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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

slide32

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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