Transcript Tax Law Basics

Wages
Form 1040 Line 7
Pub 4012 D-5 to D-7
Pub 4491 Part 3
TAX-AIDE
TAX-AIDE
Wages – The Interview
TAX-AIDE
NTTC Training – TY2014
2
The Interview – A Conversation
● Prior year’s return
● Forms W-2 or other records
● Forms 1098-T (scholarship exceeds
expenses)
 At interview, identify possible scholarship
income; don’t finalize until all return info
has been entered
TAX-AIDE
NTTC Training – TY2014
3
Interview: Missing W-2
● Taxpayer “should” receive W-2 by early February
● If not, taxpayer should pursue with employer

If employer can’t help, taxpayer should contact IRS on
800-829-1040, but not before 02/15/2015
● If IRS can’t help, can complete return


Use Form 4852 (discussed later)
Must have pay stub with full-year cumulative
information
TAX-AIDE
NTTC Training – TY2014
4
Limitations on Scope – W-2
With W-2 in hand determine if out of scope:
●Box 12




Code R – Archer Medical Savings Acct (MSA)
Code T – adoption benefits
Code Q – nontaxable combat
pay (unless certified for Military)
Code W – employer contribution
to Health Savings Acct (unless
certified for HSA)
TAX-AIDE
NTTC Training – TY2014
5
Limitations on Scope – W-2 (cont)
● Ministers/church workers (special tax
rules)
● Very high income that is subject to the
Additional Medicare Tax
 MFJ: $250,000
 MFS: $125,000
 S, HH or QW: $200,000
TAX-AIDE
NTTC Training – TY2014
6
Entering W-2 Income
● How/where to enter income in TaxWise
Select form in Forms Tree
OR
 Link from 1040 line 7

TAX-AIDE
NTTC Training – TY2014
7
Entering W-2
● Look in Forms
Tree
● Click W2
Prior year W-2 employer information carries forward – if
so, click that W-2 and verify employer data (can change)
TAX-AIDE
NTTC Training – TY2014
8
Add W-2 Link Method
1.
2.
3.
4.
Click on arrow head to right of Line 7
Select Link Icon
Select New tab in dialog box
Select W2
2
3
1
4
TAX-AIDE
NTTC Training – TY2014
9
Add W-2 F9 Link Method
Go to line 7 on Form 1040
2. Press F9
3. Select New tab in dialog box
4. Select W2
3
1.
4
TAX-AIDE
NTTC Training – TY2014
10
Entering W-2
The Tax Form
Verify current
tax year
TAX-AIDE
NTTC Training – TY2014
11
Entering W-2
● All information that is on W-2 form should
be entered on TaxWise input form
● Plus there are more items to answer on
input screen
TAX-AIDE
NTTC Training – TY2014
12
Entering W-2
The Input Form
● Check if address matches return address
● If does not match, enter exactly as on W-2
TAX-AIDE
NTTC Training – TY2014
13
Verify Withholding Question
● Will be red if federal w/h is outside IRS-set
norms (employ due diligence)
 Review with taxpayer
 Consult with LC/QR, if not satisfied
TAX-AIDE
NTTC Training – TY2014
14
Verify Withholding Question
● What do I do after my due diligence?


F3 to clear red if no issue -ORCheck the “appears not to be a true W-2”
box at the top of the input form
-OR
Decline to prepare return
TAX-AIDE
NTTC Training – TY2014
15
Entering W-2
● Input entire form W-2 (esp. Box 12)
● Compare social security and Medicare wage
and tax amounts


Take calcs off only if different on W-2
Input actual amounts from W-2
● Same for state information
TAX-AIDE
NTTC Training – TY2014
16
W-2 Box 12 Codes
1. F1 for help
3
2. Index
3. W-2, Box 12 Codes
2
TAX-AIDE
NTTC Training – TY2014
17
W-2 Box 12 codes
● Often seen codes (26 possible codes):


D – Elective deferrals to a section 401(k)
(Codes E through H are elective deferrals to
other qualified plans)
DD – Cost of employer-sponsored health
coverage
Careful: don’t confuse D and DD
TAX-AIDE
NTTC Training – TY2014
18
Entering W-2
The Input Form
ITIN* return?
●W-2 may have erroneous SS number
●TaxWise will check the box
 Input SS number shown on W-2
* IRS assigned ID number, not a social
security number
TAX-AIDE
NTTC Training – TY2014
19
Entering W-2
The Input Form
● Input should conform to actual W-2
Disregard
Control
number
Check if “corrected” W-2C
Critical:
verify
employer
ID, name
and address!
TAX-AIDE
NTTC Training – TY2014
20
Entering W-2
The Input Form
● Input should conform to actual W-2
Verify box 13 entries
on W-2
Some employers put amounts in Box 14
TAX-AIDE
NTTC Training – TY2014
21
W-2 – Box 13
● Statutory employee – special status
 Taxpayer can report income and deduct
expenses using Sch C – see Business Income
lesson
● Retirement plan – participant
 May affect deductibility of IRA contributions –
see Adjustments Lesson
● 3rd Party sick pay
 Reports outside insurer payments
TAX-AIDE
NTTC Training – TY2014
22
Missing W-2 – Form 4852
● If attempts to get W-2 from employer or
IRS are unsuccessful, complete return with
Form 4852
Note: Form 4852 can be used for missing
W-2 or 1099-R
TAX-AIDE
NTTC Training – TY2014
23
Missing W-2 – Form 4852
● Go to a blank W-2 in the form tree
● If no blanks, add one with “+”
● From the blank W-2 link to new Form 4852
TAX-AIDE
NTTC Training – TY2014
24
Missing W-2 – Form 4852
● Complete Form 4852
Use prior year W-2, if applicable
 Use last pay check stub
 Taxpayer needs to provide year-end totals
if not on pay stub
 If IRS sent taxpayer a Form 4852 with
information on it, transfer it to TaxWise

TAX-AIDE
NTTC Training – TY2014
25
Missing W-2 – Form 4852
Complete as much
employer information
as possible
TAX-AIDE
NTTC Training – TY2014
26
Missing W-2 – Form 4852
Complete lines 7, 9 and 10
(line 8 is for 1099-R)
TAX-AIDE
NTTC Training – TY2014
27
Missing W-2 – Form 4852
● Taxpayer should retain copy of 4852
● If taxpayer gets W-2 later with different
information, may need to amend return
● Taxpayer may need to follow up with
Social Security Administration to get credit
for FICA taxes paid
TAX-AIDE
NTTC Training – TY2014
28
Entering W-2 – Special Situation
● W-2 with -0- wages (box 1)





May be reporting sick or disability pay
Must include in return
Will not e-file with -0- in TaxWise box 1
Input $1 in box 1
F3 social security and
Medicare taxes to clear the red
TAX-AIDE
NTTC Training – TY2014
29
Need to add another W-2?
● Click “+” to right of
first W-2
TAX-AIDE
NTTC Training – TY2014
30
Entering W-2
● Completely enter all information on each
W-2, before going to next one
● Double check employer ID numbers,
names and addresses!
● Remove any unused W-2 forms from tree
TAX-AIDE
NTTC Training – TY2014
31
W-2 Allocated Tips
● Allocated Tips (Box 8) is income in addition
to wages in box 1
● An assumed amount of tips received by
worker
 Set at 8% of underlying charge
such as restaurant bills
TAX-AIDE
NTTC Training – TY2014
32
W-2 Allocated Tips
● Minimum amount of imputed tip income
that must be declared, absent records
● Worker that keeps good records (tip log)
can declare
 More tip income
 Less tip income
TAX-AIDE
NTTC Training – TY2014
33
W-2 Allocated Tips
● TaxWise adds Form 4137 when W-2 Box 8
Allocated Tips is used, otherwise add form if
needed
● If taxpayer keeps good records, can use actual
amount of tips on Form 4137, Line 4 (requires
override)
● If using allocated tips amount, amount not
reported because <$20 per month is deemed
included in allocated amount
TAX-AIDE
NTTC Training – TY2014
34
W-2 Allocated Tips
● Total tips on 4137 Line 4 will flow to 1040
Line 7 as additional wages
● Social security and Medicare tax may be
due
 See Other Taxes Lesson 27
TAX-AIDE
NTTC Training – TY2014
35
Other Line 7 Income
● Taxable scholarship not on Form W-2 (see Education
Credits Lesson 23)
● Taxable scholarship entered on 1040 Wkt 1:
Wkt 1
will flow to Line 7 Wages:
1040 P. 1
TAX-AIDE
NTTC Training – TY2014
36
Other Line 7 Income
Household employee income not on W-2?
●Usually, amounts less than $1,800
●Input on 1040 Wkt 1
●Can link to Scratch Pad if more than one
TAX-AIDE
NTTC Training – TY2014
37
Other Line 7 Income
● If taxpayer is under normal retirement age
for employer plan, disability “pension”
flows to Line 7 Wages (see retirement
income lesson)
 Eligible for EIC!
TAX-AIDE
NTTC Training – TY2014
38
Quality Review – Wages Line 7
● Verify all W-2 data has been input
correctly
 Employer Identification Number (EIN)
 Employer name
 Employer address
 Social Security/Medicare amounts
 All box 12 items
rd
 Stat employee/retirement/3 party sick
TAX-AIDE
NTTC Training – TY2014
39
Quality Review – Wages Line 7
● Confirm Line 7 has all that it should have

How many jobs or W-2s?
Per
Intake/Interview/QR form
In return

Compare to prior year
TAX-AIDE
NTTC Training – TY2014
40
Quality Review – Wages Line 7
● After all other aspects of return are done,
confirm Line 7 is complete
 Tips from Form 4137
 Household worker income
 Disability pension
 Taxable scholarships
TAX-AIDE
NTTC Training – TY2014
41
Quality Review – Wages Line 7
● Delete any unused W-2 forms
● Clear incomplete W-2 form warnings
in tree
TAX-AIDE
NTTC Training – TY2014
42
Quality Review – Wages Line 7
● Wage income may trigger other aspects in
return (more forms will show on forms
tree)
 Proceed methodically through each
e.g. IRA contributions or deductions,
retirement saving credit, EIC
● All will be covered in separate lessons
TAX-AIDE
NTTC Training – TY2014
43
Taxpayer Summary – Wages Line 7
When return is done, revisit
●Is withholding too high? Too low?


Can change using W-4
May need state “W-4” form, too
TAX-AIDE
NTTC Training – TY2014
44
Wages Line 7
Comments?
Questions?
TAX-AIDE
NTTC Training – TY2014
45
Interest and
Dividend Income
Form 1040 Lines 8-9
Pub 4012 D-8 to D-10
Pub 4491 Part 3
TAX-AIDE
TAX-AIDE
NTTC Training – 2014
1
Interest Income – What Is It?
● Earnings on




Bank, savings, and credit union deposits
Certificates of Deposit
Bonds (corporate or government)
Money loaned out
TAX-AIDE
NTTC Training – 2014
2
Interest Income – What Is It?
● It is not earned income

Money, not a person, is earning the income
● Reported in year earned

Usually when posted to account
TAX-AIDE
NTTC Training – 2014
3
Where to Find Interest Income
● Form 1099-INT
● Brokerage Statement
● Schedule K-1 (see K-1 lesson)
● No tax form from payer
 Seller financed mortgage interest income
 Private or foreign payer
 Interest less than $10
TAX-AIDE
NTTC Training – 2014
4
Interest Income
● Whether or not reported by the payer on a
tax form, all interest must be included in
the return
 Taxable
OR
 Exempt
 Other calculations can be impacted
TAX-AIDE
NTTC Training – 2014
5
Interest Income
● All interest is taxable except interest from
 State or municipal obligations; including
D.C.
U.S.
possessions
See Pub 4491 page 71 for others
● U.S. obligations (T-Bills, Savings Bonds, etc.)
are fully taxable for federal tax*
*may be exempt from state tax
TAX-AIDE
NTTC Training – 2014
6
Interest Income
The Tax Form
TAX-AIDE
NTTC Training – 2014
7
Interest Income
The Tax Form
● Excerpt from sample brokerage statement
TAX-AIDE
NTTC Training – 2014
8
The Interview
● A conversation
TAX-AIDE
NTTC Training – 2014
9
The Interview – A Conversation
● Prior year’s return
● Forms 1099-DIV, -INT, -OID, or substitute


Organize them by type
If many, alphabetize for easier input and
easier quality review
● Forms K-1 (limited) – see K-1 lesson
Use the correct year forms, usually 2014!
TAX-AIDE
NTTC Training – 2014
10
Entering Interest Income
● Always use Interest Stmt*
● Select in Forms Tree
*except for seller financed interest income
TAX-AIDE
NTTC Training – 2014
11
Entering Interest Income
● Interest Stmt not on tree?
(use link-link method)
 Link from 1040, line 8a to Sch B
 Link from Sch B, line 1b to Interest Stmt
TAX-AIDE
NTTC Training – 2014
12
Interest Income
The Input Form
● Abbreviate payer name if needed
● Determine federal tax rule first
TAX-AIDE
NTTC Training – 2014
13
NAEOB Code E – Exempt interest
● State or municipal obligations
● Exempt interest reported by broker
 Do not use for certain EE/I bonds used for
education – out of scope
● Enter in NAEOB amount column only (not Box 1 or
3)
TAX-AIDE
NTTC Training – 2014
14
Interest Income
The Input Form
● Abbreviate payer name if needed
● Determine federal tax rule first
● Determine state tax rule second
TAX-AIDE
NTTC Training – 2014
15
Interest Income
Enter other amounts as shown on tax form
●AMT PAB – private activity bond interest
●Early (withdrawal) penalty

TW carries to 1040 line 30
●Federal (tax) withheld
TAX-AIDE
NTTC Training – 2014
16
Interest Income
● Foreign tax credit – see later Lesson

Input now so don’t forget
● State tax withheld

Input now on appropriate state form so
don’t forget
TAX-AIDE
NTTC Training – 2014
17
Interest Income
● Complete one 1099-INT at a time
● Input all information on the form
● If brokerage statement, input all
information on the brokerage statement
Too easy to miss items if try to go back to
a form a second time
TAX-AIDE
NTTC Training – 2014
18
Interest Income Quiz
Is interest taxable on federal return?
●New York City bond interest?
●Treasury bill interest?
●Ford Motor Co bond interest?
●Interest on loan to cousin Charlie?
No
Yes
Yes
Yes
TAX-AIDE
NTTC Training – 2014
19
Interest Income – What Is It?
● Bonds can be purchased at a discount or with
a premium
 The discount is additional interest income
 The premium is a reduction of interest income
● Both amortized over the life of the bond
Payer does the math (we cannot)
TAX-AIDE
NTTC Training – 2014
20
Seller-financed Mortgage Interest
● Enter in Sch B top portion
● Link from first Sch B if need more forms
● Must have payer ID number to e-file
TAX-AIDE
NTTC Training – 2014
21
Foreign Interest Income/Account?
● Must ask and answer questions at bottom
of Sch B
 Foreign account/signature authority
 Foreign trust
● If answer is “yes” to either, additional
reporting may be required
Remind taxpayer of additional filing
responsibility
TAX-AIDE
NTTC Training – 2014
22
Limitations on Scope –
Foreign Accounts
● Bottom of Sch B – Part III
TAX-AIDE
NTTC Training – 2014
23
Dividend Income –
What is it?
● Payment by a corporation
● Paid to its shareholders
● Represents a portion of the corporation’s
earnings
TAX-AIDE
NTTC Training – 2014
24
Dividend Income –
What is it?
● Mutual funds* invest in (buy)



Stock of corporations
Bonds issued by private or government
entities
Other investments
*Includes ETFs (Exchange Traded Funds)
TAX-AIDE
NTTC Training – 2014
25
Dividend Income –
What is it?
● Mutual funds “pay” to their investors

Dividends from the fund’s income
Dividend
income from corporations
Interest income from bonds/accounts

Capital gain distributions from capital
transactions that the fund makes
TAX-AIDE
NTTC Training – 2014
26
Dividend Income –
What is it?
● Mutual fund dividends

Dividend income from corporations
Will

be identified as ordinary/qualified
Interest income from bonds/accounts
Will
be identified as exempt if from exempt
securities, e.g. state bonds

But both are still dividends to the fund’s
shareholders
TAX-AIDE
NTTC Training – 2014
27
Dividend Income
● Ordinary dividend income, not qualified

Taxed at regular tax rates
● Qualified dividend income


A subset of Ordinary Dividends
Taxed at capital gain rates
TAX-AIDE
NTTC Training – 2014
28
Where to Find Dividend Income
● Form 1099-DIV
● Substitute 1099-DIV (brokerage or mutual
fund statement)
● Schedule K-1 (later Lesson)
TAX-AIDE
NTTC Training – 2014
29
Capital Gain Distributions
● Capital Gain Distributions represent share
of profit from sale of assets within mutual
fund
 Always long term
 Taxed at capital gain rates
TAX-AIDE
NTTC Training – 2014
30
Dividend Income
The Tax Form
OOS
OOS
OOS
TAX-AIDE
NTTC Training – 2014
31
Dividend Income
The Tax Form
● Excerpt from sample brokerage statement
2014
TAX-AIDE
NTTC Training – 2014
32
Dividend Income 1099-DIV
● 1a Ordinary dividends

1b Qualified dividends – a subset of
ordinary dividends
● 2a Capital gain distributions


2b §1250 gain – a subset of capital gain
distribution
2d 28% gain – a subset of capital gain
distribution
TAX-AIDE
NTTC Training – 2014
33
Dividend Income
● Reinvested dividends
 Really, two transactions
Dividend
income
Purchase of more shares

Payer effects both instantaneously
Payers keep track of basis for covered
securities (always taxpayer’s
responsibility)
TAX-AIDE
NTTC Training – 2014
34
Entering Dividend Income
● Always use Dividend Stmt
● Select on Form Tree
TAX-AIDE
NTTC Training – 2014
35
Dividend Income
● Dividend Stmt not on tree?
(use link-link method)
 Link from 1040, line 9a to Sch B
 Link from Sch B, line 5a to Dividend Stmt
TAX-AIDE
NTTC Training – 2014
36
Input information as
on 1099-DIV
The Input Form
● Abbreviate or truncate payer name to fit
● Column “N” (nominee) not applicable for
in-scope returns
TAX-AIDE
NTTC Training – 2014
37
Input information as
on 1099-DIV
The Input Form
● Exempt Int. Div.,
e.g. muni bond mutual fund
 May need state adjustment
● PAB – careful there is no AMT – out of
scope
● State withholding?
 Input on applicable
state form
TAX-AIDE
NTTC Training – 2014
38
Dividend Income
● Complete one 1099-DIV at a time
● Input all information on the form
● If brokerage statement, input all
information on the brokerage statement
● Avoid multiple views of forms
TAX-AIDE
NTTC Training – 2014
39
Dividend Income Quiz
● Payers of dividends of less than $10 don’t
have to issue 1099 (true or false?)
 True – same rule as for interest payers
● Taxpayers don’t have to report dividends
if they don’t get a 1099 form (true or
false?)
 False – all income must be reported on the
tax return
Check Intake Form
TAX-AIDE
NTTC Training – 2014
40
Dividend Income Quiz
● Dividends reinvested in more shares are
not taxable (true or false)?
 False – the dividend income is the first
transaction and the purchase of shares is a
second transaction
TAX-AIDE
NTTC Training – 2014
41
Foreign Tax on 1099-INT or DIV
● Nonrefundable credit
● 1099-INT or 1099 – DIV boxes 6 & 7
Input now on Form 1116 so don’t forget
Will be covered in later Lesson
TAX-AIDE
NTTC Training – 2014
42
Quality Review
Interest/Dividend Income
● Check I&I – was interest/dividend box
checked?
● Verify interest or dividend income is
input correctly
 Including any received with no paperwork
● State adjustments?
TAX-AIDE
NTTC Training – 2014
43
Quality Review Interest/Dividend
Income
● Compare to prior year

Missing accounts?
● Foreign tax credit or deduction?
● Miscellaneous investment expense
deduction?
● Delete unused rows on Interest/ Dividend
Stmt
TAX-AIDE
NTTC Training – 2014
44
Other Item: 1099-INT or -DIV
● Investment expenses
 1099-INT box 5
 1099-DIV box 5
● Possible itemized deduction
 Schedule A, Line 23
 Subject to 2% of AGI threshold
● Input now so don’t forget
● More to be covered in another Lesson
TAX-AIDE
NTTC Training – 2014
45
Dividend Income
● Nondividend distributions


Return of basis (cost)
Basis in the paying security is reduced by
the amount of nondividend distribution
Payers keep track of basis for covered
securities (always taxpayer’s
responsibility)
TAX-AIDE
NTTC Training – 2014
46
Limitations on Scope – 1099-INT
● Any of these codes needed on the Interest
Statement?
 N – Nominee
 A – Accrued Interest
 O – Original issue discount adjustment
 B – Bond premium amortization
adjustment
● Only “E” – exempt interest is in scope
TAX-AIDE
NTTC Training – 2014
47
Limitations on Scope – 1099-DIV
Review Forms 1099-DIV for out-of-scope:
 Box 2c Sec. 1202 gain
(small business stock)

Boxes 8 or 9 – Liquidating distributions
TAX-AIDE
NTTC Training – 2014
48
Limitations on Scope –
1099-INT or 1099-DIV
Would there be any Net Investment Income
Tax? (out-of-scope)
●Applies only if Adjusted Gross Income is
more than:
 MFJ or QW: $250,000
 MFS: $125,000
 Single or HoH: $200,000
TAX-AIDE
NTTC Training – 2014
49
Interest and Dividend Income
Comments?
Questions?
TAX-AIDE
NTTC Training – 2014
50
State/Local Income
Tax Refunds
Form 1040 Line 10
Pub 4491 Part 3
TAX-AIDE
TAX-AIDE
The Interview
● Point of awareness
● 2013 returns
TAX-AIDE
NTTC Training 2014
2
State/Local Income Tax Refunds
● Form 1099-G – State or local income tax
refund
2013 only
TAX-AIDE
NTTC Training 2014
3
State/Local Income Tax Refunds
Interview
Limitation on Scope
●Box 3 must be “2013” (not older years)*
●Must have prior year return if not all taxable
*Exceptions:



If taxpayer agrees 100% taxable
If taxpayer claimed standard deduction for all
years (0% taxable)
If taxpayer claimed sales tax deduction for all
years (0% taxable)
TAX-AIDE
NTTC Training 2014
4
State/Local Income Tax Refunds
● Tax benefit rule:


Taxable when refund received if it gave tax
benefit in year deducted
Taxable amount is limited to amount that
gave tax benefit
TAX-AIDE
NTTC Training 2014
5
State/Local Income Tax Refunds
Tax benefit rule:
●No benefit if standard deduction was used in
2013
●No benefit if Sales Tax was deducted in 2013
●No benefit if negative taxable income (Line
41 minus line 42) when stated as a positive
number is more than the income tax
deduction on 2013 Sch A
TAX-AIDE
NTTC Training 2014
6
Any Tax Benefit?
Look at 2013 Form 1040 Page 2 Line 40
●Standard deduction or itemized?
TAX-AIDE
NTTC Training 2014
7
Any Tax Benefit?
Can’t remember last year’s standard
deduction amounts?
Compare Line 40 to Sch A Line 29 total
TAX-AIDE
NTTC Training 2014
8
Any Tax Benefit?
Negative taxable income on Page 2 of 2013
Form 1040:
Line 41 (5,795)
Less line 42
-7,600
Total negative taxable income (13,395)
●Is refund less than $13,395?
TAX-AIDE
NTTC Training 2014
9
State/Local Income Tax Refunds
● Not taxable?
(sales tax or standard deduction or negative
taxable income)
Click “no” on 1040 Pg 1 – You’re done!
TAX-AIDE
NTTC Training 2014
10
State/Local Income Tax Refunds
Possibly taxable?
●TaxWise has worksheet to calculate tax
benefit
●If both state and local income tax refunds,
put both on same worksheet
●If two state income tax refunds, put both
on same worksheet
TAX-AIDE
NTTC Training 2014
11
State/Local Income Tax Refunds
Form 1040 – answer question above Line 10
“Yes” makes Line 10 red
TAX-AIDE
NTTC Training 2014
12
State Tax Refund Worksheet
1. Link from Line 10 – arrow head on right
2. Click Link to another form icon
3. New tab
4. St Tax Refund – State Tax Refund Worksheet
4
3
2
1
TAX-AIDE
NTTC Training 2014
13
State Tax Refund Worksheet
● Must have 2013 federal return!
● TaxWise fills in much of what you need –
confirm it is correct
● Complete worksheet
TAX-AIDE
NTTC Training 2014
14
State Tax Refund Worksheet
Refund to test
Identify State
2013
2013
2013
2013
2013
Need
both
If any
TAX-AIDE
NTTC Training 2014
15
State Tax Refund Worksheet
● Most common error: forget to input sales
tax that could have been deducted
● If TaxWise doesn’t fill, need to calculate
and input (unless no sales tax in your
state)
2013
TAX-AIDE
NTTC Training 2014
16
Calculate Sales Tax
● Take total income from 2013 F1040 Line 22
● Add income not taxed (interest, soc. sec.)
● Go to Sch A instructions, look up your state
in sales tax tables for number of exemptions
on
2013 return
● Input in wksht
TAX-AIDE
NTTC Training 2014
17
State Tax Refund Worksheet
● Complete worksheet using 2013 tax return
information
 Some Data will Carryforward
● Line 8 often missed
2013
2013
2013
TAX-AIDE
NTTC Training 2014
18
State Tax Refund Worksheet
● Enter 2013 taxable income on Line 12 of
worksheet


Form 1040 Line 43
If Line 43 is -0-, subtract line 42 from Line 41
and enter as a negative number on line 12 of
worksheet
2013
2013
2013
TAX-AIDE
NTTC Training 2014
19
State Tax Refund Worksheet
● Almost done...
● Is part or all of refund taxable?
2013
● Need to double check tax credits
TAX-AIDE
NTTC Training 2014
20
Unused Tax Credits in 2013?
● If there were unused tax credits in 2013,
part or all of state income tax refund may
have produced no benefit
● TaxWise worksheet doesn’t handle this
● Must manually test
TAX-AIDE
NTTC Training 2014
21
Unused Tax Credits in 2013?
● Confirm that there were unused tax credits –
look at 2013 tax return

Child tax credit line 48 plus line 65
Was



it less than $1,000 per child?
Foreign tax credit line 47 was greater than tax
shown on line 46?
Was education credit line 49 greater than line
46 reduced by line 47?
Other nonrefundable credits?
TAX-AIDE
NTTC Training 2014
22
Unused Tax Credits – Manual Test
● Open prior year’s return in TaxWise



Note net tax overpaid or amount owed
(1040 P2 line 73 or 76)
Note amount of income tax deducted on
Sch A
Reduce income tax deducted on Sch A by
amount of refund
TAX-AIDE
NTTC Training 2014
23
Unused Tax Credits – Manual Test
Did tax overpayment or amount owed change? If
not – no benefit
●Restore amount of deduction on Sch A and close
2013 return
●Return to 2014 return, check box above line 6 on
State Tax Refund wkst and you’re done!
TAX-AIDE
NTTC Training 2014
24
Unused Tax Credits – Manual Test
Did tax overpayment or amount owed
change? Yes – some benefit!
●Note amount of change
●Look at summary sheet in form tree line 33
marginal rate
●Divide change amount by tax rate
●Result is part of refund that gave tax benefit
TAX-AIDE
NTTC Training 2014
25
Unused Tax Credits – Manual Test
● Example of tax benefit received:




Amount owed with tax deduction
Amount owed without tax
deduction 500
Equals net change of
25
Divide by tax rate 10% = 250
475
$250 of tax refund is taxable in 2014
TAX-AIDE
NTTC Training 2014
26
Unused Tax Credits –Manual Test
● Need to override Line 14 of State Tax
Refund worksheet
● Make a note for reviewer
2013
TAX-AIDE
NTTC Training 2014
27
State and Local Income Tax Refunds
● TaxWise carries taxable portion of state
and/or local income tax refund to 1040 Pg
1 Line 10
TAX-AIDE
NTTC Training 2014
28
Quality Review – State/Local
Income Tax Refunds
● Confirm tax refund was only for 2013
● Review prior year’s return



Itemized? Income tax deducted?
Negative taxable income?
Any unused credits?
● Review entries in state tax refund
worksheet
TAX-AIDE
NTTC Training 2014
29
Taxpayer Summary – State/Local
Income Tax Refunds
● Show taxpayer portion of refund that is
taxable, if any
TAX-AIDE
NTTC Training 2014
30
State And Local Income Tax
Refunds
Questions?
Comments?
TAX-AIDE
NTTC Training 2014
31
Alimony Income
Form 1040 Line 11
Pub 4012 Page E-3
Pub 4491 Part 3
TAX-AIDE
TAX-AIDE
Alimony Received
Pub 4012 Pg E-3
What is Alimony?
●Spousal support under separation or
divorce instrument
●Usually stops if recipient remarries, may
stop sooner
●Not subject to change based on factors
such as age of a child
 Child/family support is NOT alimony
TAX-AIDE
NTTC Training – TY 2014
2
The Interview
● Point of awareness
TAX-AIDE
NTTC Training – TY 2014
3
Alimony Received
Where do I get alimony information?
●Intake Sheet Part III Question 6
●Taxpayer needs to provide information of
actual amount received in 2014
●Look at prior year return
TAX-AIDE
NTTC Training – TY 2014
4
Alimony Received
● Not earned income for EIC
● Not earned income for child tax credit
● Not earned income for dependent care
credit
But IS “compensation” for IRA
TAX-AIDE
NTTC Training – TY 2014
5
Alimony Received
● Input directly on 1040 Line 11
● If more than one source – link to Scratch
Pad
TAX-AIDE
NTTC Training – TY 2014
6
Alimony – Community Property State
● Special rule applies for alimony received in
community property state from
community income before divorce is
finalized
● See Pub 555
TAX-AIDE
NTTC Training – TY 2014
7
Quality Review – Alimony Received
● Answer on Intake Sheet Q 6 yes?
● Did last year return show alimony income?
● Confirm required by divorce decree or
separation instrument and is not child
support
TAX-AIDE
NTTC Training – TY 2014
8
Quality Review – Alimony Received
● Does taxpayer want to make an IRA
contribution, if otherwise eligible?
 Retirement saving credit?
IRA – covered in Adjustments Lesson
Retirement saving credit – covered in
Miscellaneous Credits Lesson
TAX-AIDE
NTTC Training – TY 2014
9
Taxpayer Summary
Alimony Received
● Alimony income can cause a balance due
on return
 Increase withholding for 2014?
 Estimated tax payments for 2014?
TAX-AIDE
NTTC Training – TY 2014
10
Alimony Received
Comments?
Questions?
TAX-AIDE
NTTC Training – TY 2014
11