Liberty Tax Service Online Basic Income Tax Course. Lesson 9

1. Liberty Tax Service Online Basic Income Tax Course.Lesson 9

2. HOMEWORK CHAPTER 8 HOMEWORK 1: Circle the following items that can be deducted on Schedule A. Vaccinations Braces Maternity clothes Bottled water Country club donation Republican party donation Splints Cremation Vasectomy Slim Fast Speeding fine Passport fee Diaper service Hearing aid Psychiatrist Life insurance premiums Athletic club membership Prescription vitamins Orthopedic shoes Special mattress needed for back injury Prenatal car Purely cosmetic surgery Acupuncture Chiropractor Organ donor expenses Labor union donation Colombian relief donation YMCA donation

3. HOMEWORK CHAPTER 8 Homework 1 – Answer The following items are deductible on Schedule A: Vaccinations, Splints, Vasectomy, Psychiatrist, Orthopedic Shoes, Prenatal Care, Acupuncture, Organ Donor Expenses, Braces, Hearing Aid, Prescription Vitamins, Special Mattress for back injury, Chiropractor, and YMCA Donation.

4. HOMEWORK CHAPTER 8 HOMEWORK 2: Dominic D. (SSN 074-66-2343, born 11/4/1971) and Lucille L. D’Andrio (SSN 021-90-8723, born 10/11/1976) are married and live at 42 County Line Rd., Branson, MO 65616. Dominic is a computer technician and Lucille is a department clerk. They have one child, Bryan (SSN 432-44-9857, born 4/28/1995). They provide all of the support for Bryan. They will file jointly and plan to itemize their deductions. Their itemized deductions in 2007 were $11,996 and they filed a joint return. Their 2007 state income tax deduction was $1,798 and the sales tax deduction they could have taken was $844. Their W-2 forms and other tax information are attached.

5. HOMEWORK CHAPTER 8 Family health insurance $1,800 Contact lens (Lucille) 220 Car loan interest 550 Salvation Army donation (cash) 275 Tolls for medical visits 48 Real estate tax 1,800 Stop-smoking program (doctor recommended for Dominic) 320 Nonprescription drugs 440 Braces for Bryan (total bill $4,000) 800

6. HOMEWORK CHAPTER 8 Tuition (private school) $3,000 Gas and oil for medical purposes 110 Mileage for medical purposes 1,000 miles (all from 7/1/08 to 12/31/08 Prescription drugs 310 Goodwill clothing donation 330 FMV (original cost $3,200) Political campaign contribution 50 Prepare a return for the D’Andrios.

7. HOMEWORK CHAPTER 8

8. HOMEWORK CHAPTER 8

9. HOMEWORK CHAPTER 8

10. HOMEWORK CHAPTER 8

11. HOMEWORK CHAPTER 8

12. HOMEWORK CHAPTER 8

13. HOMEWORK CHAPTER 8 Homework 2 – Answer

14. HOMEWORK CHAPTER 8 Homework 2 – Answer

15. HOMEWORK CHAPTER 8 Homework 2 – Answer

16. HOMEWORK CHAPTER 8 Homework 2 – Answer

17. HOMEWORK CHAPTER 8 Homework 2 – Answer

18. HOMEWORK CHAPTER 8 Homework 2 – Answer

19. HOMEWORK CHAPTER 8 Homework 2 – Answer

20. HOMEWORK CHAPTER 8 Homework 2 – Answer

21. HOMEWORK CHAPTER 8 Homework 2 – Answer

22. HOMEWORK CHAPTER 8 Homework 2 – Answer

23. HOMEWORK CHAPTER 8 Homework 2 – Answer

24. HOMEWORK CHAPTER 8

29. Chapter 9: Retirement Benefits Chapter Content • Types of Retirement Plans • Pensions, Annuities and Designated Roth Accounts • Simplified Method • Lump-Sum Distributions • Minimum Distributions • Rollovers • Early Distributions • Disability and Retirement • Commercial Annuities • IRAs Traditional IRAs Roth IRAs SIMPLE and SEP IRAs • Retirement Savings Contribution Credit • Key Ideas

30. Chapter 9: Retirement Benefits Objectives • Learn About the Different Types of Retirement Plans • Determine the Taxable and Nontaxable Parts of Pensions and Annuities • Use the Simplified Method • Learn About Lump-Sum Distributions and Rollovers • Learn How Disability Affects Your Retirement Plan • Distinguish Between the Different Types of IRAs and Understand Their Benefits • Learn about the Retirement Savings Contributions Credit

31. Chapter 9: Retirement Benefits • The tax law encourages employers to contribute to the RETIREMENT PLANS of their employees. • Employers claim a current deduction for their contributions into these retirement funds. • Employees benefit by having the money added to the retirement account tax-deferred. • Interest, dividends, and appreciation added to the value of the account is not taxed you start withdrawing the money.

32. Retirement Benefits Common types of retirement plans include pensions, annuities, and IRAs. Reporting retirement benefits. • Most are reported to on Form 1099-R. • Appendix B defines the boxes used on Form 1099-R • You report total pension and annuity income on line 16a of Form 1040. • Taxable portion is entered on line 16b of Form 1040 (if fully taxable report only on line 16b). • If more than one plan, figure taxable part of each separately; only enter totals on Form 1040.

33. Retirement Benefits • Report IRA distributions on lines 15a and 15b of Form 1040 (if fully taxable report only on line). Among other items, box 7 of Form 1099-R gives the distribution code. • Report IRA distributions on lines 15a and 15b of Form 1040 (if fully taxable report only on line15b). • Additional tax on IRAs and other retirement plans is reported on line 59 of Form 1040.

34. Retirement Benefits

35. Retirement Benefits Form 1040, Page 1

36. Retirement Benefits • Generally, pensions and annuities provide cash payments to you after retirement. • The term of the payments may be for life or for a fixed time period. • A withdrawal (distribution) generally cannot be taken before the normal retirement age as specified in your plan without a penalty being charged. • Some plans allow for early retirement.

37. Retirement Benefits • A pension provides specific payments to an employee or survivor (the beneficiary) after retirement from work. The payments are made regularly and are for past services with an employer. • An annuity provides payments under a contract from an employer or an insurance company, trust company, or an individual. Payments are made at regular intervals over a period of more than one full year.

38. Retirement Benefits • Your cost in a retirement plan is everything that you paid into the plan that was not deducted or excluded from income. For example, your 401(k) contributions which reduced your wages for income tax are not considered part of your cost in the plan. • Cost also includes amounts your employer paid that were taxable to you when paid.

39. EMPLOYEE PENSIONS AND ANNUITIES Pension is fully taxable if you did NOT pay any part of the cost of your employee pension or annuity and or you deferred part of your pay while you worked. Pension is partially taxable if you did contribute to the cost of the plan. Generally figure tax-free and taxable parts of annuity payments using the Simplified Method. You MUST use the Simplified Method if your annuity starting date is after November 18, 1996 and payments are from a qualified plan.

40. THE SIMPLIFIED METHOD Using the Simplified Method, you figure the tax-free part of each monthly annuity payment by dividing your cost by the total number of expected monthly payments. This is either defined in the contract or figured on the annuitants’ ages on the starting date and determined from a table.

41. THE SIMPLIFIED METHOD Simplified Method must be used if: • Annuity starting date is after November 18, 1996 and, • Payments are from qualified employment plan or tax-sheltered annuity and, • At time pension or annuity payments began, you were under age 75 or were entitled to fewer than 5 years of guaranteed payments.

42. THE SIMPLIFIED METHOD If pension starts after December 31, 1986, exclude nontaxable pension amount until pension cost is recovered; when recovered, entire pension income is taxable. Use Simplified Method Worksheet to figure tax-free portion of payments from qualified plan.

43. THE SIMPLIFIED METHOD For annuity starting dates beginning in 1998, you use Table 9-2 of the Simplified Method Worksheet to figure the tax-free portion of joint and survivor annuity payments from a qualified plan. Under this recovery method, the total number of monthly annuity payments is based on the combined ages of the annuitants at the birthdays preceding the annuity starting date. If your annuity starting date began before 1998, the total number of payments is based on your age at that date.

44. THE SIMPLIFIED METHOD

45. THE SIMPLIFIED METHOD

46. THE SIMPLIFIED METHOD Civil Service and Railroad Retirement Board use forms different from Form 1099-R.

47. THE SIMPLIFIED METHOD

48. ELECTIVE DEFERRALS TO A QUALIFIED RETIREMENT PLAN • You can choose to have part of your compensation contributed by your employer to a retirement fund. • Contribution not included in wages subject to income tax. • Annual limits apply depending on plan.

49. ELECTIVE DEFERRALS TO A QUALIFIED RETIREMENT PLAN Elective deferrals include elective contributions to retirement plans such as: • Cash or deferred arrangements (section 401(k) plans). • The Thrift Savings Plan for federal employees. • Salary reduction simplified employee pension plans (SARSEP). • Savings incentive match plans for employees (SIMPLE plans). • Tax-sheltered annuity plans (403(b) plans). • Section 457 plans.

50. ELECTIVE DEFERRALS TO A QUALIFIED RETIREMENT PLAN A tax law for years after 2005 allows your 401(k) and 403(b) accounts to include a separate designated Roth account. Designated Roth contributions are treated as elective deferrals (subject to the same limits) except that the contributions are still included in income for the year earned and are considered your cost, as discussed earlier. A qualified distribution from a Roth account (five years after year of contribution) is not includable in income, neither the cost nor the earnings.