Class 3: Basic Tax Preparation Part B (federal and state)

Transcription

1 Class 3: Basic Tax Preparation Part B (federal and state) Volunteer Income Tax Assistance: We love to do taxes for free. Normal? Probably not. Helpful? Absolutely!

2 Course Goals: 1. Recap Last Class- Questions? 2. Common Forms of Income 3. Self Employment 4. Affordable Care Act 5. Itemizing 6. State Taxes

3 Wage Income: Important parts of W2 TaxWorld: IRS required an exact match to W2. Enter name and address as given on the W2, even if it differs from client s current info. Carries over to state taxes. Note School District Codes and Local Tax

4 Common Income Sources: Retirement: Social Security (SSA-1099) TaxWorld: Box 5 is the income amount. Also check for tax withheld, and enter the total of Medicare Premiums. Repeat for spouse.

5 Common Forms of Income Pension (1099 R) Box 7 Code indicates whether this is a regular distribution, disability, or early withdrawal subject to penalty.

6 Common Forms of Income Interest/Dividend Income: 1099-INT or DIV TaxSlayer: Take your time, enter everything you see; including tax exempt and state items. Taxslayer knows where to put the info

7 Common Forms of Income Unemployment Compensation: 1099-G Same form is used for Unemployment Compensation and for Taxable State Refunds

8 Common Forms of Income Gambling Winnings: W2-G Winnings are fully taxable. Losses are only reported if itemizing deductions; then they are deductible up to amount of winnings.

9 Course Goals: 1. Recap Last Class- Questions? 2. Common Forms of Income 3. Self Employment 4. Affordable Care Act 5. Itemizing 6. State Taxes

10 Self-Employment Income 1099-MISC TaxWorld: This form is used for many kinds of income; hobby income, rents and royalties etc. Some are out of scope or require additional training. Check the box number in your references. Self Employment is box 7

11 Self-Employment Income 1099-MISC NON-EMPLOYEE COMPENSATION (Box 7) =SELF-EMPLOYED = INDEPENDENT CONTRACTOR = CONTRACT WORKER Employer is not deducting payroll tax. Taxpayer will need to pay payroll tax. 7.65% x 2 Taxpayer can deduct expenses before determining taxable amount. This earned income counts toward earned income credit and social security. Businesses with inventory, employees, contract labor, depreciation, business use of the home, expenses over 25,000 or net loss are out of scope.

12 Self-Employment Income: Schedule C Attach the 1099 MISC to a Schedule C in Taxslayer. Schedule C is not complicated; but ask for help your first time through. Car and Truck expense is most common: VITA always uses MILEAGE (not expenses). Commuting miles: Miles driven each day from home to the first business location, and from the last business location home. Commuting miles are NOT deductible. Business miles: miles driven for the job and between multiple job locations. Deductible

13 Course Goals: 1. Recap Last Class- Questions? 2. Common Forms of Income 3. Self Employment 4. Affordable Care Act 5. Itemizing 6. State Taxes

14 Affordable Care Act Defining terms MEC: Minimum Essential Coverage Required for each month for every person on tax return. Coverage for part of the month counts as whole month. TYPES Government: Medicare, Medicaid, CHIP, VA Form 1095B Employer plan 1095C (indicates coverage was offered, but did they take the plan?) Affordable Care Marketplace Form 1095A Individual purchase from an insurance company must be a full health plan, not just single disease coverage

15 Affordable Care Act Defining terms Marketplace Coverage TaxWorld Understanding Medicaid vs. Marketplace Did YOU pay - out of your own pocket- through checks/cash for health insurance? Only applies if family purchased their own coverage (not from employer, not Medicaid/Medicare). Ohio, Indiana and Kentucky all use HealthCare.gov Client will receive Form 1095A

16 Affordable Care Act Defining terms Premium Tax Credit Assists in purchasing health insurance through marketplace. Can be taken at task time PTC (rare) or in advance. APTC Clients often don t know they had it. Calculated in advance; but taxpayers situation can change Could be OVER or UNDER the eligible amount. Reconciled through filing tax return Can result in a credit or in an additional payment due. Form 1095A is used to reconcile See ACA tab; seek site supervisor assistance; should be advanced preparer

17 Affordable Care Act Defining terms Shared Responsibility Payment Penalty if any household member did not have full year coverage. FOR EVERY MEMBER OF THE HOUSEHOLD FOR EVERY MONTH OF THE TAX YEAR Calculated as percentage of income or flat dollar amount, whichever is greater.

18 Affordable Care Act Defining terms: Exemptions Exemptions exempt people without MEC from having to pay SRP! Exceptions to requirement, no penalty for specific months Short lapse in coverage <3mo Below filing threshold JARGON Non-Citizen ALERT Incarcerated Unaffordable (premium cost greater than 8% of household income) Religious exemption (Requires marketplace certificate) Hardship: homeless, eviction, domestic violence, utility disconnect, bankruptcy, significant medical expense, etc. (Requires marketplace certificate) 4012: See chart p. H14

19 Affordable Care Act Decision Tree 1. Private or Government Insurance whole family, all 12 mo. Basic return, had full year coverage, move on. 2. Marketplace Insurance Reconcile premium tax credit using 1095A 3. No insurance all or any part of year Check for exemptions Calculate Shared Responsibility Payment

20 Dear Iris, I'm 32 and single. I've always felt like I've had it pretty together, but this healthcare law really has me stressed out. I didn't think I'd have to worry about it, because I've always had insurance through my job. So I honestly hadn't paid a whole lot of attention one way or the other. But on February 2, I found myself downsized and looking for work. I was able to find a job in my field, and I love it. My income has kind of recovered, and my total income at the end of the year came out to $39,959. Dear IRIS: by Brad Martin Unfortunately, my insurance coverage didn't kick in until May 30. So for most of February, all of March, all of April, and most of May, I was uninsured. I'm scared to know what the penalty is going to be, but I didn't know what to do. I've heard there are exceptions or exemptions or exclusions or exsomethings, and I might not have to pay a shared responsibility payment. Is this true? If it's not true, how bad will the payment be? Hoping For Relief

21 Course Goals: 1. Recap Last Class- Questions? 2. Common Forms of Income 3. Self Employment 4. Affordable Care Act 5. Itemizing 6. State Taxes

22 Itemizing Schedule A Covers Itemization Most VITA Clients do not itemize. This is because their deductible expenditures rarely exceed the standard deduction. ($6350/single $12,700 married- (pending legislation) ASK: Homeowner vs. Renter (for Home Mortgage deduction) ASK: High unreimbursed medical costs? Married Filing Separately Taxpayers: If one itemizes, both must itemize. Taxslayer allows you to enter and compare Itemized to Standard.

23 Itemizing carries through to State Taxes Sections of federal Schedule A should be completed in order to supply information for the state return even though the taxpayer may not benefit from itemizing on the federal return. Medical worksheet information flows through to the Ohio state return TaxWorld Even though it is tempting to skip Schedule A to save time, it can save the taxpayer money on their STATE return Property tax information flows to the Indiana state return for a deduction Itemized deductions flow through to the Kentucky state return 23

24 Dear Iris, I bought a house in December of 2016, and when I did it, people kept telling me, "That's great. And when you file your taxes, you'll be able to take the interest you paid on your house as a tax deduction." Obviously it didn't really do much for me in 2016, because I didn't close on the house until late December. Dear IRIS: by Brad Martin But I thought my ship was going to come in in 2017! But it didn't seem to do a thing. I'm single, reasonably healthy, and aside from about $500 in gifts to charity, I didn't have much in the way of deductible expenses. But I thought that $3,600 in mortgage interest would've done something to increase my refund. What gives (besides me)? House Rich But Still Tax Poor

25 Dear Iris, This year, I decided to get healthy all on my own. I'm very proud of myself. I got on a weight loss program where they give you certain foods to eat. I'm happy to say it worked, and I've lost 30 pounds and counting. Can I deduct the cost of the weight loss program on my taxes? It is a medical expense after all. It has made me healthier. Dear IRIS: by Brad Martin One other question, Iris. I'm also a type II diabetic. I'm hoping losing this weight will improve my condition. Can I deduct my insulin as a medical expense? Getting Fit in '17