2014 – 2015 Campus Fellow Intermediate & Advanced Tax Training A Session

2014 – 2015Campus Fellow Intermediate &

Advanced Tax TrainingA Session

Campus Fellow Paperwork & Training Materials

Paperwork to be filled out and returned to trainer (signed):• Campus Fellow Contract• Media and Publicity Release Form• Volunteer Information Form• Acknowledgement of Risk and Release from Liability

Form• Volunteer Standards of Conduct Agreement (Form

13615)• Confidentiality, Inventions and Property Agreement• W-9• Gas Reimbursement/Meal Reimbursement (if

applicable)


Training Materials:• Welcome Page• Agenda• Training Summary Chart• Training Notes• Selections from Pub 4012• Kevin Kent – Campus Fellow Training Exercise

#1• Mark Austin – Campus Fellow Training Exercise

#2• Training Exercise Answer Keys

Intermediate Training

1) Basic Training Refresher2) Alimony3) State Tax Refund4) Business Income5) Retirement Income (with taxable amount)6) Adjustments to Income7) Itemized Deductions8) Education Credit9) Foreign Tax Credit

Basic Scope Refresher

Preliminary Interview• Review I/I Form and collect forms• Verify photo IDs and SS cards• Determine personal exemption,

dependency exemptions and filing statusTabs A, B and C in Pub 4012

Basic Scope Refresher

Preparing the Return in TaxWise• Complete the “Interview” through the

dependents section• Fill out “Main Info” and “Dependents”

forms(s)• Complete Form 1040• Complete AL-40• Complete Gen Use, Gen Disclosure and

Prep Use• Review the return

Forms of Income

Wages: W-2 (line 7)Interest: 1099-INT (line 8)Dividends: 1099-DIV (line 9)Unemployment: 1099-G (line 19)Social Security Benefits: SSA-1099

(line 20)Gambling Winnings: W2-G (line 21)Prize/Award Money: 1099-MISC (line

21)

Credits

Child and Dependent Care Expenses Credit• Link: Line 48 2441

Retirement Savings Contribution Credit• Link: Line 50 8880

Child Tax Credit• $1,000 max. per child (TW calculates, line 51)

Credit for the Elderly and Disabled• Link: Line 53 Sch R

Earned Income Credit• Fill out Sch EIC and Sch EIC Wkt

Additional Child Tax Credit• Refundable portion of CTC (TW calculates, line 65)

Savings Bond Purchases

Add and complete Form 8888 Enter the banking information• If a taxpayer invests in savings bonds, ONLY fill

out the routing and account numbers on the Form 8888.

• If a taxpayer does not invest in savings bonds, fill out the routing and account numbers on the Main Info form and on Form 1040, line 74.

Alabama Return

Personal exemptions• Taxpayers receive a personal exemption if AL even if

they CAN be claimed as a dependent by someone else. Dependents

• Taxpayer provided over 50% of his/her support and is related to the taxpayer by blood

• NOT cousins, friends or foster children Filing status

• Taxpayers can only claim Head of Family if they are unmarried/legally separated at the end of the year

Non-taxable income• Unemployment and Social Security

Basic Training Refresher

Please review the Basic Training Slides at http://www.generationforchange.org/taxprep

http://www.generationforchange.org/taxprep

http://www.generationforchange.org/taxprep

TaxWise Practice: Kent Exercise

Review I/I and Notes Line 7: Wages Line 8: Interest

• Skip seller-financed mortgage for now Line 9: Dividends

• Skip foreign tax paid and capital gain distributions for now Line 19: Unemployment Line 20: Social Security Line 21: Other Income Line 48: Child and Dependent Care Line 64a: EIC



Alimony

A payment to or for a spouse or former spouse under a separation or divorce instrument

Person RECEIVING the alimony must report it as income on line 11

Person PAYING the alimony can subtract it as an adjustment on line 31

Alimony

May include:• Medical bills, housing costs and other

expensesDoes NOT include:• Child support or voluntary payments

outside

Alimony vs. Child Support

Child support payments from a separation or divorce instrument will stop once the child is grown.

Alimony Information

You need the EXACT amount from a divorce or separate instrument executed after 1984

Amount of alimony reported on one tax return as income must match the alimony adjustment amount on the spouse’s tax return

Reporting Alimony Income

Line 11 enter amount of alimony received

No worksheet for reporting alimony income

Do NOT need Social Security number of the person who paid the alimony



State Tax Refund

Taxpayers who receive a refund of state or local income taxes may receive Form 1099-G listing their refund in box 2.

NOT everyone must include their state tax refund as taxable income.

1099-G: State Tax Refund

State Tax Refund

2013 state tax refund may be taxable and need to be reported (usually Alabama)

Conditions in which 2013 state tax refund is taxable:• Received a refund on a state return

(Alabama)• Itemized Deductions in 2013 (Federal)

AND• Deducted state income tax instead of

state sales tax when itemizing deductions (Federal)

2013 State Tax Refund

Answer question in Box under line 9.• If NO, there are no additional forms• If YES, Link: Line 10 St Tax Refund

Complete the St Tax Refund Worksheet with information from the 2013 return

Info Needed from 2013 Return

State refund amountSch A, line 5a, income taxesSch A, line 5b, general sales taxTotal itemized deductions amount• Form 1040, line 40

Filing statusTaxable income amount• Form 1040, line 43

State Tax Refund in TaxWiseEnter in the amounts:

Line 1: enter AL and state refund amount

Line 2: income taxes from Sch A, line 5a

Line 2: general sales tax from Sch A, line 5b

St Tax Refund in TaxWise

Enter in the amounts:

Line 6: total itemized deductions

Line 7: filing status

Line 12: taxable income amount

Purpose of St Tax Refund Wkst

Taxpayers who itemized deductions and received a state or local refund may have to include all, part, or none of the refund in their federal taxable income.

St Tax Refund Wkt calculates the amount that is taxable.

If a taxpayer does not have a copy of the previous year’s return, Link: Line 10 Scratch Pad and enter the full amount of the state tax refund.

St Tax Refund



Business Income

Income from personal business (sole proprietor) or independent contractor

Income can be reported on:• 1099-MISC (with an amount in Box 7,

Nonemployee Compensation)• W-2 (with Statutory Employee checked in

Box 13)• 1099-K (Merchant Card and Third Party

Payments)• Taxpayer’s books and personal records

Link: Line 12 Sch C-EZ or Sch C

Form 1099-MISC

Form W-2

Form 1099-K

Business Income

Having a part-time business (even in addition to another job) may still be self-employment income and need to be reported on line 12

Remember: Income that was not reported on Form W-2, 1099-MISC or 1099-K still needs to be reported as cash payments.

Example

Andy works as an independent contractor for a painting company. He received a

1099-MISC from the company that shows he made $10,000. He also received $2,000 in cash payments from a few

different people for the work he completed, but he did not receive a 1099-

MISC for the $2,000.

What is Andy’s total business income that needs to be reported on Line 12?

Example - Answer

Andy must include the amounts from both the 1099-MISC and cash

payments. His total business income that must be reported is

$12,000.

Business Income vs. Other Income

Business Income• An activity qualifies as a business if the primary

purpose for engaging in the activity is for income or profit and the taxpayer is involved in the activity with continuity and regularity

• Link: Line 12 Sch C or Sch C-EZ Other Income

• A sporadic activity or a hobby does not qualify as a business

• Hobby: undertaken for pleasure during leisure time (not for profit)

• Link: Line 21 multiple forms

Business Income Terms

Business expenses: amounts that are ordinary and necessary to carry on the business

Cash method of accounting: reports all income when received and deducts all expenses when paid

Inventory: the items the taxpayer buys or makes for resale for others

Depreciation: the cost of items that are expected to last more than a year should be spread over a period of years, rather than deducted in the year of purchase

Business Income

Conditions that must be met for us to file a tax return with business income:• Less than $5,000 of business expenses (Sch C-EZ)• Less than $10,000 of business expenses (Sch C)• Cash method of accounting• No inventory• Does not want to depreciate• Must report a profit: No net loss!

Gross Receipts – Business Expenses

• Only one business—If taxpayer owns a business (Sch C-EZ) More than one business must use Sch C

• No employees

Sch C vs. Sch C-EZ

Sch C-EZ is just the simplified version of the Sch C• Use the Sch C-EZ if there are few business expenses and

only one business Less than $5,000

• Use the Sch C if there are a lot of business expenses and more than one business $5,000 to $10,000

• Sch C meets ALL of the requirements of the Sch C-EZ on the previous slide EXCEPT:• Can report a loss• However: Business income with a net loss is out of

VITA scope!

Net Profit/Loss

Net Profit/Loss = Gross Receipts – Expenses

Reporting Gross Receipts:

1099-MISC, Box 7Cash PaymentsW-2, Statutory Employee1099-K

1099-MISCIncome reported in Box 7 on

1099-MISC is considered self-employment income and should be reported on a Sch C or Sch C-EZ• Link: Line 12 Sch C-EZ or Sch C• Then, Link: Gross Receipts Line

1099-MISC• DO NOT JUST ADD THE 1099-MISC!

Cash PaymentsCASH INCOME must also be

reported on this line by linking to a scratch pad and entering the amount of cash income

Link: Line 12 Sch C or Sch C-EZ Gross receipts line Scratch Pad

W-2: Statutory EmployeeMake sure to check the Statutory

employee box on the W-2 in TaxWise:

Then check the box at the bottom of the W-2 in TaxWise in the Instructions:• If you forget to check the box, the

amount will show up on Line 7 (wages, salaries and tips)!

W-2: Statutory Employee

Link: Line 12 Sch C or Sch C-EZ Gross Receipts Line Scratch Pad

1099-K

Link: Line 12 Sch C or Sch C-EZ Gross Receipts Line Scratch Pad

Deductible Business Expenses

Advertising Car and Truck Expenses Commissions and Fees Insurance Other Interest Legal and Professional Services Office Expense Rent or Lease – Vehicle, Machinery and

Equipment Repairs and Maintenance Supplies Taxes and Licenses Travel/Meals and Entertainment Utilities

Advertising

Costs associated with promoting the business through various means:• Yellow pages• Newspapers• Magazines• Billboards• Racing sponsors• Television spots

Car & Truck Expenses

A taxpayer who uses a car/truck in a business may be able to deduct the costs of operating and maintaining the vehicle

Vehicle expenses are calculated using the standard mileage rate

Actual expenses include depreciation, which is out of our scope

Commissions and Fees

Commissions are paid to both individuals and businesses

Insurance

Insurance policies and coverages are deductible for the business operation• Property• Automobile (business vehicles only)• Malpractice

If the standard mileage rate is used, no deduction is allowed for automobile insurance premiums

Health insurance is NOT deductible

Other Interest

Interest paid on operating loans, but not mortgage interest

Legal and Professional Services

Fees paid to professionals, such as attorneys, accountants, appraisers and engineers

Office Expense

Supplies such as pens, paper, postage, etc.

Rent or Lease

Rental fees for cars, trucks, vans, machinery, equipment and other personal property

Leases of more than 30 days are out of scope

Repairs and Maintenance

Repairs on equipment, automobiles, office space and buildings are some possible expenditures

Supplies

Costs for general operating supplies not associated with the cost of goods sold

Taxes and Licenses

Taxes and license fees paid in the operation of the business:• State and local sales taxes imposed on

the taxpayer as the seller of goods or services

• Real estate and personal property taxes• Certain licenses and regulatory fees

Travel/Meals and Entertainment

Ordinary and necessary expenses of traveling away from home for business

Utilities

Normal electric, gas, water and telephone

No deduction for personal expenses

Business Mileage Rates

If used for business purposes, taxpayer can receive a mileage deduction at the federal rate. • Cannot deduct commuting miles.

Cannot calculate depreciation (out of scope).

For 2014, the rate will be 56.5 cents per mile– On Sch C-EZ and Sch C, enter total miles

Sch C in TaxWiseLink: Line 12

Sch C

Enter in the business information

Sch C in TaxWise Line A: Enter the type of business Line B: Enter the Principal Business Code

• Help Business 1099R and Country Codes Line C: Enter the business name, if no separate name, leave

blank Line D: Employer ID Number (EIN), if any Line E: Enter the Business Address Line F: Check accounting method (only cash accounting is in

VITA scope) Line G: Materially participate (on a regular, continuous and

substantial basis) Line H: Business acquired in 2014? Line I: Make payments that would require filing of Forms 1099? Line J: Will the business file all required Forms 1099?

Sch C in TaxWise: Part I (Income)

1: Gross receipts, income reported on 1099-MISC with Box 7, W2 if the “Statutory Employee” box is checked, 1099-K or cash payments

Sch C in TaxWise: Expenses

Enter in the amounts for the qualified business expenses for lines 8-27

Sch C in TaxWise

TaxWise Calculates!

Sch C in TaxWise: Part III (Cost of Goods Sold)

Out of Scope!

Sch C in TaxWise: Part IV (Vehicle)

Enter in the amounts and answer the questions

TaxWise carries over the mileage expense for you

Sch C in TaxWise: Part V (Other Expenses)

Part V: Includes all ordinary and necessary expenses not deducted elsewhere on Sch C

Sch C-EZ in TaxWise

Enter in the business information

Link: Line 12 Sch C-EZ

Sch C-EZ in TaxWise: Income & Expenses

1: Gross receiptsincome reported on 1099-MISC with Box 7, W2 if the “Statutory Employee” box is checked, 1099-K or cash payments (just like Sch C)

2: Total expenses (Link to a Scratch Pad)

3: TaxWise calculates net profit

Sch C-EZ in TaxWise: VehicleEnter in the amounts and answer the questions

You NEED to enter in the mileage expense amount on Line 2 (Total expenses) in Part II by adding it to the Scratch Pad!

Self Employment Tax

Must file Sch SE if self-employment earnings are over $400

Covers Social Security and Medicare taxes

Complete Sch C or C-EZ firstTaxWise automatically calculates

the tax onto Line 56

Record Keeping

Good records will help the taxpayer do the following:• Monitor the progress of their business• Prepare their financial statements• Identify source of receipts• Keep track of deductible expenses• Prepare tax returns• Support items reported on tax returns

Record Keeping

The law does not require any specific kind of records. Taxpayers can choose any system suited to their business.

Supporting documents: purchases, sales slips, paid bills, invoices, receipts, deposit slips, cancelled checks, payroll, other transactions usually found in accounting journals and ledgers


1) Basic Training Refresher2) Alimony3) State Tax Refund4) Business Income5) Retirement Income (with taxable

amount)6) Adjustments to Income7) Itemized Deductions8) Education Credit9) Foreign Tax Credit

Two Major Categories of Retirement Plans

Defined Benefit Plan• Funded by the employer• Promises a specific monthly benefit at

retirementMay explicitly state the promised benefit as

an exact dollar amount (e.g., $100 a month)May calculate benefit from a formula

derived from salary, age, and number of years worked for company

• Generally, employees do not contribute to these plans

Two Major Categories of Retirement Plans

Defined Contribution Plan• Does not promise a specific monthly benefit

at retirement• Employee and/or employer contribute money

to your individual account in the plan• Often, employee is responsible for choosing

how these contributions are invested and deciding how much to contribute through pretax deductions

• Employer often matches a certain percentage of contributions

Types of Retirement Plans

Pension: series of payments for past work (DB)

Annuity: series of payments from a contract with a company, trust or individual (DB or DC)

401(k) Plan: employer contributes part of the employee’s cash wages to a retirement plan on a pre-tax basis (not subject to income tax until employee receives it as a distribution from retirement account) (DC)

Individual Retirement Arrangements

Individual Retirement Arrangements: A personal savings plan that offers tax advantages to set aside money for retirement• Earnings generally accumulate tax free until

withdrawn• Types:

TraditionalRoth: Out of Scope (usually – discussed in Advanced

Training)SIMPLE: Out of Scope!SEP: Out of Scope!

Retirement Forms

Retirement income can be reported on:• Form 1099-R Distributions From

Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

• Form CSA 1099-R Statement of Annuity Paid (civil service retirement payments)

• Form CSF 1099-R Statement of Survivor Annuity Paid

• Form RRB 1099-R Annuities or Pensions by the Retirement Railroad Board

Form 1099-R: Taxable Amount Determined At this point, we are only going to prepare

returns with 1099-R Forms that already have the taxable amount determined.

Advanced Training: 1099-R with an empty Box 2a.

Lines 15/16: Retirement(Forms 1099-R)

Form 1099-R: Taxable Amount Determined

If IRA Box is checked, link: Line 15a 1099R• We can only prepare traditional IRA returns!

If IRA Box is NOT checked, link: Line 16a 1099R

Form 1099-R: IRA (Line 15a) Link: Line 15a 1099R

Form 1099-R: IRA (Line 15a)

Form 1099-R: Pension/Annuity (Line 16a)

Link: Line 16a 1099R

Form 1099-R: Pension/Annuity (Line 16a)

Form CSA 1099-R


Form CSA 1099-R

Railroad Retirement Plans

RRB 1099Treated like SSA

1099 (social security benefits)

Line: 20a 1040 Wkt1

RRB 1099-RTreated like 1099-R

(pension)Line 16a 1099R

Form RRB 1099: Part 1

Link: Line 20a 1040 Wkt 1

RRB 1099: Line 20a 1040 Wkt1

Railroad tier 1: Enter total benefits from Box 5 Medicare Parts B, C and D: Enter amount from Box 11 Federal tax withheld: Enter amount from Box 10

RRB 1099-R: Part 2


RRB-1099-R: Line 16a 1099R

Line 1: Enter Total Gross paid from Box 7

Click: Taxable amount not Determined (discussed in Advanced training)

Line 4: Enter Withholding from Box 9

Line 7: Enter 7 for the code

Line 9b: Enter employee contributions from Box 3

Click: Railroad retirement

Box 1, 2, 3 or Railroad Retirement?

On all 1099-R Forms in TaxWiseONE OF THE MOST IMPORTANT

BOXES TO CORRECTLY CHECK IN TAXWISE!!

DO NOT SKIP THIS FOR ANY 1099-R!

Box 1, 2, 3 or Railroad Retirement?Defined Benefits: Box 1• Taxpayer receives a set amount each month for

retirement and is based on salary history and years which they worked at a company.

Defined Contributions: • Taxpayer's retirement depends on the amount

of contributions made into an investment account and the performance of those investments contributed.Examples: 401(k), 403(b), employee stock

ownership plan, profit-sharing plan.

Defined Benefits vs. Defined Contributions

Defined Benefit Plans – Box 1 – are NOT taxable in Alabama

To find out if a retirement plan is Defined Benefits or Defined Contributions• Consult online list (

www.impactalabama.org/taxprep)• Consult Site Coordinator Manual• Call the company that administers the plan• Call the Alabama Department of Revenue• Call the IRS

http://www.impactalabama.org/taxprep

Defined Benefits vs. Defined Contributions

All retired civil servants (teachers, city

employees, soldiers, etc.) have Defined

Benefits plans 401(k)s are NOT Defined Benefits

Defined Benefits or Defined Contributions?

You can also ask the taxpayer the following questions to help you reach a decision:• Do you receive the same amount every

pay period? (If yes Defined Benefits) BOX 1

• Did your employer match your retirement contributions? (If yes Defined Contributions)

• Were your contributions placed into an investment account? (If yes Defined Contributions)

Box 1, 2, 3 or Railroad Retirement?

On all 1099-R Forms in TaxWiseONE OF THE MOST IMPORTANT BOXES TO

CORRECTLY CHECK IN TAXWISE!!DO NOT SKIP THIS FOR ANY 1099-R!

Defined Benefits

RRB-1099R (Railroad retirement)Note: Do NOT check Box 2 or 3

Example

Joe has been receiving his retirement payments for several years and has

received a 1099-R. When you ask him if he knows what kind of plan it is, he says he has no idea but he knows it is from his employment as a teacher. Is

this a defined benefits or defined contributions plan?

Example – Answer

Defined benefits plan – BOX 1All civil servants will have a

defined benefits plan.

Example

Maria began receiving her retirement payments this year and was issued a1099-R. She tells you that this is being drawn from an investment

account that she would contribute to and her former employer would match

that contribution. Is this a defined benefits plan or defined contributions

plan?

Example – Answer

Defined contributions plan

Example

Charles has been receiving his retirement for seven years. Every month, he receives $100. Is this a

defined benefits plan or defined contributions plan?

Example – Answer

Defined benefits plan – BOX 1

Example

Steve comes in with a Form RRB-1099R. Is this a defined benefits plan, defined contributions plan or railroad

retirement plan?

Example – Answer

Railroad retirement plan

Defined Benefits Retirement Plans

FOR A DEFINED BENEFITS PLAN, CLICK BOX 1 ON THE BOTTOM OF THE 1099-

R IN TAXWISE!

1099-R Codes: Box 7 1: Early distribution, no known exception (in most

cases, under age 59 ½) 2: Early distribution, exception applies (under age

59 ½) 3: Disability 4: Death 5: Prohibited transaction 6: Section 1035 exchange (tax-free exchange of life

insurance, annuity or endowment contracts) 7: Normal distribution 8: Excess contributions 9: Cost of current life insurance protection A: May be eligible for 10 year tax option B: Designated Roth account distribution D: Excess contributions plus earnings/excess deferrals G: Direct rollover and rollover distribution

RolloverTax-free distributionWhy?• The money is really not going to be used, it is still

be saved for retirement—it’s simply being rolled over into a new qualified retirement savings plan or back into the same retirement account

Example:• Julia left her job at Dog Food Company, but wanted

to take her retirement account with her to her new job—Julie is going to take a full tax-free distribution of her account and roll it over to a new qualified retirement savings plan

Rollover

Tax-free distributionCode G will be in Box 7 of the 1099-RIn TaxWise:• Enter the top portion of the 1099-R as

usualMake sure to enter Code G

• Fill out the Exclusion Worksheet • Check the rollover box (Form 1040) • Provide an explanation for the rollover

Provide an explanation

Check the Box and type F9

Enter the amount the taxpayer rolled over

Rollover

Disability Pension IncomeWhy would a taxpayer have disability

pension income?• Perhaps they had an accident that

rendered them totally and permanently disabled

Disability payments may be coming from a qualified retirement pension plan• The income is therefore going to be

treated like wages, instead of retirement income UNTIL the taxpayer reaches the designated retirement age for that specific plan.

Disability Pension Income

Code 3 on a 1099-R• Enter the 1099-R like normal in TaxWise• Check to see if taxpayer has reached retirement

age for that specific planIf taxpayer isn’t sure, may need to consult retirement

paperwork or contact plan managerDon’t just rely on a previous year return—previous tax

preparer might not have entered in correctly

• If taxpayer has not reached retirement age, click Check if disability and taxpayer is disabled and verify that amount appears on Line 7 as wages

• If taxpayer has reached retirement age, do NOT check that box and verify that the amount appears on Line 16 as retirement pension income

Disability Pension Income(Reported on 1099-R)

Incorrect Code on 1099-R

If a taxpayer has an incorrect code on a 1099-R, he/she should contact the retirement company and get the issue resolved

If the retirement company refuses, then the taxpayer must enter the 1099-R as it is written on the 1099-R• If an additional IRA tax is calculated (due to an

early distribution)but it does not apply (because it should actually be a normal distribution), then:

• Link: Line 58 5329 to correct the incorrect code

Form 5329Enter 12 as the exception numberEnter the full amount of the retirement

distribution (line 1 of 1099-R) that was incorrectly coded

The amount of the additional tax that was previously on Line 58 of the 1040 should then be removed

TaxWise Practice – Kent Exercise

Line 10: State Tax RefundLine 12: Business Income Lines 15: IRA Distributions• People’s Trust & Yale Security

Line 16: Pensions & Annuities• Retirement Services Program• Skip Alpine Pension Fund for now



Adjustments to Income

Basic life expenses that help decrease taxable income

Found on Lines 23-35 of Form 1040• Half of Self-Employment Tax• Early Withdrawal Penalty• Alimony• IRA (traditional) Contributions• Student Loan Interest• College Tuition Payments• Jury Duty

Half of Self-Employment Tax

Offsets the tax burden placed on individuals who do not have employers to pay half of their taxes.

TaxWise will automatically calculate this adjustment on Form 1040, Line 27 if you have completed a Schedule C.

Penalty on Early Withdrawal of Savings

When a taxpayer withdraws savings before maturity, a penalty is incurred. • Box 3: Form 1099-INT or Form 1099-OID

Can deduct these penalties from income. TaxWise automatically calculates the

adjustment on Form 1040, Line 30.Make sure you entered in ALL interest and

penalties imposed correctly on the Sch B.

Form 1099-OID

Alimony Paid Payment to a spouse or former spouse

under a divorce/separation agreement.• Child support and voluntary payments are NOT

considered alimony.• Alimony received is considered income.

Deduct total alimony paid for the whole year, not just one month.

Enter in amount taxpayer paid and the recipient’s SSN on Form 1040, Line 31.

IRA Contributions Deduction

Pub 4012, Tab E-5IRA: Individual Retirement

Arrangements• Personal savings plan that offers tax

advantages to set aside money for retirement

• Earnings and gains on contributions are not taxable until withdrawal

• Contributions to a traditional IRA can be either deductible or nondeductible

IRA Contributions Deduction

Eligibility Requirements:• Only contributions to a traditional IRA are

deductible• Age Limit: must be under the age of 70 ½ at the

end of the tax year• Compensation: must have taxable compensation• Time Limit: Contributions must be made by due

date of filing the returnContribution limit is the lesser of earned

income or:• $5,500 ($6,500 if > age 50)

IRA Deduction: Joint Returns

If the taxpayers file a joint return and one spouse’s compensation is greater than the other’s compensation, then:• Married taxpayers’combined

contributions cannot exceed combined compensation.

• Neither spouse can contribute more than $5,500 ($6,500 if > age 50).

IRA Deduction

Link: Line 32 IRA WktEnter contributions on line 10

Student Loan Interest

Pub 4012, Tab E-4Up to $2,500 of interest paid during

the year on a loan for qualified higher education expenses in the name of a:• Taxpayer• Spouse• Dependent (when the loan was obtained)

Note: Student must have been enrolled at least half-time in a program leading to a degree,

certificate, or other credential.

Student Loan Interest: Eligibility Loan was for an eligible student and was paid within a

reasonable period of time before/after obtaining the loan School IS:

• Accredited• Qualified to participate in a student aid program or

conduct internship/residency programs leading to a degree or certificate

Taxpayer IS NOT:• Filing as MFS• Able to be claimed as a dependent

If the taxpayer cannot be claimed as a dependent but his/her parents paid the student loan interest, the student can claim the deduction.

Student Loan Interest: Qualified Expenses

Qualified expenses include tuition and fees required for enrollment, room and board, transportation, books, and supplies

Usually reported on Form 1098-E or another statement from the lender

Amount must be reduced by scholarships, employer-provided benefits, or tax-free education expenses

Form 1098-E

Student Loan Interest Adjustment

Link: Line 33 1040 Wkt2

Jury Duty Pay Given to Employer

Jury duty pay is taxable income.BUT: if that pay is given to the

employer, it can be deducted as an adjustment.

Enter the amount on Form 1040, Line 35, Jury duty pay you gave to your employer.


Adjustments to Income• Line 31: Alimony Paid• Line 32: IRA Contribution• Line 33: Student Loan Interest



Itemized Deductions

Every taxpayer can take a specific amount for a “standard” deduction• 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• Reduces taxable income by a greater

amount

When to Itemize

A taxpayer can receive a larger deduction by itemizing if he/she has:• At the Federal Level (higher standard deduction):

Home mortgage payment Large number of medical bills

• At the State Level (lower standard deduction):Expenses that may/may not have been sufficient to

justify itemization on the federal level

Note: If a taxpayer is MFS and his/her spouse itemizes, the taxpayer must also itemize, regardless of whether

the Standard Deduction would be higher

Qualifying Expenses

Unreimbursed Medical ExpensesCharitable ContributionsTaxesHome Mortgage InterestMiscellaneous Deductions

Unreimbursed Medical Expenses

A taxpayer can claim expenses for• Him/Herself• Spouse• Dependents

He/she can only deduct the amount that exceeds• 7.5% of his/her AGI on federal returns• 4% of his/her AGI on state returns

Covered Medical Expenses

Unreimbursed medical and dental expenses

Eligible long-term care premiums

Be sure the expenses were not paid with pretax dollars or

reimbursed by an insurance company.

Deductible Medical Expenses

Co-pays to doctor, dentist, eye doctor Prescription drugs Cost of glasses or hearing aids Cost of medical equipment Health insurance premiums Long-term care insurance premiums (cap on amount

based on age) Cost of surgery, operations Miles to and from doctor

NOTE: For a complete listing of deductible and nondeductible expenses see Pub 502 on the IRS website

Nondeductible Medical Expenses

Life insurance policy premiumsFuneral, burial, cremation costsUnnecessary cosmetic surgeryNonprescription drugs

NOTE: For a complete listing of deductible and nondeductible expenses see

Pub 502 on the IRS website

Medical Expenses in TaxWise(Click on the A Detail in the Loaded Forms Menu)

Enter in the amounts for:

Medical miles Insurance Medicare (carries

over from 1040 Wkt 1)

Other medical expenses (prescriptions, glasses, etc.)

Charitable Contributions

Qualifying Organizations:• Religious• Charitable• Educational• Scientific• Literary

Non-qualifying Organizations:• Business• Civic/Political • Social • Foreign • Homeowners'

Associations


Deductible Items:• Monetary donations• Dues, fees, and assessments• Fair market value (FMV) of clothing, furniture• Uniforms required to be worn during service• Unreimbursed transportation expenses

Tolls, bus fare, parking fees, and cost of gas at 14 cents per mile

IMPORTANT: The taxpayer must keep receipts!

FMV of Donated Goods

If a taxpayer has made non-cash contributions to charity and does not have receipts, use the following resources to determine the FMV of donated items:• Salvation Army Valuation Guide

http://satruck.org/donation-value-guide


Nondeductible Expenses:• Raffle, bingo, lottery tickets• Tuition• Value of time of service• Blood• Contributions to individuals• The FMV of any good received in

exchange for a donation (i.e. t-shirts, cds, tote bags, etc.)

Limits to Charitable Contributions

Contributions that total more than 20% of their AGI may be able to deduct only a percentage of their contributions, and must carry over the remainder to a later tax year

If taxpayers have >$500 of non-cash contributions, they need to be referred to a professional preparer if they want to deduct the full amount.• Form 8283 (OUT OF SCOPE)

Recordkeeping

Cash contribution• Canceled check or bank statement• Written communication from the charity

Name of charity, date and amount

Noncash contribution• For each contribution < $250

Written communication, description, FMV

• For each contribution between $250 and $500Written communication, description, FMV and

acknowledgement of any goods received in return

• For each contribution > $500Refer to professional preparer

Charitable Contributions in TaxWise(Click on the A Detail in the Loaded Forms Menu)

Enter in the amounts for: Charitable miles Charitable cash

contributions Uniforms

required for service

FMV of other than cash contributions

Taxes

Deductible• Taxes imposed on and paid by the

taxpayer in 2014Nondeductible • Taxes the taxpayer pays for someone

else• Taxes someone else pays for the

taxpayer• Taxes not paid during 2014

Taxes

Deductible• State and local

taxes• Real estate taxes

(Property Tax)• State and local

taxes on a new car purchase

• Ad valorem tax on car tags (total

paid - $24.50)Nondeductible• Federal taxes• Hunting licenses• Water/sewer• Taxes on alcohol,

tobacco, or gas• Utilities

Taxes Paid in TaxWise (Click on the Schedule A in the Loaded Forms Menu)

Enter in the amounts for: City/county real

estate taxes (6) Personal property

taxes (7) Ad valorem tax,

make sure to subtract $24.50 before entering (8)

Home Mortgage Interest

Any interest paid on a loan secured by the taxpayer’s home, line of credit, or a home equity loan.

Is generally reported on Form 1098Only taxpayers who are legally liable for the

debt can deduct the interestTaxpayers may have more than one mortgage

or may have refinanced and have multiple statements

Points: only points paid as a form of interest (for the use of money) can be deducted

Home Mortgage Interest

Note: Real estate taxes may be reported in Box 5 and should be

entered on Line 6

Home Mortgage Interest in TaxWise (Click on the Schedule A in the Loaded Forms Menu)

Enter the amounts for: Home

mortgage interest and points (10)

Nondeductible Interest

Personal interest • personal loans• car loans• credit cards• etc.

Casualty and Theft Losses

Out of Scope!

Miscellaneous Deductions Schedule A, Lines 21-28 Union dues Uniforms (that cannot be worn in any other

circumstance) Professional books, journals Small tools and supplies, used for business Employment-related educational expenses

• Includes educator expenses > $250 (after the adjustment) Expenses for looking for a new job Tax preparation fee from last year Safe deposit box Gambling losses up to amount of winnings

Miscellaneous Deductions in TaxWise (Click on the Schedule A in the Loaded Forms Menu)

Enter the amounts and descriptions for: Employment: job

travel, union dues, job education, literary journal for work, educator expenses (21)

Tax prep fees (22) Safe deposit box (23) Miscellaneous: literal

journal not for work, gambling losses from W2-G (28)

Nondeductible Expenses

Burial or funeral expensesWedding expensesFees and licensesFines, penalties, traffic ticketsHome repairs and insuranceRent Insurance premiums (except health and

mortgage)Losses from sale of home

Example

Are the following expenses deductible?1. Medical insurance premiums2. Vitamins3. Federal income tax4. Interest on car loan5. Church contribution6. Tax preparation fee from last year

Example

Are the following expenses deductible?1. Medical insurance premiums - YES2. Vitamins3. Federal income tax4. Interest on car loan5. Church contribution6. Tax preparation fee from last year

Example

Are the following expenses deductible?1. Medical insurance premiums - YES2. Vitamins - NO3. Federal income tax4. Interest on car loan5. Church contribution6. Tax preparation fee from last year

Example

Are the following expenses deductible?1. Medical insurance premiums - YES2. Vitamins - NO3. Federal income tax - NO4. Interest on car loan5. Church contribution6. Tax preparation fee from last year

Example

Are the following expenses deductible?1. Medical insurance premiums - YES2. Vitamins - NO3. Federal income tax - NO4. Interest on car loan - NO5. Church contribution6. Tax preparation fee from last year

Example

Are the following expenses deductible?1. Medical insurance premiums - YES2. Vitamins - NO3. Federal income tax - NO4. Interest on car loan - NO5. Church contribution - YES6. Tax preparation fee from last year

Example

Are the following expenses deductible?1. Medical insurance premiums - YES2. Vitamins - NO3. Federal income tax - NO4. Interest on car loan - NO5. Church contribution - YES6. Tax preparation fee from last year -

YES

Itemized Deductions (Alabama Return)

If the taxpayer is itemizing deductions on the Federal and State returns or if the taxpayer is just itemizing on the State return, you always enter the itemized deductions on Sch A on the Federal return.• Never start to itemize on the AL A.• It is okay to leave the deductions on the Federal

return even if the taxpayer does not have enough to itemize, because there is a good chance he/she can itemize on the State return.

All of the information from the Sch A carries over to the AL A.

Itemized Deductions (Alabama Return)

All information will carry over from the Sch A to the AL A, but you will need to add a description if there is an amount listed on line 8 of the AL A.• Usually is the property tax and/or ad

valorem tax.• Put multiple descriptions if necessary.


Line 40: Itemized Deductions


Paperwork to be filled out and returned to trainer (signed):• Campus Fellow Contract• Media and Publicity Release Form• Volunteer Information Form• Acknowledgement of Risk and Release from Liability

Form• Volunteer Standards of Conduct Agreement (Form

13615)• Confidentiality, Inventions and Property Agreement• W-9• Gas Reimbursement/Meal Reimbursement (if

applicable)


Please bring back ALL training material to your

scheduled B session!

2014 – 2015Campus Fellow Intermediate &

Advanced Tax TrainingB Session



Education Credits

Offset higher education expenses paid during the year • The student can be taxpayer, spouse, or

a dependentTwo types of credits available:• American Opportunity Credit

40% (up to $1,000) is refundable

• Lifetime Learning CreditNonrefundable credit

Education CreditsTuition amounts paid by the taxpayer

are reported on a 1098-T and can be entered as a credit.

Education Credits: Eligibility

Filing status cannot be MFSCannot be claimed as a dependent on

someone else’s returnQualified expenses: tuition and fees

required for enrollmentAccredited institutionCAN claim on the basis of expenses paid

with student loansTaxpayer / student will often receive Form

1098-T

Expenses That Do Not Qualify

Room and board InsuranceMedical expenses (including student

health fees)Transportation costsPersonal, living or family expenses Expenses for a course involving sports,

games or hobbies, unless it is required for the degree/certificate

Education Credits: Dependents

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 exemptionIf the taxpayer claims the dependency

exemption, any amount paid by the student is considered to have been paid by the taxpayer

American Opportunity

(Hope) Credit

Lifetime Learning Credit

Up to $2,500 per eligible student Up to $2,000 credit per return

Available for the 1st 4 years of college

Available for all years

Student must be pursuing a degree or recognized education

credential

Student does not need to be pursuing a degree or credential

Student must be enrolled at least half time Available for one or more courses

No felony drug conviction on student’s record

Felony drug conviction does not apply

Expenses include tuition, fees, and course materials

Expenses include only tuition and fees

Qualified Expenses for Credit

American Opportunity (Hope) Credit• Qualified tuition and related expenses

up to $4,000 per eligible student• Includes expenses for course materials

(books, supplies, and equipment needed for a course of study, whether or not they were purchased from institution)Link: Line 49 8863 Pg. 1

Qualified Expenses for Credit

Lifetime Learning Credit• Expenses include only tuition and fees• Course-related books, supplies and fees

are included ONLY if they must be paid to the institution as a condition of enrollment

Link: Line 49 8863 Pg. 2

Education Credits: No Double Benefits

The taxpayer CANNOT claim • Both the American Opportunity (Hope)

and Lifetime Learning credits for the same qualified tuition expenses

• Expenses paid with a tax-free scholarship, grant, or other assistance, including Pell grants (in other words, the taxpayer must subtract these scholarships from the total expenses before claiming either credit)

Qualified Expenses

IMPORTANT!Verify with the taxpayer that the

amount in Box 1 or 2 of Form 1098-T is actually the amount paid in the current tax year for qualified expenses!

Payments for the Next Academic Year

Taxpayers can claim payments prepaid for the academic period that begins in the first three months of the next calendar year.

Example:• Michael pays $1,500 in December 2014 for the

winter semester that begins in January 2015. • He can use the $1,500 paid in December 2014

to compute his credit for 2014. • However, he cannot count the $1,500 again on

his 2015 return.

Determining the Amount of the Credit

Review the list of qualifying students and expenses and decide which credit is best.

Enter each qualifying student and SSN on Form 8863

Enter the students’ qualifying expenses• Include only qualified expenses• Are reduced by untaxed benefits (scholarships,

grants, etc.)• Are reduced by amounts paid in previous years• Do not exceed the limit for the credit

Education Credits in TaxWise



Line 23:• Yes Lifetime Learning (Line 31)• No American Opportunity (Line 24)


OR

Example

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?

Example – Answer

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

ExampleLaQuandra is a sophomore enrolled at UAB full-time. She provides all of her

own support. She paid $10,000 in 2013 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?

Example – Answer

YesAmerican Opportunity

Qualified expenses = $6,000 ($4,000)


1) Basic Training Refresher 2) Alimony 3) State Tax Refund 4) Business Income 5) Retirement Income (with taxable amount) 6) Adjustments to Income 7) Itemized Deductions 8) Education Credit 9) Foreign Tax Credit 10) Residential Energy Credit

Foreign Tax CreditTaken if a taxpayer paid income tax to a

foreign country; U.S. possession; or political subdivision, agency, or instrumentality of a foreign country.

Foreign tax paid > $300 is out of our scope!

We may see some foreign tax reported on a 1099-DIV in Box 6.

Enter the amount of foreign tax paid on Form 1040, Line 47

Form 1099-DIV


Line 27: Foreign Tax CreditLine 49: Education Credit

Advanced Training

1) Credit for the Elderly or Disabled 2) 1st Time Homebuyer Credit Repayment 3) Unreported Tips (& Social Security/Medicare

Taxes) 4) Retirement (taxable amount not determined) 5) Sale of Stock 6) Sale of Home 7) Schedule K-1 8) Injured Spouse/Deceased Taxpayer 9) Rental Income 10) Finishing the Return 11) Additional Responsibilities

Elderly & Disabled Credit: Schedule R

Taxpayer is • Over 65 AND/OR• Retired and on disability benefits before the

mandatory retirement ageElderly are seldom eligible because of

income limits.Mandatory retirement age is set by a

taxpayer’s employer.TaxWise automatically calculates this

credit on a Schedule R.

Schedule R in TaxWise

TaxWise will calculate this credit if the date of birth is provided.

Be sure to include the taxpayer’s Social Security benefits, regardless of their taxability, to ensure the calculation is correct!

Link: Line 53 Sch R

Advanced Training



Line 59b: Repayment of First-time Homebuyers Credit (Form 5405)

Individuals who took $7,500 credit in 2008 to buy a home had to begin to repay in 2010

At least $500 (1/15 of that owed) has to be paid and reported in “Additional Taxes” section on Line 59b

Link: Line 59b 5405 Pg. 2

Filling Out Form 5405

Line 1: If the taxpayer ceased using the home as the main home, enter the date

Line 4: Enter the amount of credit claimed

Line 5: Enter the amount of credit repaid in prior years

Line 8: Enter the amount the taxpayer is repaying for the year; has to be at least $500

Form 5405 in TaxWise

Form 5405 in TaxWise

Advanced Training

1) Credit for the Elderly or Disabled 2) 1st Time Homebuyer Credit Repayment 3) Unreported Tips (& Social

Security/Medicare Taxes) 4) Retirement (taxable amount not determined) 5) Sale of Stock 6) Sale of Home 7) Schedule K-1 8) Injured Spouse/Deceased Taxpayer 9) Rental Income 10) Finishing the Return 11) Additional Responsibilities

Line 7: Wages, Salaries, TipsForm W-2 (Unreported Tips)

Reported Tips

Tips totaling more than $20/month • Usually reported to employer• Already totaled in Box 1 of Form W-2.

Allocated tips of any amount• Appear in Box 8 of W-2

Tips not reported to employer• Must be reported to the federal

government on a Form 4137

Tips

If taxpayers have jobs in which tips are normally received (waiter, bellhop, hotel housekeeper, etc.), make sure to ask about any tips received.• >$20/month at one job and reported to employer:

Appear on W-2, boxes 1, 5 and 7

• >$20/month at one job and not reported:Report on line 4 of Form 4137Subject to SS and Medicare taxes

• <20/month at one job and not reported:Report on line 5 of Form 4137NOT subject to SS and Medicare taxes

Line 7: Tips Not Reported (Form 4137)

Link: Line 7 Form 4137(Enter in unreported tips on

Line 4 or Line 5)

Unreported Tips (SS and Medicare Taxes)

Unreported tips entered on Form 4137 will display on Line 7, Form 1040

Form 4137 also calculates the employee portion of social security and Medicare taxes.

These taxes will automatically display on Line 57, Form 1040

Advanced Training

1) Credit for the Elderly or Disabled 2) 1st Time Homebuyer Credit Repayment 3) Unreported Tips (& Social Security/Medicare Taxes) 4) Retirement (taxable amount not determined) 5) Sale of Stock 6) Sale of Home 7) Schedule K-1 8) Injured Spouse/Deceased Taxpayer 9) Rental Income 10) Finishing the Return 11) Additional Responsibilities

Taxable Portion (Retirement)

Depending on employee contributions, income from retirement plans can be:• Fully taxable• Partially taxable• Not taxable

Determining the Taxable Portion

Typically, the taxable amount is reported in Box 2a of the 1099-R

If not, use the Simplified Method to calculate the tax-free portion of each pension payment

Form 1099-R

If the taxable amount is NOT determined in Box 2a, use the Simplified Method!

The Simplified Method

If the taxpayer made after-tax contributions toward the pension, a portion of the annuity payment is not taxable.

The Simplified Method calculates the non-taxable amount.• Generally, if the starting date of the payments

was prior to July 2, 1986, the Simplified Method would not apply.

• If the taxpayer used the 3-year rule, the annuity is fully taxable. If he used the general rule, refer him to a professional tax preparer.”

Info Needed to Use Simplified Method

Cost in plan at start date (from 9b of 1099-R)

Age of retiree (and spouse if a joint annuity) at start date

Number of months for which payments were received in 2014

Amount recovered tax free in prior years (if applicable)

If You Are Missing Information

Age of retiree (or spouse) at starting date:• Look at past year returns and confirm

with taxpayer• Consult with the IRS• Call administrator of the plan (find

phone number on 1099-R or online)Amount that has already been

excluded:• Look at previous year’s return

Simplified Method

Enter in the amounts for: Line 1: Cost in plan

at start date from 9b of 1099-R

Line 2: Age at start date

Line 4: Number of months payments were received in 2014

Line 5: Amount recovered tax free in prior years

Simplified Method

Do NOT enter an amount if Box 2a of the 1099-R in TaxWise if the amount was blank on the actual 1099-R form.

TaxWise will calculate the taxable portion from the Simplified Method and will carry it over to Form 1040, line 16b.

Remember: You need to determine if the plan is defined

benefits/contributions. Check Box 1 if it is defined benefits.

Advanced Training



Investment Income

Investment property produces investment income in the form of:• Interest• Dividends• Capital Gains

What are Capital Gains?

Sale, exchange, or redemption of mutual fund shares• Sale of stock!• Reported on a 1099-B

Sale:Transfer of shares for

money

Exchange:Transfer of shares for

other shares

Redemption:Fund

reacquires shares in exchange for money

or property

Form 1099-B

Sale of Stock

Gain = Amount Realized – Adjusted Basis

In Layman’s terms...

Gain = Money You Get – Money You Paid

Basis: original cost of the asset Adjusted Basis: original cost of the shares of stock

increased or decreased to account for commissions, fees, depreciations, etc.

Determining Gain or Loss

Gain: amount realized is GREATER than adjusted basis

Loss: amount realized is LOWER than adjusted basis

Needed Information from 1099-B

Basis or Adjusted BasisHolding Period• Long or Short Term

Proceeds from Sale

If any of this information is missing from the 1099-B, contact the

stockbroker; if the basis cannot be determined, the basis is zero.

Determining Adjusted Basis

INCREASE adjusted basis per share for• Commissions• Fees

DECREASE adjusted basis per share for• Stock dividends• Stock splits

Inherited property = FMV of property on date of decedent's death

Gross vs. Net Proceeds

Gross proceeds• Commissions/fees not already included• Preparer must add them to the basis

Net proceeds• Adjustment has already been made

Remember: Basis must be adjusted for commissions/fees for

purchase OR sale

Gross vs. Net Proceeds

If the Gross Proceeds Box is checked, report the broker’s commission/fees on

Form 8949 Pg 1, Column g

Holding Period

Holding period starts the day after the property is acquired and continues through the day it is sold

Short Term:held for one year or less

Long Term:held for more than one year

Inherited property is ALWAYS long term

Determining Shares Sold

Specific Share Identification• Taxpayer CAN identify which shares

were sold (received written confirmation from broker)

• Basis = adjusted basis of specific sharesFirst In, First Out (FIFO)• Taxpayer CANNOT identify which shares

were sold• Basis = adjusted basis of oldest shares

Reporting Income from Sale of Stock

Information from a 1099-B is reported on Sch D

Information from sale of stock may also be reported on a statement from the investment company

Reporting Income from Sale of Stock

Line 13 (short term)

Sch D Pg 1

1b, 2, or 3

8949 Pg 1 (A, B, or C)

1a

Cap Gn Wkst

Line 13 (long term)

Sch D Pg. 1

8b, 9, or 10

8949 Pg 2 (A, B, or C)

1a

Cap Gn Wkst

Reporting Sale of Stock: Short Term

Line 13 (short term)

Sch D Pg 1

1b, 2, or 3

8949 Pg 1 (A, B, or C)

Link from 1b: 1099-B has basis reported (A)Link from 2: 1099-B does not have basis reported (B)Link from 3: sale of stock is NOT reported on a 1099-B (C)


This is the 8949 Pg 1 – Do NOT type anything on this form

Line 1a

Cap Gn Wkst

A separate 8949 Pg 1 must be completed for each type of A, B, or C transaction


(a): from box 9 of 1099-B

1099: enter A, B, or C TSJ: taxpayer,

spouse, or joint (b): from box 1b of

1099-B (c): from box 1a of

1099-B (d): from box 2 of

1099-B (e): from box 3 of

1099-B (g): enter in

commissions/fees (unless reflected in box 2 of 1099-B)

Reporting Sale of Stock: Long Term

Line 13 (long term)

Sch D Pg 1

8b, 9, or 10

8949 Pg 2 (A, B, or C)

Link from 8b: 1099-B has basis reportedLink from 9: 1099-B does not have basis reportedLink from 10: sale of stock is NOT reported on a 1099-B


This is the 8949 Pg 2 – Do NOT type anything on this form

Line 1a

Cap Gn Wkst

A separate 8949 Pg 2 must be completed for each type of A, B, or C transaction


(a): from box 9 of 1099-B

1099: enter A, B, or C TSJ: taxpayer,

spouse, or joint (b): from box 1b of

1099-B (c): from box 1a of

1099-B (d): from box 2 of

1099-B (e): from box 3 of

1099-B (g): enter in

commissions/fees (unless reflected in box 2 of 1099-B)

Remember: Form 8949

Different types of transactions:• A: Basis reported on a 1099-B• B: Basis not reported on a 1099-B• C: 1099-B not received

A taxpayer with different types of transactions must file separate

8949s

Sch D in TaxWise

Part I: Short Term Capital Gains/Losses

Part II: Long Term Capital Gains/Losses

Part III: Summary

Sch D is where the information carries over to and the aggregate

GAIN or LOSS is reported

Carryover Losses

Loss that can be claimed in one year is the lesser of• The total loss OR• $3,000 ($1,500 if MFS)

Unused portion of loss can be carried over from year to year until total loss is claimed• Remains long term or short term• If not claimed in some year, unused loss is decreased

by the amount that should have been claimedReport carryover losses on Sch D Pg 1• Line 6 (short term) or line 14 (long term)

Reporting Carryover Losses: Sch D

Mutual Funds

Taxpayer will receive Form 1099-DIV and 1099-B• 1099-DIV reports capital gain distributions• 1099-B reports sale of shares in the mutual fund

itselfUse cost basis OR average basis• If elected, average basis must be used for all

accounts in the same fund in all succeeding years (this must be determined by broker)

Capital gains are reported on 1099-DIV• Enter on dividend statement; TaxWise will transfer

amount to Sch D

For more information, see Publication 550

Worthless Securities

Worthless securities: stocks or bondsNo reasonable hope that investors

will get anything for their holdingEven if only worth pennies, shares

are not worthlessTreated as if sold on the last day of

the tax yearOut of scope for VITA!

Sale of Stock: Out of Scope! Stock received as a gift Stock received as a part of Employee Stock Option

Plan Inherited stock with basis calculated other than using

date of decedent’s death Bonds or other tax-exempt holdings with basis not

determined

If the decedent died between December 31, 2009 and January 1, 2011 the basis of the inherited property is

neither the adjusted basis to the buyer nor the FMV at the time of death.

Refer any taxpayers with stock inherited from a 2010 decedent to a paid preparer.

Sale of Stock - Review

If the basis cannot be determined, what amount is reported as the basis?• ZERO!

How do you determine the adjusted basis for inherited property?• FMV of the property on date of decedent’s

deathHow do you determine if inherited

property is long term or short term?• Inherited property is always long term!

Sale of Stock - Review

If a taxpayer CANNOT identify which shares were sold if he/she has multiple forms of stock, how do you determine which shares to report?• FIFO (First in, first out)

True or False: If a taxpayer has different types of transactions (A, B, and C), he/she can report all types on the same 8949 form• FALSE: A taxpayer with different types of

transactions must file separate 8949s

Example

John bought 100 shares of ABC stock at $10 each in 2004. Then, he bought 50 additional shares at $12 each in 2005. He had to pay a commission of $50 to acquire

the 2005 stocks. What is his basis in the ABC stock?

Example - Answer

John bought 100 shares of ABC stock at $10 each in 2004. Then, he bought

50 additional shares at $12 each in 2005. He had to pay a commission of $50 to acquire the 2005 stocks. What

is his basis in the ABC stock?(100 shares x $10) + (50 shares x $12) + $50

commission = $1,650

Example

On March 15th, Bill bought 1,000 shares of stock for $15,000, including

commission. On March 15th, one year later, he sold 600 shares of the stock for $7,800, net proceeds (shown on a Form 1099-B). Is this short term or long term? Is this a loss or a gain?

Example - Answer

On March 15th, Bill bought 1,000 shares of stock for $15,000, including

commission. On March 15th, one year later, he sold 600 shares of the stock for $7,800, net proceeds (shown on a Form 1099-B). Is this short term or long term? Is this a loss or a gain?

Short term loss:$7,800 – [($15,000 ÷ 1,000) x 600] =

$(1,200)

Example

1991 100 shares$10/each



In 2014, Alice sold 150 shares, but cannot identify which shares she sold. Which shares do we assume that she

sold, and what is the basis?

Example - Answer

1991 100 shares $10/each1992 200 shares $11/each1993 100 shares $9/each

In 2014, Alice sold 150 shares, but cannot identify which shares she sold. Which shares do we assume that she sold, and what is the basis?

100 shares from 1991 and 50 shares from 1992

BASIS = (100 x $10) + (50 x $11) = $1,500FIFO!

Example

Ruth bought 200 shares of XYZ stock for $600. She paid a $50 fee to

acquire the shares. She sold all of the shares for $900. She paid a 5% ($45)

commission to sell the shares. Her 1099-B lists gross proceeds of $900. What is the adjusted basis? What is

the gain/loss?

Example - Answer

Ruth bought 200 shares of XYZ stock for $600. She paid a $50 fee to

acquire the shares. She sold all of the shares for $900. She paid a 5% ($45)

commission to sell the shares. Her 1099-B lists gross proceeds of $900. What is the adjusted basis? What is

the gain/loss?Adjusted Basis = $600 + $50 +

$45 = $695Gain = $900 – $695 = $205


Briefly review Elderly Credit, Homebuyer Repayment and Tips Forms

Line 16: Pensions & Annuities• Retirement Services Program• Alpine Pension Fund

NOTE: The IRA box should NOT be checked on the Alpine Pension Fund 1099-R

Line 13: Sale of StockLine 9

Advanced Training



Sale of Home

Taxpayers can exclude $250,000 ($500,000 if MFJ) of the gain from taxable income• If they meet Ownership AND Use tests• Not excluded gain in two years prior to

current sale of homeIf the taxpayer can exclude all of the

gain, it is not necessary to report the saleA loss cannot be deducted, but taxpayers

still need to report the loss

Ownership and Use Tests

In the 5 years preceding date of sale, taxpayer must:• Own the home for at least 2 years (either

spouse if MFJ)• Live in the home as his/her main home for

at least 2 years (both spouses if MFJ)Can be different 2-year periods

Important: If either spouse does not meet requirements, it is OUTSIDE THE

SCOPE OF VITA

Determining Main Home

Taxpayers CANNOT choose their main home!• Must live in the home most of the time• In same location as place of

employment, organizations, church, banks

• Other family members live there• Address for bills and homestead

exemption• Address listed on tax returns, driver’s

license, car registration, voter registration

Reporting the Gain

GAIN = AMOUNT REALIZED – ADJUSTED BASIS

Selling Price: Total amount received from saleAmount Realized: Selling Price – Selling

expensesBasis:

• The price of purchase OR• FMV on date of decedent’s death (inherited property)

Adjusted Basis: Additions/improvements useful life > 1 year (pool, roof, additional room, etc.)

Reporting the Gain

Gains are NOT reported unless greater than the exclusion amount!• Unless taxpayer receives 1099-S

(reported, but not taxed)• Report on Part II of Schedule D (Long

Term Gains)CANNOT deduct losses:• If taxpayer receives a 1099-S, he/she

must report a loss of “0” on Sch D

Reporting a Loss on Sale of Main Home

If a taxpayer has a loss on the sale of a main home and a 1099-S was received, you must report the loss on Form 8949 even though it is NOT DEDUCTIBLE

Link: Line 13 Sch D Pg 1 line 10 8949 Pg 2 Cap Gn Wkst

Advanced Training



Schedule K-1

Reports the taxpayer’s share of income or distributions from partnerships, S Corporations, and some estates & trusts

The only Sch K-1 Income in our scope:• Interest• Dividend• Capital Gain/Loss• Royalty Income

Schedule K-1

Types of Income on Sch K-1

Type of Income Where to Report

Taxable Interest8a Sch B 1b

Interest Stmt

Tax Exempt Interest8a Sch B 1b

Interest Stmt

Dividends9a Sch B 5a

Dividend Stmt

Capital Gains/Losses Sch D (see slide 256)

Royalties17 Sch E Pg 1 1*C K1 P/S Pg 1 Line 7/6

Reporting Tax Exempt Interest

Link: Line 8a Sch B Interest StmtEnter in E for NAEOBEnter amount from Box 8 of 1099-INT

or from the Schedule K-1 to NAEOB amount

Reporting Royalties

Link: Line 17 Sch E Pg 1 1*C K1 P/S Pg 1• Enter the name of partnership or S

Corporation• Indicate P/S (for partnership/S Corporation)• Enter Federal ID number• Enter amount from Box 7 of Sch K-1 to Line

7/6

Sch K-1: Out of Scope Topics

Any income NOT listed on the previous slide!

Seller-Finance Mortgages

If a taxpayer is collecting payments on a seller-financed mortgage, the interest received on the loan must be reported as income.

Link: Line 8 Sch BEnter information in Part 1a: Seller-

financed mortgages

Seller-Finance Mortgages

Enter the buyer’s name, address and social security number

Enter the amount of interest received on the loan

Advanced Training



Deceased Taxpayer

Though it is best to see a will in order to make sure that the person filing for the decedent is doing so properly, it is not necessary• We can trust an individual who claims to

be the personal representative of the decedent

If a taxpayer died in 2014 or 2015, we can e-file their return

Deceased Taxpayer

“Name line 2” must be completed on the Main Info sheet with the name of the person filing the return for the deceased person• Type the percent (%) sign, followed by a

space followed by the name• This may be the surviving spouse if married

filing jointly, or a personal representativeComplete the tax return as normalThe representative also needs to put

his/her own address on the form

Injured Spouse

If a taxpayer wishes to file MFS to avoid an offset of their refund against their spouse’s outstanding debts, suggest they file Form 8379, Injured Spouse Allocation

When a joint return is filed and only one spouse owes a past-due amount, the other spouse can be considered an injured spouse• Debts may include past due child support,

student loans, or tax liability

Injured Spouse

The injured spuse:• Must not be legally obligated to pay the

past-due amount AND• Must have made and reported tax

payments or claimed a refundable tax credit

If eligibility requirements are met, injured spouses may file Form 8379 to receive their share of the refund

Advanced Training



Rental Income

Payment received for renting a room or a home to a tenant is rental income reportable on Form 1040, Sch E

Gross rental income may include:• Ordinary rental payments• Advanced rent• Security deposits• Payments for breaking a lease• Expenses paid by the tenant

Rental income is OUT OF SCOPE!

Note: Confirm that taxpayer has NO rental income before completing the

rest of the return.

Estimated Tax Payments

If tax due on certain income (self-employment, capital gains, royalties, etc.) exceeds certain limits, estimated tax must be paid quarterly by the taxpayer

Also, taxpayers can apply a refund to the following year’s tax return

Check previous year’s return and enter the amount of 2014 estimated tax payments and amount applied from 2013 return on Line 63

Estimated Tax Payments


Line 8: Seller-financed MortgagesLine 63: Estimated Tax PaymentsAlabama ReturnDirect Deposit Information

Advanced Training



Finishing the Return

Quality Review

Run Diagnostics

Run Diagnostics

Correct all errors and then run the diagnostics again to make sure all errors were corrected

Also pay attention to the warnings and overridden entries

Do NOT create E-File (ONLY your site coordinator should do this)

Finishing the Return

After you run diagnostics:• Make sure the preparer and quality reviewer names

are listed on the I/I Form• Note the status of the return on the I/I Form• Print return (1 if E-Filing & 2 if paper filing)• Assist with payment (voucher, addressing

envelope…)• Advise taxpayers they are ultimately responsible

for all information provided• Taxpayer and spouse must sign and date federal

and Alabama returns• File I/I Form in filing box

Do NOT keep any personal documents!

Advanced Training



Additional Duties

Volunteer organizationCrowd controlAppointment confirmation

Volunteer Organization

Make sure that everyone signs in• Set a good example

Place volunteers in stationsPartner volunteers in such a way that

they are both comfortable and competent

Keep volunteers busyEnforce “Volunteer Etiquette”

Crowd Control

Make sure each taxpayer signs in at the door

Direct taxpayers to the Intake and Interview forms

Place taxpayers with available volunteers

Questions?

You may complete the Campus Fellow Training Exercise #2 (Mark Austin) on your own for extra practice

If you have any questions after this training, please email our Training Coordinator, Seth Nelson ([email protected])

mailto:[email protected]

Documents

2014 – 2015 Campus Fellow Intermediate & Advanced Tax Training A Session