School and Student Service
For Financial Aid
2003 NAIS/SSS Financial Aid Workshop Series
Mark J. Mitchell, Leslie Bunting, NAIS
Margie Nelcoski, ETS
Using Tax Returns for Better
Decision-Making
The avoidance of taxes is the only intellectual
pursuit that carries any reward.
John Maynard Keynes
Copyright National Association of Independent Schools 2003
Why Collect and Review Tax Returns?
 VERIFY information reported on PFS
 IDENTIFY unreported resources
 PROTECT the integrity of your resources and process
Copyright National Association of Independent Schools 2003
VERIFY
 Family income
 U.S. income tax paid
 Interest/dividend income
 Business profit/loss
 Other
– Household size, family members
– Alimony paid and/or received
– Deductions, medical, dental, child care expenses
Copyright National Association of Independent Schools 2003
IDENTIFY
 Paper losses, other write-offs that mean little to cash flow
 Unreported and/or underreported assets
 Items not asked for on PFS
 Value of assets sold—capital gains or losses
Copyright National Association of Independent Schools 2003
PROTECT
 Ensures accuracy in information
 Broader knowledge base to support and document objective
decision-making
 Assists responsible distribution of limited funds
 Recalculate SSS EFC to better represent all information
on hand
Copyright National Association of Independent Schools 2003
Reviewing 1040
Page One -- Income and Adjustments
 Lines 1 – 6 – family information
 Line 7 – wages, salaries
 Lines 8a, 8b and 9 – interest and
dividend income
 Line 11 – alimony received
 Line 12 – business income
 Line 13 – capital gain
 Line 17 – rental income
 Line 18 – farm income
Copyright National Association of Independent Schools 2003
Reviewing 1040
Page Two -- Taxes, Credits, Payments
 Certain items here should appear on PFS as untaxed income
 Line 56 – self-employment tax
 Line 61 – total tax
 Line 62 – tax withheld (from W-2)
 Line 64 – earned income credit; untaxed income
 Signatures -- be sure they are signed by the right person(s)
Copyright National Association of Independent Schools 2003
Schedules A & B
 Itemized deductions
– Cross-check medical and dental expenses shown on PFS #16A
– Mortgage interest flag
 Interest and dividend income
– Sources and amounts
– PFS #9C
– Clarify differences if unexplained
Copyright National Association of Independent Schools 2003
Schedule C/C-EZ
 Sole proprietorship profit or loss
 DEPRECIATION
 Consider expenses to identify paper losses, write-offs
– auto expenses
– meals and entertainment
 Type and location of business
 SSS Business/Farm Statement
Copyright National Association of Independent Schools 2003
Schedule D
 Capital gains and losses
 Short-term vs. long-term
 Note amount of loss/gain
 Consider sales price
– Represents asset flow
– Tax paid based on gain amount not
sales amount
 Tax benefit on losses incurred
Copyright National Association of Independent Schools 2003
Schedule E
 Rental income and expenses
 DEPRECIATION
– Buildings typically appreciate in value
– View carefully as paper loss
– May refer to items inside the building, as well
 Cross-check with PFS #19, “All Other Real Estate”
Copyright National Association of Independent Schools 2003
Supporting Documents
 W-2’s to identify personal income, some sources of
untaxed income
 Form 4506 authorizing release of original forms submitted
to IRS
 Form 1065 Partnership return
 Non-paper filers
– Form 8453
– TeleFile worksheet with filer’s confirmation number
Copyright National Association of Independent Schools 2003
Complicating Factors
 Roth IRA, rollovers (Form 8606)
 Sale of home(s)
 Partnerships (Form 1065, Schedules K, K-1)
 S Corporations (Form 1120S, Schedules K, K-1)
 Children’s taxes, assets (Forms 8615, 8814)
 Farm assets and depreciation
 Electronic filing (Form 8453)
Copyright National Association of Independent Schools 2003
Highlights of Changes in 2003 Tax Laws

Educators’ deduction—up to $250 of out-of-pocket expenses, even if
filer doesn’t itemize

Taxation rates have been reduced across the board
– Fewer taxes paid=more discretionary income

Standard deduction raised for married filing joint and qualifying widow
– Higher deduction=lower taxable income=fewer taxes paid=more
discretionary income

Maximum child tax credit increased to $1000 per child (up from $600
per child max)

Taxation rates on certain forms of capital gains have been reduced
Copyright National Association of Independent Schools 2003
Resources
 Annotated 1040 and PFS
 Staff accountant, CPA
 Guidebooks and IRS publications
 Tax preparation courses
 www.irs.gov
– Download forms, publications
– Highlights, summaries of new tax laws
Copyright National Association of Independent Schools 2003
www.irs.gov
Copyright National Association of Independent Schools 2003
www.irs.gov
Copyright National Association of Independent Schools 2003