Lecture Day 2

What you should have!

• Class Syllabus• Publication 4491 Book• Publication 4491W

– Sample W-2, 1099– Quality Review Sheet– Basic , Intermediate, Advanced Practice Exercises– EIC Chart– Tax Tables– Blank Forms

• Test/Retest From 6744• Resource Guide Pub 4012

– Tax Law – White tabs– Tax Wise – Yellow tabs– Decision Trees

– Residency Status – page 9– Recovery Rebates – page 12/13– Who Must File – A-1– Children/Dependent file – A-1– Which Forms – A-3– Filing Status – B-2– Exemptions/Dependents – C-2– Income – D– Deductions – F– Credits – G– EIC - H

• Publication 17 – Index 274• 1040, 1040A, 1040EZ Booklets• Intake Form - Green

Credit or Community

• Must be registered for Acctg 155 to register for Acctg 156 for Spring 09.

• Acctg 155 – 2 units ( 5 weeks)• Acctg 156 – 1 unit (8 weeks)• If credit is not necessary can still volunteer as

a community member.

• Sign up for a volunteer site • Glendale AM - Saturdays• Glendale PM - Saturdays• South Pasadena Senior Citizen Center (Thursday)

VITA Courses Matrix – Acctg 155

• First Time VITA Students to learn Tax Law Basics

• Returning Students for Update on Tax Law• Class is repeatable – 2 units• Must Take before Acctg 156• Must pass IRS test every year• Offered in Winter Session only

Acctg 156 – VITA LAB

• Students who have passed VITA Lecture or Update

• Tax Return Preparation--- must pass IRS Test every year

• Repeatable 4 times – 1 unit

Acctg 157 – VITA Leadership

• Students that have taken Acctg 155 and 156 in the prior year.

• Group leaders for Acctg 156 students• Review tax preparation of group members• Must pass IRS Test every year• Repeatable 4 times – 1 unit• (VITA has become so big that the instructor

needs help from former students)

• It is very important that you assist only with returns, forms, and supporting schedules for which you have been trained and certified. If you go beyond your training, you risk making errors and causing difficulties for those you wish to help. Refer taxpayers with very complex returns, or with portions of returns that are beyond the scope of your training, to seek assistance from a paid professional tax payer.

Volunteer Agreement

• Standards of Conduct• Must have one from everyone to keep in the

file when IRS comes to check on us

• Volunteers are expected to complete the test on their own. Taking the test in groups or with outside assistance could prove to be a disservice to the taxpayer.

Testing and Certification

• Test is to be taken online at (pg iv of test/retest)

– www.irs.gov/app/vita/index.jsp

Must earn 80% on both Basic and IntermediateIf under 80% on Test you can retest. Must print out certificate so you can display it to the

client. I need a copy.

To Take Certification Test on line

• Complete both the test and retest manually.• Get on the website and start answering the

questions. • Make sure you write the number of the test

question on the test booklet. It will help you.• You have two times to pass each level for each

email address.• If you don’t pass it on the second time, use a

different email address.

• Once you pass, make a copy for yourself and one for my files.

• This certification is good to put on your resume.

Basic Process• Client signs in and receive Intake Sheet• Intake Sheet is given to Volunteer who is to confirm the

information and ask probling questions– verify the phone #. Tell them to return next week to sign and efile.

• If there are only a few clients you can work on the return at that time. Or it can be worked on later.

• Have group leader complete Quality Review portion of the intake form

• Will be using Taxwise to input data.• Print out return: 1) client 1) us w/ 8879• Can do prior years but can’t efile them.

Interview Process

• Important:– Ask if they are uncertain about any responses on

Intake Sheet– Avoid making assumptions– Confirm taxpayer’s identity– If more than you can handle• Ask for someone else to handle it• Courteously restate the scope of the program

Keep Records

• Summary Sheet to keep track of who did each clients return. Must keep track of the computer you used to enter the client’s data

• Put your name on the intake form as the preparer

• You will be correcting the returns you did so you can learn. Make sure you get the phone number so you can call for any correction or additional data.

Use Resource Guide

• Table 2 : Dependency pg C-5• Use guide to answer next question.

CPA Exam Question• Jim and Kay Ross contributed to the support of

their two children, Dale and Kim, and Jim’s widowed parent, Grant. Dale, a 19 year old full time college student, earned $4,500 as a babysitter. Kim, a 23 year old bank teller, earned $12,000. Grant received $5,000 in dividend income and $4,000 in nontaxable social security benefits. Grant, Dale, and Kim are U.S. citizens and were over one-half supported by Jim and Kay. How many exemptions can Jim and Kay claim on their joint income tax return?

• Jim and Kay = 2• Dale, 19, student = 1• Kim, 23, non student, over $3,500= 0• Grant, $5000 income = 0

• Answer is 3

Intake Sheet

• Get familiar with the form• Complete your own• Get group leader to do the quality review• Any questions• We keep the return and file the intake forms

alphabetically

Other INCOME

• Canceled Debt pg 82 Pub 17• Line 21 1040 pg 5

Chapter 10

•Adjustments to Income

Adjusted Gross Income (AGI)

Taxable Income- Adjustments= Adjusted Gross Income

Adjustments to Income

Educator expenses- line 23

• 1040 pg 26• K-12 educator• $250 per person maximum

EMPLOYEE Business ExpensesLine 24

• Form 2106 EZ – page 193 Comprehensive Problems & Exercises– Employee not self employed– Number of miles for business but still need

commuting and other– Mileage rate 48.5 cents

Misc Lines

• Early withdrawal of Savings – line 30• Alimony – It is included at compensation – line

31

• Lines 25-29: Health Savings, Moving expenses, Self employment tax, - not within VITA scope

Individual Retirement Terminology

• Contribution – What you pay into a IRA

• Distribution – When you take money out of an IRA

Individual Retirement Accounts (IRA)

• Contributions may result in an adjustment to lower your AGI—must be a traditional IRA

• Nontraditional are not adjustment to income.• Limits: $4,000 if under 50• $5,000 if over 50• Spouse has same limits example 6 pg 10-5• Pg 115 – pub 17

Traditional vs Non Traditional

• Traditional IRA – any IRA that is NOT a Roth or Simple IRA

• Roth IRA – a plan in which you pay tax on the contribution so you don’t have to when you get a distribution. Interest earned not taxable

• SIMPLE – tax favored retirement plan that certain small employers can set up for the benefit of their employees (Salary Reductions)

Compensation pg 10-4

• Includes: Wages, salaries, commission, tips, bonuses, professional fees, self employment earnings, alimony,

• Does not include: interest, rents, dividends, pension, annuity income, deferred compensation

• Exercise 1 pg 10-6

Modified Adjusted Gross Income (MAGI)

• AGI plus:– IRA deduction– Student Loan Interest– Other misc income pg 10-7

Nondeductible Contributions

• Not a deduction from taxable income• Interest earned will not be taxable until

distribution

• Can’t withdraw (distributions) before 59 ½

Limits if have an employer plan

• MFJ 83,000---103,000• S 52,000---62,000• MFS 10,000

• Exercise 2 – page 10-9• 8606 Exercise 3 pg 10-15

Student Loan Interest

• Maximum $2,500 adjustment• Should receive a statement• Loan can’t be from relative or employer• Student must be liable• Can’t claim if MFS• Limit – S or HOH less than $70,000• MFJ – less than $140,000• Pg 30- 1040 instructions

Deduction vs Credit

• Deduction reduces taxable earnings that you pay taxes on

• Credit reduces dollar for dollar of taxes

• 8917 – Tuition and Fees Deduction pg 10-21• 8863 – Education Credit pg 8-8

Jury Duty

• The amount you give to your employer• Line 36 Put “jury duty” on dotted line

Credits• Refundable Credit -- Even if you don’t need to

pay taxes you will get the remaining credit.• EIC – refundable credit – Example: EIC Credit is $1000. You owe $200 in tax,

you will get an $800 refund – *****************************************

• Nonrefundable Credit – Credit is only up to the

amount of tax you owe.– Example: CTC Credit is $1000. You owe $200 in tax,

you will NOT get an $800 refund. Only $200 will be used to reduce your taxes to $0.

Chapter 5 – Earned Income Credit

• Earned Income• Age 25 to 65• Social Security Number• Not MFS• Citizen or resident alien• No Foreign income excluded• Investments income less than $2,900• Not qualifying child: Relation, Age, Resident

Investment Income

Interest –taxable and non taxable – line 8Dividends – Ordinary -- line 9Capital gain- if loss enter 0 -- line 13

Earned Income Credit Limits

• (Less than $2,900 Investment income)

• Child Max Cr Span Max Cr Max Income*• None $428 $5,500--$7,000 $12,590• One $2,853 $8,350--$17,400 $33,241• Two $4,716 $11,750--$17,400 $37,783• Add $2,000 if MFJ See page 51 (1040) • 42 (1040A)

Other

• Earnings in Prison not earned income• Household employee pg 5-5 • Disability benefits are earned income to

minimum retirement age then pension(not earned)

Exercise 1 pg 5-11

• A. No - August 2007 is not more than 6 mos• B. No – MJS can’t claim EIC• C. Tina can claim the two. She can give

dependency and CTC to ex but not EIC• D. Yes, but not the Maximum• E. No- no dependent• F. 4,5,7

Exercises – pg 5-12• Exercise 2 – Answer C Dependent Child Tax Credit

-------------------- Earned Income Credit

Head of Household Dependent Care

Exercise 3 Answer D – must file joint

Exercise 4 – pg 5-20

• A. MFJ – 2+ children – Answer: $25,850 to $25,900 $2,929

B.$2,853C.$2,853

Advanced EIC

• W-5• Must file even if they are not otherwise

required• Line 61 (1040)• Or Line 36 (1040A)

Chapter 6 – Child Tax Credit

• Relationship• Under age 17• Citizen• More than ½ support• Lived with more than ½ year• Credit is $1,000 per child• Income Max: $110,000 MFJ/ $55 – MFS• $75,000 S, HOH, QW

Add’l Child Tax Credit

• 15% of Earned Income over $11,750 only up to the remaining amount not used in Child Tax Credit.

• Exercise 1 page 6-14• A. No• B. yes• C. yes• D. no

Page 6- 15 Example

• A dependent can’t claim a dependent

Chapter 4

•Deductions and Tax Computations

Standard Deduction

• If someone can claim you, it is the greater of:• $850 or• earned income + $300• Limited to $5,350Pub 17 pg 135/136

65 Blind- Single or HOH

• Add $1,300 for 65 if single or HOH• Add $1,300 for blind if single or HOH

Single, $5,35065 or over $1,300Blind $1,300 Std Ded $7,950 see page 136 Pub

17

65 BLIND- married or MJS

• Add $1,050 for 65 if married or MJS• Add $1,050 for blind if married or MJS

Married $10,70065 or over $1,050Blind $1,050 Std Ded $12,800 see page 136 Pub

17

Standard DeductionExercise 1 page 4-4

• A. $7,850• B. $5,350 + 1,300 = $6,650• C. $10,700 + $1,050 = $11,750• D. $5,350 + $1,050 = $6,400• E. $5,350• F. $2,500 +$300 = $2,800

Standard or Itemized

• Who should itemized – Pub 17 pg 135– If your deductions are more than the standard

deduction– Large medical/dental expenses– Taxes and interest on home– Large unreimbursed employee business expenses– Large casualty or theft loss– Large contributions

Change Mind

• Didn’t itemized but should have,--- what can you do?

• 1040X – amended return (no efile)

Married Filing Separately

• If one itemizes deductions, the other should itemize because he or she will not qualify for the standard deduction

• Pub 17 pg 135

Itemized Deductions-Sch A pg 4-19

• Medical/Dental – more than 7.5% agi• Taxes - Sales or Income• Interest/points/ mtg insur-• Charitable Contributions• Casualty/ Theft loss• Job Expenses, tax prep, Other (line 23) – more

than 2% agi• Other Misc• 1040 A-10 Limitations

Exercise 2 – pg 4-7

• Unreimbursed doctor’s bills600• Unreimbursed braces 800• Hospital Insurance 200• Life Insurance 400• Prescription medicines 400• Vitamins 100• Hospital bill (500 reimbursed) 100• Nonsmoking program 200

Sales Tax vs Income Tax

• Sales tax from table based on income plus Big ticket items. 1040 pg A-11

• Must choose which one will give you the greatest deduction.