1. EKS 5 SCENARIO-BASED TRAINING

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

3. 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

4. LET’S GET STARTED
This will be you!

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

6. 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.

7. 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

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

9. What question(s) should you ask the Sterlings?

10. What forms should you look for in their packet?

12. 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

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

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

15. What is their filing status?B1

16. 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.

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

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

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

20. 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

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

22. 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

23. Scenario 5 Dividend Income

24. 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

25. 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

26. 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

27. 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

28. Capital Gains and Losses

29. 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

30. 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

31. Scenario C

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

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

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

35. 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

36. 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.
D29-35

37. 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.
D29-35

38. 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

39. 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

40. 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

41. 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

42. 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

43. 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

44. 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

45. 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
D29-35

46. 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.
D29-35

47. Scenario K

48. Is Timothy’s rideshare income & expenses in scope?

49. 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.

50. 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

51. 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

52. 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

53. Should the Kents take standard or itemized deductions?F3

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

55. Scenario 5 Form SSA-1099

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

57. 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.

58. 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

59. Scenario A

60. 1095-A

61. Do the Sterlings need any ACA Exemptions?

62. 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!

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

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

65. 4. SCENARIO 5 TIMOTHY & NICOLE STERLING
Finishing the return

66. 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?

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

68. 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

69. 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