Welcome December Tax Training For New Volunteers · Welcome December Tax Training For New...

1

Welcome December Tax Training

For New Volunteers

6-8 Dec 2016

DRAFT

2

Handouts

Presentation charts

Mass Manual

11 Exercise problems and answer key

Goal is to do first 4 - 5 returns in class

Your challenge is to do more

Hudson, Meadows, Clark contain ACA situations New volunteers can skip over these initially

Instructions for logging into 2015 TaxSlayer Practice Lab (training)

3

Purpose of This Training

Briefly discuss AARP Tax-Aide Program

Gain experience using TaxSlayer software

Complete typical Federal and MA returns

Discuss and apply Federal and MA basic tax laws

Understand how to use your resources; you do

not have to memorize or learn everything this

year

4

AARP TAX-AIDE Program

Nationwide non-profit program administered by AARP Foundation

AARP Foundation is an IRS approved charity

Free confidential service

Helps low-to-moderate income taxpayers with special attention to age 60+

Prepare returns and answer tax questions

Funded by AARP Foundation and IRS

Has its own management structure

5

AARP TAX-AIDE Program

Volunteers protected by Volunteer Protection Act of 1997; we are not liable provided

We stay within scope of program, receive training and get certified

Any error we make is not willfully committed

Only site identification number (SIDN) and site name appear on tax return copies; i.e., volunteers are not identified

Travel insurance available (secondary)

Mileage can be reimbursed at end of season

6

Where/How Do We Work?

Where

Senior Centers

Weekdays, daylight hours

Libraries

Evenings, weekends available*, also

Other (e.g., community centers)

Seeing taxpayers

By appointment mostly

Walk-in

* Dependent on volunteer availability

7

Training/Reference Documents

IRS Pub 4491 - Student Training Guide (STG) Basic training source for Federal tax laws and rules

Follows 1040, line by line

Has many examples that illustrate laws

Refers extensively to other documents

IRS Pub 4012 - Volunteer Resource Guide (VRG) Great reference for test and for preparing returns

Covers Federal tax law and how to use TaxSlayer software

IRS Pub 4961 Standards of Conduct – Ethics

8

Training Documents

IRS Pub 5101 Intake/Interview and Quality Review

IRS Form 6744 - Volunteer Test/Retest Test problems, test/retest answer sheet, Volunteer

Agreement

Everyone (including client facilitators) takes Standards of Conduct test

Preparers also must pass Advanced segment test and Intake/Interview and Quality Review test

IRS Publication 17 - Your Federal Income Tax Used for more complex issues

2016 version not yet available (Jan 2017)

9

Training Documents

MA Form 1 Instructions

Covers MA tax rules and laws, line by line

MA Manual (MM) – Fall 2016

Covers MA unique tax laws and how to use TaxSlayer to complete MA returns

Web sites

www.irs.gov

www.mass.gov/dor/

mataxaide.org

aarptaxaidema20.wordpress.com

10

Suggested Study Approach

Look at test questions in Pub 6744

Standards of Conduct & Intake/Interview

Questions about Federal tax laws

Federal tax returns to be prepared

Identify what tax topics you are not familiar with

Use Pub 4491 as required to learn about these topics and answer test questions about tax laws

Prepare tax returns using 2016 TaxSlayer software and answer test questions for returns

11

Suggested Study Approach

Read Pubs 4961 and 5101 as needed

Answer the questions about Standards of Conduct and how to use the Intake/Interview sheets

Tests will be discussed in January training

Submit paper test results (on-line test site not recommended for new volunteers)

12

Volunteer Standards of Conduct Excerpt

Do not accept payment or solicit business/donations

Do not knowingly prepare false returns

Do not engage in unethical behaviour

Do not engage in conduct that is detrimental to program

Ensure confidentiality, privacy and security

Keep taxpayer information strictly confidential – do not disclose to unauthorized individuals

Provide in-scope tax assistance

Treat all taxpayers equally and professionally

Follow site leader’s instructions about site requirements

13

Elements of Fed 1040 & MA Form 1 Tax Returns

Taxpayer information

Filing status

Dependents

Income

Adjustments to income (reduces taxes)

Deductions & exemptions (reduces taxes)

Credits (reduces taxes)

Taxes owed, refund due, no taxes

TaxSlayer Organized Same Way

Basic Information in TaxSlayer

Deductions in TaxSlayer

14

Affordable Care Act (ACA) Basics

Taxpayer(s) and dependents must

Have Minimum Essential Coverage (MEC) health insurance each month, or

Have a coverage exemption, or

Make a Shared Responsibility Payment (SRP)

Taxpayers and dependents in class training problems have full time coverage

Government or Private insurance

Other ACA situations will be discussed in January training (practice problems in handout)

15

Entering Federal Insurance

16

Entering Federal Insurance

17

Entering Federal Insurance

Will change depending on members in household

18

Entering Federal Insurance

19

Courtney Smathers Return

16 yrs old, full time high school student

Lives with her parents who support her

Has W-2 from summer/after school work

Does she have to file Federal & MA returns?

4012, page A-1 & A-2; MM, page 1

Should she file Federal and MA returns?

4012, page A-3, chart D, item #1

What’s her filing status? 4012, page B-1

Can she claim herself? 4012, page C-1, C-2

20

Introduction to TaxSlayer Practice Lab Software

21

Connect to Chelmsford Wireless Network

Use Windows OS* and Internet Explorer 8 or higher or Chrome browsers, Apple Safari

TaxSlayer on-line software also requires Adobe reader

Connect to Chelmsford wireless network

Password: ___________________

*No Windows XP

22

Connect to TaxSlayer Practice Lab

Make sure you are connected to wireless network

Connect to 2015 Practice Lab

Click on desktop icon, or

Open Internet Explorer or Chrome and insert URL:

https://vita.taxslayerpro.com/IRSTraining

Put URL into favorites list or

Create desktop icon (only if you use Internet Explorer or Chrome as your browser)

Insert password (see next slide)

23

Log in - First Time

Enter Universal PW: TRAINPROWEB

24

Log in – First Time (Continued)

User Name Use info in handout – unique to each student; then

Click

25

Practice Lab – Home Page

26

Practice Lab – Home Page (Continued)

27

Practice Lab – Home Page

Click to do returns

28

Practice Lab – Welcome Page

29

TaxSlayer On-line Training - Initial System Navigation

Click “start new return” button and enter Courtney Smather’s SSN twice: 256-00-7210

SSN for practice must have “00” as middle two digits; use 7210 as last four digits

Click “Start Return”

This routine is used to start all returns, even for joint returns that have two SSN’s

Use primary taxpayer’s SSN to start return

Spouse’s SSN will be entered later

30

Enter SSN Twice

Click after entering SSN

31

Filing Status Screen

32

Personal Information Screen

33

Smathers W-2

34

Entering Wages in TaxSlayer

Check SS# and tax year on paper W-2’s

Fill out TaxSlayer W-2 form

See 4012, page D-9, 10

Identify whose W-2 it is; i.e., taxpayer or spouse

Verify address; modify if necessary

Enter data from every box (ex control number) from paper W-2

Click “continue” at bottom to save and enter data

Data will not save until you hit “continue” on each screen

35

Creating MA Return

Click “State Section” Choose “Massachusetts” Answer questions on following

screens until you get to screen to choose “Guide me” or “Enter Myself”

Choose “Enter Myself” Fill out Health Care Information For Smathers, return is done

36

State (MA) Menu Items

37

Basic Health Care Questions

38

Basic Health Care Questions

39

Preview Federal and MA Return

Click to create PDF

40

Smathers Summary

To start a return, enter SSN twice

Fill out Basic Information (filing status, taxpayer information, any dependents)

In Federal Section, follow TaxSlayer menus to enter income, deductions, etc.

Or use a “Profile” (next return)

Fill out ACA Health Care information

Go to State Section to do MA return

Create PDF of both returns and check

41

Samuel & Abigail Johnson

Married for 50 years, 75 & 74 years old

Income:

Social Security – 4012, page D-27

Bank interest - 4012, pages D-12 to 14

Pensions, IRA - 4012, page D17ff

Live with daughter; pay no rent

Have Medicare insurance all year

42

Start Johnson Return

Click “start new return” and enter Sam’s SSN 357-00-7210 twice

Choose Retirement Profile (below SSN’s)

1

2

3

43

A Johnson 1099-R (IRA)

44

Box 7 Distribution Codes (Pub 4012, page D23-24)

Common codes

1 - early distribution, no known exceptions (usually before 59 ½) – penalties possible

2 – early distribution, exception applies (under 59 ½) - may avoid penalty

3 – disability

4 – death

7 – normal

G – direct rollover - non-taxable

Enter code from paper copy; may require additional TaxSlayer entry (not for Johnson)

45

Entering 1099-R’s (Pub 4012, page D-18)

Verify SSN & tax year on paper copy

Verify address in TaxSlayer vs paper; change if needed

Enter data from 1099-R paper copy to TaxSlayer 1099-R (use box #’s)

Double check box 2a (Federal taxable) and box 14 (MA distribution)

If an IRA 1099-R write down taxable amount (box 2a) on MA Worksheet

46

MA TaxSlayer Worksheet

47

A Johnson SSA 1099

48

TaxSlayer Social Security Screen

49

Johnson 1099-INT (4012, Pg D-13)

MA bank

50

Steps to Complete Johnson MA Return

After entering all Johnson income, enter health insurance info, then click on State Section on left menu

Choose full year resident, answer questions about change of name/address

Answer Health Care questions (next slides)

Full year coverage

Medicare for both

Go to “Additions to Income” screen and enter

both MA bank interest and IRA total

51

MA Health Care Information

52

MA Health Care Information

53

MA Worksheet for Johnson

54

TaxSlayer “Additions to Income” Screen

55

Johnson Summary

Introduced SS, interest income, different retirement income types on 1099-R & how to enter in TaxSlayer

Introduced use of Profiles to enter data

Introduced MA Worksheet to keep track of items that are manually put into MA return

Showed how to enter Medicare coverage for MA insurance

56

Sheryl Beringer Return

50 Yrs, divorced years ago

Two children, mother and friend live with her

Filing status and who are dependents must be determined

Worked most of the year (W-2)

Received unemployment (1099-G)

Eligible for some Federal adjustments & credits

Rents – apply MA rental deduction ($1000/mo)

Has full year private insurance

57

Exemptions and Filing Status

The Filing Status and Exemptions sections of the tax return may only take a few minutes to complete but they encompass some of the most complex tax law issues.

Determining the correct filing status and whether a taxpayer has a “Qualifying Child” or a “Qualifying Relative” can impact many other areas of the return.

58

Personal & Dependency Exemptions

Pub 4012, Tab C

Personal exemption

Dependent exemption Qualifying child dependents

Qualifying relative dependents

Each Exemption reduced taxable income by $4050 for 2016

59

Personal Exemptions

One for taxpayer & one for spouse when filing jointly

Taxpayer is ineligible if another can claim him/her as a dependent

Widow(er), if not remarried by 12/31, can claim spouse in year of death

Use 4012, page C-2 to determine if personal exemption is allowed

60

Requirements To Claim Dependent Exemptions

Overview of rule for claiming exemption for dependent – 4012 page C-3

Dependency evaluation for qualifying child - page C-5, Table 1

Tie-breaker rules for qualifying child - page C-4

Dependency evaluation for qualifying relative - page C-6 & C-7, Table 2

Special case of divorced, separated, or never married parents - page C-8, Table 3

61

Filing Status Comparison (Lowest to Highest Tax)

Married Filing Jointly*

Qualifying widow(er) with dependent child*

Head of Household

Single

Married Filing Separately

* same lowest tax

62

Analysis of Living Conditions is Critical for Filing Status

Marital status as of 12/31

Who was living in the home during the year?

Relationship/dependency of occupants

Who paid more than half the cost of keeping up the home?

If widow(er) Date of death of spouse

Any dependents?

63

How to Determine Filing Status

Use Pub 4012, pages B-1 to B-3

Read Pub 4491, Part 2 on filing status. Examples help reinforce rules

Suggestion: Do exercises in 4491 using 4012 charts for practice

64

Dependents Information in TaxSlayer

4012, Page K-11

65

Prepare Beringer Return

Start a new return and enter Beringer SSN 031-00-7210; click “start return”

Complete Basic Information using the conclusions on filing status and who are her dependents

Click Federal Section and “Enter Myself”

Use the search box labeled “Enter the Form Number” for W-2, 1099-G, student loan interest

Enter Health Insurance information – full year coverage for Sheryl and all dependents

66

Beringer W-2

4012, page D-10 for codes

67

Federal Credits Available to Beringer

Non-refundable (reduces taxes)

Retirement Savings Credit

Child Tax Credit

Refundable (provides refund even w/o owed taxes)

Additional Child Tax Credit

Earned Income Credit

TaxSlayer calculates credits, but

Some may require extra attention by us

68

Beringer MA Return

Click for rent

69

Health Insurance Information

70

MA Insurance Options

No “-” or symbols

71

Beringer Summary

Discussed how to determine best filing status and criteria for being a dependent

Showed how to use form search to bring up screens to fill out in TaxSlayer

Discussed different Federal income adjustments and credits available to taxpayers

Used rental deduction on MA return

Showed how to enter private insurance information on MA return

72

Tim & Nicole Sterling Return

Married couple, 72 & 62 yrs

Tim’s sister lives with them

MA bank and savings bond interest (1099-INT) and dividends (1099-DIV)

Social security income for all three

Pensions (1099-R) for Tim and Nicole

Has capital gains

Own home: test for Circuit Breaker Credit

73

MA Senior Circuit Breaker Credit (MA Manual, page 15)

Credit for taxpayers 65 or over who pay real estate taxes or rent as MA residents

Income level and house value are eligibility criteria (for single, HOH or MFJ)

Many of our clients over 65 are eligible

2015 maximum credit was $1070

Fill out screen for Circuit Breaker Credit in TaxSlayer; TaxSlayer determines credit amount (if any)

Taxpayers living in subsidized or public housing are not eligible (no RE taxes are paid)

74

Initial Sterling Return Steps

Click “start new return”; enter Tim’s SSN 251-00-7210

Choose “Retirement Profile” before clicking “start return”

Enter Basic Information

Filing status?

Remember Nicole is legally blind, disabled

Does sister qualify as a dependent?

Totally and permanently disabled

75

Tim’s Pension

76

TaxSlayer Pension Entry

77

Sterling Simplified Method

Box 9a

Combined ages at annuity start

6 times $227

78

Interest and Dividends

See next chart for different interest types and where to enter in TaxSlayer

Enter data from 1099-INT into TaxSlayer form (4012, D-13)

Enter data from 1099-DIV into TaxSlayer form (4012, D-15)

Use MA Worksheet to record interest & dividends that must be manually entered in MA return

79

Interest Entries on MA Return

80

MA Worksheet for Sterling

81

Designate MA Bank Interest

82

Exclude US Bond Interest

83

Capital Gains

Sale of stocks, bonds, mutual funds will be reported on 1099B

Taxpayer should file returns to establish “cost basis” with IRS and MA DOR; otherwise, IRS will assume all proceeds are ordinary income,

whereas many times assets long term or sold at loss

“Cost basis” is what taxpayer paid for asset (for most cases) Starting with stock purchases in 2011, 1099B must

provide cost basis; mutual funds in 2012

Establishing cost basis is sometimes difficult for purchases before 2011

84

Reporting Capital Gain or Loss

Must determine elements of sale

What is it? – 1099B

When did you buy it? – long or short term

When did you sell it? 1099B

What is sales price? 1099B

What is the cost basis? – 1099B or ask taxpayer

Was it inherited? (always long-term gain)

Once details of sale are entered in TaxSlayer, it runs all calculations and transfers results to Form 8949 and then to Sch D, 1040 & MA forms

85

Entering Sterling Stock Sale

Go to Federal Section, then Income, then click Capital Gain and Losses (Schedule D)

Click Capital Gains and Loss Items and fill out screen with data provided by taxpayer (see next slide)

86

Sterling’s Stock Sale

87

Sterling Circuit Breaker Try

On MA Return main menu, click Credits and choose Senior Circuit Breaker Credit, Schedule CB

Fill out screen with data provided (see next screen); hit “continue” at bottom and then “continue” twice – see if MA refund changes (it won’t)

Go to summary/print and create PDF of returns; look at Schedule CB

88

TaxSlayer Sch CB Screen

89

Sterling Schedule CB

90

Sterling Summary

Taxpayer and dependent had disabilities that have to be entered

Simplified Method used to determine taxability of pension

Accommodated stock sale Federal and MA

MA bank and US Bond interest entered on MA form

Example of how taxpayers over 65 may qualify for MA Senior CB Credit

91

Rachel Brown Return

Widowed in 2008

Income sources: wages, social security, MA bank interest, dividends, MA refund, MA pension (spouse), MA lottery

Possible MA Senior Circuit Breaker Credit as homeowner

Possible itemized deductions versus taking standard deduction

Brings in all information for Sch A

92

Initial Brown Return Steps

Click “start new return”; enter Brown’s SSN 801-00-7210 (from SS statement)

Choose Master Profile before clicking “start return”

Enter Basic Information

What filing status?

Enter income sources using profile, W-2, 1099-R (see next slide), 1099-INT and DIV, SSA-1099 (same as other returns)

93

Brown 1099-R Tax Exempt

Do not fill anything in State section of TaxSlayer 1099-R

94

New Forms of Income

2014 MA state refund on 1099-G

Brown did not itemize last year, so refund is not taxable – nothing needs to be entered

If she itemized last year and used MA taxes, we have to fill out State tax refund worksheet (on Income list)

MA Lottery – enter W-2G in “Enter Form Number” box; call up screen, fill in

TaxSlayer recognizes EIN of MA lottery and will put income on 1040, line 21 and MA Form 1, line 8

Her gambling losses of $51 is entered when itemizing her deductions (losses cannot be larger than winnings)

95

TaxSlayer W-2G Screen

96

Itemizing Deductions

See 4012, Tab F for discussion of standard vs itemized deductions

Shows TaxSlayer screen shots

States what items are not eligible for itemizing, including medical, taxes, interest

More details available in Pub 17

Following screens show what is applicable to Brown

97

Itemizing Deductions

98

Itemizing Deductions

Choose relevant deductions

Here for gambling losses

99

Resulting Brown Sch A

100

Brown’s MA Worksheet

101

Excluding Tax-Exempt Pension

Enter as a negative number

102

Brown Circuit Breaker Try

On MA Return main menu, click Credits and choose Senior Circuit Breaker Credit, Schedule CB

Fill out screen with data provided (see next screen); hit “continue” at bottom and then “continue” twice – see if MA refund changes (it will this time)

Go to summary/print and create PDF of returns; look at Schedule CB

103

TaxSlayer Sch CB Screen

104

Brown MA Schedule CB

105

Brown Summary

New income items – last year state refund, gambling winnings (and losses)

Itemized deductions

Read Tab F in Pub 4012 for details

Brown eligible for MA Circuit Breaker credit