5 TAX BASICS YOU MUST KNOW ① FILING STATUS ② DEDUCTIONS ③ CHILD TAX CREDIT (CTC) ④ EARNED INCOME TAX CREDIT (EIC) ⑤ DIFFERENT INCOME TYPES

① FILING STATUS The FIRST step to determine a customers filing status is asking if they are:  The filing status effects the deductions and credits available to them  The customer does not have a choice of what their filing status is MARRIEDNOT MARRIED

MARRIED Married Filing Joint This is the best filing status that will be used Even if the spouse does not work Married Filing Separate a. You will rarely use this filing status. b. It gives the lowest standard deduction. c. The taxpayer does NOT receive EIC using this status 3

NOT MARRIED Head of Household (HOH) Paid over half the cost of keeping up a home for a QUALIFYING person Single No QUALIFYING dependents and are not legally married

② Standard DeductionsItemized Deductions ② Standard Deductions Itemized Deductions  If the taxpayer has more money from itemized deductions than their standard deduction amount, then they’ll qualify to use itemized deductions  If you are unsure which is higher just enter the amounts on the Itemized Deduction form in the program.

STANDARD DEDUCTION If your filing status is: Your deduction is: Married Filing Joint $12,600 Married Filing Separate $6,300 Head of Household $9,250 Single $6,300 Qualifying Widow $12,600  A standard deduction is a dollar amount that reduces the amount of income on which you are taxed

ITEMIZED DEDUCTIONS  Mortgage interest  Real estate taxes  Charitable contributions  Ad valorem taxes (car tags)  A portion of medical expenses  A portion of job expenses  State tax paid from W-2’s  Gambling losses up to gambling winnings

③ CHILD TAX CREDIT  Up to $1000 per child  Child must be 16 or under (1998 or later)  Amount of credit is based on taxable income and other factors  If someone has a taxable income of $0 then they do not receive CTC  Not everyone will receive this credit

④ EARNED INCOME TAX CREDIT  A refundable tax credit for people who work and have earned income under about $52,400  EIC is available to families and individuals that qualify. The credit can be as much as $6,143 with 3 qualifying dependents  To claim it, you must have earned income. You must have been employed some part of the year

QUALIFICIATIONS FOR EIC 1. The taxpayer must have a valid Social Security Number….(NOT start with 9) 2.And ONE of these 3: Dependent must be 18 or under Or 23 or under and a full time student Or Permanently and totally disabled AND The relationship of the qualifying dependent must be…..

QUALIFYING A DEPENDENT  Son, daughter, grandchild, foster child  Brother, sister, niece, nephew, whom the taxpayer cares for as their own child  Dependent must have lived with the taxpayer in the U.S. more than half the year

$6000 $5500 $5000 $4500 $4000 $3500 $3000 $2500 $2000 $1500 $1000 $500 $0 $0 $5000 $10000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 Total Earned Income 3 Children 2 Children 1 Child 0 Children EIC Chart $5500 $4500 $3000

⑤ OTHER INCOME Some Taxpayers will receive income other than W-2 income. Most common are… 1099 MISC 1099RUnemployment Social Security W-2GDividendsInterest

1099 BUSINESS MISC  Income received for NON W-2 jobs such as contractors, lawn workers, painters etc..  This income is subject to self employment tax and will lower the refund, however:  They can deduct expenses incurred to do their job, this will lower the tax due

1099-MISC 15

1099-R  Distributions from pensions, annuities, 401K plans or individual IRA plans  Pay special attention to the code in box 7, this will determine if there is a 10% penalty on the distribution IN ADDITION to the tax  Most often 1 is a penalty and 7 is not  The program figures this out, just enter what’s on the form

1099-R EXAMPLE 17

UNEMPLOYMENT  Issued on 1099G  Taxed the same as regular income  This income is not used to increase the taxpayers EIC amount

SOCIAL SECURITY  ISSUED ON 1099 SSA  Only the taxpayer and spouse’s is relevant not the dependents social security  Social Security is not tax free. Usually it is BUT:  It CAN be taxed if the taxpayers income is over a certain amount for their filing status

DIVIDENDS AND INTEREST FORM 1099 DIV FORM 1099 INT Taxed as regular income Dividends are usually from stock holdings Interest is from bank accounts or bonds

GAMBLING WINNINGS Usually if someone has won MORE than $600 Issued on W2-G Taxed as regular income Gambling losses can be deducted up to gambling winnings.