SaveFirst: A Tax Preparation and Financial Literacy Initiative

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SaveFirst A Tax Preparation and Financial
Literacy Initiative

• TAX TRAINING

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Tax Terminology
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Tax Terminology

• TAXABLE INCOME
• Any income subject to federal income tax.

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Tax Terminology

• EARNED INCOME
• Income received through work (i.e., wages,
  salary, tips).

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Tax Terminology

• UNEARNED INCOME
• Income other than for pay for work (i.e.,
  interest income).

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Tax Terminology

• WITHHOLDING
• The amount of money that is withheld from a
  taxpayers paycheck each pay period and received
  by the government.

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Tax Terminology

• EXEMPTION
• Amount that a taxpayer can claim for himself, his
  spouse, and his dependents in order to decrease
  taxable income.

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Tax Terminology

• DEDUCTION
• Allows a taxpayer to decrease the amount of
  taxable income.

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Tax Terminology

• ADJUSTMENT
• Allows a taxpayer to decrease the amount of
  taxable income.

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Tax Terminology

• ADJUSTED GROSS INCOME
• (AGI)
• Amount of taxable income after certain deductions
  are taken and adjustments are made.

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Tax Terminology

• DEPENDENT
• An individual whom the taxpayer supports (i.e., a
  qualifying child or qualifying relative).

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Tax Terminology

• TAX LIABILITY
• The amount of tax that must be paid.

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Tax Terminology

• TAX CREDIT
• A direct reduction of the taxpayers liability.

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Tax Terminology

• REFUNDABLE TAX CREDIT
• A credit that allows the taxpayer to reduce his
  tax liability to zero, then receive a refund of
  any credit that is left.

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Tax Terminology

• NONREFUNDABLE TAX CREDIT
• A credit that allows taxpayers to reduce their
  tax liability to zero, but not take the excess
  credit as a refund.

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TAX LIABILITY
TAXABLE INCOME after deductions, adjustments,
exemptions
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Tax Terminology

• FORM 1040

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Tax Training Outline

• Volunteer Requirements
• Personal and Dependency Exemptions
• Filing Status
• Income
• Standard Deduction

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Tax Training Outline

• Earned Income Tax Credit
• Child Tax Credit
• Child and Dependent Care Credit
• Education Credits
• Miscellaneous Credits

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Tax Training Outline

• Volunteer Requirements
• Personal and Dependency Exemptions
• Filing Status
• Income
• Standard Deduction

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Volunteer Requirements

• Learn the process.
• Conduct a thorough interviewbe sensitive to the
  taxpayer.
• Do only what you are trained to do.
• Keep personal information confidential.

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Volunteer Requirements

• Do not solicit business from those you help.
• Do not accept gifts (monetary or not).
• Do not complete a return if you feel the taxpayer
  is lying.
• Do not retain documents for a follow-up visit.

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Volunteer Requirements

• This is a lot of material!
• Use your resources.
• Pub 4012 (spiral notebook)
• Pub 17 (Your Federal Income Tax)
• Pub 4491 (Student Training Guide)
• Ask questions.

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Intake Interview

• Your guide during the tax prep process.
• Front of form taxpayer completes
• Back of form volunteer completes
• Complete this before logging into TaxWise!
• Involve the taxpayer in the process.

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Identification

• You must verify the social security numbers of
  each person who will appear on the return
  (including children).
• You should ask to see a social security card
  (original or copy) or some statement of benefits
  that has the social security number on it.
• You must be careful to enter the name EXACTLY as
  it appears on the SS card.

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Identification

• Some individuals may have an Individual Taxpayer
  Identification Number (ITIN) instead of a SSNif
  they are ineligible for a SSN.
• Taxpayers with ITINs are NOT eligible for the
  Earned Income Tax Creditbut they can still file
  taxes and receive a refund.
• We can help people who need to file for an ITIN.
  (Call your supervisor.)

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Tax Training Outline

• Volunteer Requirements
• Personal and Dependency Exemptions
• Filing Status
• Income
• Standard Deduction

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Personal Exemptions

• Exemptions decrease the amount of taxable income
  by 3,500.
• Personal Exemption taxpayer can claim for
  himself and his spouse (as long as neither can be
  a dependent of someone else).

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Dependency Exemptions

• Exemptions decrease the amount of taxable income
  by 3,500.
• Dependency Exemption qualifying children and
  qualifying relatives that typically live in the
  home or whom the taxpayer supports.

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Dependency ExemptionsQualifying Child Tests
Spiral Resource guide p. C-4
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Dependency ExemptionsDivorced or Separated
Parents

• A child of divorced/separated parents is
  generally the dependent of the custodial parent.
• The noncustodial parent can claim the exemption
  if there is an agreement between the parents
  (Form 8332).
• See Children of Divorced/Separated Parents
  chart in spiral notebook.

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Dependency ExemptionsQualifying Child Tests
Spiral Notebook p. C-4
35
Dependency ExemptionsQualifying Child of more
than One Person

• Did any other adult live in your home?
• What was that other adults relationship to the
  child?
• Could the other adult be claimed as a dependent
  by someone else?

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Dependency ExemptionsQualifying Child of more
than One Person

• If the child can legitimately be claimed by more
  than one person, it is up to those taxpayers to
  determine who will claim the child.
• If the taxpayers cannot reach an agreement, the
  IRS tie-breaker rule will be applied (see next
  slide).

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Dependency ExemptionsQualifying Child
Tie-Breaker Rule

• If more than one person legitimately claims a
  qualifying child, then the IRS will grant the
  exemption to
• 1. The parent
• 2. If both are parents, the custodial
  parent.
• 3. If both are equal custodial parents, the
  parent with highest AGI.
• 4. If none is the parent, the person with
  highest AGI.
• See page C-3 in spiral notebook.

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Dependency Exemptions

• Only one person can claim a particular child for
  ALL of these benefits

Dependency Exemption
Child Tax Credit
Head of Household
Child Dependent Care Credit
Earned Income Tax Credit
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Dependency Exemptions

• When a Form 8332 is signed

Dependency Exemption
The noncustodial parent gets these benefits
Child Tax Credit
Head of Household
The custodial parent gets these benefits
Child Dependent Care Credit
Earned Income Tax Credit
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Dependency ExemptionsExercise 1

• TRUE or FALSE Every taxpayer can claim a
  personal exemption for himself.

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Dependency ExemptionsExercise 1

• TRUE or FALSE Every taxpayer can claim a
  personal exemption for himself.
• FALSE. A taxpayer may only claim a personal
  exemption for himself if he cannot be claimed as
  a dependent by anyone else.

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Dependency ExemptionsExercise 2

• Rebecca and John are married and have one child,
  Colin. Colin is 4 years old and lives full time
  with his parents, who provide all of his support.
  He is a U.S. citizen and no other adults live in
  their household. Can Rebecca and John claim
  Colin as a dependent?

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Dependency ExemptionsExercise 2

• Rebecca and John are married and have one child,
  Colin. Colin is 4 years old and lives full time
  with his parents, who provide all of his support.
  He is a U.S. citizen and no other adults live in
  their household. Can Rebecca and John claim
  Colin as a dependent?
• YES. Colin meets all the requirements to be
  claimed as a qualifying child.

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Dependency ExemptionsQualifying Relative Tests
Spiral Notebook p. C-5
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Dependency ExemptionsMultiple Support

• If a taxpayer, together with another individual,
  provides over 50 of support for someone who
  would be considered a qualifying relative except
  for the 50 support test, that taxpayer may still
  be able to claim the dependent if
• 1. The taxpayer contributed over 10
  support.
• 2. Each person who contributed over 10
  signs a statement waiving his rights to claim
  the dependent (Form 2120).

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Dependency ExemptionsQualifying Relative Tests
Spiral Notebook p. C-6
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Dependency ExemptionsExercise 1

• Roderick, age 29, lives with his uncle and worked
  part-time last year, earning 2,100. His uncle
  provided for the rest of his support for the
  year, including rent and household costs. Can
  Roderick be claimed as a dependent by his uncle?
  Can Roderick claim a personal exemption?

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Dependency ExemptionsExercise 1

• Roderick, age 29, lives with his uncle and worked
  part-time last year, earning 2,100. His uncle
  provided for the rest of his support for the
  year, including rent and household costs. Can
  Roderick be claimed as a dependent by his uncle?
  Can Roderick claim a personal exemption?
• Roderick can be claimed as a qualifying relative
  by his uncle. He cannot claim a personal
  exemption because he can be claimed as a
  dependent.

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Dependency ExemptionsExercise 2

• Randy is divorced. He has one child, Paul (age
  5). Paul lives with his mother, but Randy
  provides over half of Pauls support. Can Randy
  claim Paul as a dependent?

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Dependency ExemptionsExercise 2

• Randy is divorced. He has one child, Paul (age
  5). Paul lives with his mother, but Randy
  provides over half of Pauls support. Can Randy
  claim Paul as a dependent?
• NO. Paul is the qualifying child of his mother
  therefore, he cannot be the qualifying relative
  of Randy.

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Dependency ExemptionsExercise 3

• Tom Gina Brown provide all support for Ginas
  uncle, Jim, who is unmarried, 72 years old, and
  lives in another city. Jim has no gross income
  for the calendar year. The Browns file a joint
  return. Can the Browns claim Jim as a dependent?

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Dependency ExemptionsExercise 3

• Tom Gina Brown provide all support for Ginas
  uncle, Jim, who is unmarried, 72 years old, and
  lives in another city. Jim has no gross income
  for the calendar year. The Browns file a joint
  return. Can the Browns claim Jim as a dependent?
• YES. Jim meets all of the requirements to be
  claimed as a qualifying relative by Tom and Gina.

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Tax Training Outline

• Volunteer Requirements
• Personal and Dependency Exemptions
• Filing Status
• Income
• Standard Deduction

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Filing Status

• Single
• Married Filing Jointly
• Married Filing Separately
• Head of Household
• Qualifying Widow(er) with dependent child

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Filing StatusSingle

• A taxpayer is considered single if, on the last
  day of the year, he was
• 1. Not married.
• 2. Legally separated/divorced.
• 3. Widowed.
• However, there may be a better filing status for
  the individual.

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Filing StatusMarried Filing Jointly

• Taxpayers can be MFJ if, on the last day of the
  year, they
• 1. Live together as a married couple.
• 2. Live apart but are not legally
  separated/divorced.
• 3. The spouse died during the year and the
  taxpayer has not remarried.

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Filing StatusMarried Filing Separately

• Married taxpayers can choose to file separately.
• If a married couple files separately and one
  spouse itemizes, the other spouse must itemize.
• Typically, this will result in a higher tax and
  loss of some tax credits.

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Filing StatusHead of Household

• This filing status is for taxpayers who are
  considered unmarried but support a child or
  relative and maintain half the costs of keeping a
  home.
• A taxpayer can be married and still claim HoH if
  she has not lived with her spouse at any time
  during the last six months of the tax year.

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Filing StatusHead of Household

• A taxpayer must have a qualifying person that
  qualifies her for HoH (see chart in spiral
  notebook on p. B-1).
• A person who is a taxpayers qualifying relative
  only because he lived in the taxpayers home for
  the whole year and was not related to the
  taxpayer is NOT a qualifying person for head of
  household.

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Filing StatusHead of Household

• If the custodial parent has given up her right to
  claim the dependency exemption for a child (Form
  8332), that child is still her qualifying person
  for HoH.

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Filing Status

• Only one person can claim a particular child for
  ALL of these benefits

Dependency Exemption
Child Tax Credit
Head of Household
Child Dependent Care Credit
Earned Income Tax Credit
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Filing Status

• When a Form 8332 is signed

Dependency Exemption
The noncustodial parent gets these benefits
Child Tax Credit
Head of Household
The custodial parent gets these benefits
Child Dependent Care Credit
Earned Income Tax Credit
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Filing StatusQualifying Widow(er) with dependent
child

• This filing status is for taxpayers whose spouse
  died recently, who did not remarry, and who have
  a dependent child (son, daughter, stepson,
  stepdaughter).
• Taxpayer must also provide over half the costs of
  keeping up the main home for herself and the
  child.

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Filing StatusQualifying Widow(er) with dependent
child

• In the year the spouse dies, the taxpayer files
  MFJ.
• For two years after the spouse has died, the
  taxpayer can file QW.
• After the second full year of death, the taxpayer
  can no longer file as QW.

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Filing Status
Spiral resource guide p. B-3
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Filing Statusfrom lowest to highest tax burden

• Married Filing Jointly, and Qualifying Widow(er)
  with dependent child
• Head of Household
• Single
• Married Filing Separately

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Filing StatusExercise 1

• Lily left her husband in August 2008, but did not
  get divorced. She took her children with her.
  She supported the children during all of 2008 and
  will claim them as dependents. Lily will not
  file a joint return with her husband. Which
  filing status should she use?

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Filing StatusExercise 1

• Lily left her husband in August 2008, but did not
  get divorced. She took her children with her.
  She supported the children during all of 2008 and
  will claim them as dependents. Lily will not
  file a joint return with her husband. Which
  filing status should she use?
• MFS. Because Lily lived with her husband for
  some part of the last six months of the year, she
  is not entitled to claim HoH.

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Filing StatusExercise 1

• What if Lily had left her husband in February
  2008 and did not live with him for the rest of
  the year? She took her children with her. She
  supported the children during all of 2008 and
  will claim them as dependents. Lily will not
  file a joint return with her husband. Which
  filing status should she use?

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Filing StatusExercise 1

• What if Lily had left her husband in February
  2008 and did not live with him for the rest of
  the year? She took her children with her. She
  supported the children during all of 2008 and
  will claim them as dependents. Lily will not
  file a joint return with her husband. Which
  filing status should she use?
• Head of Household.

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Filing StatusExercise 2

• Ginger is single and provides all her mother's
  support. Her mother lives in another home, and
  Ginger pays for all costs for keeping that home.
  Her mother had no income for the year and Ginger
  can claim her as a dependent. What is Ginger's
  filing status?

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Filing StatusExercise 2

• Ginger is single and provides all her mother's
  support. Her mother lives in another home, and
  Ginger pays for all costs for keeping that home.
  Her mother had no income for the year and Ginger
  can claim her as a dependent. What is Ginger's
  filing status?
• Head of Household.

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TaxWise Exercise 1

• Now lets complete a tax return using TaxWise
  Online.
• You will need
• 1. Tax Preparations Process handout.
• 2. Resource Guide (Pub 4012).
• 3. Workbook (Pub 4491-W).

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TaxWise Exercise 1

• BEFORE you sign on to TaxWise
• Determine whether taxpayer and spouse can be
  claimed as dependents.
• Determine whether taxpayer and spouse can claim
  dependents.
• Determine Filing Status.

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TaxWise Exercise 1

• twonline.taxwise.com/training
• USER ALL CAPS LAST NAME AND FIRST INITIAL,
  i.e., SMITHS
• PASS Same as username, then change to
• Eight characters
• One upper-case letter
• One lower-case letter
• One number
• One symbol

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Tax Training Outline

• Volunteer Requirements
• Personal and Dependency Exemptions
• Filing Status
• Income
• Standard Deduction

77
Income

• Taxable income wages, tips, interest, alimony,
  IRA distributions, unemployment compensation,
  jury duty pay, gambling winnings, a portion of
  social security benefits, etc.

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Income

• Nontaxable income child support, gifts,
  inheritances, insurance payments, life insurance,
  public assistance payments, Supplemental Security
  Income, veterans disability benefits, etc.
• See spiral notebook p. D-1.

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IncomeWages and Salaries Form W-2
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IncomeTip Income

• More than 20/month in tips required to report
  that income to their employer. The employer will
  report this income on Form W-2.
• Less than 20/month in tips not required to
  report to employer, BUT still must show on 1040.
• Allocated tips are reported on W-2.
• Form 4137 if the taxpayer has unreported tips.

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IncomeScholarships

• Scholarship money used for tuition, fees, books,
  and supplies required for enrollment by a student
  pursuing a degree is nontaxable.
• Amount used for room and board is taxable.
• See p. D-2 in spiral notebook.

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IncomeInterest Income

• Money earns interest when it is
• 1. Deposited in accounts.
• 2. Is used to buy CDs or bonds.
• Interest income is unearned income.

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IncomeInterest Income

• Interest is taxed in the year it is credited to
  the taxpayers account and is available for
  withdrawal by the taxpayer without incurring a
  penalty (savings and checking accounts, CDs).
• If an early withdrawal penalty is incurred, this
  will be reported on Form 1040.

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IncomeInterest Income

• US Savings Bonds The taxpayer can choose
  whether to report interest income
• 1. In the year they are cashed, OR
• 2. Each year as they accrue interest.
• Must use the same method for all savings bonds.
• If higher education expenses were incurred in the
  same year the bonds were cashed, use Form 8815 to
  determine if interest is excludable.

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IncomeInterest Income

• Interest on bonds issued by states, counties, or
  cities (e.g., municipal bonds) is tax-exempt.

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IncomeInterest Income Form 1099-INT
87
IncomeDividend Income

• Dividends are payments made by corporations to
  shareholders.

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IncomeDividend Income Form 1099-DIV
89
IncomeGambling Winnings Form W-2G
90
IncomeUnemployment Compensation Form 1099-G
91
IncomeSocial Security Benefits

• Reported on SSA-1099.
• Part of social security benefits may be taxable.
• Supplemental security income (SSI) is not taxable.

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IncomeSocial Security Benefits

• SSA-1099

Total benefits.
Medicare premiums may be listed here.
Dont miss withholding.
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IncomeSocial Security Benefits

• If the taxpayer has other income in addition to
  social security benefits, you will enter social
  security income on a worksheet in TaxWise.
• If the taxpayer has ONLY social security income
  (no other income), use the handout in your folder
  to determine if any of their benefits are taxable.

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IncomeSocial Security Benefits

• See handout in paper folder.
• If the taxpayer has ONLY SS income, you will
  compare half of the social security benefits to
  the base amount based on filing status.
• If half of the benefits is greater than the base
  amount, part of the benefits is taxable.
• If half of the benefits is less than the base
  amount, none is taxable and the taxpayer is not
  required to file a return.

95
IncomeSocial Security Benefits Exercise

• Jim is single and receives 1,000 per month in
  social security benefits. He has no other
  income. Will his social security benefits be
  taxed? Is he required to file a tax return?

96
IncomeSocial Security Benefits Exercise

• Jim is single and receives 1,000 per month in
  social security benefits. He has no other
  income. Will his social security benefits be
  taxed? Is he required to file a tax return?
• No. Half of his benefits (6,000) is well under
  the base amount that would be taxed for a single
  person (25,000).

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IncomeState Tax Refund

• May be taxable if the taxpayer itemized last
  year.
• See your supervisor if the taxpayer itemized and
  received a state tax refund.

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IncomeOUT OF SCOPE

• See your supervisor if taxpayer has any of the
  following income
• Self-Employment/Business Income (including Form
  1099-MISC with an amount in Box 7)
• Sale of Stock (Form 1099-B)
• IRA/Pension Income (Form 1099-R)
• Any form we do not cover in this training.

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IncomeExercise 1

• Are the following sources of income taxable?
• 1. Alimony
• 2. Child support
• 3. State and/or local refund from last year
• 4. Unemployment benefits
• 5. Award money
• 6. Workers compensation

100
IncomeExercise 1

• Are the following sources of income taxable?
• 1. Alimony (YES)
• 2. Child support
• 3. State and/or local refund from last year
• 4. Unemployment benefits
• 5. Award money
• 6. Workers compensation

101
IncomeExercise 1

• Are the following sources of income taxable?
• 1. Alimony (YES)
• 2. Child support (NO)
• 3. State and/or local refund from last year
• 4. Unemployment benefits
• 5. Award money
• 6. Workers compensation

102
IncomeExercise 1

• Are the following sources of income taxable?
• 1. Alimony (YES)
• 2. Child support (NO)
• 3. State and/or local refund from last year
  (SOMETIMES)
• 4. Unemployment benefits
• 5. Award money
• 6. Workers compensation

103
IncomeExercise 1

• Are the following sources of income taxable?
• 1. Alimony (YES)
• 2. Child support (NO)
• 3. State and/or local refund from last year
  (SOMETIMES)
• 4. Unemployment benefits (YES)
• 5. Award money
• 6. Workers compensation

104
IncomeExercise 1

• Are the following sources of income taxable?
• 1. Alimony (YES)
• 2. Child support (NO)
• 3. State and/or local refund from last year
  (SOMETIMES)
• 4. Unemployment benefits (YES)
• 5. Award money (YES)
• 6. Workers compensation

105
IncomeExercise 1

• Are the following sources of income taxable?
• 1. Alimony (YES)
• 2. Child support (NO)
• 3. State and/or local refund from last year
  (SOMETIMES)
• 4. Unemployment benefits (YES)
• 5. Award money (YES)
• 6. Workers compensation (NO)

106
TaxWise Exercise 1 continued

• twonline.taxwise.com/training
• USER ALL CAPS LAST NAME AND FIRST INITIAL,
  i.e., SMITHS

107
Tax Training Outline

• Volunteer Requirements
• Personal and Dependency Exemptions
• Filing Status
• Income
• Standard Deduction

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Standard Deduction

• The standard deduction reduces the amount of
  income that is taxed.
• TaxWise calculates automatically.
• Reference p. F-1 and F-2 in spiral notebook

109
Standard Deduction

• NEW this year Taxpayers can claim an additional
  standard deduction if they paid real estate
  (property) taxes on their residence.
• If the taxpayer paid property taxes on his/her
  home, enter the amount on Schedule A.

110
Itemized Deductions

• Every taxpayer can take a specific amount for a
  standard deduction, which reduces taxable
  income.
• There are certain designated expenses that a
  taxpayer can choose to list out separately, and
  if they total more than the standard deduction,
  the taxpayer will itemize his deductions, which
  reduces his taxable income by a greater amount.

111
Itemized Deductions

• Itemized deductions include (but are not limited
  to)
• Un-reimbursed medical expenses
• Charitable contributions
• Home mortgage payments
• If the taxpayer has these expenses, see your
  supervisor to determine whether or not he should
  itemize.

112
Tax Training Outline

• Earned Income Tax Credit
• Child Tax Credit
• Child and Dependent Care Credit
• Education Credits
• Miscellaneous Credits

113
Earned Income Tax Credit

• The EITC is a refundable tax credit that applies
  to individuals who work but make very low
  incomes.
• The EITC is the largest federal anti-poverty
  program and has been one of the most successful
  programs to lift families, especially families
  with children, out of poverty.
• The EITC has been especially successful in
  providing an incentive for single mothers with
  children to find work.

114
Earned Income Tax CreditMaximum Credits
Two children 4,824
One child 2,917
No children 438
115
Earned Income Tax Credit
Spiral notebook p. H-2
Add Child must have a valid SSN.
116
Earned Income Tax Credit

• Only one person can claim a particular child for
  ALL of these benefits

Dependency Exemption
Child Tax Credit
Head of Household
Child Dependent Care Credit
Earned Income Tax Credit
117
Earned Income Tax Credit

• When a Form 8332 is signed

Dependency Exemption
The noncustodial parent gets these benefits
Child Tax Credit
Head of Household
The custodial parent gets these benefits
Child Dependent Care Credit
Earned Income Tax Credit
118
Earned Income Tax Credit

• Physical custody, not legal custody, determines
  whether the taxpayer can claim the EITC.
• Taxpayers who are the custodial parents CAN claim
  the child for EITC even if they cannot claim the
  childs exemption.
• Taxpayers who are not the custodial parents
  CANNOT claim the child for EITC even if they can
  claim the childs exemption.

119
Earned Income Tax CreditDisallowance of the EITC

• If the EITC has been disallowed for any reason
  (except a mathematical error), the taxpayer
  cannot claim the EITC again without submitting
  Form 8862.
• Reckless or intentional disregard of the rules
  cannot claim the credit for 2 years.
• Fraudulent claim cannot claim credit for 10
  years.

120
Earned Income Tax CreditAdvance EITC

• Those eligible for the EITC can receive a portion
  of the EITC payment each month rather than a lump
  sum in January.
• AEITC payments will be reported on Box 9 of Form
  W-2.
• If a taxpayer is interested in this option, he
  must submit Form W-5 to employer.

121
Earned Income Tax CreditExercise 1

• Sharon takes care of her sisters son, Eric, who
  is 12 years old and began living with Sharon in
  August 2008. Sharons earned income and AGI are
  15,525. Can Sharon claim the EITC?

122
Earned Income Tax CreditExercise 1

• Sharon takes care of her sisters son, Eric, who
  is 12 years old and began living with Sharon in
  August 2008. Sharons earned income and AGI are
  15,525. Can Sharon claim the EITC?
• NO. Eric is not Sharons qualifying child
  because he did not live with her for more than
  half the year.

123
Earned Income Tax CreditExercise 2

• Doug and Donna are married and live together.
  Their combined earned income is 25,000. Doug
  reports AGI of 11,000 on his separate return and
  Donna reports AGI of 14,000 on her separate
  return. Sam, their 4-year-old son, lives with
  Doug and Donna. Can Doug and/or Donna claim the
  EITC?

124
Earned Income Tax CreditExercise 2

• Doug and Donna are married and live together.
  Their combined earned income is 25,000. Doug
  reports AGI of 11,000 on his separate return and
  Donna reports AGI of 14,000 on her separate
  return. Sam, their 4-year-old son, lives with
  Doug and Donna. Can Doug and/or Donna claim the
  EITC?
• No. They cannot claim the EITC because their
  filing status is Married Filing Separately.

125
Earned Income Tax CreditExercise 2

• Same couple Doug and Donna are married and live
  together, but now they are filing a joint return.
  Their combined earned income and AGI are
  25,000. Sam, their 4-year-old son, lives with
  Doug and Donna. Can they claim the EITC?

126
Earned Income Tax CreditExercise 2

• Same couple Doug and Donna are married and live
  together, but now they are filing a joint return.
  Their combined earned income and AGI are
  25,000. Sam, their 4-year-old son, lives with
  Doug and Donna. Can they claim the EITC?
• Yes. With one qualifying child (Sam), their
  income is low enough to qualify them to claim the
  EITC.

127
TaxWise Exercise 1 continued

• twonline.taxwise.com/training
• USER ALL CAPS LAST NAME AND FIRST INITIAL,
  i.e., SMITHS

128
Administrative Notes

• Please fill out the following forms before the
  break
• Volunteer Agreement (located at the front of the
  volunteer test)
• Availability Form (handout from SaveFirst staff)

129
BREAK
130
Tax Training Outline

• Earned Income Tax Credit
• Child Tax Credit
• Child and Dependent Care Credit
• Education Credits
• Miscellaneous Credits

131
Child Tax Credit

• A taxpayer can claim a child tax credit for each
  of his qualifying children under 17 years of age.
• Maximum credit 1,000 per child.
• Child Tax Credit is nonrefundable.
• Additional Child Tax Credit is refundable.

132
Child Tax Credit

• Typically, the taxpayer will have to be able to
  claim an exemption for the qualifying child.
• A taxpayer can claim a nondependent child for the
  Child Tax Credit if the reason for the
  non-dependency is either
• Taxpayer/spouse can be a dependent
• Child is married or filing a joint return
• All of the other dependency requirements must be
  met.

133
Child Tax Credit

• Typically, TaxWise will calculate eligibility and
  the amount of the credit automatically.
• If a taxpayer wants to claim a nondependent child
  for the Child Tax Credit, he must file a Form
  8901 (TaxWise will not know how to do this).

134
Child Tax Credit

• Only one person can claim a particular child for
  ALL of these benefits

Dependency Exemption
Child Tax Credit
Head of Household
Child Dependent Care Credit
Earned Income Tax Credit
135
Child Tax Credit

• When a Form 8332 is signed

Dependency Exemption
The noncustodial parent gets these benefits
Child Tax Credit
Head of Household
The custodial parent gets these benefits
Child Dependent Care Credit
Earned Income Tax Credit
136
Child Tax CreditAdditional Child Tax Credit

• If a taxpayers liability is less than the
  maximum allowable nonrefundable credit, he still
  may be able to claim the Additional Child Tax
  Credit (Form 8812).
• TW will determine all necessary fields.

137
Tax Training Outline

• Child Tax Credit
• Earned Income Tax Credit
• Child and Dependent Care Credit
• Education Credits
• Miscellaneous Credits

138
Child Dependent Care Credit

• Nonrefundable credit
• Expenses related to caring for a dependent child
  or adult who cannot take care of himself/herself
• Paid so that the taxpayer can work or look for
  work

139
Child Dependent Care Credit
Handout in your SaveFirst folder
140
Child Dependent Care CreditDivorced/Separated
Parents

• Custodial parents can claim the credit even if
  they cannot claim the dependency exemption, if
• One or both parents had custody of child for more
  than half the year,
• One or both parents provided over ½ childs
  support,
• Custodial parent signs Form 8332 (or divorce
  decree).

141
Child Dependent Care Credit

• Only one person can claim a particular child for
  ALL of these benefits

Dependency Exemption
Child Tax Credit
Head of Household
Child Dependent Care Credit
Earned Income Tax Credit
142
Child Dependent Care Credit

• When a Form 8332 is signed

Dependency Exemption
The noncustodial parent gets these benefits
Child Tax Credit
Head of Household
The custodial parent gets these benefits
Child Dependent Care Credit
Earned Income Tax Credit
143
Child Dependent Care CreditExercise 1

• Andrea is divorced from Bill and they have a
  7-year-old son, Charles. Charles lived with
  Andrea for the entire year, and Andrea paid all
  the expenses of keeping up the home. Andrea also
  paid for before-school and after-school child
  care totaling 1,800. Andrea signed Form 8332 to
  allow Bill to claim the dependency exemption for
  Charles. Who can claim the Credit for Child and
  Dependent Care Expenses?

144
Child Dependent Care CreditExercise 1

• Andrea is divorced from Bill, and they have a
  7-year-old son, Charles. Charles lived with
  Andrea for the entire year, and Andrea paid all
  the expenses of keeping up the home. Andrea also
  paid for before-school and after-school child
  care totaling 1,800. Andrea signed Form 8332 to
  allow Bill to claim the dependency exemption for
  Charles. Who can claim the Credit for Child and
  Dependent Care Expenses?
• Andrea. She paid the expenses and Form 8332 does
  not allow the noncustodial parent to claim this
  credit.

145
Child Dependent Care CreditExercise 2

• Julie spent the following on child care for her
  10-year-old daughter Melissa. Which are eligible
  costs for the Child Dependent Care Credit?
• 1. 300 for overnight camp
• 2. 1500 to her mother for
• after-school care
• 3. 500 to her 15-year-old son for
  babysitting

146
Child Dependent Care CreditExercise 2

• Julie spent the following on child care for her
  10-year-old daughter Melissa. Which are eligible
  costs for the Child Dependent Care Credit?
• 1. 300 for overnight camp (NO)
• 2. 1500 to her mother for
• after-school care
• 3. 500 to her 15-year-old son for
  babysitting

147
Child Dependent Care CreditExercise 2

• Julie spent the following on child care for her
  10-year-old daughter Melissa. Which are eligible
  costs for the Child Dependent Care Credit?
• 1. 300 for overnight camp (NO)
• 2. 1500 to her mother for
• after-school care (YES)
• 3. 500 to her 15-year-old son for
  babysitting

148
Child Dependent Care CreditExercise 2

• Julie spent the following on child care for her
  10-year-old daughter Melissa. Which are eligible
  costs for the Child Dependent Care Credit?
• 1. 300 for overnight camp (NO)
• 2. 1500 to her mother for
• after-school care (YES)
• 3. 500 to her 15-year-old son for
  babysitting (NO)

149
Tax Training Outline

• Child Tax Credit
• Earned Income Tax Credit
• Child and Dependent Care Credit
• Education Credits
• Miscellaneous Credits

150
Education Credits

• Nonrefundable credit for higher education
  expenses paid in 2008 for a student (taxpayer,
  spouse, dependent).
• Hope Credit
• Lifetime Learning Credit

151
Education CreditsGeneral Eligibility

• Filing status cannot be MFS
• Qualified expenses tuition and fees required for
  enrollment
• Accredited institution
• Taxpayer will often receive Form 1098-T

152
Education CreditsGeneral Eligibility

• When the student can be claimed as a dependent,
• Taxpayer must claim credit if taxpayer claims the
  exemption.
• Student must claim credit if taxpayer does not
  claim exemption.
• If the taxpayer claims the dependency exemption,
  any amount paid by the student is considered to
  have been paid by the taxpayer.

153
Education Credits
Spiral Notebook p. G-3
154
Education CreditsNo Double Benefits

• Cannot claim more than one credit on the same
  qualified tuition expenses.
• Cannot claim credit based on expenses paid with a
  tax-free scholarship, grant, or other assistance
  (including Pell grants)must subtract out
  expenses paid with scholarships.

155
Education CreditsForm 1098-T
156
Education CreditsExercise 1

• James takes one course at a local community
  college. He received a Form 1098-T showing
  qualified tuition expenses of 1,000. He lives
  with his parents, who can claim him as a
  dependent. Who is entitled to claim the credit?
  Which credit?

157
Education CreditsExercise 1

• James takes one course at a local community
  college. He received a Form 1098-T showing
  qualified tuition expenses of 1,000. He lives
  with his parents, who can claim him as a
  dependent. Who is entitled to claim the credit?
  Which credit?
• If Jamess parents claim him, they must claim the
  credit.
• If Jamess parents do not claim him, James must
  claim the credit.
• Lifetime Learning Credit

158
Education CreditsExercise 2

• LaQuandra is a sophomore enrolled at UAB
  full-time. She provides all of her own support.
  She paid 10,000 in 2008 for tuition and fees for
  enrollment to UAB. She received a tax-free
  scholarship worth 4,000, and paid the rest from
  a student loan in her name. Can LaQuandra claim
  an education credit? Which one? How much of her
  expenses are qualified expenses?

159
Education CreditsExercise 2

• LaQuandra is a sophomore enrolled at UAB
  full-time. She provides all of her own support.
  She paid 10,000 in 2008 for tuition and fees for
  enrollment to UAB. She received a tax-free
  scholarship worth 4,000, and paid the rest from
  a student loan in her name. Can LaQuandra claim
  an education credit? Which one? How much of her
  expenses are qualified expenses?
• Yes Hope Credit or Lifetime Learning.
• Qualified expenses 6,000

160
Tax Training Outline

• Child Tax Credit
• Earned Income Tax Credit
• Child and Dependent Care Credit
• Education Credits
• Miscellaneous Credits

161
Miscellaneous Credits

• Elderly and Disabled Credit
• Qualified Retirement Savings Contribution Credit
• Recovery Rebate Credit

162
Elderly and Disabled Credit(Schedule R)

• Credit for taxpayers who are over 65 and/or
  retired on disability benefits before the
  mandatory retirement age.
• Elderly are seldom eligible for this credit
  because of income limits.
• Be sure to enter Social Security benefits!
• TaxWise will automatically calculate.

163
Retirement Savings Contribution Credit (Form 8880)

• Credit for individuals who contributed to a
  retirement plan or IRA
• AGI and age limitations
• Cannot be claimed as dependent
• Cannot be a full-time student

164
Retirement Savings Contribution Credit (Form 8880)
Spiral Notebook p. G-5
1990
165
Retirement Savings Contribution Credit (Form 8880)

• Box 12 on Form W-2 often has retirement
  contribution information (typically a code D or
  E)
• BUT, contribution could be in Box 14 or not
  reported on the W-2 at all (ask the taxpayer if
  they made a retirement contribution)
• Amount of contribution must be decreased if
  taxpayer received retirement distributions during
  the testing period (2006, 2007, 2008, 2009 until
  April 16)

166
Retirement Savings Contribution Credit (Form 8880)
167
Recovery Rebate Credit

• Refundable tax credit for taxpayers who may not
  have received the maximum Economic Stimulus
  Payment in 2007.
• TaxWise will determine amount of credit but MUST
  show amount of 2007 ESP on 1040 Wkt 5.
• See pages 10-11 in spiral notebook.

168
Recovery Rebate Credit

• Some individuals who do not have tax liability or
  who do not normally file a tax return may be able
  to claim this credit if they did not receive a
  2007 ESP.
• Those with 3,000 of qualifying income may be
  eligible
• Social Security benefits
• Veterans disability benefits
• Wages or self-employment income

169
Miscellaneous CreditsExercise 1

• Bob, age 48, contributed 600 to a traditional
  IRA in 2008. He cannot be claimed as a dependent
  by anyone, was not a student, and had AGI of
  24,000. Is Bob eligible to claim the Retirement
  Savings Contribution Credit?

170
Miscellaneous CreditsExercise 1

• Bob, age 48, contributed 600 to a traditional
  IRA in 2008. He cannot be claimed as a dependent
  by anyone, was not a student, and had AGI of
  24,000. Is Bob eligible to claim the Retirement
  Savings Contribution Credit?
• Yes.

171
Finishing the ReturnCommon Errors

• Claiming children who are not the taxpayers
  qualifying children.
• Selecting the incorrect filing status.
• Submitting returns with incorrect social
  security numbers.

172
Finishing the ReturnRefunds

• Taxpayers can choose to receive their refund or
  contribute it to their next years tax return.
• Checks take 6-8 weeks to be mailed.
• Electronic deposits will be made in 1-2 weeks
  be sure to enter routing number and account
  number.

173
Finishing the ReturnRefunds

• Taxpayers can have their refund deposited in up
  to three different accounts.
• Use Form 8888 to split the refund.

174
Finishing the ReturnTax Due

• If a taxpayer owes money, a check or money order
  can be made payable to United States Treasury.
• Taxpayers can also choose to file Form 9465,
  Installment Agreement, to pay the tax in monthly
  installments.

175
Finishing the ReturnTax Due

• A voucher will print with the return with
  instructions for how/where to mail the payment.
• Always check to see if the taxpayer owes money to
  the state.

176
Finishing the ReturnRun Diagnostics
177
Finishing the ReturnQuality Review
178
Finishing the ReturnPrinting Signing

• Consult your Tax Prep Process handout to see what
  pages to print, sign, and retain.
• You will keep two copies of each W-2.
• You will keep one copy of other income documents,
  if possible.

179
TaxWise Exercise 2

• Now lets complete a tax return using TaxWise
  Online.
• You will need
• 1. Tax Preparations Process handout.
• 2. Resource Guide (Pub 4012).
• 3. Workbook (Pub 4491-W).

180
TaxWise Exercise 2

• BEFORE you sign on to TaxWise
• Determine whether taxpayer and spouse can be
  claimed as dependents.
• Determine whether taxpayer and spouse can claim
  dependents.
• Determine Filing Status.

181
TaxWise Exercise 2

• twonline.taxwise.com/training
• USER ALL CAPS LAST NAME AND FIRST INITIAL,
  i.e., SMITHS