EKS 3 SCENARIO-BASED TRAINING

EKS 3 SCENARIO-BASED TRAINING

THIS LESSON YOU WILL REVIEW Filing Status Personal and Dependency Exemptions Income: W-2 Credits Child Tax Credit Additional Child Tax Credit Child and Dependent Care Credit Itemized Deductions vs. Standard Deduction ACA: 1095-C Employer Coverage Form 8888

TODAY YOU WILL LEARN Filing Status - Head of Household Interest Income Unemployment Income Exemptions: Dependency Adjustments: Student Loan Interest Credits Nonrefundable: CDCC, CTC, AOTC Refundable: EITC, Additional CTC, AOTC

LET S GET STARTED This will be you!

1. SCENARIO 3 CHERYL WEBSTER Let s meet the taxpayer

Hello! I AM CHERYL WEBSTER I volunteered with United Way in the past. This year was a bit rough when they replaced all the jobs at my work with robots. I m happy to be getting some help from other volunteers.

FACTS ABOUT ME: I m MARRIED, but have not lived with my spouse since June 2010 I paid all expenses and provide all support for my children I lost my job in October and had no health insurance from Nov 1 - Dec 31

I HAVE TWO CHILDREN Jeremy First year college student. Majoring in accounting. Future EKS volunteer? Joshua Attended 5 weeks of summer camp. Learned how to sail in the bay. It was awesome!

2. SCENARIO 3 CHERYL WEBSTER Let s look at the Intake/Interview Sheet

What question(s) should you ask Cheryl?

What forms should you look for in her packet?

INTERVIEW NOTES $700 Local College by check $175 Cash Donation to United Way Bay Area $625 Crossroads Child Care Center for day camp, no overnights $250 Doctor visit co-pays $969 Student Loan Interest NOT Full time student

BEFORE DIVING IN... Does Cheryl need to file? Is the return in scope? Tab A

3. SCENARIO 3 CHERYL WEBSTER 1040 step by step

FILING STATUS HEAD OF HOUSEHOLD Generally for unmarried taxpayers who paid more than half the cost of keeping up a home for a qualified dependent relative during the tax year. B8-B11

ANALYZE THE LIVING SITUATION Marital Status as of December 31st Others living in the home & their relationship/ dependency Who paid >50% cost of home upkeep Depends if qualifying person is taxpayer s dependent College students who attend school in another area often qualify as living in the home Dependent parents are not required to live with the taxpayer B8-B11

What is Cheryl s filing status? B-8

After a whirlwind love affair in college, we got married after only dating for six months. A few years after Joshua was born, he said he was going out for cigarettes and never came home.

WATCH instructor Enter Cheryl s main info and filing status Tab B

Now you try Enter Cheryl s main info and filing status Tab B

EXEMPTIONS: DEPENDENCY Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. C1-C8

DEPENDENCY EXEMPTIONS Amount that taxpayers can claim for a qualifying child or qualifying relative. Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year. One exemption is allowed for each qualifying child or qualifying relative claimed as a dependent. C1-C8

DEPENDENCY TESTS Tests used for identifying qualifying children or qualifying relatives as dependents. C1-C8

MUST MEET TESTS TO BE... Qualifying Child U.S. citizen or resident test, Joint return test, Dependent taxpayer test, Relationship test, Age test, Support test, Residence test, Qualifying child of more than one person Qualifying Relative U.S. citizen or resident test, Joint return test, Dependent taxpayer test, Not a qualifying child test, Member of household or relationship test, Support test, and Gross income test C1-C8

Can Cheryl claim any dependents? C-3

I love my kids to death, but they re bleeding me dry! I still have my own student loans to pay off and now I m paying for Jeremy as well. I pay for 100% of their expenses, but I know it ll all be worth it.

WATCH instructor Enter Cheryl s exemptions Tab C

Now you try Enter Cheryl s exemptions Tab C

INTEREST & UNEMPLOYMENT INCOME INTEREST All interest and dividend income are taxable with some exceptions (Savings bonds & Roth IRA). All Interest and dividend income must be reported! UNEMPLOYMENT Generally includes any amount received under an unemployment compensation law of the U.S. or of a state in the U.S. In most cases, unemployment compensation is taxable. D7-D8

Scenario 3 Interest Income

Scenario 3 Unemployment Income

WATCH instructor Enter Cheryl s income: W-2, interest and unemployment D7-D8

Now you try Enter Cheryl s income: W-2, interest and unemployment D7-D8

ADJUSTMENTS: STUDENT LOAN INTEREST Loan must have been for qualified educational expenses Taxpayer must be liable for the debt Student must have been enrolled at least half-time Maximum adjustment is $2,500 E-6

Scenario 3 Student Loan Interest

Can Cheryl claim Student Loan Interest Deduction? E-8

WATCH instructor Enter Cheryl s student loan interest E-1

Now you try Enter Cheryl s student loan interest E-1

TAX CREDITS Child and Dependent Care Credit (CDCC) Retirement Savings Contribution Credit (RSCC) Child Tax Credit (CTC) G5-G13

CREDITS: CHILD & DEPENDENT CARE CREDIT A nonrefundable credit that allows taxpayers to claim a credit for paying someone to care for their qualifying dependents while they work or look for work. G5-G8

CDCC QUALIFYING PERSONS Qualifying Child To be identified as a qualifying child, a person must be under 13 and meet the tests to be claimed as a dependent (with some exceptions). Other Qualifying Persons To be identified as a qualifying person for CDCC, a person must be incapable of self care and live with the taxpayer more than ½ the year. G5-G8

CDCC WORK-RELATED EXPENSES Cost of care outside the home for dependents under 13, for example, preschool or home day care, before- or afterschool care for a child in kindergarten or higher grade Cost of care for any other qualifying person, for example, dependent care Household expenses that are at least partly for the well-being and protection of a qualifying person, for example, the services of a housekeeper or cook G5-G8

CHILD CARE NOTES $625 Crossroads Child Care Center Address 1648 Baylor Avenue San Francisco, CA 94107 20-5XXXXX3 Employer Identification Number 5 Weeks Summer Camp Day Camp No overnight stays

Does Cheryl qualify for child and dependent care credit? G-6

Joshua saw Pirates of the Caribbean and now wants to be a pirate. So over the summer I signed him up for DAY camp learning how to sail in the Bay. Now I just need to find him a swashbuckling camp!

WATCH instructor Enter Cheryl s CDCC G7-G8

Now you try Enter Cheryl s CDCC G7-G8

CREDITS: RETIREMENT SAVINGS CONTRIBUTION CREDIT A nonrefundable credit qualifying taxpayers may claim if they made a contribution to a qualified plan G9-G11

RETIREMENT SAVINGS CONTRIBUTION CREDIT Nonrefundable tax credit for 10%, 20%, or 50% of eligible contributions to a retirement plan. The credit rate depends on AGI and filing status. Maximum of $1,000 ($2,000 for married filing jointly) Must meet all these qualifications: Cannot be a dependent on someone else s return Cannot be a student Must be at least 18 MAGI must be less than $30,750 ($61,500 MFJ / $46,125 HoH) Contributions through employer appear on the W-2 in Box 12 with code D, E, F, G, H, S, AA, BB, or EE Contributions to an IRA or other retirement plan appear on Form 5498 G9-G11

Cheryl Webster W-2

CALCULATING THE CREDIT The Retirement Savings Contribution Credit is calculated automatically on Form 8880 The final amount can be found on Line 12 of Form 8880 The amount is transferred to Line 51 on Page 2 of Form 1040 in the Nonrefundable Credits section G9-G11

Does Cheryl qualify for Retirement Savings Contribution Credit? G-9

When I joined the company a million years ago, they asked me if I wanted to save for retirement. I said yes but didn t think much of it. Now I m grateful to have a little something saved.

WATCH instructor Enter Cheryl s retirement savings contribution credit (F8880) G-10

Now you try Enter Cheryl s retirement savings contribution credit (F8880) G-10

CREDITS: CHILD TAX CREDIT A credit that may reduce tax by as much as $1,000 for each qualifying child G12-G13

CHILD TAX CREDIT DETERMINING ELIGIBILITY Tests for the taxpayer Tax liability? For child tax credit (nonrefundable) Earned Income? For additional child tax credit (refundable) 3 or more children? For additional child tax credit (refundable) Tests for each child Is the child under 17 years of age? Is the child the taxpayer s dependent? G12-G13

CHILD TAX CREDIT CALCULATING THE CREDIT Child tax credit (nonrefundable) $1,000 for each child up to the taxpayer s tax liability Additional child tax credit (refundable) Use Schedule 8812 15% of earned income over $3,000 Up to the amount of unused child tax credit Don t worry! The tax software calculates both automatically G12-G13

Does Cheryl qualify for CTC? G12-G13

WATCH instructor Cheryl s CTC is automatic

CREDITS: EDUCATION CREDITS Credits that reduce the amount of tax due and are based on qualified education expenses that the taxpayer paid during the tax year. Tab J

WHO CAN TAKE EDUCATION CREDITS? Taxpayers can take education credits for themselves, their spouse and/or dependents (claimed on the tax return) If they were attending an eligible postsecondary educational institution during the tax year Taxpayers cannot take education credits if they themselves can be claimed as dependents J-4

WHAT IS AN ELIGIBLE INSTITUTION? Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education A searchable database of all accredited schools is available at http://ope.ed.gov/accreditation/ J-4

WHAT ARE QUALIFYING EXPENSES? Tuition and fees, books, supplies required for a course of study Expenses that do not qualify: Room & board, insurance, medical expenses, transportation costs, or other similar living expenses Any course involving sports, games, or hobbies Unless it is part of the student s degree program Or helps the student to acquire or improve job skills Expenses paid for using Pell grants, scholarships, etc. J-5

AMERICAN OPPORTUNITY TAX CREDIT A refundable credit of up to $2,500 for qualified education expenses paid for each eligible student. Forty percent of the credit is refundable, up to $1,000. Changes to this credit (formerly called the Hope credit), made it available to a broader range of taxpayers, including high income taxpayers and those who owe no tax. J2-J5

LIFETIME LEARNING CREDIT A nonrefundable credit of up to $2,000 for qualified education expenses for students enrolled in eligible educational institutions. It is available to students for all years of postsecondary education and for courses to acquire or improve job skills. J2-J5

COMPARISON J-4

COMPARISON QUALIFYING EXPENSES American Opportunity Expenses for books, supplies and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. Lifetime Learning Expenses for course-related books only if they are purchased directly from the educational institution. Expenses for supplies, fees, and equipment only if they are paid to the institution as a condition of enrollment or attendance. J-4

Does Cheryl qualify for Education Credits? J-4

WATCH instructor Enter Cheryl s education credit (F8863) J7-J8

Now you try Enter Cheryl s education credit (F8863) J7-J8

ACA: COVERAGE EXEMPTIONS Coverage exemptions are claimed on Form 8965, Health Care Coverage Exemptions. Tab H

WHAT ARE THE HEALTH COVERAGE EXEMPTIONS? Household Members of the tax household may be eligible to claim an exemption from having MEC. Some exemptions apply to the entire tax household for the year. Individual Each member of the tax household individually and generally apply on a monthly basis. H8-H17

HOUSEHOLD EXEMPTIONS Household income below the return filing threshold Gross income below the filing threshold H-11

INDIVIDUAL EXEMPTIONS Short coverage gap Citizens living abroad and certain noncitizens Incarceration Ineligible for Medicaid in a state that did not expand Medicaid (Does not apply to California) Members of federally recognized Indian tribes Members of certain religious sects Unaffordable coverage Aggregate self-only coverage considered unaffordable H-14

HOW TO OBTAIN A COVERAGE EXEMPTION Some exemptions are granted only by the Marketplace. Some exemptions are claimed only on a tax return. Some exemptions may be claimed from either the Marketplace or on the tax return. H-14

Does Cheryl qualify for any ACA Exemption? H-14

WATCH instructor Enter Cheryl s ACA exemption H12-H13

Now you try Enter Cheryl s ACA exemption H12-H13

Does Cheryl qualify for EITC? I-2

WATCH instructor Enter Cheryl s EITC Tab I

Now you try Enter Cheryl s EITC Tab I

4. SCENARIO 3 CHERYL WEBSTER Finishing the return

CHECK YOUR WORK QUALITY REVIEW Review entries: Main info, filing status & exemptions Income: W-2, interest, unemployment Adjustments: Student loan interest deduction Credits: RSCC, CDCC, Education, CTC, EIC ACA: Exemption Do we have matching AGI & refund?

$35,676 AGI (2016 calculations) $6,442 Federal Refund (2016 calculations)

FINISHING THE RETURN Ask the questions in the Prep Use Fields All returns must be Quality Reviewed Print return for Cheryl Review return with Cheryl Have Cheryl sign 8879s for Federal and State and remind her she is responsible for the return