Class 2: Basic Tax Preparation Part A (federal)

Transcription

1 Class 2: Basic Tax Preparation Part A (federal) Volunteer Income Tax Assistance: We love to do taxes for free. Normal? Probably not. Helpful? Absolutely!

2 Curriculum 1. Introduction to VITA 2. Tax Preparation Part A (federal) 3. Tax Preparation Part B (federal and state) 4. Taxslayer Software and Test

3 WELCOME! Introductions: WHO AM I? WHO ARE YOU???

4 LOGISTICS: Bathrooms, exits, breaks, meals, next class Don t memorize- use your reference guides

5 Course Goals: 1. Completing a tax return in Taxslayer 2. Key Tax Concepts 3. Key Credits 4. Finishing a return- bank info, consents, ready for review

6 DEMO: A SIMPLE TAX RETURN ALAN SMITH

7 Review Alan Smith Intake Form C

8 Entering Alan Smith in Taxslayer

9 Course Goals: 1. Completing a tax return in Taxslayer 2. Key Tax Concepts 3. Key Credits 4. Finishing a return- bank info, consents, ready for review

10 Key Tax Concepts IRS Rules on Names Filing Status Filing Threshold Personal and Dependency Exemptions Qualifying Child Qualifying Relative Standard Deduction Income, Adjusted Gross Income, Taxable Income Refundable vs. NonRefundable Credits

11 IRS Rules on Names Pub 4012 section K-5 & K-6

12 FILING STATUS Single Married Filing Jointly Married Filing Separately (not eligible for most credits) Qualifying Widow(er) with dependent child Head Of Household See Determination of Filing Status Decision Tree TaxWorld: you are either married or not married. There is no in-between.

13 Head of Household 2 CONDITIONS 1 2 Unmarried or Considered Unmarried =Married Filing Separately and live apart last 6 months AND Qualifying person lives with you more than half the year or Parent who is your dependent (even if not living with you) See Qualifying Person Decision Tree

14 Dear Iris, My husband and I are still married, but he moved out of our home in April of He has an apartment, and I have the house. About the only thing we can agree on is that we will not file a joint return. Not happening. Dear IRIS: by Brad Martin I'm keeping up what was our home, and I'm raising our seven-year-old grandson. Our son got into some trouble with the law, and we've had our grandson for the past three years. My question is this: Since we will not file jointly, does that mean I have to file Married Filing Separately? I've heard that Married Filing Separately is a bad way to go. What else can I do about it, if anything? Second Chance At Motherhood

15 FILING THRESHOLD: WHO MUST FILE Income Filing Status Dependency Self employment income Received Affordable Care Act Premium Tax Credit Health Savings Account/ Medical Savings Account distributions Other special conditions See Pub 4012: Determination of WHO MUST FILE Decision Trees 4012 A1-A3 Note: If taxpayer s only income is Social Security, he generally does not need to file.

16 FILING THRESHOLD: WHO SHOULD FILE Withheld income Earned Income Credit/Child Tax Credit Student Financial Aid- American Opportunity Credit ACA Premium Tax Credit Other special issues See Determination of WHO Should FILE Decision Tree (4012 p. A3)

17 DEPENDENCY/EXEMPTION Each Social Security number = 1 exemption Only one person can claim each exemption Tax Filer claims own (personal) exemption plus his dependents Spouse claims own (personal) exemption Dependents can t claim exemptions for themselves or others. See Rules for Claiming and Exemption for a Dependent

18 DEPENDENCY/EXEMPTION Qualifying Child vs. Qualifying Relative 6 TESTS to determine qualifying Relationship Age/Disability Residency Support (more than half the household expenses) Income Citizenship/marital status Handout: All those relatives See Rules for Claiming and Exemption for a Dependent TaxWorld: A qualifying child is not necessarily a child; a qualifying relative is not necessarily a relative.

19 Dear Iris, I am seventeen years old, and a junior in high school. I have a son who was born in September of We live with my Mom. I work at Burger King to try to bring in some extra money, but Mom pays most of the expenses. I made enough that I'm going to have to file taxes though. Dear IRIS: by Brad Martin Mom and I are fighting over who can claim my son. I say I can claim him because he's my son. Mom says she can claim him because she's supporting both of us, and he's her grandson. I'm really not trying to take anything away from my Mom, but if I can increase my refund by claiming, I want to do that. Can we both claim him? Fighting Over a Four Month Old

20 Deduction: Standard vs. Itemized! Subject to legislative change Single or Married Filing Separately $6350 Married or Qualifying Widow $12,700 Head of Household $9350 Who should Itemize? High medical expenses, mortgage interest, and other factors. Charity alone is not enough. State implications Deduction <> Self-Employed business expense

21 Adjusted Gross Income, Taxable Income Wage Income Self-Employment Income Retirement Income Investment Income Gross Income Adjustments Adjusted Gross Income Standard or Itemized Deduction Exemptions Taxable Income Tax amount NonRefundable Credit (can reduce tax to 0) Refundable Credit (IRS pays you) Final Tax Payment or Refund

22 Reading the 1040: Gross Income Alan Smith 1040

23 Reading the 1040: Adjusted Gross Income (AGI) Alan Smith 1040

24 Reading the 1040: Deductions, Exemptions, Taxable Income, Tax Alan Smith 1040

25 Credits: Refundable and Non Refundable! Subject to legislative change NON REFUNDABLE Reduce your taxable income to 0 REFUNDABLE IRS Pays You: Adoption Tax Credit Child Tax Credit (partial) Child and Dependent Care Credit Life Learning Credit Savers Credit Foreign Tax Credit Mortgage Interest Tax Credit Earned Income Tax Credit Child Tax Credit (partial) American Opportunity Credit (partial) ACA Premium Tax Credit We ll come back to these.

26 Reading the 1040: NonRefundable Credits Alan Smith 1040

27 Reading the 1040: Refundable Credits Alan Smith 1040

28 Reading the 1040: Refund/ Amount Owed Alan Smith 1040