1. EKS 4 SCENARIO-BASED TRAINING

2. THIS LESSON YOU WILL REVIEW
Filing Status
Personal and Dependency Exemptions
Income – W-2
Credits: Child Tax Credit, Additional Child Tax Credit, Child and Dependent Care Credit,
Itemized Deductions versus Standard Deduction
ACA C Employer Coverage
Form 8888

3. TODAY YOU WILL LEARN ITINs Retirement Income
Self-employment income with expenses
State Refund Income
Itemized Deductions
Affordable Care Act – Exemptions for ITIN and Shared Responsibility Payment

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

5. 1. SCENARIO 4 KEVIN & MARY KENT
Let’s meet the taxpayer

6. Hello! WE ARE KEVIN & MARY KENT
We made a decent living for ourselves after picking up and moving from Canada. We put our heart and soul into our only child, and now grandchild.

7. WE HAVE ONE CHILD AND ONE GRANDCHILD
Mae
Astronaut, currently on 3 yr mission to colonize Mars (in space!).
Melissa
Aspiring singer. Beyonce is her hero. Went to performing arts camp in the summer.

8. FACTS ABOUT US:
Melissa lived with us all year while her mother is in space. We paid for all expenses. Her mother will pay us back in Mars rocks!
Kevin runs “Squeaky Clean Cleaners” where “If it ain’t squeaky, it ain’t clean!”
Kevin’s visitor’s visa expired and he never got it renewed or applied citizenship.

9. 2. SCENARIO 4 KEVIN & MARY KENT
Let’s look at the Intake/Interview Sheet

10. What question(s) should you ask the Kents?

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

13. INTERVIEW NOTES $208 $4,942 8/1/2016 $350 Insurance State tax refund
They itemized last year
$4,942
Property taxes
8/1/2016
Mary retired and began receiving retirement income
$350
Cash Donation to United Way Bay Area
Insurance
None for Kevin
Mary had 1/1 - 7/31
Melissa had all year

14. Do Kevin & Mary need to file?
BEFORE DIVING IN...
Do Kevin & Mary need to file?
Is the return in scope?
Tab A

15. 3. SCENARIO 4 KEVIN & MARY KENT
1040 step by step

16. FILING STATUS MARRIED FILING JOINT
Filing status for taxpayers who are married to each other or live together in a common law marriage and combine their income and deductions on the same tax return.
B1-2

17. MARRIED FILING JOINT The status also applies to taxpayers who:
Are in same-sex marriages
Are separated but not divorced
Spouse died during the tax year and has not remarried, as long as one tax return is used for both individuals
B1-2

18. What is their filing status?B1

19. Mary and I moved over when Obama won the election
Mary and I moved over when Obama won the election. She applied and got her citizenship, but I don’t want to reveal my past connection to the Canadian mafia.

20. Enter the Kents’ main info and filing status
WATCH instructor
Enter the Kents’ main info and filing status
Tab B

21. Enter the Kents’ main info and filing status
Now you try
Enter the Kents’ main info and filing status
Tab B

22. Can the Kents claim dependency exemptions?

23. Have you seen “The Martian. ” That’s what our daughter is doing
Have you seen “The Martian?” That’s what our daughter is doing! We get to send/receive video messages once a month but that’s about it. Everything else for Melissa is provided by us.

24. Enter the Kents’ exemptions
WATCH instructor
Enter the Kents’ exemptions
Tab C

25. Enter the Kents’ exemptions
Now you try
Enter the Kents’ exemptions
Tab C

26. RETIREMENT INCOME
Can include social security benefits as well as any benefits from annuities, retirement or profit sharing plans, insurance contracts, IRAs, etc.
D17-25

27. RETIREMENT INCOME
Retirement income such as pensions, 401k’s or IRAs are reported on a 1099-R
Box 7 will let you know what kind of distribution is being reported
What codes do Mary’s two 1099-R’s have? What do they mean? Tab D23 and D24
Taxable amount box empty or taxable amount not determined box checked – use simplified method
D17-25

28. Scenario 4 Retirement Income

29. Scenario 4 Retirement Income

30. STATE REFUND AS INCOME
When a taxpayer itemizes their deductions, they can use state income tax paid as a deduction.
In turn, any refund received that year needs to be reported as income.
The state refund is reported on 1099-G.
You will need the taxpayer’s prior year return to fill in:
Taxable income
Itemized deductions total
State income tax paid
D11

31. Scenario 4 State Refund

32. Enter the Kents’ income: W-2, retirement, & state refund
WATCH instructor
Enter the Kents’ income: W-2, retirement, & state refund
D9-11, D17-24

33. Enter the Kents’ income: W-2, retirement, & state refund
Now you try
Enter the Kents’ income: W-2, retirement, & state refund
D9-11, D17-24

34. SELF EMPLOYMENT INCOME
Schedule C-EZ, Net Profit From Business
Schedule C, Profit or Loss From Business
D32-35

35. BUSINESS INCOME W/ EXPENSES
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.)
No expense limit BUT...
Only in scope for VITA as long as business expenses are $25,000 or less
D29-35

36. BUSINESS EXPENSES Business expenses must be ordinary and necessary
The same expenses are deductible on both Sch C and C-EZ
Record reconstruction may be required to support a taxpayer’s claimed business income and expenses
D29-35

37. GET ALL THE FACTS! BE SURE THAT:
The taxpayer actually conducts a business
The taxpayer has records to support income and expenses, or can reasonably reconstruct income and expense records
All income and related expenses have been included.
D29-35

38. BUSINESS EXPENSES IN SCOPE FOR VITA
Advertising
Car and truck expenses (standard mileage rate only)
Commissions and fees
Insurance
Other interest
Legal and professional services
Office expense
Rent or lease - Vehicle, Machinery, and Equipment (<30 days)
Repairs and Maintenance
Supplies
Taxes and Licenses
Travel/Meals and Entertainment
Utilities
Other expenses
D32-35

39. OUT OF SCOPE FOR VITA Hobby income or not-for-profit activity
Expenses over $25,000
Return and allowances
Cost of goods sold
Other income
Expenses for employees
Business use of home
Casualty losses
Vehicle expenses reported as actual expenses
Depreciation or asset write-offs
Rental or lease expenses
Accounting methods other than the cash method
Net losses
“No” on line G
Credit card payments not includible in income
“Yes” indicating there is a requirement for file Form(s) 1099
D29-35

40. SCHEDULE C RED FLAG SITUATIONS
Schedule C/C-EZ...
Income in round numbers
Cash businesses as the only income on a return claiming EIC
With little or no expenses when expenses would be expected
Taxpayers with little or no records for income and expenses
Without a Form 1099
Any Schedule C/C-EZ income that brings the taxpayer to the maximum EIC
Pub

41. Scenario 4 Business Income

42. Is Kevin’s business income & expenses in scope?
D29,31,33-35

43. I run a “squeaky clean” business, if you know what I mean
I run a “squeaky clean” business, if you know what I mean. I kept all my receipts, mileage logs, and payments in a secret underground vault in my basement.

44. BUSINESS NOTES $24,000 $3,859 $112 $305 $1,013 Mileage
Received in cash
$3,859
1099-MISC
$112
Uniform expense
$305
Small tools expense
$1,013
Supplies
Mileage
8,775 Business
2,000 Commute
5,225 Other
Jan 2, 2006 start

45. Enter Kevin’s self employment income and expenses on Schedule C-EZ
WATCH instructor
Enter Kevin’s self employment income and expenses on Schedule C-EZ
D29-35

46. Enter Kevin’s self employment income and expenses on Schedule C-EZ
Now you try
Enter Kevin’s self employment income and expenses on Schedule C-EZ
D29-35

47. ITIN
Individual Taxpayer Identification Number, issued by the IRS to taxpayers without a valid SSN (start with a 9 – taxpayer will have a letter or card from IRS with the number on it)
K11

48. ITIN
When applying for an ITIN, a taxpayer submits a W-7 with their tax return along with documentation like a passport, birth certificate and/or other identification
VITA sites can file returns for taxpayers with ITINs - just like any other return
Some VITA sites can help taxpayers apply for the ITIN - called Certifying Acceptance Agents K7

49. ITEMIZED DEDUCTIONS
Allows taxpayers to reduce their taxable income based on specific personal expenses. If the total itemized deductions are greater than the standard deduction, it will result in a lower taxable income and lower tax.
F3-8

50. TAXPAYER CAN TAKE STANDARD OR ITEMIZED DEDUCTIONS
A fixed dollar amount based on filing status
Itemized
Uses your qualified expenses like mortgage interest, medical or dental expenses, charitable contributions
F1-8

51. TYPES OF ITEMIZED DEDUCTIONS
Medical and dental expenses
Taxes paid
Interest paid
Charitable contributions
Miscellaneous deductions
F3-8

52. ITEMIZED DEDUCTIONS: MEDICAL AND DENTAL EXPENSES
Only amount that exceeds 10% of AGI can be deducted
7.5% of AGI if taxpayer is over 65
Expenses can be for the taxpayers or their dependents Expenses must be unreimbursed Qualified expenses include
Doctor/Dentist bills
Hospital bills
Medical insurance
Excludes pre-tax and reimbursed amounts
Prescription medication
F3-8

53. ITEMIZED DEDUCTIONS: TAXES PAID
State and local income taxes
includes withholdings and estimated payments
State sales tax
only if more than state income tax
cannot deduct both state income tax and state sales tax
Real estate tax
reported on Form 1098
Other property taxes
e.g. vehicle registration fee
F3-8

54. ITEMIZED DEDUCTIONS: INTEREST PAID
Home mortgage interest
for a main or a second home
reported on Form 1098
points paid as a form of interest
F3-8

55. ITEMIZED DEDUCTIONS: CHARITABLE CONTRIBUTIONS
Gift/donation must be to a qualified organization
E.g. 501(c)(3)
Contributions can be cash or non-cash
Out of scope if non-cash contributions are more than $500
F3-8

56. ITEMIZED DEDUCTIONS MISCELLANEOUS DEDUCTIONS
Gambling losses
Maxes out at amount of gambling winnings
Only the amount that exceeds 2% of AGI can be deducted for some expenses such as
Finance charges on income tax payments
Union dues
Uniforms for work
Business expenses
Work-related education expenses
Investment expenses
Job-search expenses
Safe deposit box rental
Tax preparation fees
F3-8

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

58. Last year we went to “A&O Brick” to get our taxes done
Last year we went to “A&O Brick” to get our taxes done. They charged us $300 and told us we should itemize, whatever that means.

59. SCHEDULE A NOTES
$208
Last year’s state tax refund
$49,859
Last year’s taxable income
$13,250
Last year’s itemized deductions
$2,998
Last year’s state income tax paid
$1,164
Last year’s general sales tax amount

60. Enter the Kents’ Schedule A
WATCH instructor
Enter the Kents’ Schedule A
F5-13

61. Enter the Kents’ Schedule A
Now you try
Enter the Kents’ Schedule A
F5-13

62. WATCH instructor
Enter the Kents’ CDCC G5

63. Now you try
Enter the Kents’ CDCC G5

64. Do the Kents qualify for CTC?
G8-9

65. The Kents’ CTC is automatic
WATCH instructor
The Kents’ CTC is automatic

66. Exemption Code C: Citizens living abroad and certain noncitizens
ACA:
ITIN EXEMPTION
Exemption Code C: Citizens living abroad and certain noncitizens
ACA7

67. ACA EXEMPTION CODE C
Not lawfully present in the U.S and not a U.S. citizen or U.S. national
A bona fide resident of a U.S. territory
A U.S. citizen who was a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year
A resident alien who was a citizen or national of a foreign country with which the U.S. has an income tax treaty with a nondiscrimination clause, and you were a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year
ACA7

68. ACA EXEMPTION CODE C
A nonresident alien, including (1) a dual­status alien in the first year of U.S. residency and (2) a nonresident alien or dual­status alien who elects to file a joint return with a U.S. spouse. This exemption doesn't apply if you are a nonresident alien for 2016, but met certain presence requirements and elected to be treated as a resident alien. For more information see Pub. 519
ACA7

69. ACA: SHARED RESPONSIBILITY PAYMENT
If a taxpayer (or anyone the taxpayer can claim as a dependent) doesn’t have MEC and doesn’t qualify for a coverage exemption, they will need to make an SRP when filing their tax return.
ACA13

70. HOW IS THE PAYMENT CALCULATED?
For the year, based on the greater of the calculated:
Percentage of income or
Flat dollar amount
Limited to maximum of 3x per household ($2,085 for 2016)
Cannot exceed the national average premium for bronze level health plans
Prorated for months without coverage/exemption
ACA13

71. Shared Responsibility Payment
ACA13

72. Do the Kents qualify for any ACA Exemptions?

73. I’ve been healthy as a bull my entire life, not even a cold
I’ve been healthy as a bull my entire life, not even a cold! Mary is going to wait till she can get Medicare. There’s no penalty for not having health insurance right?

74. Enter the Kents’ ACA exemption
WATCH instructor
Enter the Kents’ ACA exemption
ACA5-6

75. Enter the Kents’ ACA exemption
Now you try
Enter the Kents’ ACA exemption
ACA5-6

76. 4. SCENARIO 4 KEVIN & MARY KENT
Finishing the return

77. CHECK YOUR WORK QUALITY REVIEW
Review entries:
Main info, filing status & exemptions
Income: W-2, retirement, state refund, capital gains and self-employment
Adjustments: Self-employment tax deduction
Credits: CDCC, CTC
Taxes: Self-employment tax, health care
ACA: Exemption, shared responsibility
Do we have matching AGI & refund?

78. AGI (2015 calculations) Federal Amount Owed (2015 calculations)
$63,798
AGI (2015 calculations)
$2,020
Federal Amount Owed (2015 calculations)

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

80. CREDITS
Special thanks to all the people who made and released these awesome resources for free:
Presentation template by SlidesCarnival
Photographs by Unsplash