informed that they are ultimately responsible for any information they gave us.

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Other Violations

l  VITA is a volunteer service. We can not accept cash, solicit donations, or have a donation/tip jar in the entry, waiting, tax preparation, or quality review areas of the tax site.

l  Never use or keep a taxpayer's confidential information for personal gain. This includes soliciting a personal business, offering to receive and turn over a refund for a taxpayer without a bank account, or even asking a taxpayer on a date if you notice they are filing single.

Other Violations

•  If you feel a taxpayer is providing fraudulent information, you are not required to complete their return.

• Never knowingly prepare a fraudulent return.

• Talk to your supervisor (discretely) if you are concerned about a taxpayer’s return or about information they are providing.

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Standards of Conduct Test

• All volunteers must complete and pass the Volunteer Standards of Conduct Test before volunteering at the tax site

• Take the test (in your training materials), and we’ll grade it now! •  PUT YOUR NAME ON THE TEST! • Open-book, open-note; refer to the training

materials as you complete the exam •  Turn in to your trainer when you finish


Retirement Income •  6) New Topics on 2013 IRS Basic Certification Exam: Higher

Education Expenses (Credits & Deductions) •  7) New Topics on 2013 IRS Basic Certification Exam:


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Intake/Interview & Quality Review Sheet • Form 13614-C (October 2013) • All VITA programs are required to use this

sheet for every tax return filed at the tax site.

Assuring a Quality Service and Accurate Return

•  Taxpayers using services offered through the Volunteer Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) Programs should be confident they receive quality service. This includes having an accurate tax return prepared.

•  A basic component of preparing an accurate return begins with listening to the taxpayer and asking the right questions.

•  Form 13614-C, Intake/Interview & Quality Review Sheet, is

a tool designed to help the volunteer ask the right questions. When used properly, this form effectively contributes to accurate tax return preparation.

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Using this Form Completely and Appropriately

• The IRS conducts oversight to ensure that EVERY part of the form is being used appropriately and completely during the interview with the taxpayer and while preparing their return.

• The IRS requires compliance with use of this

form to ensure high quality tax returns for our VITA program.

Required for Use by IRS VITA Sites • An important tool for accuracy and due

diligence! • Must be completed by (or with) the taxpayer. • Will be used to conduct the Quality Review

process. • Must be kept at tax site for site records.

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Intake/Interview Form is a Huge Asset to You

• Provides an extra record for you to double-check information on the tax return in TaxWise and note things the taxpayer forgets to mention when speaking with you

The Intake Process: Completing Form 13614-C •  In most cases, the taxpayer completes pages 1

and 2 of the Intake Interview Form (Form 13614-C) in the waiting room before sitting down with you, the tax preparer.

• Provide assistance as needed

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Complete an Intake/Interview Form for EVERY Return

• We MUST have an intake/interview form on file for EVERY return filed at our tax sites.

The Intake Process: Tax Return and Volunteer Certification Levels

�  It is a violation of our VITA Grant and IRS Compliance and your Volunteer Standards of Conduct Agreement to file a tax return that is out of scope of the VITA tax site.

• At SaveFirst sites, to ensure all returns are in-scope for VITA: •  Consult the Scope of Service Chart – at every tax station,

in the Pub 4012 Volunteer Resource Guide, and in your Site Coordinator Handbook

•  If a topic seems complicated or unfamiliar to you, double-check the Scope of Service Chart to be sure it is listed in scope.

•  Sometimes this determination may be unclear. If you are unsure, talk to your Site Coordinator.

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The Intake Process: Tax Return and Volunteer Certification Levels

• SaveFirst Basic Volunteer Preparers •  Review the 2013-14 SaveFirst Volunteer Scope of

Service Chart for SaveFirst Basic Volunteers

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To verify SSN, we can accept: Original or copy of Social Security Card, Letter or Statement from Social Security Administration, or Medicare Card with “A” after SSN

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Congratulations! • We’ve completed the 2013 SaveFirst Basic Tax

Training!

• Next steps: • Certification Exam (80% or better, by deadline) •  Serving families at the tax sites •  Sharing information about these services with

families •  1st-2nd week: Some of you may be asked to help with

marketing to families of children in targeted schools to ensure they are aware of our services; appx 1-2 hours during slower times at tax site

•  Incredibly valuable in helping us to serve families who need the services you’ll be offering

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2013 Certification

• Complete the 2013 Tax Year Basic Tax Certification Exam •  In class •  At a testing session • On your own

• Pass with at least 80% correct

Additional Practice

• Center Practice Exercise in your packet • Use TaxWise