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Welcome December Tax Training
For New Volunteers
6-8 Dec 2016
DRAFT
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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)
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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
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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
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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
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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
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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
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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)
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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
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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
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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)
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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
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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
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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)
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Entering Federal Insurance
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Entering Federal Insurance
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Entering Federal Insurance
Will change depending on members in household
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Entering Federal Insurance
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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
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Introduction to TaxSlayer Practice Lab Software
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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
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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)
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Log in - First Time
Enter Universal PW: TRAINPROWEB
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Log in – First Time (Continued)
User Name Use info in handout – unique to each student; then
Click
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Practice Lab – Home Page
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Practice Lab – Home Page (Continued)
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Practice Lab – Home Page
Click to do returns
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Practice Lab – Welcome Page
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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
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Enter SSN Twice
Click after entering SSN
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Filing Status Screen
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Personal Information Screen
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Smathers W-2
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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
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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
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State (MA) Menu Items
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Basic Health Care Questions
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Basic Health Care Questions
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Preview Federal and MA Return
Click to create PDF
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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
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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
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Start Johnson Return
Click “start new return” and enter Sam’s SSN 357-00-7210 twice
Choose Retirement Profile (below SSN’s)
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2
3
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A Johnson 1099-R (IRA)
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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)
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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
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MA TaxSlayer Worksheet
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A Johnson SSA 1099
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TaxSlayer Social Security Screen
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Johnson 1099-INT (4012, Pg D-13)
MA bank
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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
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MA Health Care Information
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MA Health Care Information
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MA Worksheet for Johnson
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TaxSlayer “Additions to Income” Screen
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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
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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
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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.
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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
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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
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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
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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
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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?
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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
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Dependents Information in TaxSlayer
4012, Page K-11
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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
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Beringer W-2
4012, page D-10 for codes
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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
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Beringer MA Return
Click for rent
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Health Insurance Information
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MA Insurance Options
No “-” or symbols
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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
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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
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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)
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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
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Tim’s Pension
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TaxSlayer Pension Entry
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Sterling Simplified Method
Box 9a
Combined ages at annuity start
6 times $227
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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
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Interest Entries on MA Return
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MA Worksheet for Sterling
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Designate MA Bank Interest
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Exclude US Bond Interest
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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
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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
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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)
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Sterling’s Stock Sale
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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
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TaxSlayer Sch CB Screen
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Sterling Schedule CB
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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
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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
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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)
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Brown 1099-R Tax Exempt
Do not fill anything in State section of TaxSlayer 1099-R
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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)
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TaxSlayer W-2G Screen
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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
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Itemizing Deductions
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Itemizing Deductions
Choose relevant deductions
Here for gambling losses
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Resulting Brown Sch A
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Brown’s MA Worksheet
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Excluding Tax-Exempt Pension
Enter as a negative number
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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
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TaxSlayer Sch CB Screen
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Brown MA Schedule CB
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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
