Basic A volunteer training

Tax year 2014

BASIC TRAINING OVERVIEW• Tri-CAP scope of services

• VITA certification Link and Learn

• VITA volunteer standards of conduct

• Tri-CAP and VITA intake and screening

• Who must file and who should file a tax return

• Exemptions and filing status

• Form 1040, income and adjustments

• Form 1040, standard deduction or itemized deductions

P+P VOLUNTEER TAX MANUAL

• Table of contents

• Acronyms

• Index

• TaxWise instructions

INCOME GUIDELINES

• $30,000 or less for single taxpayer

• $53,000 or less for families

• $53,000 for taxpayer with self-employment income

SELF-EMPLOYMENT (SE) INCOME• SE income of $5,000 or below can be prepared at

the site EXCEPT daycare, inventory, business use of the home

• Tri-CAP is an IRS-approved Schedule C EZ program Schedule C sent To Prepare and Prosper.

• Out-of-scope returns – cab drivers, clergy members, corporation, partnership, rental income or businesses with employees

REFER TO TRI-CAP MAIN OFFICE

• Taxpayer needing to apply for an individual taxpayer identification number (ITIN)

• Amendment of a tax return

• Property tax return when federal and state return already prepared at tax site

OUT-OF-SCOPE RETURNS

• Cancellation of debt – business cards, student loan or repossessed vehicle (manual should read out-of-scope, not refer to P+P or Tri-CAP)

• Auto donation, moving expenses, bankruptcy, adoption credit, casualty/theft losses

• Military income

• Nonresident aliens

• Non-cash donations over $500

CERTIFICATION LEVELS FOR TAX PREP

• Basic

• Advanced

• Military (out-of-scope for Tri-CAP)

• Health savings account (HSA)

CERTIFICATION REQUIREMENTSTax preparer hrs

1. Volunteer standards of conduct

2. Intake/interview and quality review training

3. Advanced (Skip Basic)

4. Health savings account (encouraged)

VOLUNTEER STANDARDS OF CONDUCT (VSC)

1. I will follow the Quality Site Requirements (QSR).

2. I will not accept payment or solicit donations.

3. I will not solicit business from taxpayers or use their information for personal benefit.

4. I will not knowingly prepare false returns.

5. I will not engage in criminal, infamous, dishonest, etc. conduct deemed to have a negative effect on the VITA/TCE programs.

6. I will treat all taxpayers in a professional, courteous and respectful manner.

TAX CLINIC PROCESS

Intake

Interview

Prepare

Quality Review

Complete tax return

INTAKE/INTERVIEW & QUALITY REVIEW

INTAKE/INTERVIEW & QUALITY REVIEW

INTAKE/INTERVIEW & QUALITY REVIEW

INTAKE/INTERVIEW & QUALITY REVIEW

Pretend you’re the customer, complete

pages 1, 2, and 3!

P+P INTAKE SHEET

P+P INTAKE SHEET

P+P INTAKE SHEET

P+P INTAKE SHEET

TRUE OR FALSE1. If the site is really busy, don’t worry about

completing IRS Form 13614-C intake/interview sheet.

2. I have until February 6, 2015, to pass the IRS certification test.

3. All returns with daycare income must be completed at the P+P main office.

4. If I certify at the Advanced level, my returns do not have to go through the review process.

QUESTION 1

As I’m reviewing the customer’s information, I notice the Tax Site Specialist (TSS) screening checklist has not been completed on the P+P intake sheet. What should I do?

A. Storm up to the front desk and loudly ask why this hasn’t been done.

B. Ignore it and move to the Preparer checklist.

C. Use the screening tool checklist in the P+P manual and complete the checklist.

D. Ask the customer to complete the checklist.

QUESTION 2

What should I do before I start entering data into TaxWise?

A. Make sure all questions on Form 13614-C are answered.

B. Change “Unsure” answers to “Yes” or “No” based on a conversation with the taxpayer.

C. Verify the return is within my certification level.

D. All of the above.

TAXWISE PRIMER

• Pages 28 through 38 will be reviewed during Basic D – TaxWise training.

General tax information

GUIDELINES ON WHO MUST FILE PUB 4012

• Chart A – filing status, age and gross income requirements

• Chart B – children and other dependents

• Chart C – other situations

o Owes special taxes

o Self-employment of $400+ net earnings

o Received Advanced Premium Tax Credit

GUIDELINES ON WHO SHOULD FILE PUB 4012, CHART D

• Federal or state income tax WH from income

• Qualifies for federal and state tax credits

• Made estimated tax payments during the year

• Eligible for the Minnesota homeowner and renter refund

Topic 1: Taxpayer Identification

PROOF OF IDENTITY

• Drivers’ license

• Birth certificate

• Passport/visa

• Employer/school ID

• Military ID

• State/national ID

TIN VERIFICATION

• Prior year return

• Original SSN card

• Original ITIN card/letter

• Form SSA-1099

• IRS/MDOR letter

• SSA benefit statement/letter

• Medicare card

WHAT IS AN ITIN?

• IRS issues to nonresidents and others living in the U.S. who are required to file a return, but not eligible for an SSN

• Nine-digit number that begins with the number 9

• Reported on a letter

• P+P is an approved Certifying Acceptance Agent

10 MINUTE BREAK

Topic 2: Personal & Dependency Exemptions

• $3,950 for each personal and dependent exemption

• Reduces taxable income

• To claim a personal exemption taxpayer (spouse) cannot be claimed as a dependent by another person

• Dependent exemption– Qualifying Child or Qualifying Relative

YOUNG ADULT TAXPAYER• Young adult checks the “NO” or “UNSURE” box

on Form 13614-C, Part I, #11 – ask more questions

• May require the young adult to phone “home” to ask if parent will or has claimed him/her as a dependent

• Parent unsure if they can claim their child as a dependent – use Worksheet for Determining Support, Pub 4012, C-9

1. Taxpayer (spouse) on the return cannot be claimed on another tax return

2. Cannot claim a married person who files MFJ unless the married person is only filing to claim a refund of tax withheld and he/she has no tax liability

3. Must be U.S. citizen or resident, or a resident of Canada or Mexico for some part of the year

4. Dependent must meet the six tests for Qualifying Child

RULES FOR CLAIMING AN EXEMPTION FOR A QUALIFYING CHILD

Qualifying child tests

QUALIFYING CHILD OF MORE THAN ONE PERSON

If… Then the child will be treated as the qualifying child of the…

Only one of the persons is the child’s parent… Parent

Both persons are the child’s parent… Parent with whom the child lived for the longer period of time

Both persons are the child’s parent and the child lived with each parent the same amount of time during the year…

Parent with the highest AGI

None of the persons are the child’s parent… Person with the highest AGI

1. Taxpayer (spouse) on the return cannot be claimed on another tax return

2. Cannot claim a married person who files MFJ unless the married person is only filing to claim a refund of tax withheld and he/she has no tax liability

3. Must be U.S. citizen or resident, or a resident of Canada or Mexico for some part of the year

4. Person must meet the four tests for Qualifying Relative

RULES FOR CLAIMING AN EXEMPTION FOR A QUALIFYING RELATIVE

Qualifying relative tests

Quiz time

Topic 3: Filing Status

MARRIAGE STATUS

• Determines the Standard Deduction amount

• Form 13614-C, Part II, Marital Status and Household Information

• Taxpayer marked the “single” check box on Form 13614-C doesn’t mean filing status is single!

MARRIAGE• IRS ruling recognizes same-sex marriages for federal tax

purposes

• Legally married same-sex couples can choose to amend prior year returns – 2013, 2012, 2011

• For tax year 2014, legally married same-sex couples must file married filing joint or married filing separate (head of household, if applicable)

• Cultural marriage ceremonies performed in certain groups and communities are not legal marriages in Minnesota without a license

• Minnesota does not recognize common-law marriage unless the couple (prior to moving to Minnesota) was legally married in a state recognizing common-law marriages

FILING STATUS• Single (S): unmarried or legally separated

• Married filing jointly (MFJ): married. Including same-sex couples

• Qualifying widower (QW): spouse died in one of two prior tax years and taxpayer did not remarry. Must be able to claim exemption for child or stepchild. Use MFJ in the year in which the spouse died.

MARRIED FILING SEPARATELY (MFS)• Married, but chooses to file MFS

• Least desirable filing status, tax rate generally higher than joint return

• Not eligible for many of the credits

• Consider HH if child or relative lives in the home

• If taxpayer is filing MFS because spouse owes past-due federal debts consider filing Form 8379, Injured Spouse Claim and Allocation.

HEAD OF HOUSEHOLD (HH)

• Unmarried or “considered unmarried”

• Must have a Qualifying Person that lived in the home for more than ½ the year

• Must meet 5 tests to be “considered unmarried”

“CONSIDERED UNMARRIED”

1. File separate

return

2. Paid ½ cost of

keeping up home

3. Spouse not in

home last 6 months

of year

4. Main home of

child

5. Can claim exemption

for child

QUALIFYING PERSON FOR HH• A Qualifying Child

• A married child who can be claimed as a dependent

• A dependent parent

• A Qualifying Relative who:1. lived with the taxpayer more than ½ the

year;2. taxpayer can claim exemption; and 3. is related to the taxpayer.

Quiz time

10 MINUTE BREAK

Topic 4: Income

LINE 7: WAGES, SALARIES, AND TIPS

• Payment for work performed as a VISTA volunteer is considered wage income

• Income earned as an election official or worker is reported on Form W-2

• Qualified Medicaid waiver payment reported on Form W-2

FORM W-2 ALERTS

Don’t start the return -

• Taxpayer doesn’t have all their W-2s

• W-2 appears altered

• Name is different than the SS card for a reason other than an obvious minor typo error

Start the return –

• SSN on W-2 differs from SS card (and taxpayer isn’t filing with an ITIN)

• Name on W-2 differs from SS card because taxpayer got married and did not notify their employer

FORM W-2, BOX 12

(D) 401(k) contribution deducted from income

(E) 403(b) contribution deducted from income

(J) Nontaxable sick pay

(W) Employer contribution to employee’s HSA

(DD) Nontaxable employer-sponsored health coverage

SCHOLARSHIP/FELLOWSHIP INCOME

• Form 13614-C, Part III, Income, #3

• Is the scholarship/fellowship income taxable?

– Determine the type of expenses paid with scholarship/fellowship income

– Ask taxpayer whether he/she was a degree or non-degree student

• Use worksheet to determine taxable portion, Pub 4012, Tab J, page J-1

SCHOLARSHIP INCOME

Scenario 2Tuition $12,500

Course-related materials $650

Scholarships and grants ($20,000)

Taxable scholarship income $6,850

LINE 8: INTEREST

• Form 1099-INT

• Taxpayers at our sites, generally taxable interest from checking or savings accounts

• Look for withholding in box 4

LINE 9: DIVIDENDS

• Form 1099-B

• Ordinary and qualified dividends from corporate distributions

• Look for withholding in box 4 and foreign tax paid in box 6

LINE 10: TAXABLE STATE TAX REFUND• Scenario 1: Taxpayer used the Standard Deduction on

their 2012 tax return. State refund, if any, not taxable.

• Scenario 2: Taxpayer did not receive a state refund. Nothing to report.

• Scenario 3: Taxpayer received a state tax refund and itemized deductions on Schedule A using the general sales tax deduction on 5b – state refund not taxable.

• Scenario 4: Taxpayer received a state refund and itemized deductions on Schedule A using state income paid on 5A – some or all of their refund may be taxable. Complete St Tax Refund – State Tax Refund Worksheet.

LINE 11: ALIMONY RECEIVED

• Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument.

• Does not include any voluntary payments not outlined under a divorce or separation instrument.

• Alimony does not include payments for child support, noncash property settlements, payments to keep up the payer’s property or the use of the payer’s property.

• Alimony payments are not reported on a form.

LINE 12: SELF-EMPLOYMENT INCOME

• SE income is an Advanced level topic

• If interested in Advanced certification, check out the online training available on P+P volunteer site

LINE 13: CAPITAL GAINS

• Capital gains income is an Advanced level topic

• If interested in Advanced certification, check out the online training available on P+P volunteer site

LINES 15 AND 16: PENSION AND ANNUITIES

• Distribution can be reported on 4 different forms

• Form 1099-R are generally the retirement distributions seen at the tax site, box 2 showing taxable portion

• Form 1099-R distribution codes identify the type of distribution

• Occasionally will come across a Roth IRA distribution

TAXABLE PORTION NOT CALCULATED

• Taxable amount not shown in box 2, Form 1099-R or the distribution is reported on Forms CSA-1099-R, CSF-1099-R or Form RRB 1099-R

• See Pub 4012, Tab D, page D-25 to complete the Simplified Method Worksheet in TaxWise to determine taxable amount

EARLY DISTRIBUTION OF A RETIREMENT PLAN

• Form 1099-R, box 7 shows the type of distribution on box 7

• If early distribution, code 1 appears in box 7 and distribution is subject to a 10% penalty

• Some exceptions apply to the 10% penalty, but the early distribution income is still taxable!

LINE 19: UNEMPLOYMENT COMPENSATION

• Reported on Form 1099-G

• Be sure to include any federal or state withholding on the unemployment worksheet in TaxWise

• Copies of Form 1099-G can be found online

LINE 20: SOCIAL SECURITY AND RAILROAD RETIREMENT BENEFITS

• Social Security reported on Form SSA-1099

• Railroad Retirement-Tier 1 reported on Form RRB-1099 (blue form)

• Do not include any benefits paid to the taxpayer’s child or other dependent

• Taxpayer filing MFS up to 85% of the benefits will be taxed

• Significant lump sum payments, refer to P+P for an appointment

LINE 21: OTHER INCOME

• Taxpayers with income from sheltered workshops or work training programs prepared at the P+P main office only

• NEW: cancellation of nonbusiness credit card debt is now in-scope (Form 1099-C)

• Gambling winnings (Form W-2G)

• Tribal distributions (Form 1099-MISC)

• Income received from jury duty, as a medical subject, AmeriCorps or hobby income

Topic 5: Adjustments

LINE 23: EDUCATOR EXPENSES• Congress extended this expired provision for tax year

2014 only

• Eligible educator: K-12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hour during the school year.

• Qualified expenses: ordinary & necessary expenses paid for books, supplies, equipment, and materials used for the classroom.

• Home-school instructors or expenses related to home-schooling do not qualify.

• Max $250 for taxpayer and $250 for spouse if MFJ.

LINE 25: HEALTH SAVINGS ACCOUNT

• Health Savings Account (HSA) adjustment to income is separate certification test

• If interested in HSA certification, check out the online training available on P+P volunteer site

• Please consider taking the HSA test!

LINE 31A: ALIMONY PAID BY THE TAXPAYER• Alimony is a payment to or for a spouse or

former spouse under a divorce or separation instrument

• Alimony does not include payments for child support, noncash property settlements, payments that are part of community income, payments to keep up the payer’s property, or the use of the payer’s property

• Must have the social security number of the person to whom he/she paid the alimony to e-file the return

LINE 32: IRA DEDUCTION

• Only contributions to traditional IRAs are deductible.

• Must be under 70 ½ years of age at end of tax year

• Must have taxable compensation

• Contributions must be made by April 15, 2015 for the 2014 tax year

LINE 33: STUDENT LOAN INTEREST

• Reported on Form 1098-E or statement from the lender

• Eligible deduction up to $2,500

• Taxpayer filing MFS is not eligible for deduction

• Interest paid for eligible student that was the taxpayer, spouse, or person who was the taxpayer’s dependent when the loan was obtained

• Interest does not qualify if the loan was from a related person, employer plan or if taxpayer not legally responsible for the loan

LINE 34: TUITION AND FEES DEDUCTION

• Congress extended this expired provision for tax year 2014 only

• Reported on Form 1098-T or statement from the school or lender.

• Can deduct up to $4,000 in qualified expenses during the year

5 MINUTE BREAK

Topic 6: Taxable income & tax

STANDARD OR ITEMIZED DEDUCTION?

• Most taxpayers have a choice

• Complete Schedule A (itemized deductions), if taxpayer has deductible expenses, and TaxWise will determine the best tax benefit

• Line 39b: If married filing separately and spouse itemizes, then he/she must itemize

LINE 40: STANDARD DEDUCTION

• $12,400, married filing jointly and qualifying widower

• $9,100 head of household

• $6,200 single and married filing separately

• If taxpayer claimed as dependent on another return, TW calculates standard deduction.

LINE 40: ITEMIZED DEDUCTIONS (SCHEDULE A)

• Allows taxpayer to reduce taxable income based on specific personal expenses

• Generally itemized deductions are mortgage interest, large unreimbursed medical expenses or large charitable donations

• Interview questions to determine whether to itemize, Pub 4012, Tab F, pages F-3 and F-4

Schedule A deductions

• Line 1: unreimbursed medical and dental expenses

• Line 5a: state income tax withheld from W-2s and 1099s and other tax payments for an earlier year paid during the current year, such as state taxes owed on the Minnesota individual tax return

• Line 5b: general sales tax deduction for taxpayer with little or no state income tax withholding (extended provision)

SCHEDULE A DEDUCTIONS

• Line 7: personal property taxes, such as car tabs

• Line 10: mortgage interest (box 1) and points (box 2) on Form 1098

• Line 13: qualified mortgage insurance premiums (box 4) on Form 1098 (extended provision)

• Line 16: donations by cash or check to charitable organizations

SCHEDULE A DEDUCTIONS• Line 17: in-kind donations to charities

(donations of $500+ are out-of-scope)

• Lines 21 to 23: portion that exceeds 2% of taxpayer’s AGI for expenses to work or look for work, union dues, tax prep fees or safety deposit box

• Line 28: gambling losses to the extent of winnings reported on line 21, Form 1040

• Casualty and theft losses are out-of-scope

HOMEWORK

• Get a head start on your IRS certification test!

• Use Form 6744 booklet to complete the Volunteer Standards of Conduct certification level

• Go to P+P volunteer page and view Intake/Interview & Quality Review power point, Pub 5101

• First year volunteers – did you show your picture ID to the assistant?