Pub 4491 Part 6 Lesson 28 Pub 4012 Tab H
Other Taxes Pub 4491 Part 6 Lesson 28Pub 4012 Tab H Form 1040 Lines 57-63 Pub 17 Chapters 6,10,17, 30 Other Taxes Self-employment tax
Social security and Medicare taxes on tipincome Additional taxes on IRAs and other qualifiedretirement plans Repayment of first-time homebuyer credit SRP for health insuranceSee Lesson 3 Not reduced by nonrefundable credits NTTC Training TY2015 Self-employment Tax A tax in addition to the income tax
Composed of two elements Social security Medicare TaxWise does it automatically whendata entered on Schedule C When a person goes to collect social security, his/her benefits may be better if they paid in more into the system NTTC Training TY2015 Self-employment Tax Applies if net income from self- employment is $400 or more Does not apply to a Notary Public Does not apply to statutory employee(already withheld on W-2) Special rules for ministers or churchworkers out of scope NTTC Training TY2015 Self-employment Tax The additional tax: The tax Form In TaxWise
Refer to Form 1040 page 2 Emphasize that there are only payments and refundable credits that offset the self-employment tax NTTC Training TY2015 Self-employment Tax Social Security portion 6.20% + Medicare portion 1.45% = 7.65% x 2 = 15.30% Both employer and employee portions paid by self-employed person Temporary reduction in the employee portion of social security lapsed 2012 NTTC Training TY2015 Self-employment Tax Employer part is deductible in computing the self-employment tax Profit from business $10,000 Employer part (7.65%) 765 Net $ 9,235 Tax rate (combined) 15.3% Tax $ 1,413 TaxWise does the math on Sch SE! Effective tax rate is 14.13% This is the calculation reflected on Schedule SE It explains the 92.35% factor used on Sch SE Line 5b NTTC Training TY2015 Self-employment Tax Adjustment
The deductible portion of the tax (theemployers part) Form 1040 Line 27: TaxWise does it automatically! NTTC Training TY2015 Self-employment Taxes
Special situation: Notary public no Self-employment tax Input exempt net profit from notary business on Sch SE Line 3 NTTC Training TY2015 Self-employment Tax Notary Public Also check box on 1040 Pg 2 Line 57
NTTC Training TY2015 Tip Income Tip income included in W-2 Box 7already had FICA and Medicare taxeswithheld Allocated tips shown in W-2 Box 8 havenot TaxWise automatically calculates addlFICA and Medicare taxes on Form 4137 Put 17 Chapter 6 Additional Tip Income info in 09 Business Income slides NTTC Training TY2015 Unreported Tip Income If employee keeps good records (tip logavailable free from IRS) Can enter actual amount of all tips onForm 4137 instead of allocated tipamount Will need to use a scratch page to adjustline 4 of Form 4137 NTTC Training TY2015 Unreported Tip Income If tips 10% of AGI (or 7.5% iftaxpayer or spouse age 65 or older)(same amount as would show on Sch A) Even if medical or education expenses are used here, they can also be used as deductions or towards credits. Note: The distribution can be taken for any reason, but if the taxpayer has incurred the medical expenses during the tax year, s/he can claim the exception(s). The funds are fungible so taking the distribution to replace the roof in May and then having medical in October means the taxpayer can qualify for the exception. NTTC Training TY2015 Part I: Early Distribution Exception Codes
Pub 4012 H-2 All plans (cont.) 10 Due to IRS levy 11 To reservists on active duty for 180days or more 12 More than one exception code orother reason (see form), includingdistributions incorrectly coded on form R Includes distributions incorrectly coded as 1, J or S in box 7 of 1099-R See 5329 instructions or Pub 17 for further information NTTC Training TY2015 Part I: Early Distribution Exception Codes
Pub 4012 H-2 IRAs only: 07 The amount paid during the year forindividual health insurance premiums whileunemployed (see rules in Pub 590-B) 08 The amount paid during the year forqualified education expenses (including roomand board), more details in later slides 09 Used to buy or build first main home (mustbe used within 120 days of distribution) Even if health insurance or education expenses are used here, they can also be used as deductions or towards credits. Generally, if you had no interest in a main home within 2 years of the date of acquisition for the home you are using, then you qualify as a first time home buyer. Note: The distribution can be taken for any reason, but if the taxpayer has incurred the health insurance or education expenses during the tax year, s/he can claim the exception(s). The funds are fungible so taking the distribution to replace the roof in May and then having medical in October means the taxpayer can qualify for the exception. NTTC Training TY2015 Part I: Early Distribution Exception Codes
Pub 4012 Tab H Other than IRAs only (employer plans) 01 After separation from service afterthe age of 55 (age 50 for public safetyemployee) 06 Made to an alternate payee under aQualified Domestic Relations Order NTTC Training TY2015 Part I: Early IRA Distribution Exception Code 08
The amount of higher education expenses special definition includes: For self, spouse, foster child, adopted childor descendent of any of these Does not have to be a dependent! Tuition, fees, books, supplies andequipment required to enroll or attend Special needs services expenses for specialneeds student NTTC Training TY2015 Part I: Early IRA Distribution Exception Code 08 (Cont)
The amount of higher education expenses-special definition includes (cont.): If student is at least time, room andboard Can be at-home room and board (based on allowance established by the education institution) Reduced for nontaxable scholarships,grants or ESA distributions See Pub 970 Chapter 9 for more details Room and board amount may be limited refer to Pub 970, Ch 9. NTTC Training TY2015 Part I Exercise Joyce, age 50, has no medical insurance.She took a $10K distribution (code 1) fromher traditional IRA in June 2015 when shebroke her arm. Her total unreimbursedmedical expenses for the year were $8K.Her AGI is $50K. Q: What, if any, is the additional tax due onthis distribution? NTTC Training TY2015 Part I Exercise Answer: $700
Line Entry 1 $10,000 [Early distribution included in income] 2 Code 05 and $3,000 [Amount of early distribution not subject to additional tax] which is the $8,000 of medical expenses less 10% of her $50K AGI or $8,000 minus $5,000 = $3,000 3 $7,000 [Amount subject to additional tax] which is $10,000 minus $3,000 from Line 2 4 $700 [Additional tax = 10% of Line 3] Line Entry 1 $10,000 [Early distribution included in income] Line Entry 1 $10,000 [Early distribution included in income] 2 Code 5 and $3,000 [Amount of early distribution not subject to additional tax] which is the $8,000 of Medical Expenses less 10% of her $50K AGI or $8,000 minus $5,000 = $3,000 3 $7,000 [Amount subject to additional tax] which is $10,000 minus $3,000 from Line 2 Line Entry 1 $10,000 [Early distribution included in income] 2 Code 5 and $3,000 [Amount of early distribution not subject to additional tax] which is the $8,000 of Medical Expenses less 10% of her $50K AGI or $8,000 minus $5,000 = $3,000 Note: Even though the medical expenses are used to offset the early IRA distribution, they can also be used as an itemized deduction on Schedule A NTTC Training TY2015 Part IX: Waiver Request for Failure to Take RMD
Taxpayer can request waiver of theadditional tax for failure to takeRequired Minimum Distribution (RMD)from qualified retirement plan, includingtraditional IRAs Counselor NOT expected to review alltaxpayer plans and verify that requireddistributions were taken NTTC Training TY2015 Part IX: Waiver Request for Failure to Take RMD
Taxpayer needs to remedy thedistribution shortfall by taking anadditional distribution Will result in more than one yearsdistribution in the year of remedy Then ask for waiver NTTC Training TY2015 Waiver Request Failure to Take RMD
Part IX of Form 5329 pg 2 Note: Select 5329 for taxpayer or spouse NTTC Training TY2015 From all plans not just one(s) missed
Part IX of Form 5329 pg 2 From all plans not just one(s) missed Moved to Part IX for TY 2015 Link to Explanation for Request of Waiver of Tax form and explain reason for request NTTC Training TY2015 Part IX of Form 5329 pg 2 Possible explanations (examples):
Clerical error (math goof) Relied on Trustee who failed to make theRMD TP impaired by health Beneficiary not notified by Trustee thatRMD had not been taken IRS accepts most reasonable explanations NTTC Training TY2015 First Time Homebuyers Credit Payback Intake/Interview First Time Homebuyers Credit
Did taxpayer receive FTHC in 2008? FTHC could have been claimed In 2008 subject to repayment In 2009 not subject to repayment and because 36-month test period has passed, will never be repaid In 2010 not subject to repayment and because 36-month test period has passed, will never be repaid In 2011 limited to certain eligible taxpayers and not subject to repayment and because 36-month test period has passed, will never be repaid Certain uniformed services or Foreign Service employees of the intelligence community NTTC Training TY2015 First Time Homebuyers Credit Payback
Taxpayers who claimed First TimeHomebuyers Credit in 2008 Started repayment in 2010 Continue to make payments until fullamount of credit is repaid Can look up amount of credit still owedon irs.gov Can pay more than the minimum due Wasnt really a credit rather was a 15-year loan NTTC Training TY2015 2010 Letter for 2008 Credit Thomas J. Hunter 123 Main Street
Your City, YS YZ $6,000.00 $400.00 $5,600.00 $6,000.00 $400.00 $5,600.00 $ NTTC Training TY2015 FTHC Payback 2008 In TaxWise enter original creditclaimed in 2008, amount repaid to dateand amount paying with this return Form 5405, Pt II Also add note to Taxpayer Diary orTaxpayer Reminder section of Prep Useform as reminder for next year While if still main home for borrower(s), can enter repayment directly on 1040 line 59b and Form 5405 is not required, best practice is to not enter anything directly on 1040 if there is a supporting form. NTTC Training TY2015 Form 5405 in TaxWise Total Credit Received in 2008
Line 4 Total Credit received in 2008 Line 5 Credit repaid in 2010, 2011 , 2012, 2013, and 2014 Line 8 Amount repaying in 2015 Credit repaid in previous tax years Amount repaying in current tax year, usually $500 but can pay more NTTC Training TY2015 FTHC Payback If disposed of home purchased in or home ceased to be main home, mustgenerally repay balance of un-repaidcredit with current tax return Complete Part I of Form 5405 2009 and 2010 credits Do not have to be paid back if home continued to be main home for next 36 months 2009 FTHC 36-month test period should have expired in 2012 NTTC Training TY2015 Exceptions If home sold to someone not related totaxpayer, repayment limited to gain onsale Part III of Form 5405 If home destroyed or sold throughcondemnation, and if new main homepurchased within 2 years of event, cancontinue with annual payments (out ofscope) NTTC Training TY2015 Home Sold or No Longer Main Home
If taxpayer and spouse claimed the credit onjoint return, each must file a separate Form claiming half the credit (and half of anyrepayments) to notify IRS of status change If taxpayer claimed the credit on joint returnfor 2008, but spouse died, enter half of credit(and half of any repayments) The remaining half (deceased spouses half)does not have to be repaid Home is no longer main home If converted to business or rental Have a new principal residence NTTC Training TY2015 Home Ceases to be Main Home
Conversion to rental property;condemnation; foreclosure Out ofScope See the general instructions for Form for additional repaymentinformation NTTC Training TY2015 Quality Review Self-Employment Tax
Is the correct amount of self- employment tax shown on 1040 Page 2 Is of the tax deducted on 1040 Page 1 NTTC Training TY2015 Quality Review Early Withdrawal Penalty
Verify Form 5329 not applicable if notused Verify Form 5329 if used Verify First Time Homebuyers Credit ifapplicable read instructions carefully NTTC Training TY2015 Taxpayer Summary Explain any additional tax Type Amount Why
NTTC Training TY2015 Other Taxes Questions? Comments? NTTC Training TY2015 46