REFUNDABLE TAX CREDITS NOT LIMITED TO TAX LIABILITY

Transcription

1 REFUNDABLE TAX CREDITS NOT LIMITED TO TAX LIABILITY

2 FORM 1040 page 2 Non-refundable credits Refundable credits

3 Refundable credits Line 66a Earned income credit (EIC or EITC) Line 67 Additional child tax credit Line 68 American opportunity credit (partially refundable) Line 69 Net premium tax credit (ACA)

4 AUTOMATIC! TSP HANDLES Line 67 Additional child tax credit Line 68 American opportunity credit (partially refundable) Line 69 Net premium tax credit (ACA)

5 Earned Income Tax Credit maximum refundable credit $6,318 (three+ qualifying children) $5,616 (two qualifying children) $3,400 (one qualifying child) $ 510 (no qualifying children)

6 Must have earned income salary, self-employment Means test (earned income and AGI) < $48,340 (53,930 MFJ) three q. children < $45,007 (50,597 MFJ) two q. children < $39,617 (45,207 MFJ) one q. child < $15,010 (20,600 MFJ) no children

7 Earned Income Tax Credit

8 - Must have valid SSN for TP, spouse, and q. children. (ITIN, ATIN) -Taxpayer must be US citizen -No more than $3,450 investment income -NNTF? look for W-2, selfemployment

9 EIC without qualifying children US resident more than six months 24 < taxpayer s age < 65 means test $15,010 (20,600 MFJ) not a dependent of another TP

10 Qualifying child for EIC Relationship Test son, daughter, nephew, niece. Age Test under 19 (end of year) or under 24 (full time student) or totally disabled Residency Test lived with TP in U.S. for > 6 months

11 Note: no income test no support test no dependency test* *unless q. child is married

12 If more than one taxpayer qualifies for the EIC of the same child: -Tie Breaker Rules (parent, higher income, etc ) -Children of divorced, separated or never married parents > custodial parent -Taxpayer cannot be the q. child of another TP

13 qualifying child can t be split Dependency exemption Child tax credit exception for separated or divorced parents Head of household Child and dependent care credit Earned income tax credit

14 Disallowed EIC? EIC previously disallowed LIU

15 TAXSLAYER PRO

16 Tax Credits Non refundable reduce taxes, excess is not refundable. Refundable reduce taxes, excess is refundable.

17 Non-refundable credits on Form 1040 Line 48 Foreign tax credit Line 49 Credit for child and dependent care Line 50 Education Credits Line 51 Retirement savings contributions credit Line 52 Child tax credit Line 53 Residential energy credit Line 54 other (credit for the elderly or disabled)

18 Refundable credits Form 1040 Payments Line 66a Earned income credit (EIC) Line 67 Additional child tax credit Line 68 American opportunity credit (partially refundable) Line 69 Net premium tax credit (ACA)

19 WIDLIU

20 Foreign Tax Credit (or deduction) Pub 4012 Tabs F and G Pub 4491 Lesson 25

21 Foreign Tax Credit Interview Always do a complete interview BEFORE starting the return Review prior year return any FTC? Review 1099-INT, -DIV or K-1s any FTC? If more than $300 ($600 MFJ) Discuss options with taxpayer May be better to go to paid preparer 2 NTTC Training TY 2017

22 Foreign Accounts Interview Forms 1099 now have FATCA requirement box If checked, taxpayer may have to file Form 8938, which is out of scope Form 8938 is in addition to FinCEN 114 report of foreign bank accounts or signature authority 3 NTTC Training TY 2017

23 Foreign Tax 1099-INT or DIV 1099-INT or 1099-DIV 4 NTTC Training TY 2017

24 Foreign Tax Credit Nonrefundable credit No benefit if there is no income tax 5 NTTC Training TY 2017

25 Foreign Tax Credit Simplified limitation method - if using Form 1116 Foreign tax must be from 1099-DIV, INT or K-1* ONLY (all others disqualify) - AND - Total foreign tax is $300 ($600 MFJ) If not, cannot use simplified limitation method * K-1: tax relating to passive income only (interest or dividends) 6 NTTC Training TY 2017

26 Entering Foreign Tax Credit Small Amounts Usually, can enter with related interest or dividend income Caution: TaxSlayer accepts all amounts even if over the simplified limitation limit Foreign tax on K-1 use 1116 input screen (next slide) 7 NTTC Training TY 2017

27 Entering Foreign Tax Credit When Amounts are Bigger TaxSlayer 1116 input screen Does not allow an entry over the simplified limitation amount Search 1116 or click line 48 in Summary/ Print 8 NTTC Training TY 2017

28 Foreign Tax Credit 1116 Input Screen Input amount (this screen for MFJ) Will show $300 for single, HoH, MFS or QW 9 NTTC Training TY 2017

29 Foreign Tax Deduction Too much foreign tax to use simplified method? May claim an itemized deduction for all the foreign income taxes (cannot split) Input amount on No benefit if not itemizing Benefit of deduction is less than of credit! 10 NTTC Training TY 2017

30 Foreign Tax Quiz Jerry, single, has a mutual fund that reported $455 of foreign tax on DIV What are his options? Full Form 1116 with paid preparer If itemizing, he can claim a deduction for the $455 Simplified method is not an option! 11 NTTC Training TY 2017

31 Foreign Tax Quiz What if Jerry is married and that is all of his foreign tax for 2017 What are his options? Claim the whole amount as a FTC (better choice) If itemizing, he can claim a deduction for the $ NTTC Training TY 2017

32 Foreign Tax Credit or Deduction QR Is there a foreign tax credit on the return? Was any foreign tax reported on Forms 1099 or K-1? Is the total amount within the simplified limitation method limits Verify correct credit shown on Line 48 or deduction claimed on Schedule A 13 NTTC Training TY 2017

33 Foreign Tax Credit or Deduction Exit Interview Show taxpayer where foreign tax credit was claimed Explain why no benefit (no tax) Or show where deduction was claimed Or explain did not itemize 14 NTTC Training TY 2017

34 EDUCATION BENEFITS PUB 4012 TAB J

35 FORM 1098-T

36 FORM 1098-T BOX 1 PAYMENTS RECEIVED FOR QUALIFIED TUITION AND RELATED EXPENSES BOX 5 SCHOLARSHIPS OR GRANTS BOX 8 CHECK IF AT LEAST HALF-TIME STUDENT BOX 9 CHECK IF GRADUATE STUDENT

37 EDUCATION BENEFITS SCHOLARSHIPS ARE TAX FREE IF 1. CANDIDATE FOR A DEGREE 2. DOES NOT EXCEED QUALIFIED EDUCATION EXPENSES 3. ISN T DESIGNATED FOR OTHER PURPOSES (ROOM/BOARD) 4. ISN T PAYMENT FOR TEACHING, RESEARCH OR OTHER SERVICES

38 EDUCATION BENEFITS QUALIFIED EDUCATION EXPENSES TUITION AND FEES COURSE RELATED EXPENSES REQUIRED BOOKS, SUPPLIES, AND EQUIPMENT DO NOT INCLUDE: ROOM AND BOARD, TRAVEL, OR ITEMS NOT REQUIRED BY INSTITUTION.

39 EDUCATION BENEFITS TAXABLE SCHOLARSHIPS SCHOLARSHIPS IN EXCESS OF QUALIFYING EXPENSES TAXSLAYER FEDERAL SECTION>>INCOME>> OTHER COMPENSATION>>SCHOLARSHIPS

40 EDUCATION BENEFITS QUALIFYING EDUCTION EXPENSES PAID FOR BY SCHOLARSHIPS AND GRANTS CANNOT BE USED TO CLAIM EDUCATION CREDITS! EXAMPLE: TUITION & FEES = $5,000 SCHOLARSHIP = $4,000 QUALIFIED EXPENSES = $1,000

41 EDUCATION BENEFITS EXAMPLE: TUITION AND FEES = $5,000 SCHOLARSHIP = $6,000 TAXABLE SCHOLARSHIP = $1,000 QUALIFYING EXPENSES = $0

42 EDUCATION BENEFITS AMERICAN OPPORTUNITY CREDIT LIFETIME LEARNING CREDIT STUDENT LOAN INTEREST ADJUSTMENT SELF-EMPLOYMENT EXPENSE

43 EDUCATION BENEFITS WHO GETS THE BENEFIT? TAXPAYER STUDENT IF NOT A DEPENDENT

44 EDUCATION CREDITS AMERICAN OPPORTUNITY CREDIT (PARTIALLY REFUNDABLE) UP TO $2,500 PER STUDENT TUITION & FEES PLUS BOOKS SUPPLIES FIRST FOUR YEARS ONLY

45 EDUCATION CREDITS CAN ONLY BE CLAIMED FOUR YEARS ENROLLED AT LEAST HALF-TIME NO FELONY DRUG CONVICTION MEANS TESTED

46 EDUCATION CREDITS LIFETIME LEARNING CREDIT (NON-REFUNDABLE) UP TO $2,000 PER RETURN TUITION & FEES ONLY UNDERGRAD OR GRAD TO ACQUIRE OR IMPROVE JOB SKILLS MEANS TESTED

47 EDUCATION BENEFITS STUDENT LOAN INTEREST ADJUSTMENT UP TO $2,500 MEANS TESTED

48 EDUCATION BENEFITS SCHOLARSHIPS AMERICAN OPPORTUNITIES CREDIT LIFETIME LEARNING CREDIT STUDENT LOAN INTEREST ADJUSTMENT SELF-EMPLOYMENT EXPENSE

49 EDUCATION BENEFITS CANNOT DOUBLE DIP WHICH ONE IS BEST? 1) AMERICAN OPPORTUNITES CREDIT 2) LIFETIME LEARNING CREDIT 3) SELF-EMPLOYMENT EXPENSE

50 EDUCATION BENEFITS TAXSLAYER FEDERAL SECTION>>DEDUCTIONS>>CREDITS>> EDUCATION CREDITS FORM 8863

51 QUESTIONS?????

52 Child and Dependent Care Credit A non-refundable credit Pub 4012 Pages G-5 G-9 Pub 4491 Lesson 23

53 Taxpayer or Spouse Disabled Incapable of Self-Care? Being disabled may be an indicator of needing care and useful if filing MFJ 2 NTTC Training - TY2017

54 Any Dependents Under 13 or Disabled Incapable of Self-Care? Intake form Under age 13? More than 6 months? Being disabled may be an indicator of needing care if age 13 or older 3 NTTC Training - TY2017

55 Dependent Care Expenses? Did taxpayer or spouse pay for dependent care (or night care) while they worked or looked for work? 4 NTTC Training - TY2017

56 Rules Care was for a qualifying person who lived with taxpayer more than half the year Taxpayer must pay expenses so that taxpayer and spouse can work or look for work Expenses paid for care not education 5 NTTC Training - TY2017

57 Rules (Cont) Both taxpayer and spouse (if MFJ) must have earned income Unless taxpayer or spouse is incapable of self-care or a full-time student Special rule for deceased spouse Cannot file MFS (two rare exceptions) 6 NTTC Training - TY2017

58 Qualifying Person? Qualifying child who is taxpayer s dependent and under age 13 -OR- Qualifying person is incapable of self-care Spouse Qualifying child Dependent Someone who would have been taxpayer s dependent except that... 7 NTTC Training - TY2017

59 Dependent except that He or she filed MFJ -OR-... He or she had gross income over exemption amount -OR-... Taxpayer could be claimed as a dependent 8 NTTC Training - TY2017

60 Incapable of Self-Care vs. Disabled See definitions on back of tri-fold tool Incapable of self-care: Physically or mentally not able to care for oneself. Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves. Permanently and totally disabled: A person is permanently and totally disabled if both of the following apply: He or she cannot engage in any substantial gainful activity because of a physical or mental condition. A doctor determines the condition has lasted or can be expected to last continuously for at least 12 months or can lead to death. 9 NTTC Training - TY2017

61 Disabled or Needing Care Need to say qualifying person is disabled in TaxSlayer (but really needs to be incapable of self-care) Dependent screen 2441 Qualifying person not listed on 1040 screen 10 NTTC Training - TY2017

62 Qualifying Child Chart 11 NTTC Training - TY2017

63 Qualifying Relative Chart 12 NTTC Training - TY2017

64 Qualifying Person is Not a Dependent? If not listed in dependent section, can add on F NTTC Training - TY2017

65 Child of Divorced...Parents Must live with taxpayer half the year, so credit goes to custodial parent (if he or she paid the expense) 14 NTTC Training - TY2017

66 Paid for Care Not Education Below kindergarten okay After school okay if not educational Day camp okay, overnight camp not Adult day care okay In-home care okay Care may also qualify as medical deduction same amount can be used for one or the other, no double dipping 15 NTTC Training - TY2017

67 Employer-provided Benefit Must be deducted from taxpayer expenses (taxpayer claims net out of pocket) TaxSlayer does this automatically for Form W-2 box 10 amount Amounts in Form 2441 Part II - 2(a) must not total more than net shown 16 NTTC Training - TY2017

68 Who is the Caregiver? Cannot be spouse or dependent Cannot be taxpayer s child who is under age 19 Cannot be child s parent (with some exceptions for adults needing care) Taxpayer must make reasonable effort to get provider s name, address and identifying number 17 NTTC Training - TY2017

69 Resource Guide Pub 4012: Starting at page G-5 18 NTTC Training - TY2017

70 How Much is the Credit? 20% 35% of amount spent Percent is based on AGI Maximum amount spent $3,000 if have one qualifying person $6,000 if have two or more qualifying persons Does not matter for which qualifying person amount is spent if more than one Limited to the lesser of taxpayer s or spouse s earned income (or deemed earned income) 19 NTTC Training - TY2017

71 Earned Income Requirement Taxpayer or spouse can have deemed earned income if a full-time student (at least 5 months) or incapable of self-care $250 per month ($500 if care is for more than one qualifying person) Taxpayer OR spouse can have deemed income in a given month (not both) Use actual earned income if higher 20 NTTC Training - TY2017

72 Earned Income Requirement Surviving taxpayer filing MFJ in year of spouse s death can use own earned income only Beneficial if deceased spouse had little or no earned income 21 NTTC Training - TY2017

73 Entering in TaxSlayer Pick either of these: Type 2441 into: Summary/Print 1040 p. 2, click line 49: Navigate to: > Federal Section > Deductions > Credits Menu > Child Care Credit (Form 2441) 22 NTTC Training - TY2017

74 Entering in TaxSlayer Follow Pub 4012 Tab G-7, Form 2441 Credit for Child and Dependent Care Expenses 23 NTTC Training - TY2017

75 Deemed Earned Income in TaxSlayer F2441 page 2 Compute deemed earned income for each and enter in TaxSlayer 24 NTTC Training - TY2017

76 Deemed Earned Income in TaxSlayer F2441 page 2 Surviving spouse s final MFJ return with deceased spouse: increase spouse s earned income to equal survivor s earned income (if decedent s income is low) 25 NTTC Training - TY2017

77 Quality Review Verify that care was for taxpayer to work or look for work Verify that deemed income for incapableof-self-care or student spouse was entered correctly Verify that surviving spouse s earned income is used for deceased spouse (if beneficial) 26 NTTC Training - TY2017

78 Quiz 1 Mary and Tom file MFJ. Mary is a stay-athome mom. When she needed to travel to take care of her own parents, Mary and Tom paid for day care for their kids. Can they claim the dependent care credit for this expense? No payment was not so Mary could work or look for work 27 NTTC Training - TY2017

79 Quiz 2 Maria s husband Jose has dementia and cannot be left at home alone. She takes him to an adult day care at the local hospital each day on her way to work. Can they claim the dependent care credit even though Jose does not work? Yes complete TaxSlayer Form 2441 Step 3 Add a qualifying persons for the incapable-of-self-care spouse 28 NTTC Training - TY2017