Transcript Lecture Day 2 - Glendale Community College : Home

Lecture Day 2
What you should have!
• Class Syllabus
• Publication 4491 Book
• Publication 4491W
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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
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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 Intermediate
If 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?
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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
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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
• Line 21 1040 pg 5
Pub 17
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 Expenses
Line 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
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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
• S
• MFS
83,000---103,000
52,000---62,000
10,000
• Exercise 2 – page 10-9
• 8606 Exercise 3 pg 10-15
Student Loan Interest
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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
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• 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
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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 8
Dividends – Ordinary -- line 9
Capital gain- if loss enter 0 -- line 13
Earned Income Credit
Limits
• (Less than $2,900 Investment income)
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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:
B. $2,853
C. $2,853
$25,850 to $25,900
$2,929
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
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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
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earned income + $300
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Limited to $5,350
Pub 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,
65 or over
Blind
Std Ded
$5,350
$1,300
$1,300
$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
65 or over
Blind
Std Ded
$10,700
$1,050
$1,050
$12,800 see page 136 Pub 17
Standard Deduction
Exercise 1 page 4-4
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F.
$7,850
$5,350 + 1,300 = $6,650
$10,700 + $1,050 = $11,750
$5,350 + $1,050 = $6,400
$5,350
$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
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Medical/Dental – more than 7.5% agi
Taxes - Sales or Income
Interest/points/ mtg insurCharitable 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
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Unreimbursed doctor’s bills
Unreimbursed braces
Hospital Insurance
Life Insurance
Prescription medicines
Vitamins
Hospital bill (500 reimbursed)
Nonsmoking program
600
800
200
400
400
100
100
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.