BlockWorks Practice 2

Transcription

1 CASE STUDY BlockWorks Practice 2 Complete the following interview-style case study using the BlockWorks software. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor, and is not included in this workbook. Use the Tax Professional and taxpayer scripts provided to prepare a tax return for Cameron D. Ranger. Read the scenario carefully. Setting the Stage for an Interview-Style Case Study Tax Professional State of Mind Decide who will play the Tax Professional and who will play the taxpayer. Read about your state of mind as either the taxpayer or Tax Professional. You re looking forward to the coming tax season. You are really excited to have the chance to put your skills and expertise to work and to deliver the best experience possible to your clients. The first client you are seeing today, Cameron D. Ranger, has just walked in to have his return prepared, and you want to hit the ground running. After introducing yourself to Cameron, take a few minutes to get to know Cameron and to give him a chance to get acquainted with you. Questions Advise the taxpayer that you will be asking various personal questions. Let him know that you will use the information he gives you to prepare an accurate return with the highest refund or lowest tax liability to which he is entitled. What kind of tax documents did you bring with you today? Note: Review the taxpayer s tax documents. Be sure to look for the taxpayer s SSN number. You will need this number when creating the taxpayer s return in the software. Ask the taxpayer if his SSN is correctly printed on his tax documents. Tax Pro Script W12.1

2 W12.2 H&R Block Income Tax Course (2016) Note: When creating the return in BlockWorks, you will still need to use your student ID number for the last five digits of the primary taxpayer s SSN. Review the taxpayer s tax documents with him, and ask the taxpayer if his name is spelled correctly, and matches the name printed on his social security card. Next, ask the taxpayer if his home address is correctly printed on his tax documents. If so, enter his home address from his tax documents into the software. What is your date of birth? Did you have qualified health insurance for all 12 months of 2015? If so, how was your health insurance obtained (i.e., employer, medicare, the Marketplace, etc.)? What are your home, work, and/or cell phone numbers? Which number do you prefer, and what time of day is best to reach you? FCC requires that we receive permission from you to receive calls, specifically automated calls, to your preferred phone number. Would that be okay? Do you have an address? Cameron informs you that he received a large scholarship that he used to pay his college tuition and some living expenses. You may need to use Worksheet 1-1, Taxable Scholarship and Fellowship Grant Income, on page W12.3 to determine if Cameron s scholarship is fully or partially taxable. Be sure to give Cameron time to ask questions. Use the space below to take notes, if needed. Answer any questions that Cameron may have. Tax Pro Script

3 Worksheet Document BlockWorks Practice 2 W12.3

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5 BlockWorks Practice 2 W12.5 CASE STUDY 12.1 Complete the following case study using the BlockWorks software. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor and is not included in this workbook. Use the Tax Professional and taxpayer scripts provided to prepare a tax return for Cameron D. Ranger. Read the scenario carefully. Setting the Stage for an Interview-Style Case Study Taxpayer State of Mind Decide who will play the Tax Professional and who will play the taxpayer. Read about your state of mind as either the taxpayer or tax preparer. This is the first time you have had your income tax return prepared at an H&R Block office. For the past several years, your parents CPA prepared your taxes. This year, now that you are enrolled in graduate school, seeking a master s degree, and living away from home, you want to be in charge of your own taxes. During the year, you received a $16,500 scholarship that covers the entire cost of your tuition and $500 worth of school books. You used the remaining $3,154 of your scholarship funds to pay your rent during the school year. During the school year, you also worked as a bartender at a local restaurant to pay some of your living expenses. You obtained qualified health insurance coverage through your school. As you talk with your Tax Professional, let them know that you are single and that you do not have any dependents. To help with the tax interview, your personal information can be found on the next page. You brought with you four tax documents. These documents appear on pages W12.6 W12.8. Questions During the year, your grandfather gave you $6,000 to help with your living expenses while attending college. You are unsure what this income represents and you are worried that you may have to pay income tax on this income. Inform the Tax Professional about this income, and ask for their advice on whether this is taxable income. Taxpayer Script

6 W12.6 H&R Block Income Tax Course (2016) Client Information Information Document Taxpayer name: Cameron D. Ranger Taxpayer SSN: 742-8X-XXXX Taxpayer DOB: November 3, 1989 Health care coverage: 12 months through school 0 months no coverage Address: 3805 Main St, Apt. #4D Your City, YS XXXXX Living arrangement: Taxpayer rents an apartment Cell phone: (XXX) (T); Preferred (anytime); FCC: Yes cdranger@net.net Taxpayer occupation: Bartender Cameron is single. He is not blind or disabled. No one may claim him as a dependent. Cameron is a student. He does not want to designate $3 to the Presidential Election Campaign Fund. Cameron is a U.S. citizen. The IRS has not issued an Identity Protection ID Number for his return. Cameron obtained qualified health insurance coverage through his school. Cameron brings in one Form 1098-T, one Form W-2, and one Form INT. These documents appear below and on the next page. During the year, he purchased $500 worth of school books with his scholarship funds. He also received $6,000 from his grandfather to help pay for his living expenses. This gift is not a loan, and his grandfather doesn t care how Cameron spends the $6,000 gift. Cameron has no other income in Taxpayer Script

7 Information Documents BlockWorks Practice 2 W12.7

8 W12.8 H&R Block Income Tax Course (2016) Information Document

9 BlockWorks Practice 2 W12.9 CASE STUDY 12.2 Complete the following case study using the BlockWorks software. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor and is not included in this workbook. Use the Tax Professional and taxpayer scripts provided to prepare a tax return for Teresa J. Summers. Read the scenario carefully. Setting the Stage for an Interview-Style Case Study Tax Professional State of Mind Decide who will play the Tax Professional and who will play the taxpayer. Read about your state of mind as either the taxpayer or Tax Professional. This tax season you are really excited to have the chance to put your skills and expertise to work and to deliver the best experience possible to your clients. Your client s name Teresa J. Summers, and she arrives on time for her appointment. After introducing yourself to Teresa, you notice that she appears to be nervous and unsure about her tax situation. Take a few minutes to get to know Teresa and to give her a chance to get acquainted with you. Questions Advise the taxpayer that you will be asking various personal questions. Let her know that you will use the information she gives you to prepare an accurate return with the highest refund or lowest tax liability to which she is entitled. What kind of tax documents did you bring with you today? Note: Review the taxpayer s tax documents. Be sure to look for the taxpayer s SSN number. You will need this number when creating the taxpayer s return in the software. Ask the taxpayer if her SSN is correctly printed on her tax documents. Note: When creating the return in BlockWorks, you will still need to use your student ID number for the last five digits of the primary taxpayer s SSN. Review the taxpayer s tax documents with her and ask the taxpayer if her name is spelled correctly and matches the name printed on her social security card. Tax Pro Script

10 W12.10 H&R Block Income Tax Course (2016) Next, ask the taxpayer if her home address is correctly printed on the tax documents. If so, enter the home address from the tax documents into the software. What is your date of birth? Did every member of your household have qualified health insurance for all 12 months of 2015? If so, how was each person s health insurance obtained (i.e., employer, medicare, the Marketplace, etc.)? What are your home, work, and/or cell phone numbers? Which number do you prefer and what time of day is best to reach you? FCC requires that we receive permission from you to receive calls, specifically automated calls, to your preferred phone number. Would that be okay? Do you have an address? Ask the taxpayer about the members of her household. Determine if the members of the household qualify as qualifying child or qualifying relative dependents that the taxpayer may be eligible to claim on her return. You will need to obtain the dependents personal information, such as SSN number, birth date, etc. Be sure to give Teresa time to ask questions. Use the space below to take notes, if needed. Answer any questions that Teresa may have. Tax Pro Script

11 BlockWorks Practice 2 W12.11 CASE STUDY 12.2 Complete the following case study using the BlockWorks software. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor and is not included in this workbook. Use the Tax Professional and taxpayer scripts provided to prepare a tax return for Teresa J. Summers. Read the scenario carefully. Setting the Stage for an Interview-Style Case Study Taxpayer State of Mind Decide who will play the Tax Professional and who will play the taxpayer. Read about your state of mind as either the taxpayer or Tax Professional. This is the first time you have had your income tax return prepared at an H&R Block office. For the past several years, you prepared your taxes using a competitor s online software. During the year, you lost your job and received unemployment compensation from the state for four months. This type of income is new to you, and you wanted to seek professional help with your taxes. As you talk with your Tax Professional, let them know that you are single and you have two children who lived with you the entire year. You divorced the children s father in 2011, and now you don t know where their father lives. To help with the tax interview, your personal information can be found on pages W12.12 and W You brought with you eight tax documents. These documents appear on pages W12.13 W Questions During the year, you lost your job and received unemployment compensation from the state for four months before finding a new job. In prior years, you have received the Earned Income Tax Credit (EITC) and the child tax credit. You are unsure and worried that this income will affect your eligibility to receive these credits on your 2015 return. Inform the Tax Professional about this income, and discuss your concerns about receiving EITC and the child tax credit. Taxpayer Script

12 W12.12 H&R Block Income Tax Course (2016) Client Information Taxpayer name: Taxpayer SSN: Teresa J. Summers 742-9X-XXXX Taxpayer DOB: January 16, 1982 Health care coverage: 8 months through employer 4 months through COBRA 0 months no coverage Address: 4782 NE 94th St. Your City, YS XXXXX Living arrangement: Taxpayer rents a house Home phone: (XXX) ; Preferred (anytime); FCC: Yes Work phone: (XXX) Cell phone: (XXX) tjsummers@net.net Taxpayer occupation: Receptionist Teresa is single. She is not blind or disabled. No one may claim her as a dependent. Teresa is not a student. She does not want to designate $3 to the Presidential Election Campaign Fund. Teresa is a U.S. citizen. The IRS has not issued an Identity Protection ID Number for her return. During the year, Teresa lost her job and received unemployment compensation for four months before finding a new job. Teresa was not required to repay the unemployment compensation she received. Teresa brings in two Forms W-2 and one Form 1099-G. These documents appear on pages W12.13 and W She had no other income in During the year, Teresa received eight months of health insurance from her employers and four months health insurance through COBRA. She paid a total of $3,492 out of her own pocket from June until September for COBRA health insurance coverage Taxpayer Script

13 BlockWorks Practice 2 W12.13 Household Member(s) Information Information Document Name: Carl A. Summers SSN: DOB: August 30, 2007 Relationship: Son Health care coverage: 8 months coverage through mother s employer 4 months coverage through mother s COBRA 0 months no coverage Name: Willow E. Summers SSN: DOB: February 3, 2009 Relationship: Daughter Health care coverage: 8 months coverage through mother s employer 4 months coverage through mother s COBRA 0 months no coverage Carl and Willow lived with their mother all year long and they do not have any income. Neither child is disabled or married. Both children are U.S. citizens. Carl is in third grade and Willow is in first grade. Carl and Willow received health insurance coverage through their mother s employer and COBRA. Teresa doesn t know where the children s father lives, and Teresa does not receive child support from him. Teresa brought the children s school records with her to the tax office. Taxpayer Script

14 W12.14 H&R Block Income Tax Course (2016) Information Documents

15 Information Document BlockWorks Practice 2 W12.15

16 W12.16 H&R Block Income Tax Course (2016) Information Document

17 Information Document BlockWorks Practice 2 W12.17

18 W12.18 H&R Block Income Tax Course (2016) Information Document

19 Information Document BlockWorks Practice 2 W12.19

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21 13 Adjustments EXERCISES Complete the following exercises as you read Chapter 13. You should complete these exercises prior to arriving for your session. Your instructor will review these exercises with you and answer any questions you have. Exercise 13.1 For each of the following taxpayers, determine the amount of educator expenses the taxpayer is able to deduct as the adjustment on Form 1040A, line 16. You should review the textbook if you need help completing this exercise. 1. Madeline homeschools her daughter Pamela. Madeline spent $380 on homeschool supplies and books for Pamela. Pamela is in the second grade, and Madeline spent 1,200 hours teaching Pamela in Ronald works as a counselor at Your City High School. In 2015, he purchased college testing software for use by his senior college-bound students. The software cost him $195. He was not reimbursed by the school. He works over 1,400 hours each year. 3. Helen is a teacher s aide to a kindergarten teacher at Your City Elementary School. In 2015, she spent $40 for crayons for use by her students. She was not reimbursed by the school. She worked 1,200 hours during the year. W13.1

22 W13.2 H&R Block Income Tax Course (2016) 4. Alton is the Principal of Your City Middle School. In 2015, he spent $200 on gifts for each of his 6th, 7th, and 8th grade teachers on the last day of the school year. He had no other unreimbursed expenses and was not reimbursed for any of the gifts. He worked more than 1,500 hours during the year. 5. Katie works part-time as an art instructor at Your City Junior High School. In 2015, she spent $240 on paint supplies for her students. She was not reimbursed for the paint. She worked 720 hours in James works as a fifth grade science teacher at Your City Elementary School. In 2015, he spent $870 on science supplies for his students. The school reimbursed him $550 for the science supplies he purchased. The reimbursements were not reported on his Form W-2. He worked 1,600 hours during the year. 7. Kendra and Bruce Jackson are married, and both work as teachers at Your City High School. Kendra is a tenth grade English teacher, and Bruce is a physical education (PE) instructor for the school. In 2015, Kendra spent $230 on classroom supplies and books for her students. She was not reimbursed for the supplies. She worked 1,400 hours in Bruce spent $635 on athletic supplies for his students. The school reimbursed him $400 for the athletic supplies he purchased. The reimbursements were not reported on his Form W-2. He worked 1,600 hours during the year. 8. Lenard works as an administrator at Your City Middle School. In 2015, he spent $80 on supplies for his office. He was not reimbursed for the office supplies. He worked 1,000 hours for the year. The solutions for this exercise appear on page W13.5. Now continue reading in your text.

23 Adjustments W13.3 Exercise 13.2 Using the form provided on page F13.1, complete the IRS Student Loan Interest Deduction Worksheet for the following taxpayer. You should review the textbook if you need help completing this exercise. Johnathan C. and Britney E. Rogers are married and are filing a joint return. Their total income for 2015 was $136,500 (Form 1040A, line 15). Britney qualified for the educator expense adjustment, and the couple entered $250 on line 16 of Form 1040A. They had no other adjustments to income. Both Johnathan and Britney paid qualified student loan interest on their student loans. Their Forms 1098-E appear below. The solution for this exercise appears on page W13.6. Information Documents

24 W13.4 H&R Block Income Tax Course (2016) Exercise 13.3 Using the form provided on page F13.2, complete the Student Loan Interest Deduction Worksheet for the following taxpayer. You should review the textbook if you need help completing this exercise. William H. Mackie, a single taxpayer, paid on his student loans during the year. William s SSN is His total income for 2015 was $68,750 (Form 1040A, line 15). He had no other adjustments to income. William had qualified student loan interest. His Form 1098-E appears below. The solution for this exercise appears on page W13.6. Now continue reading in your text. Information Document

25 Adjustments W13.5 Solution $0. Expenses for homeschooling are not included in the qualified expenses for the educator expenses deduction. 2. $195. Ronald qualifies for the educator expenses deduction because he worked over 1,400 hours as a counselor of a high school, and the software purchased is a qualified expense. 3. $40. Helen qualified for the educator expenses deduction because she worked 1,200 hours as a kindergarten teacher s aid, and the crayons purchased are a qualified expense. 4. $0. Qualified expenses for the educator expenses deduction do not include gifts for teachers. Qualified expenses should be ordinary and necessary expenses used in the classroom. 5. $0. Katie does not qualify for the educator expenses deduction because she did not work at least 900 hours during the school year. 6. $250. James qualifies for the educator expenses deduction because he worked 1,600 hours as a fifth grade teacher, and the classroom supplies purchased are qualified expenses. After James was reimbursed by the school, he had $320 left of qualified expenses [$870 expenses $550 reimbursed = $320 remaining expenses], of which he is only allowed to deduct a maximum of $ $465. Kendra and Bruce both qualify for the educator expenses deduction because they both worked at least 900 hours as qualified educators. The Jacksons are allowed to take $465 educator expenses deduction, because Kendra s qualified expenses were $230, and after Bruce was reimbursed by the school, he had $235 left of qualified expenses [$635 expenses $400 reimbursed = $235 Bruce s remaining expenses + $230 Kendra s expenses = $465 total expenses]. 8. $0. Qualified expenses for the educator expenses deduction do not include personal office supplies.

26 W13.6 H&R Block Income Tax Course (2016) Solution 13.2 Solution 13.3

27 Adjustments W13.7 CASE STUDY 13.1 Complete the following case study after you have read Chapter 13 and completed the workbook exercises. You should complete this case study prior to arriving for your next instructor-led session. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor and is not included in this workbook. Using the information below, complete a tax return for Rachael C. Kendlewood. Read the scenario carefully before beginning. Use the forms provided on pages F13.3 F13.7 to complete the tax return. Client Information Taxpayer name: Rachael C. Kendlewood Taxpayer SSN: 743-0X-XXXX Taxpayer DOB: February 12, 1980 Health care coverage: 12 months coverage through employers 0 months no coverage Address: 76 E. Landcaster Road, Apt. 4 Your City, YS XXXXX Living arrangement: Taxpayer rents home Home phone: (XXX) ; Preferred (anytime), FCC: Yes Work phone: (XXX) Cell phone: (XXX) rckendlewood@net.net Taxpayer occupation: Teacher Rachael is single. She is not blind or disabled. No one may claim her as a dependent. Rachael is not a student. She does not wish to designate $3 to the Presidential Election Campaign Fund. She is a U.S. citizen. The IRS has not issued an Identity Protection ID Number for her return. Rachael pays 100% of the household expenses. Rachael is a high school teacher. During the year, she got a new teaching job and started working at Washington High School on August 23, Rachael brings in two Forms W-2.

28 W13.8 H&R Block Income Tax Course (2016) Household Members(s) Information Name: Kelli Kendlewood SSN: DOB: June 19, 2005 Relationship: Health care coverage: Daughter 12 months coverage through parent s employers 0 months no coverage Kelli lives with her mother all year long and does not have any income. She is not disabled and is not married. Kelli is a U.S. citizen. Kelli s father is not in her life, and he does not provide any support. Kelli is a fourth grade student. Her mother, Rachael, brought Kelli s social security card and school records with her and provided these documents to you to make a copy. Adjustments In 2015, Rachael spent $300 for classroom supplies while teaching at Lincoln High School, and $430 for similar expenses while teaching at Washington High School during She taught full-time at both high schools and worked over 1,600 hours for the year. Half of her expenditures were reimbursed by each school, so Rachael received $150 from Lincoln High School and $215 from Washington High School. Currently, Rachael is paying on her undergraduate student loans. She took the student loans out and solely used them to pay for qualified educational expenses. Rachael brings in her Form 1098 E. Information Document

29 Illustration Information X.X Documents Adjustments W13.9

30 W13.10 H&R Block Income Tax Course (2016) Information Document

31 Information Document Adjustments W13.11

32 W13.12 H&R Block Income Tax Course (2016) Information Document

33 Information Document Adjustments W13.13

34 W13.14 H&R Block Income Tax Course (2016) CASE STUDY 13.2 Client Information Complete the following case study after you have read Chapter 13 and completed the workbook exercises. You should complete this case study prior to arriving for your next instructor-led session. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor and is not included in this workbook. Using the information below, complete a tax return for Adam B. Crosby. Read the scenario carefully before beginning. Use the forms provided on pages F13.9 F13.11 to complete the tax return. Taxpayer name: Adam B. Crosby Taxpayer SSN: 743-1X-XXXX Taxpayer DOB: November 29, 1987 Health care coverage: 12 months coverage through employers 0 months no coverage Address: 4764 Wellington Street, Apt. 3D Your City, YS XXXXX Living arrangement: Taxpayer rents home Home phone: (XXX) ; Preferred (anytime), FCC: Yes Work phone: (XXX) Cell phone: (XXX) abcrosby@net.net Taxpayer occupation: Machine operator Adam is recently divorced and will file as single. He is not blind or disabled. No one may claim him as a dependent. He does not wish to designate $3 to the Presidential Election Campaign Fund. He is a U.S. citizen. The IRS has not issued an Identity Protection ID Number for his return. During the year, Adam changed jobs. He brings in two Forms W-2. He also brings a Form 1099-INT. Adjustments Adam is also currently paying on his undergraduate student loans. He received a Form 1098 E from his loan provider, which he brought into the office.

35 Illustration Information X.X Documents Adjustments W13.15

36 W13.16 H&R Block Income Tax Course (2016) Illustration X.X Information Documents

37 Information Document Adjustments W13.17

38 W13.18 H&R Block Income Tax Course (2016) Information Document

39 Information Document Adjustments W13.19

40 W13.20 H&R Block Income Tax Course (2016) Information Document

41 EXERCISES 14 Credits Complete the following exercises as you read Chapter 14. You should complete these exercises prior to arriving for your next instructor-led session. Your instructor will review these exercises with you and answer any questions you have. Exercise 14.1 Which of the following taxpayers qualify to claim the credit for child and dependent care expenses in 2015? Explain each of your answers. You may refer to your textbook to help you complete this exercise. 1. Alice Keeler is divorced. Her daughter, Janet (5), lived with her all year. Alice would have been able to claim the dependency exemption for Janet except that she signed a waiver allowing her ex-husband to do so. While she was working, Alice sent her daughter to the Kiddy Care Center. 2. Christine Williams husband, Henry, was disabled and unable to care for himself for the entire year. Christine hired a nurse to care for him in their home while she was at work. They will file a joint return. 3. Sidney and Stella Anderson have a dependent daughter, Andrea (8). Sidney works full time, and Stella is extensively involved in charity work. They paid the Daily Child Care Center to take care of Andrea while Stella worked for various charitable organizations. Stella did not receive any compensation for her work. The Andersons will file a joint return. 4. Jim and Mary McGraw have two dependent children, Tom (10) and Dana (4). Jim worked all year. Mary looked for a job in July and worked from August through December. They paid a babysitter to care for the children from July through December. The McGraws will file a joint return. W14.1

42 W14.2 H&R Block Income Tax Course (2016) 5. Harold and Betsy Atkinson have a son, Stewart (4). Harold abandoned the family, moving out of the home on April 20. Betsy began working on May 4. She paid Baby Watchers to take care of Stewart while she worked. She is not filing jointly with her husband, and she is claiming Stewart as her dependent. 6. Gloria Richards is divorced. She pays her mother, Janet, to take care of her eight-year-old dependent son after school while Gloria is at work. Janet, who provides all her own support, cares for her grandson in her own home. 7. Mr. and Mrs. Takashima both work. They pay their 18-year-old son, Mike, to care for his little brother, Sam (11), while they are working. Sam is their dependent, but Mike did not live with them, and they are not claiming him as a dependent. The solutions for this exercise appear on page W14.4. Now continue to read in your text.

43 Credits W14.3 Exercise 14.2 Using the forms found on pages F14.1 and F14.3, compute the credit for child and dependent care expenses for each of the following taxpayers. You may refer to your textbook to help you complete this exercise. 1. Ronald N. and Wendy O. Stone file jointly. Ronald s SSN is Wendy (SSN ) is disabled, so Ronald paid Sharon Brown $1,685 during the year to come to their home and care for Wendy while Ronald worked. Ronald earned $38,000 in taxable wages during the year. Neither spouse had any nontaxable earned income. The Stones AGI on Form 1040A, line 22, is $39,615, and their tax on Form 1040A, line 30, is $1,931. Sharon Brown, the care provider, lives at 88 Washington Street, Your City, YS XXXXX. Her SSN is Daniel Riggins (SSN ) files as head of household. He lives at 1833 High Street, Your City, YS XXXXX. In addition to his own two children, both over age 13, his nephew, Jason Riggins (9), has lived with him since Jason s parents died in Jason s SSN is Daniel paid two different people to care for Jason while he worked. He paid his 20-year-old dependent daughter, Crystal Riggins (SSN ), $800 to watch Jason during the summer while she was not attending college. The rest of the year, he paid Wynnona Davis (SSN ) $2,000 to watch Jason in her home. Wynnona lives at 254 Summer Avenue, Your City, YS XXXXX. Daniel s taxable wages are $31,375. He had no other nontaxable earned income. His adjusted gross income is $31,125. His tax on Form 1040A, line 30, is $588. The solutions for this exercise appear on pages W14.5 and W14.6. Now continue to read in your text.

44 W14.4 H&R Block Income Tax Course (2016) Solution Exercise Alice qualifies under the divorced parents rules to claim the Child and Dependent Care Credit, because she is the custodial parent. 2. Christine and Henry may claim the Child and Dependent Care Credit because Henry is incapable of self-care. 3. The Andersons may not claim the Child and Dependent Care Credit because Stella had no earned income. 4. The McGraws may claim the Child and Dependent Care Credit based on the amount paid in July while Mary looked for work, and from August through December while both were gainfully employed. 5. Betsy may claim the Child and Dependent Care Credit based on the amount she paid from May 4 through December 31, because she lived with her son, and her spouse did not live in the home the last six months of the year. Betsy will likely use the head of household filing status. 6. Gloria may claim the Child and Dependent Care Credit expenses because her child care provider is not her dependent. 7. The Takashimas may not claim the Child and Dependent Care Credit for the amount they paid their son who, although not a dependent, was under age 19. Exercise 14.3 Use the form found on pages F14.5 and F14.6, and compute the credit for child and dependent care expenses for the following taxpayer. You may refer to your textbook to help you complete this exercise. Ellis Terry files head of household. Her SSN is Ellis paid Little Angels Daycare Center $5,460 to care for her daughter, Ingrid Terry (4). Ingrid s SSN is Ellis works full time and earns a salary of $56,500, which is her only income. She has no adjustments to her income. Ellis contributes $2,500 to her company s cafeteria plan (pre-tax) for daycare. Her Form W-2 shows $54,000 in box 1 and $2,500 in box 10. Ellis has no other dependents. Her tax on Form 1040A, line 30, is $4,859. Little Angels is located at th St., Your City, YS XXXXX. Little Angels EIN is The solution for this exercise appears on pages W14.7 W14.8. Now continue to read in your text.

45 Solution Exercise 14.2 (Stone) Credits W14.5

46 W14.6 H&R Block Income Tax Course (2016) Solution Exercise 14.2 (Riggins)

47 Solution Exercise 14.3 (Terry) Credits W14.7

48 W14.8 H&R Block Income Tax Course (2016) Solution Exercise 14.3 (Terry)

49 Credits W14.9 Exercise 14.4 Read the following and determine who is in the tax household: Richard and Emily are newly married and file jointly. This is a second marriage for both. They each have two children from their previous marriages. Emily s mother lives with the couple and helps out with childcare. Rachel (24) and Paul (20) are Richard s children from his previous marriage. They both live with their mother, but often visit Richard and Emily on the weekends. Rachel is a college graduate and works as a preschool teacher. She is saving most of her money for graduate school. Richard gives her spending money, and her mother provides most of her daily needs. Rachel does not provide more than 50% of her own support. In 2015, she earned $23,285 from her job at the preschool. Paul is unsure of what direction to take in college, so he has decided to take a year off to think about his future. He is the drummer in a local band and earned $7,100 in He pays his mother $100 a month rent. Richard also gives his son weekly spending money, and his mother provides for the rest of his needs. Paul does not provide more than 50% of his own support. Jennifer (15) and Jeremy (9) are Emily s children from her previous marriage. They both lived with Richard and Emily until May, when Jennifer moved out to go live with her father. Emily and her ex-husband have agreed that in odd years, he will claim Jeremy and she will claim Jennifer. Louise (68) is Emily s mother. She is retired, and her income from social security is not enough for her to live on her own. In exchange for room and board, she picks Jeremy up after school and takes him to his after-school activities. She also helps with housecleaning and cooks dinner most nights. Richard and Emily provide more than 50% of her support Enter a Y in the left column if the person is a member of Richard and Emily s tax household and an N if they do not belong to the tax household. Richard Emily Rachel Paul Jennifer Jeremy Louise The solution for this exercise appears on page W Now continue reading in your text.

50 W14.10 H&R Block Income Tax Course (2016) Solution Exercise 14.4 Y Y N N Y N Y Richard Taxpayer. Emily Taxpayer s spouse (filing jointly). Rachel Does not qualify as a dependent for Richard and Emily. Paul Does not qualify as a dependent for Richard and Emily. Jennifer Qualifies as a dependent for Richard and Emily. Jeremy Does not qualify as a dependent for Richard and Emily. Louise Does not qualify as a dependent for Richard and Emily.

51 Credits W14.11 CASE STUDY 14.1 Complete the following case study after you have read Chapter 14 and completed the workbook exercises. You should complete this case study prior to arriving for your next instructor-led session. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor and is not included in this workbook. Using the information below, prepare a tax return for Brian Buchanan. Read the scenario carefully. Use the forms provided on pages F14.7 F14.17 to complete the tax return. Client Information Taxpayer name: Brian S. Buchanan Taxpayer SSN: 743-3X-XXXX Taxpayer DOB: April 22, 1982 Health care coverage: Six months employer Six months through the Marketplace Address: 1985 Royal Avenue Your City, YS XXXXX Living arrangement: Taxpayer rents home Home phone: (XXX) (Preferred afternoon) Work phone: (XXX) Cell phone: (XXX) bsbuchanan@net.net Taxpayer occupation: Advertising executive Brian is single. He is not blind or disabled. No one may claim him as a dependent. He is not a student. He wishes to designate $3 to the Presidential Election Campaign Fund. He is a U.S. citizen. He has no authority over a foreign account in excess of $10,000 and did not receive a distribution from, nor was the grantor of or transferee to, a foreign trust. The IRS has not issued an Identity Protection ID Number for their return. Brian has custody of his son, Jackson. Brian received $6,000 in child support from Jackson s mother. Brian was unemployed for the first six months of the year. He signed up for medical insurance coverage for himself and his son through the Marketplace.

52 W14.12 H&R Block Income Tax Course (2016) Brian pays 100% of the household expenses. His information documents can be found on pages W14.12 W Household Member Information Name: Jackson H. Buchanan SSN: DOB: May 15, 2005 Relationship: Son Health care coverage: 6 months through the Marketplace 6 months through father s employer Child Care Expenses Information Documents Jackson lives with Brian all year long and does not have any income. He is not disabled and is not married. He is a U.S. citizen. Brian paid Little Sluggers Daycare to watch Jackson while he worked. In 2015, he paid them a total of $6,500. Little Sluggers Daycare is located at 1969 American Drive, Your City, YS XXXXX. Their EIN is

53 Information Documents Credits W14.13

54 W14.14 H&R Block Income Tax Course (2016) Information Documents

55 CASE STUDY 14.2 Client Information Credits W14.15 Complete the following case study after you have read Chapter 14 and completed the workbook exercises. You should complete this case study prior to arriving for your next instructor-led session. The solution to this case study is only available from your instructor and is not included in this workbook. Using the information below, prepare a tax return for Helena S. Masterson. Read the scenario carefully. Use the forms provided on pages F14.19 F14.36 to complete the tax return. Taxpayer name: Helena S. Masterson Taxpayer SSN: 743-4X-XXXX Taxpayer DOB: April 17, 1975 Health care coverage: Address: 12 months employer 0 months of no coverage 367 Ward Parkway Your City, YS XXXXX Living arrangement: Taxpayer rents home Home phone: (XXX) (Preferred afternoon) Work phone: (XXX) Cell phone: (XXX) hsmasterson@net.net Taxpayer occupation: Military Helena is divorced. She is not blind or disabled. No one may claim her as a dependent. She is not a student. She wishes to designate $3 to the Presidential Election Campaign Fund. She is a U.S. citizen. She has no authority over a foreign account in excess of $10,000 and did not receive a distribution from, nor was the grantor of or transferee to, a foreign trust. The IRS has not issued an Identity Protection ID Number for their return. Helena pays 100% of the household expenses. Helena s information documents begin on page W14.17.

56 W14.16 H&R Block Income Tax Course (2016) Household Member(s) Information Child Care Expenses Name: Kathryn Masterson SSN: DOB: June 12, 2007 Relationship: Daughter Health care coverage: Two months through father s employer Two months of no coverage Eight months through mother s employer Name: Roger Masterson SSN: DOB: May 15, 2004 Relationship Son Health care coverage: Two months through father s employer Two months of no coverage Eight months through mother s employer Helena received $3,600 in child support from her ex-husband, John Masterson. John has always provided medical insurance coverage for the children through his employer, but he quit his job in March of 2015 and did not immediately tell Helena. By the time Helena found out, the children had been without coverage for two months. She immediately added them to her employer s medical coverage. Kathryn and Roger live with Helena all year long and do not have any income. They are neither disabled nor married. Both are U.S. citizens. Helena claims all benefits for Kathryn. However, she needs the form to release the exemption and Child Tax Credit for Roger to her former husband. John s SSN is While Helena is at work, she pays Macy s Place Daycare to watch Kathryn. In 2015, she paid them a total of $6,000. Macy s Place Daycare is located at 902 Johnson Drive, Your City, YS XXXXX. Their EIN is Helena is enrolled in the dependent care benefit plan offered by her employer and had $5,000 withdrawn from her paychecks throughout the year to use for daycare expenses. She does not have daycare for Roger.

57 Information Documents Credits W14.17

58 W14.18 H&R Block Income Tax Course (2016) Information Documents

59 Information Documents Credits W14.19

60

61 CASE STUDY BlockWorks Practice 3 Complete the following interview-style case study using the BlockWorks software. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor and is not included in this workbook. Using the Tax Professional and taxpayer scripts provided, prepare a tax return for Amber B. Ray. Read the scenario carefully. Setting the Stage for an Interview-Style Case Study Tax Professional State of Mind Decide who will play the Tax Professional and who will play the taxpayer. Read about your state of mind as either the taxpayer or Tax Professional. You re looking forward to the coming tax season. You are really excited to have the chance to put your skills and expertise to work and to deliver the best experience possible to your clients. The first client you are seeing today, Amber B. Ray, has just walked in to have her return prepared. After introducing yourself to Amber, take a few minutes to get to know her and to give her a chance to get acquainted with you. Questions Advise the taxpayer that you will be asking various personal questions. Let her know that you will use the information she provides to prepare an accurate return with the highest refund or lowest tax liability to which she is entitled. What kind of tax documents did you bring with you today? Note: Review the taxpayer s tax documents. Be sure to look for the taxpayer s SSN number. You will need this number when creating the taxpayer s return in the software. Ask the taxpayer if her SSN is correctly printed on her tax documents. Note: When creating the return in BlockWorks, you will still need to use your student ID number for the last five digits of the primary taxpayer s SSN. Tax Pro Script W15.1

62 W15.2 H&R Block Income Tax Course (2016) Review the taxpayer s tax documents with her and ask the taxpayer if her name is spelled correctly and matches her name printed on her social security card. Next, ask the taxpayer if her home address is correctly printed on her tax documents. If so, enter her home address from her tax documents into the software. What is your date of birth? Did you and all the members of your household have qualified health care coverage for all 12 months of 2015? If so, how was each person s health care coverage obtained (i.e., employer, medicare, the Marketplace, etc.)? What are your home, work, and/or cell phone numbers? Which number do you prefer and what time of day is best to reach you? The FCC requires that we receive permission from you to receive calls, specifically automated calls to your preferred phone number. Would that be okay? Do you have an address? Be sure to give Amber time to ask questions. Use the space below to take notes if needed. Answer any questions that Amber may have. Tax Pro Script

63 BlockWorks Practice 3 W15.3 CASE STUDY 15.1 Complete the following case study using the BlockWorks software. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor and is not included in this workbook. Using the Tax Professional and taxpayer scripts provided, prepare a tax return for Amber B. Ray. Read the scenario carefully. Setting the Stage for an Interview-Style Case Study Taxpayer State of Mind Decide who will play the Tax Professional and who will play the taxpayer. Read about your state of mind as either the taxpayer or Tax Professional. This is the first time you have had your income tax return prepared at an H&R Block office. For the past several years, you prepared your return using a competitor s online software. You come into the tax office as soon as you receive all of your known tax documents. You are concerned about your return, because you received health insurance through the Marketplace and you are uncomfortable preparing your own return. You want to work with a Tax Professional who understands your concerns and is sensitive to your situation. You also want to work with someone who will get you the best refund to which you are entitled. As you talk with your Tax Professional, let them know that you are single and have two dependents. To help with the tax interview, your personal information can be found on the next page. You brought four tax documents with you. These documents appear on pages W15.6 W15.7. Questions During the year, you obtained health insurance through the Marketplace. You are unsure how this will affect your return, and you are worried that you may owe the IRS. Inform the Tax Professional about your concerns, and ask for their advice about obtaining health insurance through the Marketplace. Taxpayer Script

64 W15.4 H&R Block Income Tax Course (2016) Client Information Taxpayer name: Taxpayer SSN: Amber B. Ray 743-5X-XXXX Taxpayer DOB: December 19, 1976 Health care coverage: 12 months through Marketplace 0 months no coverage Address: 6092 N Elm Road Your City, YS XXXXX Living arrangement: Taxpayer rents a house Home phone: (XXX) ; Preferred: Anytime; FCC: Yes Work phone (XXX) Cell phone (XXX) abray@net.net (T) Taxpayer occupation: Teacher Amber is single. She is not blind or disabled. No one may claim her as a dependent. Amber is not a student. She wants to designate $3 to the Presidential Election Campaign Fund. Amber is a U.S. citizen. The IRS has not issued an Identity Protection ID Number for her return. Amber works as an art teacher at Claymount Elementary School. Amber obtained qualified health insurance coverage through the Marketplace, because her employer is a private school that does not provide health insurance to their employees. During the year, she spent $235 on art supplies for her students. She was not reimbursed for the art supplies. Amber also made payments on her student loans. Amber brings in one Form W-2, one Form 1098-E, one Form 1095-A, and one Form 1095-B. These documents appear on pages W15.6 W15.8. Amber had no other income in Taxpayer Script

65 BlockWorks Practice 3 W15.5 Household Member(s) Information Child Care Expenses Name: Calvin J. Ray SSN: DOB: April 9, 2005 Relationship: Son Health care coverage: 12 months coverage through CHIP 0 months no coverage Name: Lenard P. Ray SSN: DOB: February 3, 2007 Relationship: Son Health care coverage: 12 months coverage through CHIP 0 months no coverage Calvin and Lenard lived with their mother all year long, and they do not have any income. Neither child is disabled or married. Both children are U.S. citizens. Calvin is in fifth grade and Lenard is in third grade. Calvin and Lenard received health insurance coverage through CHIP. Based on Amber s income levels, her children received free qualified health insurance coverage through CHIP. Amber paid 100% of the cost of keeping up a home for her children. Amber brought the children s school and medical records with her. During the year, Amber paid Claymount Child Daycare to watch both Calvin and Lenard for a few hours after school. In 2015, she paid a total of $3,200 ($1,600 each child). Claymount Child Daycare is located at 2201 W Harrison St, Your City, YS XXXXX. The EIN is Claymount Child Daycare s phone number is (XXX) Taxpayer Script

66 W15.6 H&R Block Income Tax Course (2016) Information Documents

67 Information Document BlockWorks Practice 3 W15.7

68 W15.8 H&R Block Income Tax Course (2016) Information Document

69 BlockWorks Practice 3 W15.9 CASE STUDY 15.2 Complete the following case study using the BlockWorks software. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor, and is not included in this workbook. Use the Tax Professional and taxpayer scripts provided to prepare a tax return for Dexter A. Surely. Read the scenario carefully. Setting the Stage for an Interview-Style Case Study Tax Professional State of Mind Decide who will play the Tax Professional and who will play the taxpayer. Read about your state of mind as either the taxpayer or Tax Professional. This tax season you are really excited to have the chance to put your skills and expertise to work and to deliver the best experience possible to your clients. Your client s name is Dexter A. Surely, and he arrives on time for his appointment. After you introduce yourself to Dexter, take a few minutes to get to know Dexter and to give him a chance to get acquainted with you. Questions Advise the taxpayer that you will be asking various personal questions. Let him know that you will use the information he provides to prepare an accurate return with the highest refund or lowest tax liability to which he is entitled. What kind of tax documents did you bring with you today? Note: Review the taxpayer s tax documents. Be sure to look for the taxpayer s SSN number. You will need this number when creating the taxpayer s return in the software. Ask the taxpayer if his SSN is correctly printed on his tax documents. Note: When creating the return in BlockWorks, you will still need to use your student ID number for the last five digits of the primary taxpayer s SSN. Review the taxpayer s tax documents with him. Confirm that his name is spelled correctly and matches his name printed on his social security card. Tax Pro Script

70 W15.10 H&R Block Income Tax Course (2016) Next, ask the taxpayer if his home address is correctly printed on his tax documents. If so, enter his home address from his tax documents into the software. What is your date of birth? Did every member of your household have qualified health care coverage for all 12 months of 2015? If so, how was each person s health care coverage obtained (i.e., employer, medicare, the Marketplace, etc.)? What are your home, work, and/or cell phone numbers? Which number do you prefer, and what time of day is best to reach you? The FCC requires that we receive permission from you to receive calls, specifically automated calls to your preferred phone number. Would that be okay? Do you have an address? Ask the taxpayer about the members of their household. Determine if the members of the household qualify as qualifying children or qualifying relative dependents that the taxpayer may be eligible to claim on their return. You will need to obtain the dependents personal information, such as SSN number, birthdate, etc. Be sure to give Dexter time to ask questions. Use the space below to take notes if needed. Answer any questions that Dexter may have. Tax Pro Script Tax Pro Script

71 BlockWorks Practice 3 W15.11 CASE STUDY 15.2 Complete the following case study using the BlockWorks software. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor and is not included in this workbook. Use the Tax Professional and taxpayer scripts provided to prepare a tax return for Dexter A. Surely. Read the scenario carefully. Setting the Stage for an Interview-Style Case Study Taxpayer State of Mind Decide who will play the Tax Professional and who will play the taxpayer. Read about your state of mind as either the taxpayer or Tax Professional. This is the first time you have had your income tax return prepared at an H&R Block office. For the past several years, you prepared your taxes using a competitor s online software. As you talk with your Tax Professional, let them know that you are single, that you have three children, and that your brother lived with you. You divorced the children s mother in 2010, and now you don t know where she lives. To help with the tax interview, your personal information can be found on pages W15.12 and W You brought several tax documents with you. These documents appear on page W15.14 W Questions In April 2015, your brother, Steven, moved in with you and your children. Steven s having trouble finding work, so you paid all of Steven s living expenses from April through December. Steven doesn t pay rent, but instead he watches your children while you are at work. You are wondering if you could claim your brother as a dependent on your return. Be sure to inform the Tax Professional of this information and ask for advice on the matter. Taxpayer Script

72 W15.12 H&R Block Income Tax Course (2016) Client Information Taxpayer name: Taxpayer SSN: Dexter A. Surely 743-6X-XXXX Taxpayer DOB: September 20, 1984 Health care coverage: 12 months through employer 0 months no coverage Address: 833 NE Juniper St Your City, YS XXXXX Living arrangement: Taxpayer rents a house Home phone: (XXX) (T); Preferred: Anytime; FCC: Yes Work phone: (XXX) Cell phone: (XXX) dasurely@net.net Taxpayer occupation: Electrical engineer Dexter is single. He is not blind or disabled. No one may claim him as a dependent. Dexter is not a student. He does not want to designate $3 to the Presidential Election Campaign Fund. Dexter is a U.S. citizen. The IRS has not issued an Identity Protection ID Number for his return. Dexter receives insurance through his employer. Dexter works full time as an electrical engineer. Dexter brings in one Form W-2 and one Form 1099-DIV. He had no other income in Dexter made payments on his student loans. He brings in three Forms 1098-E. All of Dexter s tax documents appear on pages W15.14 W Taxpayer Script

73 BlockWorks Practice 3 W15.13 Household Member(s) Information Name: Emma A. Surely SSN: DOB: June 6, 2003 Relationship: Daughter Health care coverage: 12 months coverage through father s employer 0 months no coverage Name: Quinton E. Surely SSN: DOB: February 3, 2005 Relationship: Son Health care coverage: 12 months coverage through father s employer 0 months no coverage Name: Hazel B. Surely SSN: DOB: March 1, 2007 Relationship: Daughter Health care coverage: 12 months coverage through father s employer 0 months no coverage Name: Steven J. Surely SSN: DOB: October 29, 1986 Relationship: Brother Health care coverage: 0 months coverage 12 months no coverage Emma, Quinton, and Hazel lived with their father all year long and they do not have any income. The children are not disabled or married. The children are U.S. citizens. Emma is in seventh grade, Quinton is in fifth grade, and Hazel is in third grade. Emma, Quinton, and Hazel received health care coverage through their father s employer. Dexter doesn t know where the children s mother lives, and Dexter does not receive child support from her. Dexter brought the children s health care provider records and child care provider records with him to the tax office. Taxpayer Script

74 W15.14 H&R Block Income Tax Course (2016) Child Care Expenses Steven moved in with Dexter and his family in April Steven has been having trouble finding work, so Dexter has been paying all Steven s living expenses. Dexter has provided over 50% of Steven s support during the year. Steven doesn t pay his brother rent. Instead, Steven helps Dexter around the house and looks after the kids while Dexter is at work. Steven is not a qualifying child of any other taxpayer. Steven only made $2,700 during the year working odd jobs. Before Steven moved in with the family, Dexter paid Weatherbee s Kids Care Center to watch his three children before and after school. In 2015, he paid a total of $13,200 ($4,400 for each child). Weatherbee s Kids Care Center is located at 465 E Peptin Rd., Your City, YS XXXXX. The EIN is Weatherbee s Kids Care Center s phone number is (XXX) Information Document Taxpayer Script

75 Information Documents BlockWorks Practice 3 W15.15

76 W15.16 H&R Block Income Tax Course (2016) Information Documents

77 Information Document BlockWorks Practice 3 W15.17

78 W15.18 H&R Block Income Tax Course (2016) Information Document

79 16 Education Credits EXERCISES Complete the following exercises as you read Chapter 16. You should complete these exercises prior to arriving for your session. Your instructor will review them with you and answer any questions you have. Exercise 16.1 Indicate if the following taxpayers are eligible students for the American Opportunity Credit (AOC) for You may refer to your textbook to help you complete this exercise. 1. Jennifer began her freshman year of college in August Jennifer was enrolled as a full-time student at Your State University. 2. Curtis was a graduate student at Your Local College in Lori took classes as a part-time student at Local Community College in Lori took one course per semester and was not considered by the college to be at least a half-time student. 4. In 2012, James was convicted of felony drug possession. In 2015, James was a full-time sophomore at State University. 5. Tonya was a full-time junior at Local College in Tonya paid her educational expenses by taking out student loans each semester. The solutions for this exercise appear on page W16.4. W16.1

80 W16.2 H&R Block Income Tax Course (2016) Exercise 16.2 Determine which of the following taxpayers may claim the AOC. If the taxpayer is ineligible, explain why. You may refer to your textbook to help you complete this exercise. 1. Kenneth Griffin paid qualified expenses for his son, John, who he claims as a dependent. 2. Lisa Dougherty is claimed as a dependent by her mother, Florence. Lisa paid most of her own college expenses. 3. Sharon Liston supports her son, Robert (20), an unmarried college student. He earned $6,700 wages from a part-time job and paid qualified expenses in Sharon plans to claim Robert as a dependent. Her taxable income is $30, The facts are the same as in problem 3, except Sharon s taxable income without Robert s dependency exemption is $0. The solutions for this exercise appear on page W16.4.

81 Education Credits W16.3 Exercise 16.3 Which expenses are qualifying expenses for the AOC in 2015? Unless otherwise noted, all payments were made directly to the educational institution. None of the students are dependents. Answer yes or no. You may refer to pages in your textbook to help you complete this exercise. 1. Tuition payments. No scholarships, grants, or other nontaxable benefits were received. 2. Tuition payments. The taxpayer received a nontaxable grant, which covered the entire tuition expense. 3. Cost of used books purchased from a former student, via an online bookstore not run by the college. 4. Fees for an optional student activity. 5. Fees for a student activity required to complete a degree program. 6. Room and board. 7. Cost of football uniforms and equipment. 8. Tuition paid by the taxpayer s parent. 9. Tuition paid on December 29, 2014, for a course that started on January 12, Tuition paid on July 20, 2015, for a course that started on August 24, Tuition paid on December 28, 2015, for a course that started on January 11, Tuition paid on December 4, 2014, for a course that started on December 15, The solutions for this exercise appear on page W16.5. Now continue reading in your text.

82 W16.4 H&R Block Income Tax Course (2016) Solution Exercise 16.1 Solution Exercise Yes. 2. No. As a graduate student, Curtis has completed the first four years of postsecondary education before No. Lori was not an at least half-time student. 4. No. James has a felony drug conviction. 5. Yes. The student loan does not disqualify her. 1. Kenneth may claim an education credit for John s qualified expenses. 2. Lisa may not claim an education credit because she is a dependent. Florence may claim an education credit for all of Lisa s qualified expenses. 3. Sharon may claim an education credit for Robert s qualified expenses. 4. Sharon will not benefit from claiming Robert s dependency exemption. If she chooses not to claim Robert as a dependent, Robert may claim an education credit for his qualified expenses. In no case may Robert claim his own exemption. If Sharon did claim Robert s dependency, she would benefit from the refundable portion of the AOC.

83 Solution Exercise 16.3 Education Credits W Yes. 2. No. Qualified expenses must be reduced by nontaxable grants. 3. Yes. For the AOC, required books and supplies do not have to be purchased from the educational institution to qualify. 4. No. 5. Yes. Student activity fees qualify if they are required to complete a degree program. 6. No. Room and board are not qualifying expenses for the AOC. 7. No. 8. Yes. Expenses paid by a third party are treated as having been paid by the student. 9. No. Expenses paid in 2014 do not qualify for the AOC in If the taxpayer was eligible for any educational credit, the credit for these expenses should have been claimed on the 2014 return. If it was not, the taxpayer should amend the 2014 return. 10. Yes. 11. Yes. Qualified expenses for 2015 include those paid for academic periods that start before April 1, No. Credit for these expenses should have been claimed in An amended return may be filed.

84 W16.6 H&R Block Income Tax Course (2016) Exercise 16.4 Use the forms provided on pages F16.1 F16.4 to complete the following exercise. Compute the AOC and the back of Form 1040A available for the taxpayer in the following scenario. Note that the child tax credit is already entered for you on Form 1040A, line 35. You may refer to pages in your textbook to help you complete this exercise. Kris Zadora (18) began attending college as a full-time degree candidate in September Her father, Guy Zadora (SSN ), claims her as a dependent and, along with the amount shown on Form 1098-T below, paid the following college expenses for Kris in 2015 for the fall 2015 semester: Lab fees 700 Books (part of course fee paid to the institution) 435 Student activity (required in degree program) 500 Room and board 2,200 Transportation 1,240 Kris received a $1,000 nontaxable scholarship. She has no other income. Guy s occupation is manager. He is filing as head of household. His modified AGI is $48,588 (all from wage income). His income tax withholding on his wages is $4,000. Guy had no education expenses for anyone other than Kris. Guy is also claiming his son, Steve (SSN ), age 11, as a dependent. He had no other dependents and no other income for The solution for this exercise appears on pages W16.7 W Now continue reading in your text.

85 Solution Exercise 16.4 (Zadora) Education Credits W16.7

86 W16.8 H&R Block Income Tax Course (2016) Solution Exercise 16.4 (Zadora)

87 Solution Exercise 16.4 (Zadora) Education Credits W16.9

88 W16.10 H&R Block Income Tax Course (2016) Solution Exercise 16.4 (Zadora)

89 Education Credits W16.11 Exercise 16.5 Indicate the maximum tuition and fees deduction for each taxpayer. You may refer to your textbook to help you complete this exercise. 1. Ignacio has a modified AGI of $58,279. His filing status is single. 2. Kate has a modified AGI of $74,281. Her filing status is head of household. 3. Gerri has a modified AGI of $90,125. Her filing status is single. 4. Lloyd and Margaret have a modified AGI of $90,250. They are married and filing a joint return. 5. Marcus and Deidra have a modified AGI of $155,725. They are married and filing a joint return. The solutions for this exercise appear on page W Now continue reading in your text.

90 W16.12 H&R Block Income Tax Course (2016) Solution Exercise $4, $2, $0. 4. $4, $2,000.

91 Education Credits W16.13 CASE STUDY 16.1 Complete the following case study after you have read Chapter 16 and completed the workbook exercises. You should complete this case study prior to arriving for your next instructor-led session. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor, and is not included in this workbook. Using the information below, prepare a tax return for Nicholas and Rachel McClanahan. Read the scenario carefully. Use the forms provided on pages F16.5 F16.10 to complete the tax return. Client Information Taxpayer name: Nicholas D. McClanahan Taxpayer SSN: 743-7X-XXXX Taxpayer DOB: March 23, 1968 Health insurance: 12 months employer 0 months of no coverage Spouse name: Rachel B. McClanahan Spouse SSN: Spouse DOB: September 30, 1966 Health insurance: 12 months through their employers 0 months of no coverage Address: 4621 Mapp Avenue Your City, YS XXXXX Living arrangement: Taxpayer rents home Home phone: (XXX) (Preferred afternoon) Work phone: (XXX) Cell phone: (XXX) ndmcclanahan@net.net Taxpayer occupation: Spouse occupation: Teacher Dispatcher Nicholas and Rachel are married and wish to file a joint return. They are not blind or disabled. No one may claim them as dependents. Rachel is not a student. Both wish to designate $3 to the Presidential Election Campaign Fund. Both are U.S. citizens. They have no authority over a foreign account in excess of $10,000, and did not receive a distribution from, nor were they the grantors of or transferees to, a foreign trust. The IRS has not issued an Identity Protection ID Number for their return.

92 W16.14 H&R Block Income Tax Course (2016) Nicholas spent $463 on supplies for his classroom. He is a full-time teacher at the local high school. He keeps complete records of his purchases. Nicholas and Rachel bring in two Forms W-2. They appear on page W Household Member(s) Information Determine which, if either, can be claimed on the McClanahans return Education Expenses Name: Rudolph D. McClanahan SSN: DOB: April 17, 1996 Relationship: Son Health insurance: 12 months through parent s employer 0 months of no coverage Name: Teresa B. McClanahan SSN: DOB: December 3, 1997 Relationship: Daughter Health insurance: 12 months through parent s employer 0 months of no coverage Rudolph attends Your State College full time and was a second-semester freshman on January 1, He had some income from an on-campus job. He made $2,000, but spent all of it on room and board. Teresa just started college in August of 2015 and is a freshman full time at Your City University. Teresa did not work and had no income. Neither is disabled or married. Both are U.S. citizens. Rudolph D. McClanahan $ 255 Fees 380 Books 3,450 Room and board Teresa B. McClanahan 165 Fees 200 Books Rudolph and Teresa s Forms 1098-T are on page W Rudolph had a $4,000 student loan and a $2,500 scholarship restricted to tuition. He used all of the $2,000 he earned for room and board. The remainder of Rudolph s expenses were paid by Nicholas and Rachel. All of Teresa s expenses were paid for by Nicholas and Rachel. Neither Rudolph nor Teresa have been convicted of a felony for possession or distribution of a controlled substance. The McClanahans took the AOC for Rudolph on their 2014 tax return

93 Information Documents Education Credits W16.15

94 W16.16 H&R Block Income Tax Course (2016) Information Documents

95 Illustration Information X.X Documents Education Credits W16.17

96 W16.18 H&R Block Income Tax Course (2016) Information Documents

97 Education Credits W16.19 CASE STUDY 16.2 (GRADED REVIEW #3) Client Information This is your third Graded Review. It is important that you take the time to carefully complete this case study prior to arriving for your next instructor-led session. We will not be reviewing this case study in class. You will be entering your answers into Block Academy. The solution to this case study is only available from your instructor, and is not included in this workbook. Using the information below, prepare a tax return for Raymond and Monica Walker. Read the scenario carefully. Use the forms provided on pages F16.11 F16.22 to complete the tax return. Taxpayer name: Raymond A. Walker Taxpayer SSN: 743-8X-XXXX Taxpayer DOB: March 24, 1968 Health insurance: 12 months through employer 0 months of no coverage Spouse name: Monica T. Walker Spouse SSN: Spouse DOB: June 26, 1970 Health insurance: 12 months through employer 0 months of no coverage Address: 8456 Loch Lloyd Drive Your City, YS XXXXX Living arrangement: Taxpayer rents home Home phone: (XXX) (Preferred evening) Work phone: (XXX) Cell phone: (XXX) rawalker@net.net Taxpayer occupation: Spouse occupation: Manager Interior designer Raymond and Monica are married and wish to file a joint return. They are not blind or disabled. No one may claim them as dependents. Neither is a student. Neither wishes to designate $3 to the Presidential Election Campaign Fund. Both are U.S. citizens. They have no authority over a foreign account in excess of $10,000, and did not receive a distribution from, nor were they the grantors of or transferees to, a foreign trust. The IRS has not issued an Identity Protection ID Number for their return.

98 W16.20 H&R Block Income Tax Course (2016) Household Member(s) Information Child Care Expenses Raymond and Monica bring in two Forms W-2. They appear on pages W16.21-W They also had interest income from a bank account and some dividend income. Their Forms 1099-INT and 1099-DIV appear on pages W16.22-W Monroe s Form 1098-T is found on page W Name: Monroe Walker SSN: DOB: April 18, 1995 Relationship: Son Health insurance: 12 months through parent s employer 0 months of no coverage Name: Aaron Walker SSN: DOB: May 21, 2001 Relationship: Son Health insurance: 12 months through parent s employer 0 months of no coverage Name: Laura Walker SSN: DOB: June 24, 2002 Relationship: Daughter Health insurance: 12 months through parent s employer 0 months of no coverage Monroe is a full-time student at Your State University. As a junior, he earned $3,000 working an off-campus job. He spent $1,000 on himself and the rest on his educational costs. Aaron and Laura had no income. All three lived with their parents all year long. None of the children are disabled, and none are married. All are U.S. citizens. Raymond and Monica paid Challenges Day Care and Learning Center a total of $3,500 in 2015 to care for Laura while they worked. Of that amount, $2,075 was paid prior to Laura s 13th birthday. Challenges EIN is It is located at 4119 Elm Drive, Your City, YS XXXXX. Monica did use a flexible spending account at work for part of the expenses.

99 Education Credits W16.21 Education Expenses In addition to the Form 1098-T amount on page W16.23, the Walkers paid the following educational expenses in 2015: Information Documents Monroe Walker $ 381 Fees 427 Books 4,400 Room and board Monroe received a scholarship for $5,000, which was limited to paying his tuition. He also received another $5,000 in student loans. Raymond and Monica paid the remaining amounts out of their own savings. The Walkers claimed the AOC in Monroe has never been convicted of a felony for possession or distribution of a controlled substance.

100 W16.22 H&R Block Income Tax Course (2016) Information Documents

101 Information Documents Education Credits W16.23

102 W16.24 H&R Block Income Tax Course (2016) Information Documents

103 Information Documents Education Credits W16.25

104

105 17 Retirement EXERCISES Complete the following exercises as you read Chapter 17. You should complete these exercises prior to arriving for your session. Your instructor will review them with you and answer any questions you have. Exercise 17.1 For each of the following taxpayers, indicate which type of deferred compensation plan the taxpayer most likely participated in by writing 401(k), 403(b), or 457 in the space provided. You may refer to pages in your textbook to help you complete this exercise. 1. Jordan is a public school teacher. 2. Ronda is a Tax Professional with H&R Block. She also works as a computer programmer with a local technology firm. 3. June is a fundraiser for the local office of the United Way. 4. Antonio is an city councilman on Your City Council. 5. Katie works part time as an art instructor at Your City Junior High School. The solutions for this exercise appear on page W17.8. Now continue reading in your text. W17.1

106 W17.2 H&R Block Income Tax Course (2016) Exercise 17.2 Determine the maximum allowable 2015 traditional IRA contribution for each situation. None of the taxpayers in this exercise are active participants in employer-maintained retirement plans, so all contributions are fully deductible. 1. Roger Stone (54) is single and earned $2,850 in wages. Because he has a large amount of investment income, he would like to contribute and deduct the largest allowable IRA amount to help reduce his tax liability. He has not yet made a contribution, but will do so before the due date of his return. His maximum deduction is $. 2. Bobbi Bright (33), a single taxpayer, earned $8,700 wages. She already has contributed $1,700 to her IRA. At this point, her deduction is $. What is the maximum additional amount that Bobbi could contribute to her IRA? $. 3. Ray (54) and Regina (48) Moore will file a joint return. Ray earned $38,000 wages. He would like to contribute and deduct the largest allowable IRA amount. Regina earned $31,000 wages. She also would like to contribute and deduct the largest allowable amount. Ray s deduction is $, and Regina s deduction is $. Their total deduction is $. 4. Tom (27) and Toni (23) Nichols will file a joint return. Tom earned $40,000 wages. Toni is a college student and had no compensation. They would like to contribute and deduct the largest allowable IRA amounts. Tom s IRA could be as much as $. Toni s IRA could be as much as $. Their total deduction is $. 5. Lew Quarter (69) is single. His only income for the year was $23,000 interest and $10,000 dividends. His maximum allowable IRA contribution is $. 6. Jovita Bronson (41) is divorced. Her income for the year consisted of $1,000 interest and $12,000 alimony. Her maximum allowable IRA contribution is $. 7. Emma Jessup (70), a single taxpayer, was born on May 26, Her net self-employment income for the year is $15,000. Her maximum allowable traditional IRA contribution is $. The solutions for this exercise appear on page W17.8. Continue to Exercise 17.3.

107 Retirement W17.3 Exercise 17.3 Using the worksheets provided on pages F17.1 F17.3, calculate the amount of the taxpayers traditional and Roth IRA contributions in the following scenario. Tim (31) and Sally (26) Frankford are married and are filing a joint return for The Frankfords are very proactive about saving for their retirement, and they both wish to maximize their 2015 IRA contributions. The Frankfords were very specific and only wish to contribute to their traditional IRAs the exact amount they can deduct on their return. They then wish to contribute any remaining IRA contributions available to their Roth IRA accounts. During 2015, Tim earned $60,450 and does not participate in an employer-maintained retirement plan. Sally earned $47,250 and is an active participant in an employer-maintained retirement plan. The Frankford s total income for the year is $107,730. During the year, Sally paid $1,780 in interest on her qualified student loan, which is shown on Form 1098-E provided by the student loan provider (Form 1098-E is not provided). The solution for this exercise appears on pages W17.9 W Now continue reading in your text. Exercise 17.4 Using the form provided on page F17.5, compute the retirement savings contribution credit available to the taxpayer in the following scenario. Nancy Levitt (SSN ) opened a traditional IRA in She contributed $2,500 to her traditional IRA account and received a full deduction for her contribution. She is not eligible for her company s 401(k) program at this time. She has not taken any distributions from the account, nor does she intend to do so. Nancy s AGI is $22,586. Her tax liability before any credits is $533. She is not receiving any credits from Form 1040A, lines 31 through 35. Nancy was born on August 5, She is not the dependent of anyone else and is not a student. She is filing head of household. The solution for this exercise appears on page W Now continue reading in your text.

108 W17.4 H&R Block Income Tax Course (2016) Exercise 17.5 Use the forms provided on pages F17.7 and F17.8 to complete this exercise. Complete the first page of a joint return for Kenneth (63) and Barbara (66) Meyer. Use the information provided from page 1 of their partially completed Form 1040A, shown on page W17.5. Other than Barbara s social security benefits, shown below, they have no additional income or adjustments. Complete the Taxable Social Security/Equivalent Tier 1 RR Benefits Worksheet, and complete lines 14a and 14b of their Form 1040A. The solution for this exercise appears on pages W17.13 and W Now continue reading in your text. Information Document

109 Information Document Retirement W17.5

110 W17.6 H&R Block Income Tax Course (2016) Exercise 17.6 You may refer to your textbook to help you complete this exercise. Melissa Thompson (70) (SSN ) is a single taxpayer. She began receiving a pension of $800 per month from the XYZ Company Pension Plan on May 1, Her after-tax investment in the pension was $30,665. Use the form provided on page F17.9 to complete a Simplified Method Worksheet using the simplified method for Melissa, and enter the appropriate amounts below. Form 1040A, line 12a Form 1040A, line 12b The solutions for this exercise appear on pages W17.15 and W Now continue reading in your text. Exercise 17.7 You may refer to your textbook to help you complete this exercise. John Hayes (68) (SSN ) is a single taxpayer. In 2015, John made no contributions to his traditional IRA. John did withdraw $4,000 from his IRA on November 7, His basis in his IRA was $1,150 from a nondeductible contribution he made in The statement sent to him showed the IRA was worth $24,798 at the end of Use the form provided on page F17.11 to complete Form 8606 for John, and fill in the amounts that would go on his Form 1040A. Form 1040A, line 11a Form 1040A, line 11b The solutions for this exercise appear on pages W17.15 and W Now continue reading in your text.

111 Retirement W17.7 Exercise 17.8 You may refer to your textbook to help you complete this exercise. For each taxpayer s early distribution, indicate whether or not the taxpayer is exempt from the 10% early withdrawal penalty. If so, what is the exemption number that the taxpayer would enter on Form 5329? 1. Missy (46) took a $6,910 distribution from her traditional IRA and used the entire amount pay her son s qualified higher education expenses. Yes No Exemption number 2. Vicky (34) took a $10,000 distribution from her 401(k) to use to pay qualified first-time home-buying expenses. Yes No Exemption number 3. Hanna (26) took a $9,000 distribution from her 401(k) because she became permanently disabled. Yes No Exemption number 4. Juan (34) is unemployed and took a $4,000 distribution from his 401(k) to pay his health insurance premiums. Yes No Exemption number 5. Oliver (34) is beneficiary of his mother s traditional IRA. In 2015, Oliver s mother passed away and Oliver took a $10,000 distribution from his deceased mother s traditional IRA. Yes No Exemption number The solutions for this exercise appear on pages W Now continue reading in your text.

112 W17.8 H&R Block Income Tax Course (2016) Solution Exercise 17.1 Solution Exercise (b) (k) (b) (b). 1. His maximum deduction is $2, At this point, her deduction is $1,700. If Bobbi wishes, she could contribute an additional $3,800, for a total of $5, Ray s deduction is $6,500. Regina s deduction is $5,500. Their total deduction is $12, Under the rules for spousal IRAs, a maximum of $5,500 can be contributed to each account. Their total deduction is $11, Lew s maximum contribution is $0. He had no compensation. 6. Jovita s maximum contribution is $5,500. Alimony is considered compensation for IRA purposes. 7. Emma s maximum allowable contribution is $0. Although she has sufficient compensation, she will have reached age 70½ before the end of the tax year.

113 Solution Exercise 17.3 Retirement W17.9

114 W17.10 H&R Block Income Tax Course (2016) Solution Exercise 17.3

115 Solution Exercise 17.3 Retirement W17.11

116 W17.12 H&R Block Income Tax Course (2016) Solution Exercise 17.4

117 Solution Exercise 17.5 Retirement W17.13

118 W17.14 H&R Block Income Tax Course (2016) Solution Exercise 17.5

119 Retirement W17.15 Solution Exercise 17.6 See the completed Simplified Method Worksheet on page W Form 1040A, line 12a $6,400 Form 1040A, line 12b $5,232 Solution Exercise 17.7 See the completed Form 8606 on page W Form 1040A, line 11a _$4,000 Form 1040A, line 11b $3,840 Solution Exercise Yes, No. This exception only applies to IRAs. 3. Yes, No. This exception only applies to IRAs. 5. Yes, 04.

120 W17.16 H&R Block Income Tax Course (2016) Solution Exercise 17.6

121 Solution Exercise 17.7 Retirement W17.17

122 W17.18 H&R Block Income Tax Course (2016) CASE STUDY 17.1 Client Information Complete the following case study after you have read Chapter 17 and completed the workbook exercises. You should complete this case study prior to arriving for your next instructor-led session. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor and is not included in this workbook. Using the information below, complete a tax return for David N. Billford. Read the scenario carefully before beginning. Use the forms provided on pages F17.13 F17.20 to complete the tax return. Taxpayer name: David N. Billford Taxpayer SSN: 743-9X-XXXX Taxpayer DOB: February 12, 1979 Health care coverage: 12 months through employer 0 months no coverage Address: 10 Canterberry Lane Your City, YS XXXXX Living arrangement: Taxpayer owns home Home phone: (XXX) ; Preferred: morning, FCC: Yes. Work phone: (XXX) Cell phone: (XXX) dnbillford@net.net Taxpayer occupation: Engineer David is single. He is not blind or disabled. No one may claim him as a dependent. David is not a student. He does not wish to designate $3 to the Presidential Election Campaign Fund. David is a U.S. citizen. The IRS has not issued an Identity Protection ID Number for his return. David pays 100% of the household expenses for himself, his daughter, and his nephew. David brought in his Form W-2. It appears with his other documents beginning on page W17.20.

123 Household Member(s) Information Retirement W17.19 Determine which, if either, of the individuals listed below can be claimed by David: Name: Kelli Billford SSN: DOB: June 19, 2000 Relationship: Daughter Health care coverage: 12 months coverage through parent 0 months no coverage Name: Ryan Billford SSN: DOB: April 15, 2001 Relationship: Nephew Health care coverage: 12 months coverage through uncle 0 months no coverage Kelli lived with her father all year long and does not have any income. She is not disabled and is not married. Kelli is a U.S. citizen. Kelli s mother, Mary, did not live with David during the year, and she does not help to support Kelli. Kelli receives health insurance coverage through her father s employer. Ryan is David s nephew, the son of David s sister, Kim. Kim was killed in an automobile accident on April 25, 2014, and since Ryan s father is unknown, David has become Ryan s legal guardian. Ryan has been living with David since May 1, Ryan has no income. He is not disabled and is not married. Ryan receives health insurance coverage from his uncle David. Adjustments David decided it was time to get serious about saving for retirement. In addition to contributing to his 401(k) at work, David wishes to maximize his 2015 IRA contribution. David only wishes to contribute to his traditional IRA the exact amount he can deduct on his return. He then wishes to contribute any remaining IRA contributions available to his Roth IRA account. David is also paying off his student loans from college. During the year, he paid $3,563 of qualified student loan interest. His Form 1098-E is shown on page W17.21.

124 W17.20 H&R Block Income Tax Course (2016) Information Documents

125 Information Document Retirement W17.21

126 W17.22 H&R Block Income Tax Course (2016) Information Document

127 Information Document Retirement W17.23

128 W17.24 H&R Block Income Tax Course (2016) CASE STUDY 17.2 Client Information Complete the following case study after you have read Chapter 17 and completed the workbook exercises. You should complete this case study prior to arriving for your next instructor-led session. Your instructor will review this case study with you and answer any questions you have. The solution to this case study is only available from your instructor, and is not included in this workbook. Using the information below, prepare a tax return for Vincent and Angela Snow. Read the scenario carefully. Use the forms provided on pages F17.21 F17.24 to complete the tax return. Taxpayer name: Vincent T. Snow Taxpayer SSN: 744-0X-XXXX Taxpayer DOB: November 7, 1948 Health care coverage: 12 months coverage through medicare 0 months no coverage Spouse name: Angela R. Snow Spouse SSN: Spouse DOB: November 11, 1953 Health care coverage: 12 months coverage through employer 0 months no coverage Address: 7464 N. Sunset Drive Your City, YS XXXXX Living arrangement: Taxpayers own home Home phone: (XXX) (J); Preferred: Anytime, FCC: Yes Cell phone: (XXX) (T) Cell phone: (XXX) (S) vtsnow@net.net arsnow@net.net Taxpayer occupation: Retired Spouse occupation: Office assistant Vincent and Angela are married and wish to file a joint return. They are not blind or disabled. No one may claim them as dependents. They are not students. Neither wishes to designate $3 to the Presidential Election Campaign Fund. Both are U.S. citizens. The IRS has not issued an Identity Protection ID Number for their return.

129 Retirement W17.25 Vincent is retired, and Angela works part-time as an office assistant. Vincent and Angela bring in several information documents, which appear on pages W17.25 W Retirement Each month, Vincent receives social security benefits and a $1,820 distribution from his 401(k). During the year, Angela took a $4,000 distribution from her traditional IRA. For 2015, she made no deductible or nondeductible IRA contributions. Between the time she opened the account in 1995 and 2014, only $4,000 of her contributions were nondeductible. The total value of her traditional IRA, effective December 31, 2015, is $87,142. Information Document

130 W17.26 H&R Block Income Tax Course (2016) Information Documents

131 Illustration Information X.X Documents Retirement W17.27