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SaveFirst: A Tax Preparation and Financial Literacy Initiative TAX TRAINING Tax Terminology TAXABLE INCOME Any income subject to federal income tax. Tax Terminology EARNED INCOME Income received through work (i.e., wages, salary, tips). Tax Terminology UNEARNED INCOME

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tax terminology3
TAXABLE INCOME

Any income subject to federal income tax.

Tax Terminology
tax terminology4
EARNED INCOME

Income received through work (i.e., wages, salary, tips).

Tax Terminology
tax terminology5
UNEARNED INCOME

Income other than for pay for work (i.e., interest income).

Tax Terminology
tax terminology6
WITHHOLDING

The amount of money that is withheld from a taxpayer’s paycheck each pay period and received by the government.

Tax Terminology
tax terminology7
EXEMPTION

Amount that a taxpayer can claim for himself, his spouse, and his dependents in order to decrease taxable income.

Tax Terminology
tax terminology8
DEDUCTION

Allows a taxpayer to decrease the amount of taxable income.

Tax Terminology
tax terminology9
ADJUSTMENT

Allows a taxpayer to decrease the amount of taxable income.

Tax Terminology
tax terminology10
ADJUSTED GROSS INCOME

(AGI)

Amount of taxable income after certain deductions are taken and adjustments are made.

Tax Terminology
tax terminology11
DEPENDENT

An individual whom the taxpayer supports (i.e., a qualifying child or qualifying relative).

Tax Terminology
tax terminology12
TAX LIABILITY

The amount of tax that must be paid.

Tax Terminology
tax terminology13
TAX CREDIT

A direct reduction of the taxpayer’s liability.

Tax Terminology
tax terminology14
REFUNDABLE TAX CREDIT

A credit that allows the taxpayer to reduce his tax liability to zero, then receive a refund of any credit that is left.

Tax Terminology
tax terminology15
NONREFUNDABLE TAX CREDIT

A credit that allows taxpayers to reduce their tax liability to zero, but not take the excess credit as a refund.

Tax Terminology
slide16

TAXABLE INCOME

Unearned Income

Earned Income

slide17

TAXABLE INCOME

TAXABLE INCOME

after deductions, adjustments, exemptions

Unearned Income

Earned Income

slide18

TAXABLE INCOME

Unearned Income

Earned Income

TAX LIABILITY

TAXABLE INCOME

after deductions, adjustments, exemptions

tax training outline
Volunteer Requirements

Personal and Dependency Exemptions

Filing Status

Income

Standard Deduction

Tax Training Outline
tax training outline21
Earned Income Tax Credit

Child Tax Credit

Child and Dependent Care Credit

Education Credits

Miscellaneous Credits

Tax Training Outline
tax training outline22
Volunteer Requirements

Personal and Dependency Exemptions

Filing Status

Income

Standard Deduction

Tax Training Outline
volunteer requirements
Learn the process.

Conduct a thorough interview—be sensitive to the taxpayer.

Do only what you are trained to do.

Keep personal information confidential.

Volunteer Requirements
volunteer requirements24
Do not solicit business from those you help.

Do not accept gifts (monetary or not).

Do not complete a return if you feel the taxpayer is lying.

Do not retain documents for a follow-up visit.

Volunteer Requirements
volunteer requirements25
This is a lot of material!

Use your resources.

Pub 4012 (spiral notebook)

Pub 17 (Your Federal Income Tax)

Pub 4491 (Student Training Guide)

Ask questions.

Volunteer Requirements
intake interview
Your guide during the tax prep process.

Front of form: taxpayer completes

Back of form: volunteer completes

Complete this before logging into TaxWise!

Involve the taxpayer in the process.

Intake & Interview
identification
You must verify the social security numbers of each person who will appear on the return (including children).

You should ask to see a social security card (original or copy) or some statement of benefits that has the social security number on it.

You must be careful to enter the name EXACTLY as it appears on the SS card.

Identification
identification28
Some individuals may have an Individual Taxpayer Identification Number (ITIN) instead of a SSN—if they are ineligible for a SSN.

Taxpayers with ITINs are NOT eligible for the Earned Income Tax Credit…but they can still file taxes and receive a refund.

We can help people who need to file for an ITIN. (Call your supervisor.)

Identification
tax training outline29
Volunteer Requirements

Personal and Dependency Exemptions

Filing Status

Income

Standard Deduction

Tax Training Outline
personal exemptions
Exemptions decrease the amount of taxable income by $3,500.

Personal Exemption: taxpayer can claim for himself and his spouse (as long as neither can be a dependent of someone else).

Personal Exemptions
dependency exemptions
Exemptions decrease the amount of taxable income by $3,500.

Dependency Exemption: qualifying children and qualifying relatives that typically live in the home or whom the taxpayer supports.

Dependency Exemptions
dependency exemptions divorced or separated parents
A child of divorced/separated parents is generally the dependent of the custodial parent.

The noncustodial parent can claim the exemption if there is an agreement between the parents (Form 8332).

See “Children of Divorced/Separated Parents” chart in spiral notebook.

Dependency ExemptionsDivorced or Separated Parents
dependency exemptions qualifying child of more than one person
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?

Dependency ExemptionsQualifying Child of more than One Person
dependency exemptions qualifying child of more than one person36
If the child can legitimately be claimed by more than one person, it is up to those taxpayers to determine who will claim the child.

If the taxpayers cannot reach an agreement, the IRS tie-breaker rule will be applied (see next slide).

Dependency ExemptionsQualifying Child of more than One Person
dependency exemptions qualifying child tie breaker rule
If more than one person legitimately claims a qualifying child, then the IRS will grant the exemption to:

1. The parent

2. If both are parents, the custodial parent.

3. If both are equal custodial parents, the parent with highest AGI.

4. If none is the parent, the person with highest AGI.

See page C-3 in spiral notebook.

Dependency ExemptionsQualifying Child Tie-Breaker Rule
dependency exemptions38
Only one person can claim a particular child for ALL of these benefits:Dependency Exemptions

Dependency Exemption

Child Tax Credit

Head of Household

Child & Dependent Care Credit

Earned Income Tax Credit

dependency exemptions39
When a Form 8332 is signed:Dependency Exemptions

The noncustodial parent

gets these benefits:

Dependency Exemption

Child Tax Credit

The custodial parent

gets these benefits:

Head of Household

Child & Dependent Care Credit

Earned Income Tax Credit

dependency exemptions exercise 141
TRUE or FALSE: Every taxpayer can claim a personal exemption for himself.

FALSE. A taxpayer may only claim a personal exemption for himself if he cannot be claimed as a dependent by anyone else.

Dependency ExemptionsExercise 1
dependency exemptions exercise 2
Rebecca and John are married and have one child, Colin. Colin is 4 years old and lives full time with his parents, who provide all of his support. He is a U.S. citizen and no other adults live in their household. Can Rebecca and John claim Colin as a dependent?Dependency ExemptionsExercise 2
dependency exemptions exercise 243
Rebecca and John are married and have one child, Colin. Colin is 4 years old and lives full time with his parents, who provide all of his support. He is a U.S. citizen and no other adults live in their household. Can Rebecca and John claim Colin as a dependent?

YES. Colin meets all the requirements to be claimed as a qualifying child.

Dependency ExemptionsExercise 2
dependency exemptions multiple support
If a taxpayer, together with another individual, provides over 50% of support for someone who would be considered a qualifying relative except for the 50% support test, that taxpayer may still be able to claim the dependent if:

1. The taxpayer contributed over 10% support.

2. Each person who contributed over 10% signs a statement waiving his rights to claim the dependent (Form 2120).

Dependency ExemptionsMultiple Support
dependency exemptions exercise 147
Roderick, age 29, lives with his uncle and worked part-time last year, earning $2,100. His uncle provided for the rest of his support for the year, including rent and household costs. Can Roderick be claimed as a dependent by his uncle? Can Roderick claim a personal exemption?Dependency ExemptionsExercise 1
dependency exemptions exercise 148
Roderick, age 29, lives with his uncle and worked part-time last year, earning $2,100. His uncle provided for the rest of his support for the year, including rent and household costs. Can Roderick be claimed as a dependent by his uncle? Can Roderick claim a personal exemption?

Roderick can be claimed as a qualifying relative by his uncle. He cannot claim a personal exemption because he can be claimed as a dependent.

Dependency ExemptionsExercise 1
dependency exemptions exercise 249
Randy is divorced. He has one child, Paul (age 5). Paul lives with his mother, but Randy provides over half of Paul’s support. Can Randy claim Paul as a dependent?Dependency ExemptionsExercise 2
dependency exemptions exercise 250
Randy is divorced. He has one child, Paul (age 5). Paul lives with his mother, but Randy provides over half of Paul’s 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.

Dependency ExemptionsExercise 2
dependency exemptions exercise 3
Tom & Gina Brown provide all support for Gina’s uncle, Jim, who is unmarried, 72 years old, and lives in another city. Jim has no gross income for the calendar year. The Browns file a joint return. Can the Browns claim Jim as a dependent?Dependency ExemptionsExercise 3
dependency exemptions exercise 352
Tom & Gina Brown provide all support for Gina’s uncle, Jim, who is unmarried, 72 years old, and lives in another city. Jim has no gross income for the calendar year. The Browns file a joint return. Can the Browns claim Jim as a dependent?

YES. Jim meets all of the requirements to be claimed as a qualifying relative by Tom and Gina.

Dependency ExemptionsExercise 3
tax training outline53
Volunteer Requirements

Personal and Dependency Exemptions

Filing Status

Income

Standard Deduction

Tax Training Outline
filing status
Single

Married Filing Jointly

Married Filing Separately

Head of Household

Qualifying Widow(er) with dependent child

Filing Status
filing status single
A taxpayer is considered single if, on the last day of the year, he was:

1. Not married.

2. Legally separated/divorced.

3. Widowed.

However, there may be a better filing status for the individual.

Filing StatusSingle
filing status married filing jointly
Taxpayers can be MFJ if, on the last day of the year, they:

1. Live together as a married couple.

2. Live apart but are not legally separated/divorced.

3. The spouse died during the year and the taxpayer has not remarried.

Filing StatusMarried Filing Jointly
filing status married filing separately
Married taxpayers can choose to file separately.

If a married couple files separately and one spouse itemizes, the other spouse must itemize.

Typically, this will result in a higher tax and loss of some tax credits.

Filing StatusMarried Filing Separately
filing status head of household
This filing status is for taxpayers who are considered unmarried but support a child or relative and maintain half the costs of keeping a home.

A taxpayer can be married and still claim HoH if she has not lived with her spouse at any time during the last six months of the tax year.

Filing StatusHead of Household
filing status head of household59
A taxpayer must have a qualifying person that qualifies her for HoH (see chart in spiral notebook on p. B-1).

A person who is a taxpayer’s qualifying relative only because he lived in the taxpayer’s home for the whole year and was not related to the taxpayer is NOT a qualifying person for head of household.

Filing StatusHead of Household
filing status head of household60
If the custodial parent has given up her right to claim the dependency exemption for a child (Form 8332), that child is still her qualifying person for HoH.Filing StatusHead of Household
filing status61
Only one person can claim a particular child for ALL of these benefits:Filing Status

Dependency Exemption

Child Tax Credit

Head of Household

Child & Dependent Care Credit

Earned Income Tax Credit

filing status62
When a Form 8332 is signed:Filing Status

The noncustodial parent

gets these benefits:

Dependency Exemption

Child Tax Credit

The custodial parent

gets these benefits:

Head of Household

Child & Dependent Care Credit

Earned Income Tax Credit

filing status qualifying widow er with dependent child
This filing status is for taxpayers whose spouse died recently, who did not remarry, and who have a dependent child (son, daughter, stepson, stepdaughter).

Taxpayer must also provide over half the costs of keeping up the main home for herself and the child.

Filing StatusQualifying Widow(er) with dependent child
filing status qualifying widow er with dependent child64
In the year the spouse dies, the taxpayer files MFJ.

For two years after the spouse has died, the taxpayer can file QW.

After the second full year of death, the taxpayer can no longer file as QW.

Filing StatusQualifying Widow(er) with dependent child
filing status65
Filing Status

Spiral resource guide p. B-3

filing status exercise 1
Lily left her husband in August 2008, but did not get divorced. She took her children with her. She supported the children during all of 2008 and will claim them as dependents. Lily will not file a joint return with her husband. Which filing status should she use?Filing StatusExercise 1
filing status exercise 168
Lily left her husband in August 2008, but did not get divorced. She took her children with her. She supported the children during all of 2008 and will claim them as dependents. Lily will not file a joint return with her husband. Which filing status should she use?

MFS. Because Lily lived with her husband for some part of the last six months of the year, she is not entitled to claim HoH.

Filing StatusExercise 1
filing status exercise 169
What if Lily had left her husband in February 2008 and did not live with him for the rest of the year? She took her children with her. She supported the children during all of 2008 and will claim them as dependents. Lily will not file a joint return with her husband. Which filing status should she use?Filing StatusExercise 1
filing status exercise 170
What if Lily had left her husband in February 2008 and did not live with him for the rest of the year? She took her children with her. She supported the children during all of 2008 and will claim them as dependents. Lily will not file a joint return with her husband. Which filing status should she use?

Head of Household.

Filing StatusExercise 1
filing status exercise 2
Ginger is single and provides all her mother's support. Her mother lives in another home, and Ginger pays for all costs for keeping that home. Her mother had no income for the year and Ginger can claim her as a dependent. What is Ginger's filing status?Filing StatusExercise 2
filing status exercise 272
Ginger is single and provides all her mother's support. Her mother lives in another home, and Ginger pays for all costs for keeping that home. Her mother had no income for the year and Ginger can claim her as a dependent. What is Ginger's filing status?

Head of Household.

Filing StatusExercise 2
taxwise exercise 1
Now let’s complete a tax return using TaxWise Online.

You will need:

1. Tax Preparations Process handout.

2. Resource Guide (Pub 4012).

3. Workbook (Pub 4491-W).

TaxWise Exercise 1
taxwise exercise 174
BEFORE you sign on to TaxWise:

Determine whether taxpayer and spouse can be claimed as dependents.

Determine whether taxpayer and spouse can claim dependents.

Determine Filing Status.

TaxWise Exercise 1
taxwise exercise 175
twonline.taxwise.com/training

USER: ALL CAPS: LAST NAME AND FIRST INITIAL, i.e., SMITHS

PASS: Same as username, then change to

Eight characters

One upper-case letter

One lower-case letter

One number

One symbol

TaxWise Exercise 1
tax training outline76
Volunteer Requirements

Personal and Dependency Exemptions

Filing Status

Income

Standard Deduction

Tax Training Outline
income
Taxable income: wages, tips, interest, alimony, IRA distributions, unemployment compensation, jury duty pay, gambling winnings, a portion of social security benefits, etc.Income
income78
Nontaxable income: child support, gifts, inheritances, insurance payments, life insurance, public assistance payments, Supplemental Security Income, veterans’ disability benefits, etc.

See spiral notebook p. D-1.

Income
income tip income
More than $20/month in tips: required to report that income to their employer. The employer will report this income on Form W-2.

Less than $20/month in tips: not required to report to employer, BUT still must show on 1040.

Allocated tips are reported on W-2.

Form 4137: if the taxpayer has unreported tips.

IncomeTip Income
income scholarships
Scholarship money used for tuition, fees, books, and supplies required for enrollment by a student pursuing a degree is nontaxable.

Amount used for room and board is taxable.

See p. D-2 in spiral notebook.

IncomeScholarships
income interest income
Money earns interest when it is:

1. Deposited in accounts.

2. Is used to buy CDs or bonds.

Interest income is unearned income.

IncomeInterest Income
income interest income83
Interest is taxed in the year it is credited to the taxpayer’s account and is available for withdrawal by the taxpayer without incurring a penalty (savings and checking accounts, CDs).

If an early withdrawal penalty is incurred, this will be reported on Form 1040.

IncomeInterest Income
income interest income84
US Savings Bonds: The taxpayer can choose whether to report interest income

1. In the year they are cashed, OR

2. Each year as they accrue interest.

Must use the same method for all savings bonds.

If higher education expenses were incurred in the same year the bonds were cashed, use Form 8815 to determine if interest is excludable.

IncomeInterest Income
income social security benefits
Reported on SSA-1099.

Part of social security benefits may be taxable.

Supplemental security income (SSI) is not taxable.

IncomeSocial Security Benefits
income social security benefits92
SSA-1099IncomeSocial Security Benefits

Total benefits.

Medicare premiums may be listed here.

Don’t miss withholding.

income social security benefits93
If the taxpayer has other income in addition to social security benefits, you will enter social security income on a worksheet in TaxWise.

If the taxpayer has ONLY social security income (no other income), use the handout in your folder to determine if any of their benefits are taxable.

IncomeSocial Security Benefits
income social security benefits94
See handout in paper folder.

If the taxpayer has ONLY SS income, you will compare half of the social security benefits to the “base amount” based on filing status.

If half of the benefits is greater than the base amount, part of the benefits is taxable.

If half of the benefits is less than the base amount, none is taxable and the taxpayer is not required to file a return.

IncomeSocial Security Benefits
income social security benefits exercise
Jim is single and receives $1,000 per month in social security benefits. He has no other income. Will his social security benefits be taxed? Is he required to file a tax return?IncomeSocial Security Benefits Exercise
income social security benefits exercise96
Jim is single and receives $1,000 per month in social security benefits. He has no other income. Will his social security benefits be taxed? Is he required to file a tax return?

No. Half of his benefits ($6,000) is well under the base amount that would be taxed for a single person ($25,000).

IncomeSocial Security Benefits Exercise
income state tax refund
May be taxable if the taxpayer itemized last year.

See your supervisor if the taxpayer itemized and received a state tax refund.

IncomeState Tax Refund
income out of scope
See your supervisor if taxpayer has any of the following income:

Self-Employment/Business Income (including Form 1099-MISC with an amount in Box 7)

Sale of Stock (Form 1099-B)

IRA/Pension Income (Form 1099-R)

Any form we do not cover in this training.

IncomeOUT OF SCOPE
income exercise 1
Are the following sources of income taxable?

1. Alimony

2. Child support

3. State and/or local refund from last year

4. Unemployment benefits

5. Award money

6. Worker’s compensation

IncomeExercise 1
income exercise 1100
Are the following sources of income taxable?

1. Alimony (YES)

2. Child support

3. State and/or local refund from last year

4. Unemployment benefits

5. Award money

6. Worker’s compensation

IncomeExercise 1
income exercise 1101
Are the following sources of income taxable?

1. Alimony (YES)

2. Child support (NO)

3. State and/or local refund from last year

4. Unemployment benefits

5. Award money

6. Worker’s compensation

IncomeExercise 1
income exercise 1102
Are the following sources of income taxable?

1. Alimony (YES)

2. Child support (NO)

3. State and/or local refund from last year (SOMETIMES)

4. Unemployment benefits

5. Award money

6. Worker’s compensation

IncomeExercise 1
income exercise 1103
Are the following sources of income taxable?

1. Alimony (YES)

2. Child support (NO)

3. State and/or local refund from last year (SOMETIMES)

4. Unemployment benefits (YES)

5. Award money

6. Worker’s compensation

IncomeExercise 1
income exercise 1104
Are the following sources of income taxable?

1. Alimony (YES)

2. Child support (NO)

3. State and/or local refund from last year (SOMETIMES)

4. Unemployment benefits (YES)

5. Award money (YES)

6. Worker’s compensation

IncomeExercise 1
income exercise 1105
Are the following sources of income taxable?

1. Alimony (YES)

2. Child support (NO)

3. State and/or local refund from last year (SOMETIMES)

4. Unemployment benefits (YES)

5. Award money (YES)

6. Worker’s compensation (NO)

IncomeExercise 1
taxwise exercise 1 continued
twonline.taxwise.com/training

USER: ALL CAPS: LAST NAME AND FIRST INITIAL, i.e., SMITHS

TaxWise Exercise 1 continued
tax training outline107
Volunteer Requirements

Personal and Dependency Exemptions

Filing Status

Income

Standard Deduction

Tax Training Outline
standard deduction
The standard deduction reduces the amount of income that is taxed.

TaxWise calculates automatically.

Reference: p. F-1 and F-2 in spiral notebook

Standard Deduction
standard deduction109
NEW this year: Taxpayers can claim an additional standard deduction if they paid real estate (property) taxes on their residence.

If the taxpayer paid property taxes on his/her home, enter the amount on Schedule A.

Standard Deduction
itemized deductions
Every taxpayer can take a specific amount for a “standard” deduction, which reduces taxable income.

There are certain designated expenses that a taxpayer can choose to list out separately, and if they total more than the standard deduction, the taxpayer will “itemize” his deductions, which reduces his taxable income by a greater amount.

Itemized Deductions
itemized deductions111
Itemized deductions include (but are not limited to):

Un-reimbursed medical expenses

Charitable contributions

Home mortgage payments

If the taxpayer has these expenses, see your supervisor to determine whether or not he should itemize.

Itemized Deductions
tax training outline112
Earned Income Tax Credit

Child Tax Credit

Child and Dependent Care Credit

Education Credits

Miscellaneous Credits

Tax Training Outline
earned income tax credit
The EITC is a refundable tax credit that applies to individuals who work but make very low incomes.

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

Earned Income Tax Credit
earned income tax credit maximum credits
Earned Income Tax CreditMaximum Credits

Two children = $4,824

One child = $2,917

No children = $438

earned income tax credit115
Earned Income Tax Credit

Spiral notebook

p. H-2

Add “Child must have a valid SSN.”

earned income tax credit116
Only one person can claim a particular child for ALL of these benefits:Earned Income Tax Credit

Dependency Exemption

Child Tax Credit

Head of Household

Child & Dependent Care Credit

Earned Income Tax Credit

earned income tax credit117
When a Form 8332 is signed:Earned Income Tax Credit

The noncustodial parent

gets these benefits:

Dependency Exemption

Child Tax Credit

The custodial parent

gets these benefits:

Head of Household

Child & Dependent Care Credit

Earned Income Tax Credit

earned income tax credit118
Physical custody, not legal custody, determines whether the taxpayer can claim the EITC.

Taxpayers who are the custodial parents CAN claim the child for EITC even if they cannot claim the child’s exemption.

Taxpayers who are not the custodial parents CANNOT claim the child for EITC even if they can claim the child’s exemption.

Earned Income Tax Credit
earned income tax credit disallowance of the eitc
If the EITC has been disallowed for any reason (except a mathematical error), the taxpayer cannot claim the EITC again without submitting Form 8862.

Reckless or intentional disregard of the rules: cannot claim the credit for 2 years.

Fraudulent claim: cannot claim credit for 10 years.

Earned Income Tax CreditDisallowance of the EITC
earned income tax credit advance eitc
Those eligible for the EITC can receive a portion of the EITC payment each month rather than a lump sum in January.

AEITC payments will be reported on Box 9 of Form W-2.

If a taxpayer is interested in this option, he must submit Form W-5 to employer.

Earned Income Tax CreditAdvance EITC
earned income tax credit exercise 1
Sharon takes care of her sister’s son, Eric, who is 12 years old and began living with Sharon in August 2008. Sharon’s earned income and AGI are $15,525. Can Sharon claim the EITC?Earned Income Tax CreditExercise 1
earned income tax credit exercise 1122
Sharon takes care of her sister’s son, Eric, who is 12 years old and began living with Sharon in August 2008. Sharon’s earned income and AGI are $15,525. Can Sharon claim the EITC?

NO. Eric is not Sharon’s qualifying child because he did not live with her for more than half the year.

Earned Income Tax CreditExercise 1
earned income tax credit exercise 2
Doug and Donna are married and live together. Their combined earned income is $25,000. Doug reports AGI of $11,000 on his separate return and Donna reports AGI of $14,000 on her separate return. Sam, their 4-year-old son, lives with Doug and Donna. Can Doug and/or Donna claim the EITC?Earned Income Tax CreditExercise 2
earned income tax credit exercise 2124
Doug and Donna are married and live together. Their combined earned income is $25,000. Doug reports AGI of $11,000 on his separate return and Donna reports AGI of $14,000 on her separate return. Sam, their 4-year-old son, lives with Doug and Donna. Can Doug and/or Donna claim the EITC?

No. They cannot claim the EITC because their filing status is Married Filing Separately.

Earned Income Tax CreditExercise 2
earned income tax credit exercise 2125
Same couple: Doug and Donna are married and live together, but now they are filing a joint return. Their combined earned income and AGI are $25,000. Sam, their 4-year-old son, lives with Doug and Donna. Can they claim the EITC?Earned Income Tax CreditExercise 2
earned income tax credit exercise 2126
Same couple: Doug and Donna are married and live together, but now they are filing a joint return. Their combined earned income and AGI are $25,000. Sam, their 4-year-old son, lives with Doug and Donna. Can they claim the EITC?

Yes. With one qualifying child (Sam), their income is low enough to qualify them to claim the EITC.

Earned Income Tax CreditExercise 2
taxwise exercise 1 continued127
twonline.taxwise.com/training

USER: ALL CAPS: LAST NAME AND FIRST INITIAL, i.e., SMITHS

TaxWise Exercise 1 continued
administrative notes
Please fill out the following forms before the break:

Volunteer Agreement (located at the front of the volunteer test)

Availability Form (handout from SaveFirst staff)

Administrative Notes
tax training outline130
Earned Income Tax Credit

Child Tax Credit

Child and Dependent Care Credit

Education Credits

Miscellaneous Credits

Tax Training Outline
child tax credit
A taxpayer can claim a child tax credit for each of his qualifying children under 17 years of age.

Maximum credit = $1,000 per child.

Child Tax Credit is nonrefundable.

Additional Child Tax Credit is refundable.

Child Tax Credit
child tax credit132
Typically, the taxpayer will have to be able to claim an exemption for the qualifying child.

A taxpayer can claim a nondependent child for the Child Tax Credit if the reason for the non-dependency is either

Taxpayer/spouse can be a dependent

Child is married or filing a joint return

All of the other dependency requirements must be met.

Child Tax Credit
child tax credit133
Typically, TaxWise will calculate eligibility and the amount of the credit automatically.

If a taxpayer wants to claim a nondependent child for the Child Tax Credit, he must file a Form 8901 (TaxWise will not know how to do this).

Child Tax Credit
child tax credit134
Only one person can claim a particular child for ALL of these benefits:Child Tax Credit

Dependency Exemption

Child Tax Credit

Head of Household

Child & Dependent Care Credit

Earned Income Tax Credit

child tax credit135
When a Form 8332 is signed:Child Tax Credit

The noncustodial parent

gets these benefits:

Dependency Exemption

Child Tax Credit

The custodial parent

gets these benefits:

Head of Household

Child & Dependent Care Credit

Earned Income Tax Credit

child tax credit additional child tax credit
If a taxpayer’s liability is less than the maximum allowable nonrefundable credit, he still may be able to claim the Additional Child Tax Credit (Form 8812).

TW will determine all necessary fields.

Child Tax CreditAdditional Child Tax Credit
tax training outline137
Child Tax Credit

Earned Income Tax Credit

Child and Dependent Care Credit

Education Credits

Miscellaneous Credits

Tax Training Outline
child dependent care credit
Nonrefundable credit

Expenses related to caring for a dependent child or adult who cannot take care of himself/herself

Paid so that the taxpayer can work or look for work

Child & Dependent Care Credit
child dependent care credit139
Child & Dependent Care Credit

Handout in your SaveFirst folder

child dependent care credit divorced separated parents
Custodial parents can claim the credit even if they cannot claim the dependency exemption, if

One or both parents had custody of child for more than half the year,

One or both parents provided over ½ child’s support,

Custodial parent signs Form 8332 (or divorce decree).

Child & Dependent Care CreditDivorced/Separated Parents
child dependent care credit141
Only one person can claim a particular child for ALL of these benefits:Child & Dependent Care Credit

Dependency Exemption

Child Tax Credit

Head of Household

Child & Dependent Care Credit

Earned Income Tax Credit

child dependent care credit142
When a Form 8332 is signed:Child & Dependent Care Credit

The noncustodial parent

gets these benefits:

Dependency Exemption

Child Tax Credit

The custodial parent

gets these benefits:

Head of Household

Child & Dependent Care Credit

Earned Income Tax Credit

child dependent care credit exercise 1
Andrea is divorced from Bill and they have a 7-year-old son, Charles. Charles lived with Andrea for the entire year, and Andrea paid all the expenses of keeping up the home. Andrea also paid for before-school and after-school child care totaling $1,800. Andrea signed Form 8332 to allow Bill to claim the dependency exemption for Charles. Who can claim the Credit for Child and Dependent Care Expenses?Child & Dependent Care CreditExercise 1
child dependent care credit exercise 1144
Andrea is divorced from Bill, and they have a 7-year-old son, Charles. Charles lived with Andrea for the entire year, and Andrea paid all the expenses of keeping up the home. Andrea also paid for before-school and after-school child care totaling $1,800. Andrea signed Form 8332 to allow Bill to claim the dependency exemption for Charles. Who can claim the Credit for Child and Dependent Care Expenses?

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

Child & Dependent Care CreditExercise 1
child dependent care credit exercise 2
Julie spent the following on child care for her 10-year-old daughter Melissa. Which are eligible costs for the Child & Dependent Care Credit?

1. $300 for overnight camp

2. $1500 to her mother for

after-school care

3. $500 to her 15-year-old son for babysitting

Child & Dependent Care CreditExercise 2
child dependent care credit exercise 2146
Julie spent the following on child care for her 10-year-old daughter Melissa. Which are eligible costs for the Child & Dependent Care Credit?

1. $300 for overnight camp (NO)

2. $1500 to her mother for

after-school care

3. $500 to her 15-year-old son for babysitting

Child & Dependent Care CreditExercise 2
child dependent care credit exercise 2147
Julie spent the following on child care for her 10-year-old daughter Melissa. Which are eligible costs for the Child & Dependent Care Credit?

1. $300 for overnight camp (NO)

2. $1500 to her mother for

after-school care (YES)

3. $500 to her 15-year-old son for babysitting

Child & Dependent Care CreditExercise 2
child dependent care credit exercise 2148
Julie spent the following on child care for her 10-year-old daughter Melissa. Which are eligible costs for the Child & Dependent Care Credit?

1. $300 for overnight camp (NO)

2. $1500 to her mother for

after-school care (YES)

3. $500 to her 15-year-old son for babysitting (NO)

Child & Dependent Care CreditExercise 2
tax training outline149
Child Tax Credit

Earned Income Tax Credit

Child and Dependent Care Credit

Education Credits

Miscellaneous Credits

Tax Training Outline
education credits
Nonrefundable credit for higher education expenses paid in 2008 for a student (taxpayer, spouse, dependent).

Hope Credit

Lifetime Learning Credit

Education Credits
education credits general eligibility
Filing status cannot be MFS

Qualified expenses: tuition and fees required for enrollment

Accredited institution

Taxpayer will often receive Form 1098-T

Education CreditsGeneral Eligibility
education credits general eligibility152
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.

Education CreditsGeneral Eligibility
education credits153
Education Credits

Spiral Notebook p. G-3

education credits no double benefits
Cannot claim more than one credit on the same qualified tuition expenses.

Cannot claim credit based on expenses paid with a tax-free scholarship, grant, or other assistance (including Pell grants)—must subtract out expenses paid with scholarships.

Education CreditsNo Double Benefits
education credits exercise 1
James takes one course at a local community college. He received a Form 1098-T showing qualified tuition expenses of $1,000. He lives with his parents, who can claim him as a dependent. Who is entitled to claim the credit? Which credit?Education CreditsExercise 1
education credits exercise 1157
James takes one course at a local community college. He received a Form 1098-T showing qualified tuition expenses of $1,000. He lives with his parents, who can claim him as a dependent. Who is entitled to claim the credit? Which credit?

If James’s parents claim him, they must claim the credit.

If James’s parents do not claim him, James must claim the credit.

Lifetime Learning Credit

Education CreditsExercise 1
education credits exercise 2
LaQuandra is a sophomore enrolled at UAB full-time. She provides all of her own support. She paid $10,000 in 2008 for tuition and fees for enrollment to UAB. She received a tax-free scholarship worth $4,000, and paid the rest from a student loan in her name. Can LaQuandra claim an education credit? Which one? How much of her expenses are qualified expenses?Education CreditsExercise 2
education credits exercise 2159
LaQuandra is a sophomore enrolled at UAB full-time. She provides all of her own support. She paid $10,000 in 2008 for tuition and fees for enrollment to UAB. She received a tax-free scholarship worth $4,000, and paid the rest from a student loan in her name. Can LaQuandra claim an education credit? Which one? How much of her expenses are qualified expenses?

Yes – Hope Credit or Lifetime Learning.

Qualified expenses = $6,000

Education CreditsExercise 2
tax training outline160
Child Tax Credit

Earned Income Tax Credit

Child and Dependent Care Credit

Education Credits

Miscellaneous Credits

Tax Training Outline
miscellaneous credits
Elderly and Disabled Credit

Qualified Retirement Savings Contribution Credit

Recovery Rebate Credit

Miscellaneous Credits
elderly and disabled credit schedule r
Credit for taxpayers who are over 65 and/or retired on disability benefits before the mandatory retirement age.

Elderly are seldom eligible for this credit because of income limits.

Be sure to enter Social Security benefits!

TaxWise will automatically calculate.

Elderly and Disabled Credit(Schedule R)
retirement savings contribution credit form 8880
Credit for individuals who contributed to a retirement plan or IRA

AGI and age limitations

Cannot be claimed as dependent

Cannot be a full-time student

Retirement Savings Contribution Credit (Form 8880)
retirement savings contribution credit form 8880165
Box 12 on Form W-2 often has retirement contribution information (typically a code D or E)

BUT, contribution could be in Box 14 or not reported on the W-2 at all (ask the taxpayer if they made a retirement contribution)

Amount of contribution must be decreased if taxpayer received retirement distributions during the testing period (2006, 2007, 2008, 2009 until April 16)

Retirement Savings Contribution Credit (Form 8880)
recovery rebate credit
Refundable tax credit for taxpayers who may not have received the maximum Economic Stimulus Payment in 2007.

TaxWise will determine amount of credit but MUST show amount of 2007 ESP on 1040 Wkt 5.

See pages 10-11 in spiral notebook.

Recovery Rebate Credit
recovery rebate credit168
Some individuals who do not have tax liability or who do not normally file a tax return may be able to claim this credit if they did not receive a 2007 ESP.

Those with $3,000 of qualifying income may be eligible:

Social Security benefits

Veterans’ disability benefits

Wages or self-employment income

Recovery Rebate Credit
miscellaneous credits exercise 1
Bob, age 48, contributed $600 to a traditional IRA in 2008. He cannot be claimed as a dependent by anyone, was not a student, and had AGI of $24,000. Is Bob eligible to claim the Retirement Savings Contribution Credit?Miscellaneous CreditsExercise 1
miscellaneous credits exercise 1170
Bob, age 48, contributed $600 to a traditional IRA in 2008. He cannot be claimed as a dependent by anyone, was not a student, and had AGI of $24,000. Is Bob eligible to claim the Retirement Savings Contribution Credit?

Yes.

Miscellaneous CreditsExercise 1
finishing the return common errors
Claiming children who are not the taxpayer’s qualifying children.

Selecting the incorrect filing status.

Submitting returns with incorrect social security numbers.

Finishing the ReturnCommon Errors
finishing the return refunds
Taxpayers can choose to receive their refund or contribute it to their next year’s tax return.

Checks take 6-8 weeks to be mailed.

Electronic deposits will be made in 1-2 weeks – be sure to enter routing number and account number.

Finishing the ReturnRefunds
finishing the return tax due
If a taxpayer owes money, a check or money order can be made payable to “United States Treasury.”

Taxpayers can also choose to file Form 9465, Installment Agreement, to pay the tax in monthly installments.

Finishing the ReturnTax Due
finishing the return tax due175
A voucher will print with the return with instructions for how/where to mail the payment.

Always check to see if the taxpayer owes money to the state.

Finishing the ReturnTax Due
finishing the return printing signing
Consult your Tax Prep Process handout to see what pages to print, sign, and retain.

You will keep two copies of each W-2.

You will keep one copy of other income documents, if possible.

Finishing the ReturnPrinting & Signing
taxwise exercise 2
Now let’s complete a tax return using TaxWise Online.

You will need:

1. Tax Preparations Process handout.

2. Resource Guide (Pub 4012).

3. Workbook (Pub 4491-W).

TaxWise Exercise 2
taxwise exercise 2180
BEFORE you sign on to TaxWise:

Determine whether taxpayer and spouse can be claimed as dependents.

Determine whether taxpayer and spouse can claim dependents.

Determine Filing Status.

TaxWise Exercise 2
taxwise exercise 2181
twonline.taxwise.com/training

USER: ALL CAPS: LAST NAME AND FIRST INITIAL, i.e., SMITHS

TaxWise Exercise 2