1. Overview of a tax return
Tax return preparation from a high level

2. Welcome AARP Tax Aide Education is all about: Client interaction Forms
Data
Calculations

3. Overview first
Before we get lost in all the detail, let’s take an look from a high level to see the structure and flow of tax return preparation.

4. Tax Return Preparation is a Process

5. Non-refundable Credits, Payments & Refundable Credits
Federal Return (1040)
Deductions
General Info
Tax
Non-refundable Credits, Payments & Refundable Credits
Income
Account info
Adjustments
Signatures

6. 1040 General Information
General Information section identifies the taxpayer(s), dependents and filing status.

7. Where does the “general” information come from?
Social Security cards or letters
Photo IDs
Client Intake sheet
Client interview

8. What does a tax aide do? Review intake sheet for completeness
Ask for and verify identification
Verify accuracy and applicability
Ensure all necessary data is available
Begin tax preparation by entering data into the TaxWise® Main Information form

9. TaxWise Forms TaxWise supplies forms to facilitate the entry of data
We transfer information from client forms to Taxwise screens
Taxwise does all calculations
TaxWise Main Information form

10. 1040 Income
The Income section identifies and reports all types of income that apply to the taxpayer(s).
Gross income is the sum of all taxable income sources and is shown on line 22.

11. Where does Income data come from?
W-2; from employer
1099-INT; from bank
1099-DIV; from broker
1099-B; from broker
1099-R; from pension
SSA-1099; from Soc Sec
1099-G; govt …

12. What do you do with Income data?
TaxWise forms generally have input areas with the same labels as user IRS forms to facilitate data entry.
Data must match EXACTLY!

13. 1040 Adjustments
Taxpayers may be able to subtract certain expenses, payments, contributions, fees, etc. from their total income, thus adjusting their income.

14. Adjusted Gross Income =
Sum of all Taxable Income
minus
Sum of all Adjustments

15. Where does Adjustment data come from?
Most adjustment data comes from client interview and client records.
There should be reporting forms for student loans and early withdrawal penalties.

16. 1040 Deductions Deductions reduce income that is to be taxed.
Two ways to compute deductions (use the one that provides best benefit to the client)
Standard Deduction
Itemized Deductions

17. 1040 Standard Deduction Standard deduction
Automatically calculated by TaxWise
Single or MFS = $5700
MFJ or Qualifying Widow(er)= $11,400
HH = $8,400

18. Schedule A for Itemized Deductions

19. Where does Itemizeable data come from?
Client interview and client records
Unreimbursed medical expenses
Charity donations
Bank statements for mortgage interest
Property and school tax statements
Payroll records for state income tax withholding

20. 1040 Taxable Income Taxable Income = Adjusted Gross Income minus
Deductions (Standard or Itemized) minus
Exemption amount ($3,650 times number)

21. Tax liability is computed on a Graduated tax scale
Filing Status
10%
15%
25%
28%
33%
Single
0-$8,350
$8,351-
$33,950
$33,951-
$82,250
$82,251-
$171,550
$171,551-
$372,950
Married Filing Jointly
$0-$16,700
$16,701-
$67,900
$67,901-
$137,050
$137,051-
$208,850
$208,851-
Head of Household
$0-$11,950
$11,951-
$45,500
$45,501-
$117,450
$117,451-
$190,200
$190,201-
Correct Tax liability is automatically computed by TaxWise

22. Taxable income and Tax Liability
These values, while very important in the tax preparation process, are not generally known by the tax payer.
It may be useful to make the client aware of these values and explain what they mean.

23. 1040 Credits and Payments
Non-refundable credits, withholdings and refundable credits are all forms of payments.
These payments work together to satisfy the tax liability.

24. 1040 Non-refundable Credits
Credits reduce tax liability dollar for dollar.
Non-refundable tax credits cannot exceed tax liability.

25. 1040 Payments Payments Payroll or Distribution Withholding
Estimated (Quarterly) Payments
Making work pay credits
Carry-over from last year

26. 1040 Refundable Credits
Refundable credits will result in a refund if they exceed tax liability and include:
Earned income credit (EIC)
Additional Child tax credit
Home buyers credit
etc.

27. 1040 Refund or Balance Due Balance due by April 18th 2011
Penalty may apply if balance due exceeds $1,000.
If there is a large refund, it is an interest free loan; consider adjusting withholding (W-4)

28. 1040 Signatures
Signers of the return are liable for its accuracy, whether or not they paid someone else to prepare it.
Tax aides do not sign and are not liable for the return.

29. Federal Return Summary
Deductions
General Info
Tax
Non-refundable Credits, Payments & Refundable Credits
Income
Account info
Adjustments
Signatures

30. Process continues for State information

31. New York State Considerations

32. NYS Income tax Based closely on Federal return.
Provides Additions and Subtractions for differences in income and adjustments.
Social Security, public pensions and $20,000 (per person) private retirement income is excluded!
No personal exemptions, just dependents.
Many obscure exceptions and credits.

33. General Info Copied from 1040
NY IT-201 Pg 1
General Info
Copied from
1040

34. Additions & Subtractions Deductions
NY IT-201 Pg 2
Additions &
Subtractions
Deductions

35. Tax computation, credits NY City Voluntary gifts
NY IT-201 Pg 3
NY City
Voluntary gifts

36. Payments & Refundable credits Amount due or refund Signatures
NY IT-201 Pg 4
Amount due or refund
Signatures