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SaveFirst 2013-2014 Campus Fellow Training Intermediate and Advanced

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SaveFirst 2013-2014 Campus Fellow Training Intermediate and Advanced

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  1. SaveFirst 2013-2014Campus Fellow TrainingIntermediate and Advanced

  2. Intermediate Training • 1) Basic Training Refresher • 2) Alimony • 3) State Tax Refund • 4) Business Income • 5) Retirement Income (with taxable amount) • 6) Adjustments to Income • 7) Itemized Deductions • 8) Education Credit • 9) Foreign Tax Credit • 10) Residential Energy Credit

  3. Basic Scope Refresher • Preliminary Interview • Review I/I Form and collect forms • Verify photo IDs and SS cards • Determine personal exemption, dependency exemptions and filing status • Tabs A, B and C in Pub 4012

  4. Basic Scope Refresher • Preparing the Return in TaxWise • Complete the “Interview” through the dependents section • Fill out “Main Info” and “Dependents” forms(s) • Complete Form 1040 • Complete AL-40 • Complete Gen Use, Gen Disclosure and Prep Use • Review the return

  5. Forms of Income • Wages: W-2 (line 7) • Interest: 1099-INT (line 8) • Dividends: 1099-DIV (line 9) • Unemployment: 1099-G (line 19) • Social Security Benefits: SSA-1099 (line 20) • Gambling Winnings: W2-G (line 21) • Prize/Award Money: 1099-MISC (line 21)

  6. Credits • Child and Dependent Care Expenses Credit • Link: Line 48  2441 • Retirement Savings Contribution Credit • Link: Line 50  8880 • Child Tax Credit • $1,000 max. per child (TW calculates, line 51) • Credit for the Elderly and Disabled • Link: Line 53  Sch R • Earned Income Credit • Fill out Sch EIC and Sch EIC Wkt • Additional Child Tax Credit • Refundable portion of CTC (TW calculates, line 65)

  7. Savings Bond Purchases • Add and complete Form 8888 • Enter the banking information • If a taxpayer invests in savings bonds, ONLYfill out the routing and account numbers on the Form 8888. • If a taxpayer does not invest in savings bonds, fill out the routing and account numbers on the Main Info form and on Form 1040, line 74. 3) Fill out the SNWL Entry Form • You must fill out all blanks; be sure to complete both sides of the form! • Attach a copy of the 8888 from TaxWise to the SNWL entry form.

  8. Alabama Return • Personal exemptions • Taxpayers receive a personal exemption if AL even if they CAN be claimed as a dependent by someone else. • Dependents • Taxpayer provided over 50% of his/her support and is related to the taxpayer by blood • NOT cousins, friends or foster children • Filing status • Taxpayers can only claim Head of Family if they are unmarried/legally separated at the end of the year • Non-taxable income • Unemployment and Social Security

  9. Basic Training Refresher • Please review the Basic Training Slides at www.impactalabama.org/taxprep

  10. TaxWise Practice: Kent Exercise • Review I/I and Notes • Line 7: Wages • Line 8: Interest • Skip seller-financed mortgage for now • Line 9: Dividends • Skip foreign tax paid and capital gain distributions for now • Line 19: Unemployment • Line 20: Social Security • Line 21: Other Income • Line 48: Child and Dependent Care • Line 64a: EIC

  11. Intermediate Training • 1) Basic Training Refresher • 2) Alimony • 3) State Tax Refund • 4) Business Income • 5) Retirement Income (with taxable amount) • 6) Adjustments to Income • 7) Itemized Deductions • 8) Education Credit • 9) Foreign Tax Credit • 10) Residential Energy Credit

  12. Alimony • A payment to or for a spouse or former spouse under a separation or divorce instrument • Person RECEIVING the alimony must report it as income on line 11 • Person PAYING the alimony can subtract it as an adjustment on line 31

  13. Alimony • May include: • Medical bills, housing costs and other expenses • Does NOT include: • Child support or voluntary payments outside

  14. Reporting Alimony Income • Line 11  enter EXACT amount of alimony received for the YEAR • No worksheet for reporting alimony income • Do NOT need Social Security number of the person who paid the alimony

  15. Intermediate Training • 1) Basic Training Refresher • 2) Alimony • 3) State Tax Refund • 4) Business Income • 5) Retirement Income (with taxable amount) • 6) Adjustments to Income • 7) Itemized Deductions • 8) Education Credit • 9) Foreign Tax Credit • 10) Residential Energy Credit

  16. State Tax Refund • Taxpayers who receive a refund of state or local income taxes may receive Form 1099-G listing their refund in box 2. • NOT everyone must include their state tax refund as taxable income.

  17. State Tax Refund • A portion (or all) of 2012 state tax refund (usually Alabama) may be taxable and need to be reported • Conditions in which 2012 state tax refund is taxable: • Received a refund on a state return (Alabama) • Itemized Deductions in 2012 (Federal) AND • Deducted state income tax instead of state sales tax when itemizing deductions (Federal)

  18. 2012 State Tax Refund • Answer question in Box under line 9. • If NO, there are no additional forms. • If YES, Link: Line 10  St Tax Refund • Complete the St Tax Refund Worksheet with information from the 2012 return.

  19. Info Needed from 2012 Return • State refund amount • Sch A, line 5a, income taxes • Sch A, line 5b, general sales tax • Total itemized deductions amount • Form 1040, line 40 • Filing status • Taxable income amount • Form 1040, line 43

  20. St Tax Refund in TaxWise Enter in the amounts: • Line 1: enter AL and state refund amount • Line 2: income taxes from Sch A, line 5a • Line 2: general sales tax from Sch A, line 5b

  21. St Tax Refund in TaxWise Enter in the amounts: • Line 6: total itemized deductions • Line 7: filing status • Line 12: taxable income amount

  22. St Tax Refund • If a taxpayer does not have a copy of the previous year’s return, Link: Line 10  Scratch Pad and enter the full amount of the state tax refund.

  23. Intermediate Training • 1) Basic Training Refresher • 2) Alimony • 3) State Tax Refund • 4) Business Income • 5) Retirement Income (with taxable amount) • 6) Adjustments to Income • 7) Itemized Deductions • 8) Education Credit • 9) Foreign Tax Credit • 10) Residential Energy Credit

  24. Business Income • Income from personal business (sole proprietor) or independent contractor • Income can be reported on: • 1099-MISC (with an amount in Box 7, Nonemployee Compensation) • W-2 (with Statutory Employee checked in Box 13) • 1099-K (Merchant Card and Third Party Payments) • Taxpayer’s books and personal records • Link: Line 12  Sch C-EZ or Sch C

  25. Form 1099-MISC

  26. Form W-2

  27. Form 1099-K

  28. Business Income • Having a part-time business (even in addition to another job) may still be self-employment income and need to be reported on line 12 • Remember: Business income that was not reported on Form W-2, 1099-MISC or 1099-K still needs to be reported as cash payments!

  29. Example Andy works as an independent contractor for a painting company. He received a 1099-MISC from the company that shows he made $10,000. He also received $2,000 in cash payments form a few different people for the work he completed, but he did not receive a 1099-MISC for the $2,000. What is Andy’s total business income that needs to be reported on Line 12?

  30. Example - Answer • Andy must include the amounts from both the 1099-MISC and cash payments. His total business income that must be reported is $12,000.

  31. Business Income vs Other Income • Business Income • An activity qualifies as a business if the primary purpose for engaging in the activity is for income or profit and the taxpayer is involved in the activity with continuity and regularity • Link: Line 12  Sch C or Sch C-EZ • Other Income • A sporadic activity or a hobby does not qualify as a business • Hobby: undertaken for pleasure during leisure time (not for profit) • Link: Line 21  multiple forms

  32. Business Income Terms • Business expenses: amounts that are ordinary and necessary to carry on the business • Cash method of accounting: reports all income when received and deducts all expenses when paid • Inventory: the items the taxpayer buys or makes for resale for others • Depreciation: the cost of items that are expected to last more than a year should be spread over a period of years, rather than deducted in the year of purchase

  33. Business Income • Conditions that must be met for us to file a tax return with business income: • Less than $5,000 of business expenses (Sch C-EZ) • Less than $10,000 of business expenses (Sch C) • Cash method of accounting • No inventory • Does not want to depreciate • Must report a profit: NO NET LOSS! • Gross receipts – business expenses • Only one business (if taxpayer owns a business) • No employees

  34. Sch C vsSch C-EZ • Sch C-EZ is just the simplified version of the Sch C • Use the Sch C-EZ if there are few business expenses • Less than $5,000 • Use the Sch C if there are a lot of business expenses • $5,000 to $10,000

  35. Reporting Gross Receipts: • 1) 1099-MISC, Box 7 • 2) Cash Payments • 3) W-2, Statutory Employee • 4) 1099-K

  36. 1099-MISC • Income reported in Box 7 on 1099-MISC is considered self-employment income and should be reported on a Sch C or Sch C-EZ • Link: Line 12  Sch C-EZ or Sch C • Then, Link: Gross Receipts Line  1099-MISC • DO NOT JUST ADD THE 1099-MISC!

  37. Cash Payments • CASH INCOME must also be reported on this line by linking to a scratch pad and entering the amount of cash income • Link: Line 12  Sch C or Sch C-EZ  Gross receipts line  Scratch Pad

  38. W-2: Statutory Employee • Make sure to check the Statutory employee box on the W-2 in TaxWise: • Then check the box at the bottom of the W-2 in TaxWise in the Instructions: • If you forget to check the box, the amount will show up on Line 7 (wages, salaries and tips)!

  39. W-2 Statutory Employee • Link: Line 12  Sch C or Sch C-EZ  Gross Receipts Line  Scratch Pad

  40. 1099-K • Link: Line 12  Sch C or Sch C-EZ  Gross Receipts Line  Scratch Pad

  41. Deductible Business Expenses • Pub 4012, F-1 through F-4 • Advertising • Car and Truck Expenses • Commissions and Fees • Insurance • Other Interest • Legal and Professional Services • Office Expense • Rent or Lease – Vehicle, Machinery and Equipment • Repairs and Maintenance • Supplies • Taxes and Licenses • Travel/Meals and Entertainment • Utilities

  42. Advertising • Costs associated with promoting the business through various means: • Yellow pages • Newspapers • Magazines • Billboards • Racing sponsors • Television spots

  43. Car & Truck Expenses • A taxpayer who uses a car/truck in a business may be able to deduct the costs of operating and maintaining the vehicle • Vehicle expenses are calculated using the standard mileage rate • Actual expenses include depreciation, which is out of our scope

  44. Commissions and Fees • Are paid to both individuals and businesses

  45. Insurance • Insurance policies and coverages are deductible for the business operation • Property • Automobile (business vehicles only) • Malpractice • Health insurance is NOT deductible

  46. Other Interest • Interest paid on operating loans, but not mortgage interest

  47. Legal and Professional Services • Fees paid to professionals, such as attorneys, accountants, appraisers and engineers

  48. Office Expense • Supplies such as pens, paper, postage, etc.

  49. Rent or Lease • Rental fees for cars, trucks, vans, machinery, equipment and other personal property • Leases of more than 30 days are out of scope

  50. Repairs and Maintenance • Repairs on equipment, automobiles, office space and buildings are some possible expeditures