SaveFirst: A Tax Preparation and Financial Literacy Initiative

1. SaveFirst: A Tax Preparation and Financial Literacy Initiative TAX TRAINING

2. Tax Terminology

3. TAXABLE INCOME Any income subject to federal income tax. Tax Terminology

4. EARNED INCOME Income received through work (i.e., wages, salary, tips). Tax Terminology

5. UNEARNED INCOME Income other than for pay for work (i.e., interest income). Tax Terminology

6. WITHHOLDING The amount of money that is withheld from a taxpayer’s paycheck each pay period and received by the government. Tax Terminology

7. EXEMPTION Amount that a taxpayer can claim for himself, his spouse, and his dependents in order to decrease taxable income. Tax Terminology

8. DEDUCTION Allows a taxpayer to decrease the amount of taxable income. Tax Terminology

9. ADJUSTMENT Allows a taxpayer to decrease the amount of taxable income. Tax Terminology

10. ADJUSTED GROSS INCOME (AGI) Amount of taxable income after certain deductions are taken and adjustments are made. Tax Terminology

11. DEPENDENT An individual whom the taxpayer supports (i.e., a qualifying child or qualifying relative). Tax Terminology

12. TAX LIABILITY The amount of tax that must be paid. Tax Terminology

13. TAX CREDIT A direct reduction of the taxpayer’s liability. Tax Terminology

14. REFUNDABLE TAX CREDIT A credit that allows the taxpayer to reduce his tax liability to zero, then receive a refund of any credit that is left. Tax Terminology

15. NONREFUNDABLE TAX CREDIT A credit that allows taxpayers to reduce their tax liability to zero, but not take the excess credit as a refund. Tax Terminology

16. TAXABLE INCOME Unearned Income Earned Income

17. TAXABLE INCOME TAXABLE INCOME after deductions, adjustments, exemptions Unearned Income Earned Income

18. TAXABLE INCOME Unearned Income Earned Income TAX LIABILITY TAXABLE INCOME after deductions, adjustments, exemptions

19. FORM 1040 Tax Terminology

20. Volunteer Requirements Personal and Dependency Exemptions Filing Status Income Standard Deduction Tax Training Outline

21. Earned Income Tax Credit Child Tax Credit Child and Dependent Care Credit Education Credits Miscellaneous Credits Tax Training Outline

22. Volunteer Requirements Personal and Dependency Exemptions Filing Status Income Standard Deduction Tax Training Outline

23. Learn the process. Conduct a thorough interview—be sensitive to the taxpayer. Do only what you are trained to do. Keep personal information confidential. Volunteer Requirements

24. Do not solicit business from those you help. Do not accept gifts (monetary or not). Do not complete a return if you feel the taxpayer is lying. Do not retain documents for a follow-up visit. Volunteer Requirements

25. This is a lot of material! Use your resources. Pub 4012 (spiral notebook) Pub 17 (Your Federal Income Tax) Pub 4491 (Student Training Guide) Ask questions. Volunteer Requirements

26. Your guide during the tax prep process. Front of form: taxpayer completes Back of form: volunteer completes Complete this before logging into TaxWise! Involve the taxpayer in the process. Intake & Interview

27. You must verify the social security numbers of each person who will appear on the return (including children). You should ask to see a social security card (original or copy) or some statement of benefits that has the social security number on it. You must be careful to enter the name EXACTLY as it appears on the SS card. Identification

28. Some individuals may have an Individual Taxpayer Identification Number (ITIN) instead of a SSN—if they are ineligible for a SSN. Taxpayers with ITINs are NOT eligible for the Earned Income Tax Credit…but they can still file taxes and receive a refund. We can help people who need to file for an ITIN. (Call your supervisor.) Identification

29. Volunteer Requirements Personal and Dependency Exemptions Filing Status Income Standard Deduction Tax Training Outline

30. Exemptions decrease the amount of taxable income by $3,500. Personal Exemption: taxpayer can claim for himself and his spouse (as long as neither can be a dependent of someone else). Personal Exemptions

31. Exemptions decrease the amount of taxable income by $3,500. Dependency Exemption: qualifying children and qualifying relatives that typically live in the home or whom the taxpayer supports. Dependency Exemptions

32. Dependency ExemptionsQualifying Child Tests Spiral Resource guide p. C-4

33. A child of divorced/separated parents is generally the dependent of the custodial parent. The noncustodial parent can claim the exemption if there is an agreement between the parents (Form 8332). See “Children of Divorced/Separated Parents” chart in spiral notebook. Dependency ExemptionsDivorced or Separated Parents

34. Dependency ExemptionsQualifying Child Tests Spiral Notebook p. C-4

35. Did any other adult live in your home? What was that other adult’s relationship to the child? Could the other adult be claimed as a dependent by someone else? Dependency ExemptionsQualifying Child of more than One Person

36. If the child can legitimately be claimed by more than one person, it is up to those taxpayers to determine who will claim the child. If the taxpayers cannot reach an agreement, the IRS tie-breaker rule will be applied (see next slide). Dependency ExemptionsQualifying Child of more than One Person

37. If more than one person legitimately claims a qualifying child, then the IRS will grant the exemption to: 1. The parent 2. If both are parents, the custodial parent. 3. If both are equal custodial parents, the parent with highest AGI. 4. If none is the parent, the person with highest AGI. See page C-3 in spiral notebook. Dependency ExemptionsQualifying Child Tie-Breaker Rule

38. Only one person can claim a particular child for ALL of these benefits: Dependency Exemptions Dependency Exemption Child Tax Credit Head of Household Child & Dependent Care Credit Earned Income Tax Credit

39. When a Form 8332 is signed: Dependency Exemptions The noncustodial parent gets these benefits: Dependency Exemption Child Tax Credit The custodial parent gets these benefits: Head of Household Child & Dependent Care Credit Earned Income Tax Credit

40. TRUE or FALSE: Every taxpayer can claim a personal exemption for himself. Dependency ExemptionsExercise 1

41. TRUE or FALSE: Every taxpayer can claim a personal exemption for himself. FALSE. A taxpayer may only claim a personal exemption for himself if he cannot be claimed as a dependent by anyone else. Dependency ExemptionsExercise 1

42. Rebecca and John are married and have one child, Colin. Colin is 4 years old and lives full time with his parents, who provide all of his support. He is a U.S. citizen and no other adults live in their household. Can Rebecca and John claim Colin as a dependent? Dependency ExemptionsExercise 2

43. Rebecca and John are married and have one child, Colin. Colin is 4 years old and lives full time with his parents, who provide all of his support. He is a U.S. citizen and no other adults live in their household. Can Rebecca and John claim Colin as a dependent? YES. Colin meets all the requirements to be claimed as a qualifying child. Dependency ExemptionsExercise 2

44. Dependency ExemptionsQualifying Relative Tests Spiral Notebook p. C-5

45. If a taxpayer, together with another individual, provides over 50% of support for someone who would be considered a qualifying relative except for the 50% support test, that taxpayer may still be able to claim the dependent if: 1. The taxpayer contributed over 10% support. 2. Each person who contributed over 10% signs a statement waiving his rights to claim the dependent (Form 2120). Dependency ExemptionsMultiple Support

46. Dependency ExemptionsQualifying Relative Tests Spiral Notebook p. C-6

47. Roderick, age 29, lives with his uncle and worked part-time last year, earning $2,100. His uncle provided for the rest of his support for the year, including rent and household costs. Can Roderick be claimed as a dependent by his uncle? Can Roderick claim a personal exemption? Dependency ExemptionsExercise 1

48. Roderick, age 29, lives with his uncle and worked part-time last year, earning $2,100. His uncle provided for the rest of his support for the year, including rent and household costs. Can Roderick be claimed as a dependent by his uncle? Can Roderick claim a personal exemption? Roderick can be claimed as a qualifying relative by his uncle. He cannot claim a personal exemption because he can be claimed as a dependent. Dependency ExemptionsExercise 1

49. Randy is divorced. He has one child, Paul (age 5). Paul lives with his mother, but Randy provides over half of Paul’s support. Can Randy claim Paul as a dependent? Dependency ExemptionsExercise 2

50. Randy is divorced. He has one child, Paul (age 5). Paul lives with his mother, but Randy provides over half of Paul’s support. Can Randy claim Paul as a dependent? NO. Paul is the qualifying child of his mother; therefore, he cannot be the qualifying relative of Randy. Dependency ExemptionsExercise 2