Other Taxes. Pub 4491 Part 6 Lesson 28 Pub 4012 Tab H

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1 Other Taxes Pub 4491 Part 6 Lesson 28 Pub 4012 Tab H Other Taxes Self-employment tax (Schedule SE) Social security and Medicare taxes on tip income (Form 4137) Additional taxes on IRAs and other qualified retirement plans (Form 5329) Repayment of first-time homebuyer credit (Form 5405) SRP for health insurance See Lesson 3 Not reduced by nonrefundable credits 2 1

2 Other Taxes in TaxSlayer 3 Self-employment Tax A tax in addition to the income tax Composed of two elements Social security Medicare TaxSlayer calculates automatically when data entered on Schedule C 4 2

3 Self-employment Tax Applies if net income from selfemployment is $400 or more Does not apply to a Notary Public Does not apply to statutory employee (already withheld on W-2) Special rules for ministers or church workers out of scope 5 Self-employment Tax Social Security portion 6.20% + Medicare portion 1.45% = 7.65% x 2 = 15.30% Both employer and employee portions paid by self-employed person 6 3

4 Self-employment Tax The additional tax shows up on 1040 Page 2 7 Self-employment Tax Employer part is deductible in computing the self-employment tax Profit from business $10,000 Employer part (7.65%) 765 Net $9,235 Tax rate (combined) 15.3% Tax $1,413 TaxSlayer does the math on SchSE! 8 4

5 Self-employment Tax Adjustment The deductible portion of the tax (the employer s part) Form 1040 Line 27: TaxSlayer does it automatically! 9 Self-employment Taxes Special situation: Notary public No Self-employment tax Input exempt net profitfrom notary business on SchSE in TS 10 5

6 Tip Income Tip income included in W-2 Box 7 already had FICA and Medicare taxes withheld Allocated tips shown in W-2 Box 8 have no FICA and Medicare taxes withheld TaxSlayer automatically calculates additional FICA and Medicare taxes on Form Unreported Tip Income If employee keeps good records (tip log available free from IRS) Can enter actual amount of all tips on Form 4137 instead of allocated tip amount 12 6

7 Unreported Tip Income If tips <$20/month were not reported to employer: Presumed included in allocated tips for income tax purposes and Not subject to social security/ Medicare tax (Form 4137 Line 5) 13 Form 4137 in TaxSlayer Enter unreported tips that were less than $20 per month 14 7

8 Tip Income Self-Employment If self-employed, enter tips on Schedule C with other business income No separate entry is required 15 Add l Tax on Tips Based on entries in Form 4137, TaxSlayer computes Social Security and Medicare taxes Carries additional tax amount to Form 1040 Line

9 Additional Tax on IRAs, etc. Pub 4491 Part 6 Lesson 28 Pub 4012 Pages H-1 H-3 Additional Tax on IRAs, etc. Form 5329 Distributions before 59½ not rolled-over ( early distribution ) (Part I) 10%* additional tax Required Minimum Distribution (RMD) not taken after 70½ (Part IX) 50% additional tax There are exceptions *25% for SIMPLE IRAs 18 9

10 Additional Tax on IRAs, etc. Form 5329 Other parts of Form 5329 are out of scope: Part II: 10% tax on education and ABLE accounts Parts III VIII: 6% tax on excess contributions to various qualified accounts not removed by due date of return 19 Form 5329 in TaxSlayer Enter the amount not subject to 10% penalty and select reason (Code) 20 10

11 Form 5329 in TaxSlayer 21 Part I: Early Distribution Exception Codes Pub 4012 H-2 All plans (IRA and employer plans) 02 A series of substantially equal periodic payments 03 Due to total and permanent disabled 04 Due to death 05 The amount paid for medical expenses, minus > 7.5% of AGI (same amount as would show on SchA) 22 11

12 Part I: Early Distribution Exception Codes All plans (cont.) 10 Due to IRS levy 11 To reservists on active duty for 180 days or more 12 More than one exception code or other reason (see form), including distributions incorrectly coded on Form 1099-R Pub 4012 H-2 23 Part I: Early Distribution Exception Codes IRAs only Pub 4012 H-2 07 The amount paid during the year for individual health insurance premiums while unemployed (see rules in Pub 590-B) * 08 The amount paid during the year for qualified education expenses (including room and board), more details in later slides * 09 Used to buy or build first main home (must be used within 120 days of distribution) * Distributions do not have to be specifically for stated expenses, but distribution and expenses must occur in same tax year 24 12

13 Part I: Early Distribution Exception Codes Other than IRAs only (employer plans) Pub 4012 Tab H 01After separation from service after the age of 55 (age 50 for public safety employee) 06Made to an alternate payee under a Qualified Domestic Relations Order 25 Part I: Early IRA Distribution Exception Code 08 The amount of higher education expenses special definition includes: For self, spouse, foster child, adopted child or descendent of any of these Does not have to be a dependent! Tuition, fees, books, supplies and equipment required to enroll or attend Special needs services expenses for special needs student 26 13

14 Part I: Early IRA Distribution Exception Code 08 (cont.) Special definition includes (cont.): If student is at least ½ time, room and board Can be at-home room and board (based on allowance established by the education institution) Reduced for nontaxable scholarships, grants or ESA distributions See Pub 970 Chapter 9 for more details 27 Part I Exercise Joyce, age 50, has no medical insurance. She took a $10K distribution (code 1) from her traditional IRA in June 2017 when she broke her arm. Her total unreimbursed medical expenses for the year were $8K. Her AGI is $50K. Q: What, if any, is the additional tax due on this distribution? 28 14

15 Part I Exercise Answer: $575 Line Entry 1 $10,000 [Early distribution included in income] 2 3 Code 05 and $4,250 [Amount of early distribution not subject to additional tax] which is the $8,000 of medical expenses less 7.5% of her $50K AGI or $8,000 minus $3,750 = $4,250 $5,750 [Amount subject to additional tax] which is $10,000 minus $4,250 from Line 2 4 $575 [Additional tax = 10% of Line 3] 29 Part IX: Waiver Request for Failure to Take RMD Taxpayer can request waiver of the additional tax for failure to take Required Minimum Distribution (RMD) from qualified retirement plan, including traditional IRAs Counselor NOT expected to review all taxpayer plans and verify that required distributions were taken 30 15

16 Part IX: Waiver Request for Failure to Take RMD Taxpayer needs to remedy the distribution shortfall by taking an additional distribution Will result in more than one year s distribution in the year of remedy Then ask for waiver 31 Waiver Request Failure to Take RMD Complete TaxSlayer input screen for Part IX of Form 5329 Note: Select 5329 for taxpayer or spouse 32 16

17 Part IX of Form 5329 Part IX input screen contains box for explanation of reason for failure to take RMD Explanation will be attached to e-file 33 Part IX of Form 5329 Possible explanations (examples): Clerical error (math goof) Relied on Trustee who failed to make the RMD Taxpayer impaired by health Beneficiary not notified by Trustee that RMD had not been taken IRS accepts most reasonable explanations 34 17

18 Part IX of form Part IX of Form

19 First Time Homebuyers Credit Payback Pub 4491, Page 28-6 Intake/Interview First Time Homebuyers Credit Did taxpayer receive FTHCin 2008? 38 19

20 First Time Homebuyers Credit Payback Taxpayers who claimed First Time Homebuyer s Credit in 2008 Started repayment in 2010 Continue to make payments until full amount of credit is repaid Can look up amount of credit still owed on irs.gov > First Time Homebuyer Credit Account Look up Can pay more than the minimum due 39 FTHC Payback 2008 In TaxSlayer enter original credit claimed in 2008, amount repaid to date and amount paying with this return Form 5405, Pt II Also add Note as reminder for next year 41 20

21 Form 5405 in TaxSlayer 42 FTHC Payback If disposed of home purchased in 2008 or home ceased to be main home, must generally repay balance of un-repaid credit with current tax return Complete Part I of Form

22 Form 5405 in TaxSlayer 44 Exceptions If home sold to someone not related to taxpayer, repayment limited to gain on sale Part III of Form 5405 If home destroyed or sold through condemnation, and if new main home purchased within two years of event, can continue with annual payments (out of scope) 45 22

23 Home Sold or No Longer Main Home If taxpayer and spouse claimed the credit on joint return, each must file a separate Form 5405 claiming half the credit (and half of any repayments) to notify IRS of status change If taxpayer claimed the credit on joint return for 2008, but spouse died, enter half of credit (and half of any repayments) The remaining half (deceased spouse s half) does not have to be repaid 46 Home Ceases to be Main Home Conversion to rental property; condemnation; foreclosure Out of Scope See the general instructions for Form 5405 for additional repayment information 47 23

24 Quality Review Self-Employment Tax Is the correct amount of selfemployment tax shown on 1040 Page 2 Is ½ of the tax deducted on 1040 Page 1 48 Quality Review Early Withdrawal Penalty Verify Form 5329 not applicable if not used Verify Form 5329 if used If over 70 ½ Verify if RMD required and taken Verify First Time Homebuyers Credit if applicable read instructions carefully 49 24

25 Taxpayer Summary Explain any additional tax Type Amount Why 50 Other Taxes Questions? Comments? 51 25