2014 – 2015
Campus Fellow Intermediate &
Advanced Tax Training
A Session
Campus Fellow
Paperwork & Training Materials
 Paperwork to be filled out and returned to trainer (signed):
• Campus Fellow Contract
• Media and Publicity Release Form
• Volunteer Information Form
• Acknowledgement of Risk and Release from Liability
Form
• Volunteer Standards of Conduct Agreement (Form
13615)
• Confidentiality, Inventions and Property Agreement
• W-9
• Gas Reimbursement/Meal Reimbursement (if applicable)
Campus Fellow
Paperwork & Training Materials
Training Materials:
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Welcome Page
Agenda
Training Summary Chart
Training Notes
Selections from Pub 4012
Kevin Kent – Campus Fellow Training Exercise #1
Mark Austin – Campus Fellow Training Exercise #2
Training Exercise Answer Keys
Intermediate Training
 1) Basic Training Refresher
 2) Alimony
 3) State Tax Refund
 4) Business Income
 5) Retirement Income (with taxable amount)
 6) Adjustments to Income
 7) Itemized Deductions
 8) Education Credit
 9) Foreign Tax Credit
Basic Scope Refresher
Preliminary Interview
• Review I/I Form and collect forms
• Verify photo IDs and SS cards
• Determine personal exemption, dependency
exemptions and filing status
Tabs A, B and C in Pub 4012
Basic Scope Refresher
Preparing the Return in TaxWise
• Complete the “Interview” through the dependents
section
• Fill out “Main Info” and “Dependents” forms(s)
• Complete Form 1040
• Complete AL-40
• Complete Gen Use, Gen Disclosure and Prep Use
• Review the return
Forms of Income
Wages: W-2 (line 7)
Interest: 1099-INT (line 8)
Dividends: 1099-DIV (line 9)
Unemployment: 1099-G (line 19)
Social Security Benefits: SSA-1099 (line 20)
Gambling Winnings: W2-G (line 21)
Prize/Award Money: 1099-MISC (line 21)
Credits
 Child and Dependent Care Expenses Credit
• Link: Line 48  2441
 Retirement Savings Contribution Credit
• Link: Line 50  8880
 Child Tax Credit
• $1,000 max. per child (TW calculates, line 51)
 Credit for the Elderly and Disabled
• Link: Line 53  Sch R
 Earned Income Credit
• Fill out Sch EIC and Sch EIC Wkt
 Additional Child Tax Credit
• Refundable portion of CTC (TW calculates, line 65)
Savings Bond Purchases
 Add and complete Form 8888
 Enter the banking information
• If a taxpayer invests in savings bonds, ONLY fill out the
routing and account numbers on the Form 8888.
• If a taxpayer does not invest in savings bonds, fill out the
routing and account numbers on the Main Info form and on
Form 1040, line 74.
Alabama Return
 Personal exemptions
• Taxpayers receive a personal exemption if AL even if they
CAN be claimed as a dependent by someone else.
 Dependents
• Taxpayer provided over 50% of his/her support and is
related to the taxpayer by blood
• NOT cousins, friends or foster children
 Filing status
• Taxpayers can only claim Head of Family if they are
unmarried/legally separated at the end of the year
 Non-taxable income
• Unemployment and Social Security
Basic Training Refresher
Please review the Basic Training Slides at
http://www.generationforchange.org/taxprep
TaxWise Practice: Kent Exercise
 Review I/I and Notes
 Line 7: Wages
 Line 8: Interest
• Skip seller-financed mortgage for now
 Line 9: Dividends
• Skip foreign tax paid and capital gain distributions for now
 Line 19: Unemployment
 Line 20: Social Security
 Line 21: Other Income
 Line 48: Child and Dependent Care
 Line 64a: EIC
Intermediate Training
 1) Basic Training Refresher
 2) Alimony
 3) State Tax Refund
 4) Business Income
 5) Retirement Income (with taxable amount)
 6) Adjustments to Income
 7) Itemized Deductions
 8) Education Credit
 9) Foreign Tax Credit
Alimony
A payment to or for a spouse or former spouse
under a separation or divorce instrument
Person RECEIVING the alimony must report it as
income on line 11
Person PAYING the alimony can subtract it as
an adjustment on line 31
Alimony
May include:
• Medical bills, housing costs and other expenses
Does NOT include:
• Child support or voluntary payments outside
Alimony vs. Child Support
Child support payments from a separation or
divorce instrument will stop once the child is
grown.
Alimony Information
You need the EXACT amount from a divorce or
separate instrument executed after 1984
Amount of alimony reported on one tax return
as income must match the alimony adjustment
amount on the spouse’s tax return
Reporting Alimony Income
Line 11  enter amount of alimony received
No worksheet for reporting alimony income
Do NOT need Social Security number of the
person who paid the alimony
Intermediate Training
 1) Basic Training Refresher
 2) Alimony
 3) State Tax Refund
 4) Business Income
 5) Retirement Income (with taxable amount)
 6) Adjustments to Income
 7) Itemized Deductions
 8) Education Credit
 9) Foreign Tax Credit
State Tax Refund
Taxpayers who receive a refund of state or
local income taxes may receive Form 1099-G
listing their refund in box 2.
NOT everyone must include their state tax
refund as taxable income.
1099-G: State Tax Refund
State Tax Refund
2013 state tax refund may be taxable and
need to be reported (usually Alabama)
Conditions in which 2013 state tax refund is
taxable:
• Received a refund on a state return (Alabama)
• Itemized Deductions in 2013 (Federal) AND
• Deducted state income tax instead of state sales
tax when itemizing deductions (Federal)
2013 State Tax Refund
Answer question in Box under line 9.
• If NO, there are no additional forms
• If YES, Link: Line 10  St Tax Refund
Complete the St Tax Refund Worksheet with information
from the 2013 return
Info Needed from 2013 Return
State refund amount
Sch A, line 5a, income taxes
Sch A, line 5b, general sales tax
Total itemized deductions amount
• Form 1040, line 40
Filing status
Taxable income amount
• Form 1040, line 43
State Tax Refund in TaxWise
Enter in the amounts:
 Line 1: enter AL and state refund amount
 Line 2: income taxes from Sch A, line 5a
 Line 2: general sales tax from Sch A, line 5b
St Tax Refund in TaxWise
Enter in the
amounts:
 Line 6: total
itemized
deductions
 Line 7: filing
status
 Line 12: taxable
income amount
Purpose of St Tax Refund Wkst
Taxpayers who itemized deductions and
received a state or local refund may have
to include all, part, or none of the refund in
their federal taxable income.
St Tax Refund Wkt calculates the amount
that is taxable.
If a taxpayer does not have a copy of the
previous year’s return, Link: Line 10 
Scratch Pad and enter the full amount of
the state tax refund.
St Tax Refund
Intermediate Training
 1) Basic Training Refresher
 2) Alimony
 3) State Tax Refund
 4) Business Income
 5) Retirement Income (with taxable amount)
 6) Adjustments to Income
 7) Itemized Deductions
 8) Education Credit
 9) Foreign Tax Credit
Business Income
Income from personal business (sole proprietor)
or independent contractor
Income can be reported on:
• 1099-MISC (with an amount in Box 7,
Nonemployee Compensation)
• W-2 (with Statutory Employee checked in Box 13)
• 1099-K (Merchant Card and Third Party
Payments)
• Taxpayer’s books and personal records
Link: Line 12  Sch C-EZ or Sch C
Form 1099-MISC
Form W-2
Form 1099-K
Business Income
Having a part-time business (even in addition
to another job) may still be self-employment
income and need to be reported on line 12
Remember: Income that was not reported on
Form W-2, 1099-MISC or 1099-K still needs to
be reported as cash payments.
Example
Andy works as an independent contractor for a
painting company. He received a 1099-MISC
from the company that shows he made $10,000.
He also received $2,000 in cash payments from
a few different people for the work he
completed, but he did not receive a 1099-MISC
for the $2,000.
What is Andy’s total business income that needs
to be reported on Line 12?
Example - Answer
Andy must include the amounts from both the
1099-MISC and cash payments. His total
business income that must be reported is
$12,000.
Business Income vs. Other Income
 Business Income
• An activity qualifies as a business if the primary purpose for
engaging in the activity is for income or profit and the
taxpayer is involved in the activity with continuity and
regularity
• Link: Line 12  Sch C or Sch C-EZ
 Other Income
• A sporadic activity or a hobby does not qualify as a
business
• Hobby: undertaken for pleasure during leisure time (not for
profit)
• Link: Line 21  multiple forms
Business Income Terms
 Business expenses: amounts that are ordinary
and necessary to carry on the business
 Cash method of accounting: reports all income
when received and deducts all expenses when
paid
 Inventory: the items the taxpayer buys or makes
for resale for others
 Depreciation: the cost of items that are expected
to last more than a year should be spread over a
period of years, rather than deducted in the year
of purchase
Business Income
 Conditions that must be met for us to file a tax return
with business income:
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Less than $5,000 of business expenses (Sch C-EZ)
Less than $10,000 of business expenses (Sch C)
Cash method of accounting
No inventory
Does not want to depreciate
Must report a profit: No net loss!
 Gross Receipts – Business Expenses
• Only one business—If taxpayer owns a business (Sch C-EZ)
 More than one business must use Sch C
• No employees
Sch C vs. Sch C-EZ
 Sch C-EZ is just the simplified version of the Sch C
• Use the Sch C-EZ if there are few business expenses and
only one business
 Less than $5,000
• Use the Sch C if there are a lot of business expenses and
more than one business
 $5,000 to $10,000
• Sch C meets ALL of the requirements of the Sch C-EZ on
the previous slide EXCEPT:
• Can report a loss
• However: Business income with a net loss is out of VITA
scope!
Net Profit/Loss
Net Profit/Loss = Gross Receipts – Expenses
Reporting Gross Receipts:
1099-MISC, Box 7
Cash Payments
W-2, Statutory Employee
1099-K
1099-MISC
Income reported in Box 7 on 1099-MISC is
considered self-employment income and
should be reported on a Sch C or Sch C-EZ
• Link: Line 12  Sch C-EZ or Sch C
• Then, Link: Gross Receipts Line  1099-MISC
• DO NOT JUST ADD THE 1099-MISC!
Cash Payments
 CASH INCOME must also be reported on this
line by linking to a scratch pad and entering the
amount of cash income
 Link: Line 12  Sch C or Sch C-EZ  Gross
receipts line  Scratch Pad
W-2: Statutory Employee
Make sure to check the Statutory employee
box on the W-2 in TaxWise:
Then check the box at the bottom of the W2 in TaxWise in the Instructions:
• If you forget to check the box, the amount will
show up on Line 7 (wages, salaries and tips)!
W-2: Statutory Employee
Link: Line 12  Sch C or Sch C-EZ  Gross
Receipts Line  Scratch Pad
1099-K
Link: Line 12  Sch C or Sch C-EZ  Gross
Receipts Line  Scratch Pad
Deductible Business Expenses
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Advertising
Car and Truck Expenses
Commissions and Fees
Insurance
Other Interest
Legal and Professional Services
Office Expense
Rent or Lease – Vehicle, Machinery and Equipment
Repairs and Maintenance
Supplies
Taxes and Licenses
Travel/Meals and Entertainment
Utilities
Advertising
Costs associated with promoting the business
through various means:
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Yellow pages
Newspapers
Magazines
Billboards
Racing sponsors
Television spots
Car & Truck Expenses
A taxpayer who uses a car/truck in a business
may be able to deduct the costs of operating
and maintaining the vehicle
Vehicle expenses are calculated using the
standard mileage rate
Actual expenses include depreciation, which is
out of our scope
Commissions and Fees
Commissions are paid to both individuals and
businesses
Insurance
Insurance policies and coverages are
deductible for the business operation
• Property
• Automobile (business vehicles only)
• Malpractice
If the standard mileage rate is used, no
deduction is allowed for automobile insurance
premiums
Health insurance is NOT deductible
Other Interest
Interest paid on operating loans, but not
mortgage interest
Legal and Professional Services
Fees paid to professionals, such as attorneys,
accountants, appraisers and engineers
Office Expense
Supplies such as pens, paper, postage, etc.
Rent or Lease
Rental fees for cars, trucks, vans, machinery,
equipment and other personal property
Leases of more than 30 days are out of scope
Repairs and Maintenance
Repairs on equipment, automobiles, office
space and buildings are some possible
expenditures
Supplies
Costs for general operating supplies not
associated with the cost of goods sold
Taxes and Licenses
Taxes and license fees paid in the operation of
the business:
• State and local sales taxes imposed on the
taxpayer as the seller of goods or services
• Real estate and personal property taxes
• Certain licenses and regulatory fees
Travel/Meals and Entertainment
Ordinary and necessary expenses of traveling
away from home for business
Utilities
Normal electric, gas, water and telephone
No deduction for personal expenses
Business Mileage Rates
 If used for business purposes, taxpayer can receive a
mileage deduction at the federal rate.
• Cannot deduct commuting miles.
 Cannot calculate depreciation (out of scope).
 For 2014, the rate will be 56.5 cents per mile
– On Sch C-EZ and Sch C, enter total miles
Sch C in TaxWise
Link: Line 12  Sch C
Enter in the
business
information
Sch C in TaxWise
 Line A: Enter the type of business
 Line B: Enter the Principal Business Code
• Help  Business 1099R and Country Codes
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Line C: Enter the business name, if no separate name, leave blank
Line D: Employer ID Number (EIN), if any
Line E: Enter the Business Address
Line F: Check accounting method (only cash accounting is in VITA
scope)
Line G: Materially participate (on a regular, continuous and
substantial basis)
Line H: Business acquired in 2014?
Line I: Make payments that would require filing of Forms 1099?
Line J: Will the business file all required Forms 1099?
Sch C in TaxWise: Part I (Income)
1: Gross receipts, income reported on 1099-MISC
with Box 7, W2 if the “Statutory Employee” box is
checked, 1099-K or cash payments
Sch C in TaxWise: Expenses
Enter in the
amounts for the
qualified business
expenses for lines
8-27
Sch C in TaxWise
TaxWise Calculates!
Sch C in TaxWise: Part III (Cost of
Goods Sold)
Out of Scope!
Sch C in TaxWise: Part IV (Vehicle)
Enter in the
amounts and
answer the
questions
TaxWise carries
over the mileage
expense for you
Sch C in TaxWise: Part V (Other
Expenses)
Part V: Includes all ordinary and necessary
expenses not deducted elsewhere on Sch C
Sch C-EZ in TaxWise
Link: Line 12  Sch C-EZ
Enter in the
business
information
Sch C-EZ in TaxWise:
Income & Expenses
1: Gross receipts
income reported on 1099MISC with Box 7, W2 if the
“Statutory Employee” box is
checked, 1099-K or cash
payments (just like Sch C)
2: Total expenses (Link to a
Scratch Pad)
3: TaxWise calculates net
profit
Sch C-EZ in TaxWise: Vehicle
Enter in the amounts and answer
the questions
You NEED to enter in the mileage
expense amount on Line 2 (Total
expenses) in Part II by adding it
to the Scratch Pad!
Self Employment Tax
Must file Sch SE if self-employment earnings
are over $400
Covers Social Security and Medicare taxes
Complete Sch C or C-EZ first
TaxWise automatically calculates the tax onto
Line 56
Record Keeping
Good records will help the taxpayer do the
following:
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Monitor the progress of their business
Prepare their financial statements
Identify source of receipts
Keep track of deductible expenses
Prepare tax returns
Support items reported on tax returns
Record Keeping
The law does not require any specific kind of
records. Taxpayers can choose any system
suited to their business.
Supporting documents: purchases, sales slips,
paid bills, invoices, receipts, deposit slips,
cancelled checks, payroll, other transactions
usually found in accounting journals and
ledgers
Intermediate Training
 1) Basic Training Refresher
 2) Alimony
 3) State Tax Refund
 4) Business Income
 5) Retirement Income (with taxable amount)
 6) Adjustments to Income
 7) Itemized Deductions
 8) Education Credit
 9) Foreign Tax Credit
Two Major Categories of Retirement Plans
Defined Benefit Plan
• Funded by the employer
• Promises a specific monthly benefit at retirement
May explicitly state the promised benefit as an exact
dollar amount (e.g., $100 a month)
May calculate benefit from a formula derived from
salary, age, and number of years worked for company
• Generally, employees do not contribute to these
plans
Two Major Categories of Retirement Plans
Defined Contribution Plan
• Does not promise a specific monthly benefit at
retirement
• Employee and/or employer contribute money to
your individual account in the plan
• Often, employee is responsible for choosing how
these contributions are invested and deciding how
much to contribute through pretax deductions
• Employer often matches a certain percentage of
contributions
Types of Retirement Plans
Pension: series of payments for past work (DB)
Annuity: series of payments from a contract
with a company, trust or individual (DB or DC)
401(k) Plan: employer contributes part of the
employee’s cash wages to a retirement plan on
a pre-tax basis (not subject to income tax until
employee receives it as a distribution from
retirement account) (DC)
Individual Retirement Arrangements
 Individual Retirement Arrangements: A personal
savings plan that offers tax advantages to set
aside money for retirement
• Earnings generally accumulate tax free until withdrawn
• Types:
Traditional
Roth: Out of Scope (usually – discussed in Advanced Training)
SIMPLE: Out of Scope!
SEP: Out of Scope!
Retirement Forms
Retirement income can be reported on:
• Form 1099-R  Distributions From Pensions,
Annuities, Retirement or Profit-Sharing Plans,
IRAs, Insurance Contracts, etc.
• Form CSA 1099-R  Statement of Annuity Paid
(civil service retirement payments)
• Form CSF 1099-R  Statement of Survivor
Annuity Paid
• Form RRB 1099-R  Annuities or Pensions by the
Retirement Railroad Board
Form 1099-R: Taxable Amount Determined
 At this point, we are only going to prepare returns with
1099-R Forms that already have the taxable amount
determined.
 Advanced Training: 1099-R with an empty Box 2a.
Lines 15/16:
Retirement
(Forms 1099-R)
Form 1099-R: Taxable Amount Determined
 If IRA Box is checked, link: Line 15a  1099R
• We can only prepare traditional IRA returns!
 If IRA Box is NOT checked, link: Line 16a  1099R
Form 1099-R: IRA (Line 15a)
Link: Line 15a  1099R
Form 1099-R: IRA (Line 15a)
Form 1099-R: Pension/Annuity (Line 16a)
Link: Line 16a  1099R
Form 1099-R: Pension/Annuity (Line 16a)
Form CSA 1099-R
Link: Line 16a  1099R
Form CSA 1099-R
Railroad Retirement Plans
RRB 1099
 Treated like SSA 1099
(social security benefits)
 Line: 20a  1040
Wkt1
RRB 1099-R
 Treated like 1099-R
(pension)
 Line 16a  1099R
Form RRB 1099: Part 1
Link: Line 20a  1040 Wkt 1
RRB 1099: Line 20a  1040 Wkt1
 Railroad tier 1: Enter total benefits from Box 5
 Medicare Parts B, C and D: Enter amount from Box 11
 Federal tax withheld: Enter amount from Box 10
RRB 1099-R: Part 2
Link: Line 16a  1099R
RRB-1099-R: Line 16a  1099R
 Line 1: Enter Total Gross paid
from Box 7
 Click: Taxable amount not
Determined (discussed in
Advanced training)
 Line 4: Enter Withholding from
Box 9
 Line 7: Enter 7 for the code
 Line 9b: Enter employee
contributions from Box 3
 Click: Railroad retirement
Box 1, 2, 3 or Railroad Retirement?
On all 1099-R Forms in TaxWise
ONE OF THE MOST IMPORTANT BOXES TO
CORRECTLY CHECK IN TAXWISE!!
DO NOT SKIP THIS FOR ANY 1099-R!
Box 1, 2, 3 or Railroad Retirement?
Defined Benefits: Box 1
• Taxpayer receives a set amount each month for
retirement and is based on salary history and
years which they worked at a company.
Defined Contributions:
• Taxpayer's retirement depends on the amount of
contributions made into an investment account and
the performance of those investments contributed.
Examples: 401(k), 403(b), employee stock
ownership plan, profit-sharing plan.
Defined Benefits vs. Defined Contributions
 Defined Benefit Plans – Box 1 – are NOT taxable
in Alabama
 To find out if a retirement plan is Defined Benefits or
Defined Contributions
•
•
•
•
•
Consult online list (www.impactalabama.org/taxprep)
Consult Site Coordinator Manual
Call the company that administers the plan
Call the Alabama Department of Revenue
Call the IRS
Defined Benefits vs. Defined Contributions
All retired civil servants (teachers,
city employees, soldiers, etc.)
have Defined Benefits plans
401(k)s are NOT Defined Benefits
Defined Benefits or Defined Contributions?
You can also ask the taxpayer the following
questions to help you reach a decision:
• Do you receive the same amount every pay period?
(If yes  Defined Benefits) BOX 1
• Did your employer match your retirement
contributions? (If yes  Defined Contributions)
• Were your contributions placed into an investment
account? (If yes  Defined Contributions)
Box 1, 2, 3 or Railroad Retirement?
 On all 1099-R Forms in TaxWise
 ONE OF THE MOST IMPORTANT BOXES TO
CORRECTLY CHECK IN TAXWISE!!
 DO NOT SKIP THIS FOR ANY 1099-R!
Defined Benefits
RRB-1099R (Railroad retirement)
Note: Do NOT check Box 2 or 3
Example
Joe has been receiving his retirement payments
for several years and has received a 1099-R.
When you ask him if he knows what kind of plan
it is, he says he has no idea but he knows it is
from his employment as a teacher. Is this a
defined benefits or defined contributions plan?
Example – Answer
Defined benefits plan – BOX 1
All civil servants will have a defined benefits
plan.
Example
Maria began receiving her retirement payments
this year and was issued a1099-R. She tells you
that this is being drawn from an investment
account that she would contribute to and her
former employer would match that contribution.
Is this a defined benefits plan or defined
contributions plan?
Example – Answer
Defined contributions plan
Example
Charles has been receiving his retirement for
seven years. Every month, he receives $100. Is
this a defined benefits plan or defined
contributions plan?
Example – Answer
Defined benefits plan – BOX 1
Example
Steve comes in with a Form RRB-1099R. Is this a
defined benefits plan, defined contributions plan
or railroad retirement plan?
Example – Answer
Railroad retirement plan
Defined Benefits Retirement Plans
FOR A DEFINED BENEFITS PLAN, CLICK BOX 1 ON
THE BOTTOM OF THE 1099-R IN TAXWISE!
1099-R Codes: Box 7
 1: Early distribution, no known exception (in most cases, under age
59 ½)
 2: Early distribution, exception applies (under age 59 ½)
 3: Disability
 4: Death
 5: Prohibited transaction
 6: Section 1035 exchange (tax-free exchange of life insurance,
annuity or endowment contracts)
 7: Normal distribution
 8: Excess contributions
 9: Cost of current life insurance protection
 A: May be eligible for 10 year tax option
 B: Designated Roth account distribution
 D: Excess contributions plus earnings/excess deferrals
 G: Direct rollover and rollover distribution
Rollover
 Tax-free distribution
 Why?
• The money is really not going to be used, it is still be
saved for retirement—it’s simply being rolled over into
a new qualified retirement savings plan or back into
the same retirement account
 Example:
• Julia left her job at Dog Food Company, but wanted to
take her retirement account with her to her new job—
Julie is going to take a full tax-free distribution of her
account and roll it over to a new qualified retirement
savings plan
Rollover
Tax-free distribution
Code G will be in Box 7 of the 1099-R
In TaxWise:
• Enter the top portion of the 1099-R as usual
Make sure to enter Code G
• Fill out the Exclusion Worksheet
• Check the rollover box (Form 1040)
• Provide an explanation for the rollover
Rollover
Enter the amount
the taxpayer
rolled over
Check the Box
and type F9
Provide an
explanation
Disability Pension Income
 Why would a taxpayer have disability pension
income?
• Perhaps they had an accident that rendered them
totally and permanently disabled
Disability payments may be coming from a
qualified retirement pension plan
• The income is therefore going to be treated like
wages, instead of retirement income UNTIL the
taxpayer reaches the designated retirement age
for that specific plan.
Disability Pension Income
 Code 3 on a 1099-R
• Enter the 1099-R like normal in TaxWise
• Check to see if taxpayer has reached retirement age
for that specific plan
If taxpayer isn’t sure, may need to consult retirement
paperwork or contact plan manager
Don’t just rely on a previous year return—previous tax
preparer might not have entered in correctly
• If taxpayer has not reached retirement age, click
Check if disability and taxpayer is disabled and verify
that amount appears on Line 7 as wages
• If taxpayer has reached retirement age, do NOT check
that box and verify that the amount appears on Line
16 as retirement pension income
Disability Pension Income
(Reported on 1099-R)
Incorrect Code on 1099-R
 If a taxpayer has an incorrect code on a 1099-R,
he/she should contact the retirement company and
get the issue resolved
 If the retirement company refuses, then the
taxpayer must enter the 1099-R as it is written on
the 1099-R
• If an additional IRA tax is calculated (due to an early
distribution)but it does not apply (because it should
actually be a normal distribution), then:
• Link: Line 58  5329 to correct the incorrect code
Form 5329
 Enter 12 as the exception number
 Enter the full amount of the retirement distribution
(line 1 of 1099-R) that was incorrectly coded
 The amount of the additional tax that was
previously on Line 58 of the 1040 should then be
removed
TaxWise Practice – Kent Exercise
Line 10: State Tax Refund
Line 12: Business Income
Lines 15: IRA Distributions
• People’s Trust & Yale Security
Line 16: Pensions & Annuities
• Retirement Services Program
• Skip Alpine Pension Fund for now
Intermediate Training
 1) Basic Training Refresher
 2) Alimony
 3) State Tax Refund
 4) Business Income
 5) Retirement Income (with taxable amount)
 6) Adjustments to Income
 7) Itemized Deductions
 8) Education Credit
 9) Foreign Tax Credit
Adjustments to Income
Basic life expenses that help decrease taxable
income
Found on Lines 23-35 of Form 1040
•
•
•
•
•
•
•
Half of Self-Employment Tax
Early Withdrawal Penalty
Alimony
IRA (traditional) Contributions
Student Loan Interest
College Tuition Payments
Jury Duty
Half of Self-Employment Tax
Offsets the tax burden placed on individuals
who do not have employers to pay half of their
taxes.
TaxWise will automatically calculate this
adjustment on Form 1040, Line 27 if you have
completed a Schedule C.
Penalty on Early Withdrawal of Savings
When a taxpayer withdraws savings before
maturity, a penalty is incurred.
• Box 3: Form 1099-INT or Form 1099-OID
Can deduct these penalties from income.
TaxWise automatically calculates the
adjustment on Form 1040, Line 30.
Make sure you entered in ALL interest and
penalties imposed correctly on the Sch B.
Form 1099-OID
Alimony Paid
 Payment to a spouse or former spouse under a
divorce/separation agreement.
• Child support and voluntary payments are NOT considered
alimony.
• Alimony received is considered income.
 Deduct total alimony paid for the whole year, not just
one month.
 Enter in amount taxpayer paid and the recipient’s SSN
on Form 1040, Line 31.
IRA Contributions Deduction
Pub 4012, Tab E-5
IRA: Individual Retirement Arrangements
• Personal savings plan that offers tax advantages
to set aside money for retirement
• Earnings and gains on contributions are not taxable
until withdrawal
• Contributions to a traditional IRA can be either
deductible or nondeductible
IRA Contributions Deduction
 Eligibility Requirements:
• Only contributions to a traditional IRA are
deductible
• Age Limit: must be under the age of 70 ½ at the
end of the tax year
• Compensation: must have taxable compensation
• Time Limit: Contributions must be made by due date
of filing the return
 Contribution limit is the lesser of earned income
or:
• $5,500 ($6,500 if > age 50)
IRA Deduction: Joint Returns
If the taxpayers file a joint return and one
spouse’s compensation is greater than the
other’s compensation, then:
• Married taxpayers’combined contributions cannot
exceed combined compensation.
• Neither spouse can contribute more than $5,500
($6,500 if > age 50).
IRA Deduction
Link: Line 32  IRA Wkt
Enter contributions on line 10
Student Loan Interest
Pub 4012, Tab E-4
Up to $2,500 of interest paid during the year
on a loan for qualified higher education
expenses in the name of a:
• Taxpayer
• Spouse
• Dependent (when the loan was obtained)
Note: Student must have been enrolled at least half-time in a
program leading to a degree, certificate, or other credential.
Student Loan Interest: Eligibility
 Loan was for an eligible student and was paid within a reasonable
period of time before/after obtaining the loan
 School IS:
• Accredited
• Qualified to participate in a student aid program or conduct
internship/residency programs leading to a degree or
certificate
 Taxpayer IS NOT:
• Filing as MFS
• Able to be claimed as a dependent
 If the taxpayer cannot be claimed as a dependent but his/her
parents paid the student loan interest, the student can claim the
deduction.
Student Loan Interest: Qualified Expenses
Qualified expenses include tuition and fees
required for enrollment, room and board,
transportation, books, and supplies
Usually reported on Form 1098-E or
another statement from the lender
Amount must be reduced by scholarships,
employer-provided benefits, or tax-free
education expenses
Form 1098-E
Student Loan Interest Adjustment
Link: Line 33  1040 Wkt2
Jury Duty Pay Given to Employer
Jury duty pay is taxable income.
BUT: if that pay is given to the employer, it can
be deducted as an adjustment.
Enter the amount on Form 1040, Line 35, Jury
duty pay you gave to your employer.
TaxWise Practice – Kent Exercise
Adjustments to Income
• Line 31: Alimony Paid
• Line 32: IRA Contribution
• Line 33: Student Loan Interest
Intermediate Training
 1) Basic Training Refresher
 2) Alimony
 3) State Tax Refund
 4) Business Income
 5) Retirement Income (with taxable amount)
 6) Adjustments to Income
 7) Itemized Deductions
 8) Education Credit
 9) Foreign Tax Credit
Itemized Deductions
Every taxpayer can take a specific amount for
a “standard” deduction
• 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
• Reduces taxable income by a greater amount
When to Itemize
 A taxpayer can receive a larger deduction by
itemizing if he/she has:
• At the Federal Level (higher standard deduction):
Home mortgage payment
Large number of medical bills
• At the State Level (lower standard deduction):
Expenses that may/may not have been sufficient to justify
itemization on the federal level
Note: If a taxpayer is MFS and his/her spouse itemizes, the taxpayer must
also itemize, regardless of whether the Standard Deduction would be
higher
Qualifying Expenses
Unreimbursed Medical Expenses
Charitable Contributions
Taxes
Home Mortgage Interest
Miscellaneous Deductions
Unreimbursed Medical Expenses
A taxpayer can claim expenses for
• Him/Herself
• Spouse
• Dependents
He/she can only deduct the amount that
exceeds
• 7.5% of his/her AGI on federal returns
• 4% of his/her AGI on state returns
Covered Medical Expenses
Unreimbursed medical and dental expenses
Eligible long-term care premiums
Be sure the expenses were not paid with pretax
dollars or reimbursed by an insurance company.
Deductible Medical Expenses
 Co-pays to doctor, dentist, eye doctor
 Prescription drugs
 Cost of glasses or hearing aids
 Cost of medical equipment
 Health insurance premiums
 Long-term care insurance premiums (cap on amount based
on age)
 Cost of surgery, operations
 Miles to and from doctor
NOTE: For a complete listing of deductible and
nondeductible expenses see Pub 502 on the IRS website
Nondeductible Medical Expenses
Life insurance policy premiums
Funeral, burial, cremation costs
Unnecessary cosmetic surgery
Nonprescription drugs
NOTE: For a complete listing of deductible
and nondeductible expenses see
Pub 502 on the IRS website
Medical Expenses in TaxWise
(Click on the A Detail in the Loaded Forms Menu)
Enter in the amounts for:
 Medical miles
 Insurance
 Medicare (carries over
from 1040 Wkt 1)
 Other medical
expenses
(prescriptions, glasses,
etc.)
Charitable Contributions
Qualifying
Organizations:
•
•
•
•
•
Religious
Charitable
Educational
Scientific
Literary
Non-qualifying
Organizations:
•
•
•
•
•
Business
Civic/Political
Social
Foreign
Homeowners'
Associations
Charitable Contributions
Deductible Items:
•
•
•
•
•
Monetary donations
Dues, fees, and assessments
Fair market value (FMV) of clothing, furniture
Uniforms required to be worn during service
Unreimbursed transportation expenses
Tolls, bus fare, parking fees, and cost of gas at 14 cents
per mile
IMPORTANT: The taxpayer must keep receipts!
FMV of Donated Goods
If a taxpayer has made non-cash contributions
to charity and does not have receipts, use the
following resources to determine the FMV of
donated items:
• Salvation Army Valuation Guide
Charitable Contributions
Nondeductible Expenses:
•
•
•
•
•
•
Raffle, bingo, lottery tickets
Tuition
Value of time of service
Blood
Contributions to individuals
The FMV of any good received in exchange for a
donation (i.e. t-shirts, cds, tote bags, etc.)
Limits to Charitable Contributions
Contributions that total more than 20% of their
AGI may be able to deduct only a percentage
of their contributions, and must carry over the
remainder to a later tax year
If taxpayers have >$500 of non-cash
contributions, they need to be referred to a
professional preparer if they want to deduct
the full amount.
• Form 8283 (OUT OF SCOPE)
Recordkeeping
 Cash contribution
• Canceled check or bank statement
• Written communication from the charity
Name of charity, date and amount
 Noncash contribution
• For each contribution < $250
Written communication, description, FMV
• For each contribution between $250 and $500
Written communication, description, FMV and acknowledgement of
any goods received in return
• For each contribution > $500
Refer to professional preparer
Charitable Contributions in TaxWise
(Click on the A Detail in the Loaded Forms Menu)
Enter in the amounts
for:
 Charitable miles
 Charitable cash
contributions
 Uniforms required
for service
FMV of other than cash
contributions
Taxes
Deductible
• Taxes imposed on and paid by the taxpayer in
2014
Nondeductible
• Taxes the taxpayer pays for someone else
• Taxes someone else pays for the taxpayer
• Taxes not paid during 2014
Taxes
Deductible
• State and local taxes
• Real estate taxes
(Property Tax)
• State and local taxes
on a new car purchase
• Ad valorem tax on car
tags (total paid $24.50)
Nondeductible
•
•
•
•
Federal taxes
Hunting licenses
Water/sewer
Taxes on alcohol,
tobacco, or gas
• Utilities
Taxes Paid in TaxWise
(Click on the Schedule A in the Loaded Forms Menu)
Enter in the amounts
for:
 City/county real
estate taxes (6)
 Personal property
taxes (7)
 Ad valorem tax,
make sure to
subtract $24.50
before entering (8)
Home Mortgage Interest
 Any interest paid on a loan secured by the
taxpayer’s home, line of credit, or a home equity
loan.
 Is generally reported on Form 1098
 Only taxpayers who are legally liable for the
debt can deduct the interest
 Taxpayers may have more than one mortgage or
may have refinanced and have multiple statements
 Points: only points paid as a form of interest (for
the use of money) can be deducted
Home Mortgage Interest
Note: Real estate taxes may be reported in Box 5 and
should be entered on Line 6
Home Mortgage Interest in TaxWise
(Click on the Schedule A in the Loaded Forms Menu)
Enter the amounts
for:
 Home mortgage
interest and
points (10)
Nondeductible Interest
Personal interest
•
•
•
•
personal loans
car loans
credit cards
etc.
Casualty and Theft Losses
Out of Scope!
Miscellaneous Deductions
 Schedule A, Lines 21-28
 Union dues
 Uniforms (that cannot be worn in any other circumstance)
 Professional books, journals
 Small tools and supplies, used for business
 Employment-related educational expenses
• Includes educator expenses > $250 (after the adjustment)
 Expenses for looking for a new job
 Tax preparation fee from last year
 Safe deposit box
 Gambling losses up to amount of winnings
Miscellaneous Deductions in TaxWise
(Click on the Schedule A in the Loaded Forms Menu)
Enter the amounts and
descriptions for:
 Employment: job travel,
union dues, job
education, literary
journal for work,
educator expenses (21)
 Tax prep fees (22)
 Safe deposit box (23)
 Miscellaneous: literal
journal not for work,
gambling losses from
W2-G (28)
Nondeductible Expenses
 Burial or funeral expenses
 Wedding expenses
 Fees and licenses
 Fines, penalties, traffic tickets
 Home repairs and insurance
 Rent
 Insurance premiums (except health and mortgage)
 Losses from sale of home
Example
Are the following expenses deductible?
1. Medical insurance premiums
2. Vitamins
3. Federal income tax
4. Interest on car loan
5. Church contribution
6. Tax preparation fee from last year
Example
Are the following expenses deductible?
1. Medical insurance premiums - YES
2. Vitamins
3. Federal income tax
4. Interest on car loan
5. Church contribution
6. Tax preparation fee from last year
Example
Are the following expenses deductible?
1. Medical insurance premiums - YES
2. Vitamins - NO
3. Federal income tax
4. Interest on car loan
5. Church contribution
6. Tax preparation fee from last year
Example
Are the following expenses deductible?
1. Medical insurance premiums - YES
2. Vitamins - NO
3. Federal income tax - NO
4. Interest on car loan
5. Church contribution
6. Tax preparation fee from last year
Example
Are the following expenses deductible?
1. Medical insurance premiums - YES
2. Vitamins - NO
3. Federal income tax - NO
4. Interest on car loan - NO
5. Church contribution
6. Tax preparation fee from last year
Example
Are the following expenses deductible?
1. Medical insurance premiums - YES
2. Vitamins - NO
3. Federal income tax - NO
4. Interest on car loan - NO
5. Church contribution - YES
6. Tax preparation fee from last year
Example
Are the following expenses deductible?
1. Medical insurance premiums - YES
2. Vitamins - NO
3. Federal income tax - NO
4. Interest on car loan - NO
5. Church contribution - YES
6. Tax preparation fee from last year - YES
Itemized Deductions (Alabama Return)
 If the taxpayer is itemizing deductions on the
Federal and State returns or if the taxpayer is just
itemizing on the State return, you always enter the
itemized deductions on Sch A on the Federal
return.
• Never start to itemize on the AL A.
• It is okay to leave the deductions on the Federal return
even if the taxpayer does not have enough to itemize,
because there is a good chance he/she can itemize on
the State return.
 All of the information from the Sch A carries over
to the AL A.
Itemized Deductions (Alabama Return)
All information will carry over from the Sch A to
the AL A, but you will need to add a
description if there is an amount listed on line 8
of the AL A.
• Usually is the property tax and/or ad valorem tax.
• Put multiple descriptions if necessary.
TaxWise Practice – Kent Exercise
Line 40: Itemized Deductions
Campus Fellow
Paperwork & Training Materials
 Paperwork to be filled out and returned to trainer (signed):
• Campus Fellow Contract
• Media and Publicity Release Form
• Volunteer Information Form
• Acknowledgement of Risk and Release from Liability
Form
• Volunteer Standards of Conduct Agreement (Form
13615)
• Confidentiality, Inventions and Property Agreement
• W-9
• Gas Reimbursement/Meal Reimbursement (if applicable)
Campus Fellow
Paperwork & Training Materials
Please bring back ALL training
material to your scheduled B
session!
2014 – 2015
Campus Fellow Intermediate &
Advanced Tax Training
B Session
Intermediate Training
 1) Basic Training Refresher
 2) Alimony
 3) State Tax Refund
 4) Business Income
 5) Retirement Income (with taxable amount)
 6) Adjustments to Income
 7) Itemized Deductions
 8) Education Credit
 9) Foreign Tax Credit
Education Credits
Offset higher education expenses paid during
the year
• The student can be taxpayer, spouse, or a
dependent
Two types of credits available:
• American Opportunity Credit
40% (up to $1,000) is refundable
• Lifetime Learning Credit
Nonrefundable credit
Education Credits
 Tuition amounts paid by the taxpayer are
reported on a 1098-T and can be entered as a
credit.
Education Credits: Eligibility
 Filing status cannot be MFS
 Cannot be claimed as a dependent on someone
else’s return
 Qualified expenses: tuition and fees required for
enrollment
 Accredited institution
 CAN claim on the basis of expenses paid with
student loans
 Taxpayer / student will often receive Form 1098-T
Expenses That Do Not Qualify
 Room and board
 Insurance
 Medical expenses (including student health fees)
 Transportation costs
 Personal, living or family expenses
 Expenses for a course involving sports, games or
hobbies, unless it is required for the
degree/certificate
Education Credits: Dependents
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
American Opportunity
(Hope) Credit
Lifetime Learning Credit
Up to $2,500 per eligible student
Up to $2,000 credit per return
Available for the 1st 4 years of college
Available for all years
Student must be pursuing a degree or
recognized education credential
Student does not need to be pursuing a
degree or credential
Student must be enrolled at least half
time
Available for one or more courses
No felony drug conviction on student’s
record
Felony drug conviction does not apply
Expenses include tuition, fees, and course
materials
Expenses include only tuition and fees
Qualified Expenses for Credit
American Opportunity (Hope) Credit
• Qualified tuition and related expenses up to
$4,000 per eligible student
• Includes expenses for course materials (books,
supplies, and equipment needed for a course of
study, whether or not they were purchased from
institution)
Link: Line 49  8863 Pg. 1
Qualified Expenses for Credit
Lifetime Learning Credit
• Expenses include only tuition and fees
• Course-related books, supplies and fees are
included ONLY if they must be paid to the
institution as a condition of enrollment
Link: Line 49  8863 Pg. 2
Education Credits: No Double Benefits
The taxpayer CANNOT claim
• Both the American Opportunity (Hope) and Lifetime
Learning credits for the same qualified tuition
expenses
• Expenses paid with a tax-free scholarship, grant,
or other assistance, including Pell grants (in other
words, the taxpayer must subtract these
scholarships from the total expenses before
claiming either credit)
Qualified Expenses
IMPORTANT!
Verify with the taxpayer that the amount in Box
1 or 2 of Form 1098-T is actually the amount
paid in the current tax year for qualified
expenses!
Payments for the Next Academic Year
 Taxpayers can claim payments prepaid for the
academic period that begins in the first three
months of the next calendar year.
 Example:
• Michael pays $1,500 in December 2014 for the winter
semester that begins in January 2015.
• He can use the $1,500 paid in December 2014 to
compute his credit for 2014.
• However, he cannot count the $1,500 again on his
2015 return.
Determining the Amount of the Credit
 Review the list of qualifying students and expenses
and decide which credit is best.
 Enter each qualifying student and SSN on Form
8863
 Enter the students’ qualifying expenses
• Include only qualified expenses
• Are reduced by untaxed benefits (scholarships, grants,
etc.)
• Are reduced by amounts paid in previous years
• Do not exceed the limit for the credit
Education Credits in TaxWise
Education Credits in TaxWise
Education Credits in TaxWise
Line 23:
• Yes  Lifetime Learning (Line 31)
• No  American Opportunity (Line 24)
Education Credits in TaxWise
OR
Example
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?
Example – Answer
If James’s parents claim him, they must claim
the credit.
If James’s parents do not claim him, James
must claim the credit.
Lifetime Learning Credit
Example
LaQuandra is a sophomore enrolled at UAB fulltime. She provides all of her own support. She
paid $10,000 in 2013 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?
Example – Answer
Yes
American Opportunity
Qualified expenses = $6,000 ($4,000)
Intermediate Training
 1) Basic Training Refresher
 2) Alimony
 3) State Tax Refund
 4) Business Income
 5) Retirement Income (with taxable amount)
 6) Adjustments to Income
 7) Itemized Deductions
 8) Education Credit
 9) Foreign Tax Credit
 10) Residential Energy Credit
Foreign Tax Credit
Taken if a taxpayer paid income tax to a
foreign country; U.S. possession; or political
subdivision, agency, or instrumentality of a
foreign country.
Foreign tax paid > $300 is out of our scope!
We may see some foreign tax reported on a
1099-DIV in Box 6.
Enter the amount of foreign tax paid on Form
1040, Line 47
Form 1099-DIV
TaxWise Practice – Kent Exercise
Line 27: Foreign Tax Credit
Line 49: Education Credit
Advanced Training
 1) Credit for the Elderly or Disabled
 2) 1st Time Homebuyer Credit Repayment
 3) Unreported Tips (& Social Security/Medicare Taxes)
 4) Retirement (taxable amount not determined)
 5) Sale of Stock
 6) Sale of Home
 7) Schedule K-1
 8) Injured Spouse/Deceased Taxpayer
 9) Rental Income
 10) Finishing the Return
 11) Additional Responsibilities
Elderly & Disabled Credit: Schedule R
 Taxpayer is
• Over 65 AND/OR
• Retired and on disability benefits before the
mandatory retirement age
 Elderly are seldom eligible because of income
limits.
 Mandatory retirement age is set by a taxpayer’s
employer.
 TaxWise automatically calculates this credit on a
Schedule R.
Schedule R in TaxWise
TaxWise will calculate this credit if the date of
birth is provided.
Be sure to include the taxpayer’s Social
Security benefits, regardless of their taxability,
to ensure the calculation is correct!
Link: Line 53  Sch R
Advanced Training
 1) Credit for the Elderly or Disabled
 2) 1st Time Homebuyer Credit Repayment
 3) Unreported Tips (& Social Security/Medicare Taxes)
 4) Retirement (taxable amount not determined)
 5) Sale of Stock
 6) Sale of Home
 7) Schedule K-1
 8) Injured Spouse/Deceased Taxpayer
 9) Rental Income
 10) Finishing the Return
 11) Additional Responsibilities
Line 59b: Repayment of First-time
Homebuyers Credit (Form 5405)
Individuals who took $7,500 credit in 2008 to
buy a home had to begin to repay in 2010
At least $500 (1/15 of that owed) has to be
paid and reported in “Additional Taxes”
section on Line 59b
Link: Line 59b  5405 Pg. 2
Filling Out Form 5405
Line 1: If the taxpayer ceased using the home
as the main home, enter the date
Line 4: Enter the amount of credit claimed
Line 5: Enter the amount of credit repaid in
prior years
Line 8: Enter the amount the taxpayer is
repaying for the year; has to be at least $500
Form 5405 in TaxWise
Form 5405 in TaxWise
Advanced Training
 1) Credit for the Elderly or Disabled
 2) 1st Time Homebuyer Credit Repayment
 3) Unreported Tips (& Social Security/Medicare Taxes)
 4) Retirement (taxable amount not determined)
 5) Sale of Stock
 6) Sale of Home
 7) Schedule K-1
 8) Injured Spouse/Deceased Taxpayer
 9) Rental Income
 10) Finishing the Return
 11) Additional Responsibilities
Line 7: Wages, Salaries, Tips
Form W-2 (Unreported Tips)
Reported Tips
Tips totaling more than $20/month
• Usually reported to employer
• Already totaled in Box 1 of Form W-2.
Allocated tips of any amount
• Appear in Box 8 of W-2
Tips not reported to employer
• Must be reported to the federal government on a
Form 4137
Tips
 If taxpayers have jobs in which tips are normally
received (waiter, bellhop, hotel housekeeper, etc.),
make sure to ask about any tips received.
• >$20/month at one job and reported to employer:
Appear on W-2, boxes 1, 5 and 7
• >$20/month at one job and not reported:
Report on line 4 of Form 4137
Subject to SS and Medicare taxes
• <20/month at one job and not reported:
Report on line 5 of Form 4137
NOT subject to SS and Medicare taxes
Line 7: Tips Not Reported
(Form 4137)
Link: Line 7  Form 4137
(Enter in unreported tips on Line 4 or
Line 5)
Unreported Tips (SS and Medicare
Taxes)
Unreported tips entered on Form 4137 will
display on Line 7, Form 1040
Form 4137 also calculates the employee
portion of social security and Medicare taxes.
These taxes will automatically display on Line
57, Form 1040
Advanced Training
 1) Credit for the Elderly or Disabled
 2) 1st Time Homebuyer Credit Repayment
 3) Unreported Tips (& Social Security/Medicare Taxes)
 4) Retirement (taxable amount not determined)
 5) Sale of Stock
 6) Sale of Home
 7) Schedule K-1
 8) Injured Spouse/Deceased Taxpayer
 9) Rental Income
 10) Finishing the Return
 11) Additional Responsibilities
Taxable Portion (Retirement)
Depending on employee contributions, income
from retirement plans can be:
• Fully taxable
• Partially taxable
• Not taxable
Determining the Taxable Portion
Typically, the taxable amount is reported in
Box 2a of the 1099-R
If not, use the Simplified Method to calculate the
tax-free portion of each pension payment
Form 1099-R
If the taxable amount is NOT determined in Box
2a, use the Simplified Method!
The Simplified Method
 If the taxpayer made after-tax contributions
toward the pension, a portion of the annuity
payment is not taxable.
 The Simplified Method calculates the non-taxable
amount.
• Generally, if the starting date of the payments was
prior to July 2, 1986, the Simplified Method would not
apply.
• If the taxpayer used the 3-year rule, the annuity is fully
taxable. If he used the general rule, refer him to a
professional tax preparer.”
Info Needed to Use Simplified Method
Cost in plan at start date (from 9b of 1099-R)
Age of retiree (and spouse if a joint annuity) at
start date
Number of months for which payments were
received in 2014
Amount recovered tax free in prior years (if
applicable)
If You Are Missing Information
Age of retiree (or spouse) at starting date:
• Look at past year returns and confirm with
taxpayer
• Consult with the IRS
• Call administrator of the plan (find phone number
on 1099-R or online)
Amount that has already been excluded:
• Look at previous year’s return
Simplified Method
Enter in the amounts for:
 Line 1: Cost in plan
at start date from
9b of 1099-R
 Line 2: Age at start
date
 Line 4: Number of
months payments
were received in
2014
 Line 5: Amount
recovered tax free
in prior years
Simplified Method
Do NOT enter an amount if Box 2a of the
1099-R in TaxWise if the amount was blank on
the actual 1099-R form.
TaxWise will calculate the taxable portion
from the Simplified Method and will carry it
over to Form 1040, line 16b.
Remember: You need to determine if the plan is
defined benefits/contributions. Check Box 1 if it is
defined benefits.
Advanced Training
 1) Credit for the Elderly or Disabled
 2) 1st Time Homebuyer Credit Repayment
 3) Unreported Tips (& Social Security/Medicare Taxes)
 4) Retirement (taxable amount not determined)
 5) Sale of Stock
 6) Sale of Home
 7) Schedule K-1
 8) Injured Spouse/Deceased Taxpayer
 9) Rental Income
 10) Finishing the Return
 11) Additional Responsibilities
Investment Income
Investment property produces investment
income in the form of:
• Interest
• Dividends
• Capital Gains
What are Capital Gains?
 Sale, exchange, or redemption of mutual fund
shares
• Sale of stock!
• Reported on a 1099-B
Sale:
Transfer of shares
for money
Redemption:
Exchange:
Transfer of shares Fund reacquires
for other shares shares in exchange
for money or
property
Form 1099-B
Sale of Stock
Gain = Amount Realized – Adjusted Basis
In Layman’s terms...
Gain = Money You Get – Money You Paid
 Basis: original cost of the asset
 Adjusted Basis: original cost of the shares of stock increased or
decreased to account for commissions, fees, depreciations, etc.
Determining Gain or Loss
Gain: amount realized is GREATER than
adjusted basis
Loss: amount realized is LOWER than adjusted
basis
Needed Information from 1099-B
Basis or Adjusted Basis
Holding Period
• Long or Short Term
Proceeds from Sale
If any of this information is missing from the 1099-B,
contact the stockbroker; if the basis cannot be determined,
the basis is zero.
Determining Adjusted Basis
INCREASE adjusted basis per share for
• Commissions
• Fees
DECREASE adjusted basis per share for
• Stock dividends
• Stock splits
Inherited property = FMV of property on date of
decedent's death
Gross vs. Net Proceeds
Gross proceeds
• Commissions/fees not already included
• Preparer must add them to the basis
Net proceeds
• Adjustment has already been made
Remember: Basis must be adjusted for
commissions/fees for purchase OR sale
Gross vs. Net Proceeds
If the Gross Proceeds Box is checked, report the broker’s
commission/fees on Form 8949 Pg 1, Column g
Holding Period
Holding period starts the day after the
property is acquired and continues through the
day it is sold
Short Term:
held for one year or
less
Long Term:
held for more than
one year
Inherited property is ALWAYS long term
Determining Shares Sold
Specific Share Identification
• Taxpayer CAN identify which shares were sold
(received written confirmation from broker)
• Basis = adjusted basis of specific shares
First In, First Out (FIFO)
• Taxpayer CANNOT identify which shares were sold
• Basis = adjusted basis of oldest shares
Reporting Income from Sale of Stock
Information from a 1099-B is reported on Sch D
 Information from sale of stock may also be reported
on a statement from the investment company
Reporting Income from Sale of Stock
Line 13 (short term)
Line 13 (long term)
Sch D Pg 1
Sch D Pg. 1
1b, 2, or 3
8b, 9, or 10
8949 Pg 1 (A, B, or C)
8949 Pg 2 (A, B, or C)
1a
1a
Cap Gn Wkst
Cap Gn Wkst
Reporting Sale of Stock: Short Term
Line 13 (short term)
Sch D Pg 1
1b, 2, or 3
8949 Pg 1 (A, B, or C)
Link from 1b: 1099-B has basis reported (A)
Link from 2: 1099-B does not have basis reported (B)
Link from 3: sale of stock is NOT reported on a 1099-B (C)
Reporting Sale of Stock: Short Term
This is the 8949 Pg 1 – Do NOT type anything on this form
Line 1a
Cap Gn Wkst
A separate 8949 Pg 1 must be completed for each type of A, B, or C transaction
Reporting Sale of Stock: Short Term
 (a): from box 9 of 1099-B
 1099: enter A, B, or C
 TSJ: taxpayer, spouse, or
joint
 (b): from box 1b of 1099-B
 (c): from box 1a of 1099-B
 (d): from box 2 of 1099-B
 (e): from box 3 of 1099-B
 (g): enter in
commissions/fees (unless
reflected in box 2 of 1099-B)
Reporting Sale of Stock: Long Term
Line 13 (long term)
Sch D Pg 1
8b, 9, or 10
8949 Pg 2 (A, B, or C)
Link from 8b: 1099-B has basis reported
Link from 9: 1099-B does not have basis reported
Link from 10: sale of stock is NOT reported on a 1099-B
Reporting Sale of Stock: Long Term
This is the 8949 Pg 2 – Do NOT type anything on this form
Line 1a
Cap Gn Wkst
A separate 8949 Pg 2 must be completed for each type of A, B, or C transaction
Reporting Sale of Stock: Long Term
 (a): from box 9 of 1099-B
 1099: enter A, B, or C
 TSJ: taxpayer, spouse, or
joint
 (b): from box 1b of 1099-B
 (c): from box 1a of 1099-B
 (d): from box 2 of 1099-B
 (e): from box 3 of 1099-B
 (g): enter in
commissions/fees (unless
reflected in box 2 of 1099-B)
Remember: Form 8949
Different types of transactions:
• A: Basis reported on a 1099-B
• B: Basis not reported on a 1099-B
• C: 1099-B not received
A taxpayer with different types of transactions
must file separate 8949s
Sch D in TaxWise
Part I: Short Term Capital Gains/Losses
Part II: Long Term Capital Gains/Losses
Part III: Summary
Sch D is where the information carries over to and
the aggregate GAIN or LOSS is reported
Carryover Losses
 Loss that can be claimed in one year is the lesser
of
• The total loss OR
• $3,000 ($1,500 if MFS)
 Unused portion of loss can be carried over from
year to year until total loss is claimed
• Remains long term or short term
• If not claimed in some year, unused loss is decreased
by the amount that should have been claimed
 Report carryover losses on Sch D Pg 1
• Line 6 (short term) or line 14 (long term)
Reporting Carryover Losses: Sch D
Mutual Funds
 Taxpayer will receive Form 1099-DIV and 1099-B
• 1099-DIV reports capital gain distributions
• 1099-B reports sale of shares in the mutual fund itself
 Use cost basis OR average basis
• If elected, average basis must be used for all accounts
in the same fund in all succeeding years (this must be
determined by broker)
 Capital gains are reported on 1099-DIV
• Enter on dividend statement; TaxWise will transfer
amount to Sch D
For more information, see Publication 550
Worthless Securities
Worthless securities: stocks or bonds
No reasonable hope that investors will get
anything for their holding
Even if only worth pennies, shares are not
worthless
Treated as if sold on the last day of the tax
year
Out of scope for VITA!
Sale of Stock: Out of Scope!
 Stock received as a gift
 Stock received as a part of Employee Stock Option
Plan
 Inherited stock with basis calculated other than using
date of decedent’s death
 Bonds or other tax-exempt holdings with basis not
determined
If the decedent died between December 31, 2009 and January 1,
2011 the basis of the inherited property is neither the adjusted
basis to the buyer nor the FMV at the time of death.
Refer any taxpayers with stock inherited from a 2010 decedent to a
paid preparer.
Sale of Stock - Review
If the basis cannot be determined, what amount
is reported as the basis?
• ZERO!
How do you determine the adjusted basis for
inherited property?
• FMV of the property on date of decedent’s death
How do you determine if inherited property is
long term or short term?
• Inherited property is always long term!
Sale of Stock - Review
If a taxpayer CANNOT identify which shares
were sold if he/she has multiple forms of stock,
how do you determine which shares to report?
• FIFO (First in, first out)
True or False: If a taxpayer has different types
of transactions (A, B, and C), he/she can report
all types on the same 8949 form
• FALSE: A taxpayer with different types of
transactions must file separate 8949s
Example
John bought 100 shares of ABC stock at
$10 each in 2004. Then, he bought 50
additional shares at $12 each in 2005. He
had to pay a commission of $50 to acquire
the 2005 stocks. What is his basis in the
ABC stock?
Example - Answer
John bought 100 shares of ABC stock at
$10 each in 2004. Then, he bought 50
additional shares at $12 each in 2005. He
had to pay a commission of $50 to acquire
the 2005 stocks. What is his basis in the
ABC stock?
(100 shares x $10) + (50 shares x $12) + $50 commission =
$1,650
Example
On March 15th, Bill bought 1,000 shares of stock
for $15,000, including commission. On March
15th, one year later, he sold 600 shares of the
stock for $7,800, net proceeds (shown on a Form
1099-B). Is this short term or long term? Is this a
loss or a gain?
Example - Answer
On March 15th, Bill bought 1,000 shares of stock
for $15,000, including commission. On March
15th, one year later, he sold 600 shares of the
stock for $7,800, net proceeds (shown on a Form
1099-B). Is this short term or long term? Is this a
loss or a gain?
Short term loss:
$7,800 – [($15,000 ÷ 1,000) x 600] = $(1,200)
Example
1991
1992
1993
100 shares
200 shares
100 shares
$10/each
$11/each
$9/each
In 2014, Alice sold 150 shares, but cannot
identify which shares she sold. Which shares do
we assume that she sold, and what is the basis?
Example - Answer
1991
1992
1993
100 shares
200 shares
100 shares
$10/each
$11/each
$9/each
In 2014, Alice sold 150 shares, but cannot identify
which shares she sold. Which shares do we assume
that she sold, and what is the basis?
100 shares from 1991 and 50 shares from 1992
BASIS = (100 x $10) + (50 x $11) = $1,500
FIFO!
Example
Ruth bought 200 shares of XYZ stock for $600.
She paid a $50 fee to acquire the shares. She
sold all of the shares for $900. She paid a 5%
($45) commission to sell the shares. Her 1099-B
lists gross proceeds of $900. What is the
adjusted basis? What is the gain/loss?
Example - Answer
Ruth bought 200 shares of XYZ stock for $600.
She paid a $50 fee to acquire the shares. She
sold all of the shares for $900. She paid a 5%
($45) commission to sell the shares. Her 1099-B
lists gross proceeds of $900. What is the
adjusted basis? What is the gain/loss?
Adjusted Basis = $600 + $50 + $45 = $695
Gain = $900 – $695 = $205
TaxWise Practice – Kent Exercise
Briefly review Elderly Credit, Homebuyer
Repayment and Tips Forms
Line 16: Pensions & Annuities
• Retirement Services Program
• Alpine Pension Fund
NOTE: The IRA box should NOT be checked on the
Alpine Pension Fund 1099-R
Line 13: Sale of Stock
Line 9
Advanced Training
 1) Credit for the Elderly or Disabled
 2) 1st Time Homebuyer Credit Repayment
 3) Unreported Tips (& Social Security/Medicare Taxes)
 4) Retirement (taxable amount not determined)
 5) Sale of Stock
 6) Sale of Home
 7) Schedule K-1
 8) Injured Spouse/Deceased Taxpayer
 9) Rental Income
 10) Finishing the Return
 11) Additional Responsibilities
Sale of Home
Taxpayers can exclude $250,000 ($500,000 if
MFJ) of the gain from taxable income
• If they meet Ownership AND Use tests
• Not excluded gain in two years prior to current
sale of home
If the taxpayer can exclude all of the gain, it is
not necessary to report the sale
A loss cannot be deducted, but taxpayers still
need to report the loss
Ownership and Use Tests
In the 5 years preceding date of sale,
taxpayer must:
• Own the home for at least 2 years (either spouse if
MFJ)
• Live in the home as his/her main home for at least
2 years (both spouses if MFJ)
Can be different 2-year periods
Important: If either spouse does not meet requirements, it is
OUTSIDE THE SCOPE OF VITA
Determining Main Home
Taxpayers CANNOT choose their main home!
• Must live in the home most of the time
• In same location as place of employment,
organizations, church, banks
• Other family members live there
• Address for bills and homestead exemption
• Address listed on tax returns, driver’s license, car
registration, voter registration
Reporting the Gain
GAIN = AMOUNT REALIZED – ADJUSTED BASIS
 Selling Price: Total amount received from sale
 Amount Realized: Selling Price – Selling expenses
 Basis:
• The price of purchase OR
• FMV on date of decedent’s death (inherited property)
 Adjusted Basis: Additions/improvements useful
life > 1 year (pool, roof, additional room, etc.)
Reporting the Gain
Gains are NOT reported unless greater than
the exclusion amount!
• Unless taxpayer receives 1099-S (reported, but
not taxed)
• Report on Part II of Schedule D (Long Term Gains)
CANNOT deduct losses:
• If taxpayer receives a 1099-S, he/she must report
a loss of “0” on Sch D
Reporting a Loss on Sale of Main Home
 If a taxpayer has a loss on the sale of a main home
and a 1099-S was received, you must report the loss
on Form 8949 even though it is NOT DEDUCTIBLE
Link: Line 13  Sch D Pg 1  line 10  8949 Pg 2  Cap Gn Wkst
Advanced Training
 1) Credit for the Elderly or Disabled
 2) 1st Time Homebuyer Credit Repayment
 3) Unreported Tips (& Social Security/Medicare Taxes)
 4) Retirement (taxable amount not determined)
 5) Sale of Stock
 6) Sale of Home
 7) Schedule K-1
 8) Injured Spouse/Deceased Taxpayer
 9) Rental Income
 10) Finishing the Return
 11) Additional Responsibilities
Schedule K-1
Reports the taxpayer’s share of income or
distributions from partnerships, S Corporations,
and some estates & trusts
The only Sch K-1 Income in our scope:
•
•
•
•
Interest
Dividend
Capital Gain/Loss
Royalty Income
Schedule K-1
Types of Income on Sch K-1
Type of Income
Where to Report
Taxable Interest
8a  Sch B  1b  Interest
Stmt
Tax Exempt Interest
8a  Sch B  1b  Interest
Stmt
Dividends
9a  Sch B  5a  Dividend
Stmt
Capital Gains/Losses
Sch D (see slide 256)
Royalties
17  Sch E Pg 1  1*C  K1
P/S Pg 1  Line 7/6
Reporting Tax Exempt Interest
Link: Line 8a  Sch B  Interest Stmt
Enter in E for NAEOB
Enter amount from Box 8 of 1099-INT or from
the Schedule K-1 to NAEOB amount
Reporting Royalties
 Link: Line 17  Sch E Pg 1  1*C  K1 P/S Pg 1
•
•
•
•
Enter the name of partnership or S Corporation
Indicate P/S (for partnership/S Corporation)
Enter Federal ID number
Enter amount from Box 7 of Sch K-1 to Line 7/6
Sch K-1: Out of Scope Topics
Any income NOT listed on the previous slide!
Seller-Finance Mortgages
If a taxpayer is collecting payments on a
seller-financed mortgage, the interest received
on the loan must be reported as income.
Link: Line 8  Sch B
Enter information in Part 1a: Seller-financed
mortgages
Seller-Finance Mortgages
Enter the buyer’s name, address and social
security number
Enter the amount of interest received on the
loan
Advanced Training
 1) Credit for the Elderly or Disabled
 2) 1st Time Homebuyer Credit Repayment
 3) Unreported Tips (& Social Security/Medicare Taxes)
 4) Retirement (taxable amount not determined)
 5) Sale of Stock
 6) Sale of Home
 7) Schedule K-1
 8) Injured Spouse/Deceased Taxpayer
 9) Rental Income
 10) Finishing the Return
 11) Additional Responsibilities
Deceased Taxpayer
 Though it is best to see a will in order to make sure
that the person filing for the decedent is doing so
properly, it is not necessary
• We can trust an individual who claims to be the
personal representative of the decedent
 If a taxpayer died in 2014 or 2015, we can e-file
their return
Deceased Taxpayer
 “Name line 2” must be completed on the Main Info
sheet with the name of the person filing the return for
the deceased person
• Type the percent (%) sign, followed by a space
followed by the name
• This may be the surviving spouse if married filing
jointly, or a personal representative
Complete the tax return as normal
The representative also needs to put his/her
own address on the form
Injured Spouse
If a taxpayer wishes to file MFS to avoid an
offset of their refund against their spouse’s
outstanding debts, suggest they file Form
8379, Injured Spouse Allocation
When a joint return is filed and only one
spouse owes a past-due amount, the other
spouse can be considered an injured spouse
• Debts may include past due child support, student
loans, or tax liability
Injured Spouse
The injured spuse:
• Must not be legally obligated to pay the past-due
amount AND
• Must have made and reported tax payments or
claimed a refundable tax credit
If eligibility requirements are met, injured
spouses may file Form 8379 to receive their
share of the refund
Advanced Training
 1) Credit for the Elderly or Disabled
 2) 1st Time Homebuyer Credit Repayment
 3) Unreported Tips (& Social Security/Medicare Taxes)
 4) Retirement (taxable amount not determined)
 5) Sale of Stock
 6) Sale of Home
 7) Schedule K-1
 8) Injured Spouse/Deceased Taxpayer
 9) Rental Income
 10) Finishing the Return
 11) Additional Responsibilities
Rental Income
 Payment received for renting a room or a home to
a tenant is rental income reportable on Form
1040, Sch E
 Gross rental income may include:
•
•
•
•
•
Ordinary rental payments
Advanced rent
Security deposits
Payments for breaking a lease
Expenses paid by the tenant
 Rental income is OUT OF SCOPE!
Note: Confirm that
taxpayer has NO
rental income before
completing the rest of
the return.
Estimated Tax Payments
If tax due on certain income (self-employment,
capital gains, royalties, etc.) exceeds certain
limits, estimated tax must be paid quarterly by
the taxpayer
Also, taxpayers can apply a refund to the
following year’s tax return
Check previous year’s return and enter the
amount of 2014 estimated tax payments and
amount applied from 2013 return on Line 63
Estimated Tax Payments
TaxWise Practice – Kent Exercise
Line 8: Seller-financed Mortgages
Line 63: Estimated Tax Payments
Alabama Return
Direct Deposit Information
Advanced Training
 1) Credit for the Elderly or Disabled
 2) 1st Time Homebuyer Credit Repayment
 3) Unreported Tips (& Social Security/Medicare Taxes)
 4) Retirement (taxable amount not determined)
 5) Sale of Stock
 6) Sale of Home
 7) Schedule K-1
 8) Injured Spouse/Deceased Taxpayer
 9) Rental Income
 10) Finishing the Return
 11) Additional Responsibilities
Finishing the Return
Quality Review
Run Diagnostics
Run Diagnostics
 Correct all errors and then run the diagnostics
again to make sure all errors were corrected
 Also pay attention to the warnings and overridden
entries
 Do NOT create E-File (ONLY your site coordinator
should do this)
Finishing the Return
 After you run diagnostics:
• Make sure the preparer and quality reviewer names
are listed on the I/I Form
• Note the status of the return on the I/I Form
• Print return (1 if E-Filing & 2 if paper filing)
• Assist with payment (voucher, addressing envelope…)
• Advise taxpayers they are ultimately responsible for
all information provided
• Taxpayer and spouse must sign and date federal and
Alabama returns
• File I/I Form in filing box
Do NOT keep any personal documents!
Advanced Training
 1) Credit for the Elderly or Disabled
 2) 1st Time Homebuyer Credit Repayment
 3) Unreported Tips (& Social Security/Medicare Taxes)
 4) Retirement (taxable amount not determined)
 5) Sale of Stock
 6) Sale of Home
 7) Schedule K-1
 8) Injured Spouse/Deceased Taxpayer
 9) Rental Income
 10) Finishing the Return
 11) Additional Responsibilities
Additional Duties
Volunteer organization
Crowd control
Appointment confirmation
Volunteer Organization
Make sure that everyone signs in
• Set a good example
Place volunteers in stations
Partner volunteers in such a way that they are
both comfortable and competent
Keep volunteers busy
Enforce “Volunteer Etiquette”
Crowd Control
Make sure each taxpayer signs in at the door
Direct taxpayers to the Intake and Interview
forms
Place taxpayers with available volunteers
Questions?
You may complete the Campus Fellow Training
Exercise #2 (Mark Austin) on your own for
extra practice
If you have any questions after this training,
please email our Training Coordinator, Seth
Nelson (snelson@impactalabama.org)