ADVANCED
WORKSHOP
1
VOLUNTEER INCOME TAX ASSISTANCE (VITA)
TRAINING
REV 11/13/14
ICEBREAKER
Turn to the person to the right
Introduce Yourself
Tell them one thing you want to
gain out of this volunteer
experience
WHAT IS CAP RIVERSIDE?
Community Action Agencies signed
into effect 1964 Economic Opportunity
Act by Lyndon B. Johnson, in an effort
to end poverty.
Community Action Partnership of
Riverside County (CAP Riverside) was
founded in 1980.
We perform community needs
assessment to identify agency target
programs, we offer utility assistance,
weatherization, disaster relief,
notaries, free tax preparation,
dispute/conflict resolution, individual
development accounts, and youth
programs.
WHAT IS VITA? EITC?
Found in 1971, by Gary Iskowitz
at Cal State Northridge,
Volunteer Income Tax Assistance
(VITA) Program is a free
alternative to tax preparation,
which is operated by volunteers.
Earned Income Tax Credit (EITC)
is a refundable tax credit for
working families. Enacted in
1975 under the Gerald Ford
Administration.
CAP RIVERSIDE VITA
CAP Riverside has completed
20,000 returns since 2005, last
year 162 volunteers completed
3,405 returns, bringing $4.3
million federal dollars to
taxpayers.
VOLUNTEER EXPECTATIONS
Commit to attending workshops to
desired certification level (Basic,
Advanced, Site Coordinator)
Training takes place in November,
December and January
•
Basic requires 2 workshops (plus 1
Software Training)
•
Advanced (Returners) requires 2
workshops
•
Site Coordinator requires 1 workshop
Minimum hours required is 30 hours at 23
locations throughout Riverside County,
January-April 15
Educate friends and family on the EITC
WHAT DO YOU GET?
FREE Training and first hand
knowledge of the tax code and
learn how to prepare a tax return
Direct impact in the community,
you are 1 of the 1000’s across the
country doing this work
Help bring missed dollars back
into the local economy
CAP Riverside provides
certificates, references, and letters
of recommendation (individuals
who surpass minimum hours)
RESOURCES
FREE workshops
Pub 4012 – Resource Guide
In-scope chart in Pub 4012
•
Do not prepare a return that
you are not certified to
prepare, this will void the
coverage under the Volunteer
Protection Act 1997
Pub. 17 – Reference Manual
Site Coordinator
VITA Hotline 1-800-829-8482
Taxwise Hotline 1-800-411-6391
SITE ROLES
Interview/Intake (STD)
• Verifies taxpayer qualifies for VITA services.
Tax preparer (Basic or ADV)
• Processes tax documents provided by
taxpayer.
Quality Reviewer (ADV)
• Assesses prepared return for errors and
accuracy.
Exit Interview (STD)
• Final process, in which taxpayer receives
prepared turn.
Site Coordinator (ADV)
• Responsible for coordination of site level
policies and procedures.
VOLUNTEER PROCESS
Visit capriverside.org and go to
Volunteer Income Tax Assistance
Complete Training and Certify by
January 24th
Complete Live Scan application and
schedule appointment prior to January
24th (Returners are exempt)
Maintain communication, hours, and
scheduling commitments
To receive Presidential Volunteer
Service Award
•
•
Group must complete 200 hours
Community volunteers must
complete 100 hours
CERTIFICATION
Workshops (November-December)
Basic Workshops (2)
• Software Training (1)
Advanced Workshops (2)
Site Coordinator Workshops (1)
Access www.linklearncertification.com
Create your own account
Group: “VITA Volunteer”, “Quality
Reviewer”, “Site Coordinator
Training Source: “Link & Learn Taxes”
Quick Links: Practice Lab password is
“learntwo”
ADVANCED CERTIFICATION
Advanced Workshops
Adds self employment income, IRA deduction, more detail
on pension benefit options, sale of stock or a home,
repayment of 1st time home buyers credit, etc. (everything
within VITA scope).
QUESTIONS
STANDARDS OF CONDUCT
1.
I will follow the Quality Site Requirements (QSR).
a.
2.
3.
4.
5.
6.
Certification, Intake/Interview Process, Quality Review Process, Reference
Materials, Volunteer Agreement, Timely Filing, Title VI “Civil Rights”, Site
Identification Number, EFIN, Security Privacy and Confidentiality
I will not accept payment or solicit donations for federal or state tax
return preparation.
I will not solicit business from taxpayers I assist or use the
knowledge I gained about them (their information) for any direct or
indirect personal benefit for me or any other specific individual.
I will not knowingly prepare false returns.
I will not engage in criminal, infamous, dishonest, notoriously
disgraceful conduct, or any other conduct deemed to have a negative
effect on the VITA/TCE Programs.
I will treat all taxpayers in a professional, courteous, and respectful
manner.
REVIEWING INTAKE SHEET
More clarification
was provided on
Part II
Single (this includes
registered domestic
partnerships, civil
unions, or other
formal relationships
under state law)
Married
Was your marriage
recognized under the
laws of the state
you’re filing in?
REVIEWING INTAKE SHEET
REVIEWING INTAKE SHEET
Healthcare
Coverage
change*
QUESTIONS
LOGGING INTO PRACTICE
LAB
www.linklearncertification.com
Practice Lab
• Password= learntwo
• Create Username & Password and
store on your 4012
LOGGING INTO TAXWISE
ONLINE
•
TWOnline
Need these items to login: Site Client Number, Username, and
Password.
TAX PREPARATION
•
Input same SSN twice, brings you to Main Info. Screen
TAX PREPARATION (1099R)
•Social Security, annuities, retirement or
profit sharing plans, insurance contracts, IRAs, etc
•Taxable portion reported in box 2a of Form 1099-R
•If no amount reported in box 2a, we need to compute the taxable
amount (Advanced Only)
• If the taxpayer made all contributions to the plan with before tax
dollars, the entire distribution is taxable income (typical 401K
plan).
• If the taxpayer made contributions with after tax dollars, only the
earnings/investment gain will be taxed
• Rollovers within 60 days from one retirement account to another
are not taxable
TAX PREPARATION (IRA)
Calculating the Taxable Portion of Pensions and Annuities
•Box 7 of Form 1099-R is left unchecked
•Unless an exception applies (which puts return out-of-scope for
VITA), use the Simplified Method to determine the taxable portion
of annuity payments from a qualified plan
•The number of payments is based on the taxpayer’s age (and the
spouse’s age if a joint/survivor annuity) at the time of the first
monthly distribution
•Taxpayer’s cost basis is found in Box 9b of Form 1099-R
•Taxpayer’s cost basis / number of monthly payments = monthly
tax free portion
•Determine tax- free amounts from prior years from last year’s
worksheet (Simplified Method question 5)
TAX PREPARATION (IRA)
Premature Distributions:
•Early withdrawal from a retirement fund prior to age 59 1⁄2
•Subject to 10% penalty
•If distribution code in box 7 of Form 1099-R is a 2, 3, or 4 the
taxpayer is not subject to the early distribution penalty
•If the distribution code in box 7 of Form 1099-R is 1, the taxpayer
is subject to the 10% penalty
TAX PREPARATION (IRA)
Exception to premature distribution:
•Form 5329, Part I
•Determine if one of the allowable exceptions applies based on
client interview (most common would be unreimbursed medical
expenses, health insurance premium while unemployed, education
expenses, or first home purchase)
TAX PREPARATION (IRA)
Required Minimum Distribution:
•Box 7 of Form 1099-R is left unchecked
•Unless an exception applies (which puts return out-of-scope for
VITA), use the Simplified Method to determine the taxable portion
of annuity payments from a qualified plan
•The number of payments is based on the taxpayer’s age (and the
spouse’s age if a joint/survivor annuity) at the time of the first
monthly distribution
•Taxpayer’s cost basis is found in Box 9b of Form 1099-R
•Taxpayer’s cost basis / number of monthly payments = monthly
tax free portion
•Determine tax- free amounts from prior years from last year’s
worksheet (Simplified Method question 5)
TAX PREPARATION (IRA)
Withdrawal of Excess IRA Contributions:
•Maximum annual contribution is greater of $5,500 ($6,500 if age 50
or older), or taxable compensation for the year
•Once identified, excess contribution and earnings on excess must
be withdrawn by due date of the return
•The withdrawn excess contribution is not included in the
taxpayer’s gross income on the return if no deduction was allowed
for the excess, and all interest or other income earned on the
excess is also withdrawn
•If excess amount is not withdrawn on time, taxpayer is subject to
an additional 6% penalty tax on the excess amount (refer to
professional tax preparer)
TAX PREPARATION (IRA)
Individual Retirement Arrangements (IRA)
•Required Minimum Distribution (RMD) is April 1 of the calendar
year following the year in which taxpayer turns 701/2, or retired,
whichever is later
•Each year thereafter, RMD must be received by 12/31
•If RMD is not taken as required, a tax penalty applies of 50% of the
difference between the minimum distribution and the amount
actually distributed for the tax year
•These rules do not apply to a ROTH IRA
QUESTIONS
TAX PREPARATION (SCH A)
Medical and Dental Expenses
• Payments of fees to doctors, dentists,
surgeons, chiropractors, psychiatrists,
psychologists, and non traditional practitioners
CANNOT DEDUCT
• Funeral expenses
• Over the counter medications not prescribed
by a physician
• Non-qualified organizations
• Chambers of Commerce
• Civic leagues and associations
• Country clubs and other social clubs
• Homeowners Association
• Labor Unions
• Political organizations and candidates
TAX PREPARATION (SCH A)
Unreimbursed medical and dental expenses - Combination of medical
expenses from Schedule A, detail, plus Social Security, if Medical is paid
through Social Security.
Linking to A Detail Itemized deduction will give access to charitable and
medical deductions
TAX PREPARATION (SCH A)
Remind
customers about
their ability to take
medical miles
Medical Expenses
are to be listed in
“Other medical
expenses”
TAX PREPARATION (SCH A)
Contributions to
Charity that
exceed 20% of
AGI must be listed
in each property
category.
TAX PREPARATION (SCH A)
Vehicle
Registration
TAX PREPARATION (SCH A)
CA
TAX PREPARATION (SCH A)
Using Line 10,
will take you to
scratchpad
QUESTIONS
TAX PREPARATION (SCH C)
Business vs. Hobby:
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. For example, a
sporadic activity or a hobby does not
qualify as a business.
•
•
Hobby income is reported on line 21 of
1040, not Schedule C
A taxpayer does not have to conduct
regular full-time business activities to be
self-employed. Having a part time
business in addition to a regular job or
business may be self-employment.
TAX PREPARATION (SCH C)
Taxpayers can deduct the costs of running their business.
• These costs are known as business expenses. To be
deductible, a business expense must be both ordinary and
necessary. An ordinary expense is one that is common and
accepted in the taxpayer’s industry. A necessary expense is
one that is helpful and appropriate for the taxpayer’s trade or
business.
• Examples: Advertising, Car/Truck expenses, parking & tolls,
commission & fees, insurance, legal & professional services,
office expense, rent/lease, supplies, taxes & licenses,
travel/meals, entertainment, etc
TAX PREPARATION (SCH C)
Additional Business Travel expenses:
•Transportation: air, bus, train, or car between your home and business
destination
•Taxi, commuter bus, or airport limo fare & tip
•Shipping bags
•Car rental or mileage rate for personal car
•Lodging & meals
•Dry cleaning & laundry
•Business calls
•General rule: can deduct ordinary and necessary expenses to entertain a
client, customer, or employee if the expenses meet the directly-related test
or associated test
•Can deduct only 50% of the unreimbursed entertainment expense
•Use Form 2106 to report business expenses, which then transfers the result
as a miscellaneous itemized deduction on Schedule A of Form 1040
TAX PREPARATION (SCH C)
TAX PREPARATION (SCH C)
Schedule C’s We Will Not Prepare at Any Site
• Taxpayers with expenses exceeding $25,000.
• Taxpayers with inventories.
• Taxpayers with employees.
• Taxpayers with losses resulting in a net operating loss carryback
or carryforward.
• Taxpayers other than day care providers claiming an office in
home deduction.
• Taxpayers other than cash basis.
TAX PREPARATION (SCH C)
• Business income information comes from the following:
• Forms 1099-MISC, Miscellaneous Income, box 7
•
Non-employee Compensation
• Box 3, Other Income, does not necessarily mean selfemployment income
•
Taxable, but not self-employment taxable, link to 1040 not
Sch C.
• Taxpayer’s books and records
•
Self Organizer
• Caution: In your interview ask about other income not
included on Form 1099-MISC
•
Cash income
TAX PREPARATION (SCH C)
• 1099 Misc
TAX PREPARATION (SCH C)
Self-Employed Test:
Tim works as an independent contractor for ABC Construction
Company. The company sent Tim a Form 1099-MISC that shows
he received $15,000 for the work he did for them. He also
received cash payments of $4,000 from several different
individuals for the work he completed. He did not receive Forms
1099-MISC for the $4,000. Does Tim have to include the $4,000
cash payments as self-employment income along with the
$15,000 from Form 1099-MISC?
TAX PREPARATION (SCH C)
Home – place
where you reside
Regular or main
job – Principal
place of business
Temporary work
location – A place
where your work
assignment is
realistically
expected
Second Job –
From one
workplace to
another
TAX PREPARATION (SCH C)
Principal Business and Business Code:
For consistency, please use the following business titles and
code for our most common business types:
• Child Day Care 624410
• Home Health Care 621610
• Personal Service 812990
• Beauty Salon 812112
• Janitorial Services 561720
• For other businesses please try to identify the proper business
code , use 99999 rarely.
• Press F1 from TWO to obtain business code
TAX PREPARATION (SCH CEZ)
• As a general rule
business expenses
are the ordinary and
necessary expenses
incurred in carrying on
a trade or business.
• Automobile
expenses–Most
taxpayers elect to use
the standard mileage
rate for business miles
(commuting and
personal miles do not
count) plus parking
and tolls while on
business
TAX PREPARATION (SCH C)
•
Open a new Sch C
•
Make sure that the
correct entry is made
for Taxpayer or
Spouse at the top of
the form.
•
Complete entries A
and B. Business
Codes can be
obtained by pressing
F1 when on the
Schedule C-EZ or C
in TaxWise.
•
Complete entries C
and D only if
required.
•
Complete entries E,
F, G and H
QUESTIONS
TAX PREPARATION (SCH D)
Capital Gains and Losses:
Proceeds from Sale – Gross or net proceeds from
the sale of stock or mutual fund is reported to
taxpayer on Form 1099 B or on a 1099 Consolidated
Statement
How to record on Schedule D ?– First need to determine the
“basis” and the “holding period”
TAX PREPARATION (SCH D)
Capital Gains and Losses:
TAX PREPARATION (SCH D)
• Original cost of the asset, adjusted for commissions
• The basis for stock received as a gift or inheritance is
Fair Market Value at the time it was received by
taxpayer (will discuss exception for 2010 later)
•If the taxpayer cannot provide the basis, the IRS will
assume $0
• Dividends of stock in lieu of cash increase taxpayer’s
ownership so original basis is spread over more
shares…thus reducing effective basis
•Stock splits reduce original basis (e.g. 2 for 1 = 50%)
TAX PREPARATION (SCH D)
EXAMPLE:
Alice paid $1,100 for 100 shares of ABC, Inc. stock
(which included the broker’s commission of $25).The
original basis per share was $11 ($1,100 ÷ 100).
She received 10 additional shares as a tax-free stock
dividend. Her $1,100 basis must be allocated to the
110 shares (100 original shares plus the 10-share
stock dividend). This results in an adjusted basis of
$10 per share ($1,100 ÷ 110).
TAX PREPARATION (SCH D)
•Short-term property is held one year or less
•Long-term property is held more than one year, and
is taxed at a lower rate that short term gains
•Inherited stock is always treated as long-term
property (see exception for 2010 discussed next)
•Using cash dividends to purchase additional shares
of stock simply adds new stock with it’s own separate
basis and holding period
TAX PREPARATION (SCH D)
•Repeal of estate tax for decedents dying after
12/31/2009 and before 1/1/2011
•Automatic long term holding period does not apply to
inherited stock
•If taxpayer sells property inherited from someone
who died in 2010, refer the taxpayer to a professional
tax preparer
TAX PREPARATION (SCH D)
How to Report:
•
Reported to taxpayer on Form 1099-B or on a
Consolidated Statement
•
Form 1099-S usually reflects gross proceeds of real
estate transactions
•
Refer to Volunteer Resource Guide D 13 to see how
to enter on Schedule D
•
If box 5, 10, 11,12, 13, or 14 has an entry, refer the
taxpayer to a professional tax preparer. These boxes
provide information about wash sales, regulated
futures contracts, and bartering, which are out of
scope
TAX PREPARATION (SCH D)
Capital Gain/Loss Example:
Lenny bought 500 shares of XYZ Corporation stock for $1,500,
including his broker’s commission. Five years later, XYZ
distributed a 2% nontaxable stock dividend (10 shares). Three
days after the stock dividend was distributed, Lenny sold all his
XYZ stock for $2,030.
Although Lenny owned the 10 shares for only three days, all
the stock has a long-term holding period. Stock acquired as a
nontaxable stock dividend has the same holding period as the
original stock owned. Because he bought the stock for $1,500
and then sold it for $2,030 more than a year later,
Lenny has a long-term capital gain of $530 on the sale of his
510 shares.
TAX PREPARATION (SCH D)
Capital Gain/Loss Example:
Margo bought stock for $1,500, plus a $25 commission; 18
months later she sold all the stock for $2,000 and paid a $25
commission. Her Form 1099-B shows the gross proceeds of
$2,000 as the sales price.
Basis = ($1,500 + $25 + $25) = $1,550
Sales Price = $2,000
Gain or Loss = Sales Price – Basis = $2,000 – $1,550 = $450
Margo had a long-term gain of $450.
TAX PREPARATION (SCH D)
Capital Gain/Loss Example:
Margo bought stock for $1,500, plus a $25 commission; 18
months later she sold all the stock for $2,000 and paid a $25
commission. Her Form 1099-B shows the gross proceeds of
$2,000 as the sales price.
Basis = ($1,500 + $25 + $25) = $1,550
Sales Price = $2,000
Gain or Loss = Sales Price – Basis = $2,000 – $1,550 = $450
Margo had a long-term gain of $450.
TAX PREPARATION (SCH D)
•A mutual fund is a regulated investment company
•Owners of mutual funds may receive both a 1099-DIV and
1099-B
•Form 1099-DIV: reports capital gain distributions from sales
of stock held by the mutual fund, and is then reported on
Form 1040, Schedule B
•Form 1099-B: reports the taxpayer’s sale of any of their
shares in the mutual fund itself. The taxable gain or loss from
the sale or exchange of the taxpayer’s share in the mutual
fund is reported on Form 1040, Schedule D
TAX PREPARATION (SCH D)
Capital Loss Carryover:
•Taxpayer’s cannot take loss of more than $3,000 in any one
year ($1,500 for married filing separately)
•Unused losses can be carried over to later years until
completely used
•Carryover losses are combined with gains in that year
•Short –term losses offset short-term gains
•Long –term losses offset long term gains
TAX PREPARATION (SCH D)
Prior Year Capital Loss Carryover:
To take credit this year for carryover loss from prior year, use
Capital Loss Carryover Worksheet from Schedule D (will also
need the Schedule D Worksheet from prior year return to
confirm loss carry forward)
•Short-term capital loss carryover (from Schedule D
Worksheet 2, Line 8) goes to Schedule D, Part I, Line 6
•Long-term capital loss carryover (from Schedule D
Worksheet 2, Line 14) goes to Schedule D, Part II, Line 14
TAX PREPARATION (SCH D)
Form 8949 and Schedule D:
NEW In 2013, Line 1 and Line 8 of the Schedule D now
divided to allow for entry of short and long term transactions
where the basis was reported to the IRS. However, can still
use 8949 for all transactions if client has a combination of
reported and non-reported sales.
All other transactions are reported using Form 8949, Sales
and Other Dispositions of Capital Assets.
TAX PREPARATION (SCH D)
Capital Gain/Loss from Home Sale:
•If main home (owned and used by the taxpayer for 2 of the 5
years prior to sale), then $250,000 of gain is non-taxable for
Individual taxpayers and $500,00 for Married Filing Jointly
•Amount realized = sales price – selling expenses
•Adjusted Basis = purchase price + additions improvements
with a useful life of more than one year •Gain/Loss = amount
realized – adjusted basis
•A gain is reported on Schedule D. Losses are not deductible.
•A gain from the sale of home that is not a main home is
reported as taxable income (Schedule D)
TAX PREPARATION (COD)
Cancellation of Debt
•Most frequently involves auto loans, credit cards, medical
expenses, professional services, installment payments on
furniture, etc. When a debt is forgiven, the taxpayer receives
a Form 1099-C, Cancellation of Debt and must report the
amount as income on Line 21 of Form 1040
•Mortgage Forgiveness Debt relief Act of 2007 – taxpayers
may exclude debt forgiven or cancelled on their principal
residence.
•Foreclosure– Form 1099-A, Acquisition or Abandonment of
Secured Property—used to determine gain/loss
•Other exclusions also apply e.g. discharge of dept through
bankruptcy or insolvency but these are outside VITA scope
TAX PREPARATION (COD)
Cancellation of Debt
TAX PREPARATION (COD)
Cancellation of Debt Form 982
TAX PREPARATION (COD)
Cancellation of Debt Form 982
NEXT TRAINING:
Schedule E
K-1
Foreign Tax Credit
Residential Energy Credit
Repayment of 1st Time Homebuyers Credit
ACA