FOR PARENTS Use this primer to get an understanding of which few tax forms will be most helpful to you as you complete your PFS. This primer doesn t provide an overview of every possible tax form you might receive or need to file with IRS. Instead, it focuses on just four forms families will need to have on hand to complete the PFS accurately and correctly, as well one form that schools might ask you to submit. The forms this primer covers are: z z Form W2 Form 1040 z Schedule C z z Form 1099-MISC Form 4506-T For each of these forms, the primer will answer three questions: 1. What is the form used for? 2. What does the form look like? 3. Which lines on this form matter most for completing the PFS? Important Note Be sure to send all of your tax forms as required by each school you re applying to. Do not limit what you submit to schools to the few documents covered in this primer. If a school requires your tax forms and schedules, be sure to send or upload the full set of tax forms that you submit to the IRS when filing your tax return. Doing so ensures that you complete the schools document requirements correctly, avoiding possible delays in the process. PAGE 1 OF 15
FOR PARENTS Form W2 What Is It For? The W-2 is an annual statement of your earnings for the calendar year, provided by your employer. It also displays how much was withheld from your pay for taxes, Social Security, and Medicare. This is where you can also see how much of your income was put into certain types of pre-tax retirement plans. What Does the Form W2 Look Like? 22222 b Employer identification number (EIN) c Employer s name, address, and ZIP code a Employee s social security number Report this on PFS Line 7A or 7B OMB No. 1545-0008 1 Wages, tips, other compensation 2 Federal income tax withheld 3 Social security wages 4 Social security tax withheld 5 Medicare wages and tips 6 Medicare tax withheld 7 Social security tips 8 Allocated tips d Control number 9 Verification code 10 Dependent care benefits e Employee s first name and initial Last name Suff. 11 Nonqualified plans 12a C 13 Statutory employee f Employee s address and ZIP code 15 State Employer s state ID number 16 State wages, tips, etc. 17 State income tax 18 Local wages, tips, etc. 19 Local income tax 20 Locality name Retirement plan Report this on PFS 14 Other Line 8D, if a code D, E, F, G, or H appears Third-party sick pay o d e 12b C o d e 12c C o d e 12d C o d e Wage and Tax Form W-2 Copy 1 For State, City, or Local Tax Department Statement 2017 Department of the Treasury Internal Revenue Service Which Lines Matter for the PFS? Report the salary in Box 1 of your W2 on line 7A of the PFS for the parent listed as Parent A. Use 7B for the parent listed as Parent B. Look at Box 12. If any amounts appear in this section with a code D-H, be sure to report that amount as Payments to tax-deferred retirement plans in PFS line 8D of the Nontaxable Income Worksheet. You do not have to report any other information from the W2 on the PFS. It is possible that one or more schools you re applying to might ask you to supply other information from the W2. You ll most likely be required to submit or upload a copy of each W2 you receive as part of your financial aid application. PAGE 2 OF 15
FOR PARENTS Form 1040 What Is It For? The 1040 is used to report your sources of incomes, as well as any adjustments, deductions, and credits against your income that will determine how much and what types of federal taxes you should have paid for the tax year. If you ve paid too much in taxes, it will show how much of a refund from the federal government you are entitled to receive. If you ve paid too little in taxes, it will show how much more you need to pay. Related forms are: z z 1040A (used by taxpayers with $100,000 of income of less who don t own businesses and don t claim itemized deductions) 1040EZ (used by filers with no dependents and no itemized deductions, and with income under $100,000 all of which was earned as wages, salaries, and tips) What Does the Form 1040 Look Like? The 1040 is a two-page document comprised of several sections. Let s look at the form in sections: 1040 Section: Household Information Form 1040 Department of the Treasury Internal Revenue Service (99) U.S. Individual Income Tax Return 2016 OMB No. 1545-0074 IRS Use Only Do not write or staple in this space. For the year Jan. 1 Dec. 31, 2016, or other tax year beginning, 2016, ending, 20 See separate instructions. Your first name and initial Last name Your social security number If a joint return, spouse s first name and initial Last name Spouse s social security number Home address (number and street). If you have a P.O. box, see instructions. Apt. no. Make sure the SSN(s) above and on line 6c are correct. City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions). Report this on Presidential Election Campaign Check here if you, or your spouse if filing PFS Line 6B jointly, want $3 to go to this fund. Checking Foreign country name Foreign province/state/county Foreign postal code a box below will not change your tax or refund. You Spouse Filing Status 1 Single 4 Head of household (with qualifying person). (See instructions.) If 2 Married filing jointly (even if only one had income) the qualifying person is a child but not your dependent, enter this Check only one 3 Married filing separately. Enter spouse s SSN above child s name here. box. and full name here. 5 Qualifying widow(er) with dependent child 6a Yourself. If someone can claim you as a dependent, do not check box 6a..... Boxes checked Exemptions } on 6a and 6b b Spouse........................ No. of children c Dependents: (2) Dependent s (3) Dependent s (4) if child under age 17 on 6c who: (1) First name Last name social security number relationship to you qualifying for child tax credit lived with you (see instructions) Report did not live this with on Report this on you due to divorce PFS or separation Line 6C If more than four PFS Lines 2, 3 (see instructions) dependents, see instructions and Dependents on 6c not entered above check here Add numbers on d Total number of exemptions claimed................. lines above PAGE 3 OF 15
FOR PARENTS Which Lines Matter for the PFS? Be sure your tax filing status on PFS Line 6B matches what is checked off on boxes 1-5 on your 1040. An incorrect choice on the PFS can cause a miscalculation of the credit you receive for federal income taxes you pay. When listing your dependents on the PFS, make sure it is consistent with those listed on your 1040 in Line 6C. If you support children or others in your household that you cannot claim as a dependent, be sure to list them and explain their relationship to you in the PFS Other Considerations section. PFS Line 6C asks about exemptions you claim. Be sure it matches with exemptions claimed on Line 6D of your 1040. An incorrect entry on the PFS can cause a miscalculation of the credit you receive for federal income taxes you pay. 1040 Section: Income Information Income Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld. If you did not get a W-2, see instructions. 7 Wages, salaries, tips, etc. Attach Form(s) W-2............ 7 8a Taxable interest. Attach Schedule B if required............ 8a b Tax-exempt interest. Do not include on line 8a... 8b PFS Line 8K 9 a Ordinary dividends. Attach Schedule B if required........... 9a b Qualified dividends........... 9b Do not report on PFS 10 Taxable refunds, credits, or offsets of state and local income taxes...... 10 11 Alimony received..................... 11 12 Business income or (loss). Attach Schedule C or C-EZ.......... 12 13 Capital gain or (loss). Attach Schedule D if required. If not required, check here 13 14 Other gains or (losses). Attach Form 4797.............. 14 15 a IRA distributions. 15a PFS Line 8M = 15a minus 15b b Taxable amount... 15b 16 a Pensions and annuities 16a PFS Line 8M = 16a minus 16b b Taxable amount... 16b 17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17 18 Farm income or (loss). Attach Schedule F.............. 18 19 Unemployment compensation................. 19 20 a Social security benefits 20a PFS Line 8B = 20a minus 20b b Taxable amount... 20b 21 Other income. List type and amount 21 22 Combine the amounts in the far right column for lines 7 through 21. This is your total income 22 PFS Line 7A, 7B PFS Line 7C PFS Line 7D PFS Line 7T PFS Line 7E PFS Line 19 PFS Line 7M PFS Line 7T PFS Line 7O PFS Line 7P PFS Line 7Q or 19 PFS Line 19 PFS Line 7R PFS Line 7S PFS Line 7T Which Lines Matter for the PFS? As you can see, each line of the 1040 s Income section has a corresponding line on the PFS where the income information should be reported. Most are straightforward one-to-one matches. However, a few lines warrant a little more guidance: 1040 Line 7: Salary/Wages The salary and wages reported here are a total of salaries earned by the parents in the household. The PFS asks you to report each parent s salary separately, so you won t see a single line item on the PFS for the total salaries. Be sure though, that the total of the salaries you enter in line 7A and 7B for each parent is the same as the total shown on Line 7 of your 1040. PAGE 4 OF 15
FOR PARENTS 1040 Line 12: Business income or (loss) This refers specifically to income or loss you had from a Sole Proprietorship, for which you also completed a Schedule C. On Line 19 of the PFS, the total of the net profit or loss from each Schedule C business you own should equal the amount shown on your 1040 Line 12. Be sure to send or upload each Schedule C you file, if you have income or a loss listed on your 1040 Line 12. 1040 Lines 15a, 16a, and 20a: Distributions from IRA, Pensions, and Social Security 1040 Lines 15a, 16a, and 20a each show the total income you received from IRA, Pensions, and Social Security. Lines 15b, 16b, and 20b show the portion of that total that was taxable. Each has a specific PFS line for reporting the taxable portion. To report the nontaxable portion correctly, take the difference and report it in the appropriate PFS line item in the Nontaxable Income section. Report your nontaxable IRA and Pension income in PFS Line 8M. Report your nontaxable Social Security benefits in PFS Line 8B. 1040 Line 17: Rental Real Estate, royalties, partnerships, S corporations, trusts, etc. This line can be complicated, depending on what type of income is included here, since many different types of income reportable on your 1040 Line 17. If any income reported on Line 17 is from rental property, trusts, or royalties, report it on Line 7Q of your PFS. If any income reported on Line 17 is from S corporations or Partnerships that you share ownership in, report it on Line 19 of your PFS, in the section that asks you to detail the income and expenses of the business. Be sure to send or upload each Schedule E you file, if you have income or loss listed on your 1040 Line 17. PAGE 5 OF 15
FOR PARENTS 1040 Section: Adjustments to Income Adjusted Gross Income Which Lines Matter for the PFS? In this section, four items have one-to-one matching items on the PFS. Be sure to report the total shown on 1040 Line 36 on PFS line 7F. If you have adjustments in 1040 Lines 27, 28, or 32, report them in the proper lines on the PFS. If you have adjustments other than those three, be sure to leave a note in PFS Item 7J to specify what the adjustments were for (e.g., alimony paid or Educator expenses ). 1040 Section: Tax and Credits 23 Educator expenses........... 23 24 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 or 2106-EZ 24 25 Health savings account deduction. Attach Form 8889. 25 26 Moving expenses. Attach Form 3903...... 26 27 Deductible part of self-employment tax. Attach Schedule SE. 27 28 Self-employed SEP, SIMPLE, and qualified plans.. 28 29 Self-employed health insurance deduction.... 29 30 Penalty on early withdrawal of savings...... 30 31 a Alimony paid b Recipient s SSN 31a 32 IRA deduction............. 32 33 Student loan interest deduction........ 33 34 Tuition and fees. Attach Form 8917....... 34 35 Domestic production activities deduction. Attach Form 8903 35 PFS Line 7I PFS Line 7H PFS Line 7G 36 Add lines 23 through 35................... 36 37 Subtract line 36 from line 22. This is your adjusted gross income..... 37 PFS Line 7F 1040 Form 1040 (2016) Tax and Credits Standard Deduction for People who check any box on line 39a or 39b or who can be claimed as a dependent, see instructions. All others: Single or Married filing separately, $6,300 Married filing jointly or Qualifying widow(er), $12,600 Head of household, $9,300 38 Amount from line 37 (adjusted gross income).............. 38 39a Check You were born before January 2, 1952, Blind. Total boxes { } if: Spouse was born before January 2, 1952, Blind. checked 39a b If your spouse itemizes on a separate return or you were a dual-status alien, check here 39b 40 Itemized deductions (from Schedule A) or your standard deduction (see left margin).. 40 41 Subtract line 40 from line 38................... 41 42 Exemptions. If line 38 is $155,650 or less, multiply $4,050 by the number on line 6d. Otherwise, see instructions 42 43 Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter -0-.. 43 44 Tax (see instructions). Check if any from: a Form(s) 8814 b Form 4972 c 44 45 Alternative minimum tax (see instructions). Attach Form 6251......... 45 46 Excess advance premium tax credit repayment. Attach Form 8962........ 46 47 Add lines 44, 45, and 46................... 47 48 Foreign tax credit. Attach Form 1116 if required.... 48 49 Credit for child and dependent care expenses. Attach Form 2441 49 50 Education credits from Form 8863, line 19..... 50 51 Retirement savings contributions credit. Attach Form 8880 51 52 Child tax credit. Attach Schedule 8812, if required... 52 53 Residential energy credits. Attach Form 5695.... 53 54 Other credits from Form: a 3800 b 8801 c 54 55 Add lines 48 through 54. These are your total credits............ 55 56 Subtract line 55 from line 47. If line 55 is more than line 47, enter -0-...... 56 PFS Line 6E PAGE 6 OF 15
FOR PARENTS Which Lines Matter for the PFS? While there are many items in this section of the 1040, only one line is relevant when completing your PFS. The amount on Line 40, your itemized deductions, should be reported on PFS Line 6E. If you did not itemize your deductions, you can enter zero on the PFS for this question. No other questions on the PFS ask about any amounts in this section of the 1040. If your itemized deductions include medical and/or dental expenses, look at your Schedule A, Line 1. You can report the total medical and dental expenses shown there in PFS Line 14A. Please note that you can still report your medical and dental expenses on PFS Line 14A even if you did not itemize them on a Schedule A (see example below): SCHEDULE A (Form 1040) Department of the Treasury Internal Revenue Service (99) Name(s) shown on Form 1040 OMB No. 1545-0074 Itemized Deductions Information about Schedule A and its separate instructions is at www.irs.gov/schedulea. 2016 Attachment Attach to Form 1040. Sequence No. 07 Your social security number Medical and Dental Expenses Taxes You Caution: Do not include expenses reimbursed or paid by others. 1 Medical and dental expenses (see instructions)..... 1 PFS Line 14A 2 Enter amount from Form 1040, line 38 2 3 Multiply line 2 by 10% (0.10). But if either you or your spouse was born before January 2, 1952, multiply line 2 by 7.5% (0.075) instead 3 4 Subtract line 3 from line 1. If line 3 is more than line 1, enter -0-........ 4 5 State and local (check only one box): 1040 Section: Other Taxes and Payments Other Taxes PAGE 7 OF 15 57 Self-employment tax. Attach Schedule SE............... 57 58 Unreported social security and Medicare tax from Form: a 4137 b 8919.. 58 59 Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required.. 59 60 a Household employment taxes from Schedule H.............. 60a b First-time homebuyer credit repayment. Attach Form 5405 if required........ 60b 61 Health care: individual responsibility (see instructions) Full-year coverage..... 61 62 Taxes from: a Form 8959 b Form 8960 c Instructions; enter code(s) 62 63 Add lines 56 through 62. This is your total tax............. 63 Payments 64 Federal income tax withheld from Forms W-2 and 1099.. 64 65 2016 estimated tax payments and amount applied from 2015 return 65 PFS Line 8I If you have a qualifying child, attach Schedule EIC. Refund 66a Earned income credit (EIC).......... 66a b Nontaxable combat pay election 66b 67 Additional child tax credit. Attach Schedule 8812..... 67 68 American opportunity credit from Form 8863, line 8... 68 69 Net premium tax credit. Attach Form 8962...... 69 70 Amount paid with request for extension to file..... 70 71 Excess social security and tier 1 RRTA tax withheld.... 71 72 Credit for federal tax on fuels. Attach Form 4136.... 72 73 Credits from Form: a 2439 b Reserved c 8885 d 73 74 Add lines 64, 65, 66a, and 67 through 73. These are your total payments..... 74 PFS Line 17J On PFS Line 6F, report the difference of 1040 Line 63 minus Line 57
FOR PARENTS Which Lines Matter for the PFS? 1040 Line 57 shows the total amount of self-employment taxes you paid for your business(es). These should also be report on Line 17J on the PFS. Note that the PFS will ask you how much self-employment tax you paid for each business separately. The total of all of those self-employment tax amounts should be equal to what s reported here on the 1040 Line 57. 1040 Line 63 shows what you owe for the different types of federal taxes on your income. PFS Line 6F asks you to report your federal taxes paid. Be sure to report the amount shown on 1040 Line 63. But if you also have Self-Employment taxes, do not include those in PFS Line 6F, since you have to report those separately for each business. Instead, for PFS Line 6F, report the total tax on Line 63 MINUS any Self-Employment tax on Line 57. Earned income credits shown on 1040 Line 66a are considered non-taxable income and should be reported on PFS Line 8I. 1040 Section: Refund, Amount You Owe, Third Party Designee, Signatures There is no information provided in these final areas of the 1040 that is also asked for on the PFS. PAGE 8 OF 15
FOR PARENTS Schedule C What Is The Schedule C For? The Schedule C is used for reporting specific details about each business you own for which you are the sole proprietor. It shows the name, location, and type of business. It details the total, gross income you received for the business. It itemizes the allowable expenses of the business that can be written off against the business s income to ultimately show what your net profit or loss was on the business. The net profit or loss is then entered on your Form 1040 on Line 12. When you submit your 1040 to the IRS, you are required to attach/include a Schedule C for each sole proprietorship you own. What Does the Schedule C Look Like? SCHEDULE C (Form 1040) Department of the Treasury Internal Revenue Service (99) Name of proprietor Profit or Loss From Business (Sole Proprietorship) OMB No. 1545-0074 2016 Attachment Sequence No. 09 Information about Schedule C and its separate instructions is at www.irs.gov/schedulec. Attach to Form 1040, 1040NR, or 1041; partnerships generally must file Form 1065. Social security number (SSN) A Principal business or profession, including product or service (see instructions) B Enter code from instructions C Business name. If no separate business name, leave blank. D Employer ID number (EIN), (see instr.) E Business address (including suite or room no.) City, town or post office, state, and ZIP code F Accounting method: (1) Cash (2) Accrual (3) Other (specify) G Did you materially participate in the operation of this business during 2016? If No, see instructions for limit on losses. Yes No H If you started or acquired this business during 2016, check here................. I Did you make any payments in 2016 that would require you to file Form(s) 1099? (see instructions)........ Yes No J If "Yes," did you or will you file required Forms 1099?..................... Yes No Part I Income 1 Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the Statutory employee box on that form was checked......... 1 2 Returns and allowances......................... 2 3 Subtract line 2 from line 1........................ 3 4 Cost of goods sold (from line 42)...................... 4 5 Gross profit. Subtract line 4 from line 3.................... 5 6 Other income, including federal and state gasoline or fuel tax credit or refund (see instructions).... 6 7 Gross income. Add lines 5 and 6..................... 7 Part II Expenses. Enter expenses for business use of your home only on line 30. 8 Advertising..... 8 18 Office expense (see instructions) 18 9 Car and truck expenses (see 19 Pension and profit-sharing plans. 19 instructions)..... 9 20 Rent or lease (see instructions): 10 Commissions and fees. 10 a Vehicles, machinery, and equipment 20a 11 Contract labor (see instructions) 11 b Other business property... 20b 12 Depletion..... 12 21 Repairs and maintenance... 21 13 Depreciation and section 179 22 Supplies (not included in Part III). expense deduction (not included in Part III) (see 23 Taxes and licenses.. instructions)..... 13 24 Travel, meals, a 14 Employee benefit programs a Travel (other than on line 19).. 14 b (other than health) 15 PAGE 9 OF 15
FOR PARENTS Which Lines Matter for the PFS? If you have a Schedule C, you have a Sole Proprietorship. On PFS Line 6G, answer Yes. You will be required to complete Section 15 for Business/Farm information. On PFS Line 15C, select Sole Proprietorship and complete the questions about each business based on the income and expense information provided on the Schedule C. See below for guidance: Schedule C: Business Information and Income SCHEDULE C (Form 1040) Department of the Treasury Internal Revenue Service (99) Name of proprietor Profit or Loss From Business (Sole Proprietorship) OMB No. 1545-0074 2016 Attachment Sequence No. 09 Information about Schedule C and its separate instructions is at www.irs.gov/schedulec. Attach to Form 1040, 1040NR, or 1041; partnerships generally must file Form 1065. Social security number (SSN) A Principal business or profession, including product or service (see instructions) PFS Line 15K B Enter code from instructions C Business name. If no separate business name, leave blank. D Employer ID number (EIN), (see instr.) PFS Line 15A E Business address (including suite or room no.) City, town or post office, state, and ZIP code PFS Line 15G - 15J F Accounting method: (1) Cash (2) Accrual (3) Other (specify) G Did you materially participate in the operation of this business during 2016? If No, see instructions for limit on losses. Yes No H If you started or acquired this business during 2016, check here................. I Did you make any payments in 2016 that would require you to file Form(s) 1099? (see instructions)........ Yes No J If "Yes," did you or will you file required Forms 1099?..................... Yes No Part I Income 1 Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the Statutory employee box on that form was checked......... 1 PFS Line 16A 2 Returns and allowances......................... 2 3 Subtract line 2 from line 1........................ 3 4 Cost of goods sold (from line 42)...................... 4 PFS Line 16B 5 Gross profit. Subtract line 4 from line 3.................... 5 PFS Line 16C 6 Other income, including federal and state gasoline or fuel tax credit or refund (see instructions).... 6 PFS Line 16D 7 Gross income. Add lines 5 and 6..................... 7 Part II Expenses. Enter expenses for business use of your home only on line 30. Note that you will have to complete a separate section on income for each sole proprietorship that you own. PAGE 10 OF 15
FOR PARENTS Schedule C: Business Expenses and Net Profit/Loss Part II Expenses. Enter expenses for business use of your home only on line 30. 8 Advertising..... 8 18 Office expense (see instructions) 18 9 Car and truck expenses (see 19 Pension and profit-sharing plans. 19 instructions)..... 9 20 Rent or lease (see instructions): PFS Line 17D 10 Commissions and fees. 10 a Vehicles, machinery, and equipment 20a 11 Contract labor (see instructions) 11 b Other business property... 20b 12 Depletion..... 12 21 Repairs and maintenance... 21 13 Depreciation and section 179 22 Supplies (not included in Part III). 22 expense deduction (not PFS Line 17F included in Part III) (see 23 Taxes and licenses..... 23 instructions)..... 13 24 Travel, meals, and entertainment: 14 Employee benefit programs a Travel......... 24a PFS Line 17C (other than on line 19).. 14 b Deductible meals and 15 Insurance (other than health) 15 entertainment (see instructions). 24b 16 Interest: 25 Utilities........ 25 a Mortgage (paid to banks, etc.) 16a 26 Wages (less employment credits). 26 PFS Line 17A, B b Other...... 16b 27 a Other expenses (from line 48).. 27a 17 Legal and professional services 17 b Reserved for future use... 27b 28 Total expenses before expenses for business use of home. Add lines 8 through 27a...... 28 PFS Line 17I 29 Tentative profit or (loss). Subtract line 28 from line 7................. 29 30 Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829 unless using the simplified method (see instructions). Simplified method filers only: enter the total square footage of: (a) your home: and (b) the part of your home used for business:. Use the Simplified Method Worksheet in the instructions to figure the amount to enter on line 30......... 30 31 Net profit or (loss). Subtract line 30 from line 29. If a profit, enter on both Form 1040, line 12 (or Form 1040NR, line 13) and on Schedule SE, line 2. PFS Line 17L (If you checked the box on line 1, see instructions). Estates and trusts, enter on Form 1041, line 3. } 31 If a loss, you must go to line 32. 32 If you have a loss, check the box that describes your investment in this activity (see instructions). } If you checked 32a, enter the loss on both Form 1040, line 12, (or Form 1040NR, line 13) and on Schedule SE, line 2. (If you checked the box on line 1, see the line 31 instructions). Estates and 32a All investment is at risk. trusts, enter on Form 1041, line 3. 32b Some investment is not at risk. If you checked 32b, you must attach Form 6198. Your loss may be limited. Look at Line 13. If you are writing off any depreciation or section 179 expense, you will see an entry here. PFS Line 17F asks you to report this amount. If you claim depreciation, you will likely also file a Form 4562. If you have a 4562, be sure to send or upload that with your tax forms. Doing so allows the school to clarify how much of the amount on Line 13 is actually depreciation and not section 179 expense. This is to your advantage, typically. Look at Line 26. If you paid wages to employees for your business (as reported on W2 s that you filed for them), the PFS will ask you to separate out any wages you paid for yourself or your spouse from wages you paid to others. If Schedule C Line 26 includes wages for yourself and/or your spouse, report the amount you paid to yourself and/or your spouse on PFS Line 17A. Only report this amount if you provided a W2 as documentation of those earnings. Do NOT report your net profit as your salary. If Schedule C Line 26 includes wages paid for anyone other than yourself or your spouse, report the amount that went to other employees on PFS Line 17B. PAGE 11 OF 15
FOR PARENTS By definition, a sole proprietorship doesn t share the profit or loss of the business with any other person or entity. Report the amount on Schedule C Line 31 on PFS Line 17L to reflect your share of the total business profit or loss (in other words, the amount that belongs to you). Note that you will have to complete a separate section on expenses and net profit for each sole proprietorship that you own. PAGE 12 OF 15
FOR PARENTS Form 1099-MISC What Is Form 1099-MISC For? The Form 1099-MISC is provided to you by a person or firm for whom you performed work or service by hiring yourself out as a freelancer, contractor, or the like. 1099s can also show other types of income such as royalties, commissions or rents. Basically, it shows income you earned that wasn t provided to you as someone else s employee or from your investments. Other types of 1099s you might receive: z 1099-DIV (which reports income from dividends, distributions, and capital gains from investments accounts such as stocks, bonds, and mutual funds) z 1099-INT (which tracks interest income you earned from investments such as savings accounts). What Does the Form 1099-MISC Look Like? VOID CORRECTED PAYER S name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no. 1 Rents $ 2 Royalties OMB No. 1545-0115 2017 Miscellaneous Income PAYER S federal identification number RECIPIENT S identification number $ 3 Other income $ 5 Fishing boat proceeds Form 1099-MISC 4 Federal income tax withheld $ 6 Medical and health care payments Copy 1 For State Tax Department RECIPIENT S name $ 7 Nonemployee compensation $ 8 Substitute payments in lieu of dividends or interest Street address (including apt. no.) City or town, state or province, country, and ZIP or foreign postal code $ 9 Payer made direct sales of 10 Crop insurance proceeds $5,000 or more of consumer products to a buyer (recipient) for resale $ 11 12 $ Account number (see instructions) 15a Section 409A deferrals $ Form 1099-MISC FATCA filing requirement 15b Section 409A income $ www.irs.gov/form1099misc 13 Excess golden parachute payments $ 16 State tax withheld $ $ 14 Gross proceeds paid to an attorney $ 17 State/Payer s state no. 18 State income $ $ Department of the Treasury - Internal Revenue Service PAGE 13 OF 15
FOR PARENTS Which Lines Matter for the PFS? Income reported on your 1099s should already be included in certain lines of your 1040. On the PFS, any income reported on a 1099-MISC (other than rents and royalties) should be reported on PFS Line 7T. Important Notes 1. Do not report any amounts reported on a 1099-MISC as salary or wages, even if you earned it by working for someone as a contractor, freelancer, etc. When reporting your salary or wages, ONLY count income for which you received a W2. 2. Many schools will require you to submit a W2 as part of your financial aid application. If you didn t receive a W2 (meaning you didn t earn a salary as someone else s employee), but you did receive a 1099- MISC as a contractor or freelancer, you need to submit your 1099-MISC in place of the W2 the school requires. PAGE 14 OF 15
FOR PARENTS Form 4506-T What Is It For? The Form 4506-T is used to retrieve a transcript of information provided on a past tax return, W2, and 1099 on file with the IRS. It gives permission to a third party to receive the tax return data directly. Related forms: z z 4506 (used to receive an actual copy of a past 1040 and schedules, not just the transcript) 4506-TEZ (short form request for a transcript if only requesting a past 1040, not other information from W2s or Schedules) What Does It Look Like? Request for Transcript of Tax Return Form 4506-T Do not sign this form unless all applicable lines have been completed. (Rev. September 2015) OMB No. 1545-1872 Request may be rejected if the form is incomplete or illegible. Department of the Treasury Internal Revenue Service For more information about Form 4506-T, visit www.irs.gov/form4506t. Tip. Use Form 4506-T to order a transcript or other return information free of charge. See the product list below. You can quickly request transcripts by using our automated self-help service tools. Please visit us at IRS.gov and click on Get a Tax Transcript... under Tools or call 1-800-908-9946. If you need a copy of your return, use Form 4506, Request for Copy of Tax Return. There is a fee to get a copy of your return. 1a Name shown on tax return. If a joint return, enter the name shown first. 1b First social security number on tax return, individual taxpayer identification number, or employer identification number (see instructions) 2a If a joint return, enter spouse s name shown on tax return. 2b Second social security number or individual taxpayer identification number if joint tax return 3 Current name, address (including apt., room, or suite no.), city, state, and ZIP code (see instructions) 4 Previous address shown on the last return filed if different from line 3 (see instructions) 5 If the transcript or tax information is to be mailed to a third party (such as a mortgage company), enter the third party s name, address, and telephone number. Caution: If the tax transcript is being mailed to a third party, ensure that you have filled in lines 6 through 9 before signing. Sign and date the form once you have filled in these lines. Completing these steps helps to protect your privacy. Once the IRS discloses your tax transcript to the third party listed on line 5, the IRS has no control over what the third party does with the information. If you would like to limit the third party s authority to disclose your transcript information, you can specify this limitation in your written agreement with the third party. 6 Transcript requested. Enter the tax form number here (1040, 1065, 1120, etc.) and check the appropriate box below. Enter only one tax form number per request. a Return Transcript, which includes most of the line items of a tax return as filed with the IRS. A tax return transcript does not reflect changes made to the account after the return is processed. Transcripts are only available for the following returns: Form 1040 series, Form 1065, Form 1120, Form 1120-A, Form 1120-H, Form 1120-L, and Form 1120S. Return transcripts are available for the current year and returns processed during the prior 3 processing years. Most requests will be processed within 10 business days...... b Account Transcript, which contains information on the financial status of the account, such as payments made on the account, penalty assessments, and adjustments made by you or the IRS after the return was filed. Return information is limited to items such as tax liability and estimated tax payments. Account transcripts are available for most returns. Most requests will be processed within 10 business days. c Record of Account, which provides the most detailed information as it is a combination of the Return Transc Transcript. Available for current year and 3 prior tax years. Most requests will be processed within 10 bus 7 Verification of Nonfiling, which is proof from the IRS that you did not file a return for the ye after June 15th. There are no availability restrictions on prior year requests. Most reque 8 Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transc these information returns. State or local information is not included wi script information for up to 10 years. Information for the cur on for 2011, filed in 2012 Which Lines Matter for the PFS? No questions on the PFS use information from the Form 4506T. You do not need to use this form when you re completing the PFS. However, it is sometimes required by schools so that they can access your tax information if they want to confirm that what you supplied to them is the same as what you filed with the IRS. PAGE 15 OF 15
Use this primer to get an understanding of which few tax forms are most helpful to business or farm owners as you complete your Parents Financial Statement (PFS). This primer doesn t provide an overview of every possible tax form you might receive or need to file with IRS. Instead, it focuses on the forms that self-employed families may need to have on hand to complete the PFS accurately and correctly. The forms this primer covers are: For each of these forms, the primer answers three questions: Important Note Be sure to send your tax forms as required by each school you re applying to. Do not limit what you submit to schools to the documents covered in this primer. If a school requires your tax forms and schedules, be sure to send or upload the full set of tax forms that you submit to the IRS when filing your tax return. Doing so ensures that you complete the schools document requirements correctly, avoiding possible delays in the process.
Form W2 The W-2 is an annual statement of your earnings for the calendar year, provided by your employer. It also displays how much was withheld from your pay for taxes, Social Security, and Medicare. This is where you can also see how much of your income was put into certain types of pre-tax retirement plans. If you pay yourself a salary from your business, that salary will appear in Box 1. Report the salary in Box 1 of your W2 on line 7A of the PFS for the parent listed as Parent A. Use 7B for the parent listed as Parent B. Be sure to report the totals from all W2s if either parent has more than one for the year. If you do not receive a W2 from your business and only use the profit from your business (or your share of the business s profit) as your family s source of income, report any business income you receive in line 7A or 7B of the PFS. There are other lines on the PFS for reporting non-salary income from your business(es) based on the type of business.
Form 1040 The 1040 is used to report your sources of income, as well as any adjustments, deductions, and credits against your income that will determine how much and what types of federal taxes you should have paid for the tax year. If you ve paid too much in taxes, it will show how much of a refund from the federal government you are entitled to receive. If you ve paid too little in taxes, it will show how much more you need to pay. If you own a business, you must complete the Form 1040; you cannot file the related forms 1040A or 1040EZ. The 1040 is a two-page document comprised of several sections.
Let s look at the form in sections: Nearly every line of the 1040 s Income section has a corresponding line on the PFS where the income information should be reported. Most are straightforward one-to-one matches. However, a few lines are worth pointing out as relevant for business owners: Salary and wages reported here are a total of salaries earned by the parents in the household. The PFS asks you to report each parent s salary separately, so you won t see a single line item on the PFS for the total salaries. Be sure, though, that the total of the salaries you enter in line 7A and 7B for each parent is the same as the total shown on Line 7 of your 1040. Business owners must be careful to report profit taken from the business as salary or wages. If you own a business and paid yourself or your spouse a salary from the business, and reported it with a W-2, only enter the amount of salary from the W-2 in Lines 7A or 7B. This refers specifically to income or loss you had from a Sole Proprietorship, for which you also completed a Schedule C. On Line 19 of the PFS, the total of the net profit or loss from each Schedule C business you own should equal the amount shown on your 1040 Line 12. Be sure to send or upload each Schedule C you file, if you have income or a loss listed on your 1040 Line 12. This line can be complicated, depending on what type of income is included here, since many different types of income can be reported on your 1040 Line 17. If any income reported on Line 17 is from rental property, trusts, or royalties, report it on PFS Line 7Q our PFS (answer Yes to Other Taxable Income to open the worksheet).
If any income reported on Line 17 is from S corporations or Partnerships that you share ownership in, report it on Line 19 of your PFS, in the section that asks you to detail the income and expenses of the business. Be sure to send or upload each Schedule E you file, if you have income or loss listed on your 1040 Line 17. This refers specifically to income or loss you had from a farm, for which you also completed a Schedule F. On Line 19 of the PFS, the total of the net profit or loss from each Schedule F farm you own should equal the amount shown on your 1040 Line 18. Be sure to send or upload each Schedule F you file, if you have income or a loss listed on your 1040 Line 18. In this section, three items are specific to self-employed applicants: deductible portion of self-employment tax and payments to self-employment retirement and health insurance plans. Be sure to report them on the appropriate lines on the PFS (7H and 7I).
This shows the total amount of self-employment taxes you paid for your business(es). These should also be report on Line 17J on the PFS. Note that the PFS will ask you how much self-employment tax you paid for each business separately. The total of all those self-employment tax amounts should be equal to what s reported here on the 1040 Line 57. This shows what you owe for the different types of federal taxes on your income. PFS Line 6G asks you to report your federal taxes paid. Be sure to report the amount shown on 1040 Line 63. If you also have Self- Employment taxes reported on 1040 Line 57, do not include those in PFS Line 6G, since you will report those separately for each business. If you paid self-employment taxes, for PFS Line 6G, report the total tax on Line 63 any Line 57 Self-Employment tax.
Schedule C The Schedule C is used for reporting specific details about each business you own for which you are the sole proprietor. It shows the name, location, and type of business. It details the total, gross income you received for the business. It itemizes the allowable expenses of the business that can be written off against the business s income to ultimately show what your net profit or loss was on the business. The net profit or loss is then entered on your Form 1040 on Line 12. When you submit your 1040 to the IRS, you are required to attach/include a Schedule C for each sole proprietorship you own.
If you have a Schedule C, you have a Sole Proprietorship. On PFS Line 6H, answer Yes. You will be required to complete Section 15 for Business/Farm information. On PFS Line 15C, select Sole Proprietorship and complete the questions about each business based on the income and expense information provided on the Schedule C. See below for guidance: You will have to complete a separate PFS section on income for each sole proprietorship that you own, so be sure to have each Schedule C you file on hand.
If you are writing off any depreciation or section 179 expense, you will see an entry here. PFS Line 17F asks you to report this amount. If you claim depreciation, you will likely also file a Form 4562. If you have a 4562, be sure to send or upload that with your tax forms. Doing so allows the school to clarify how much of the amount on Line 13 is actual depreciation and not section 179 expense. This is to your advantage, typically. If you paid wages to employees for your business (as reported on W2 s that you filed for them), the PFS will ask you to separate out any wages you paid for yourself or your spouse from wages you paid to others. If Schedule C Line 26 includes wages for yourself and/or your spouse, report the amount you paid to yourself and/or your spouse on PFS Line 17A. Only report this amount if you provided a W2 as documentation of those earnings. If Schedule C Line 26 includes wages paid for anyone other than yourself or your spouse, report the amount that went to other employees on PFS Line 17B.
By definition, a sole proprietorship doesn t share the profit or loss of the business with any other person or entity. Report the amount on Schedule C Line 31 on PFS Line 17L to reflect your share of the total business profit or loss (in other words, the amount that belongs to you). You will have to complete a separate section on expenses and net profit for each sole proprietorship that you own.
Schedule E The Schedule E is used for reporting specific details about several types of income sources such as rental real estate income, income from partnerships, S-Corporations, royalties, trusts, estates, and more. For rental properties, it details the total, gross income you received for up to three real estate properties you rent out to others. It itemizes the allowable expenses of the rental properties that can be written off against the property s income to ultimately show what your net profit or loss was on the property. The net profit or loss is then entered on your Form 1040 on Line 17. If you own more than three rental properties, you must submit multiple Schedule E s. When you submit your 1040 to the IRS, you are required to attach/include a Schedule E for each set of three rental properties you own. For Partnerships and S-Corporations, it details the names and types of businesses you own or co-own as partnerships or S-Corporations. It itemizes the income or loss for each entity that is passed through to you to claim on your 1040. The income or loss is included in the entry on your Form 1040 on Line 17.
If you do not own any rental properties, you will not have page 1 of Schedule E. If you do not own a share in a Partnership or S Corporation, you will not have page 2 of Schedule E (unless you received reportable income from an estate or trust).
There are no specific questions on the PFS for detailing the income and expense sources for rental properties. When completing the PFS, owners of rental real estate should include the profit or loss of the rental properties in PFS Line 7Q (answer Yes to Other Taxable Income to open worksheet). This amount is found on Line 17 of the Form 1040. Rental property owners must also complete questions 10K 10U on the PFS. Be sure to submit all Schedule E s that you file with your tax return to the school. For each Partnership or S-Corporation you own, the Schedule E will report the pass-through portion of the business s profit or loss that you must claim on your tax return. The PFS will ask you to report the total income and expenses of the Partnership or Corporation to calculate the profit or loss of the entire entity. On PFS Line 17L, you must indicate how much of that profit/loss was passed-through to you. For each business you are a partner or shareholder in, your entry on Line 17L should match the entries on Lines 28A-28D. The total pass-through income (or loss) across all entities appears on line 32 of the Schedule E. This is then included in the total income (or loss) reported on the 1040, Line 17 (along with other income reported on the Schedule E). This amount, in turn, should be reported on Line 7Q of the PFS.
Schedule F The Schedule F is used for reporting specific details about each farm you own for which you are the sole proprietor. It shows the name, location, and type of farm. It details the total, gross income you received for the farm. It itemizes allowable expenses of the farm that can be written off against the farm s income to ultimately show your net profit or loss on the farm. The net profit or loss is then entered on your Form 1040 on Line 18. When you submit your 1040 to the IRS, you are required to attach/include a Schedule F for each farm property you own.
If you have a Schedule F, you have a farm. On PFS Line 6H, answer Yes. You will be required to complete Section 15 for Business/Farm information. On PFS Line 15B, select Farm and complete the questions about each farm based on the income and expense information provided on the Schedule F. On PFS Line 15C, select the farm s type are you the sole owner? Is it part of a partnership or a corporation? Let s look at each section of the Schedule F. You will have to complete a separate section on income for each farm that you own. There are many more lines of detail on the income section of the Schedule F than on the PFS. As such, be careful to total the appropriate lines from the Schedule F and report them in the corresponding catchall lines of the PFS. Lines 1a and 2 on the Schedule F are reported on Line 16A of the PFS. Lines 3 through 8 on the Schedule F are reported on the PFS Line 16D. Line 1b on Schedule F is reported on Line 16B of the PFS. Line 9 on Schedule F should match the calculation on the PFS Line 16E.
If you are writing off any depreciation or section 179 expense, you will see an entry here. PFS Line 17F asks you to report this amount. If you claim depreciation, you will likely also file a Form 4562. If you have a 4562, be sure to send or upload that with your tax forms. Doing so allows the school to clarify how much of the amount on Line 13 is actual depreciation and not section 179 expense. This is to your advantage, typically. If you paid wages to employees for your business (as reported on W2 s or 1099 s that you provide to them), the PFS will ask you to separate out any wages you paid for yourself or your spouse from wages you paid to others. If Schedule F Line 22 includes wages for yourself and/or your spouse, report the amount you paid to yourself and/or your spouse on PFS Line 17A. If Schedule F Line 22 includes wages paid for anyone other than yourself or your spouse, report the amount that went to other employees on PFS Line 17B. The amount on Schedule F Line 34 should match the calculation on PFS Line 17L to reflect your share of the total farm profit or loss (in other words, the amount that belongs to you). You will have to complete a separate section on expenses and net profit for each sole proprietorship that you own.
Schedule K-1 The Schedule K-1 is designed to report a partner s or shareholder s share of the partnership or S Corporation s income, deductions, and credits. It indicates additional information such as the percentage ownership the individual holds and some insight into the individual s share of, and activity with, the entity s liabilities and capital accounts. Form 1065 Partnership tax return Form 1120S S Corporation tax return Schedule E
Although they share the same K-1 name, the K-1 s are different enough that it s important not to get them confused with each other. Schedule K-1 (Form 1065) is issued for Partnerships, while Schedule K-1 (Form 1120S) is issued for S Corporations. Be sure not to get them mixed up (e.g., claiming you own a Partnership but submitting a K-1 for an 1120S or vice versa). They are not interchangeable. Be sure to submit all K-1s you receive for all entities you have an ownership stake in, when you send or upload your tax returns.
No other information found on the K-1, 1120S needs to be reported on the PFS. The relevant information on Part 3 of the K-1, 1120S gets reported as your share of the income/loss on Schedule E, which ultimately gets reported on the 1040 and PFS Line 7Q.
If there are different amounts shown in the three lines under Line J, report only the percentage shown in Ending for the line labeled Profit, as highlighted above; do not report the average of the three. Just report what s listed in the Profit line in the Ending column. No other information found on the K-1, 1065 needs to be reported on the PFS. The relevant information on Part 3 of the K-1, 1065 gets reported as your share of the income/loss on Schedule E, which ultimately gets reported on the 1040 and PFS Line 7Q.
Form 1099-MISC The Form 1099-MISC is provided to you by a person or firm for whom you performed work or service by hiring yourself out as a freelancer, contractor, or the like. 1099s can also show other types of income such as royalties, commissions or rents. Basically, it shows income you earned that wasn t provided to you as someone else s employee or from your investments. Other types of 1099s you might receive: 1099-DIV (which reports income from dividends, distributions, and capital gains from investments accounts such as stocks, bonds, and mutual funds) 1099-INT (which tracks interest income you earned from investments such as savings accounts).
Income reported on your 1099s should already be included in certain lines of your 1040. On the PFS, any income reported on a 1099-MISC (other than rents and royalties) should be reported on PFS Line 7T. If you and/or your spouse received multiple 1099s, be sure to add the amounts and report the total income on PFS line 7T. Do not report any amounts reported on a 1099-MISC as salary or wages, even if you earned it by working for someone as a contractor, freelancer, etc. When reporting your salary or wages on the PFS, include income for which you received a W2. Many schools will require you to submit a W2 as part of your financial aid application. If you didn t receive a W2 (meaning you didn t earn a salary as someone else s employee), but you did receive a 1099-MISC as a contractor or freelancer, submit your 1099-MISC in place of the W2 the school requires.
Form 1065 Form 1065 is the return filed by entities set up as Partnerships. It details the income, gains, losses, deductions, credits, etc. for the entire operation. Partnerships don t pay taxes on its income but passes any profits or losses to its partners, who in turn include their share of the profits/losses on their individual returns. Schedule K-1 (Form 1065) Be prepared to submit a copy of the 1065 for each Partnership in which you are a partner, as part of your financial aid application. Ask the partnership s accountant or tax attorney for a copy if one is not already provided to you.
To complete the business information section of the PFS, Partnership partners must report the appropriate income and expenses for the entire entity. This detail can be found on page 1 of the Form 1065 as shown below: No information found on pages 2 4 of the Form 1065 is needed to complete the PFS. However, some information on page 5 can be useful in reporting the Partnership s assets and debts, as referenced below.
While the PFS seeks to gather the current value of the business s assets and debts at the time of the application, that information can be difficult to come by. Completing the business assets and debts based on the most recently filed 1065 should be a reasonable approach if more current information is not available for the business.
Form 1120S Form 1120S is the return filed by entities set up as S Corporations. It details the income, gains, losses, deductions, credits, etc. for the entire operation. S Corporations don t pay taxes on its income but pass any profits or losses to its shareholders, who in turn include their share of the profits/losses on their individual returns. Schedule K-1 (Form 1120S) Be prepared to submit a copy of the 1120S for each S Corporation in which you are a shareholder, as part of your financial aid application. Ask the corporation s accountant or tax attorney for a copy if one is not already provided to you.
No information found on pages 2, 3, or 5 of the Form 1065 is needed to complete the PFS. However, some information on Form 1120S page 4 can be useful in reporting the Partnership s assets and debts, as referenced below: While the PFS seeks to gather the current value of the business s assets and debts at the time of the application, that information can be difficult to come by. Completing the business assets and debts based on the most recently filed 1120S should be a reasonable approach, if more current information is not available for the business. For financial aid assessment purposes, items on lines 22 26 above are not considered debts and should not be reported on the PFS.