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TAX-AIDE
TAX-AIDE
Other Taxes
Pub 4491 – Part 6 – Lesson 28 Pub 4012 – Tab H
TAX-AIDE
Other Taxes
● Self-employment tax
● Social security and Medicare taxes on tip income
● Additional taxes on IRAs and other qualified retirement plans
● Repayment of first-time homebuyer credit
● SRP for health insurance—See Lesson 3
Not reduced by nonrefundable credits
NTTC Training – TY2015 2
TAX-AIDE
Self-employment Tax
● A tax in addition to the income tax
● Composed of two elements Social security Medicare
● TaxWise does it automatically when data entered on Schedule C
NTTC Training – TY2015 3
TAX-AIDE
Self-employment Tax
● Applies if net income from self-employment is $400 or more
● Does not apply to a Notary Public
● Does not apply to statutory employee (already withheld on W-2)
● Special rules for ministers or church workers – out of scope
NTTC Training – TY2015 4
TAX-AIDE
Self-employment Tax
● The additional tax:The tax Form
In TaxWise
NTTC Training – TY2015 5
TAX-AIDE
Self-employment Tax
Social Security portion 6.20%
+ Medicare portion 1.45%
= 7.65%
x 2 = 15.30%
Both employer and employee portions paid by self-employed person
NTTC Training – TY2015 6
TAX-AIDE
Self-employment Tax
“Employer” part is deductible in computing the self-employment tax
Profit from business $10,000Employer part (7.65%) 765Net $ 9,235Tax rate (combined) 15.3%Tax $ 1,413
TaxWise does the math on Sch SE!
NTTC Training – TY2015 7
TAX-AIDE
Self-employment Tax Adjustment
● The deductible portion of the tax (the “employer’s” part) – Form 1040 Line 27:
● TaxWise does it automatically!
NTTC Training – TY2015 8
TAX-AIDE
Self-employment Taxes
Special situation:
●Notary public – no Self-employment tax
Input exempt net profit from notary business on Sch SE Line 3
NTTC Training – TY2015 9
TAX-AIDE
Self-employment Tax
● Notary Public Also check box on 1040 Pg 2 Line 57
NTTC Training – TY2015 10
TAX-AIDE
Tip Income
● Tip income included in W-2 Box 7 already had FICA and Medicare taxes withheld
● Allocated tips shown in W-2 Box 8 have not
TaxWise automatically calculates add’l FICA and Medicare taxes on Form 4137
NTTC Training – TY2015 11
TAX-AIDE
Unreported Tip Income
● If employee keeps good records (tip log available free from IRS) Can enter actual amount of all tips on
Form 4137 instead of allocated tip amount
Will need to use a scratch page to adjust line 4 of Form 4137
NTTC Training – TY2015 12
TAX-AIDE
Unreported Tip Income
If tips <$20/month were not reported to employerPresumed included in allocated tips for
income tax purposes and Not subject to social security / Medicare
tax (Form 4137 Line 5)
NTTC Training – TY2015 13
TAX-AIDE
Tip Income – Self-Employment
If self-employed, enter tips on Sch C with other business income
NTTC Training – TY2015 14
TAX-AIDE
Add’l Tax on Tips
● Based on entries in Form 4137, TaxWise computes Social Security and Medicare taxes
● Carries additional tax amount to Form 1040 Line 58
NTTC Training – TY2015 15
TAX-AIDE
TAX-AIDE
Additional Tax on IRAs, etc.
Pub 4491 – Part 6 – Lesson 28Pub 4012 – Pages H-1 – H-2
TAX-AIDE
Additional Tax on IRAs, etc.Form 5329
● Distributions before 59½ not rolled-over(“early distribution”) (Pt I) – 10%* additional tax
● Required Minimum Distribution (RMD) not taken after 70½ (Pt IX) – 50% additional tax
There are exceptions
* 25% for SIMPLE IRAsNTTC Training – TY2015 17
TAX-AIDE
Additional Tax on IRAs, etc.Form 5329
● Other parts of Form 5329 are out of scope: Part II: 10% tax on education and ABLE
accounts Parts III – VIII: 6% tax on excess
contributions to various qualified accounts not removed by due date of return
NTTC Training – TY2015 18
TAX-AIDE
Form 5329 in TaxWise
2015
NTTC Training – TY2015 19
TAX-AIDE
Part I: Early Distribution Exception Codes
● All plans (IRA and employer plans) 02 A series of substantially equal periodic
payments 03 Due to total and permanent disabled 04 Due to death 05 The amount paid for medical
expenses, minus >10% of AGI (or 7.5% if taxpayer or spouse age 65 or older) (same amount as would show on Sch A)
NTTC Training – TY2015
Pub 4012 H-2
TAX-AIDE
Part I: Early Distribution Exception Codes
● All plans (cont.) 10 Due to IRS levy 11 To reservists on active duty for 180
days or more 12 More than one exception code or
other reason (see form), including distributions incorrectly coded on form 1099-R
NTTC Training – TY2015
Pub 4012 H-2
TAX-AIDE
Part I: Early Distribution Exception Codes
● IRAs only: 07 The amount paid during the year for
individual health insurance premiums while unemployed (see rules in Pub 590-B)
08 The amount paid during the year for qualified education expenses (including room and board), more details in later slides
09 Used to buy or build first main home (must be used within 120 days of distribution)
NTTC Training – TY2015
Pub 4012 H-2
TAX-AIDE
Part I: Early Distribution Exception Codes
● Other than IRAs only (employer plans) 01 After separation from service after the
age of 55 (age 50 for public safety employee)
06 Made to an alternate payee under a Qualified Domestic Relations Order
NTTC Training – TY2015
Pub 4012 Tab H
TAX-AIDE
Part I: Early IRA Distribution Exception Code 08
● The amount of higher education expenses – special definition includes: For self, spouse, foster child, adopted child
or descendent of any of these Does not have to be a dependent!
Tuition, fees, books, supplies and equipment required to enroll or attend
Special needs services expenses for special needs student
NTTC Training – TY2015 24
TAX-AIDE
Part I: Early IRA Distribution Exception Code 08 (Cont)
● The amount of higher education expenses- special definition includes (cont.): If student is at least ½ time, room and
boardCan be at-home room and board!!
Reduced for nontaxable scholarships, grants or ESA distributions
See Pub 970 Chapter 9 for more details
NTTC Training – TY2015 25
TAX-AIDE
Part I Exercise
Joyce, age 50, has no medical insurance. She took a $10K distribution (code 1) from her traditional IRA in June 2015 when she broke her arm. Her total unreimbursed medical expenses for the year were $8K. Her AGI is $50K.Q: What, if any, is the additional tax due on
this distribution?
NTTC Training – TY2015 26
TAX-AIDE
Line Entry1 $10,000 [Early distribution included in income]
Part I Exercise Answer: $700
Line Entry1 $10,000 [Early distribution included in income]
2
Code 5 and $3,000 [Amount of early distribution not subject to additional tax] which is the $8,000 of Medical Expenses less 10% of her $50K AGI or $8,000 minus $5,000 = $3,000
Line Entry1 $10,000 [Early distribution included in income]
2
Code 5 and $3,000 [Amount of early distribution not subject to additional tax] which is the $8,000 of Medical Expenses less 10% of her $50K AGI or $8,000 minus $5,000 = $3,000
3 $7,000 [Amount subject to additional tax] which is $10,000 minus $3,000 from Line 2
Line Entry1 $10,000 [Early distribution included in income]
2
Code 05 and $3,000 [Amount of early distribution not subject to additional tax] which is the $8,000 of medical expenses less 10% of her $50K AGI or $8,000 minus $5,000 = $3,000
3 $7,000 [Amount subject to additional tax] which is $10,000 minus $3,000 from Line 2
4 $700 [Additional tax = 10% of Line 3]
NTTC Training – TY2015 27
TAX-AIDE
Part IX: Waiver Request for Failure to Take RMD
● Taxpayer can request waiver of the additional tax for failure to take Required Minimum Distribution (RMD) from qualified retirement plan, including traditional IRAs
Counselor NOT expected to review all taxpayer plans and verify that required distributions were taken
NTTC Training – TY2015 28
TAX-AIDE
Part IX: Waiver Request for Failure to Take RMD
● Taxpayer needs to remedy the distribution shortfall by taking an additional distribution Will result in more than one year’s
distribution in the year of remedy
● Then ask for waiver
NTTC Training – TY2015 29
TAX-AIDE
Waiver Request – Failure to Take RMD
● Part IX of Form 5329 pg 2
● Note: Select 5329 for taxpayer or spouse
NTTC Training – TY2015 30
TAX-AIDE
Part IX of Form 5329 pg 2From all plans – not just one(s) missed
Link to Explanation for Request of Waiver of Tax form and explain reason for request
NTTC Training – TY2015 31
Moved to Part IX for TY 2015
TAX-AIDE
Part IX of Form 5329 pg 2
● Possible explanations (examples): Clerical error (math goof) Relied on Trustee who failed to make the
RMD TP impaired by health Beneficiary not notified by Trustee that
RMD had not been taken
IRS accepts most reasonable explanationsNTTC Training – TY2015 32
TAX-AIDE
TAX-AIDE
First Time HomebuyersCredit Payback
TAX-AIDE
Intake/Interview – First Time Homebuyers Credit
● Did taxpayer receive FTHC in 2008
NTTC Training – TY2015 34
TAX-AIDE
First Time Homebuyers Credit Payback…
● Taxpayers who claimed First Time Homebuyer’s Credit in 2008 Started repayment in 2010 Continue to make payments until full
amount of credit is repaid
● Can look up amount of credit still owed on irs.gov
● Can pay more than the minimum due
NTTC Training – TY2015 35
TAX-AIDE
FTHC Payback – 2008
● In TaxWise – enter original credit claimed in 2008, amount repaid to date and amount paying with this return – Form 5405, Pt II
● Also add note to Taxpayer Diary or Taxpayer Reminder section of Prep Use form as reminder for next year
NTTC Training – TY2015 37
TAX-AIDE
Form 5405 in TaxWise
Total Credit Received in 2008
Credit repaid in previous tax years
Amount repaying in current tax year, usually $500 but can pay more
NTTC Training – TY2015 38
TAX-AIDE
FTHC Payback
● If disposed of home purchased in 2008 or home ceased to be main home, must generally repay balance of un-repaid credit with current tax return
● Complete Part I of Form 5405
NTTC Training – TY2015 39
TAX-AIDE
Exceptions
● If home sold to someone not related to taxpayer, repayment limited to gain on sale – Part III of Form 5405
● If home destroyed or sold through condemnation, and if new main home purchased within 2 years of event, can continue with annual payments (out of scope)
NTTC Training – TY2015 40
TAX-AIDE
Home Sold or No Longer Main Home
● If taxpayer and spouse claimed the credit on joint return, each must file a separate Form 5405 claiming half the credit (and half of any repayments) to notify IRS of status change
● If taxpayer claimed the credit on joint return for 2008 or 2010, but spouse died, enter half of credit (and half of any repayments) The remaining half (deceased spouse’s half)
does not have to be repaid
NTTC Training – TY2015 41
TAX-AIDE
Home Ceases to be Main Home
● Conversion to rental property; condemnation; foreclosure – Out of Scope
● See the general instructions for Form 5405 for additional repayment information
NTTC Training – TY2015 42
TAX-AIDE
Quality Review
● Self-Employment Tax Is the correct amount of self-
employment tax shown on 1040 Page 2 Is ½ of the tax deducted on 1040 Page 1
NTTC Training – TY2015 43
TAX-AIDE
Quality Review
● Early Withdrawal Penalty Verify Form 5329 not applicable if not
used Verify Form 5329 if used
● Verify First Time Homebuyers Credit if applicable – read instructions carefully
NTTC Training – TY2015 44
TAX-AIDE
Taxpayer Summary
● Explain any additional tax Type Amount Why
NTTC Training – TY2015 45
TAX-AIDE
Other Taxes
Questions?
Comments?
NTTC Training – TY2015 46