EKS 5 SCENARIO-BASED TRAINING

THIS LESSON YOU WILL REVIEW Filing Status Personal Exemptions Income – W-2, 1099-INT Itemized Deductions versus Standard Deduction Form 8888

TODAY YOU WILL LEARN 1099K - Ride Share driver Social Security Income Dividend Income Capital Gains/Loss transactions Cancellation of Debt - Credit Cards Affordable Care Act – Medicare & Covered CA

LET’S GET STARTED This will be you!

1. SCENARIO 5 TIMOTHY & NICOLE STERLING Let’s meet the taxpayers

WE ARE TIMOTHY & NICOLE STERLING Hello! WE ARE TIMOTHY & NICOLE STERLING How have we managed to stay married for so long? Simple: we never both wanted a divorce at the same time.

FACTS ABOUT US: We’ve been married for 39 years, but it feels like an eternity! Timothy is an Widget driver in order to get out of the house Ever since Nicole retired, she spends all day on the home shopping network buying junk we don’t need

2. SCENARIO 5 TIMOTHY & NICOLE STERLING Let’s look at the Intake/Interview Sheet

What question(s) should you ask the Sterlings?

What forms should you look for in their packet?

INTERVIEW NOTES BOTH RETIRED SOLVENT HEALTH INSURANCE RIDESHARE DRIVER Timothy began 3/1/2016 SOLVENT At the time of credit card debt cancellation HEALTH INSURANCE Covered CA & Medicare RIDESHARE DRIVER Income & expenses

Do Timothy & Nicole need to file? BEFORE DIVING IN... Do Timothy & Nicole need to file? Is the return in scope? Tab A

3. SCENARIO 5 TIMOTHY & NICOLE STERLING 1040 step by step

What is their filing status? B1

We met on a cable car in the city, and four weeks later had a shotgun wedding after finding out Nicole was pregnant. We quickly found out afterwards that we weren’t compatible at all, but stayed together for the children.

Enter the Sterlings’ main info, filing status, & exemptions WATCH instructor Enter the Sterlings’ main info, filing status, & exemptions Tab B

Enter the Sterlings’ main info, filing status, & exemptions Now you try Enter the Sterlings’ main info, filing status, & exemptions Tab B

SOCIAL SECURITY INCOME Taxpayers receive a SSA-1099 if they receive benefits from the Social Security Administration - retirement, survivor and disability benefits D27

SOCIAL SECURITY INCOME If taxpayers have other income, part of their Social Security benefits may be taxable Social Security income alone does not require someone to file their taxes in most cases D27

DIVIDEND INCOME Corporate distributions such as ordinary dividends, qualified dividends, capital gain distributions, and nondividend distributions are reported on 1099-DIV. D12,15

DIVIDEND INCOME Ordinary Dividends Corporate distributions paid out of the earnings and profits of the corporation. Qualified Dividends Ordinary dividends that qualify for lower, long-term capital gains tax rates. Nondividend Distributions Nontaxable because they are part of a taxpayer’s cost or other basis. D12,15

Scenario 5 Dividend Income

Sale of any other asset is out of scope for VITA. CAPITAL GAIN/LOSS Capital gains are proceeds from the sale of stock, mutual funds or a personal residence. Sale of any other asset is out of scope for VITA. D36-40

CAPITAL GAINS/LOSS Sale of stock is reported on a 1099-B Stock held for one year or less is short term Stock held for more than one year is long term A taxpayer cannot take net losses of more than $3,000 per year. Unused losses can be carried over to later years until they are completely used up. D36-43

CAPITAL GAINS/LOSS The taxpayer will need to report: Date of sale Date of purchase/acquisition Short term or long term Sale price/proceeds of the sale Cost or other basis Federal income tax withheld Wash sale loss disallowed Description (Rust Corp 100 SH; Rio Motors 150 SH) D36-43

CAPITAL GAINS/LOSS - BASIS The basis of property is usually the cost The cost or basis should be reported on the 1099-B Taxpayers should go their broker if they need help determining the basis If a taxpayer cannot provide the basis, the IRS will deem it to be zero D36-43

Capital Gains and Losses

Any debt forgiven by a creditor is considered income by the IRS. CANCELLATION OF DEBT Any debt forgiven by a creditor is considered income by the IRS. D46-48

CANCELLATION OF DEBT CREDIT CARDS Creditors and debt collectors that agree to accept at least $600 less than the original balance of the debt are required by law to file a 1099-C form with the IRS and to send it to the debtor. There are exclusions - use the screening tool in Pub 4012 Tab D46 to determine if the client’s COD is in scope of VITA services. D46-48

Scenario 5 1099-C

WATCH instructor Enter the Sterlings’ income: W-2, social security, retirement, dividend income, COD & capital gains Tab D

Now you try Enter the Sterlings’ income: W-2, social security, retirement, dividend income, COD, & capital gains Tab D

SELF-EMPLOYMENT RIDESHARE DRIVER Receive Forms 1099-Misc and/or 1099-K D36-40

1099K - RIDESHARE DRIVER Schedule C-EZ Only one per return (TP and SP cannot both have businesses) Simplified expenses Has limit of $5,000 expenses Schedule C Multiple per return possible Must categorize expenses (advertising, insurance, supplies, licenses, etc.) $25,000 expense limit for VITA D29-35

RIDESHARE DRIVER Uber and Lyft both consider themselves third party payment processors. A third party payment processor is essentially a company that facilitates payments between consumers and business owners. Obviously Lyft and Uber do a whole lot more than facilitate payments, but this won’t affect the amount they pay in taxes. http://therideshareguy.com/all-of-your-2014-rideshare-tax-questions-answered-a-turbotax-giveaway/ D29-35

RIDESHARE DRIVER UBER’S 1099s Uber voluntarily sends out 1099-K’s to all drivers regardless of whether or not the driver hits the $20,000/200 ride threshold. So every Uber driver will get a 1099-K regardless of how much money they made. http://therideshareguy.com/all-of-your-2014-rideshare-tax-questions-answered-a-turbotax-giveaway/ D29-35

RIDESHARE DRIVER UBER’S 1099s If the driver made over $600 in referral bonus or miscellaneous income, then they will also receive a 1099-MISC. Whatever amount that appears on the 1099-MISC is combined with the gross fares from the 1099-K. D29-35

RIDESHARE DRIVER UBER’S 1099s Tolls, split fare fees and safe ride fees will be listed as both earnings and expenses. Since they are already included in the income portion of the Sch C, they will be combined with the device subscription fee and Uber fee in order to get total expenses. That number will be entered on line 10 of the Sch C - “Commissions and Fees.” (line 2 of Sch CEZ - “Total Expenses”) D29-35

RIDESHARE DRIVER LYFT’S 1099s Lyft handled their 1099-MISC the exact same way as Uber: drivers who earned over $600 in bonuses, mentor rides, etc received one. But they actually adhered to the $20,000/200 transaction limit for 1099-K. So if the driver did not meet those thresholds, they will not receive a 1099-K. D29-35

RIDESHARE DRIVER LYFT’S 1099s That means many drivers will not receive a 1099-K from Lyft but still have to pay taxes on that money. In order to correctly report income, the driver needs information from Lyft’s tax summary page to see gross ride earnings, commissions and tolls paid. D29-35

RIDESHARE DRIVER DRIVERS FOR BOTH UBER & LYFT Combine the income from Lyft and Uber on your Sch C and combine the commission and fees from Lyft and Uber too. In order to correctly report income, the driver needs information from Lyft’s tax summary page to see gross ride earnings, commissions and tolls paid. D29-35

RIDESHARE DRIVER DEDUCTIONS There are two ways to calculate vehicle expense: standard mileage rate and actual expense method. Standard mileage rate is usually the better option. For tax year 2016 it will be 54 cents per mile. Actual expense method is out of scope for VITA. Standard mileage rate must have been chosen the first year the car was used as a business. Later years the driver can choose either method. D29-35

RIDESHARE DRIVER STANDARD MILEAGE RATE What can be included in the Standard Mileage Rate Fare mileage - This is the mileage driven while you have passengers in your vehicle. Between pickups - While working, include the mileage driven between passenger drop-offs and pick-ups. Driving to destination area - Don’t live in a good zone for rideshare driving? If you are heading out for the sole purpose of doing some rideshare driving, deduct the mileage driven to get there. Return trip mileage - Follows same logic as driving to destination area. Making a trip to the gas station Making a trip to the store to get supplies - By supplies, this would include items for you, your car, or your passengers for rideshare driving. D29-35

RIDESHARE DRIVER DEDUCTIONS Uber provides the total number of miles driven while on a trip on the 1099-K summary. Lyft provides the total number of miles while logged into driver mode. Tickets and fines are NOT deductible. Rideshare drivers should always keep good records. Hold onto receipts Maintain a mileage log http://starzykcpa.com/everything-you-need-to-know-about-rideshare-taxes/ D29-35

RIDESHARE DRIVER OTHER DEDUCTIONS Other expenses like car washes, cell phone use, candy/water/etc, Spotify membership, bluetooth, trunk organizers, etc may be deductible too as long as they are “ordinary and necessary.” Be careful of deductions like a cell phone that may be used for personal and business use. Only business use is deductible. http://starzykcpa.com/everything-you-need-to-know-about-rideshare-taxes/ D29-35

Scenario 5 1099-K

Is Timothy’s rideshare income & expenses in scope?

Retiring was hard, because then I was in the house all the time Retiring was hard, because then I was in the house all the time. I like being a driver. It gets me out of the house. It’s quiet in the car. Nicole is in the house. It’s not quiet in the house. I like being out of the house.

RIDESHARE NOTES MILES Jan 6, 2015 EXPENSES ALWAYS BOTH MAINTAINED 8,956 business miles 2,587 commute miles 3,321 other miles Jan 6, 2015 Car placed in service EXPENSES $72 on tolls $960 in gasoline ALWAYS Takes the standard mileage rate BOTH Timothy and Nicole’s cars were available for personal use MAINTAINED A written record of mileage

Enter Timothy’s ride share income and expenses on Schedule C-EZ WATCH instructor Enter Timothy’s ride share income and expenses on Schedule C-EZ D29-35

Enter Timothy’s ride share income and expenses on Schedule C-EZ Now you try Enter Timothy’s ride share income and expenses on Schedule C-EZ D29-35

Should the Kents take standard or itemized deductions? F3

Certain Medicare coverages are considered Minimum Essential Coverage ACA: MEDICARE Certain Medicare coverages are considered Minimum Essential Coverage ACA4

Scenario 5 Form SSA-1099

ACA: COVERED CA WITH PTC The premium tax credit (PTC) helps eligible taxpayers pays for health insurance

PREMIUM TAX CREDIT When enrolling in health coverage through Covered CA, eligible taxpayers choose: Have advance payments of the premium tax credit (APTC) made on their behalf to their insurance company Forego APTC and get all the benefit of the PTC when they claim the credit on their federal tax return Those who choose to get the benefit of APTC must file a federal tax return for the year the payments are made even if they have gross income for the year that is below the income tax filing threshold.

PREMIUM TAX CREDIT Anyone who purchased insurance through the Marketplace will receive Form 1095-A Anyone who received the benefit of advance payments of the premium tax credit (APTC) must complete Form 8962 You cannot prepare the return for taxpayers who received the benefit of APTC without Form(s) 1095-A

Scenario 5 1095-A

1095-A

Do the Sterlings need any ACA Exemptions?

Timothy went to Covered CA the second he retired Timothy went to Covered CA the second he retired. He’s such a hypochondriac; every time he sneezes he thinks he has the flu. He even has his own special chair in the waiting room at the clinic!

Enter the Sterling’s ACA information WATCH instructor Enter the Sterling’s ACA information ACA4-5

Enter the Sterling’s ACA information Now you try Enter the Sterling’s ACA information ACA4-5

4. SCENARIO 5 TIMOTHY & NICOLE STERLING Finishing the return

CHECK YOUR WORK QUALITY REVIEW Review entries: Main info, filing status & exemptions Income: W-2, retirement, social security, COD, capital gains and self-employment Adjustments: Self-employment tax deduction Credits: Foreign Tax Credit Taxes: Self-employment tax Do we have matching AGI & refund?

AGI (2015 calculations) Federal Refund (2015 calculations) $26,026 AGI (2015 calculations) $3,124 Federal Refund (2015 calculations)

FINISHING THE RETURN Ask the questions in the Prep Use Fields All returns must be Quality Reviewed Print return for the Sterlings Review return with the Sterlings Have the Kents sign 8879s for Federal and State and remind them they are responsible for the return

CREDITS Special thanks to all the people who made and released these awesome resources for free: Presentation template by SlidesCarnival Icons by Emojione Rideshare information by The Rideshare Guy & Starzyk CPA