massachusetts practice return workbook tax year 2017 · pdf filesamuel and abigail johnson...

Massachusetts Practice Return Workbook

Tax Year 2017

This workbook contains 13 returns that can be used to practice completing tax returns similar to

the ones we typically prepare at Massachusetts AARP Foundation Tax-Aide sites. The first 6-7

returns can be used by instructors for training new counselors by focusing on fundamental federal

and Massachusetts tax laws and to how to use TaxSlayer software to complete these returns. All

the returns can be used by returning or new counselors to gain additional practice using TaxSlayer

because this is only the second year we are using this new software program and changes have

been made over the summer. All the returns are for full year Massachusetts residents.

Based on last years’ experience, some returns that contain many tax elements are partitioned into

two or three parts. This partitioning should make it easier to use them in a classroom

environment. Partitioning should also provide counselors intermediate steps to verify results

before reaching the end of a long return preparation process.

For new counselor training, instructors should use charts that explain the fundamental federal and

Massachusetts tax laws inherent in the practice problems. Instructors should refer to IRS Pub

4012 and the Guide for Massachusetts Tax-Aide Volunteers (Mass Manual) as appropriate, so

counselors become accustomed to using these reference documents. A candidate set of instruction

charts are being prepared and will be posted on the Massachusetts Tax-Aide website when they

are ready. The URL for the website is: https://mataxaide.org.

All the tax forms are labelled for the 2017 tax year. TaxSlayer Practice Lab 2017 will not be

available until about mid-November for federal returns and sometime in late December or early

January 2018 for Massachusetts. Until then, counselors can use Practice 2016 and assume the tax

forms are labelled 2016. An answer key for using 2016 Practice Lab is posted on the

Massachusetts Tax-Aide website. Once 2017 software is available, the answer key will be updated

for the new software. The answer keys are based on using the taxpayer and dependent birth dates

on the Intake Sheets.

This set of practice returns incorporate the Ahmed Karr and Charles Rivers returns that were

originally prepared by Bill Long from District 18, so we thank Bill for his efforts. In past years,

these two were included in the Mass Manual. Special thanks go to the following individuals who

prepared some or all of the 13 returns, provided comments and verified the 2016 answer key:

Maria Nazzaro (District 18), Frank Dutt (District 25) and Harry Hartford (District 7).

Please send any comments on this workbook and answer key to us directly or to

[email protected].

We also have PDFs of each of the completed practice returns; these will not be posted on the

website, please contact us directly if you need any.

https://mataxaide.org/

mailto:[email protected]

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Courtney Smathers Fall 2017

1-1


1-2


1-3

Objectives

Prepare a very simple return

Determine if Courtney can claim personal exemption

Enter W-2 wage information

Enter health insurance information and discuss federal and MA requirements

Interview Notes

Courtney shows you her social security card with the number 256-00-7210.

Courtney is a full-time high school student and works part time weekends and

summers at Food Basket as a cashier to save for college.

Courtney’s mother is a single parent (divorced) who provides all of her support.

Courtney has been covered by MassHealth since her parent’s divorce.


1-4

Samuel and Abigail Johnson Fall 2017

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2-2


2-3

Objectives

Prepare straightforward MFJ retiree return

Enter typical income types – social security, pension, IRA’s, MA bank interest

Introduce MA worksheet to keep track of manual entries required for MA return

Interview Notes

Sam and Abby have been married for 50 years. Both are retired. They sold the big house where

they raised their family several years ago and now live in an in-law apartment in their daughter’s

home. They pay no rent.

Social security cards provided:

Samuel Johnson 357-00-7210

Abigail Johnson 358-00-7210

You review the copy of last year’s return they brought and determine that they did not itemize.

This problem is partitioned into two parts, the second builds on the first.

Part 1

Sam and Abby both collect social security.

Sam retired from Big D Incorporated, a major defense contractor, and receives a monthly pension.

Sam and Abby were both on Medicare for the full year.

Enter the following information:

Basic information and filing status

Social Security Payment (Form SSA-1099)

Pension (1099-R)

Health care information


2-4


2-5


2-6

Part 2

They have multiple CDs at their local bank

They are also both taking their required distributions from the IRAs they established from rolling

over 401(K) accounts.

Enter the following information:

Massachusetts bank interest

IRAs (1099-R)

Use MA worksheet, as required


2-7


2-8

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Ahmed Karr Fall 2017

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3-3

Objectives

Prepare straightforward retiree federal return

Discuss new MA items: mandatory retirement contribution on W2, MA government

pension, Senior Circuit Breaker Credit as a homeowner

Interview Notes – Originally prepared by Bill Long, District 18

Ahmed Karr lives alone and was widowed several years ago. Ahmed is a full-time

resident of Massachusetts. You verify his Social Security number is 016-00-7210.

A life-long public servant, he has not contributed sufficiently to the Social Security

system to earn benefits. His 401(k) retirement plan has earned $2400 during the

tax year, but he has taken no distributions from that plan. During his later years he

turned to teaching at the local high school, for which service he collects the pension

reported on the 1099R that he hands you. He left teaching when his eyesight began

to fail. Now legally blind, he still sees well enough to perform a part-time job at the

public library as a Library Assistant, for which he received the W-2 also provided.

Mr. Karr is registered with the Massachusetts Commission for the Blind and shows

you a certificate to that effect.

Although he does not intend to itemize his deductions on the Federal return, nor

did he do so last year, Ahmed gives you copies of his real estate tax bills for the

year, dated May and November, totaling $2750; he received an adjustment to that

bill of $350 for his blindness, yielding a net of $2400 RE tax paid. He also paid

water bills totaling $120; his home was not connected to the public sewer system.

Years ago he inherited and took residence in the family home located near but not

on the water, assessed at $325,000.

He checks YES for both US and Massachusetts election campaign options.

Ahmed paid no estimated taxes, nor did he apply part of either of his prior year

refunds to his estimated taxes. He assures us his only bank account was for

checking; it paid no interest.

You check his prior year Massachusetts return, confirming there were neither

short-term nor long-term capital losses to carry forward and no Septic Credit to

initiate or to carry forward.

Ahmed laments the fact that he is required to make a non-elective contribution to

his Falmouth retirement, as evidenced by Box 14 of his W-2, while at the same time

collecting his Falmouth pension as indicated by their 1099R.

Ahmed offers his Tufts Health Plan of NE card, subscriber 21-234567, along with a

form Massachusetts-1099-HC from Tufts, indicating he was insured for the full

year; the 1099-HC included the Tufts FEIN: 04-3266023.


3-4

Rachel E. Brown Fall 2017

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4-2

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4-3

Objectives

Prepare return for over 65 taxpayer who works part-time Discuss how to handle prior year MA tax refund Itemize deductions on federal return and discuss carryover of excess medical to MA Enter MA lottery winnings Make MA insurance entry for a private insurance firm Understand what constitutes ‘real estate tax’ for MA Senior Circuit Breaker

Interview Notes You confirm the entries on her Intake and Interview sheet (13614-C) and note her SSN on her Form SSA-1099. This problem is partitioned into three parts, each builds upon the previous. Part 1 Rachel is retired and collects Social Security. She has several other sources of income to augment that. Enter personal information and the following income and health care information:

Social Security payment (SSA-1099) Wages paid statement (W-2) Interest and Dividend statements (1099-INT / 1099-DIV) Mass HC-1099 from Blue Cross/Blue Shield - EIN 06-0000091 showing coverage for

entire year. Her subscriber number is 12345678


4-4


4-5


4-6

Part 2

Rachel receives a survivor’s pension from her late husband from Commonwealth of

Massachusetts.

She buys a $1 lottery ticket each week and had one winning ticket.

She also received a state tax refund last year – after checking her copy of last year’s return,

you see she did not itemize last year.

Enter the following (if applicable):

State tax refund notice (1099-G) A Massachusetts state pension for her late husband (1099-R) State Lottery winnings statement (W-2G)


4-7


4-8

Part 3

She is not sure whether she should itemize this year or not. She heard about the Senior

Circuit Breaker credit and wonders if she is eligible.

Rachel owns her home, has no mortgage, and pays her real estate taxes herself.

Real estate and car excise tax statements (marked “PAID” by the town clerk). Her single dwelling house is assessed at $ 263,200.

Feb: $1,015.29 May: $1,015.29 Aug: $1,066.90 (includes $14.78 in late fees) Nov: $1,052.11 Car Excise $205.00

Water and sewer bills for her home (marked “PAID” by the town clerk)

Feb: $60.43 May: $59.78 Aug: $72.96 Nov: $81.16

Medical

Medicare (from SSA-1099) $1,969 Blue Cross/Blue Shield 903 MD Co-Pay 35 Rx Drugs 626 Glasses 175 Dental 250 Medical Miles Driven 150

7 trips to MD at 20 miles RT 2 trips to Dentist at 5 miles RT

Donations

Cash donations to church $520 American Cancer Society 50

Sheryl Beringer Fall 2017

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5-3

Objectives

Prepare single taxpayer return with possible dependents and eligibility for credits

Understand criteria for claiming dependents using Pub 4012

Understand how to enter federal health insurance for dependents

Enter new items: unemployment income, student loan interest

Understand how federal and MA credits are handled with software

Interview Notes - adapted from Pub 4491W

Social security cards provided

Sheryl Beringer 031-00-7210

Courtney Johnson 032-00-7210

Artis Johnson 033-00-7210

Monica Jesse 034-00-7210

Willie W. Cash 035-00-7210

Sheryl has two children, Courtney and Artis Johnson, who live with her full time. She

has been divorced since 2009. She paid all the household expenses and provided all of

her children’s support.

Sheryl’s mother, Monica Jesse, also lives with her full time and Sheryl provides over

half of her support. Monica’s only income is from Social Security and a small amount of

bank interest. She spends her SSA benefits on her medical expenses and does not

contribute to the household expenses.

Sheryl did not itemize on last year’s return.

Sheryl is repaying a student loan and received a statement from the lending institution

showing that she had paid $395.67 in interest last year.

Sheryl’s friend, Willie Cash, lost his home and moved in with her April 18 of the tax

year. He does not have any income and is currently looking for work. Sheryl would

like to claim Willie as a dependent.

Sheryl rents her home, paying $1000 per month – eligible for MA rental deduction

Sheryl’s company provides health insurance for her and her two children. She

provides Forms 1095C and MA 1099-HC showing she had full-year Aetna insurance

with a plan ID of 06-6033492 and subscriber number of 12345678. Monica is on

Medicare.


5-4

Hannah Fleming Fall 2017

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6-3

Objectives

Prepare return for single parent with two children; ex-spouse claims one child

Discuss and enter self-employment income, tax-exempt interest, disability income,

early IRA withdrawal, prepare Schedule C

Discuss child care credit and how to enter into software

Determine how to handle ID theft PIN

Interview Notes - adapted from Pub 4491-W

Hannah is a single mother of two children, Tara and Jerry. She showed you three social

security cards with the following numbers:

Hannah E Fleming 241-00-7210

Tara Fleming 242-00-7210

Jerry Fleming 243-00-7210

Hannah is divorced. The divorce decrees states that her ex-husband is to claim their son,

Jerry, as a dependent on his return even though Hannah provides all the support for their

children, Tara and Jerry.

Hannah confirmed that the tax exempt interest she received from Northern Bank was

exempt both federally and in Massachusetts.

In January of the tax year, Hannah took an IRA distribution of $5,000 to pay off credit card

debt. She made no contributions to this IRA while a MA resident.

She did not itemize deductions last year.

Hannah had a serious accident in June of the tax year and stopped working. She collected

unemployment compensation, but was too young to retire. Hannah is now totally and

permanently disabled.

Hannah rents an apartment; her monthly rent was $975. She and the children were

covered by MassHealth for the year.

Part 1

Enter the following:

Basic Information, filing status, and dependents

Income: Wages (W-2), unemployment (1099-G), interest (1099-INT), IRA

distribution (1099-R)



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6-7

Part 2

Hannah was employed as an editor. Starting on July 1, 2009 she did some editing work

from her home for Candid Publishing Co. who provided form 1099-MISC. She kept a

record of her expenses: $1,625 for paper, $1,047.50 for printer cartridges, $1,250 for

postage, $350 for a business phone line and long distance calls, and total mileage of 234

for January and February for making deliveries. She had 10,000 other miles on her car.

Hannah has one car which she bought in 2007 and began using for her work when she

started working at home. She has a written record of her business mileage. She took a

processing course in the evening at the local college to improve her skills. The tuition was

$575. The Business Code for Schedule C-EZ or C is 541990. The address for the college

was: One University Way, Your City, State and Zip Code.

Hannah’s education expenditures could be a business expense or a credit. Determine the

most advantageous benefit for which she is qualified.

Tara’s divorce decree states that her ex-husband is to pay her $300 per month alimony.

Due to the loss of his job during the year, he only paid for 8 months.

Hannah paid the After School Academy (EIN 24-2111111), located at 54 Unique Way, Your

City, State and ZIP Code, for Tara and Jerry’s after school care while she was at work. She

paid the day-care center $1,794.

Hannah let you know that a couple of years back she experienced an identity theft issue.

She brought with her a copy of the IRS CP01A letter. Her letter shows that she was issued

a PIN of 459871 for use when completing her return.


Disability payment (1099-R)

Self-employment income (1099-MISC); prepare Schedule C’s (federal and MA)

Alimony received

Dependent care expenses

MA rent

IRS ID theft PIN


6-8

Gail Hudson Fall 2017

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7-3

Objectives

Understand and enter data for medical insurance bought on Marketplace

Understand how to account for short term gap in coverage, federal and MA

Understand impact on returns of insurance information

Interview notes – adapted from the NTTC workbook

Learning objective: federal health care exemptions

Gail has recently taken a job as a restaurant manager.

Gail shows you her social security card with number 021-00-7210.

Gail did not have any health insurance with her job and purchased insurance

through the Marketplace in March. She gives you her 1095-A and MA Form 1099-

HC showing an EIN of 12-3456789 and subscriber number of 135792468. She did

have coverage at the end of 2016.

Gail rents her apartment for $1000 per month.


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7-6

Timothy and Nicole Sterling Fall 2017

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8-3

Objectives

Prepare MFJ return for retired couple, one possible dependent, disabilities

No new income types, but pension requires Simplified Method

Enter US Bond interest, stock sales

Determine MA Circuit Breaker for renter

Interview Notes - adapted from Pub 4491-W

Social security cards provided:

Timothy A. Sterling 251-00-7210

Nicole S. Sterling 252-00-7210

Christina Summers 253-00-7210

Timothy and Nicole have been married for over 40 years. Timothy retired from the

International Brotherhood of Electrical Workers on January 1, 2009 and elected to take a

joint and survivor annuity at that time.

Nicole was hit by a car and severely injured. She was granted Social Security Disability as

a result of her injury.

Timothy’s sister, Christina Summers, lived with them all year. She is totally and

permanently disabled and relies upon her brother for her support. She received $250 per

month in social security benefits.

Nicole has less than 20/200 vision in both eyes. She provided a doctor’s statement that

she is legally blind..

They itemized deductions last year, but did not receive any state refund.

Timothy, Nicole, and Christina were on Medicare for the entire year.

Return is partitioned in two parts, second part builds on first.

Part 1

Enter the following: Basic information, filing status, and dependents, Social Security (SSA-

1099); pension (1099-R), interest (1099-INT), dividends (10990DIV), health care

information


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8-6


8-7

Part 2

Timothy and Nicole have been married for over 40 years. Timothy retired from the

International Brotherhood of Electrical Workers on January 1, 2009 and elected to take a

joint and survivor annuity at that time.

Timothy’s brokerage statement shows that he purchased 100 shares of Domestics stock on

March 12, 1984 for $12,000. This is a non-covered security (means the cost basis was not

reported to the IRS). He sold the stock on March 23 of this year. He received $15,000 net

of commissions on the sale.

The Sterlings rent their apartment, paying $1500 per month. Their landlord is Broken

Arrow Realty, 4000 Broken Arrow Way, Your Town, MA Your Zip


Pension (1099-R) and perform Simplified Method Brokerage statement (1099-B) Rent deduction in MA and determine eligibility for Circuit Breaker


8-8

Albert and Lois Meadows Fall 2017

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Objectives

Prepare MFJ return for retired couple with son living with them

Enter 1095-A for Marketplace purchased insurance; determine impact on return

Use Simplified Method on pension; handle alimony paid, enter student loan interest

Interview Notes – adapted from the NTTC workbook

Albert and Lois show you the following social security cards:

Albert 125-00-7210

Lois 126-00-7210

Warren 127-00-7210

Lois and Albert have no mortgage and their real estate taxes are not high enough for them

to itemize deductions.

This is a two-part problem.

Part 1

Albert retired on December 1, 2013 after 30 years of service. He is under 65 and not

disabled and does not yet receive social security. His pension was set up as a

joint/survivor.

For Part 1, assume Albert has full-year health insurance from his former employer for the

entire family. Their MA 1099-HC shows their subscriber numbers as 13579-1 (Albert) and

13579-2 (Lois). The EIN for Acme Insurance is 123333333.


Basic information, filing status, and dependents

Wages (W-2)

Interest (1099-INT) with early withdrawal penalty

Dividends (1099-DIV), with foreign taxes paid

IRA (1099-R). There were no prior contributions made while a MA resident.

Pension (1099-R) – assume it is all taxable



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9-7

Part 2

Lois attended Woodbury Community College several years ago where she took teaching

certification classes that were necessary for her job. She shows you a 1098E with student

loan interest.

Albert was married previously to Eleanor Meadows 128-00-7210 and he pays her $100.00

a month alimony.

Change health care information to indicate they have insurance purchased from the

Marketplace because Albert turns out is not eligible for health insurance coverage from his

former employer and his wife Lois is not offered insurance at her place of work. Albert

purchased health insurance through the Marketplace for himself, his wife, and his son

several years ago and continued to do so this year. When Albert purchased health

insurance for the family he estimated their household income at $2,000 per month. Their

MA 1099-HC showed their subscriber numbers as 13579-1 (Albert) and 13579-2 (Lois).

EIN is 123333333.


Adjust amount taxable pension income using simplified method

Enter student loan interest

Enter alimony

Enter 1095A


9-8

Jeremy and Janice Clark Fall 2017

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10-3

Objectives

Prepare MFJ working couple return with two sons as possible dependents

Enter typical income types

Determine impact of spouse having no health insurance – federal and MA penalties

and affordability questions

Interview Notes – adapted from the NTTC workbook

Jeremy and Janice were married two years ago.

Jeremy says he had health insurance that meets MEC through his work for himself and

his two sons Thomas and Sean. Janice was not eligible for health insurance through

her job and did not apply for any marketplace exemptions. Jeremy shows you his MA

1099-HC showing he has Blue Cross Blue Shield insurance, EIN 96-0000061,

subscriber number 123456789.

They currently live with Jeremy’s widowed mother in her home and pay no rent or real

estate taxes. They did not itemize last year and will not itemize this year either.

Jeremy and Janice show you the following social security cards:

Jeremy 051-00-7210

Janice 052-00-7210

Thomas 053-00-7210

Sean 054-00-7210

The calculated MA penalty is $732. To answer the MA affordability questions in

TaxSlayer, use the instructions for MA Sch HC in the Form 1 Instructions. Assume the

Clarks live in region 2.


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10-6

Mark Austin Fall 2017

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11-3

Objectives

Prepare return for taxpayer, separated from spouse; did not live together

Determine filing status, impact for MA state refund, standard vs itemized deduction

Discuss Railroad Retirement income types and enter data

Determine how to handle prior traditional IRA contributions on MA return

Handle first time homebuyer repayment

Interview Notes – adapted from Pub 4491-W

Social Security numbers provided:

Mark Austin 231-00-7210

Andrea Austin 232-00-7210

Mark and Andrea Austin have been separated since 2015. They have not lived together

since the separation, but their divorce is not finalized. Andrea’s birthday is 6/17/1940.

This is a two-part problem.

Part 1

Andrea has already filed her tax return and she itemized her deductions.

Mark itemized deductions last year and received a refund from the MA department of

revenue for $171. Mark itemized because Andrea did the same. His itemized deductions

total $13,750 his taxable income was $8,549. The amount from last year’s Schedule A, line

5a (income taxes) was $423. His general sales tax was $350.

Mark retired on 15 January 2005 and began taking annuity payments from the Railroad

and now works part-time as a machinist. His annuity does not make provisions for a joint

and survivor annuity.

He had Medicare for minimum essential coverage all year.


Basic information, filing status, and dependents.

Railroad retirement income (RRB-100/RRB-1099-R)

Wages (W-2)

Dividends (1099-DIV)

IRA (1099-R); assume all is taxable in MA



11-4


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11-6

Part 2

Mark contributed a total of $12,000 to his IRA while he was a MA resident and has taken

$1350 since he turned 70 ½.

His church contributions were $1,700 (per statement from the church).

Mark itemized deductions last year and received a refund from the MA department of

revenue for $171. Mark itemized because Andrea did the same. His itemized deductions

total $13,750 his taxable income was $8,549. The amount from last year’s Schedule A, line

5a (income taxes) was $423. His general sales tax was $350.

Mark purchased a new home on April 18. 2008 for $134,000. He received $7,500 for his

First Time Home Buyer Credit. The IRS sent him a CPO3A reminding him about the

repayment of the annual $500 that needs to be included on his tax return. He repaid the

minimum $500 on all tax returns since 2010 and will do the same this year.

He paid $125 in car excise taxes this year.


11-7


MA refund

Itemization

First time home buyer credit

Prior IRA contributions in MA


11-8

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Sean and Stacey Graham Fall 2017

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12-3

Objectives

Prepare return for MFJ working couple with children and mother

No new income types; itemize deductions with gambling losses

Enter adjustments for student loan interest, paid alimony

Calculate education credits for son and mother

Calculate MA Circuit Breaker Credit and Safe Harbor tax

Enter direct deposit bank information

Interview Notes – adapted from Pub 4491-W and the MA additions by Peter Viles

Social Security cards provided:

Sean Graham 111-00-7210 Stacey Graham 112-00-7210 Jeremy Graham 113-00-7210 Joshua Graham 114-00-7210 Gail Forsyth 115-00-7210

Sean and Stacey Graham are married, have two children living with them, and want to file a joint return. Stacey’s mother, Gail Forsyth, lived with Sean and Stacey for the entire year. Gail’s entire income consists of $2,500 earned as a teacher’s aide, $360 in interest, and $4,200 in Social

Security benefits. Sean and Stacey provided over half of Gail’s total support. She is a US

Citizen and is widowed. Both Sean and Stacy are covered by Blue Cross Blue Shield of MA. The EIN is 96-0000061, subscriber numbers 987654321-1 and -2. Both children are covered under the same policy. Gail had Medicare A and B coverage all year.

This is a three part return.

Part 1

Enter basic information, filing status, and dependents

Enter all income

Enter health care information


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12-6


12-7

Part 2

Sean and Stacey want to itemize their deductions this year. They provide the following

information with supporting documentation.

Medical insurance premiums – paid by Stacy $3520

Hospital bills, unreimbursed $ 315

Doctor bills, unreimbursed $ 540

Dentist bills, reimbursed by insurance $4200

Antihistamine (over the counter) $ 190

Gail’s prescription drugs (unreimbursed); Stacey paid $ 650

Life insurance premiums $ 385

Insulin (unreimbursed) $ 250

Excise tax on vehicles $ 565

Mortgage interest (paid to Beringer FCU) $5656

Real estate taxes $1300

Credit card interest $ 900

Church contributions paid by check $7550

Union dues $ 875

Safety Deposit Box for investments $ 150


12-8

Sean paid his ex-wife, Elaine, $250 per month, all year, in alimony. Elaine’s SSN is 116-00-

7210. Stacey paid $500 in interest on student loans for her Master of Science Degree in Elementary Education. Sean and Stacey own their own home. In 2015, their home was assessed at $251,000 and their water and sewer charges for the year were $343.17. Stacey does a lot of on-line shopping and wishes to take the Safe Harbor use tax on the MA

return.

Stacey went to Reno Nevada with friends and won $1,000 playing poker. She purchases MA lottery tickets, but had no winnings. She says she incurred $1,500 in gambling losses and says she has a written record to support those losses. Enter the following:

Itemization

Adjustments to income

Safe harbor tax

Circuit breaker

Part 3

If Sean and Stacey are due a refunds, they want the refund deposited directly into their check account at the Local National Bank in their town. If they owe on either Federal or MA returns, they want the amount owed debited. The Local National Bank routing number and checking account number are: 322070239 and 642299, respectively. Jeremy started college and was in his first year. He has not been convicted on any felony crimes. His college, Campbell University, issued a 1098-T for his education costs and scholarship. The Grahams wrote a check for $7,000 to Campbell, which is located at 15 Morgan Drive, Your town, state and zip code. Campbell’s EIN is 04-2222222. Gail paid $800 for a college course at Campbell University to improve her classroom

management skills.


Education credits/adjustments

Bank information

Charles and Chelsea Rivers Fall 2017

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13-3

Objectives

Prepare return for MFJ retired couple with self-employment income, military

pension and out-of-state (PA) government pension

Determine how to handle MA and PA municipal bond interest

Determine how to handle MA short term and long term carryover losses

Enter federal estimated payments and carryover MA refund to current year

Interview Notes – Originally prepared by Bill Long, District 18

Charles Rivers and his wife, Chelsea, are a retired couple who provide you with the

attached Interview Sheet, and Social Security cards whose numbers are 420-00-7210 for

him and 520-00-7210 for her. They also bring paper copies of their prior year US and

Massachusetts tax returns. They have been full-time residents of Massachusetts since

their move from Pennsylvania. They live together, file jointly, and have no dependents.

Part 1

Not much of a gambler, Charles won a lottery prize, on a one-dollar ticket received as a gift

on Father’s Day; he has given you a W-2G reporting this win. He also tells you he lost $50

in slots at a Connecticut casino.

Mr. Rivers also gives you a receipt from UMass Dartmouth, for payment of tuition on

behalf of his grandson, Hudson Rivers, in the amount of $3000.

The Rivers did not itemize deductions on their prior year Federal return and will not do so

this year either.

When you request evidence of health insurance, the Rivers present a pair of

BlueCross/BlueShield cards, showing Federal ID provider 96-0000061, and subscriber

numbers of 123234345A (her) and 123234345B (him); they also lament the cost of this

insurance, $2,500 per year for each of them, hoping they can deduct it on the

Massachusetts return.

Charles says YES to both the Federal and Massachusetts campaign funds, while Chelsea

says NO to both.


Basic information and filing status

Interest income (1099-INT), dividend income (1099-DIV), gambling income

Pension income (1099-R) from DFAS and Middlesex Savings IRA



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13-7

Part 2

Mrs. Rivers retired from a long-term teaching career in Pennsylvania. She comments to

you that Pennsylvania does not tax Massachusetts public teachers’ pensions.

Charles’ 1099R from the Middlesex Savings Bank indicates an IRA distribution. You ask

him for some details about the history of that IRA account. He tells you that he has

maintained a record of his contributions and distributions, and he refers to his prior year

Massachusetts Form 1, Schedule X, Line 2 Worksheet. You learn that the total amount of

his contribution to the IRA during his working years was $25,000. In each of the eight

years preceding the current year he had taken distributions of $3000 per year. None of

those distributions qualified as charitable IRA donations. All his contributions to this IRA

were made during the time he has lived and worked in Massachusetts.

Charles worked a few evenings per week during the summer as a gate tender for an

exclusive community in Falmouth. For this part-time effort he received $7500 in wages,

documented in the 1099-MISC that he has given to you. He incurred no reportable

expenses in the performance of this job. Considered a member of the community security

staff, he tells you his job has been coded 561600 on tax returns in prior years.


Pennsylvania pension

Self-employment income (and schedule C)

Make MA IRA adjustment for prior contributions


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Part 3

The Rivers rent their main and only home, paying $1000 per month to Falmouth

Properties, Incorporated, a non-subsidized apartment complex.

To cover the taxes on this self-employment income, Charles made four estimated tax

payments of $300 each to the IRS, on April 15th, June 15th, September 15th, and

December 15th. From his prior year Massachusetts return, Form 1, Line 46, you learn that

he also applied $100 of his overpayment to his current year Massachusetts estimated tax.

They offer you two 1099-INT statements from their broker at Trusted Investments where

they have a portfolio of municipal bonds. They tell you they are uncertain whether or not

the information is pertinent to their tax return. The statements are for the following:

City of Worcester, Massachusetts, bond interest: $400.00

City of Altoona, Pennsylvania, bond interest: $666.00

In checking the Rivers’ prior year Federal return, you find no indicated capital losses to

carry forward to the current US return. However, looking over the prior year

Massachusetts return, you find these entries:

Schedule B, Line 40, Available short-term losses for carryover: -$283

Schedule D, Line 23, Available long-term losses for carryover: -$444


Municipal bond interest

Estimated federal tax payments

Carryover MA refund

Carryover MA losses

Rent of $1000/month


13-10

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