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Adjustments to Income

Adjustments to Income. Pub 4491 – Page 171 Pub 4012 – Tab E. Total Income minus Adjustments = Adjusted Gross Income (AGI). Adjusted Gross Income. Intake/Interview. In-Scope Adjustments. Educator expenses Health Savings Account* Self-employment tax Early withdrawal penalty Alimony paid.

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Adjustments to Income

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  1. Adjustments to Income Pub 4491 – Page 171Pub 4012 – Tab E NTTC Training – 2013

  2. Total Income minus Adjustments = Adjusted Gross Income (AGI) Adjusted Gross Income NTTC Training – 2013

  3. Intake/Interview NTTC Training – 2013

  4. In-Scope Adjustments • Educator expenses • Health Savings Account* • Self-employment tax • Early withdrawal penalty • Alimony paid • IRA contributions • Student loan interest • Tuition and fees deduction • Jury duty pay given to employer * Optional certification NTTC Training – 2013

  5. Adjustments to Income Out-of-Scope NTTC Training – 2013

  6. Educator Expense – Line 23 • Up to $250 for classroom educational materials for taxpayer and $250 for spouse (if both educators). Ask about this if educator(s) • Must be K–12 teacher, counselor, principal or aide • Must work at least 900 hours during school year • Claim entered on 1040 Wkt 2 NTTC Training – 2013

  7. 1040 Wkt2 in TaxWise NTTC Training – 2013

  8. Health Savings Accounts • Counselors may obtain special certification to work with Health Savings Accounts (HSAs) • Counselors must pass Advanced test before testing on HSA • Course and test are in Pub 4942 or online at Link & Learn NTTC Training – 2013

  9. Portion of Self Employment Tax – Line 27 • SE Tax = Social Security and Medicare tax for Self-Employed • Adjustment comes from Schedule SE • Schedule SE automatically generated from Schedule C • Details in later lesson NTTC Training – 2013

  10. Early Withdrawal Penalty – Line 30 • Penalty for withdrawal of funds from time deposits, such as CDs • As reported on 1099-INT or 1099-OID • In TaxWise, flows from Interest Statement NTTC Training – 2013

  11. Alimony Paid – Line 31a • Allowed if paid under Divorce/Separation Agreement • Must provide recipient’s Social Security No. • Recipient must claim as income • Link to Alimony Paid Worksheet from Line 31 if paid to more than one ex-spouse • Child Support not deductible NTTC Training – 2013

  12. IRA Contribution – Line 32 • Can contribute lesser of $5,500 ($6,500 if age 50 or over) or taxable compensation • Taxable compensation • Wages, tips, bonuses, Sch C income, alimony • Not interest, dividends, pensions, social security • Actual amount depends on Taxpayer/ spouse retirement plans, modified AGI, age and filing status NTTC Training – 2013

  13. IRA Contribution – Line 32 • Age limits • For traditional IRA – under 70½ • For Roth IRA – no age limit • Note: Roth IRA contribution is not deductible and will not show on line 32 NTTC Training – 2013

  14. IRA Contribution – Link to IRA Worksheet These data entered automatically

  15. IRA Contribution (cont) • Enter Traditional IRA contributions on line 10 • If part nondeductible, TW generates Form 8606 • Enter Roth contributions on line 20 • Can be a mixture so long as limit is not exceeded NTTC Training – 2013

  16. Non-Deductible Contributions • If client participates in employer’s plan and AGI is too high • Some or all of Traditional IRA contribution may be nondeductible • Client might prefer a Roth IRA instead of a Traditional IRA NTTC Training – 2013

  17. Non-Deductible Contributions • TW adds Form 8606 to form tree • Part I is in scope • If not carried forward, input beginning of year basis on line 2 (from 2012 Form 8606 line 14) • TaxWise carries the deductible amount, if any, to Line 32 NTTC Training – 2013

  18. Student Loan Interest – Line 33 • Intake and Interview Sheet – Part V, Q8 • If > $600, should receive Form 1098-E NTTC Training – 2013

  19. Student Loan Interest – Line 33 Pub 17, Ch 19 • Interest paid on qualified student loan for post secondary education expenses • Qualified Loan: • Expenses of taxpayer, spouse, or dependent (when loan originated) • For education expenses paid within reasonable time since loan was opened • For education provided during academic period when eligible student NTTC Training – 2013

  20. Student Loan Interest – Line 33 • Qualified Loan (cont) • Loan cannot be from relative • Taxpayer cannot be filing MFS • Taxpayer cannot be claimed on someone else’s return • Loan cannot be from qualified retirement plan • Taxpayer must be liable on the loan NTTC Training – 2013

  21. Student Loan Interest – Line 33 • Maximum $2,500 per year • Phases out as AGI increases • Link to 1040 Wkt 2 NTTC Training – 2013

  22. 1040 Wkt2 in TaxWise NTTC Training – 2013

  23. Tuition and Fees – Line 34 • Up to $4,000 adjustment allowed • For qualified education expenses of higher education • One of several choices for education benefits • Will cover details in education benefits lesson later NTTC Training – 2013

  24. Jury Duty Pay Given to Employer • Show Jury Pay received on Line 21, Other Income • Enter amount turned over to employer on Line 35 NTTC Training – 2013

  25. Quality Review – Adjustments • Does 1040 page 1 reflect Adjustments properly • Compare with Intake/Interview Sheet • Compare with last year’s return • Were other forms generated that should be addressed NTTC Training – 2013

  26. Adjustments to Income Questions? Comments… NTTC Training – 2013

  27. Let’s Practice In TaxWise • Open return for Kent in TaxWise • From Pub 4491W page 67, enter adjustments • Verify tax liability NTTC Training – 2013

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