welcome to vita! - united way of washtenaw county 2016... · •publication 4012, volunteer...

Welcome to VITA! Thank you for Volunteering!

Last year: We prepared 596 households Federal and State Most received refunds averaging just under $2000! That’s more money coming into Washtenaw County There was more demand for assistance than we could cover.

This is our 4th year serving Washtenaw County

What is VITA?

• VITA Program offers free tax help to

people who make $54,000 or less & need

assistance preparing their own tax

returns.

• IRS-certified volunteers provide free basic

income tax return preparation with

electronic filing to qualified individuals in

local communities.

We are a “fusion” site

UWWC offers two options for free tax preparation:

1. VITA

• We prepare the return for the taxpayer using

software you will be trained on.

2. Facilitated Self Assistance (FSA)

• Also known as “MyFreeTaxes.com”

• Taxpayer (TP) prepares own return using

software and support.

How VITA works

1. Prior to their appointment taxpayers are pre-screened for eligibility

2. Taxpayers receive a letter detailing “what to bring” to their appointment as

well as an intake form (13614-C, see example in packet)

3. Taxpayers first meet with a greeter/screener ensures they have all of their

proper documents, their intake form is complete.

4. Taxpayers are assigned a tax preparer based on their returns certification

level (Basic, Advanced, Foreign Student, etc.)

5. Tax preparers interviews client, reviews documents and prepare return.

6. All returns are reviewed by a second volunteer known as a quality reviewer

(QR). QR volunteers must be certified to the level of return they are

reviewing.

7. Client goes to exit table to receive copy of return, any paper-filed returns are

printed out, signed & mailing instructions provided as well as fills out exit

survey.

Tax Time Saving Initiative

1. (New for 2017) UWWC is encouraging individuals to save a portion of their refund

1. Taxpayers that split their refund to purchase $100 in saving bonds, open a MyRA

account, or fund a saving account and taking a saving pledge will receive a gift

card instantly and be entered into a drawing to win additional prizes.

2. To qualify taxpayers must be receiving the EITC or Home Heating Credit

2. What is MyRA?

1. Accessing MyRA can be done in TaxSlayer

2. Can be funded by their tax refund

3. Has the same tax benefits as a Roth IRA

https://myra.gov/how-it-works/

FSA Software Model

MyFreeTaxes.com

• Free federal returns; free state returns in all 50 states

• Income limit is $64,000 (individual or family income)

• Anyone can use this, from any computer!

• Hotline is available, and IRS-certified volunteers may

be, to assist with tax questions and/or computer issues.

MyFreeTaxes User Support

MyFreeTaxes Helpline : 1-855-My-Tx-Help

• All clients using MyFreeTaxes.com supported

by MyFreeTaxes Helpline

• Hours of Operation: 10am – 8pm EST

• Email support is available 24/7 with 24 hour

response time

• Live Chat support available during hours of

operation

• Support provided for system navigation, tax

preparation & if necessary other wrap-around

services

-How to make appointments -Season Schedule -Roles -Certification Requirements -IRS Link and Learn -After Certifying -Recap

General Information

Know someone who needs VITA’s help?

Have them call (734) 677-7235 or

visit uwgive.org/mytaxes

How to Make Appointments

Current Schedule

• Volunteer Shifts

• Wednesdays 5-8:30pm (Hamilton Crossing,

February Only)

• Thursdays 5-8:30pm

• Saturdays 9am-1pm

• Saturdays 1pm-5pm

• Starting February 2th & continuing

until April 15

Roles for VITA volunteers

There are 4 roles for VITA volunteers:

1. Greeters must be complete Ethics and Intake certification

tests

2. Tax Return Preparers must be certified at least to the basic

level, & preferably to the advanced level using IRS’s Link &

Learn Certification program

3. Tax Return Reviewers must be certified at least to the

advanced level using IRS’s Link & Learn Certification

program

4. Site Coordinators need additional training & have VITA

experience.

Certification Requirements

• Depending on your role there are various certification

tests

• All test questions can be found in Publication 6744

• All VITA volunteers must complete Volunteer Standards

of Conduct Test and the Intake/Interview and Quality

Review Test.

• Each test contain 10 regular and 10 re-take questions.

Please review all.

• Return preparers must complete either the basic or

advanced certification test.

• We recommend all preparers certify at advanced

VITA Tax Preparer Certification

4011 &

4704FS

New for 2017

IRS Link and Learn

• Certification can be completed at the IRS Link and Learn

Website

• Select the VITA/TCE Central Link to access the testing

site

• You have only two chances to pass your test, you can

submit questions and your test answers for review to

[email protected]

• Once you have certified, please print your Volunteer

Standards of Conduct Agreement and email a PDF to the

above email

• Please save PDF as LastNameFirstInitial.pdf

mailto:[email protected]

After Certifying

• Sign up for at least 3 shifts ASAP with United

Way.

• We need 2 greeters, 2 reviewers & 10-12

preparers per shift.

• We are taking appointments for clients now, so

signing up early helps us match clients to

volunteers meeting their language or certification

needs.

Recap

• For links to certification resources and webpages, go to

http://www.uwwashtenaw.org/vitavolunteers

• Send all questions to

[email protected]

• Send your Volunteer Agreement

form to the same email address

• Sign up for shifts asap




mailto:[email protected]

Quality Site Requirement

What you need to know about the intake and interview process?

Intake & Interview Process

Form 13614-C is mandatory for all VITA/TCE sites

• See the Form 13614-C Job Aid

Remember:

1. Screen for eligibility- Completed prior to appointment

2. Check identity- Greeters and preparers must check IDs

3. Check completed intake sheet for errors

4. Review supporting documents

5. Use probing questions

6. “Unsure” responses must be changed to “Yes” or “No”

7. Confirm the return is within program scope & your training

8. Conduct a quality review after return is prepared

19 Lesson 2 – Screening & Interviewing

Interview Techniques

How do you… ?

• Build rapport

• Ask effective questions

• Use active listening skills

• Overcome communication barriers

Important questions:

• Who lives in your house/apartment?

• Months/years in each home?

• Dependent relationship(s)?

• Marital status as of December 31?


Resources & Reminder

Necessary tools for Screening & Interviewing (will

be on your computer on-site):

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

Sheet

• Publication 4012, Volunteer Resource Guide

• Publication 17, Your Federal income Tax for

Individuals

Safeguard all TP information – it is private &

confidential


Tax Law

22 Lesson 3 – Filing Basics 22

Who Must File a Tax Return?

What helps determine if an individual must file?

• Intake Form 13614-C

• Refer to Pub 4012, Charts A, B, & C, on pp A-1 to A-3, tab A

• Net earnings from Self-employment income over $400

In what situations would an individual want to file if they are not required to?

• Find examples in Pub 4012, Tab A, Chart D

• FAFSA!


Verifying TP Identity

What are acceptable identity documents to verify identity?

• See the Tip in Pub 4491

• What are acceptable Taxpayer Identification Numbers (TINs)?

Enter names & identification numbers accurately

• Mistakes in data entry can result in processing delays

• See Pub 4012 (Tab N, Pages N-4-6), TaxWise Online Interview, for ID entries

Verify TP information to protect against identity theft

• Remind TPs correct information necessary for age-related tax benefits

• Out of scope: TPs who cannot substantiate identity – send them to FSA side.


Administrative Questions?

• FAQ answers:

• Pub 4012 (Tab P, Page P-5), Frequent TP Inquiries

• Pub 17 Index


Who’s your “family”/in your “household”?

This issue touches many areas of the tax return, 4 big ones are:

1. Filing Status (qualifying for more advantageous “head of household”)

2. Dependency Exemptions (can someone claim a person as a dependent on their tax return)

3. EITC (tax credit for working poor is larger if you have qualifying children) & Child Tax Credits

4. ACA (Shared responsibility payment “penalty”)

Definitions are different for each, & some are not intuitive (for example, in some cases your brother is your “child”). Use the resources & never guess.

26

The Five Filing Statuses

• Find relevant TP information on Form 13614-C, Part II: Marital Status & Household Information

• Filing status impacts: 1. Calculation of income tax 2. Amount of the standard deduction 3. Allowance or limitation of certain credits & deductions

• Use “Filing Status Wizard” function on in TaxSlayer if you are unsure of their filing status

• Pub 4012 (Tab B), Determination of Filing Status Decision Tree, pp B-1 through B-3

• Pub 17, Chapter 2, Filing Status provides details

27 Lesson 4 – Filing Status 27

28

Filing Status- Decision Tree

Single

• On the last day of 2016 TP was:

• Not married

• Legally separated or divorced, or

• Widowed before first day of tax year, not remarried within the year

• May qualify for more beneficial tax status

• Pub 4012 (Tab B), Filing Status Interview Tips


Married Filing Jointly

• This filing status generally is the most beneficial

• One return is filed covering both spouses

• On the last day of 2016 TPs: • Were married & live together • Live apart but not legally separated or divorced • Separated but divorce decree not final, or • Widow(er) not remarried during 2016


Married Filing Separately

• Taxes are generally higher for this status •Some credits unavailable, some reduced •Advantage, no joint & several liability

• Some TPs file separately to avoid potential refund offset due to spouse’s outstanding debts • Suggest Form 8379, Injured Spouse Allocation

• For the complete list of special rules, see Pub 17, Filing Status


Head of Household

• A TP may qualify if he or she: • Is unmarried or “considered unmarried” on 12/31/16,

and; • Paid 50% or more of the cost of keeping up a home for

2016, and; • Had a qualifying person living with them more than half

the year (except for temporary absences)

• Qualifying person: • Can be child, parent, or other relative • See Pub 4012 (Tab B), Who is a Qualifying Person…


Head of Household - Keeping Up a Home

• In general, the Head of Household status is for unmarried taxpayers who paid more than 1/2 the cost of keeping up a home for a qualifying person who lived with them in the home more than 1/2 2016. Valid household expenses include:

• Rent, mortgage interest, real estate taxes

• Home insurance, repairs, utilities

• Food eaten in the home

• Welfare or other public assistance payments are not considered amounts that the taxpayer provides to keep up a home. These payments must be included in the total cost of keeping up the home to determine if the taxpayer paid over half the cost.

33

Head of Household – qualifying person

• A qualifying person is defined as: • A qualifying child • A married child who can be claimed as a dependent • A dependent parent • A qualifying relative who lived with the taxpayer more than half

the year and is one of the relatives listed in the Volunteer Resource Guide (Tab C), Interview Tips, or Table 2: Dependency Exemption for Qualifying Relative, Step 2 (Page C-6)

The qualifying person for Head of Household filing status must always be related to the taxpayer. A person may qualify as a qualifying relative for a dependency exemption, but not qualify the taxpayer for the Head of Household filing status. Refer to the Volunteer Resource Guide (Tab B, Page B-3), Who is a Qualifying Person Qualifying You to File as Head of Household?

34

Hypos – Correct Filing Status

Michael provided all the cost of keeping up his home for the year. Michael's son Justin lived with him the entire year. Justin is not disabled, 22 & was not a full-time student in 2016. Although Justin only worked part-time, he made too much money for Michael to be able to claim a dependency exemption for him.

• Can Michael file Head of Household? NO

Nancy is single & lives alone. Nancy's mother, Maxine, lives alone in another city. Maxine receives social security payments, but has no other income. Nancy pays all of the costs of keeping up the home her mother lives in, & provides over half her support. Nancy can claim a dependency exemption for her mother.

• Can Nancy file Head of Household? YES

35

Married & Living Apart with Dependent Child

Some married TPs may be “considered unmarried” only for filing Head of Household if they:

1. File a return separate from their spouse 2. Paid >50% cost of keeping up their home 3. Lived apart from their spouse during the entire

last 6 months of 2016, & 4. Provided the main home for more than 1/2

the year of a qualifying dependent child, stepchild, or authorized foster child


Single or Head of Household?

• A TP may qualify for Head of Household status if the spouse is a nonresident alien

• Interactive Tax Assistant: What is My Filing Status?


Qualifying Widow(er) with Dependent Child

• As beneficial as Married Filing Jointly

• Available for only 2 years following year of spouse’s death

• TP would use Married Filing Jointly or Married Filing Separately in the year of spouse’s death (if not remarried)

• Dependency qualifications apply to child


Summary

• There are 5 filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, & Qualifying Widow(er) with Dependent Child

• Choose the filing status that results in the lowest tax

• HEAVILY TESTED ON CERTIFICATION EXAMS


Personal Exemptions

40

Personal Exemptions

What are exemptions?

• A dollar amount that can be deducted from a TP’s total income, thereby reducing their taxable income.

Personal exemptions

• Claimed for self (& possibly spouse)

Dependency exemptions

• Claimed for qualifying dependents

41 Lesson 5 – Personal Exemptions 41

Rules for Personal Exemption

• Can anyone claim you or your spouse as a dependent on their tax return? (Not does anyone!)

• Answer must be “no” to claim personal exemption

• Resources:

• Pub 4012 (Tab C, Page C-2), Personal Exemption Interview Tips

• Interactive Tax Assistant: Personal & Spousal Exemptions


http://www.irs.gov/app/vita/content/globalmedia/personal_exemptions_4012.pdf

Spouses (continued)

• Divorced, Separated, Same-Sex & Common Law

• TPs cannot claim an exemption for a (former) spouse from whom they are divorced or legally separated

• No difference same- or opposite- sex marriages.

• Deceased spouse claimed as personal exemption if TP:

• Did not remarry by December 31, 2016, &

• Was not divorced or legally separated from their spouse on the date of death, &

• Would have been able to claim the exemption under the rules for a joint or separate return

• Pub 17, Chapter 3, Personal Exemptions & Dependents


Dependency Exemptions

44

Dependency Exemption

A TP can claim one exemption for each qualified dependent, thereby reducing their taxable income

Who may be claimed as a dependent?

1. Qualifying child

2. Qualifying relative

45 Lesson 6 – Dependency Exemptions 45

Dependents

3 tests apply to both qualifying child & qualifying relative:

1. Dependent TP – person who COULD BE a dependent on someone else’s tax return cannot claim a dependent exemption

2. Joint return – person filing a joint return cannot be claimed as a dependent, &

3. Citizen or resident – dependent must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico


Qualifying Child Tests

Five additional tests for a qualifying child: 1. Relationship 2. Age 3. Residency 4. Support 5. Qualifying child of more than one person

• Review Pub 4012 (Tab C, Page C-5), Interview Tips for Dependency Exemption


Qualifying Child - Relationship Test

To meet this test, the child must be:

• Taxpayer's son, daughter, stepchild, foster child (placed by an authorized placement agency), or a descendant (for example, a grandchild) of any of them, or

• Adopted child is treated the same as a natural child. This includes a child who was lawfully placed with the taxpayer for legal adoption.

• Taxpayer's brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant (for example, niece or nephew) of any of them

48

Qualifying Child - Age Test

To meet this test, the child must be:

• Under age 19 as of 12/31/2016 & younger than the taxpayer (or the taxpayer's spouse, if filing jointly), or

• A full-time student under the age of 24 as of 12/31/16 & younger than the taxpayer (or spouse, if filing jointly), or

• Any age if permanently & totally disabled at any time of the year

49

Qualifying Child – Residency Test

Child must have lived with TP more than 1/2 of 2016. Taxpayer's home is any location where they regularly live; need not be a traditional home. For example, child who lived with TP for more than ½ the year in one or more homeless shelters meets residency test.

• Exceptions to the Residency Test

• Child considered to live with TP during periods when either child or TP is temporarily absent due to illness, education, business, vacation or military service.

• Child who was born (or died) during 2016 is treated as having lived with TP all year, if child lived in TP's home the entire time child was alive.

• Do not confuse this test with citizenship or resident test.

50

Qualifying Child- Support Test

• Child cannot have provided more than 1/2 of child’s own support during 2016.

• This test different from support test for qualifying relative. A person's own funds not support unless funds actually spent for support.

• If taxpayer is unsure whether child provided more than 1/2 of child’s own support, review Worksheet for Determining Support in Volunteer Resource Guide (Tab C, Page C-9) together.

51

Qualifying Child Of More Than 1 Person Test

Although a child could meet conditions to be the qualifying child of more than 1 person, only 1 TP can claim that child as a qualifying child for the following tax benefits:

1. Dependency exemption

2. Child tax credits

3. Head of Household filing status

4. Credit for child & dependent care expenses

5. Exclusion from income for dependent care benefits

6. Earned income credit

52

Qualifying Child Of More Than 1 Person Test

If 2 TPs have the same qualifying child, only 1 TP can claim all 6 benefits for that particular child. They cannot agree to split these benefits. (Exception: if special rule applies for child of unmarried, divorced, separated or living apart parents).

53

Children of Divorced or Separated Parents

• Special rules apply

• What is the difference between custodial & noncustodial parent?

• See table 3 in Pub 4012 (Tab C), Children of Divorced or Separated Parents or Parents Who Live Apart

• Custodial parents can revoke a release of claim to exemption they previously provided to the noncustodial parent on Form 8332


Qualifying Relative Tests

• Four tests for a qualifying relative:

1. Not a qualifying child

2. Member of household or relationship

3. Gross income

4. Support

• Review Pub 4012 (Tab C, Page C-6), Interview Tips for Qualifying Relative

• Pub 4012 (Tab C, Page C-9), Worksheet for Determining Support


Qualifying Relative – Not Qualifying Child Rule

• A child is not considered the TP's qualifying relative if the child is the TP's qualifying child, or is the qualifying child of another TP.

• Exception: When the child's parent (or other person for whom the child is a qualifying child) is not required to file a U.S. income tax return & either:

• Does not file a return, or

• Only files to get a refund of income tax withheld or estimated tax paid

56

Member of Household or Relationship Test • The person must either:

• Live as a member of the TP's household all year, or

• Be related to the TP in one of the following ways: • Child, stepchild, foster child or a descendant of any of them

• Brother, sister, stepbrother or stepsister

• Father, mother, grandparent or other direct ancestor, but not foster parent

• Stepfather or stepmother

• Son or daughter of the TP's brother or sister (niece or nephew)

• Brother or sister of the TP's father or mother (uncle or aunt)

• Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law

• Any of these relationships that were established by marriage are not ended by death or divorce.

57

Member of Household or Relationship Test

An unrelated person who lived with the TP for the entire year can also meet the member of household or relationship test, BUT:

• A person is still considered to live with the TP as a member of the household during periods when that person, or the TP, is temporarily absent due to special circumstances such as illness, education, business, vacation, military service, or placement in a nursing home.

• Cousins can meet the relationship test for qualifying relative only if they live with the TP for the entire year.

58

Qualifying Relative – Gross Income Test

• Dependent's gross income for 2016 must be less than the personal exemption amount ($4,050 for 2016). • GI is all income in the form of money, property, &

services that is not exempt from tax. • Specific examples are found in Publication 17, Personal

Exemptions & Dependents. • Test applies only to qualifying relatives, not qualifying

children. • State benefit payments such as welfare, Temporary

Assistance for Needy Families (TANF), food stamps, Medicaid, or housing assistance considered support provided by the state, not TP. Social security benefits received by a child & used for support are considered provided by the child.

59

Qualifying Relative – Support Test

• TP must have provided more than 50% of the person's total support for 2016. Note that this support test is different from the support test for a qualifying child.

• When calculating the amount of total support, TPs should compare their contributions with the entire amount of support the person received from all sources (such as taxable income, tax-exempt income, & loans).

60

All those Kids “Cheatsheet”

61

Earned Income Credit (EIC)

62

What is the EIC?

• A refundable tax credit available to eligible TPs who do not earn high incomes

• Qualifying TPs can receive a refund even if they have no filing requirement, owe no tax, & had no income tax withheld

• 2016: Maximum EIC for families with three or more children is $6,269

• HEAVILY TESTED ON CERTIFICATION EXAMS

• HEAVILY SOUGHT BY CLIENTS AND SOME TRY TO GAME SYSTEM WITH “SELF EMPLOYMENT INCOME.”

63 Lesson 29 – Earned Income Credit (EIC) 63

Qualifying for the EIC

• Three sets of rules: 1. General eligibility rules for everyone 2. Rules for TPs with one or more qualifying children 3. Rules for TPs who do not have a qualifying child

• Review Pub 4012 (Tab I, Page I-2), Summary of EIC Eligibility Requirements; focus on Part A & Part D

• Avoid common EIC filing errors: • Incorrectly reported income • Incorrectly reported SSNs • Married TPs incorrectly filing

as Single or Head of Household • Claiming a non-qualifying child


Qualifying for the EIC

• What are some example of earned income that may qualify TPs for the EIC? • Wages, salaries, tips, & other taxable employee pay • Taxable long-term disability benefits received prior to minimum

retirement age • Nontaxable combat pay; compare the EIC amount with & without this

pay before electing to include it in earned income

• See Pub 4012 (Tab I, Page I-1) Earned Income Table for a complete list

• Watch out for self employed with no expenses, round numbers!!


Rules for Taxpayers with Qualifying Children

• Claiming a child who is not a qualifying child is one of the most common EIC errors; make sure you apply the rules correctly.

• Review Pub 4012 (Tab I): • Summary of EIC Eligibility Requirements, Part B • EIC General Eligibility Rules Interview Tips • EIC with a Qualifying Child

Interview Tips • Qualifying Child of More than

One Person


Rules are presented in Pub 4012 (Tab I) Part C, & in the Interview Tips •Must be at least age 25 but under age 65 as of December 31 •Cannot be the dependent of another person

• Check Part I, question 10 on Form 13614-C •Must have lived in the U. S. more than half the year

Rules for Taxpayers Without Qualifying Children


Calculating the Tax Credit

• Check Part V, question 4 on Form 13614-C: Did you (or your spouse) have EIC disallowed in a prior year?

• If yes, see the special rules in Pub 4012 (Tab I, Page I-2), Disallowance of the Earned Income Credit

• TaxWise will calculate the amount of EIC


EIC Summary

• The earned income credit (EIC) computation is based on filing status, number of qualifying children, earned income, & adjusted gross income. Certain individuals with no children may also qualify.

• By using the intake & interview sheet, the interview tips in the Volunteer Resource Guide, & correctly filling out the EIC worksheets, most common errors can be avoided.


Unique Filing Status & Exemption

Situations

70

Determining Alien Status

• Nonresident aliens taxed differently from resident aliens

• See Pub 4012 (Tab L), ITIN returns Determining Residency Status decision tree

• Green card test

• An individual with a green card is, for tax purposes, a resident alien

• But not the only test!

71 Lesson 7 – Unique Filing Status & Exemption Situations 71

Determining Alien Status

Substantial presence test – physically present in the U.S. at least:

•31 days during the current year, &

•183 days during the 3-year period that includes the current year & the two years immediately before, counting:

• All days in current year (2016)

• 1/3 of days in previous year

• 1/6 of days in second year before current year

An individual who meets these requirement is, for tax purposes, a resident alien


Exemption for Nonresident Alien Spouse

What are two ways a citizen or resident alien who is married to a nonresident alien can claim the personal exemption for their spouse?

1. Treat the spouse as resident alien on a joint return, or

2. Treat the spouse as a nonresident alien on a Head of Household or Married Filing Separately return.

TPs must declare in writing that they are choosing to treat a spouse as a resident alien on a joint return.


Dependency Exemptions – Resident Aliens

• The dependency tests for a qualifying relative or qualifying child apply in the same way to citizens or resident aliens

• There may be unique issues with the support test & the citizen/resident test. Refer to:

• Pub 4012 (Tab C) Interview Tips - Personal Exemptions

• Pub 17, Chapter 3, Citizen or Resident Test

• Interactive Tax Assistant: Who Can I Claim as a Dependent? & How Much Can I Deduct for Each Exemption I Claim?

• Special rules for children born overseas & adopted children


Out of Scope:

• Taxpayers with F, J, M, or Q visas, unless there is a volunteer at your site with Foreign Student certification

• Unmarried nonresident aliens who do not meet the green card or substantial presence test

Can refer these TPs to FSA


Income from Form 1040, Lines 7-11

76

Determining Taxable & Nontaxable Income

• Nontaxable (excludable)

• Gifts & inheritances

• Exempt income

• Earned

• Received for work, such as wages, business income

• Unearned

• Interest income from investments

• Review Pub 4012 (Tab D) for examples

77

What are the differences between taxable & nontaxable income?

Lesson 8 – Income from Form 1040 Lines 7-11 77

Determining Taxable & Nontaxable Income

•Remember: Volunteers probe taxpayers to determine all sources of income –whether or not reported on a W-2 or other form!

78 Lesson 8 – Income from Form 1040 Lines 7-11 78

Reporting Wages, Salaries, Tips, etc.

• Form W-2: Issued to employees by January 31, reports wages & other compensation

• Pub 4012 (Tab D, Page D-7-8) How/Where to Enter Income

• Pub 4012 (Tab D, Page D-9-10) Form W-2 Instructions

• D-3 shows how to enter income from certain forms in Tax slayer


Reporting Wages, Salaries, Tips, etc.

• Remember: • Household employees earning less than $1,700 may not

receive a Form W-2, but the income must be reported • Self-employed TPs who receive tips should include their

tips in gross receipts on Schedule C


Taxable Scholarship Income

• Taxable scholarship income may be reported on Form W-2 & Form 1098-T

• Note, not all scholarships are income, but the excess over eligible expenses is.

• If the TP did not receive a Form W-2, the taxable amount should still be reported

• Form 1098-T income is reported as shown on pg D-45 Pub 4012

• Review Pub 4012 (Tab J) Educational Benefits


• Interest income (unearned income) is reported on Form 1099-INT if large enough – ask if other interest was received.

• Common sources: savings accounts, CDs, saving certificates, government bonds, interest on insurance proceeds, loan interest

• See 4012 Tab D, Page D-12 for how to enter in Taxslayer

Interest Income


State & Local Tax Refunds

• On Form 1099-G, refund will be in box 2 • Report only if:

• TP itemized deductions last year, & • Received an income tax benefit. • Do not report if state sales tax was deducted in 2015

• Taxable refund is reported on Form 1040, line 10 • See Pub 4012, p D-11 for how to enter in Taxslayer


• Getting information about alimony

• Form 13614-C • Pub 4012 (Tab E, pg E-5)

Alimony – Do not confuse with Child Support!


Out of Scope for this Lesson:

• TPs with income from the following sources reported on Form 1040:

• Other gains/losses (line 14)

• Farm income (line 18)

• Dependent child under the age of 18 (age 24 if a full-time student), who has investment income of more than $2000

• Casualty losses

• Accrual method for reporting income

• TPs who buy or sell bonds between interest payment dates

• Form 1099-INT, box 9

• Adjustments needed for any of the amounts listed on Form 1099-OID, or if the TP should have received Form 1099-OID but did not receive one

• Form 1099-DIV, boxes 2b, 2c, 2d, 8, 9

• State or local income tax refunds received in 2016 for a tax year other than 2015

• Alimony/divorce agreements executed before 1985

• Minister tax returns with parsonage/housing allowance


Business Income

86

See Tab D, pg D 29-35

for Instructions on

entering business

income and

deductions.

Income – Social Security Benefits; Form

1040 Line 20a

87

Social Security & Railroad Retirement Benefits

88 Lesson 14 – Income – Social Security Benefits; Form 1040 Line 20a

• Social security benefits:

• Old-age, survivor, & disability insurance (OASDI)

• Workers’ compensation

• Monthly retirement

• Reported on Form SSA-1099 – See Pub 4012, pg D27-28 for how to enter in Taxslayer

• Intake & Interview Sheet

88

Finding the Taxable Portion of Social Security

89 Lesson 14 – Income – Social Security Benefits; Form 1040 Line 20a

The taxable amount, if any, depends upon:

•Filing status & other reportable income

•Whether the benefits were the TP’s only source of income

• If the benefits were the only source of income, the benefits are generally not taxable, & the TP need not file a federal income tax return.

• If the TP received other income, Taxslayer will calculate the taxable portion.

89

Standard Deduction & Itemizing

Deductions

90

Deductions

• Use interview techniques & other tools to determine if the standard deduction or itemizing will result in the largest possible deduction for the TP.

• Pub 4012 (Tab F), Standard Deduction for Most People

• Pub 4012 (Tab F), Interview Tips for persons not eligible for the Standard Deduction

91 Lesson 19 – Standard Deduction & Tax Computation 91

Age & Blindness

• Standard deduction is higher for a TP or spouse 65 or older, or if one or both spouses are blind

• Use Pub 4012 (Tab F), Standard Deduction Chart for People Born Before January 2, 1952 or Who Are Blind Chart, as a guide to computing the standard deduction

• Taxslayer will compute if you enter the information properly.


Taxpayers Who Can be Claimed as Dependents

• A lower standard deduction is offered for an individual who can be claimed as a dependent on another’s tax return

• Form 13614-C has a check box for a dependent being claimed by another TP. But the taxpayer may not know! Use Tab C of Form 4012 to help explain.


• Examples of types of expenses that generally warrant itemizing deductions:

• Large out-of-pocket medical & dental expenses

• State & local income taxes, real estate taxes, and/or personal property taxes

• Mortgage interest

• Gifts to charity

• Casualty, theft, & certain other miscellaneous deductions

Standard Deduction vs. Itemizing


Deductions – Who Must Itemize

• TPs who cannot take standard deduction & must itemize:

1. Filing as Married Filing Separately & the spouse itemizes

2. Nonresident or dual-status alien (not married to U.S. citizen at the end of the year)

• Refer to the Standard Deduction Worksheet – Line 40 from either Pub 17 or Form 1040 Instructions


Who Should Itemize?

96 Lesson 20 – Itemized Deductions

• TPs should itemize if total allowable deductions are higher than the standard deduction amount

• TPs ineligible for standard deduction should itemize deductions

• Refer to Pub 4012 (Tab F) Persons Not Eligible for the Standard Deduction Interview Tips for help in determining if a TP qualifies for a standard deduction

• Refer to Pub 4012 (Tab F) Interview Tips – Itemized Deductions to help determine if a TP should try to itemize

• TaxSlayer will automatically select the larger of itemized versus standard deduction

96

Taxes that May be Deductible

• Certain taxes may be deductible if paid by the TP during 2016, such as: • State & local taxes • Real estate taxes • Personal property taxes • Michigan Auto Registrations • Other taxes (foreign income taxes, etc.)

• Refer to Pub 17, Which Taxes Can You Deduct table for more information

97 Lesson 20 – Itemized Deductions 97

Interest Paid

• Certain types of interest are deductible, such as: • Mortgage interest • Points paid as a form of interest • Investment interest (out of scope)

• Refer to the flowcharts in Pub 17, Is My Home Mortgage Interest Fully Deductible? & Are My Points Fully Deductible? for more information

• Private Mortgage Insurance (PMI) may be deductible

• Student Loan interest does NOT go On schedule A, it is reported on 1040, under Adjustments


Gifts to Charity

• TPs may deduct charitable contributions (donations or gifts) to qualified organizations ONLY IF THEY ITEMIZE.

• Exempt Organizations Select Check is an online tool for searching for organizations that are eligible to receive tax-deductible charitable contributions

• TPs are required to keep receipts & records of all their contributions

• Refer to Pub 17, Contributions , & Pub 4012 (Tab F, Page F-5 && 8), Schedule A – Itemized

Deductions , for more information


Education Benefits

100

Education Benefits Introduction

101 Lesson 23 – Education Credits

• Education credit amounts are based on qualified education expenses paid during 2016

• For an overview of education credits, see Pub 4012 (Tab J), Education Benefits

• To help guide your interview, use Pub 4012 (Tab J), Education Credits

• Disqualifying conditions include if a TP: • Can be claimed as dependent on someone else’s return • Files as Married Filing Separately • Has an AGI above the limit for the TP’s filing status • Was a nonresident alien for any part of 2016, & did not

elect to be treated as a resident alien for tax purposes

101

Dependents / Eligible Institutions


• To claim the credit for a student’s qualified expenses, the TP must claim the student as a dependent

• Expenses must have been paid to an eligible educational institution

• A searchable database of all accredited schools is available at http://ope.ed.gov/accreditation

102

Qualifying Expenses


• Qualified education expenses are tuition & certain related expenses required for attendance at an eligible educational institution

• The definition for “certain related expenses” differs between the lifetime learning credit & the American opportunity credit

• Necessary proof of expenses includes such documents as receipts or Form 1098-T, Tuition Statement, issued by the school

• Qualified expenses must be reduced by the amount of any tax-free educational assistance TPs receive

• TPs can claim payments that were prepaid for the academic period that begins in the first three months of the next year

103

American Opportunity Tax Credit

• Available for the first 4 years of college per eligible student

• The credit covers 100% of the first $2,000 & 25% of the second $2,000 of eligible expenses, up to the amount of tax or a maximum of $2,500

• 40% of the credit is a refundable credit

• See Form 8863 Instructions for more information

104 Lesson 23 – Education Credits 104

Lifetime Learning Credit

• The credit is 20% of the first $10,000 of eligible expenses, up to the amount of tax or a maximum of $2,000

• The credit is non-refundable

• Eligible students are not required to be enrolled at least half-time or in a degree program, & a felony drug conviction is not a disqualification

• Refer to Pub 4012 (Tab J), Education Benefits for basic requirements


Choosing Between the Credits / No Double Benefits

TPs cannot receive multiple benefits for the same student’s expenses

TPs have several options for claiming education expenses:

1. American opportunity credit or lifetime learning credit

2. Tuition & fees deduction

3. Itemizing on Schedule A

4. Reporting as business expenses on Schedules C or C-EZ


Child Tax Credits

107

1. Child and Dependent Care Credit

• Allows TPs to reduce their tax by a portion of their child and dependent care expenses. Credit may be claimed by TPs who, work or look for work and pay someone to take care of their qualifying person. A qualifying person is a: • Qualifying child under 13 • Spouse who is incapable of self-care • Dependent who is incapable of self-care

• The credit ranges from 20% to 35% of the taxpayer's expenses. The percentage is based on the taxpayer's earned income and adjusted gross income. The amount of the credit cannot be more than the amount of income tax on the return. It can reduce an individual's tax to $0, but it will not give the taxpayer a refund.

108

1. Child and Dependent Care Credit

• Spouse is considered working if going to school full time.

• Can claim amounts paid to family members, but not dependent’s parents or TP’s dependents.

• Must have taxpayer ID number for care provider. No exceptions!

• See Pub 4012 (Tab G, Pages G3-5)

109

2&3 Child Tax Credit/Additional Child Tax Credit

110 Lesson 25 – Child Tax Credit

• Child tax credit allows TPs to claim a nonrefundable tax credit of up to $1,000 per child

• TPs who claim the child tax credit, but do not qualify for the full amount, may be able to also take the refundable additional child tax credit by completing Form 8812, Additional Child Tax Credit

• Review Pub 4012 (Tab G, Pages G8-9), Child Tax Credit

110

Calculating the Credits

• Taxslayer will automatically calculate the credits, provided you have correctly completed the:

• Dependent section of the Main Information Screen

• Form 1040 through the retirement savings contribution credit line

• Part I of Form 5695, & Schedule R

111 Lesson 25 – Child Tax Credit 111

Payments

112

Federal Income Tax Withheld

• The total federal income tax withheld is entered in the Payments section of Form 1040, line 62

• Use interview techniques & Form 13614-C to determine the payments & credits to report

• Review Pub 4012 (Tab H), Form 1040, Page 2 – Other Taxes & Payments

• See Pub 505, Tax Withholding & Estimated Tax, for more information

113 Lesson 28 – Payments 113

Estimated Tax Payments

• Estimated tax includes income tax & self-employment tax

• If estimated payments are not paid when required, or amounts are insufficient, a penalty could be imposed

• From Form 13614-C & interview, determine if TPs paid estimated tax; if yes, ask to see the TP’s Form 1040-ES

• For more information about estimated taxes, refer to Form 1040-ES


Amounts Applied from Previous Year

• TPs who overpay income taxes for 1 tax year can apply all or part of their refund to next year’s tax

• From Form 13614-C & interview, determine if TPs overpaid income tax last year & if they applied any part of it to this tax year; if yes, ask to see the 2015 return to verify the amount

• Add the amount to the estimated tax payments


Payments & Extensions

• Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, extends the time to file until Oct. 15

• An extension must be filed electronically or on paper by the due date of the return

• If taxes due are not paid by April 18, TPs may owe interest & penalties

• Review Pub 4012 (Tab M, Page M-5), Filing for an Extension Using TaxSlayer


Refund & Amount of Tax Owed

117

Refund or Tax Due

118 Lesson 30 – Refund & Amount of Tax Owed

Form 8888, Allocation of Refund, is used to deposit a refund into up to three bank accounts

• For more information, review Pub 4012 (Tab K):

• Page K-15, Split Refund Option

• Page K-14, Pointers for Direct Deposit of Refunds

• Page K-16-17, Balance Due Returns

• Double-check accuracy of routing & account numbers for direct deposit refunds

• Refund status can be checked at “Where’s My Refund” feature on www.irs.gov, or calling 1-800-829-1954

118

U.S. Savings Bonds

119 Lesson 30 – Refund & Amount of Tax Owed

• TPs may purchase U.S. savings bonds with their tax refunds for themselves or for co-owners, such as children or grandchildren

• Form 8888 is used to buy savings bonds

• Series I bonds are sold at face value & accrue interest until redeemed or until they reach their final maturity in 30 years

• Series I bonds pay interest based on a combination of a fixed rate & a semiannual inflation rate

119

Amount Owed

• Payment options for taxes owed are:

• Check or money order submitted with Form 1040-V, Payment Voucher

• Electronic funds withdrawal

• Credit card

• Electronic Federal Tax Payment System (EFTPS)

• Cash if paid in person (new)

120 Lesson 30 – Refund & Amount of Tax Owed 120

Amount Owed

• Review Pub 4012 (Tab K), Balance Due Returns whenever you prepare a return that has an amount owed

• TPs who cannot pay the full amount owed may request one of the following agreements:

1. Pay in full within 60 or 120 days with no fee

2. Monthly installment payments using Form 9465, Installment Agreement Request, with a fee

• Balance due payments must be made by the April 18th filing due date to avoid penalties & interest – NOT DATE OF EFILING.


Estimated Tax Penalty

• Estimated tax penalty may apply for underpayment of estimated taxes

• Most TPs must make estimated tax payments if they expect to owe at least $1,000 in tax (after subtracting withholding & credits)

• Leave line 77 blank; if a penalty is due, the IRS will figure the amount & send the TP a notice

• Recommend client change withholding amounts on Forms W-4 & W-4P


Third Party Designees

• TPs may choose to authorize another person to discuss their tax return with the IRS

• Volunteer tax preparers must never be designated as the 3rd party designee


Identity Protection

• The IRS Identity Protection PIN (IP PIN) is a unique 6 digit number that is assigned annually to victims of identity theft for use when filing their federal tax return to show that taxpayer is the rightful filer of the return. For the 2016 filing season, IRS expects to provide more than 1.2 million IP PINs. The IP PIN will allow these individuals to avoid delays in filing returns and receiving refunds.

• When assisting taxpayers who are victims or may be victims of identity theft at VITA/TCE site, you should:

• If an IP PIN was issued to primary taxpayer you should ensure the IP PIN is input correctly on the tax return.

• If the Taxpayer received an IP PIN but did not bring it with them.

• 1. Complete tax return for the taxpayer.

• 2. Provide taxpayer with a complete copy of the tax return (Provide two copies if the taxpayer will mail the tax return.)

124

Identity Protection

When assisting taxpayers who are victims or may be victims of identity theft at VITA/TCE site, Tab P, page P-4.

Also, contact site coordinator for help with State identity theft.

125

Completing the Return

126

Signing Form 1040

• Quality review must be done before TP signs the return/chooses PIN.

• Advise TPs they are ultimately responsible for information on their return.

• Signing their return guarantees TPs have examined the return & schedules for accuracy.

• The return is not considered valid, & refunds are not issued, unless it is signed. (TaxSlayer uses e-signature.)

• Note Identity Protection PIN at bottom of Form 1040.

127 Lesson 31 – Quality Review of the Tax Return 127

Printing & Storing Returns

128 Lesson 32 – Concluding the Interview

• TPs must receive copy of their tax return. To prepare packet:

• Print appropriate client letter (efile or paper file) and check appropriate boxes

• Print the entire return using TaxSlayer

• Ensure names & social security numbers are legible on every sheet

• Assemble the packet starting with client letter, 1040V, if any, Form 1040, followed by each form, schedule, & attachment in order, based on the sequence number; then state return(s) with similar sequence.

• Show TP printed copy of return, & verify key information is correct

• Print a second copy

• Advise TPs to keep tax-related documents for at least 3 years

• Show TP text on letter describing how to track refunds.

• Review Pub 4012:

• Tab K, Page K-25, Distributing Copies of the Return

128

Completing the Return

1. Run diagnostics on the return, address any issues you can; explain review process to client

2. Change status on TS to “Ready for review” and mark whiteboard

3. After review assemble the return & all necessary documentation; Go over letter with client and ask if questions; send client to exit table.

4. Change return status to “Completed.” Note in “taxpayer diary” any special issues or why not completed. If not complete, use “Needs more info” status.

129 Lesson 31 – Quality Review of the Tax Return 129

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