Volunteer Tax Assistance at United Way of Washtenaw County Welcome to VITA! And thank you for volunteering for this important service. This is our 5th year serving Washtenaw County Last year: We prepared or assisted almost a two hundred taxpayers Most received refunds averaging more than $1000! That’s more money coming into Washtenaw County There was more demand for assistance than we could cover. We are a “fusion” site Running 2 programs at the same time: 1. Traditional VITA We prepare the return for the taxpayer using software you will be trained on. 2. Facilitated Self Assistance (FSA) Also known as “MyFreeTaxes.com” We coach the taxpayer in preparing their own return using software. What is VITA? The VITA Program offers free tax help to people who make $53,000 or less & need assistance in preparing their own tax returns. IRScertified volunteers provide free basic income tax return preparation with electronic filing to qualified individuals in local communities. This is our 5th year of offering VITA services in Washtenaw County. Traditional VITA – First Line of Service Advantages: • TP needs no expertise in computers, reading, English or tax • “Full service”, like going to a paid preparer • Return quality-reviewed by 2nd volunteer Disadvantages: • Service limited to returns within scope of training • Can’t prepare returns with missing documentation, estimates, or where TP disagrees with preparer. • By appointment only – Can only schedule if we know we have volunteers. Lesson 3 – Filing Basics How VITA works 1. Client makes appointment through United Way & is mailed an intake form to complete & a list of documents to bring. They are pre-screened to determine if their return can be prepared under VITA program. If not, they are offered the FSA program. 2. Client brings their records, ID & intake form to tax preparation site. 3. Greeter ensures client has proper documents & completed intake form, then matches client to appropriately trained volunteer. 4. Volunteer interviews client, reviews documents & prepares return. 5. All returns are reviewed by a second volunteer with same or higher level of certification. Most returns are e-filed the same day. 6. Client goes to exit table where copy of return is printed out, any paperfiled returns are printed out & signed & mailing instructions provided. Client fills out exit survey. VITA Variation – Scan & Go Advantages: • Same as traditional VITA • Helps serve more taxpayers and better utilize available volunteers Disadvantages: • Same as traditional VITA. • Interviews and reviews more likely to be done by phone • Takes 1-2 weeks to get return back to taxpayer Lesson 3 – Filing Basics What is Facilitated Self-Assistance (FSA)? Taxpayers prepare their own return using online interview-based [H&R Block] software, while IRS-certified volunteers stand ready to assist with tax questions and/or computer issues. FSA: Increases taxpayer access to free services • Empowers taxpayers to file independently • Increases efficiencies to enhance return totals FSA Software Model MyFreeTaxes.com • Free federal returns; free state returns in all 50 states • Income limit is $60,000 (individual or family income) FSA – Available as Alternative Advantages: • Walk-ins welcome on space-available basis. • Can prepare returns with missing document, TP estimates or where TP disagrees with preparer. • Can decrease waiting time for volunteer help Disadvantages: • TP must be proficient in English & some computer familiarity • TP alone is responsible for return • TP must prepare their own return, with coaching only MyFreeTaxes User Support MyFree Taxes Helpline : 1-866-My-Tx-Help • All clients using MyFreeTaxes.com will be supported by the MyFreeTaxes Helpline • Hours of Operation: 10am – 8pm EST • Helpline is staffed by select 2-1-1 centers & VITA certified volunteers • Email support is available 24/7 with a 24 hour response time • Chat support is available during hours of operation • Support provided for system navigation, tax preparation & if necessary other wrap around services Info for all volunteers How to make appointments Schedule Requirements for volunteers Roles Create your VITA Central Account Standards of Conduct Volunteer Protection Act VSC Exam Intake Presentation How to Make Appointments Know someone who needs VITA’s help? Have them call (734) 667-7235 (United Way) after January 15th for an appointment. Lesson 3 – Filing Basics Current Schedule Volunteer Shifts Wednesdays 5-8:30pm Saturdays 9am-5pm Starting February 4th & continuing until April 15 Lesson 3 – Filing Basics Requirements for VITA volunteers 1. You do not need to have prior tax preparation experience to volunteer. • Only site coordinators need prior experience. 2. You do not have to be an attorney or an accountant. • 10th grade education is required. 3. You will receive training on the tax preparation software 4. All tax returns we prepare will be reviewed by another preparer Roles for VITA volunteers There are 4 roles for VITA volunteers: 1. Greeters must also review a greeter checklist before their 1st shift. 2. Tax Return Preparers must be certified at least to the basic level, & preferably to the advanced level using IRS’s Link & Learn Certification program, & also complete a State tax certification. 3. Tax Return Reviewers must be certified at least to the advanced level using IRS’s Link & Learn Certification program & complete the State tax certification. 4. Site Coordinators need additional training & have VITA experience. Requirements for VITA volunteers All VITA volunteers must adhere to IRS volunteer standards of conduct, which requires them to view a presentation & take a 10 question certification test. All VITA volunteers must also review a Powerpoint presentation regarding the intake form we use to help clients with their taxes. Return preparers/reviewers/site coordinators must obtain additional training. Once you are certified: • Bring a photo ID & printed Volunteer Standards of Conduct (VSC) Agreement (which will show your test scores) for signature to United Way. • Sign up for at least 3 shifts ASAP with Amanda Reel. • We need 2 greeters, 2 reviewers & 8 preparers per shift. • We are taking appointments for clients starting in January, so signing up early helps us match clients to volunteers meeting their language or certification needs. Lesson 3 – Filing Basics What do I do next? Go to www.uwgive.org/vitavolunteers to access training for either “Greeters” or “Return Preparers”. Pathways Walk you through the steps needed to be ready to volunteer. Go to www.uwgive.org/vitavolunteers to access training for either “Greeters” or “Return Preparers”. Step 1 is done. Now, step 2 Info for all volunteers How to make appointments Schedule Requirements for volunteers Roles Create your VITA Central Account Standards of Conduct Volunteer Protection Act VSC Exam Intake Form Presentation – Watch on own and bring signed certificate. (Yellow form available) Info for Greeters Greeter Job Description – Read through before first shift Sign up for shifts with Amanda Come 15-30 minutes for your shift. You will receive additional training then and during your first shift (Scan & Go) YOU ARE DONE FOR TRAINING! VITA Tax Preparer Certification Basic (required for return preparers) Lesson 2 – Screening & Interviewing Lesson 3 – Filing Basics Intake & Interview Process Form 13614-C is mandatory for all VITA/TCE sites • See the Form 13614-C Job Aid Remember: • Screen for eligibility • Check identity • Check completed intake sheet for errors • Review supporting documents • Use probing questions • “Unsure” responses must be changed to “Yes” or “No” • Confirm the return is within program scope & your training • Conduct a quality review after return is prepared Lesson 2 – Screening & Interviewing Lesson 3 – Filing Basics 26 Interview Techniques How do you… ? • Build rapport • Ask effective questions • Use active listening skills • Overcome communication barriers Important questions: • Who lives in your house/apartment? • Months/years in each home? • Dependent relationship(s)? • Marital status as of December 31? Lesson 2 – Screening & Interviewing Lesson 3 – Filing Basics 27 Resources & Reminder Necessary tools for Screening & Interviewing (on TWEN & will be on your computer on site): • Form 13614-C, Intake/Interview & Quality Review Sheet • Publication 4012, Volunteer Resource Guide • Publication 17, Your Federal income Tax for Individuals Safeguard all TP information – it is private & confidential Lesson 2 – Screening & Interviewing Lesson 3 – Filing Basics 28 New Topic - Who Must File a Tax Return • What helps determine if an individual must file? • Form 13614-C very important in this stage of the process • Refer to Pub 4012, Charts A, B, & C, on pp A-1 to A-3, tab A Lesson 3 – Filing Basics 29 Who Should File • In what situations would an individual want to file if they are not required to? • Find examples in Pub 4012, Tab A, Chart D • FAFSA! • Out of scope: • Health coverage tax credit • Refundable credits for prior year minimum tax • Adoption credit Lesson 3 – Filing Basics 30 Verifying TP Identity • What are acceptable identity documents to verify identity? • See the Tip in Pub 4491 • What are acceptable TINs? • Enter names & identification numbers accurately • Mistakes in data entry can result in processing delays • See Pub 4012 (Tab 1), Main Information Screen, for ID entries • Verify TP information to protect against identity theft • Remind TPs correct information is necessary to receive age-related tax benefits • Out of scope: TPs who cannot substantiate their identity – send them to FSA side. Lesson 3 – Filing Basics 31 Choosing the Right Return • Volunteers should always use Form 1040 • Appropriate for all TPs • Default TaxWise form • TaxWise will select the simplest form after data entry Lesson 3 – Filing Basics 32 Administrative Questions? • FAQ answers: • Pub 4012 (Tab P), Frequent TP Inquiries • Pub 17 Index • Internet: Filing Requirements Lesson 3 – Filing Basics 33 Who’s your “family”/in your “household”? This issue touches many areas of the tax return, but the 3 big ones are: 1. Filing Status (qualifying for more advantageous “head of household”) 2. Dependency Exemptions (can someone claim a person as a dependent on their tax return) 3. EITC (tax credit for working poor is larger if you have qualifying children) & Child Tax Credits Definitions are different for each, & some are not intuitive (for example, in some cases your brother is your “child”). Use the resources & never guess. Lesson 3 – Filing Basics 34 Lesson 4 – Filing Status Lesson 3 – Filing Basics 35 The Five Filing Statuses • Find relevant TP information on Form 13614-C, Section A, Part II: Marital Status & Household Information • Filing status impacts: • Calculation of income tax • Amount of the standard deduction • Allowance or limitation of certain credits & deductions • Use “HELP ME” function on Taxwise • Pub 4012 (Tab B), Determination of Filing Status Decision Tree, pp B-1 through B-3 • Pub 17, Chapter 2, Filing Status provides details Lesson 43 – Filing Status Basics 36 Single • On the last day of 2014 TP was: • Not married • Legally separated or divorced, or • Widowed before first day of tax year, not remarried within the year • May qualify for more beneficial tax status • Pub 4012 (Tab B), Filing Status Interview Tips Lesson 43 – Filing Status Basics 37 Married Filing Jointly • This filing status generally the most beneficial • One return is filed covering both spouses • On the last day of 2014 TPs: • Were married & live together • Live apart but not legally separated or divorced • Live together in recognized common law or same sex marriage • Separated but divorce decree not final, or • Widow(er) not remarried during the year Lesson 43 – Filing Status Basics 38 Married Filing Separately • Taxes are generally higher for this status • Some credits unavailable, some reduced • Advantage, no joint & several liability • Analysis of living situation is critical: • Marital status as of 12/31/14 • Others living in the home & their relationship/dependency • Who paid >50% cost of home upkeep • If widow(er): date of death of spouse & if there are any dependents Lesson 43 – Filing Status Basics 39 Married Filing Separately • Some TPs file separately to avoid potential refund offset due to spouse’s outstanding debts • Suggest Form 8379, Injured Spouse Allocation • For the complete list of special rules, see Pub 17, Filing Status Lesson 43 – Filing Status Basics 40 Head of Household • A TP may qualify if he or she: • Is unmarried or “considered unmarried” on last day of tax year, & • Paid >50% cost of keeping up a home for 2014, & • Had a qualifying person living with them more than half the year (except for temporary absences) • Qualifying person: • Can be child, parent, or other relative • See Pub 4012 (Tab B), Who is a Qualifying Person… Lesson 43 – Filing Status Basics 41 Head of Household – qualifying person • A qualifying person is defined as: • A qualifying child • A married child who can be claimed as a dependent • A dependent parent • A qualifying relative who lived with the taxpayer more than half the year & is one of the relatives listed in the Volunteer Resource Guide (Tab C), Interview Tips, or Table 2: Dependency Exemption for Qualifying Relative, Step 2 • The qualifying person for Head of Household filing status must always be related to the taxpayer. A person may qualify as a qualifying relative for a dependency exemption, but not qualify the taxpayer for the Head of Household filing status. Refer to the Volunteer Resource Guide (Tab B), Who is a Qualifying Person Qualifying You to File as Head of Household? Lesson 3 – Filing Basics 42 Head of Household - Keeping Up a Home • In general, the Head of Household status is for unmarried taxpayers who paid more than 1/2 the cost of keeping up a home for a qualifying person who lived with them in the home more than 1/2 2014. Valid household expenses include: • Rent, mortgage interest, real estate taxes • Home insurance, repairs, utilities • Food eaten in the home • Welfare or other public assistance payments are not considered amounts that the taxpayer provides to keep up a home. These payments must be included in the total cost of keeping up the home to determine if the taxpayer paid over half the cost. Lesson 3 – Filing Basics 43 Hypos – Correct Filing Status • Michael provided all the cost of keeping up his home for the year. Michael's son Justin lived with him the entire year. Justin is not disabled, 22 & was not a full-time student in 2014. Although Justin only worked part-time, he made too much money for Michael to be able to claim a dependency exemption for him. • Can Michael file Head of Household? • Nancy is single & lives alone. Nancy's mother, Maxine, lives alone in another city. Maxine receives social security payments, but has no other income. Nancy pays all of the costs of keeping up the home her mother lives in, & provides over half her support. Nancy can claim a dependency exemption for her mother. • Can Nancy file Head of Household? Lesson 3 – Filing Basics 44 Married & Living Apart with Dependent Child • Some married TPs may be “considered unmarried” for filing Head of Household if they: • File a return separate from their spouse • Paid >50% cost of keeping up their home • Lived apart from their spouse during the entire last 6 months of 2014, & • Provided the main home for more than half the year of a qualifying dependent child, stepchild, or authorized foster child Lesson 43 – Filing Status Basics 45 Single or Head of Household? • A TP may qualify for Head of Household status if the spouse is a nonresident alien • Interactive Tax Assistant: What is My Filing Status? Lesson 43 – Filing Status Basics 46 Qualifying Widow(er) with Dependent Child • As beneficial as Married Filing Jointly • Available for only 2 years following year of spouse’s death • TP would use Married Filing Jointly or Married Filing Separately in the year of spouse’s death (if not remarried) • Dependency qualifications apply to child Lesson 43 – Filing Status Basics 47 Summary • There are 5 filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, & Qualifying Widow(er) with Dependent Child • Choose the filing status that results in the lowest tax • HEAVILY TESTED ON BASIC EXAM Lesson 43 – Filing Status Basics 48 Lesson 5 – Personal Exemptions Lesson 3 – Filing Basics 49 Personal Exemptions • What are exemptions? • A dollar amount that can be deducted from a TP’s total income, thereby reducing their taxable income. • Personal exemptions • Claimed for self (& possibly spouse) • Dependency exemptions • Claimed for qualifying dependents Lesson 53 – Personal Filing Basics Exemptions 50 Rules for Taxpayer • Can anyone claim you or your spouse as a dependent on their tax return? • Answer must be “no” to claim personal exemption • Resources: • Pub 4012 (Tab C), Personal Exemption Interview Tips • Interactive Tax Assistant: Personal & Spousal Exemptions Lesson 53 – Personal Filing Basics Exemptions 51 Spouses (continued) • Divorced, Separated, Same-Sex & Common Law • TPs cannot claim an exemption for a (former) spouse from whom they are divorced or legally separated • Rules for common law marriages vary by state; same-sex marriage recognized if valid in state of ceremony • Deceased spouse claimed as personal exemption if TP: • Did not remarry by December 31, 2014, & • Was not divorced or legally separated from their spouse on the date of death, & • Would have been able to claim the exemption under the rules for a joint or separate return • Pub 17, Chapter 3, Personal Exemptions & Dependents Lesson 53 – Personal Filing Basics Exemptions 52 Lesson 6 – Dependency Exemptions Lesson 3 – Filing Basics 53 Dependents A TP can claim one exemption for each qualified dependent, thereby reducing their taxable income •Who may be claimed as a dependent? 1. Qualifying child 2. Qualifying relative Lesson 63 – Dependency Filing BasicsExemptions 54 Dependents 3 tests apply to both qualifying child & qualifying relative: 1. Dependent TP – person who COULD BE a dependent on someone else’s tax return cannot claim a dependent exemption 2. Joint return – person filing a joint return cannot be claimed as a dependent, & 3. Citizen or resident – dependent must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico Lesson 63 – Dependency Filing BasicsExemptions 55 Qualifying Child Tests • Five additional tests for a qualifying child: • Relationship • Age • Residency • Support • Qualifying child of more than one person • Review Pub 4012 (Tab C), Interview Tips for Qualifying Child Lesson 63 – Dependency Filing BasicsExemptions 56 Qualifying Child - Relationship Test • To meet this test, the child must be: • The taxpayer's son, daughter, stepchild, foster child (placed by an authorized placement agency), or a descendant (for example, a grandchild) of any of them, or • The taxpayer's brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant (for example, niece or nephew) of any of them • An adopted child is treated the same as a natural child. This includes a child who was lawfully placed with the taxpayer for legal adoption. Lesson 3 – Filing Basics 57 Qualifying Child - Age Test • To meet this test, the child must be: • Under age 19 as of 12/31/2014 & younger than the taxpayer (or the taxpayer's spouse, if filing jointly), or • A full-time student under the age of 24 as of 12/31/14 & younger than the taxpayer (or spouse, if filing jointly), or • Any age if permanently & totally disabled at any time of the year Lesson 3 – Filing Basics 58 Qualifying Child – Residency Test • Child must have lived with TP more than 1/2 of 2014. Taxpayer's home is any location where they regularly live; need not be a traditional home. For example, child who lived with TP for more than ½ the year in one or more homeless shelters meets residency test. • Exceptions to the Residency Test • Child considered to live with TP during periods when either child or TP is temporarily absent due to illness, education, business, vacation or military service. • Child who was born (or died) during 2014 is treated as having lived with TP all year, if child lived in TP's home the entire time child was alive. • Do not confuse this test with citizenship or resident test. Lesson 3 – Filing Basics 59 Qualifying Child- Support Test • Child cannot have provided more than 1/2 of child’s own support during 2014. • This test different from support test for qualifying relative. A person's own funds not support unless funds actually spent for support. • If taxpayer is unsure whether child provided more than 1/2 of child’s own support, review Worksheet for Determining Support in Volunteer Resource Guide (Tab C) together. Lesson 3 – Filing Basics 60 Qualifying Child Of More Than 1 Person Test • Although a child could meet conditions to be the qualifying child of more than 1 person, only 1 TP can claim that child as a qualifying child for the following tax benefits: 1. Dependency exemption 2. Child tax credits 3. Head of Household filing status 4. Credit for child & dependent care expenses 5. Exclusion from income for dependent care benefits 6. Earned income credit Lesson 3 – Filing Basics 61 Qualifying Child Of More Than 1 Person Test • If 2 TPs have the same qualifying child, only 1 TP can claim all 6 benefits for that particular child. They cannot agree to split these benefits. (Exception: if special rule applies for child of divorced, separated or living apart parents). Lesson 3 – Filing Basics 62 Children of Divorced or Separated Parents • Special rules apply • What is the difference between custodial & noncustodial parent? • See table 3 in Pub 4012 (Tab C), Children of Divorced or Separated Parents or Parents Who Live Apart • Custodial parents can revoke a release of claim to exemption they previously provided to the noncustodial parent on Form 8332 Lesson 63 – Dependency Filing BasicsExemptions 63 Qualifying Relative Tests • Four tests for a qualifying relative: 1. Not a qualifying child 2. Member of household or relationship 3. Gross income 4. Support • Review Pub 4012 (Tab C), Interview Tips for Qualifying Relative • Pub 4012 (Tab C), Worksheet for Determining Support Lesson 63 – Dependency Filing BasicsExemptions 64 Qualifying Relative – Not Qualifying Child Rule • A child is not considered the TP's qualifying relative if the child is the TP's qualifying child, or is the qualifying child of another TP. • Exception: When the child's parent (or other person for whom the child is a qualifying child) is not required to file a U.S. income tax return & either: • Does not file a return, or • Only files to get a refund of income tax withheld or estimated tax paid Lesson 3 – Filing Basics 65 Member of Household or Relationship Test • The person must either: • Live as a member of the TP's household all year, or • Be related to the TP in one of the following ways: • Child, stepchild, foster child or a descendant of any of them • Brother, sister, stepbrother or stepsister • Father, mother, grandparent or other direct ancestor, but not foster parent • Stepfather or stepmother • Son or daughter of the TP's brother or sister (niece or nephew) • Brother or sister of the TP's father or mother (uncle or aunt) • Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law • Any of these relationships that were established by marriage are not ended by death or divorce. Lesson 3 – Filing Basics 66 Member of Household or Relationship Test • An unrelated person who lived with the TP for the entire year can also meet the member of household or relationship test, BUT: • A person is still considered to live with the TP as a member of the household during periods when that person, or the TP, is temporarily absent due to special circumstances such as illness, education, business, vacation, military service, or placement in a nursing home. • Cousins can meet the relationship test for qualifying relative only if they live with the TP for the entire year. Lesson 3 – Filing Basics 67 Qualifying Relative – Gross Income Test • Dependent's gross income for 2014 must be less than the personal exemption amount ($3,950 for 2014). • GI is all income in the form of money, property, & services that is not exempt from tax. • Specific examples are found in Publication 17, Personal Exemptions & Dependents. • Test applies only to qualifying relatives, not qualifying children. • State benefit payments such as welfare, Temporary Assistance for Needy Families (TANF), food stamps, Medicaid, or housing assistance considered support provided by the state, not TP. Social security benefits received by a child & used for support are considered provided by the child Lesson 3 – Filing Basics 68 Qualifying Relative – Support Test • TP must have provided more than 50% of the person's total support for 2014. Note that this support test is different from the support test for a qualifying child. • When calculating the amount of total support, TPs should compare their contributions with the entire amount of support the person received from all sources (such as taxable income, tax-exempt income, & loans). Lesson 3 – Filing Basics 69 Lesson 29 – Earned Income Credit (EIC) Lesson 3 – Filing Basics 70 What is the EIC? • A refundable tax credit available to eligible TPs who do not earn high incomes • Qualifying TPs can receive a refund even if they have no filing requirement, owe no tax, & had no income tax withheld • 2014: Maximum EIC for families with three or more children is $6,143 • HEAVILY TESTED ON BASIC EXAM Lesson 29 3 ––Filing Earned Basics Income Credit (EIC) 71 Qualifying for the EIC • Three sets of rules: 1. General eligibility rules for everyone 2. Rules for TPs with one or more qualifying children 3. Rules for TPs who do not have a qualifying child • Review Pub 4012 (Tab i), Summary of EIC Eligibility Requirements; focus on Part A & Part D • Avoid common EIC filing errors: • Incorrectly reported income • Incorrectly reported SSNs • Married TPs incorrectly filing as Single or Head of Household • Claiming a non-qualifying child Lesson 29 3 ––Filing Earned Basics Income Credit (EIC) 72 Qualifying for the EIC • What are some example of earned income that may qualify TPs for the EIC? • Wages, salaries, tips, & other taxable employee pay • Taxable long-term disability benefits received prior to minimum retirement age • Nontaxable combat pay; compare the EIC amount with & without this pay before electing to include it in earned income • See Pub 4012 (Tab H) Earned Income Table for a complete list • Watch out for self employed with no expenses!! Lesson 29 3 ––Filing Earned Basics Income Credit (EIC) 73 Rules for Taxpayers with Qualifying Children • Claiming a child who is not a qualifying child is one of the most common EIC errors; make sure you apply the rules correctly. • Review Pub 4012 (Tab H): • Summary of EIC Eligibility Requirements, Part B • EIC General Eligibility Rules Interview Tips • EIC with a Qualifying Child Interview Tips • Qualifying Child of More than One Person Lesson 29 3 ––Filing Earned Basics Income Credit (EIC) 74 Rules for Taxpayers without Qualifying Children Rules are presented in Pub 4012 (Tab i) Part C, & in the Interview Tips •Must be at least age 25 but under age 65 as of December 31 •Cannot be the dependent of another person • Check Part I, question 13 on Form 13614-C •Must have lived in the U. S. more than half the year Lesson 29 3 ––Filing Earned Basics Income Credit (EIC) 75 Calculating the Tax Credit • Check Part V, question 4 on Form 13614-C: Did you (or your spouse) have EIC disallowed in a prior year? • If yes, see the special rules in Pub 4012 (Tab H), Disallowance of the Earned Income Credit • TaxWise will calculate the amount of EIC Lesson 29 3 ––Filing Earned Basics Income Credit (EIC) 76 Summary • The earned income credit (EIC) computation is based on filing status, number of qualifying children, earned income, & adjusted gross income. Certain individuals with no children may also qualify. • By using the intake & interview sheet, the interview tips in the Volunteer Resource Guide, & correctly filling out the EIC worksheets, most common errors can be avoided. Lesson 29 3 ––Filing Earned Basics Income Credit (EIC) 77 Lesson 7 – Unique Filing Status & Exemption Situations Lesson 3 – Filing Basics 78 Determining Alien Status • Nonresident aliens taxed differently from resident aliens • See Pub 4012 (Tab L), ITIN returns Determining Residency Status decision tree • Green card test • An individual with a green card is, for tax purposes, a resident alien • But not the only test! Lesson 73 – Unique Filing Basics Filing Status & Exemption Situations 79 Determining Alien Status Substantial presence test – physically present in the U.S. at least: •31 days during the current year, & •183 days during the 3-year period that includes the current year & the two years immediately before, counting: • All days in current year (2014) • 1/3 of days in previous year • 1/6 of days in second year before current year An individual who meets these requirement is, for tax purposes, a resident alien Lesson 73 – Unique Filing Basics Filing Status & Exemption Situations 80 Exemption for Nonresident Alien Spouse • What are two ways a citizen or resident alien who is married to a nonresident alien can claim the personal exemption for their spouse? • Treat the spouse as resident alien on a joint return, or • Treat the spouse as a nonresident alien on a Head of Household or Married Filing Separately return. • TPs must declare in writing that they are choosing to treat a spouse as a resident alien on a joint return. • See the table in Pub 54 on Ending the Choice Lesson 73 – Unique Filing Basics Filing Status & Exemption Situations 81 Dependency Exemptions • The dependency tests for a qualifying relative or qualifying child apply in the same way to citizens or resident aliens • There may be unique issues with the support test & the citizen/resident test. Refer to: • Pub 4012 (Tab C) Personal Exemptions Interview Tips • Pub 17, Chapter 3, Citizen or Resident Test • Interactive Tax Assistant: Who Can I Claim as a Dependent? & How Much Can I Deduct for Each Exemption I Claim? • Special rules for children born overseas & adopted children Lesson 73 – Unique Filing Basics Filing Status & Exemption Situations 82 Out of Scope: • Taxpayers with F, J, M, or Q visas, unless there is a volunteer at your site with Foreign Student certification • Unmarried nonresident aliens who do not meet the green card or substantial presence test Lesson 43 – Filing Status Basics 83 Lesson 8 – Income from Form 1040 Lines 7-11 Lesson 3 – Filing Basics 84 Determining Taxable & Nontaxable Income What are the differences between taxable & nontaxable income? • Nontaxable (excludable) • Gifts & inheritances • Exempt income • Earned • Received for work, such as wages, business income • Unearned • Interest income from investments • Review Pub 4012 (Tab D) for examples Lesson 83 – Income Filing Basics from Form 1040 Lines 7-11 85 Determining Taxable & Nontaxable Income Examples of income items used to determine entries in TaxWise. • Review Pub 4012 (Tab D) for examples • Tax Forms: • W-2 • 1099-INT • 1099-DIV • 1099-G Lesson 83 – Income Filing Basics from Form 1040 Lines 7-11 86 Determining Taxable & Nontaxable Income • Remember: Volunteers probe taxpayers to determine all sources of income • Media: Videos & Audio for topic • FAQ, Taxable & Nontaxable Income Lesson 83 – Income Filing Basics from Form 1040 Lines 7-11 87 Reporting Wages, Salaries, Tips, etc. • Form W-2: Issued to employees by January 31, reports wages & other compensation • Pub 4012 (Tab 2) How/Where to Enter Income • Pub 4012 (Tab 2) Form W-2 Instructions • Pub 4012 (Tab 2) How to Enter Tips Lesson 83 – Income Filing Basics from Form 1040 Lines 7-11 88 Reporting Wages, Salaries, Tips, etc. • Remember: • Household employees earning less than $1,700 may not receive a Form W-2, but the income must be reported • Self-employed TPs who receive tips should include their tips in gross receipts on Schedule C • Media: Videos & Audio for topic • Tax Map: Tip Income • Missing Form W-2 (YouTube video & Podcast) Lesson 83 – Income Filing Basics from Form 1040 Lines 7-11 89 Taxable Scholarship Income • Taxable scholarship income may be reported on Form W-2 & Form 1098-T • If the TP did not receive a Form W-2, the taxable amount should still be reported • Review Pub 4012 (Tab D) Tax Treatment of Scholarship & Fellowship Payments Lesson 83 – Income Filing Basics from Form 1040 Lines 7-11 90 Interest Income • Interest income (unearned income) is reported on Form 1099-INT • Common sources: savings accounts, CDs, saving certificates, government bonds, interest on insurance proceeds, loan interest • Use TaxWise Interest Statement worksheet Lesson 83 – Income Filing Basics from Form 1040 Lines 7-11 91 State & Local Refunds • On Form 1099-G, refund will be in box 2 • Report only if: • TP itemized deductions last year, & • Received an income tax benefit. • Do not report if state sales tax was deducted. • Taxable refund is reported on Form 1040, line 10 • Link to state tax refund worksheet in TaxWise Lesson 83 – Income Filing Basics from Form 1040 Lines 7-11 92 Alimony • Do not confuse child support payments with alimony • Where do you get alimony information? • Ask the TP • Alimony payments under an agreement executed before 1985 are out of scope Lesson 83 – Income Filing Basics from Form 1040 Lines 7-11 93 Alimony • Getting information about alimony • Form 13614-C • Pub 4012 (Tab E) Lesson 83 – Income Filing Basics from Form 1040 Lines 7-11 94 Out of Scope for this Lesson: • TPs with income from the following sources reported on Form 1040: • Other gains/losses (line 14) • Farm income (line 18) • Dependent child under the age of 18 (age 24 if a full-time student), who has investment income of more than $2000 • Casualty losses • Accrual method for reporting income • TPs who buy or sell bonds between interest payment dates • Form 1099-INT, box 9 • Adjustments needed for any of the amounts listed on Form 1099-OID, or if the TP should have received Form 1099-OID but did not receive one • Form 1099-DIV, boxes 2b, 2c, 2d, 8, 9 • State or local income tax refunds received in 2014 for a tax year other than 2013 • Alimony/divorce agreements executed before 1985 • Minister tax returns with parsonage/housing allowance Lesson 83 – Income Filing Basics from Form 1040 Lines 7-11 95 Lesson 9 – Business Income See Tab D, pD12-14 for Instructions. Form 1099- MISC will not automatically flow to the return. You must add it your self. Lesson 3 – Filing Basics 96 Lesson 14 – Income – Social Security Benefits; Form 1040 Line 20a Lesson 3 – Filing Basics 97 Social Security & Railroad Retirement Benefits • Social security benefits: • Old-age, survivor, & disability insurance (OASDI) • Workers’ compensation • Monthly retirement • Reported on Form SSA-1099 • Intake & Interview Sheet Lesson 14 3 ––Filing Income Basics – Social Security Benefits; Form 1040 Line 20a 98 Social Security & Railroad Retirement Benefits • Pub 4012 (Tab D, p D-25) Railroad Retirement, Civil Service, & Social Security Benefits shows how to enter data in TaxWise Lesson 14 3 ––Filing Income Basics – Social Security Benefits; Form 1040 Line 20a 99 Finding the Taxable Portion The taxable amount, if any, depends upon: •Filing status & other reportable income •Whether the benefits were the TP’s only source of income • If the benefits were the only source of income, the benefits are generally not taxable, & the TP need not file a federal income tax return. • If the TP received other income, complete the Social Security Benefits Worksheet to calculate the taxable portion. Lesson 14 3 ––Filing Income Basics – Social Security Benefits; Form 1040 Line 20a 100 Lesson 19 – Standard Deduction & Tax Computation Lesson 3 – Filing Basics 101 Deductions • Use interview techniques & other tools to determine if the standard deduction or itemizing will result in the largest possible deduction for the TP. • Pub 4012 (Tab F), Standard Deduction for Most People • Pub 4012 (Tab F), Interview Tips for persons not eligible for the Standard Deduction Lesson 19 3 ––Filing Standard Basics Deduction & Tax Computation 102 Deductions • TPs who cannot take standard deduction & must itemize: • Filing as Married Filing Separately & the spouse itemizes • Nonresident or dual-status alien (not married to U.S. citizen at the end of the year) • Refer to the Standard Deduction Worksheet – Line 40 from either Pub 17 or Form 1040 Instructions Lesson 19 3 ––Filing Standard Basics Deduction & Tax Computation 103 Age & Blindness • Standard deduction is higher for a TP or spouse 65 or older, or if one or both spouses are blind • Use Pub 4012 (Tab F), Standard Deduction Chart for People Born Before January 2, 1950 or Who Are Blind Chart, as a guide to computing the standard deduction • Taxwise will compute if you enter the information properly. Lesson 19 3 ––Filing Standard Basics Deduction & Tax Computation 104 Taxpayers Who Can be Claimed as Dependents • A lower standard deduction is offered for an individual who can be claimed as a dependent on another person’s tax return • Form 13614-C has a check box for a dependent being claimed by another TP • But the taxpayer may not know. Use Tab C of Form 4012 to help explain. Lesson 19 3 ––Filing Standard Basics Deduction & Tax Computation 105 Standard Deduction vs. Itemizing • Examples of types of expenses that generally warrant itemizing deductions: • Large out-of-pocket medical & dental expenses • State & local income taxes, real estate taxes, and/or personal property taxes • Mortgage interest • Gifts to charity • Casualty, theft, & certain other miscellaneous deductions Lesson 19 3 ––Filing Standard Basics Deduction & Tax Computation 106 Determining Taxable Income & Tax • Taxable income is determined by taking the adjusted gross income (AGI) & subtracting: • Personal & dependency exemptions • Standard or itemized deductions • • • • A separate worksheet is used to calculate tax for TPs with: Capital gains Qualifying dividends Foreign earned income Lesson 19 3 ––Filing Standard Basics Deduction & Tax Computation 107 Lesson 20 – Itemized Deductions Lesson 3 – Filing Basics 108 Who Should Itemize? • TPs should itemize if total allowable deductions are higher than the standard deduction amount • TPs ineligible for standard deduction should itemize deductions • Refer to Pub 4012 (Tab F) Persons Not Eligible for the Standard Deduction Interview Tips for help in determining if a TP qualifies for a standard deduction • Refer to Pub 4012 (Tab F) Interview Tips – Itemized Deductions to help determine if a TP should try to itemize • TaxWise will automatically select the larger of itemized versus standard deduction Lesson 20 3 ––Filing Itemized Basics Deductions 109 Taxes that May be Deductible • Certain taxes may be deductible if paid by the TP during 2013, such as: • State & local taxes • Real estate taxes • Personal property taxes • Other taxes (foreign income taxes, etc.) • Refer to Pub 17, Which Taxes Can You Deduct table for more information Lesson 20 3 ––Filing Itemized Basics Deductions 110 Interest Paid • Certain types of interest are deductible, such as: • Mortgage interest • Points paid as a form of interest • Investment interest (out of scope) • Refer to the flowcharts in Pub 17, Is My Home Mortgage Interest Fully Deductible? & Are My Points Fully Deductible? for more information • Private Mortgage Insurance (PMI) may be deductible Lesson 20 3 ––Filing Itemized Basics Deductions 111 Gifts to Charity • TPs may deduct charitable contributions (donations or gifts) to qualified organizations • Exempt Organizations Select Check is an online tool for searching for organizations that are eligible to receive tax-deductible charitable contributions • TPs are required to keep receipts & records of all their contributions • Refer to Pub 17, Contributions , & Pub 4012 (Tab 4), Schedule A – Itemized Deductions lines 16-19, for more information Lesson 20 3 ––Filing Itemized Basics Deductions 112 Lesson 23 – Education Credits Lesson 3 – Filing Basics 113 Education Credits Introduction • Education credit amounts are based on qualified education expenses paid during 2014 • For an overview of education credits, see Pub 4012 (Tab J), Highlights of Education Tax Benefits • To help guide your interview, use Pub 4012 (Tab J), Education Credits • Disqualifying conditions include if a TP: • Can be claimed as dependent on someone else’s return • Files as Married Filing Separately • Has an AGI above the limit for the TP’s filing status • Was a nonresident alien for any part of 2014, & did not elect to be treated as a resident alien for tax purposes Lesson 23 3 ––Filing Education BasicsCredits 114 Dependents / Eligible Institutions • To claim the credit for a student’s qualified expenses, the TP must claim the student as a dependent • Expenses must have been paid to an eligible educational institution • A searchable database of all accredited schools is available at http://ope.ed.gov/accreditation Lesson 23 3 ––Filing Education BasicsCredits 115 Qualifying Expenses • Qualified education expenses are tuition & certain related expenses required for attendance at an eligible educational institution • The definition for “certain related expenses” differs between the lifetime learning credit & the American opportunity credit • Necessary proof of expenses includes such documents as receipts or Form 1098-T, Tuition Statement, issued by the school • Qualified expenses must be reduced by the amount of any tax-free educational assistance TPs receive • TPs can claim payments that were prepaid for the academic period that begins in the first three months of the next year Lesson 23 3 ––Filing Education BasicsCredits 116 American Opportunity Tax Credit • Available for the first 4 years of college per eligible student • The credit covers 100% of the first $2,000 & 25% of the second $2,000 of eligible expenses, up to the amount of tax or a maximum of $2,500 • 40% of the credit is a refundable credit • See Form 8863 Instructions for more information Lesson 23 3 ––Filing Education BasicsCredits 117 Lifetime Learning Credit • The credit is 20% of the first $10,000 of eligible expenses, up to the amount of tax or a maximum of $2,000 • The credit is non-refundable • Eligible students are not required to be enrolled at least half-time or in a degree program, & a felony drug conviction is not a disqualification • Refer to Pub 4012 (Tab J), Education Benefits for basic requirements Lesson 23 3 ––Filing Education BasicsCredits 118 Choosing Between the Credits / No Double Benefits TPs cannot receive multiple benefits for the same student’s expenses TPs have several options for claiming education expenses: 1. American opportunity credit or lifetime learning credit 2. Tuition & fees deduction 3. Itemizing on Schedule A 4. Reporting as business expenses on Schedules C or C-EZ Lesson 23 3 ––Filing Education BasicsCredits 119 Lesson 25 – Child Tax Credit Lesson 3 – Filing Basics 120 A Nonrefundable Credit • Child tax credit allows TPs to claim a nonrefundable tax credit of up to $1,000 per child • TPs who claim the child tax credit, but do not qualify for the full amount, may be able to also take the refundable additional child tax credit by completing Form 8812, Additional Child Tax Credit • Review Pub 4012 (Tab G), Child Tax Credit Lesson 25 3 ––Filing ChildBasics Tax Credit 121 Eligibility • To be a qualifying child for the child tax credit, the child must be claimed as the TP’s dependent • A child must meet certain criteria to qualify for the credit • Review Pub 4012 (Tab G), Child Tax Credit Interview Tips • There are special rules for children of divorced or separated parents, as well as children of parents who live apart • TaxWise automatically determines a TP’s eligibility based on entries for children on the Main Information Screen Lesson 25 3 ––Filing ChildBasics Tax Credit 122 Calculating the Credit • TaxWise will automatically calculate the credit, provided you have correctly completed the: • Dependent section of the Main Information Screen • Form 1040 through the retirement savings contribution credit line • Part I of Form 5695, & Schedule R Lesson 25 3 ––Filing ChildBasics Tax Credit 123 Avoiding Common Errors • A thorough interview & accurate entries on the intake & interview sheet are critical to correctly identify all eligible children • Note any unusual situations on the intake & interview sheet • TaxWise computes the credits based on dependency information entered accurately on the Main Information Sheet • TESTED HEAVILY Lesson 25 3 ––Filing ChildBasics Tax Credit 124 Lesson 28 – Payments Lesson 3 – Filing Basics 125 Federal Income Tax Withheld • The total federal income tax withheld is entered in the Payments section of Form 1040, line 62 • Use interview techniques & Form 13614-C to determine the payments & credits to report • Review Pub 4012 (Tab H), Form 1040, Page 2 – Other Taxes & Payments • See Pub 505, Tax Withholding & Estimated Tax, for more information Lesson 28 3 ––Filing Payments Basics 126 Estimated Tax Payments • Estimated tax includes income tax & self-employment tax • If estimated payments are not paid when required, or amounts are insufficient, a penalty could be imposed • From Form 13614-C & interview, determine if TPs paid estimated tax; if yes, ask to see the TP’s Form 1040-ES • For more information about estimated taxes, refer to Form 1040-ES Lesson 28 3 ––Filing Payments Basics 127 Amounts Applied from Previous Year • TPs who overpay income taxes for 1 tax year can apply all or part of their refund to next year’s tax • From Form 13614-C & interview, determine if TPs overpaid income tax last year & if they applied any part of it to this tax year; if yes, ask to see the 2013 return to verify the amount • Add the amount to the estimated tax payments Lesson 28 3 ––Filing Payments Basics 128 Payments & Extensions • Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, extends the time to file until Oct. 15 • An extension must be filed electronically or on paper by the due date of the return • If taxes due are not paid by April 15, TPs may owe interest & penalties • Review Pub 4012 (Tab M), Filing for an Extension Using TaxWise Lesson 28 3 ––Filing Payments Basics 129 Lesson 30 – Refund & Amount of Tax Owed Lesson 3 – Filing Basics 130 Refund or Tax Due Form 8888, Allocation of Refund, is used to deposit a refund into up to three bank accounts • For more information, review Pub 4012: • Tab K, Split Refund Option • Tab K, Pointers for Direct Deposit of Refunds • Tab K, Balance Due Returns • Double-check accuracy of routing & account numbers for direct deposit refunds • Refund status can be checked at “Where’s My Refund” feature on www.irs.gov, or calling 1-800-829-1954 Lesson 30 3 ––Filing Refund Basics & Amount of Tax Owed 131 U.S. Savings Bonds • TPs may purchase U.S. savings bonds with their tax refunds for themselves or for co-owners, such as children or grandchildren • Form 8888 is used to buy savings bonds • Series I bonds are sold at face value & accrue interest until redeemed or until they reach their final maturity in 30 years • Series I bonds pay interest based on a combination of a fixed rate & a semiannual inflation rate Lesson 30 3 ––Filing Refund Basics & Amount of Tax Owed 132 Amount Owed • Payment options for taxes owed are: • Check or money order submitted with Form 1040-V, Payment Voucher • Electronic funds withdrawal • Credit card • Electronic Federal Tax Payment System (EFTPS) Lesson 30 3 ––Filing Refund Basics & Amount of Tax Owed 133 Amount Owed • Review Pub 4012 (Tab K), Balance Due Returns whenever you prepare a return that has an amount owed • TPs who cannot pay the full amount owed may request one of the following agreements: 1. Pay in full within 60 or 120 days with no fee 2. Monthly installment payments using Form 9465, Installment Agreement Request, with a fee • Balance due payments must be made by the April filing due date to avoid penalties & interest – NOT DATE OF EFILING. Lesson 30 3 ––Filing Refund Basics & Amount of Tax Owed 134 Estimated Tax Penalty • Estimated tax penalty may apply for underpayment of estimated taxes • Most TPs must make estimated tax payments if they expect to owe at least $1,000 in tax (after subtracting withholding & credits) • Leave line 77 blank; if a penalty is due, the IRS will figure the amount & send the TP a notice • Recommend client change withholding amounts on Forms W-4 & W-4P Lesson 30 3 ––Filing Refund Basics & Amount of Tax Owed 135 Third Party Designees • TPs may choose to authorize another person to discuss their tax return with the IRS • Volunteer tax preparers must never be designated as the 3rd party designee Lesson 30 3 ––Filing Refund Basics & Amount of Tax Owed 136 Identity Protection • The IRS Identity Protection PIN (IP PIN) is a unique 6 digit number that is assigned annually to victims of identity theft for use when filing their federal tax return to show that taxpayer is the rightful filer of the return. For the 2013 filing season, IRS expects to provide more than 1.2 million IP PINs. The IP PIN will allow these individuals to avoid delays in filing returns and receiving refunds. • When assisting taxpayers who are victims or may be victims of identity theft at VITA/TCE site, you should: • If an IP PIN was issued to primary taxpayer you should ensure the IP PIN is input correctly on the tax return. • If the Taxpayer received an IP PIN but did not bring it with them. • 1. Complete tax return for the taxpayer. • 2. Provide taxpayer with a complete copy of the tax return (Provide two copies if the taxpayer will mail the tax return.) Lesson 3 – Filing Basics 137 Identity Protection When assisting taxpayers who are victims or may be victims of identity theft at VITA/TCE site, Tab P, page 1. Also, contact site coordinator for help with State identity theft. Lesson 3 – Filing Basics 138 Lesson 32 – Concluding the Interview Lesson 3 – Filing Basics 139 Printing & Storing Returns • TPs must receive copy of their tax return. To prepare packet: • Print the entire return using TaxWise • Ensure names & social security numbers are legible on every sheet • Assemble the packet starting with Form 1040, followed by each form, schedule, & attachment in order, based on the sequence number • Show TP printed copy of return, & verify key information is correct • Advise TPs to keep tax-related documents for at least 3 years • Review Pub 4012: • Tab K, Last page, Distributing Copies of the Return Lesson 32 3 ––Filing Concluding Basics the Interview 140 Signing Form 1040 • Quality review must be done before TP signs the return. • Advise TPs they are ultimately responsible for information on their return. • Signing their return guarantees TPs have examined the return, accompanying forms, & schedules for accuracy. • The return is not considered valid, & refunds are not issued, unless it is signed. Taxwise uses e-signature. • Note new Identity Protection PIN at bottom of Form 1040. Lesson 31 3 ––Filing Quality Basics Review of the Tax Return 141 Completing the Return • What are the final steps to completing a return? 1. Run diagnostics on the return 2. Print the return 3. Give the return to your designated quality reviewer 4. Assemble the return & all necessary documentation Lesson 31 3 ––Filing Quality Basics Review of the Tax Return 142 THE END THANK YOU FOR YOUR ATTENTION!