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Income Details – Pensions & Capital Gains. Details of Retirement Income. Early Withdrawal Penalty Simplified Method for calculating taxable portion Public safety officer special medical insurance deduction. 1099-R What is this form telling you?. IRA Box 7 In-Scope Distribution Codes.

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Income details pensions capital gains

Income Details – Pensions & Capital Gains

Oregon Tri-Counties Training 2013


Details of retirement income
Details of Retirement Income

  • Early Withdrawal Penalty

  • Simplified Method for calculating taxable portion

  • Public safety officer special medical insurance deduction

Oregon Tri-Counties Training 2013


1099 r what is this form telling you
1099-RWhat is this form telling you?

Oregon Tri-Counties Training 2013


Ira box 7 in scope distribution codes
IRA Box 7 In-Scope Distribution Codes

7 Normal distribution (most common)

1 Early Withdrawal, no known exception 10% additional tax

2 Early distribution, exception applies

3 Disability

4 Death

B Designated Roth account distribution

G Rollover not taxable, no additional tax applies

Q Qualified distribution from Roth IRA

Oregon Tri-Counties Training 2013


Ira box 7 in scope distribution codes1
IRA Box 7 In-Scope Distribution Codes

  • Possible double letter codes

    • Look up each letter

    • Example

      • G4 – rollover distribution to beneficiary upon death of account holder

Oregon Tri-Counties Training 2013


Traditional ira distributions
Traditional IRA Distributions

  • Potential 10% additional tax for distribution prior to 59½ (“too early” penalty)

  • Exceptions may apply

Oregon Tri-Counties Training 2013


Taxwise form 1099 r
TaxWise Form 1099-R

Oregon Tri-Counties Training 2013


Taxwise form 1099 r1
TaxWise Form 1099-R

Impact State tax treatment – read state instructions

Oregon Tri-Counties Training 2013


Early distribution code 1
Early Distribution – Code 1

  • IRA distribution prior to age 59½ subject to 10% additional tax

  • Some early distributions may be exempt from additional tax – add Form 5329

Oregon Tri-Counties Training 2013


Common form 5329 exception codes
Common Form 5329 Exception Codes

Avoid additional tax if distribution was:

03 due to total and permanent disability

04 due to death

05 for medical expenses >10% of AGI

07 made for unemployed individual health insurance premiums

08 made for higher education expenses

Oregon Tri-Counties Training 2013


Pub 5329 additional taxes on qualified plans
Pub 5329 Additional Taxes on Qualified Plans

  • See Pub 4012, page H-2 for exception codes

Oregon Tri-Counties Training 2013


Interview
Interview

  • With 1099-R in hand – IRA box not checked:

    • Did taxpayer make non-deductible contributions?

    • Is taxpayer a retired public safety officer?

Oregon Tri-Counties Training 2013


Employee contributions
Employee Contributions

  • Retirement plan may be funded entirely by employer

  • Retirement plan may be partially funded by employee before-tax or after-tax contributions

    • Before-tax – entire distribution will be fully taxable

    • After-tax – distributions partially taxable (box 9b Form 1099-R)

      • “Taxable amount not determined” checked

Oregon Tri-Counties Training 2013


Taxable distributions
Taxable Distributions

  • Two methods used to figure taxable portion

    • General Rule – Out of Scope

    • Simplified Method

  • Pub 4012 (Page D-20), 1099-R Exclusion Worksheet

Oregon Tri-Counties Training 2013


Simplified method
Simplified Method

  • To calculate you will need:

    • Cost in plan (box 9b Form 1099-R)

    • Age – taxpayer’s age on date annuity began

      • and spouse’s age if joint/survivor annuity is selected

      • note if annuity starting date is before or after taxpayer’s (and spouse’s) birthday for that year

Oregon Tri-Counties Training 2013


Simplified method1
Simplified Method

  • To calculate you will also need:

    • Total of tax-free amounts from previous years – available from the taxpayer’s prior year worksheet

    • Check previous year amounts (whether taken or not) to assure total cost recovery has not occurred. It’s use it or lose it.

Oregon Tri-Counties Training 2013


Simplified method single annuitant
Simplified Method – Single Annuitant

Oregon Tri-Counties Training 2013


Simplified method joint annuitant
Simplified Method – Joint Annuitant

Oregon Tri-Counties Training 2013


Simplified method2
Simplified Method

  • After completing Simplified Method worksheet, DO NOT enter taxable amount in box 2 on 1099-R

  • Correct taxable amount will carry forward to 1040, Line 16b

Oregon Tri-Counties Training 2013


Pension distribution special case
Pension Distribution – Special Case

  • Taxpayer dies while still employed

  • Spouse survives – draws survivor benefits from pension of deceased Taxpayer

  • Must use only date of birth of spouse and date when survivor started receiving benefit for simplified method

Oregon Tri-Counties Training 2013


Special case 2
Special Case 2

  • Box 1 has a gross distribution amount and Box 2a has “0”

  • Box 2b not checked

  • Taxable amount wasdetermined!

Oregon Tri-Counties Training 2013


Special case 21
Special Case 2

  • TaxWise defaults the whole distribution as taxable

  • Putting “0” in box 2 doesn’t work

Oregon Tri-Counties Training 2013


Special case 22
Special Case 2

  • Need to use line 5 of Exclusion Worksheet to zero out taxable amount

Oregon Tri-Counties Training 2013


Public safety officer exclusion
Public Safety Officer Exclusion

Oregon Tri-Counties Training 2013


Details of capital gains
Details of Capital Gains

  • What is a Capital Gain?

    • Short term vs long term

  • What is “basis”?

  • How do I enter the information in Taxwise

Oregon Tri-Counties Training 2013


Introduction sale of assets
Introduction – Sale Of Assets

  • Key elements of a sale:

    • When did you buy it

    • When did you sell it

    • What is the cost basis

    • What is the sales price

Oregon Tri-Counties Training 2013


Interview what kind of sales
Interview – What Kind of Sales?

  • Brokerage or mutual fund statement or Form 1099-B

    • Stocks or mutual funds

    • Normally what we see

  • Sale of personal residence (discussed in more detail later)

  • All other sales are out of scope

Oregon Tri-Counties Training 2013


What is the basis of securities
What is the Basis* of Securities

  • Cost – amount originally paid

  • Adjusted basis

    • Add purchase expenses (commissions)

    • Add sale expenses, if not already used to reduce proceeds

    • Reduce by non-dividend distributions

  • Broker will track for “covered” securities!

* Basis is term generically used for cost or adjusted basis

Oregon Tri-Counties Training 2013


What is the sales price
What is the Sales Price?

  • Gross proceeds (sales price)

    • Not reduced for expenses of sale

  • Net proceeds

    • Already reduced for expenses of sale

  • 1099-B specifies method used

Oregon Tri-Counties Training 2013


Gross or net proceeds
Gross or Net Proceeds

  • If gross proceeds are reported on 1099-B

    • Do not adjust proceeds for expenses of sale

    • Instead, add selling expenses (commissions) to cost of security sold

  • IRS matches proceeds reported on all Forms 1099-Bs to total proceeds on tax return

  • Don’t adjust for covered securities – broker has already reflected in cost basis

Oregon Tri-Counties Training 2013


Entering in taxwise
Entering in TaxWise

  • Taxpayer receives Forms 1099-B or substitute

  • There may be “corrected” forms – use last one received (will have date)

  • Follow the statement

    • Unless taxpayer has information that statement is incorrect or incomplete

Oregon Tri-Counties Training 2013


Actual form

Oregon Tri-Counties Training 2013


Sample brokerage 1099 b
Sample Brokerage 1099-B

  • Format varies by brokerage

  • Brokers may present transactions subtotaled based on “1099” code

Oregon Tri-Counties Training 2013


Taxwise data flow
TaxWise Data Flow

Enter transaction details on Cap Gn Wkt

Flows to Forms 8949

Flows to Sch D

Flows to Form 1040 Line 13

  • TaxWise does the flowing

Oregon Tri-Counties Training 2013


Capital gain loss worksheet
Capital Gain & Loss Worksheet

  • Enter all transactions as on 1099-B

Oregon Tri-Counties Training 2013


Capital gain loss worksheet1
Capital Gain & Loss Worksheet

  • 1099 Column codes

    • A or D – basis reported to IRS

    • B or E – basis not reported to IRS

    • C or F – not reported on 1099-B

      • Such as main home

  • TaxWise will add Forms 8949 as needed

Oregon Tri-Counties Training 2013


Capital gain loss worksheet2
Capital Gain & Loss Worksheet

Pub 4012 Page D-14 for codes

  • Adjustment columns (f) and (g)

    • For 1099 codes A or D (basis reported to IRS) use for adjustments to basis reported on 1099-B, such as

      • B – Basis on 1099-B is wrong

      • W – Wash sale loss disallowed

    • For all 1099 codes, if “batching” entries

      • Code M – to indicate a group of transactions (not really an adjustment)

Oregon Tri-Counties Training 2013


Capital loss carryovers
Capital Loss Carryovers

  • Up to $3,000 Capital Loss can be subtracted from income

  • TaxWise carries forward available capital loss carryovers from previous years for returning taxpayers

  • Otherwise, review 2012 tax return for schedule computing capital loss carryover available to 2013

    • If no loss carryover schedule, will need to calculate from return

Oregon Tri-Counties Training 2013


Cap gn wkt input short cut
Cap Gn Wkt – Input Short Cut

Oregon Tri-Counties Training 2013


Input short cut form 8453
Input Short Cut – Form 8453

  • Need to send details of transactions to IRS

  • Go to Sch D Pg 1, top of form

    • Check box if using Form 8453, or

    • Check box to attach PDF instead*

      *no need to keep copies (more in later lesson)

Oregon Tri-Counties Training 2013


Form 8949
Form 8949

Form automatically populated by TaxWise from Cap Gn Wkt and transferred to Schedule D

Oregon Tri-Counties Training 2013


Tax forms
Tax Forms

  • May have up to six forms 8949

    • One for each 1099 code (A – F)

  • Only one Schedule D

  • One or more Schedule D worksheets will usually be generated for calculations

  • All this is taken care of by Taxwise

Oregon Tri-Counties Training 2013


Sale of main home
Sale of Main Home

  • Exclusion of gain

    • Up to $250,000 ($500,000 MFJ)

    • Must meet both tests:

      • Ownership

      • Use

Oregon Tri-Counties Training 2013


Sale of main home1
Sale of Main Home

  • Figuring gain or loss

    • Amount realized (on sale)

    • Determining (cost) basis

    • Maximum exclusion

  • Taxpayer needs to provide sale and basis information

Oregon Tri-Counties Training 2013


Sale of main home input
Sale of Main Home Input

  • Excludible capital gain:

  • Nondeductible loss (1099-S received)

  • Treasury is a profits-only partner

Oregon Tri-Counties Training 2013


Income details
Income Details

Questions…

Comments…

Oregon Tri-Counties Training 2013


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