Imani s daytime and evening (cell) phone number is Her address is

Transcription

1 Practice Scenario 7 Use the taxpayer information provided in the following section to prepare a tax return. After you complete the return, review the Lessons Learned section to see how you did. isclaimer This scenario is a mock interpretation of a client interview. It does not provide answers to every question. Therefore, where specifi c information is not provided, you must answer logically for the client in the scenario. When preparing live returns, you should have the client answer all of the interview questions. Never use any of the scenario information when preparing returns for real clients. For example, if the client does not provide an address, do not create one nly use valid addresses when preparing live returns. lient Information Imani. Houghton ( , ) lives at 8545 Spillaca ircle, Your ity, YS and ZIP ode (not in Alaska or Hawaii). She is married to Adrian Houghton ( , ). They have not lived together since April 19 of the tax year, and Imani does not want to fi le jointly with Adrian. Imani s daytime and evening (cell) phone number is Her address is ihoughtonallday@nomail.com. The following children lived with Imani: aneen P. Franklin ( , ), daughter Janine P. Franklin ( , ), daughter Seth L. McLaurin ( , ), son Symone Harrison ( , ), aneen s and Janine s best friend No one else lived with them after Adrian moved out. aneen, Janine, and Seth lived with Imani all year. aneen and Janine s father, arrin Franklin ( , ), lives in another state. They visit him during their summer break from school. Imani, arrin, and Adrian provided more than half of the support for aneen and Janine. ProFiler Practice Scenarios 7-1

2 Seth s father, Sherman McLaurin ( , ), is claiming Seth because Imani gave him a signed Form 8332, Release/Revocation of Release of laim to xemption for hild by ustodial Parent, that allows him to do so. Imani, Sherman, and Adrian provided more than half of Seth s support. Adrian and Imani do not have any children together, but Imani knows Adrian wants to claim aneen and Janine. Imani says she expects Adrian s AGI will be about 60,000. Adrian still pays some of the household bills, but Imani paid more than half of the cost of maintaining the home where she and the children live with the help of some money her parents gave her. You explain the Tie-Breaker Rules and the possible consequences of another person claiming a qualifying child. Symone moved in with the Houghtons on February 7 of the tax year because she wasn t getting along with her parents. She still lives with Imani. Symone s parents live one block away from Imani. They send Symone some money from time to time, but Imani provided more than half of Symone s support. Imani has school records showing proof of residency for all the children. You scan or make copies of these documents for your records. You also explain to Imani that she must be able to provide, upon IRS request, any documentation she has to support claiming credits related to all the children she is claiming. Imani works as a bookkeeper (W-2s shown). She left her job at Rushmore & Associates to take a better job at Savvy Sam s. When she did, she received the money she had in her Rushmore & Associates 401(k) plan (1099-R shown). She has never received any other retirement plan distributions. She stopped participating in the 401(k) plan before the beginning of the tax year. Imani started working at Savvy Sam s at the beginning of May. ach of the fathers provided minimum essential coverage under their employer health plans for their children all year. Imani had minimum essential coverage under Adrian s employer health plan at the beginning of the year, but he removed her from the plan at the end of April after he moved out. Imani tells you she cannot afford health insurance for herself. Her old car broke down several times, so she decided to buy a reliable car to get to and from work. With the added car payments, she does not have extra money to afford her own heath insurance. The minimum amount she would have to pay for premiums through her employer s plan is 2,758 according to the information she looked up using her cell phone. When you ask, Imani says she received refundable credits in previous years and has never received any correspondence from the IRS about any issues. After you educate Imani about her product and service choices, you request the following consent and receive the responses shown: To use her tax information to discuss product options. YS To disclose her tax information to the providers of products. YS To allow Jackson Hewitt to contact her. YS When you ask, Imani gives Jackson Hewitt permission to discuss her return with the IRS. Imani is not interested in attending Jackson Hewitt classes. 7-2 ProFiler Practice Scenarios

3 You explain the Accuracy Guarantee, which is included for free with paid tax preparation. If your offi ce offers a Gold Guarantee product, you explain its cost and benefi ts, but Imani declines. Someone gave Imani a Refer-A-Friend coupon (shown). After you explain Imani s product and service options, she decides she wants to apply for an Assisted Refund (AR) and have proceeds disbursed as a irect eposit to her savings account at Longbranch redit Union (RTN , account number ). She looked up the information on her cell phone. If Imani is eligible to apply for the xpress Refund Advance, she chooses to do so and have proceeds disbursed to the same savings account as the AR. She consents to disclose her tax information to the provider and wants to receive notifi cation via text messages to her cell phone. Imani has a state driver s license (#T , issue date , expiration date ), with her picture as identifi cation. She authorizes Jackson Hewitt to generate a PIN on her behalf and enter it into ProFiler for her. Imani says that her cell phone number is the best number to reach her. Prepare Imani s tax return. MB Wages, tips, other compensation 2 Federal income tax withheld PY B - 3 Social security wages 4 Social security tax withheld To Be Filed With mployee's FRAL Tax Return 5 Medicare wages and tips Medicare tax withheld c mployer's name, address, and ZIP code 9 RUSHMR & ASSIATS 3523 LANGTN AV YUR ITY YS ZIP Social security tips 8 Allocated tips 12a See instructions for box Nonqualified plans b mployer identification number (IN) a mployee's social security number e mployee's name, address, and ZIP code IMANI 8545 SPILLAA IR 10 ependent care benefits 14 ther 12b 12c 12d 13 HUGHTN YUR ITY YS ZIP 15 State mployer's state I number 16 Statutory employee Retirement plan Third-party sick pay State wages, tips, etc. 17 State income tax YS A Local wages, tips, etc. 19 Local income tax 20 This information is being furnished to the Internal Revenue Service Locailty name YL Form W-2 Wage and Tax Statement 2017 ept. of the Treasury - - IRS 1 Wages, tips, other comp. 2 Federal income tax withheld Social security wages 4 Social security tax withheld Medicare wages and tips 6 Medicare tax withheld d ontrol number ept. orp. mployer Use nly /GIP c mployer's name, address, and ZIP code SAVVY SAM'S 1 MUNT PLAZA UNIT Nonqualified plans 12a See instructions for box ther 12b 12c 12d e / f mployee's name, address, and ZIP code IMANI HUGHTN 8545 SPILLAA IR YUR ITY YS ZIP 15 State mployer's state I no. 16 State wages, tips, etc. YS SA State income tax GIP FRANKTWN IL b mployer's F I number a mployee's SSA number Social security tips 8 Allocated tips 10 ependent care benefits 13 Stat mp. 18 Local wages, tips, etc. 19 Local income tax 20 Locality name W YL Federal Filing opy Wage and Tax Statement opy B to be filed with employee's Federal Income Tax Return Ret plan rd party sick pay MB No ProFiler Practice Scenarios 7-3

4 RRT (if checked) PAYR'S name, street address, city or town, state or province, country, and ZIP or foreign postal code WBV FINANIAL GRUP IN 59 IVY LAN YUR ITY PAYR'S federal identification number RIPINT'S identification number XXX-XX-4507 RIPINT'S name YS IMANI HUGHTN Street address (including apt. no.) 8545 SPILLAA IRL ity or town, state or province, country, and ZIP or foreign postal code YUR ITY 10 Amount allocable to IRR within 5 years YS Account number (see instructions) W Form 1099-R ZIP ZIP 11 1st year of desig. Roth contrib. FATA filing requirement 1 Gross distribution 2a Taxable amount b Taxable amount not determined 3 apital gain (included in box 2a) 5 mployee contributions /esignated Roth contributions or insurance premiums IRA/ 7 istribution SP/ 8 ther code(s) SIMPL 1 9a Your percentage of total MB No Form 1099-R Total distribution 4 Federal income tax withheld Net unrealized appreciation in employer's securities % 9b Total employee contributions distribution % 12 State tax withheld 13 State/Payer's state no. istributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance ontracts, etc. opy B Report this income on your federal tax return. If this form shows federal income tax withheld in box 4, attach this copy to your return. This information is being furnished to the Internal Revenue Service. 14 State distribution 15 Local tax withheld 16 Name of locality 17 Local distribution epartment of the Treasury - Internal Revenue Service ISHA LANG ST AV YUR ITY, YS ZIP Ima Preparer F9Z ZT /31/18 10 a ProFiler Practice Scenarios

5 Lessons Learned This section describes the lessons you should have learned from this exercise. Filing Status ProFiler will select Head of Household (HH) as the fi ling status when you correctly identify that Imani is married but did not live with her spouse at any time during the last six months of the year, and she provided more than half the cost of keeping up a home for herself and a qualifying individual(s). ProFiler identifi es the qualifying individual(s) for HH from the answers to questions in the ependents/nondependents section. ependents, hild Tax redit, and arned Income Tax redit For aneen and Janine, you should have marked the check box for children who can be claimed as Imani s dependents and indicated they are children who lived with her for more than six months. For Seth, you should have marked the check box for children who lived with Imani but cannot be claimed as a dependent and indicated He is a nondependent child Imani is the custodial parent but is not claiming him because the noncustodial parent is claiming his exemption Someone else can claim him as a qualifying child, and Imani wishes to claim tax benefi ts using him as her qualifying child - This allows Seth to be considered as Imani s qualifying child for the arned Income Tax redit (IT). You do not need to enter Symone in ProFiler because she is not Imani s dependent. She does not meet the qualifying child Relationship Test or the qualifying relative Member of Household or Relationship Test. If you enter Symone s information, ProFiler will disqualify her for all tax benefi ts, including the dependent exemption, when the questions are answered appropriately (e.g., NN for the relationship and 11 for the number of months she lived in Imani s home). aneen and Janine are not Imani s qualifying children for the hild Tax redit (T) because they turned 17 during the tax year. Although they were 16 for most of the year, they must be under age 17 on ecember 31 to be qualifying children for the T. aneen and Janine are Imani s qualifying children for the IT. Seth is not Imani s qualifying child for the T because she is not claiming him as a dependent. However, he is her qualifying child for the IT. Under the uniform defi nition of a child, aneen and Janine are Adrian s stepchildren. Relationships established by marriage remain intact after separation. Therefore, aneen and Janine meet the qualifying child Relationship Test for Adrian. However, they do not meet the qualifying child Residency Test or the qualifying relative Not a Qualifying hild Test. Therefore, Adrian does not qualify to claim aneen and Janine. ProFiler Practice Scenarios 7-5

6 ue iligence Specifi c due diligence requirements apply to the IT, T, Additional hild Tax redit (AT), and American pportunity Tax redit (AT). ProFiler includes a separate ue iligence section to capture all of the requirements; e.g., questions related to Form 8867, Paid Preparer s ue iligence hecklist. If you, as the paid preparer, do not meet the due diligence requirements, the client cannot claim the associated credits. In this scenario, you should do the following to help satisfy your due diligence requirements: Scan or make copies of the school records for aneen, Janine, and Seth, and keep them with the offi ce tax return fi les. Look at Imani s situation: Her children do not have her last name. She is supporting a family of five (including her children s friend) on about 31,000 in wages. The circumstances in this scenario should prompt you to discuss the following with the client: The children s fathers, including whether the children lived with them any time during the year and whether the fathers will likely claim them. The client s living arrangements, to check if anyone else besides the children lived with her and if there are others who can claim the children. Reasons why the children s last names are not the same as the client s, and whether the client has proof of their relationship (e.g., birth certifi cates). Besides earned income (e.g., wages), other income and assistance from other sources the client received to support herself and the children, such as the children s other parent, relatives, social service agencies, charitable organizations, etc. You must document your conversation with the client in ProFiler as Preparer Notes. Affordable are Act For the Affordable are Act (AA), Imani s dependents had minimum essential coverage all year under their fathers plans, so Imani is not subject to the shared responsibility payment for them. She is subject to the shared responsibility for herself for the months she did not have health insurance. ven though she believes she cannot afford health coverage, she does not qualify for the coverage unaffordable exemption unless the minimum amount she would have paid for premiums is greater than 8.16% of her household income. The minimum amount Imani would have to pay for premiums through her employer s plan is 2, ,027 household income 8.16% = 3,021. 2,758 is less than 3,021. Therefore, Imani does not qualify for an exemption and is subject to the shared responsibility payment. There are hardship exemptions granted by the Marketplace for which a taxpayer may qualify. Hardships are life situations that keep them from getting coverage under a qualified health plan, including Homelessness viction, or facing eviction or foreclosure Receipt of a shut-off notice from a utility company 7-6 ProFiler Practice Scenarios

7 omestic violence eath of a close family member Fire, fl ood, or other natural or human-caused disaster that caused substantial damage to their property Bankruptcy fi led Unreimbursed medical expenses they could not pay that caused substantial debt Unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member xpecting to claim a child as a dependent who has been denied coverage for Medicaid and HIP during the tax year, and another individual is required by court order to provide medical support for the child (e.g., one parent is claiming the child as a dependent, and the other parent is required to provide health coverage); therefore, the health coverage exemption applies to the child As a result of an eligibility appeals decision, eligibility for enrollment in a qualifi ed health plan through the Marketplace, lower costs on their monthly premiums, or cost-sharing reductions for a time period when they were not enrolled in a qualifi ed health plan through the Marketplace during the tax year etermination of ineligibility for Medicaid because their state did not expand eligibility for Medicaid under the AA in the year prior to the tax year Individual insurance plan cancelled, and they believe other Marketplace plans are unaffordable To claim a hardship exemption, the taxpayer must fi ll out a paper application and mail it to the Marketplace. Hardship exemptions typically cover the month before the hardship, the months of the hardship, and the month after the hardship. In some cases, the Marketplace may provide the exemption for additional months. For example, the hardship exemption for individuals ineligible for Medicaid only because a state has not expanded Medicaid coverage is granted for the entire calendar year. Pension istributions Imani is subject to the 10% additional tax on her 401(k) distribution because she does not meet any exceptions. She is not required to fi le Form 5329, Additional Taxes on Qualifi ed Plans (Including IRAs) and ther Tax-Favored Accounts, because all of the following apply: She is fi ling a tax return. istribution code 1 is correctly shown in Box 7 of her Form 1099-R. The only additional tax she owes is the 10% additional tax. She is not using any of the exceptions to the additional tax. ProFiler xpertise Refer to the ProFiler xpertise document for information about the following: xpress Refund Advance ProFiler Practice Scenarios 7-7