1. ADJUSTMENTS, DEDUCTIONS, & CREDITS
Introductions/Ask if new or returning
We’re not doing mentors this year, but we are doing lots of study labs. If you have questions or need help check the schedule for a study lab.
Does everyone have a TaxSlayer account? Everyone should have entered the personal info and income for the James Teller problem before class
Navigate browser tabs of Cash Web site
Lowering Taxable Income and Taxes

2. Tax Law Basics
Total Income minus Adjustments= AGI (adjusted gross income)
AGI minus Deductions = Taxable Income
Tax is figured on Taxable Income
Credits reduce tax owed or add to the refund
Note: Taxable Income isn’t the amount of taxes owed.
We will do an exercise that includes various adjustments, deductions and credits before figuring the amount owed or the refund.
Ask what change was made to exemptions for 2018? All the rules about who can be a dependent remain in place, but the new exemption amount is 0.
We will cover some common credits including Child and Dependent Care credit. Education credits are covered in another class.
NTTC Training – TY 2018 2

3. Adjustments to Income Getting to AGI
How are adjustments different from deductions and credits? AGI is an important figure often used to determine eligibility or cap amounts for various benefits.
Pub 4012 – Tab E
Pub 4491 –Lesson 18 3

4. 2 kinds of adjustments
Taxslayer enters some adjustments automatically from other forms
Other adjustments need to be entered manually
Let’s go to the practice lab and look at the James Teller return. Can you see an adjustment that has been entered automatically on the 1040? Where did it come from? Go to next slide to identify which other adjustments might be entered automatically.
NTTC Training – TY 2018

5. Intake Booklet Alimony deduction IRA contribution/deduction
Educator expense
Student loan interest deduction
HSA deduction (HSA certification)
NTTC Training – TY 2018

6. Form 1040 Adjustments (old version)
This is a screen shot of the old 1040 showing the adjustments on line New this year, adjustments will be on Schedule 1 instead of 1040 but the line numbers remain the same
Look through the list of possible adjustments. Does your tax payer qualify for any of these? Which ones do you have to enter manually? Some are out of scope for our program. 24 and 26 are only in scope for military taxpayers if done by someone with military certification. HSA can only be done with HSA certification. 28 and 35 are out of scope.
NTTC Training – TY 2018

7. In-Scope Adjustments (PUB 4012, Tab E)
Educator expenses
Certain business expenses – if military certified
Health savings account – if HSA certified
Moving expenses - if military certified
Self-employment tax
Self-employed health insurance
Early withdrawal penalty
Alimony paid
IRA contributions
Student loan interest
Jury duty pay to employer
Ask for each of these, where on the Intake/Interview form would we see
Ask for examples of educator expenses. Who is eligible? See Pub 4012, E-2 for examples, I/I: IV-10
Note that Self-Employment Tax is automatically entered. Where does this come from? (usually based on schedule C net income) It is an adjustment for the FICA taxes (Social Security and Medicare),
I/I III-7 Explain that it covers the half that would normally be paid by the employer for W-2 income.
Early Withdrawal Adjustment is only for deferred interest accounts, e.g. CD’s, and is usually taken care of when entering interest income from 1099-INT or 1099-OID . See Part 4 page 18-1 of Pub 4491
I/I III-4 look closely at 1099-INT for CD’s
Alimony questions at Pub 4012, E-6. I/I IV-1 Question carefully to determine is really alimony and not child support or a gift. Rules for alimony changes for divorce agreements made beginning in 2019
IRA Deduction conditions at Pub 4012, E-7
Allowable contributions I/I IV-2
The most that can be put in
Allowable deduction: The most that can be deducted
Can contribute up to tax due deadline. Believe that they are going contribute/deposit, but caution that IRS will know if they don’t
TaxSlayer will calculate
Student Loan Interest, broad conditions at Pub 4012, E-8. See Pub 17 for more details. I/I IV-12
HSA and Military are a separate certifications and part of the Advanced Topics module. If you see they have an HSA and/or Military and you aren’t certified, talk to your LC/Site Coordinator to have someone WHO IS CERTIFIED do it. Another HSA and/or Military certified person must also do the QR
HSA has conditions and limitations as noted in Pub 4012, E-3 & E-4. Recommend certifying in HSA, more people are using them.
NTTC Training – TY 2018 7

8. Education Adjustments (T & F)
Education Expenses can be claimed when Education Credits can’t be claimed
Education Credits are complicated but try them first.
Let’s review the chart on pages J-2 and J-3 of Pub 4012
Tuition and fees adjustment expired and we may not know whether it has been renewed by the team you teach the class. Tuition and fees adjustment is usually not as beneficial to the taxpayer as the Education Credits. Go over the chart in 4012 This adjustment will mostly be used by people who don’t qualify for the credits, for example if their AGI is too high. The AGI cap on the deduction is higher (T & F vs. LTL) but remember that is subtracted from your income, not from your tax.
Key Points to make:
Scholarships etc. may be taxable when amounts are more than tuition and books
American Opportunity Credit – Can be complicated – see decision tree in Pub 4012, J-9
Life Time Learning Credit is available for all years of post secondary education. It is a Non-Refundable Credit
All education benefits phase out for higher incomes—TaxSlayer will figure it out
Education calculator at Eugene TA website can tell you which one is best for the individual
NTTC Training – TY 2018

9. Let’s Start the Teller Problem
Teller problem is available on CASH website under Class D
Everyone should have entered the basic info and income
What adjustment is already entered?
Is there another adjustment?
Make sure everyone has done the basic info and income before class. Take a few minutes to let everyone catch up if necessary. Early withdraw penalty should already be entered if they correctly entered the 1099 INT. Click continue at the end of the income screen and click Adjustments from the “lower your taxes” screen.
James also qualifies for the student loan interest adjustment. Usually the student will have a form from the lender but we can still take the adjustment if they know exactly how much interest they paid (for example, $10/month interest). Have them enter the student loan interest deduction for James and make sure everyone gets the has AGI
NTTC Training – TY 2018

10. Getting to Taxable Income
DEDUCTIONS
Getting to Taxable Income

11. DEDUCTIONS 4012 Tab F STANDARD VS ITEMIZED
WHO MUST ITEMIZE? 4012 pg. F-1
WHAT TYPES OF EXPENSES QUALIFY FOR ITEMIZING?
DON’T FORGET SPECIAL OREGON MEDICAL SUBTRACTION
Ask for difference between standard and itemized deductions
Standard is a fixed amount, regardless of your expenses
Some TP have expenses that exceed the standard deduction and that will reduce their taxes
For 2018 fewer people will itemize because the standard deductions have doubled. We may not know until January what changes will happen in Oregon. We may still have people who don’t itemize on their federal return but do for Oregon
See F-1 in Pub 4012 for those who don’t qualify for the standard–usually handled by the TaxSlayer IF personal info has been entered correctly. The key to that is good review of the intake and interview sheet.
Discuss Interview Tips for itemized deductions in Pub 4012, F-3 and F-4
If the taxpayer or spouse is 65 or older, they qualify for the Special Oregon Medical Subtraction, even if they don’t itemize their deductions. This is covered in more detail in class Y and Z.
NTTC Training – TY 2018

12. Standard vs. Itemized
Verify there is AGI taxable income (Form 1040) before itemizing
Consider entering itemized information, even if only for Oregon return
Oregon standard deduction is lower
Normal standard deduction may take taxable income to zero – if so, no need to itemize BUT we live in Oregon
State standard deduction is less and itemizing might be better
TaxSlayer will choose what’s most advantageous so it doesn’t hurt to fill it in
Taxpayers who have a standard deduction of zero should generally itemize their deductions. Taxpayers who normally fall within this category are:
Married, filing a separate return, and their spouse is itemizing
Filing a return for a short tax year due to a change in the annual accounting period
Considered to be nonresident aliens or dual status aliens during the year (and not married to a U. S. citizen or resident at the end of the tax year)
NTTC Training – TY 2018

13. Possible Itemized Deductions
Medical or dental expenses Pub 4012 F-5
State and Local Taxes
Mortgage Interest
Gifts to charity
Casualty and theft losses – Out of Scope
Miscellaneous expenses
Sch A Itemized deductions are divided into the listed categories
Casualty and theft losses are out of scope for Tax-Aide
State and local tax deductions are capped starting in 2018
Preparer should organize taxpayer's Deduction documents in this order before beginning Sch A.
ASK taxpayer if there are any other expenses for each category as you organize the paperwork.
Keep the taxpayer involved in what you are doing or you may miss something!
You do not have to total the taxpayer expenses. In the interview, if you find this is the case, ask one of them (if a couple) to sit at a table and create a total for each section.
More detailed info on what expenses can be itemized is in pub 4012 F-5 thru F-9
NTTC Training – TY 2018

14. Limitations on Scope
Individuals with the following should be referred to a paid preparer
Investment interest expense
A charitable contribution carryover from a prior year or created in the current year
Non-cash donations exceeding $5000
Casualties or theft losses
Investment Interest Expense is interest on money you borrow to make investments. There are restrictions and complications that make it out of scope.
If a non-cash donation exceeds $500, a special form must be filled out F8253; Section A, Part 1 of Form 8253 is only allowed; all other parts are out of scope. The taxpayer can choose not to claim the excess; then we can do the return.
NTTC Training – TY 2018

15. Limitations of Scope Continued
See Scope Manual for other, rare limitations
The Scope Manual should be available at every site
You can also find it in the Portal and on the Eugene TA resources site
Let the students know that the Eugene resources link is on their computers and will be on all of them at their site.
Have them open the link, then go to Local Resources to find the Tax Aide Scope Manual.
Remind them that Pub 4012 has a Scope of Service summary.
It is also on the Cash Web site
NTTC Training – TY 2018

16. Qualified Business Income Deduction
Individual taxpayers can deduct up to 20% of qualified business income (QBI)
A deduction from AGI to arrive at taxable income
In addition to standard or itemized deductions
New for 2018 and in scope
Referred to as Section 199A deduction
Also referred to as Section199A Business Income Deduction
New box DIV for section 199A dividends that are eligible for QBI
NTTC Training – TY 2018

17. Qualified Business Income Deduction con’t
20% of the lesser of
Schedule C profit – a loss on any Schedule C is out of scope
Taxable income in excess of any net capital gain* and before the QBI deduction
Find QBI deduction in Pub 4012 Tab F for TaxSlayer entries
* The term “net capital gain” means the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year
See Pub 4012 Tab F for TaxSlayer entries
Subtract net capital gain from taxable income before calculating QBI deduction
NTTC Training – TY 2018

18. Entering Deductions in TaxSlayer
Go to the Teller return and select itemized deductions
What expenses does he have that qualify?
Look at his intake/interview form, notes, and tax documents. Which might be itemized deductions?
Work the problem together, step by step.
Enter medical expenses, real estate and other taxes paid, mortgage interest, and gifts to charity.
Under medical expenses, note that long term care insurance is deductible up to a capped amount that increases with the beneficiary’s age. When entering this deduction you have to choose which person on the return the insurance is for. Taxslayer may default to the wrong person (spouse or dependent) so be sure to choose James from the drop down menu, otherwise the cap will be lower and he will not be able to deduct as much.
After entering deductions, compare Standard vs Itemized in TaxSlayer
NTTC Training – TY 2018

19. CREDITS
Reducing Taxes

20. Refundable or non-refundable? Automatic or manual?
CREDITS
Refundable or non-refundable?
Automatic or manual?
Ask students to explain the difference between refundable and non-refundable credits. Non-refundable credits can only reduce the tax owed to zero. Refundable credits can add to the refund even if no tax is owed.
Some credits can be partially refundable and the refundable portion will show up on a different line
Common credits like the Earned Income Credit and Child Tax Credit are done automatically by TaxSlayer as long as the other info has been entered correctly. If the EIC isn’t there or is lower than expected, check to make sure you haven’t made an error such as entering a child’s birthday incorrectly. General rules of eligibility are in 4012 tab I.
Education credits will be covered in another class. For the Teller problem, ask what other credit he is eligible for? Next we will enter his Child and Dependent Care credit.
NTTC Training – TY 2018

21. Child and Dependent Care Credit
Expenses paid for taxpayer and spouse to work or look for work
Expenses paid for care – not education
Both taxpayer and spouse (if MFJ) must have earned income
Unless incapable of self-care or full-time student
Special rule for deceased spouse
Cannot file MFS (exceptions – comprehensive)
Instructors can use this slide to review and reinforce the information following the volunteers’ review of Pub 4012 Tab G
Note there is a special section on the Form 2441 if taxpayer or spouse is incapable of self-care or a student.
MFS discussion is a comprehensive topic. There are two rare exceptions.
NTTC Training – TY 2018

22. Child and Dependent Care Credit
Enter provider information
Enter amount paid each provider
Enter amount paid for each eligible dependent
There are two steps to entering this credit correctly. Step 1, enter the provider info and how much was paid to each provider. Step 2, enter how much was paid for each eligible dependent. The most common error is for the preparer to enter the payments to providers and skip step 2. Step 3 is for other qualifying persons. The credit is for child or dependent care that was required so the taxpayer could work or was a full time student. TaxSlayer will look for earned income to determine eligibility. If the taxpayer is a student click continue to page 2 at the bottom of the screen. Fill out this screen to provide earned income (non taxable) strictly for the purpose of eligibility for the child care credit.
More guidelines are found in pub 4012 tab G-5 to G-7
NTTC Training – TY 2018

23. Child Tax Credit and Additional Child Tax Credit
Child tax credit (CTC) $2,000 per eligible child
Refundable portion up to $1,400
Additional Child Tax Credit (ACTC)
Must have more than $2,500 earned income to qualify for refundable portion
May get refundable portion with three or more children regardless of income
CTC increased from $1,000 to $2,000 for 2018 – Refundable portion increased from $1,000 to $1,400 – Earned income threshold for the refundable portion decreased from $3,000 down to $2,500
Taxpayers with earned income over $2,500 are eligible for the refundable portion of CTC. 15% of the amount of earned income over $2,500 – not to exceed $1,400 – can be refundable. TaxSlayer calculates CTC. Counselors need to be able to explain CTC limitations to taxpayers – if CTC is limited and if no portion is refundable.
NTTC Training – TY 2018

24. Child Tax Credit and Additional Child Tax Credit
Taxpayer and spouse if MFJ must have valid Social Security numbers by due date of return, including extensions
New: Dependent child must have valid Social Security number
CTC/ACTC is no longer available to dependent children with ITINs
Canadian or Mexican citizen or resident doesn’t count
NTTC Training – TY 2018

25. Credit for Other Dependents
Available for claimed dependents that do not qualify for Child Tax Credit
May be Qualifying Child or Qualifying Relative
Includes dependents age 17 or older
Qualifying dependent may have Social Security number or ITIN
$500 per qualifying dependent
Non-refundable credit
TaxSlayer automatically computes based on entries
No exemption deduction for dependents – new credit for other dependents partially offsets the lost deduction
Available to dependents either too old for CTC or have ITIN.
Like CTC, TaxSlayer computes automatically based on information entered in dependent section
NTTC Training – TY2018

26. Retirement Savings Contributions Credit
Pub 4012 Tab G
Credit designed for low-income taxpayers with voluntary contributions to qualified retirement plan
Income phase-out limits
Retirement contributions offset by current year and prior 2 years of retirement distributions
Credit reported on Form 8880 
Find Retirement Savings Contribution Credit – Screening Sheet in Pub 4012 Tab G and income / rate chart
NTTC Training - TY 2018

27. ADJUSTMENTS, DEDUCTIONS, and CREDITS
Questions ?
Comments ?
Answer all questions as best you are able or research to find answer.
PLEASE HAVE CLASS COMPLETE SURVEY
Go to Survey at cashoregon.org/
NTTC Training – TY 2018