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Welcome December Tax Training

For New Volunteers

6-8 Dec 2016

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Handouts

Presentation charts

Instructions for logging into 2015 TaxSlayer Practice Lab (training) are included

IRS Pubs or excerpts for studying

Mass Manual (includes 2 practice returns)

11 practice returns and answer key

Same set was provided to returning volunteers

We will focus on subset of these returns here

TaxSlayer related tools

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Purpose of This Training

Briefly discuss AARP Tax-Aide Program

Gain experience using TaxSlayer software

Complete typical Federal and MA returns from the set

of 13 returns given to returning volunteers

Discuss and apply Federal and MA basic tax laws

Understand how to use your resources; you do

not have to memorize or learn everything this

year

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AARP TAX-AIDE Program

Nationwide non-profit program administered by AARP Foundation

AARP Foundation is an IRS approved charity

Free confidential service

Helps low-to-moderate income taxpayers with special attention to age 60+

Prepare returns and answer tax questions

Funded by AARP Foundation and IRS

Has its own management structure

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AARP TAX-AIDE Program

Volunteers protected by Volunteer Protection Act of 1997; we are not liable provided

We stay within scope of program, receive training and get certified

Any error we make is not willfully committed

Volunteers are not identified on tax return copies; only IRS required location information

Travel insurance available (secondary)

Mileage can be reimbursed at end of season

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Where/How Do We Work?

Where

Senior Centers

Weekdays, daylight hours

Libraries

Evenings, weekends available*, also

Other (e.g., community centers)

Seeing taxpayers

By appointment mostly

Walk-in

* Dependent on volunteer availability

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Training & Reference Documents

IRS Pub 4491 - Student Training Guide (STG) Basic training source for Federal tax laws and rules

Follows 1040, line by line

Has many examples that illustrate laws

Refers extensively to other documents

Only available electronically

IRS Pub 4012 - Volunteer Resource Guide (VRG) Great reference for test and for preparing returns

Covers Federal tax law and how to use TaxSlayer software

IRS Pub 4961 Standards of Conduct – Ethics

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Training & Reference Documents

IRS Pub 5101 Intake/Interview and Quality Review

IRS Form 6744 - Volunteer Test/Retest Test problems, test/retest answer sheet, Volunteer

Agreement

Everyone (including client facilitators) takes Standards of Conduct test and Intake/Interview test

Preparers also must pass Advanced segment test

IRS Publication 17 - Your Federal Income Tax Used for more complex issues

2016 version not yet available (Jan 2017)

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Reference Documents & Websites

MA Form 1 Instructions

Covers MA tax rules and laws, line by line

MA Manual (MM) – Fall 2016

Covers MA unique tax laws and how to use TaxSlayer to complete MA returns

Websites

www.irs.gov

www.mass.gov/dor/

https://mataxaide.org

https://aarptaxaidema20.wordpress.com

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Suggested Study Approach

Look at test questions in Pub 6744

Volunteer Standards of Conduct, pages 11-14

Intake/Interview and Quality Review, pages 21-22

Advanced Test, pages 67-111

Identify what tax topics you are not familiar with

Use Pubs 4012 & 4491 as required to learn about tax law topics and try to answer test questions in Advanced test

Prepare tax returns using 2016 TaxSlayer software and answer test questions for returns (after Jan training)

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Suggested Study Approach

Read Pubs 4961 and 5101 as needed

Answer the questions about Standards of Conduct and how to use the Intake/Interview sheets

Tests will be discussed in January training

Submit paper test results (on-line test site not recommended for new volunteers)

More will be covered in January training

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Volunteer Standards of Conduct Excerpt

Do not accept payment or solicit business/donations Tips are considered payment

Do not knowingly prepare false returns

Ensure confidentiality, privacy and security

Keep taxpayer information strictly confidential – do not disclose to unauthorized individuals

Provide only in-scope tax assistance

Treat all taxpayers equally and professionally

Do not engage in unethical behaviour

Do not engage in conduct that is detrimental to program

Follow site leader’s instructions about site requirements

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Affordable Care Act (ACA) Basics

Taxpayer(s) and dependents must

Have Minimum Essential Coverage (MEC) health insurance each month, or

Have a coverage exemption, or

Make a Shared Responsibility Payment (SRP)

Taxpayers and dependents in class training problems have full time coverage

Government or Private insurance

Other ACA situations will be discussed in January training (practice problems in handout)

“Marketplace” purchased insurance – 1095-A Form

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Before Doing Return

Sort taxpayer paperwork

Review paperwork and Intake sheet

Ensure return is in-scope

Understand complexity of return

Look at prior year Fed and MA returns

Can reveal differences with current year

Need to understand/reconcile differences

Prior year may provide needed information

SSN’s, carryover losses, etc.

Engage taxpayer, as needed

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Courtney Smathers Return

17 yrs old, full time high school student

Lives with her parents who support her

Has W-2 from summer/after school work

Does she have to file Federal & MA returns?

4012, page A-1 & A-2; Mass Manual, page 1

Should she file Federal and MA returns?

4012, page A-3, chart D, item #1

What’s her filing status? 4012, page B-1

Can she claim herself? 4012, page C-2

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Introduction to TaxSlayer Practice Lab Software

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Connect to Chelmsford Wireless Network

Use Windows OS* and Internet Explorer 8 or higher or Chrome browsers, Apple Safari

TaxSlayer on-line software also requires Adobe reader

Connect to Chelmsford wireless network

Password: ___________________

*No Windows XP

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Key Items About TaxSlayer (1)

Data is entered on “screens”; software program inserts entered data onto tax return forms

Screens are organized like Fed 1040 or MA Form 1 (next)

TaxSlayer Navigation Tool lays out all the screens and those screens that are out-of-scope

Data on a screen is saved by hitting “continue” at the bottom of screen

If a screen is not used (opened by mistake), click “cancel” at screen bottom

Move from one item to another using the tab key or the mouse – hitting “enter” does not work

TaxSlayer will time out after about 15 minutes of no activity

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Elements of Fed 1040 & MA Form 1 Tax Returns

Taxpayer information

Filing status

Dependents

Income

Adjustments to income (reduces taxes)

Deductions & exemptions (reduces taxes)

Credits (reduces taxes)

Taxes owed, refund due, no taxes owed

TaxSlayer Organized Same Way

“Basic Information” in TaxSlayer

“Deductions” in TaxSlayer

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Connect to TaxSlayer Practice Lab

Make sure you are connected to wireless network

Connect to 2015 Practice Lab

Click on desktop icon, or

Open Internet Explorer or Chrome and insert URL:

https://vita.taxslayerpro.com/IRSTraining

Put URL into favorites list or

Create desktop icon (only if you use Internet Explorer or Chrome as your browser)

Insert password (see next slide)

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Log in - First Time

Enter Universal PW: TRAINPROWEB

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Log in – First Time (Continued)

User Name Use info in handout – unique to each student; then

Click

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Practice Lab – Home Page (Top)

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Practice Lab – Home Page (Bottom)

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Practice Lab – Home Page (Top)

Click to do returns

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Practice Lab – Welcome Page

Click here for 2015

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To Start Return

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Choose

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Enter SSN Twice

Click after entering SSN

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TaxSlayer On-line - Initial System Navigation

Click “create prior year and enter Social Security Number” buttons and enter Courtney Smather’s SSN twice: 256-00-7210

SSN for practice must have “00” as middle two digits; use 7210 as last four digits

Click “Start Return”

This routine is used to start all returns, even for joint returns that have two SSN’s

Use primary taxpayer’s SSN to start return

Spouse’s SSN will be entered later

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Filing Status Screen

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Personal Information Screen

Use pulldown or enter – no “0’s”

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Personal Information Screen

Change if needed

Required!

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Smathers W-2

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Entering Wages in TaxSlayer

Check SS# and tax year on paper W-2’s

Fill out TaxSlayer W-2 form

See 4012, page D-9, 10

Identify whose W-2 it is; i.e., taxpayer or spouse

Verify address; modify if necessary

Enter data from every box (ex control number) from paper W-2

Click “continue” at bottom to save and enter data

Data will not save until you hit “continue” on each screen

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Entering Federal Insurance

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Entering Federal Insurance

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Entering Federal Insurance

Will change depending on members in household

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Entering Federal Insurance

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Editing MA Return

Remember this screen!!

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Editing MA Return

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State (MA) Menu Items

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Basic Health Care Questions

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Basic Health Care Questions

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Preview Federal and MA Return

Click to create PDF

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Smathers Summary

To start a return, enter SSN twice

Fill out Basic Information (filing status, taxpayer information, any dependents)

In Federal Section, follow TaxSlayer menus to enter income, deductions, etc.

Fill out ACA Health Care information

Go to State Section to do MA return

Create PDF of both returns and check

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Samuel & Abigail Johnson

Married for 50 years, 75 & 74 years old

Income:

Social Security – 4012, page D-27

Bank interest, dividends - 4012, pages D-12 to D-15

Pensions, IRA - 4012, page D-17 to D-26

Live with daughter; pays no rent

Have Medicare insurance all year

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More TaxSlayer Key Items

Income data entered in Federal section carried to state as taxable

Exception are traditional IRA distributions

Must enter taxable amount manually for MA

Also, must keep track of following items for manual entry in MA return

Different types of interest as shown on handout, “Interest Entries in MA section of TaxSlayer”

Tax-exempt pensions

Mandatory pension contributions (SS substitute)

“MA TaxSlayer Worksheet” handout provided to keep manual track of these items

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MA TaxSlayer Worksheet

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MA Treatment of Interest

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Johnson 1099-INT (4012, Pg D-13)

MA bank

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A Johnson SSA 1099

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A Johnson 1099-R (IRA)

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Box 7 Distribution Codes (Pub 4012, page D23-24)

Common codes

1 - early distribution, no known exceptions (usually before 59 ½) – penalties possible

2 – early distribution, exception applies (under 59 ½) - may avoid penalty

3 – disability

4 – death

7 – normal

G – direct rollover - non-taxable

Enter code from paper copy; may require additional TaxSlayer entry (not for Johnson)

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Entering 1099-R’s (Pub 4012, page D-18)

Verify SSN & tax year on paper copy

Verify address in TaxSlayer vs paper; change if needed

Enter data from 1099-R paper copy to TaxSlayer 1099-R (use box #’s)

Double check box 2a (Federal taxable) and box 14 (MA distribution)

If an IRA 1099-R, write down taxable amount (box 2a) on MA Worksheet

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More TaxSlayer Key Items

Use taxpayer documents to fill out MA TaxSlayer Worksheet

Speeds data entry in MA section of return

Must hit “continue” at bottom of each screen in MA section until original “State Return” screen is reached and refund is updated

Appears data entered in MA section does not save until we do this

Remember, we must create PDF of return to see MA return

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MA Worksheet for Johnson

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Start Johnson Return

Click “create prior year” and enter “Social Security Number” buttons and enter Sam Johnson’s SSN twice: 357-00-7210

Fill out Basic Information

Filing Status: MFJ

Personal Information, including Abigail’s

No dependents

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Johnson Social Security Screen

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Steps to Complete Johnson MA Return

After entering all Johnson income, enter health insurance info, then click on State Section on left menu

Answer questions about change of name/address

Answer Health Care questions (next slides)

Full year coverage

Medicare for both (Medicare is always “full-time”

Do not answer other questions

Go to “Additions to Income” screen and enter

both MA bank interest and IRA total

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MA Health Care Information

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MA Health Care Information

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TaxSlayer “Additions to Income” Screen

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Johnson Summary

Introduced SS, interest income, different retirement income types on 1099-R & how to enter in TaxSlayer

Introduced MA Worksheet to keep track of items that are manually put into MA return

Showed how to enter Medicare coverage for MA insurance

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Sheryl Beringer Return

51 Yrs, divorced years ago

Two children, mother and friend live with her

Filing status and who are dependents must be determined

Worked most of the year (W-2)

Received unemployment (1099-G)

Eligible for some Federal adjustments & credits

Rents – apply MA rental deduction ($1000/mo)

Has full year private insurance

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Exemptions and Filing Status

The Filing Status and Exemptions sections of the tax return may only take a few minutes to complete but they encompass some of the most complex tax law issues.

Determining the correct filing status and whether a taxpayer has a “Qualifying Child” or a “Qualifying Relative” can impact many other areas of the return.

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Personal & Dependency Exemptions

Pub 4012, Tab C

Personal exemption

Dependent exemption Qualifying child dependents

Qualifying relative dependents

Each Exemption reduced taxable income by $4050 for 2016

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Personal Exemptions

One for taxpayer & one for spouse when filing jointly

Taxpayer is ineligible if another can claim him/her as a dependent

Widow(er), if not remarried by 12/31, can claim spouse in year of death

Use 4012, page C-2 to determine if personal exemption is allowed

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Requirements To Claim Dependent Exemptions

Overview of rule for claiming exemption for dependent – 4012 page C-3

Dependency evaluation for qualifying child - page C-5, Table 1

Tie-breaker rules for qualifying child - page C-4

Dependency evaluation for qualifying relative – page C-5, Table 1, then page C-6 & C-7, Table 2

Special case of divorced, separated, or never married parents - page C-8, Table 3

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Filing Status Comparison (Lowest to Highest Tax)

Married Filing Jointly*

Qualifying widow(er) with dependent child*

Head of Household

Single

Married Filing Separately

* same lowest tax

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Analysis of Living Conditions is Critical for Filing Status

Marital status as of 12/31

Who was living in the home during the year?

Relationship/dependency of occupants

Who paid more than half the cost of keeping up the home?

If widow(er) Date of death of spouse

Any dependents?

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How to Determine Filing Status

Use Pub 4012, pages B-1 to B-3

Read Pub 4491, Part 2 on filing status. Examples help reinforce rules

Suggestion: Do exercises in 4491 using 4012 charts for practice

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Dependents Information in TaxSlayer

4012, Page K-11

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Beringer W-2

4012, page D-10 for codes

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Federal Credits Available to Beringer

Non-refundable (reduces taxes)

Retirement Savings Credit

Child Tax Credit

Refundable (provides refund even w/o owed taxes)

Additional Child Tax Credit

Earned Income Credit

TaxSlayer calculates credits, but

Some may require extra attention by us

Form 8880 for Retirement Savings Credit

Earned Income Credit

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Prepare Beringer Return

Start a new return and enter Beringer SSN 031-00-7210; click “start return”

Complete Basic Information using the conclusions on filing status and who are her dependents (children & mother)

Click Federal Section and “Enter Myself”

Under Income, enter W-2 and 1099-G for unemployment

Enter Health Insurance information – full year coverage for Sheryl and all dependents

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Beringer MA Return

Click for rent

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Health Insurance Information

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MA Insurance Options

No “-” or symbols

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Beringer Summary

Discussed how to determine best filing status and criteria for being a dependent

Showed how to use form search to bring up screens to fill out in TaxSlayer

Discussed different Federal income adjustments and credits available to taxpayers

Used rental deduction on MA return

Showed how to enter private insurance information on MA return

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Tim & Nicole Sterling Return

Married couple, 73 & 63 yrs

Tim’s sister, 65 yrs lives with them

MA bank and savings bond interest (1099-INT) and dividends (1099-DIV)

Social security income for all three

Pensions (1099-R) for Tim and Nicole

Has capital gains

Own home: test for Circuit Breaker Credit

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U.S. Savings Bond Interest

Taxable Federally; tax-exempt in MA

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Dividends

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Tim’s Pension – Simplified Method

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Capital Gains

Sale of stocks, bonds, mutual funds will be reported on 1099-B to taxpayer

We should file returns to establish “cost basis” with IRS and MA DOR; otherwise, IRS will assume all proceeds are ordinary income,

whereas many times assets long term or sold at loss

“Cost basis” is what taxpayer paid for asset (for most cases) Starting with stock purchases in 2011, 1099B must

provide cost basis; mutual funds in 2012

Establishing cost basis is sometimes difficult for purchases before 2011

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Reporting Capital Gain or Loss

Must determine elements of sale

What is it? – on 1099-B

When did you buy it? – long or short term

When did you sell it? On 1099-B

What is sales price? On 1099-B

What is the cost basis? – 1099-B or ask taxpayer

Was it inherited? (always long-term gain)

Once details of sale are entered in TaxSlayer, it runs all calculations and transfers results to Form 8949 and then to Sch D, 1040 & MA forms

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MA Senior Circuit Breaker Credit (MA Manual, page 15)

Credit for taxpayers 65 or over who pay real estate taxes or rent as MA residents

Income level and house value are eligibility criteria (for single, HOH or MFJ)

Many of our clients over 65 are eligible

2015 maximum credit was $1070 (also for 2016)

Fill out screen for Circuit Breaker Credit in TaxSlayer; TaxSlayer determines credit amount (if any)

Taxpayers living in subsidized or public housing are not eligible (no RE taxes are paid)

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MA Worksheet for Sterling

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Initial Sterling Return Steps

Click “start new return”; enter Tim’s SSN 251-00-7210

Enter Basic Information

Filing status?

Remember Nicole is legally blind, disabled

Does sister qualify as a dependent?

Totally and permanently disabled

Enter all income items

Enter full time medical insurance (all 3)

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TaxSlayer Pension Entry

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Sterling Simplified Method

Box 9a

Combined ages at annuity start

6 times $227

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Entering Sterling Stock Sale

Go to Federal Section, then Income, then click Capital Gain and Losses (Schedule D)

Click Capital Gains and Loss Items and fill out screen with data provided by taxpayer (see next slide)

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Sterling’s Stock Sale

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Sterling MA Return

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Exclude US Bond Interest

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Designate MA Bank Interest

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Sterling Circuit Breaker Try

On MA Return main menu, click Credits and choose Senior Circuit Breaker Credit, Schedule CB

Fill out screen with data provided (see next screen); hit “continue” at bottom and then “continue” twice – see if MA refund changes (it won’t)

Go to summary/print and create PDF of returns; look at Schedule CB

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TaxSlayer Sch CB Screen

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Sterling Schedule CB

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Sterling Summary

Taxpayer and dependent had disabilities that have to be entered

Simplified Method used to determine taxability of pension

Accommodated stock sale Federal and MA

MA bank and US Bond interest entered on MA form

Example of how taxpayers over 65 may qualify for MA Senior CB Credit

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Rachel Brown Return

74 yrs, widowed in 2008

Income sources: wages, social security, MA bank interest, dividends, MA refund, MA pension (spouse), MA lottery

Possible itemized deductions versus taking standard deduction

Brings in all information for Sch A

Possible MA Senior Circuit Breaker Credit as homeowner

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Brown 1099-R MA Tax-Exempt

Do not fill anything in State section of TaxSlayer 1099-R

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New Forms of Income

2014 MA state refund on 1099-G

Brown did not itemize last year, so refund is not taxable – nothing needs to be entered

If she itemized last year and used MA taxes, we have to fill out State tax refund worksheet (on Income list)

MA Lottery – enter W-2G in “Enter Form Number” box; call up screen, fill in

TaxSlayer recognizes EIN of MA lottery and will put income on 1040, line 21 and MA Form 1, line 8

Her gambling losses of $51 is entered when itemizing her deductions (losses cannot be larger than winnings)

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TaxSlayer W-2G Screen

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Itemizing Deductions

See 4012, Tab F for discussion of standard vs itemized deductions

Shows TaxSlayer screen shots

States what items are not eligible for itemizing, including medical, taxes, interest

More details available in Pub 17

Following screens show what is applicable to Brown

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Itemizing Deductions

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Itemizing Deductions

Choose relevant deductions

Here for gambling losses

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Resulting Brown Sch A

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Brown’s MA Worksheet

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Initial Brown Return Steps

Click “start new return”; enter Brown’s SSN 801-00-7210 (from SS statement)

Enter Basic Information

What filing status?

Enter income sources using profile, W-2, 1099-R, 1099-INT and DIV, SSA-1099 (same as other returns)

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Brown MA Return

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Excluding Tax-Exempt Pension

Enter as a negative number

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Brown Circuit Breaker Try

On MA Return main menu, click Credits and choose Senior Circuit Breaker Credit, Schedule CB

Fill out screen with data provided (see next screen); hit “continue” at bottom and then “continue” twice – see if MA refund changes (it will this time)

Go to summary/print and create PDF of returns; look at Schedule CB

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TaxSlayer Sch CB Screen

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Brown MA Schedule CB

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Brown Summary

New income items – last year state refund, gambling winnings (and losses)

Itemized deductions

Read Tab F in Pub 4012 for details

Brown eligible for MA Circuit Breaker credit