SCENARIO #1
TAX LAW TOPICS COVERED
1.
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4.
Who must file
Filing Status
Exemptions: personal exemption
Intro into income- taxable v. nontaxable
W2, Unemployment Income, Interest income
5. Standard deduction
6. Refundable and nonrefundable credits
a. EITC
OBJECTIVES
Students will be able to
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Login into TaxWise and start a tax return
Identify the clients filing status
Explain what a personal exemption is
Input income from a W2, 1099-G and 1099-INT
Use 4012 to distinguish the difference between taxable and nontaxable income
Explain the EITC for a filer without qualifying children
Finish a basic tax return
MATERIALS
Online
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Interview & Intake Video http://vimeo.com/82165491
Print
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Login Instructions one pager
Volunteer scenario packet for scenario 1
Tax Forms
1. 13614-C Intake and Interview sheet for Olivia M. Brown- Scenario #1
2. Tax forms for Olivia M. Brown
a. Olivia’s SSN card
b. W-2, Wage and Tax Statement for The Wash Quarter’s
c. 1099-G, Certain Gov’t Payments for Employment Development Dept.
d. 1099-INT, Interest Income for Bank of Yourtown
e. Check for direct deposit
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SCENARIO OVERVIEW FOR INSTRUCTOR
Olivia is a single filer with W-2, Interest Income and Unemployment Compensation.
OPENING THE LESSON
Handout Scenario 1 Packet to volunteers
Review the objectives of the scenario with the volunteers and tell them what exactly they will be learning. Go over the
documents included
1. 13614-C Intake and interview form
2. Supporting documents
3. Scenario Interview Notes
Intake & Interview
THREE THINGS YOU NEED TO KNOW ABOUT THE INTAKE AND INTERVIEW PROCESS
1. As a volunteer you must check taxpayer identification and SSN/ITIN’s for everyone on
return
2. Determine if the client is eligible for VITA services – see Scope of Service chart in
Publication 4012, Pages 8 and 9
3. Review Intake and Interview form, making sure all information is filled out correctly
WITH CLASS –
Review taxpayer requirements with the volunteers – Publication 4012, Tab A-1 (and Tabs A-2
through A-4 for reference is helpful).
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Who should file and who must file
Other situations when you must file
Make sure their client has the following- Top of 13614-C:
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Photo ID for all persons on the tax return
Original Social Security (SSN) or Individual Taxpayer Identification
Number (ITIN) documents for everyone on the tax return.
Household income of $53,000 or less. Instruct volunteers to ask their
site coordinator about income restrictions at your site – you may be
able to help higher incomes
Review Job Aid in Publication 4012, Pages 15 and 16 and the filled out 13614 and supporting
documents. Thoroughly interview and probe all taxpayers.
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Instruct volunteers to:
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Verify and confirm all information on Part I & II.
Ask all questions in their entirety, even if already filled out by client
and confirm accuracy
Confirm taxpayer’s identity and SSN or ITIN with supporting
documents and photo ID
Ensure that the documents are available for each item if taxpayer
answer “Yes” in Parts IV & V
Review part VI regarding health coverage. Use flow charts in Section
ACA 1-3 in your 4012 to determine next steps
Ask the client if there were any questions that they didn’t understand
After reviewing above information, confirm that Olivia has completed the following:
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Met the taxpayer requirements
Completed the intake and interview sheet and has supporting documentation
Determine if the client has a filing requirement
Determine if further information is needed in regards to ACA, Part VI of the 13614-C.
Not in this case since Olivia has health coverage all year.
Show volunteers Intake and Interview video – http://vimeo.com/82165491
CONDUCTING THE LESSON
Starting Tax Return - Publication 4012, Tab N
Now that volunteers have determined that Olivia is eligible for VITA, it’s time to start the tax
return. Hand out Login Instructions one pager and take class step by step.
TAXWISE –
1. Have all students successfully login into TW. Advise your students that their screen
should be a green color and they should see the Help Center page. Refer to
Publication 4012, Tab N 1-3
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2. Input information from Part I of Intake Sheet into Main Information sheet. Refer to
Pub. 4012, Tab C-10
3. Taxpayers must choose a five digit PIN number and todays date- recommend using zip
code. Have the class enter 12345 for taxpayers PIN for practice. This is the client’s efile approval signature.
Filing Status - Publication 4012, Tab B
THREE THINGS YOU NEED TO KNOW ABOUT FILING STATUS:
1. Filing status—is based on marital status and family situation, and determines the rate
at which income is taxed.
2. A taxpayer may be able to claim more than one filing status. Usually, the taxpayer will
choose the filing status that results in the lowest tax. The list below is in order from
the most beneficial to the least.
3. The five filing statuses are:
 Married filing jointly- married and filing the same return
 Qualifying widow(er) with dependent child- for widows/widower with
dependent children. See Pub 4012, Tab B-1
 Head of household (HOH)- Usually an “unmarried” person who maintains
household with children. Rules are complex – See Pub 4012, Tab B-3
 Single- unmarried, legally divorced or legally separated
 Married filing separately- legally married but filing separate returns
WITH CLASS –
1. Review Part II, numbers 1 and 2 of Intake and Interview Sheet
2. Review all 5 filing statuses and use Decision Tree in Publication 4012, B-1 to identify
Olivia’s filing status.
3. Ask volunteers what Olivia’s filing status is? SINGLE
TAXWISE –
1. Back to Main Info on TaxWise and input Olivia’s filing status. Refer to Publication 4012,
Tab C-11
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Exemptions- Publication 4012, Tab C
THREE THINGS YOU NEED TO KNOW ABOUT EXEMPTIONS:
1. There are two types of exemptions: Personal and Dependency. For this scenario, we
are only addressing a personal exemption.
2. This year’s exemption amount is $3,950. This amount is deducted from your taxable
income for every person that is claimed on your return, thus decreases the amount of
tax owed.
3. Only one exemption can be claimed per person. An exemption for a particular person
cannot be claimed on more than one tax return.
WITH CLASS Determine Olivia’s Exemption(s) amount using the 4012, Tab C - $3950
2. Review personal exemptions. Remind volunteers that exemptions reduce the income
that is subject to tax and that an exemption for a particular person cannot be claimed
on more than one tax return.
3. Ask the volunteers how many exemptions Olivia can claim- 1 PERSONAL
1.
TAXWISE –
1. Back to Main Info on TaxWise. Refer to Pub. 4012, Tab C-11
2. Show that one exemption was automatically populated in box 6a and the amount is
found on the 1040 Page 2, line 42.
Income- Publication 4012, Tab D
THREE THINGS YOU NEED TO KNOW ABOUT INCOME
1. There are two types of income: taxable and nontaxable. All income, such as wages and
tips are taxable unless the law specifically excludes it. See a list of types on income in
Pub. 4012, Tab D-1.
2. Employers report wage, salary and tip income on Form W2, Wage and Tax Statement.
Other documents you may see are: 1099 INT/DIV, 1099-G, 1099-MISC, etc.
3. Income is reported on lines 7-21 on the 1040
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WITH CLASS –
Review the types of income this scenario presents- Wages, Unemployment and
interest from a savings account.
2. Instruct volunteers to turn to Publication 4012, Tab D-1 and D-3. D-1 lists taxable and
nontaxable income. Remind volunteers that they don’t need to memorize this, but to
know where to look it up. D-3 is the main reference for types of income documents
volunteers will see and what line to input them on the 1040.
3. Identify what types of income Olivia has. Use Pub 4012, Tab D-3 for reference, intake
sheet and supporting documents- W2, 1099 INT and 1099-G
1.
TAXWISE –
1. Access the forms tree on the left side of the screen and click on 1040 Page 1.
2. Show how to link from the 1040, line 7 to the form W-2 on TaxWise. Refer to Pub.
4012, Tab D-4
3. Input Olivia’s W-2. Refer to Pub. 4012, Tab D 5-6
4. Link from 1040 line 8a to Interest Statement. Refer to Pub. 4012, Tab D 7-8
5. Input Olivia’s 1099-INT
6. Link from 1040 line 19 to the form 1099-G.
7. Input Olivia’s 1099-G
Deductions- Publication 4012, Tab F
THREE THINGS YOU NEED TO KNOW ABOUT DEDUCTIONS
1. A deduction is a set amount (based on your filing status) that decreases your taxable
income, thus decreasing the amount of tax you owe.
2. Tax filers have the choice to take the standard deduction or itemize their deductions.
For this scenario we are only going to focus on the standard deduction.
3. Your standard deduction increases if you are 65 or over and/or blind. See Publication
4012, Tab F-1 for deduction amounts. TaxWise populates this automatically.
WITH CLASS –
1. Use Pub 4012, Tab F and review the standard deduction amounts based on filing
status, filers born before Jan. 2, 1950, and filers who are blind.
2. Using Pub 4012, Tab F-3, determine if Olivia should take the standard deduction or
itemize? STANDARD DEDUCTION.
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TAXWISE1. Show volunteers Olivia’s deduction on Olivia’s 1040 – PAGE 2, LINE 40
Affordable Care Act, Publication 4012, Tab D
THREE THINGS YOU NEED TO KNOW ABOUT ACA:
1. Most people are covered by insurance through their employer, Medi-Cal, Medicare,
etc.
2. Taxpayers who receive insurance through the marketplace may be eligible for a
refundable premium tax credit.
3. Many low-to-moderate income taxpayers who do not have medical coverage will be
eligible for an exemption
WITH CLASS –
1. Review taxpayer answers on Part VI on 13614-C using the Job-Aid in Pub 4012 page 16
2. Identify applicable flowchart in ACA tab. Ask students which one they would use for
Olivia? (Determining ACA- Next Steps Insurance all year. ACA-1)
3. Go through flowchart (ACA-1) with students
4. Review Minimum Essential Coverage, on ACA-4 (she qualifies)
5. Finish reviewing flowchart (ACA-1) with students
6. Have students complete 13614-C gray box in part VI
TAXWISE –
1. Indicate on the tax return that taxpayer had insurance all year (Form 1040, line 61) by
checking the box.
Reviewing the Federal Tax Return
Review the 1040, line by line pointing out the different amounts and where they came from. Tie
it back to the documents and information input by the volunteers.
TAXWISE –
1. Review all lines of the 1040 that have amounts in them.
2. Point out that on 1040 Pg. 2, line 66 1040 will have an amount of $104 and introduce
EITC (see below for brief summary).
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Earned Income Tax Credit- Publication
4012, Tab I
This credit is called the "earned income" credit because to qualify, you must work and have
earned income and meet certain eligibility requirements. Earned Income includes wages,
salaries, and tips that are includible in gross income and net earnings from self-employment
earnings.
Completing the CA State Return
THINGS YOU NEED TO KNOW ABOUT THE CA STATE RETURN:
1. Get the red out! Most information will automatically populate from the federal return
2. If you have entered more than one W-2 on the 1040, you will have to manually add
the additional W-2’s. The first W-2 will carry over, but the rest won’t.
3. Make sure to complete the direct deposit or balance due portion of the return
4. Complete the CA Renters Credit Wkt when applicable. See below for eligibility
requirements:
a. Taxpayer was a California resident for the entire year.
b. Their California adjusted gross income (AGI) is:
 $36,955 or less if your filing status is single or married/RDP filing
separately.
 $73,910 or less if you are married/RDP filing jointly, head of household, or
qualified widow(er).
c. Taxpayer paid rent for at least half the year for property in California that was
your principal residence.
d. The property that was rented was not exempt from California property tax.
e. Taxpayer did not live with another person for more than half the year (such as
a parent) who claimed them as a dependent.
TAXWISE (CA RETURN) –
1. Scroll down forms tree and locate 540 forms highlighted red
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2. Go to CA 540 Pg. 5 and answer question #115 – Direct Deposit of Refund or Electronic Funds Withdrawal of
Balance Due. Since Olivia has elected for Direct Deposit, choose the first option since she wants her refund
deposited into the same account.
3. For CA 540 Page 1, below line 6, there is a question about the Renters Credit.
4. Check the Yes box, since Olivia rents.
5. Note that the CA Rent Worksheet turns red in the forms tree.
6. Note questions 6 and 7 are red. Answer the questions. Examples of exempt properties are: HUD and church
property (section 8 property is NOT exempt). To claim the property tax exemption, you must own property. In
this scenario the answers are both NO.
7. Fill out information on 12 and 13
8. Shortcut: Go to CA 540 line 35. If the tax amount listed is 0 then client there would be no benefit to the client
in claiming the non-refundable renter’s credit. You may answer No to renter’s credit question to avoid
inputting landlord information.
Finishing the return- Publication 4012, Tab K
THINGS YOU NEED TO KNOW ABOUT FINISHING A RETURN
1. All returns will be e-filed
2. Bank account information needed for direct deposit- refer to Part VII of the Intake
Sheet
3. Identity Protection PIN- if client checked the “yes” in box 12 of the Intake Sheet, refer
to Pub. 4012, Tab P-1
REFUNDS:
1. Using the filers bank account and routing number, enter it into TW on Main Info Sheet
and Page 2 of the 1040.
2. Always double check account numbers!
BALANCE DUE:
1. Balances must be paid by the filing deadline (April 15th) to avoid penalties and interest
charges. There are separate penalties to paying and filing late. Pay as much as you can
before the deadline!
2. Filers will send in their own payments or have it directly debited from their bank
account. See Publication 4012, K-3 for instructions
3. If the filer chooses to send their payment via mail, show them the 1040V Payment
Voucher and instruct them to send it with their payment
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1. Enter Olivia’s bank account information on Main Information sheet and 1040 Pg.2.
Refer to Pub. 4012, Tab C-13
2. Ensure that all federal forms are green (you don’t want to see any red!)
Then…
1. Click the Run Diagnostics button at the top of the page to check for mistakes or missing information. Address
any issues and click the button again until it is clear.
2. Click E-file button below the Diagnostics summary
FINISHING THE LESSON
After all volunteers have entered all documents into TaxWise for Scenario 1, ask them whether that have any
questions about the information that was taught. Review all topics that were covered and ask the optional following
questions:
SAMPLE QUESTIONS TO ASK YOUR VOLUNTEERS:
1. Intake and Interviewa. What is something you always ask for during the intake and interview process? Identification
b. Where in our resource material can you find information on the intake and interview process?
Publication 4012, Page 15
2. Filing Statusa. How many 5 filing statuses are there? Can you name them? 5: Single, Married Jointly, Married
Separately, Qualified Widower with Dependent Child, and Head of Household
b. Where can I find this info in our resource material? Pub 4012, Tab B-1
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3. Exemptionsa. Name the two types of exemptions and identify which one Olivia is getting: personal and
dependency; Personal
b. Where in our resource material can you find information on exemptions? Amounts are in Pub 4012,
Tab C-1
c. Where can I find info on a filers exemptions in Taxwise? Main Info, number 6 and line 42 on the 1040
4. Incomea. What types of taxable income does Olivia have? Wages/W2, Interest income/1099-INT, and
Unemployment Compensation/1099-G
b. Where in our resource material can you find information on income? Publication 4012, Tab D
c. What tab in the 4012 specifies the line number for most income documents? Pub 4012, Tab D-3
5. Finishing a returna. Where in our resource material can I find information on how to finish a return? Pub 4012, Tab K
b. What form do you use for splitting a refund? 8888
c. What form does the taxpayer send in with their balance due? 1040V Payment Voucher
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