Adjustments to Income

Transcription

1 Adjustments to Income TaxSlayer Navigation: Federal Section >Deductions >Adjustments Health Savings Account select to open Form 8889, Health Savings Accounts. (HSA Certification required) Self-employed health insurance deduction is in scope (Advanced certification required) Form 8606 Nondeductible IRAs is Out of Scope Form 8903 Domestic Production Activities Deduction is Out of Scope Must be Certified for Military and be an active duty military taxpayer. Check the box near the top of the form to indicate an Armed Forces PCS move. Moving expenses for tax year 2018 apply to Military only. Flows over from input of Form INT in Interest Income. If the taxpayer paid alimony to more than one person, add a second payee after entering the first. Student Loan Interest paid is entered here See Tab EXT, Legislative Extenders for additional information. Select other adjustments for jury duty pay turned over to employer Note: Military reservists who must travel more than 100 miles away from home to attend a drill or reserve meeting may deduct their travel expenses as an adjustment to income. Entertainment expenses are not allowed. The amount of expenses that can be deducted is limited to the: 1) actual lodging costs, 2) federal rate for per diem (for meals and incidental expenses) and 3) standard mileage rate (for car expenses) plus any parking fees, ferry fees and/or tolls. E-1

2 Adjustments to Income (continued) Check the box to indicate that the taxpayer is a member of the Reserve Component. E-2

3 Educator Expenses TaxSlayer Navigation: Federal section >Deductions >Adjustments>Educator Expenses Keyword EDUCATOR Don t rely on this table alone. Refer to Publication 17, Your Federal Income Tax For Individuals for more details. Question What is the maximum benefit? Who can claim the expense? What are qualifying expenses? What are non-qualifying expenses? What other issues apply? Answer $250 (If the taxpayer and spouse are both eligible educators, they can deduct up to $500, but neither can deduct more than their own expenses up to $250). Eligible Educators an eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide who worked in a school for at least 900 hours during a school year. Qualifying expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment (including computer equipment, software, and services), and other materials used in the classroom. Additionally, professional development expenses are allowed. Expenses for home schooling or non-athletic supplies for courses in health or physical education. Taxpayer must reduce qualified expenses by Excludable U.S series EE and I savings bond interest from Form 8815 Nontaxable qualified tuition program earnings or distributions Nontaxable distribution of earnings from a Coverdell education savings account Any reimbursements received for expenses that weren t reported on the Form W-2 Note: Professional development expenses include courses related to the curriculum in which the educator provides instruction. The deduction amount will be indexed for inflation for future years. E-3

4 Self-Employed Health Insurance Deduction TaxSlayer Navigation: Federal Section>Adjustments>Self-Employment Health Insurance If Medicare premiums have been added on Schedule C screen for the Self Employed Health Insurance deduction, do NOT enter on this screen. Enter total amount of premiums paid here for health insurance TaxSlayer Navigation: For most returns (just one Schedule C) enter the qualifying health insurance and LTC insurance premiums (limit based on age) on Schedule C > General Expenses > Health insurance (see D-18). TaxSlayer will automatically take any excess to Schedule A limits on premiums: long term care insurance Age <41 Age 41 to 50 Age 51 to 60 Age 61 to 70 Age 71 and over $ ,560 4,160 5,200 Note: Calculations with Premium Tax Credit remain out of scope with respect to the self-employed health insurance deduction.! Note: The return is out of scope and you should decline to prepare the return. when taxpayer is eligible for Premium Tax Credit or received Advanced Premium Tax Credit. E-4

5 Self-Employed Health Insurance Deduction/Adjustment for Sole Proprietors 1. What expenses can and cannot be included in the self-employed health insurance deductions? The self-employed health insurance deduction can include health insurance premiums for you, your spouse, your dependents, and your child who was under age 27 at the end of 2018, even if the child was not your dependent. "Health insurance" includes dental, vision, supplemental, limited coverage, long term care (up to age caps), etc. Health insurance premiums for an eligible person cannot be included here for any month the sole proprietor was eligible to participate in any subsidized health plan of an employer of the taxpayer, spouse, dependent or child. For this purpose, the subsidy test is applied separately for LTC (did an employer offer subsidized LTC?). Does the following insurance qualify for the self-employed health insurance deduction? Type of Insurance Sole proprietor NOT eligible for subsidized employer coverage for the Month Sole proprietor eligible for subsidized employer coverage for the Month Medicare for taxpayer Yes No Medicare for spouse Yes No Medicare for dependents Yes - if paid by taxpayer/spouse No Health Insurance including cancer, dental, etc. Prior employer insurance LTC Premiums (up to same age limits as Sch A} Public Safety Officer (PSO} Health Insurance Marketplace Insurance Yes Yes Yes Yes - amount above the $3,000 exclusion Yes (out of scope if PTC involved} The insurance can be purchased privately, through an exchange, a school, or an employer (anywhere). Must be paid during the year by the taxpayer or spouse, if filing MFJ. Do not include any insurance premiums that are paid "pre-tax" (a salary reduction plan through an employer) - that would be a double dip. No No if current employer offers subsidized coverage Not if subsidized LTC offered by employer No No 2. The simplest way to enter Self-Employed Health Insurance expenses in TaxSlayer is on the TaxSlayer Schedule C input screen for health insurance expenses (page D-18). (Entries here do not go on the Sch C. They go to the self-employed health insurance adjustment.) > General Expenses 3. The maximum Self-Employed Health Insurance Deduction is limited to the net self-employment income minus the deductible part of self-employment tax on Schedule 1 line PSO insurance that is used to reduce the taxable amount of a pension distribution cannot be used again. PSO health insurance that exceeds the $3000 exclusion limit can be included. Any amount entered for the Self-Employed Health Insurance Deduction above the maximum (net self-employment income minus the deductible part of self-employment tax on Schedule 1line 27) will carry automatically to Sch A in TaxSlayer. Therefore, they should not be entered anywhere else on the tax return. Medicare premiums entered under self-employed health insurance should not be entered on the SSA NTTC 12/1/2018 E-4.1

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7 Health Saving Accounts (HSA) Publication 4885 Screening Sheet for Health Savings Accounts (HSA) Note: Only volunteers with Health Savings Account Certification may assist taxpayers with HSA issues. Instructions: This Screening Sheet will help you identify HSA issues that are within the scope of the VITA/TCE program. Use the Determine HSA Eligibility section to determine if taxpayer is eligible for an HSA; use Part I for contributions/deduction; use Part II for distributions. References: Publication 969, Form 8889 and Instructions Determine HSA Eligibility (To set up an HSA or make contributions to an HSA) TO QUALIFY: An individual must meet ALL the following requirements: Be covered under a high deductible health plan (HDHP) on the first day of any month of the year. Have no other health coverage except for allowable other health coverage. (Publication 969, Other health coverage ) Not be claimed as a dependent on someone else s tax return. (Publication 969, Qualifying for an HSA ) Not be covered by Medicare (but the individual can be HSA eligible for the months before being covered by Medicare) NOTE: If the taxpayer doesn t qualify, but contributions have been made to an HSA, the taxpayer should be referred to a professional tax preparer. PART I HSA Contributions and Deduction STEP 1 If eligible, were contributions made to an HSA? YES Complete Form 8889, Part, I, lines 1 and 2. Go to Step 2. NO Go to PART II below STEP 2 Was the taxpayer enrolled in the same HDHP coverage for the entire year? (Answer Yes, if last-month rule applies, and see Form 8889 Instructions) Caution: If line 2 is more than line 13, the taxpayer must withdraw the excess contribution to avoid an additional tax. If the excess is not timely withdrawn, refer the taxpayer to a professional tax preparer. (Refer to Form 8889 Instructions, line 13). YES Complete Form 8889, Part I, lines FOR YES AND NO: Lines 4 and 10 are Out of Scope. NO Refer to Form 8889 Instructions for additional information on completing line 3. PART II HSA Distributions STEP 1 STEP 2 STEP 3 Did the taxpayer receive distributions from the HSA trustee (whether or not Form 1099-SA received)? Did the taxpayer use all or part of the distribution to pay or get reimbursed for qualified medical expenses during the year that were incurred after the HSA was established and were for qualified persons? If any part of the distribution is taxable, was the distribution made after the taxpayer died, became disabled or turned 65? YES Complete Form 8889 Part II, Line 14a, 14b, if applicable, and 14c. Go to Step 2. NO STOP, do not complete Part II. YES Enter the amount on line 15 and complete line 16. Go to Step 3. NO Enter zero on line 15 and complete line 16. Go to Step 3. YES Check box on line 17a and complete 17b. NO Taxpayer will be subject to an additional 20% tax. Publication 4885 (Rev ) Catalog Number 55732V Department of the Treasury Internal Revenue Service E-5

8 Health Saving Accounts (HSA) (continued) Don t rely on this document alone. Refer to HSA references to provide assistance. How will you know if the taxpayer has an HSA issue? The Interview/Intake & Quality Review Sheet has the Yes or Unsure HSA box checked. The taxpayer s (or spouse s) Form W-2 will contain code W in box 12 for employer contributions. The taxpayer (or spouse) has a Form 1099-SA with an x in box 5 showing distributions from an HSA. The taxpayer (or spouse) may receive Form 5498-SA for their HSA contributions. If taxpayers don t have this form they can provide the information regarding HSA contributions based on their records. Contributions to an employee s account through a Section 125 (cafeteria) plan are treated as employer contributions and aren t deductible. Each HSA owner needs to file Form 8889 if they made a contribution to, or had a distribution from, the account. Prepare two forms if the taxpayer and spouse each have a separate HSA. Spouses must share the family limit if either has family coverage. If one spouse has family coverage and both have HSAs, use family for both. The "Adjustment" section must be completed for both Taxpayer and Spouse. Add a second Form 8889 if taxpayer and spouse have separate HSAs deduction limits: Self-Only = $3,450 Family = $6,900 Add $1,000 if owner age 55 or older at year end Select the appropriate HDHP coverage for the taxpayer: Self-only or family. This determines the maximum HSA contribution limits. Employee contributions are entered here. Contributions by relatives and friends are considered to be made by taxpayer. Don t include W-2 reported contributions on this line. The account holder needs to tell you how much was put in the HSA, because the Form 5498-SA may not have been received prior to preparing the return. E-6 OutofScope OutofScope All W-2 reported pre-tax contributions are automatically handled by TaxSlayer. Do not enter amount here or contributions will be counted twice. Enter number of months you had a Health Savings Account, a high deductible policy and no other major medical policy (including Medicare) and could not be claimed as dependent. Enter 12 if "12 month rule" applies Taxpayer and Spouse can each have a self-only HSA. If either has a family plan, the family limit applies to the combined contributions, including employer contributions. Each can increase their account contribution if age 55 or older. CAUTION: Make sure that taxpayer contributions do not exceed the limitation less employer contributions. Do this manually. Use the worksheet on E-7.1. Any excess contribution must be withdrawn and interest earned on excess contribution reported as other income before the due date of the return or an additional tax will apply, and the return will be out of scope. Use the HSA Adjustments section shown on the next page for MFJ returns with family coverage when both spouses have separate HSAs. It is needed for self-only plans only when the plan coverage has changed (e.g., self to family).

9 Health Saving Accounts (HSA) (continued) Enter HSA distributions here. Ask the taxpayer for Form 1099-SA, with the HSA box checked. If not an HSA distribution, refer the taxpayer to a professional tax preparer. Enter amount spent on qualifying medical expenses not reimbursed by insurance. Form 8889 will calculate the amount of excess contributions, if any. If the excess contributions are not withdrawn and the earnings on the excess contributions reported by the due date of the return, then the return is Out Of Scope. If the taxpayer meets one of exceptions to the 20% additional tax, check this box. The exceptions are that the account beneficiary dies, becomes disabled, or turns age 65. This is for Form 8889 Line 3. For a family plan, enter $6,900 for each spouse, or less based on the worksheet calculation. Do not split the limit nor include the extra age 55 or older amount. For a self-only plan, an entry will adjust the basic $3,450 - enter a positive or negative as needed - BUT don't duplicate the months' calculation that TaxSlayer makes automatically. This is for Form 8889 Line 6. For a family plan when both spouses have an HSA, split the limit of $6,900 (or less based on the worksheet calculation between the spouses as they wish, (e.g., $3,450 each or $2,000 and $4,900, etc.). Do not include the extra age 55 or older amount For a self-only plan, an entry will adjust the basic $3,450 enter a positive or negative as needed. An entry should never be needed here. TaxSlayer Age automatically 55 or older, uses look up the catch $1,000 up for each account owner who is 55 or older. contribution limits in Form 8889 instructions. Qualified medical expenses are expenses that generally would qualify for medical and dental expenses deduction on Schedule A. Examples include unreimbursed expenses for doctors, dentists, and hospitals. A medicine or drug will be a Note: For 2018, the annual contribution limits on deductions for HSAs for individuals with self-only coverage is $3,450 qualified medical expense only if the medicine or drug: a) requires a prescription, b) is available without a prescription (increase of $50) and $6,900 for family coverage (increase of $150). There is an additional contribution amount of $1,000 (an over-the counter medicine or drug) and the taxpayer has a prescription for it, or c) is insulin. for taxpayers who are age 55 or older. Only these Insurance premiums can be included: a. Long-term care insurance subject to premium limits shown in What s New tab, b. Health care continuation coverage such as coverage under COBRA, c. Health care coverage while receiving unemployment compensation, and d. Medicare and other health care coverage if the taxpayer was 65 or older (other than premiums for a Medicare supplemental policy, often called Medigap coverage) E-7

10 Limitation Chart and Worksheet: (from Form 8889 instructions) IF family coverage, taxpayer and spouse get a single $6,900 to share plus each can add $1,000 to their separate HSA if 55 or older. Computed limitation from worksheet Less employer contributions Maximum taxpayer and spouse contribution (including those made by other individuals) E-7.1 NTTC 12/1/2018

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12 Alimony Requirements (Instruments Executed After 1984) Payments ARE defined as alimony if all of the following are true: Payments are required by a divorce or separation instrument. Payer and recipient spouse don t file a joint return with each other. Payment is in cash or cash equivalents (including checks or money orders). Payment isn t designated in the instrument as not alimony. Spouses legally separated under a decree of divorce or separate maintenance aren t members of the same household. Payments aren t required after death of the recipient spouse. Payment isn t treated as child support. These payments are deductible by the payer and includible in income by the recipient. Payments AREN T alimony if any of the following are true: Payments aren t required by a divorce or separation instrument. Payer and recipient spouse file a joint return with each other. Payment is: Not in cash, A noncash property settlement, Spouse s part of community income, or To keep up the payer s property. Payment is designated in the instrument as not alimony. Spouses legally separated under a decree of divorce or separate maintenance are members of the same household. Payments are required after death of the recipient spouse. Payment is treated as child support. These payments are neither deductible by the payer nor includible in income by the recipient. Note: Alimony paid pursuant to a divorce or separation instrument executed on or before December 31, 2018, is deductible. New: Alimony paid pursuant to instruments executed (or in some cases modified) after December 31, 2018 will no longer be deductible by the payer nor included in income by the recipient on federal returns. E-8

13 IRA Deduction TaxSlayer Navigation: Federal Section >Deductions >Adjustments>IRA deductions If filing MFJ, both can contribute to IRA even if only one has compensation. If the total of traditional and Roth IRA contributions exceed the lesser of total compensation or the allowable limit, the taxpayer must withdraw the excess before the filing deadline or a penalty will apply and the return will be out of scope. TaxSlayer will generate Form 8606 if any part of the traditional IRA contribution exceeds the deduction limit. Open Form 8606 and enter the basis from prior year's Form 8606 Nondeductible IRAs, if any. Note: Taxpayer s age must be 70½ or younger to contribute to a traditional IRA. Contributions can be made until the filing deadline, generally April 15 of the year following the tax year. Your filing status has no effect on the amount of allowable contributions to your traditional IRA. However, if during the year either you or your spouse was covered by a retirement plan at work, your deduction may be reduced or eliminated, depending on your filing status and income. See Publication 590-A, Contributions to Individual Retirement Arrangements, for details. Contributions to a Roth IRA canbemadeafter taxpayer reaches 70 1/2, but no deduction can be taken for a contribution to a Roth. Note: Compensation for purposes of an IRA contribution includes wages, salaries, commissions, net profit from selfemployment, alimony and separate maintenance, and nontaxable combat pay. TaxSlayer Hint: If the taxpayer made a Traditional IRA contribution, select Adjustments from the Deductions menu, then select IRA Deduction. Don t enter a Roth IRA contribution on this screen. Enter it in the Credits section. If eligible, the software will calculate a Retirement Savings Contributions Credit. Be sure to enter any applicable retirement plan distributions. See Tab G, Nonrefundable Credits for more information on this credit. E-9

14 Student Loan Interest Deduction at a Glance TaxSlayer Navigation: Federal section >Deductions >Adjustments>Student Loan Interest Deduction This table is only an overview of the rules. For details see Publication 970, Tax Benefits for Education. Feature Description Maximum benefit You can reduce your income subject to tax by up to $2,500. Loan qualifications Student qualifications Time limit on deduction Phaseout Your student loan: Taxpayer must be legally liable for the loan. must have been taken out solely to pay education expenses, and can t be from a related person or made under a qualified employer plan. The student must be: you, your spouse, or a person who was your dependent when you took out the loan, or would ve been your dependent except you were a dependent, or had gross income over the exemption amount, or filed MFJ. enrolled at least half-time in a program leading to a degree, certificate or other recognized educational credential. You can deduct interest paid during the remaining period of your student loan. The amount of your deduction depends on your modified adjusted gross income and filing status. If student loan interest is paid by someone who isn t legally liable for it, the payment is treated as received by the person who s legally liable, and the person legally liable is allowed to take the adjustment. Note: Taxpayer cannot claim deduction if filing status is Married Filing Separately. Other Adjustments Jury duty pay if you gave the pay to your employer because your employer paid your salary while you served on the jury. Identify as Jury Pay. The following adjustments are out of scope. If the taxpayer has any of these, he or she should be referred to a professional preparer. Archer MSA deduction (see Form 8853). Identify as MSA. Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit. Identify as PPR. Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 21. Identify as USOC. Reforestation amortization and expenses (see Pub. 535). Identify as RFST. Repayment of supplemental unemployment benefits under the Trade Act of 1974 (see Pub. 525). Identify as Sub-Pay TRA. Contributions to section 501(c)(18) (D) pension plans (see Pub. 525). Identify as 501(c)(18)(D). Contributions by certain chaplains to section 403(b) plans (see Pub. 517). Identify as 403(b). Attorney fees and court costs for actions involving certain unlawful discrimination claims, but only to the extent of gross income from such actions (see Pub. 525). Identify as UDC. Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations, up to the amount of the award includible in your gross income. Identify as WBF. E-10