Scenario #6
SCENARIO #6
TAX LAW TOPICS COVERED
1.
2.
3.
4.
Retirement Income
Schedule C / Cash Income
Interest and Wage Income
Expenses for business income (mileage,
tools, etc.)
5. Social Security Benefits
6. Mortgage Interest
7. Capital Gains/ Loss Transactions
OBJECTIVES
Students will be able to:




Build on their skills from previous lessons
o Login into TW and start a return
o Identify filing status and dependents
o Input income documents
o Enter capital gains/losses transactions
Input Retirement income from a 1099-R and determine code implication
Complete a Schedule C and A
Finish an advanced tax return
MATERIALS
Print

Volunteer scenario packet for scenario 6
Tax Forms
1. 13614-C Intake and Interview sheet for Timothy and Nicole Sterling- Scenario #6
2. Tax forms for Timothy and Nicole Sterling
a. W-2, Wage and Tax Statement for SF Cable Corp
b. 1099-R, SF Waste Management Pension Fund
c. SSA-1099, Social Security Benefit Statement
d. 1099-MISC, ABC Contractor
e. 1099-INT, Interest Income for Portfolio Investments (on 1099)
f. 1099-DIV, Dividend Income for Portfolio Investments (on 1099)
g. 1098- Mortgage Interest Statement
h. 1099, Investment Statement
i. Taxpayers cash income documentation and expenses
j. Direct deposit information
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2016
Scenario #6
SCENARIO OVERVIEW FOR INSTRUCTOR
Timothy and Nicole are filing a joint return. Timothy is retired and began receiving retirement income March 1,
2015 and it has joint-survivor annuity payments. Timothy also has a landscaping business, which is on a cashbasis, and he materially participated in this operation. He maintained written record of his mileage and when he
placed his car in service. They did not itemize their deductions last year and will itemize this year. Both Timothy
and Nicole had health coverage through Nicole’s employer all year. If due a refund they would like to split
between checking and savings; if they have a balance, they will mail in the payment.
OPENING THE LESSON
Go to Scenario 6 in packet
Review the objectives of the scenario with the volunteers and tell them what exactly they
will be learning. Go over the documents included
1. 13614-C Intake and interview form
2. Supporting documents
3. Scenario Interview Notes
Intake & Interview
Things you still need to know:
1. As a volunteer you must review form and verify if their answers correspond with
documents presented
2. Verify if form is filled out correctly and corrections are made when clarifying
questions are asked
3. Determine if the client is eligible for VITA services- see Scope of Service chart in
Publication 4012, Pages 8-10
WITH CLASS –
Ask volunteers: Have the Sterling’s completed the following?


Met the taxpayer requirements (household income, IDs, and Social Security
Numbers for everyone on the return)
Completed the intake and interview sheet and has supporting documentation
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2016
Scenario #6
CONDUCTING THE LESSON
Starting tax return – Pub 4012, Tab N
Now that volunteers have determined that Timothy and Nicole are eligible for VITA, it’s
time to create a new return.
Have all students refer to instructions covered in lesson 1. Remind volunteers that their
screen should be a green for practice.
TAXWISE 1. Create a new return and locate the forms tree on the left side of the screen
2. Input information from Part I of Intake Sheet into Main Information sheet. Refer
to Pub. 4012, Tab K-6
3. Taxpayers must choose a five digit PIN number (recommend using zip code) and
today’s date. This is the client’s e-file approval signature.
4. Have volunteers enter all income documents:
 W-2
 1099-MISC
 SSA-1099 Social Security Benefit Statement
Capital Gain/Loss Transactions –
Publication 4012, Tab D-16
THINGS YOU NEED TO KNOW ABOUT CAPITAL GAIN OR LOSS TRANSACTIONS
1. Capital Assets (such as stock, mutual funds, real property) have a basis, which
is generally the original cost of the asset plus/minus any adjustments.
Exception- the basis of inherited assets is the fair market value of the asset on
the decedent date of death.
2. Taxpayers who sell stock or mutual funds should have a Form 1099-B, which
shows the information necessary to complete Form 1040, Schedule D.
3. Holding period is how long the asset is owned. The two types of holding
periods are: Long Term and Short Term.
 Long Term property is held longer than a year and is taxed at a lower
rate than short term. Inherited property is always considered long
term property.
 Short Term property is held one year or less.
4. Taxpayers who have capital losses are limited to a $3,000 carryover loss per
year. Amounts over $3,000 can be carried over to the subsequent year.
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2016
Scenario #6
WITH CLASS –
1. Review brokerage statement with class, 1099-DIV, 1099-INT, 1099-B
2. Circle amounts that need to be reported (all)
3. Review Pub 4012 D-16 and identify which lines of the tax return the information will be reported on.
TAXWISE –
1. Enter 1099-DIV information
 Link from line 9 to Schedule B (part 2, link from line A) to Dividend Statement
 Refer to Pub 4012 D-11 and enter information.
 Refer to Note 1 at the bottom of page D-11 for instructions on where to report the Foreign Tax
Credit
- Refer to top of page G-2
2. Enter 1099-INT information on the Interest Statement
3. Enter 1099-B information.
 Go to forms tree and select Capital Gain Transaction worksheet
 Enter information from 1099-B (refer to page Pub. 4012 D-16)
Affordable Care Act, Publication 4012, Tab D
Refer to Lesson 1 on how to interview for ACA procedures
With class –
1.
2.
3.
4.
5.
6.
Review taxpayer answers on Part VI on 13614-C using the Job-Aid in Pub 4012 K-4
Identify applicable flowchart in ACA tab.
Go through flowchart (ACA-1) with students for each person on the return
Review Minimum Essential Coverage, on ACA-4
Finish reviewing flowchart (ACA-1) with students
Have students complete 13614-C gray box in part VI
TAXWISE –
1. Indicate on the tax return that taxpayer had partial coverage by checking the
boxes.
Complete CA State Return
See scenario 2 lesson for details on how to complete the CA return in TaxWise
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2016
Scenario #6
FINISHING THE RETURN
Reviewing the Federal Tax Return
Review the 1040, line by line pointing out the different amounts and where they came
from. Tie it back to the documents and information input by the volunteers.
TAXWISE –
1. Review all lines of the 1040 that have amounts in them.
2. Bank account information needed for direct deposit- refer to Part VII of the Intake
Sheet
3. Identity Protection PIN- if client checked the “yes” in box 12 of the Intake Sheet,
refer to Pub. 4012, Tab P-1
Balance Due- Publication 4012, K-16
BALANCE DUE:
1. Balances must be paid by the filing deadline (April 18th) to avoid penalties and
interest charges. There are separate penalties to paying and filing late. Pay as
much as you can before the deadline!
2. Filers will send in their own payments or have it directly debited from their bank
account. See Publication 4012, Tab K 16-19 for instructions
3. If the filer chooses to send their payment via mail, show them the 1040V Payment
Voucher and instruct them to send it with their payment
With class –
Review Balance Due Returns on Publication 4012, Tab K 16-19.
1. Review payment methods and options students can offer clients
2. Review how to help clients avoid a balance due in the future
3. Direct Debit or Estimated Tax Payment Form ACH 1040/ES overview
Finishing the return- Publication 4012, Tab K
See scenario 1 on how to further complete the tax return then…
1. Ensure that all federal and state forms are green, then…
2. Click the Run Diagnostics button at the top of the page to check for mistakes or
missing information. Address any issues and click the button again until it is clear.
3. Click E-file button below the Diagnostics
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2016
Scenario #6
FINISHING THE LESSON
After all volunteers have entered all documents into TaxWise for Scenario 6, ask them whether that
have any questions about the information that was taught. Review all topics that were covered and
be sure to use the questions in the PowerPoint to gauge student comprehension.
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2016