Volunteer Tax Assistance atUnited Way of Washtenaw County

Requirements for VITA volunteers

All VITA volunteers must adhere to IRS volunteer

standards of conduct, which requires them to view a

presentation & take a 10 question certification test.

All VITA volunteers must also review a Powerpoint

presentation regarding the intake form we use to

help clients with their taxes.

Return preparers/reviewers/site coordinators must

obtain additional training.

What do I do next?

Go to www.uwgive.org/vitavolunteers to access training for “Return Preparers”.

Steps 1-4,6,8 & 9 are done. Now, steps 5,7,11 & 13

Pathway for Preparers

5. You must take and pass either the Basic test (recommended for

new volunteers) or the Advanced test (required for reviewers

and recommended for returning volunteers). You must get at

least 80% of the questions correct. You may only take test

twice, so contact Gina Torielli or Melissa Gilchrist for

assistance if you do not pass the first time. A print copy of the

tests is available [6744]. We recommend you work through the

relevant test and retest on the print copy, note your answers,

then complete the test online. Note, online questions will come

from either the printed test or retest, but will be questions will

only come from one of those tests.

Lesson 3 – Filing Basics

Reminder

6. IRS has online course modules for all certification

tests on Vita Central for learning the substantive tax

law you are likely to see on returns we prepare. If

you are unfamiliar with the EITC, filing status, the

various child care and educational credits and

deductions you should review the IRS courses.

There are also hardcopy materials that are very

helpful. Publication 4012 has flowcharts and

checklists for common topics. You likely will use

this publication a lot for the test and also on the

VITA site.

Lesson 3 – Filing Basics

POLL

1. How many completed the “homework” –

Scenarios 1-5?

2. How many want to practice on returns

right now?

Lesson 3 – Filing Basics

Pathway for preparers

7. The tests require you to prepare tax returns on the Taxwise

software. There is a practice lab you should use for this

purpose. To access the practice lab enter below the

password “learntwo” (case sensitive). You will be prompted

to create an account (not the same as your IRS certification

test account.) We have prepared a step by step guide to

using this software, which is available here*. We also have

prepared a packet of Michigan documents* that you may use

to prepare State returns for some of the scenarios. You will

save time doing the federal and state returns together, and

recording your answers on the Michigan certification test

mentioned below.

Lesson 3 – Filing Basics

1. Using only IE or Chrome go to www.twonline.taxwise.com/training

2.Use Client ID 27360723.Use your last name and first initial for both username & password4.Create a new password.

Lesson 3 – Filing Basics

BETTER WAY TO PRACTICE

Scenario 1

Q 1? – Personal exemptions.

See 4012, Tab C, pp C-2 and C-3

“Can” not “Did”

Q 2? – Filing requirements.

See 4012, Tab A, pp A-2

Lesson 3 – Filing Basics

Scenario 2

Q 3? – Filing Status

See 4012, Tab B, p B-2

[Bonus question – Can Agnes be

Joanne’s dependent?]

Q 4? – ACA, Minimum essential

coverage.

Let’s talk about ACA

Affordable Care ActMost people will be required to prove health insurance

coverage for themselves and their dependents.

If a taxpayer does not have proof of insurance coverage for

anyone, a Personal Responsibility Payment will be added to

the return.

Taxpayers cannot choose to not claim someone as a

dependent to avoid this payment. It will be levied on the

taxpayer who could have claimed the uninsured person as a

dependent, even if the taxpayer chose not to claim the

dependent exemption.

11

MEC includes:•Medicare/Medicaid•Employee or Retiree coverage•COBRA•Private health insurance purchased directly or through the Marketplace•CHIP

12

ACA – Minimal Essential Coverage

MEC does not include:•Limited plans, such as dental, vision, or worker’s comp.•Limited Medicaid, such as pregnancy or family- planning only plans•Accident or disability insurance

For full list, see ACA-4 in Pub 4012

13

ACA – Minimal Essential Coverage

ACA - Exemptions

If TP does not have MEC, TP will be required to make a Personal

Responsibility Payment, unless TP qualifies for an exemption:

•No filing requirement

•Single short gap (less than three months)

•Member of Indian tribe

•Undocumented alien

•Incarcerated

•Religious conscience

•Not affordable (premiums exceed 8% of Household Income)

For full list, see ACA-5 in Pub 4012

14Lesson 3 – Filing Basics

ACA - Marketplace• Private insurance may qualify for a credit.

• Most private insurance is currently being sold

on the government-run Marketplace.

• Premiums on the Marketplace include an

estimate of the credit.

• In these situations, IRS requires a reconciliation

between credit included in the premium &

actual credit calculated on the tax return.

• These returns will be handled by specialists.

15Lesson 3 – Filing Basics

ACA

Two major issues for preparers:

1. Did every person in the household have MEC in each

month of 2014? - If NO, get help

For the basic test, you must know what MEC is.

For advanced, you must know whether there is an

exception to the requirement and who might be liable for

the SRP penalty.

2. Did the taxpayer buy insurance on a healthcare

exchange? – If YES, get help.

Lesson 3 – Filing Basics

Scenario 3

Q 5? Dependents

Q 6? EITC Let’s talk about that.

(Is child a qualifying child?)

(Is grandchild?

Lesson 3 – Filing Basics

18Lesson 3 – Filing Basics

What is the EIC?

• A refundable tax credit available to eligible TPs who do not earn high incomes

• Qualifying TPs can receive a refund even if they have no filing requirement, owe no tax, & had no income tax withheld

• 2014: Maximum EIC for families with three or more children is $6,143

18Lesson 29 – Earned Income Credit (EIC)

19Lesson 3 – Filing Basics

Qualifying for the EIC

• Three sets of rules:1. General eligibility rules for everyone2. Rules for TPs with one or more qualifying children3. Rules for TPs who do not have a qualifying child

• Review Pub 4012 (Tab i), Summary of EIC Eligibility Requirements; focus on Part A & Part D

• Avoid common EIC filing errors:• Incorrectly reported income• Incorrectly reported SSNs• Married TPs incorrectly filing

as Single or Head of Household• Claiming a non-qualifying child

19Lesson 29 – Earned Income Credit (EIC)

20Lesson 3 – Filing Basics

Rules for Taxpayers with Qualifying Children

• Claiming a child who is not a qualifying child is one of the most common EIC errors; make sure you apply the rules correctly.

• Review Pub 4012 (Tab I, page I-4):• Summary of EIC Eligibility Requirements, Part B• EIC General Eligibility Rules Interview Tips• EIC with a Qualifying Child Interview Tips• Qualifying Child of More than One Person

20Lesson 29 – Earned Income Credit (EIC)

21Lesson 3 – Filing Basics

Rules are presented in Pub 4012 (Tab i) Part C, & in the Interview Tips

•Must be at least age 25 but under age 65 as of December 31

•Cannot be the dependent of another person• Check Part I, question 13 on Form 13614-C

•Must have lived in the U. S. more than half the year

Rules for Taxpayers without Qualifying Children

21Lesson 29 – Earned Income Credit (EIC)

Scenario 4

ITIN return:

Q 7? Filing Requirements

Q 8? EITC.

Q9? Dependents

Lesson 3 – Filing Basics

Lesson 3 – Filing Basics

Determining Alien Status

• Nonresident aliens taxed differently from resident aliens

• See Pub 4012 (Tab L), ITIN returns Determining Residency Status decision tree

• Green card test• An individual with a green card is,

for tax purposes, a resident alien• But not the only test!

23Lesson 7 – Unique Filing Status & Exemption Situations 23

Lesson 3 – Filing Basics

Exemption for Nonresident Alien Spouse

• What are two ways a citizen or resident alien who is married to a nonresident alien can claim the personal exemption for their spouse?• Treat the spouse as resident alien on a joint return, or • Treat the spouse as a nonresident alien on a Head of Household or

Married Filing Separately return.

• TPs must declare in writing that they are choosing to treat a spouse as a resident alien on a joint return.

24Lesson 7 – Unique Filing Status & Exemption Situations 24

Lesson 3 – Filing Basics

Dependency Exemptions

The dependency tests for a qualifying relative or qualifying child apply in the same way to citizens or resident aliens

•There may be unique issues with the support test & the citizen/resident test. Refer to:

• Pub 4012 (Tab C) Personal Exemptions Interview Tips • Pub 17, Chapter 3, Citizen or Resident Test• Interactive Tax Assistant: Who Can I Claim as a Dependent? &

How Much Can I Deduct for Each Exemption I Claim?

•Special rules for children born overseas & adopted children

25Lesson 7 – Unique Filing Status & Exemption Situations 25

Scenario 5

Q 10? Filing Status

Q 11? EITC

Lesson 3 – Filing Basics

Scenario 6

Q 12? Education Credits

Q 13? Let’s talk about education.

Lesson 3 – Filing Basics

Lesson 3 – Filing Basics

Taxable Scholarship Income

• Taxable scholarship income may be reported on Form W-2 & Form 1098-T

• If the TP did not receive aForm W-2, the taxable amountshould still be reported

• Review Pub 4012 (Tab D) Tax Treatment of Scholarship & Fellowship Payments

28Lesson 8 – Income from Form 1040 Lines 7-11 28

Lesson 3 – Filing Basics

Education Credits Introduction

29Lesson 23 – Education Credits

• Education credit amounts are based on qualified education expenses paid during 2014

• For an overview of education credits, see Pub 4012 (Tab J), Highlights of Education Tax Benefits

• To help guide your interview, use Pub 4012 (Tab J), Education Credits

• Disqualifying conditions include if a TP:• Can be claimed as dependent on someone else’s return• Files as Married Filing Separately• Has an AGI above the limit for the TP’s filing status• Was a nonresident alien for any part of 2014, & did not

elect to be treated as a resident alien for tax purposes29

Lesson 3 – Filing Basics

Dependents / Eligible Institutions

30Lesson 23 – Education Credits

• To claim the credit for a student’s qualified expenses, the TP must claim the student as a dependent

• Expenses must have been paid to an eligible educational institution

• A searchable database of all accredited schools is available at http://ope.ed.gov/accreditation

30

Lesson 3 – Filing Basics

Qualifying Expenses

31Lesson 23 – Education Credits

• Qualified education expenses are tuition & certain related expenses required for attendance at an eligible educational institution

• The definition for “certain related expenses” differs between the lifetime learning credit & the American opportunity credit

• Necessary proof of expenses includes such documents as receipts or Form 1098-T, Tuition Statement, issued by the school

• Qualified expenses must be reduced by the amount of any tax-free educational assistance TPs receive

• TPs can claim payments that wereprepaid for the academic period that begins in the first three months of the next year

31

Lesson 3 – Filing Basics

American Opportunity Tax Credit

• Available for the first 4 years of college per eligible student

• The credit covers 100% of the first $2,000 & 25% of the second $2,000 of eligible expenses, up to the amount of tax or a maximum of $2,500

• 40% of the credit is a refundable credit

• See Form 8863 Instructions for more information

32Lesson 23 – Education Credits 32

Lesson 3 – Filing Basics

Lifetime Learning Credit

• The credit is 20% of the first $10,000 of eligible expenses, up to the amount of tax or a maximum of $2,000

• The credit is non-refundable

• Eligible students are not required to be enrolled at least half-time or in a degree program, & a felony drug conviction is not a disqualification

• Refer to Pub 4012 (Tab J), Education Benefits for basic requirements

33Lesson 23 – Education Credits 33

Lesson 3 – Filing Basics

Choosing Between the Credits / No Double Benefits

TPs cannot receive multiple benefits for the same student’s expenses

TPs have several options for claiming education expenses:

1. American opportunity credit or lifetime learning credit

2. Tuition & fees deduction3. Itemizing on Schedule A4. Reporting as business expenses

on Schedules C or C-EZ

34Lesson 23 – Education Credits 34

Scenario 7

Q 14? IP-TIN

Q 15? Interest income.

Q 16? Social Security.

Lesson 3 – Filing Basics

Identity Protection

• The IRS Identity Protection PIN (IP PIN) is a unique 6 digit number that is assigned annually to victims of identity theft for use when filing their federal tax return to show that taxpayer is the rightful filer of the return. For the 2013 filing season, IRS expects to provide more than 1.2 million IP PINs. The IP PIN will allow these individuals to avoid delays in filing returns and receiving refunds.

• When assisting taxpayers who are victims or may be victims of identity theft at VITA/TCE site, you should:• Consult Tab P of the 4012• Contact site coordinator for help with state issues.

36Lesson 3 – Filing Basics

Lesson 3 – Filing Basics

Determining Taxable & Nontaxable Income

• Nontaxable (excludable)• Gifts & inheritances• Exempt income

• Earned• Received for work, such as

wages, business income

• Unearned• Interest income from

investments

• Review Pub 4012 (Tab D) for examples

37

What are the differences between taxable & nontaxable income?

Lesson 8 – Income from Form 1040 Lines 7-11 37

Lesson 3 – Filing Basics

Determining Taxable & Nontaxable Income

• Remember: Volunteers probe taxpayers to determine all sources of income

• Media: Videos & Audio for topic• FAQ, Taxable & Nontaxable Income

38Lesson 8 – Income from Form 1040 Lines 7-11 38

Lesson 3 – Filing Basics

Reporting Wages, Salaries, Tips, etc.

• Form W-2: Issued to employees by January 31, reports wages & other compensation

• Pub 4012 (Tab D) How/Where to Enter Income

• Pub 4012 (Tab D) Form W-2 Instructions

• Pub 4012 (Tab D) How to Enter Tips

39Lesson 8 – Income from Form 1040 Lines 7-11 39

Lesson 3 – Filing Basics

Reporting Wages, Salaries, Tips, etc.

• Remember: • Household employees earning less than $1,700 may not

receive a Form W-2, but the income must be reported• Self-employed TPs who receive tips should include their

tips in gross receipts on Schedule C

• Media: Videos & Audio for topic• Tax Map: Tip Income• Missing Form W-2 (YouTube video & Podcast)

40Lesson 8 – Income from Form 1040 Lines 7-11 40

Lesson 3 – Filing Basics

• Interest income (unearned income) is reported on Form 1099-INT

• Common sources: savings accounts, CDs, saving certificates, government bonds, interest on insurance proceeds, loan interest

• Use TaxWise Interest Statement worksheet

Interest Income

41Lesson 8 – Income from Form 1040 Lines 7-11 41

Lesson 3 – Filing Basics

State & Local Refunds

• On Form 1099-G, refund will be in box 2

• Report only if:• TP itemized deductions last year, &• Received an income tax benefit. • Do not report if state sales tax was deducted.

• Taxable refund is reported on Form 1040, line 10

• Link to state tax refund worksheet in TaxWise

42Lesson 8 – Income from Form 1040 Lines 7-11 42

Lesson 3 – Filing Basics

Alimony

• Do not confuse child support payments with alimony

• Where do you get alimony information?• Ask the TP

• Alimony payments under an agreement executed before 1985 are out of scope

43Lesson 8 – Income from Form 1040 Lines 7-11 43

Lesson 3 – Filing Basics

Lesson 9 – Business Income

44

See Tab D, pD12-14 for Instructions. Form 1099- MISC will not automatically flow to the return. You must add it your self.

Lesson 3 – Filing Basics

Social Security & Railroad Retirement Benefits

45Lesson 14 – Income – Social Security Benefits; Form 1040 Line 20a

• Pub 4012 (Tab D, p D-25) Railroad Retirement, Civil Service, & Social Security Benefits shows how to enter data in TaxWise

45

Lesson 3 – Filing Basics

Finding the Taxable Portion

46Lesson 14 – Income – Social Security Benefits; Form 1040 Line 20a

The taxable amount, if any, depends upon:

•Filing status & other reportable income

•Whether the benefits were the TP’s only source of income • If the benefits were the only source of income, the benefits are

generally not taxable, & the TP need not file a federal income tax return.

• If the TP received other income, complete the Social Security Benefits Worksheet to calculate the taxable portion.

46

Scenario 7

•Q 17? Standard Deduction•Q 18? Balance Due.

Lesson 3

– Filin

g Basi

cs

Lesson 3 – Filing Basics

Amount Owed

• Payment options for taxes owed are:• Check or money order submitted with Form 1040-V,

Payment Voucher • Electronic funds withdrawal • Credit card • Electronic Federal Tax Payment System (EFTPS)

48Lesson 30 – Refund & Amount of Tax Owed 48

Lesson 3 – Filing Basics

Amount Owed

• Review Pub 4012 (Tab K), Balance Due Returns whenever you prepare a return that has an amount owed

• TPs who cannot pay the full amount owed may request one of the following agreements:1. Pay in full within 60 or 120 days with no fee 2. Monthly installment payments using Form 9465,

Installment Agreement Request, with a fee

• Balance due payments must be made by the April filing due date to avoid penalties & interest – NOT DATE OF EFILING.

49Lesson 30 – Refund & Amount of Tax Owed 49

Scenario 8

•Q 19? Filing Status•Q 20? “Child”?•Q 21? Taxes Withheld?•Q 22? Child & Dependent Care Expenses?

•Child Tax Credits•Deduction for Child & Dependent Care•Let’s talk about that.

Lesson 3

– Filin

g Basi

cs

Lesson 3 – Filing Basics

A Nonrefundable Credit

51Lesson 25 – Child Tax Credit

• Child tax credit allows TPs to claim a nonrefundable tax credit of up to $1,000 per child

• TPs who claim the child tax credit, but do not qualify for the full amount, may be able to also take the refundable additional child tax credit by completing Form 8812, Additional Child Tax Credit

• Review Pub 4012 (Tab G), Child Tax Credit

51

Lesson 3 – Filing Basics

Eligibility

52Lesson 25 – Child Tax Credit

• To be a qualifying child for the child tax credit, the child must be claimed as the TP’s dependent

• A child must meet certain criteria to qualify for the credit

• Review Pub 4012 (Tab G), Child Tax Credit Interview Tips

• There are special rules for children of divorced or separated parents, as well as children of parents who live apart

• TaxWise automatically determines a TP’s eligibility based on entries for children on the Main Information Screen

52

Lesson 3 – Filing Basics

Calculating the Credit

• TaxWise will automatically calculate the credit, provided you have correctly completed the:• Dependent section of the Main Information Screen• Form 1040 through the retirement savings contribution

credit line• Part I of Form 5695, & Schedule R

53Lesson 25 – Child Tax Credit 53

Lesson 3 – Filing Basics

Refund or Tax Due

54Lesson 30 – Refund & Amount of Tax Owed

Form 8888, Allocation of Refund, is used to deposit a refund into up to three bank accounts

•For more information, review Pub 4012:• Tab K, Split Refund Option• Tab K, Pointers for Direct Deposit of Refunds• Tab K, Balance Due Returns

•Double-check accuracy of routing & account numbers for direct deposit refunds

•Refund status can be checked at “Where’s My Refund” feature on www.irs.gov, or calling 1-800-829-1954

54

Lesson 3 – Filing Basics

U.S. Savings Bonds

55Lesson 30 – Refund & Amount of Tax Owed

• TPs may purchase U.S. savings bonds with their tax refunds for themselves or for co-owners, such as children or grandchildren

• Form 8888 is used to buy savings bonds

• Series I bonds are sold at face value &accrue interest until redeemed or until they reach their final maturity in 30 years

• Series I bonds pay interest based on a combination of a fixed rate & a semiannual inflation rate

55

Lesson 3 – Filing Basics

Third Party Designees

• TPs may choose to authorize another person to discuss their tax return with the IRS

• Volunteer tax preparers must never be designated as the 3rd party designee

56Lesson 30 – Refund & Amount of Tax Owed 56

Lesson 3 – Filing Basics

Printing & Storing Returns

57Lesson 32 – Concluding the Interview

• TPs must receive copy of their tax return. To prepare packet:• Print the entire return using TaxWise• Ensure names & social security numbers are legible on every sheet • Assemble the packet starting with Form 1040, followed by each form,

schedule, & attachment in order, based on the sequence number• Show TP printed copy of return, & verify key information is correct

• Advise TPs to keep tax-related documents for at least 3 years

• Review Pub 4012:• Tab K, Last page, Distributing Copies of the Return

57

Lesson 3 – Filing Basics

Completing the Return

• What are the final steps to completing a return?1. Run diagnostics on the return2. Print the return3. Give the return to your designated quality

reviewer4. Assemble the return & all necessary

documentation

58Lesson 31 – Quality Review of the Tax Return 58

THE END

THANK YOU FOR YOUR ATTENTION!