Академический Документы
Профессиональный Документы
Культура Документы
Community
Network
...It’s Your Resource
x Training Materials
x Asset Building Strategies
x Volunteer Opportunity Information
x Partner Opportunity Information
x Tips on helping taxpayers in these categories:
- Disabled
- Military
- Low-income
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Technical Updates
Tax law changes implemented after this product was published may cause various forms,
tables, and worksheets to change. The supplemental changes (if any) are normally available in
mid-December on www.irs.gov (keyword: Community Network).
Technical updates are also conveyed in Volunteer Quality Alerts during the filing season on
www.irs.gov. Also, consult your course facilitator and/or site coordinator.
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Page Topics
1 Notes to Facilitators
2 Teaching Methods
2 Facilitator Prerequisites and Classroom Set-Up
3 Training Resources from the IRS
4 Proof Copies of Forms and Tables
Lesson Plans
Lesson 1— Course Introduction
Lesson 2—Screening and Interviewing
Lesson 3—Filing Basics
Lesson 4—Filing Status
Lesson 5—Personal Exemptions
Lesson 6—Dependency Exemptions
Lesson 7—Military – Unique Filing Status and Exemption Situations
Lesson 8—Income – Wages, Interest, Etc
Lesson 9—Income – Business Income or Loss
Lesson 10—Income – Capital Gains or Loss
Lesson 11—Income – Retirement Income
Lesson 12—Income – Rental Income and Expenses
Lesson 13—Income – Unemployment Compensation
Lesson 14—Income – Social Security Benefits
Lesson 15—Income – Other Income
Lesson 16—Income – Military Income
Lesson 17—Adjustments to Income
Lesson 18—Military Moving Expenses
Lesson 19—Standard Deduction and Tax Computation
Lesson 20—Itemized Deductions
Lesson 21—Military Employee Business Expenses
Lesson 22—Business Travel Expenses
Lesson 23—Credit for Child and Dependent Care Expenses
Lesson 24—Education Credits
Lesson 25—Child Tax Credit
Lesson 26—Miscellaneous Credits
Lesson 27—Other Taxes
Lesson 28—Foreign Tax Credit
Lesson 29—Payments
Lesson 30—Earned Income Credit (EIC)
Lesson 31—Refund / Amount of Tax Owed
Lesson 32—Quality Review of Tax Return
Lesson 33—Concluding the Interview
Lesson 34—Military Finishing and Filing the Return
Lesson 35—Amended Returns
Welcome to the Tax Year 2007 Volunteer Income Tax Assistance (VITA)/Tax
Counseling for the Elderly (TCE) volunteer preparer training program. By following the
process-based training approach presented in this publication, your students will:
Breathe life into the course you teach by sharing your experiences and insights. We
appreciate your participation in this year’s training program and welcome your feedback
about this guide and the other products used in the program. You may follow the
directions in the Director’s cover letter or the evaluation procedures in this publication to
submit comments.
While every class is unique, we strive for consistency in the training that is presented to
volunteer return preparers. The guide contains suggested lesson plans and class
schedules for teaching the five VITA/TCE courses — Basic, Intermediate, Advanced,
Military and International.
The courses can be presented in from 16 to 40 hours depending on the student’s tax
law expertise and skill levels. Suggested presentation times for each lesson are
presented in Appendix A, Basic Course and Appendix B, Advanced Course.
Presentation times for the Intermediate, Military and International courses can be
created by deleting or adding the topics appropriate for each course.
The five VITA/TCE courses may be taught using the following delivery methods:
1. Classroom instruction combining lecture, role-playing and general discussions with
completing the problems and exercises in the student text and Publication 678-W,
using tax preparation software or paper products.
®
We recommend wrapping up each topic by demonstrating the use of TaxWise or
illustrating the entry on the return or quality forms. You may find the chart in
Publication 678-W (pages 6 and 7) and the Vanessa Franklin return in Appendix A of
Publication 4491 helpful when teaching the different topics.
2. Link & Learn Taxes (L<) classroom instruction which entails lecture and
discussion in combination with this interactive e-learning application on
www.irs.gov. If TaxWise is available, we recommend that you incorporate it in this
training method.
3. Self-Study instruction allowing students (using the Publication 4491, and/or L<)
to independently complete their course with your guidance.
Classroom Set-Up
®
Classes should be 20 students or less. Classes that incorporate TaxWise e-filing
software should ideally have:
x A computer for each student
x A facilitator station with computer and projector
x Table space for documents
x Storage disks or CDs for students to save their work
x One assistant per five students (ideally)
®
Note: If computers are not available, refer students to the TaxWise screenshots in Publication 4012.
3. Publication 4012, Volunteer Resource Guide assists the students (both in class
and at the site) in “asking the right questions” in order to prepare an accurate return.
Publication 4012 contains interview questions and tips, along with charts, decision
trees, and graphics that convey tax law, credit eligibility rules and information, and
tax return preparation software guidance. Vanessa Franklin’s tax information is
featured in the some of the TaxWise screenshots.
Note: Students should take their copies of Publication 4012 to their tax preparation site.
4. Form 6744, Test/Retest is open book and available to the students as part of their
training kit. The test/retest covers all five courses and can be taken and/or scored
on Link & Learn Taxes (L<). L< is the e-learning training tool for the VITA/TCE
program. It includes all courses and the test for each course. In addition to
acknowledging correct answers, L< contains a reference tool for researching
incorrect answers.
If your students do not test and certify using L< you will also need the Test/Retest
Answers (Publication 4189).
Other highly recommended products for your training class include Publication 17,
Federal Income Tax Guide for Individuals and state tax materials. If paper/manual
return preparation is taught, you will find it helpful to supplement the training material
with the Form 1040 Instructions.
Drafts of blank copies of the products and the Tax and Earned Income Credit Tables
can be found in Publication 678-W. The Test/Retest (Form 6744) also contains blank
forms. When using products from other sources, including www.irs.gov, make sure
you are aware of any content and processing changes before sharing them with your
students.
Exhibits 1 and 2 on the next two pages depict the content of each of the five VITA/TCE
courses and the lessons that cover the content.
Exhibit 1 - Summary:
1. The Basic course covers income from wages, interest and dividends, and tax credits
for individuals and couples.
2. The Intermediate course covers all the tax topics in the Basic course and additional
income topics, including alimony, social security income, itemized deductions,
adjustments to income, and some pension issues for individuals and families with no
stock or sale of home considerations.
3. The Advanced course covers all the tax topics in the Basic and Intermediate
courses including additional pension topics. Also covered are stock sales and sale of
home issues for individuals and families.
4. The Military course is generally the Advanced course with special emphasis on tax
issues impacting armed services personnel and their families, i.e., combat pay,
moving expenses, etc.
5. The International course is generally the Advanced course with special emphasis
on international tax law for U.S. residents living outside the United States
(nonmilitary), especially those served by U.S. embassies and consulates.
Volunteer certification can be accomplished using one of the two methods as follows:
Both methods will require Form 6744, Test/Retest. Review the introductory information
in Form 6744 for testing guidance and information you will need to discuss with your
students prior to administering the test. Regardless of the testing method, volunteers
should complete the test on their own.
Students can take the test using tax software (where appropriate) and may use
any reference materials available to them as volunteers to complete the test.
Why manually grade the test? Instead, your students can have their tests
graded/scored online and receive immediate feedback regarding incorrect test entries.
They can also obtain their certification certificate online @ www.irs.gov (Keyword:
Link & Learn Taxes).
We need your help in accomplishing one of our most important goals, which is providing
the right training or mix of training that empowers all volunteers to deliver accurate,
quality return preparation assistance. We welcome all comments.
Students should submit their comments on Form 13222 in their training kit and you
may use Form 13232 available from your IRS-SPEC relationship manager.
Both forms are machine processed; therefore photocopies of the forms are not
acceptable. Also when completing the forms:
x Enter the applicable course number and city and state information shown in
Appendix C, VITA/TCE Class Numbers, or Appendix D, M-VITA Class Number.
x Do not fold, staple, or photocopy.
x Darken the circle “bubbles; do not place an “X” or check mark in the “bubbles.”
Only evaluation forms should be mailed to the above address using the postage free
mailing label (Document 12107).
Testing Guidelines
15 (Using Form 6744)
240 Review Test
Closing &
Evaluation Form
15 13222
Objective
Explain the purpose and content of the course and the volunteer agreement,
protections, rights, responsibilities and resources.
Welcome
Lesson 1 - Page 1 of 8
To be a successful tax preparer you need to
understand and have compassion for all
types of people.
Lesson 1 - Page 2 of 8
As I mentioned earlier, you do not have each and every time.
memorize a lot of information in this course.
We will use a process based approach to
training which includes the following
components:
Encourage the students to
x Screening and interviewing reinforce their training and tax
taxpayers (Intake and Interview law knowledge using Link &
Sheet) Learn Taxes.
x Understanding and applying tax law
x Using references, resources and
tools
x Conducting quality reviews
Respond to each inquiry.
Are there any questions?
Page 1-2
What is included in this guide?
Complete the checklist -- What
Well, let’s get started by making sure we Do I Need? on page 1-1 with
have the products we need for training. the students.
Yes, we will use all these products. Each product is described in the
Notes to Facilitators - page 1-2
By the way, don’t be intimated by the size of of this publication.
the products. Five different courses are
covered in this material. I will be teaching
the _ (state the course being taught)__
course.
Introduce the five icons in
Beginning in Lesson 8, we will follow the Chapter 8, page 8-1.
icons for our course content.
.
Each lesson incorporates the following
components:
x A list of forms and references in the
“What do I need “ section of each
lesson Encourage the students to read
x Tips, Cautions and TaxWise® Hints the information in the margin on
to help you with key points of each each page of their text; even if
lesson you do not cover it in class.
x Concise explanations of basic tax
law relevant to taxpayers with low to
moderate incomes
Lesson 1 - Page 3 of 8
x An on going scenario of a taxpayer, they will continually use the
Vanessa Franklin information being taught to
x Instructions for completing a return complete Vanessa’s tax return.
using TaxWise software
Explain that integrated process
Earlier, I used the term process based and process based training are
training (PBT). Some of our returning interchangeable phrases
volunteers may recognize PBT as
integrated training.
See the four bullets on page 1-1
Can anyone state the four components of
the PBT process? Further explain the process by
incorporating their answers and
the information on page 1-2 –
“What is process based
training?
Lesson 1 - Page 4 of 8
When you sign this agreement, you are form.
agreeing to all the bulleted information on
page 1-3. Explain to the students the
importance of providing quality
Some taxpayers will insist that you accept a service and upholding the
token of their appreciation, but let me state ethical standards of the
again, you should never accept payment of VITA/TCE program.
any kind from a taxpayer for return
preparation or any tax related assistance. Emphasize the last two
standards, to never solicit or
As noted, this does mean that you cannot accept payment for services.
receive compensation from your Site (This includes a jar for donations
Sponsor. for the purchase of supplies,
tips, etc.)
So, now you know what you’re agreeing to
do as a volunteer-- correct? Share this example:
During an interview on a local
news program, a taxpayer once
complained that she had been
improperly charged a fee by a
VITA/TCE program volunteer.
Lesson 1 - Page 5 of 8
As you can tell, a great many of your duties Point out that “There are some
and responsibilities as a volunteer tax people who will try to defraud
preparer revolve around trust. the government by filing false
tax returns.”
Taxpayers trust that all the information you
receive from them is protected from Stress to the students, when in
disclosure. Let’s discuss what you can do doubt about what they should do
to maintain this trust. in any situation to consult their
Site Coordinator.
Page 1-5
What type of returns can I
prepare? Restate the course you will be
teaching and the topics you will
You are probably wondering about the cover.
types of returns you can prepare, and the
answer, as you might expect, is not Emphasize that they must not
everything. assist taxpayer with tax
situations beyond the scope of
For specific information about the scope of their training, experience and
the VITA/TCE Program and each of the five certification.
courses visit the web site on the back cover
of your training guide. Ask students if they have any
questions or concerns.
Lesson 1 - Page 6 of 8
Are there other materials available
to assist you?
Allow the students some time to
Your Site Coordinator is responsible for read the bullets on page 1-6.
ensuring that you have all of the technical
materials and other resources you need to
perform your duties.
Encourage the students to visit
As explained earlier, you should take your the “Community Network” for
Publications 17 and 4012 to the tax electronic copies of the products
preparation site with you. Please write your and additional information. See
notes in these two publications (where the back cover of their student
possible). text.
Page 1-6
How to acquire tax software?
Use the information in the text or
I have mentioned TaxWise a few times, so, refer the students to page 3 of
what is TaxWise? Publication 4012 – How to Use
this Guide and discuss TaxWise
(including showing them the
TaxWise screen shots).
Lesson 1 - Page 7 of 8
Throughout your student text you will find
TaxWise hints.
Lesson 1 - Page 8 of 8
Lesson 2: Screening and Interviewing
Objective
Cultivate and/or learn and practice techniques for screening and interviewing
taxpayers. Learn the tools and other resources available for this process.
Introduction
In this lesson, you will learn some screening Complete the checklist—What
and interviewing techniques that will ensure Do I need? on page 2-1 with the
that taxpayers receive quality service and students.
accurate return preparation assistance.
You will become acquainted with Inform the student that they
techniques and tools to assist you during must conduct a probing
the initial screening of taxpayers for interview before assisting
program eligibility. The same tools and taxpayers with their return.
techniques will also be used when
conducting probing interviews.
During the screening process, the intake Refer student to Form 13614 in
document is reviewed by a “screener or the the Volunteer Resource Guide
actual volunteer preparer” to determine if or other approved product.
the taxpayer is eligibility for assistance and
if they have all the necessary
documentation.
Lesson 2 - Page 1 of 9
In dialogues with the taxpayer, listen
carefully for clues that will help you when
completing their return. For example, their
marital status, the children and relatives
living with them, childcare and tuition
expenses, sources of income, etc.
Let’s discuss what’s included in the intake Remind the class that these are
and interview process by reviewing each of minimum expectations. If
the bullets on page 2-1. possible, display as a visual aid.
In either scenario, the taxpayer completes Note: Advise the volunteer not
page 1 of the intake and interview sheet. to write on any of the taxpayer’s
The individual preparing the return “the personal documents or take
volunteer preparer” will conduct the probing them out of the taxpayer’s sight.
interview to validate the information
provided by the taxpayer and the
annotations made by the screener (if
Lesson 2 - Page 2 of 9
applicable).
Now it’s time to look at one of your most Ask the students to open their
important resources, Publication 4012. The Volunteer Resource Guide and
Volunteer Resource Guide has a number of review the content behind each
tools, like decision trees and interview tips, tab.
all of which will help you gather, clarify and
verify taxpayer information.
Are there any questions about what has Respond to inquiries and remind
been covered thus far? students that they must take and
use the Volunteer Resource
Guide at their VITA/TCE site.
Lesson 2 - Page 3 of 9
The quality review process will be
discussed in detail in Lesson 32, but for
now, I would like to introduce you to
Form 8158, the Quality Review Sheet.
The Quality Review Sheet should be used Advise the students that a
by your Site’s quality reviewer to confirm the quality review must be
accuracy of the return before the taxpayer conducted of each return they
signs it and leaves the site. prepare and that the information
on Form 13614 will be the basis
of the quality review.
I would like to briefing discuss the intake Direct the students to page 2-3
and interview process using TaxWise. or provide an illustration of the
TaxWise hint and/or display as a
visual aid.
TaxWise has a number of forms/worksheets
that can be used in-lieu of an intake and
interview sheet.
As shown on page 2-3, the following Advise the students that their
worksheets must be used to conduct the quality reviewer will use paper
intake and interview process using copies of the TaxWise
TaxWise: worksheets or online copies of
x Main Information Screen them to conduct to the quality
x Interview sheet (interview questions) review.
x Dependent Worksheet (if required)
x Head of Household worksheet
(if required)
x Earned Income Credit Worksheet
(if required)
So, how do you get the screening process Note: Publication 4475,
started? Here are some suggestions: Interview Techniques is an
x Greet the taxpayer and introduce excellent demonstration of the
yourself entire intake and interview
Lesson 2 - Page 4 of 9
x Take a few moments for small talk process. It is available in DVD
x Explain the screening, tax or VHS from your local IRS
preparation and quality review SPEC contact.
process
x Explain that you will complete page 2
of the intake and interview sheet
together, after they complete page 1
to the best of their ability
x Ask if the taxpayer has any questions
If it appears that taxpayer will qualify for Advise students that in future
assistance but does not have all the lessons, you will share the
necessary documentation, provide information that they need to
guidance necessary for them to acquire the provide guidance to the taxpayer
document. about missing SSNs, W-2,
1099s, etc.
If their tax situation (including income) is
beyond the scope of your training or the Advise the students of the
VITA/TCE program you have the following complexity of the returns they
options: will prepare at their VITA/TCE
x Seek assistance from your Site site.
Coordinator (if applicable).
x Courteously explain why they do not
Lesson 2 - Page 5 of 9
qualify for assistance.
x Suggest other service options.
Does any one have any questions or Make sure all the students have
concerns about what we have covered up a partner and have them do the
to now? sample interview on page 2-5.
Lesson 2 - Page 6 of 9
when conducting an interview.
What are interview techniques and why do Respond to any raised hands or
you need them? student statements.
After you and the taxpayer achieve a level Refer the students to the
of comfort with each other, you will need to Volunteer Resource Guide. In
ask open ended questions, and use active addition to the chart, discuss the
listening to avoid and overcome any standards of conduct with
communications barriers. emphasis on the first bullet—
Treat all taxpayers
professionally, with courtesy and
respect.
Working with a taxpayer requires you to ask Point out the TIP on page 2-8
Lesson 2 - Page 7 of 9
a lot of questions. Start the interview with and ask for a volunteer to read it
open ended questions because these and discuss it if desired.
require more than a simple yes or no
answer.
Avoid asking leading questions. They can Ask for two volunteers to do the
make the taxpayer feel that you have a sample interview at the bottom
specific answer in mind. Don’t make of page 2-9 and share your
assumptions; let the taxpayer speak for observations.
themselves.
Let’s review the suggestion for overcoming Pair up the class and have them
barriers to communications in your text on conduct the sample interview at
page 2-10. the bottom of page 2-10 and
allow time for discussions.
Lesson 2 - Page 8 of 9
What happens next? Page 2-11
Now that the intake sheet has been .
completed and the probing interview
finished you have three options:
x Advise the taxpayer that their return
is outside the level of your
certification and seek assistance
from your coordinator.
x Advise the taxpayer that their return
is outside the scope of the program.
x Assist the taxpayer with their return,
request assistance from the
coordinator as needed.
x The ability to communicate with all Point out the tools available to
types of people. the students to ensure the
accuracy of the return they
x To know where and how to get the prepare (page 2-11 of their text).
information you need and document
your findings. Also tell them to take their
Volunteer Resource Guide to
x To understand how to apply the the VITA/TCE Site with them
information you obtain verbally and in and follow the interview process
writing from the taxpayer to their tax on page 4 of that book.
return.
Lesson 2 - Page 9 of 9
Notes
Lesson 3: Filing Basics
Objective
Determine which taxpayers must or should file a tax return. This lesson provides the
information you need to:
x Verify a taxpayer’s identity
x Select the appropriate tax return form
x File the return
x Identify how long a taxpayer should keep certain records and documents.
Introduction
This lesson will help you determine which Note:
taxpayers must or should file a tax return. Stress the link between the
This lesson provides the information you intake sheet and return
need to be able to: accuracy. You are building the
x Verify a taxpayer’s identity foundation for the quality
x Select the appropriate tax return form process.
x File the return
x Tell taxpayers how long they should
keep certain records and documents
Lesson 3 - Page 1 of 20
Resource Guide. Look at the taxpayer’s Direct the students to the
date of birth. Confirm this date during the appropriate line on the Intake
interview. sheet.
Lesson 3 - Page 2 of 20
Excludable in this case means
not taxable.
Where do I get information on the
taxpayer’s filing status?
Lesson 3 - Page 3 of 20
Example page 3-3:
Lucy will use the Single filing status and is
36 years old. Her gross income is Use Lucy as an illustration of the
$20,000. She must file a tax return. use of the Volunteer Resource
Guide.
Example page 3-3:
Henrietta and Javier are married and plan to
file a joint return. Henrietta is 67 and had a Again, guide the students to use
gross income of $11,000 for the tax year. the Volunteer Resource Guide.
Javier is 66. His gross income was $5,000
for the year. Since their combined gross
income is $16,000, they do not have to file
a return.
Lesson 3 - Page 4 of 20
Question 2:
Janet and Harry are married and usually file Answer 2: No, Janet and Harry
jointly. During the tax year, she turned 66 are not required to file because
and he turned 64. Their gross income was their combined gross income
$16,200. Based only on this information, was less than $18,550.
are they required to file a tax return?
Question 3:
Juanita can file as a Qualifying Widow with Answer 3: Yes, Juanita must file
Dependent Children. She is 47 years old. because her gross income was
Her gross income was $14,400. Based only over $14,100.
on this information, is she required to file a
tax return?
Taxpayer Vanessa Franklin comes to your Use the graphic of Part 1 of the
site and requests assistance with her return. Intake sheet to guide the
She is married, but lives apart from her students.
husband. Her two children and her mother
live with her. She was employed as a sales
associate in a retail department store for the
entire tax year. She also had her own
cosmetics business. Her husband was
employed as a cook for most of the tax
year, but collected some unemployment
compensation.
She completed Page 1 of her intake sheet Tell students that the
and brought her valid taxpayer identification requirements for valid taxpayer
documents. You start the process by using identification documents will be
the intake sheet to obtain her date of birth discussed later in this lesson.
and marital status.
Next, you review the Family and Dependent Have students review the Family
Information section of the intake sheet. and Dependent Information
section of the intake sheet page
3-4.
Lesson 3 - Page 5 of 20
Vanessa has indicated three potential Refer students to the sample
dependents. You decide to ask some interview on page 3-5. Remind
questions to confirm and clarify her them that the intake sheet
information. responses are the start of a
conversation to ensure an
accurate tax return.
Lesson 3 - Page 6 of 20
x The Additional Child Tax Credit credit – filing a return is
x The Health Coverage Tax Credit the only way to get it.
x Those who receive
Advanced Earned Income
Credit – to “account for”
the credit received.
These items are listed in your Volunteer Illustrate these items by also
Resource Guide, in the Tab A, Who Must referring the class to a 1040.
File section, Chart D-Other Situations.
The taxpayer may qualify for a tax refund, TIP page 3-7:
Earned Income Tax Credit, and/or Tell the students that the Earned
Additional Child Tax Credit if: Income Tax Credit may apply
x Federal or state income tax was with or without a child. See the
withheld on any income form, and/or Earned Income Credit and Child
x The taxpayer had earned income, Tax Credit lessons for details on
and/or determining eligibility for these
x The taxpayer has a qualifying child tax credits.
Lesson 3 - Page 7 of 20
scope of the VITA/TCE program
and acknowledge that some
taxpayers will need professional
assistance.
Lesson 3 - Page 8 of 20
the ITIN on the return wherever the social establish foreign status and true
security number is requested. identity. A federal tax return
must be associated with all
Form W-7 applications with
exceptions as noted in the
instructions for Form W-7.
Lesson 3 - Page 9 of 20
x Verify that the SSN (or ITIN) and the TIP page 3-8:
spelling of each individual’s name on Tell students that driver’s
the social security card or other licenses and passports are not
acceptable documents match the acceptable substitutes for social
information you enter on the tax security or TIN cards.
return
x Verify that the address and birth date Direct students to the graphics
on the Intake and Interview Sheet of the social security card and
matches the information on their the resident alien card on page
identification and discuss any 3-8.
discrepancies with the taxpayers
x Make sure the taxpayer understands
how critical it is to have the correct
information in order to receive any
age-related tax benefits.
Lesson 3 - Page 10 of 20
use a temporary identification number to TIP: page 3-9
prepare the return in TaxWise. See “Apply Tell students that, if preparing
for an ITIN”, under Tab 1 in your Volunteer the return on paper, leave the
Resource Guide. TIN spaces on the return blank
and follow the Form W-7
procedures.
Lesson 3 - Page 11 of 20
What if the TIN on the Form W-2 doesn’t
match the TIN on the tax return?
Lesson 3 - Page 12 of 20
How do I enter the identification data? Demonstrate the way TaxWise
applies the Social Security
Turn to the Main Information Screen section number issuing rules in the
in your Volunteer Resource Guide under diagnostics, if TaxWise is
Tab 1. Be sure to read all the details and available. While not actually a
helpful hints for entering the taxpayer’s database of SSN it can give a
identification information. warning when the SSN is listed
for a very different individual.
Lesson 3 - Page 13 of 20
You have now verified that the information
from Vanessa’s intake sheet matches the:
x Name, date of birth, and address on
her driver’s license
x Name and social security number on
her SSA letter.
Form 1040A:
Form 1040A is a two-page form. Page 1 TIP: page 3-12:
shows the filing status, exemptions, income, For taxpayers who filed Form
and adjusted gross income. Page 2 shows 1040EZ or Form 1040A the
standard deduction, exemption amount, previous year, determine
whether their situation has
Lesson 3 - Page 14 of 20
taxable income, tax, credits, payments, changed. It may be to their
amount owed or refund, and signature. advantage to file Form 1040
if additional adjustments or
Form 1040A may be filed with certain deductions will result in a lower
schedules. Turn to the Which Form to File tax!
chart under Tab A of your Volunteer
Resource Guide to see which types of
schedules and forms can be filed with a
Form 1040A.
Form 1040:
Form 1040 is a two-page form that contains
all the entries on Form 1040A plus entries
for more types of income, itemized
deductions, and other taxes. Form 1040
provides schedules for reporting these
various types of income and deductions.
Taxpayers whose taxable income exceeds
$100,000 or who have self-employment
income must use form 1040.
Lesson 3 - Page 15 of 20
simplest form that Lenny and Lisa can use
for their tax return?
Answer 6: Ray will need to file
Question 6: Form 1040 both for two reasons:
Ray is married, but he and his wife Stella because he had self-
are filing separate returns. employment income and
Their combined income was $105,000, but because he is itemizing
Ray’s income was $64,000, half of which deductions.
was self-employment income. Ray is
claiming only one exemption for himself,
and he wants to itemize his deductions.
Which is the simplest form that Ray can use
for his tax return?
Lesson 3 - Page 16 of 20
items appearing on it (such as 1099 forms) information, see
until the statute of limitations runs out for Publication 552, Recordkeeping
that return. Usually, this is the later of: for Individuals.
x Three years from the date the return
was due or filed, or
x Two years from the date the tax was
paid
Lesson 3 - Page 17 of 20
information. Refer to the bottom portion of
the “Contact Information for Volunteers”
located near the back of the References
Tab of the Volunteer Resource Guide for a
list of phone numbers that you can provide
to taxpayers,
Question 7:
A taxpayer wants to know what the Answer 7: The index in
Presidential Election Campaign Publication 17 directs us to a
Fund is. Where can you find that paragraph in the chapter on
information? Filing Information.
Lesson 3 - Page 18 of 20
reported incorrectly, the IRS may
later issue a notice of proposed tax
increase for the self-employment
income and tax.
x Be alert to the following possible
indications of fraudulent activity:
o A Form W-2 that is typed,
handwritten, or has noticeable
corrections
o A Form W-2 from a company
that looks different from other
Forms W-2 issued by the
same company
o A suspicious person
accompanying the taxpayer
and observed on other
occasions
o Multiple refunds directed to
the same address or P.O. box
o Employment or earnings,
which are a basis for
refundable credits, that are not
well documented
o Similar returns (e.g., same
amount of refund, or same
number of dependents, or
same number of Forms W-2)
Lesson 3 - Page 19 of 20
credits, and retirement savings
contribution credit if there is only
a Roth IRA contribution).
Lesson 3 - Page 20 of 20
Lesson 4: Filing Status
Objective
Determine the most advantageous (and allowable) filing status for the taxpayer.
Selecting and entering the correct filing status is a critical component of
completing the taxpayer’s return. Refer to the Intake and Interview sheet for
information to help you make this determination.
Introduction
This lesson will help you determine the Explain the filing status can
most advantageous (and allowable) filing impact the amount of tax owed
status for the taxpayer. Selecting and and, consequently, the refund.
entering the correct filing status is a critical
component of completing the taxpayer’s Display or refer students to the
return. Refer to the Intake and Interview Intake and Interview Sheet.
Sheet for information to help you make this
determination.
Taxpayers must file using one of five filing Tip page 4-1:
statuses. Filing status impacts the Taxpayers may qualify for more
Lesson 4 - Page 1 of 18
calculation of income tax and the allowance than one filing status. Choose
or limitation of certain credits and the filing status that results in
deductions. the lowest tax (most beneficial)
for the taxpayer.
The following list puts them in order from TaxWise Hint page 4-1:
the most beneficial to the least beneficial to Filing status is selected on the
the taxpayer. Main Information Sheet in
x Married Filing Jointly TaxWise. Refer students to the
x Qualifying Widow(er) with Dependent Main Information screen in the
Child Volunteer Resource Guide, Tab
x Head of Household 1.
x Single
x Married Filing Separately
Ask the students which filing
statuses they have used in the
past. Would their taxes be
higher or lower if they could use
one of the other filing statuses?
Lesson 4 - Page 2 of 18
Taxpayers are considered to be married for
the entire year if:
x They were married on the last day of
the tax year, or
x The spouse died during the year and
the surviving spouse has not
remarried
Lesson 4 - Page 3 of 18
select this status even if one of the spouses Separately, where each spouse
did not have any income or any deductions. must generally file his/her own
The Married Filing Jointly status can be Form 1040/1040A/1040EZ.
claimed by taxpayers who, on the last day
of the tax year:
x Were married and lived together as
husband and wife, or
x Were married and living apart, but
were not legally separated or
divorced, or Note: The rules about common
x Lived together in a common law law marriages are very complex
marriage that is recognized in the and differ from state to state. As
state where they currently live or the a volunteer, it is not your
state where the common law responsibility to determine
marriage began, or whether a couple is involved in a
x Did not remarry and their spouse “common law marriage.” If a
died during the year taxpayer is not certain, refer
him/her to a professional (such
as an attorney).
Lesson 4 - Page 4 of 18
joint return. Note about SCOPE of the VRPP
program: Tell students that
In some cases, a spouse may be relieved of Publication 971 Innocent
joint liability. This topic is beyond the scope Spouse Relief is not covered in
of the VITA/TCE Program. The volunteer this course, but students and
would need to refer the taxpayer to a taxpayers may read it if they
professional tax preparer. For more would like more information.
information, see Publication 971, Innocent Stress that even if the volunteer
Spouse Relief. is familiar with the Publication
971, the taxpayer should still be
referred to a professional tax
preparer.
Lesson 4 - Page 5 of 18
lesson, to see if the “unmarried” definition
applies.
Lesson 4 - Page 6 of 18
See Publication 555, Community Property, community property states
for more information. mentioned on the form,
additional questions must be
answered. You may have to
complete a worksheet entitled
Allocation of Income for
Community Property Income.
Lesson 4 - Page 7 of 18
liability the current spouse incurred when
they were not married to each other. If a
taxpayer tells you he or she wants to file
separately, ask the taxpayer why they want
to elect this status. If a potential offset is
the reason, this is the perfect time to
educate the taxpayer about the possibility of
avoiding at least their share of the refund
offset and attaching a Form 8379, Injured
Spouse Allocation. See the Publication 17
Index, keyword: “Injured Spouse” for
additional information. The 8379
instructions are also very informative. This
form can be e-filed. See the list of community
property states earlier in the
Be aware of community property law lesson.
requirements; these laws may affect the
amount of tax owed by taxpayers living in
community property states.
Lesson 4 - Page 8 of 18
For information on signing a joint return if
one spouse has died, or cannot sign the
return, see Publication 17 Index, keyword:
Signatures.
Lesson 4 - Page 9 of 18
Q: Alexandra’s younger brother,
Sebastian, is seventeen years
A qualifying person is defined as: old. Sebastian lived with some
x A Qualifying Child friends from January-February
x A married child you can claim as a of 2007. From March-July of
dependent 2007, he lived with Alexandra.
x A dependent parent August 1, Sebastian moved
x An “other relative” you can claim as a back in with his friends, with
dependent. whom he stayed for the rest of
x And for a married taxpayer, the the year. Since Sebastian did
qualifying person for Head of not have a job, Alexandra gave
Household must be their dependent him money every month.
child. (Exception: the non-custodial Assuming Alexandra had no
parent rule.) other dependents, can she file
as “Head of Household” for
2007?
A: No, because Sebastian only
lived with Alexandra for five
months, which is less than half
the year.
Lesson 4 - Page 10 of 18
“qualifying relative” and Mary Ann can claim
Joan as a dependent on her return. For Head of Household, a
Qualifying Child does not have
However, Joan would not qualify Mary Ann to be a dependent of the
for Head of Household purposes, because taxpayer. (Exception: a married
she does not fall under the “other relative” taxpayer considered unmarried
definition stated in the Volunteer Resource for Head of Household
guide under Tab B, Filing Status. purposes.)
Lesson 4 - Page 11 of 18
can file as Head of Household if, on the last
day of the tax year they:
x File a return, separate from their
spouse, for the tax year. If a joint
return has been filed, the filing status
cannot be changed if the due date of
the return has passed.
x Have paid more than half the cost of
keeping up their home for the tax
year. See Publication 17: Filing
Status: Head of Household for the Note: The spouse is considered
Cost of Keeping Up a Home to have lived in the home even if
worksheet. temporarily absent due to
x Have lived apart from their spouse special circumstances, such as
during the entire last 6 months of the military service or education.
tax year. The spouse is considered This is very important for military
to have lived in the home even if VITA classes.
temporarily absent due to special
circumstances, such as military
service or education.
x Have provided their home as the
main home of their dependent child,
stepchild, adopted child, or foster
child placed by an authorized agency
for more than half the year. Certain
exceptions exist. To find details, see
Publication 17: Personal Exemptions
and Dependents: Exemptions for
Dependents: Children of divorced or
separated parents.
Lesson 4 - Page 12 of 18
Who is a Qualifying Widow(er) with
Dependent Child?
Lesson 4 - Page 13 of 18
her two dependent children, ages 7 and 9. year of death on the TaxWise
Laura can file Married Filing Jointly, Main Information Sheet. There is
claiming an exemption for her deceased no place to enter the year of
husband. The next two years she can use death on a paper return.
the Qualifying Widow(er) with Dependent Stress that Qualified Widow(er)
Child status if she has not remarried. with Dependent Child filing
status is only for the years
AFTER the year in which the
spouse passes away. If the
spouse passed away in 2007,
another filing status must be
used.
Lesson 4 - Page 14 of 18
likely to pay a lower tax if she
chooses Married Filing Jointly.
Jane is not eligible for the
Qualifying Widow(er) with
Dependent Children status
because those rules are in effect
for the two years after the year
in which the spouse has died
and she must have dependent
children. Note: The exercise
question stated they didn’t file as
Married Filing Jointly in 2006,
and this would be an opportunity
for you to use your interview
techniques to determine why
they didn’t. There might have
been circumstances that made it
more advantageous to file as
Married Filing Separately, and
those might still exist.
Question 2: Seth lives alone and has never Answer 2: Because he is not
married. What filing status(es) can he use? married and has no dependents
x Single living in his household, Seth can
x Married Filing Jointly only file as Single.
x Married Filing Separately
x Head of Household
x Qualifying Widow(er) with Dependent
Child
Lesson 4 - Page 15 of 18
Exercises (continued) page 4-8
Answer 4:
Question 4: Sydney’s wife died in January Sydney can file as Single but he
of 2005. He filed a joint return for that year also meets the test for Head of
as the surviving spouse. In 2007, Sydney, Household and Qualifying
who has not remarried, still maintains a Widow(er) with Dependent
home for his young children all year, and he Child. Qualifying Widow(er) with
provides their sole support. What filing Dependent Child will likely give
status(es) can he use? him the lowest tax.
• Single
• Married Filing Jointly
• Married Filing Separately
• Head of Household
• Qualifying Widow(er) with Dependent
Child
Lesson 4 - Page 16 of 18
result in a lower tax than Married Filing
Separately. Continue through the sample
interview with students.
SAMPLE INTERVIEW (Continued)
page 4-10 Demonstrate with TaxWise (if
available).
Because Vanessa will file as Head of
Household, check the box for Head of Note: TaxWise Hint (this is not
Household status on the Main Information in the book) For Head of
Sheet in TaxWise or on her Form 1040. Do Household: if the child is not the
not enter the names of Vanessa’s children taxpayer’s dependent then enter
in the filing status section. Enter the the qualifying child’s name and
children’s names in the dependents section social security number in the
of the tax return. Remember, because she Filing Status section.
is married but “considered unmarried for Demonstrate with TaxWise if
Head of Household” purposes, at least one available.
of her children must be her dependent to
use this filing status.
Lesson 4 - Page 17 of 18
Summary Page 4-11
Let’s review some of the critical points Provide a thorough review of
covered in this lesson. each of the items in the
summary, using examples from
class and your experiences
Lesson 4 - Page 18 of 18
Lesson 5: Personal Exemptions
Objective
Determine how many personal exemptions a taxpayer can claim.
Introduction
This lesson will help you determine how
many personal exemptions the taxpayer
can claim. Claiming the maximum number
of allowable exemptions will result in the
lowest tax for the taxpayer.
Lesson 5 - Page 1 of 6
When can a taxpayer claim Page 5-1
personal exemptions?
Lesson 5 - Page 2 of 6
To claim a personal exemption for one’s TaxWise Hint: If the taxpayer is
spouse, the taxpayer must meet these married filing a separate return,
conditions: and is able to claim their
x Married as of December 31 of the tax spouse’s exemption, fill in the
year spouse’s name, SSN, and other
x Spouse cannot be claimed as a information in the TaxWise Main
dependent on another person’s tax Information sheet,
return Dependents/Non-Dependents
x Files a joint return, or files a separate section, showing the relationship
return and the spouse had no income as “other” and the Code as “3.”
and is not filing a return
Lesson 5 - Page 3 of 6
need from the taxpayer.
Look at the intake sheet for our taxpayer Refer students to the scenario
Vanessa Franklin. As you recall, she is on page 5-3 and the sample
married, but lives apart from her husband, interview on page 5-4.
who also has an income.
Therefore, you decide to use the Interview Guide students to the use of the
Tips for Personal Exemptions under Tab C Interview Tips for Personal
of the Publication 4012. Exemptions under Tab C of
Publication 4012.
Lesson 5 - Page 4 of 6
Because Vanessa cannot claim her Reminder: Vanessa:
husband as an exemption, you will leave x Was still married on
him off the return, leaving the box on line 6b December 31, 2007
unchecked. x Did not live with her
husband.
TaxWise automatically enters “1” for x Is not filing jointly with him
“Number of boxes checked on 6a and 6b.” x Her husband had his own
income.
Because Ray can claim himself and his late TaxWise Hint:
wife as exemptions, you will enter both their You must also go to Name
names and SSNs in the Main Information Line 2 in the U.S. address area
screen in TaxWise. TaxWise automatically at the top of the Main
checks the boxes on lines 6a and 6b and Information screen and enter the
enters “2” for “Number of boxes checked on name of the person filing the
6a and 6b.” return for the deceased person.
This may be the surviving
You will also enter the Date of Death under spouse if the filing status is
the spouse in the Taxpayer Information Married Filing Jointly or a
area of the Main Information screen in personal representative such as
TaxWise. If you are preparing a paper an executor, administrator, or
return, write “Deceased” along with the anyone who is in charge of the
deceased spouse’s name and Date of deceased taxpayer’s property.
Death across the top of the return. Once
you complete the Date of Death in TaxWise, When you print the return,
the program will automatically print that TaxWise prints the date of death
notation. and DECD next to the deceased
person’s name in the address
Lesson 5 - Page 5 of 6
area at the top of Form 1040
page 1, as required by the IRS.
Finally, Ray left critical data question 13
blank on his Intake and Interview Sheet.
During the interview, the volunteer asks this
question and finds that neither Ray nor his
wife could be claimed as a dependent on
another person’s tax return. Once this
determination is made, the volunteer should
check the “No” box for question 13. By
notating the Intake and Interview Sheet, the
volunteer will know that the issue has been
addressed, and so will the quality reviewer.
Can anyone tell me where the exemptions Remind students that we will
are claimed on the tax return? discuss dependents in Lesson 6.
Lesson 5 - Page 6 of 6
Lesson 6: Dependency Exemptions
Objective
Determine how many exemptions a taxpayer can claim for dependents.
Introduction
This lesson will help you determine how Refer students to Form 13614
many exemptions a taxpayer can claim for Part II Family and Dependent
dependents. Claiming the maximum Information. Stress importance
number of allowable exemptions will result of verbally reviewing all the
in the lowest tax for the taxpayer. information in Part II with the
taxpayers.
TaxWise determines the taxpayer’s
dependency exemptions based on the
Dependents/Nondependents information
entered on the TaxWise Main Information
sheet.
Will someone read the information on page Have someone else read the Tip
6-1? page 6-1:
Lesson 6 - Page 1 of 18
Who may be claimed as a Page 6-1
dependent?
Tab C of Publication 4012 will help with Note: Always refer to interview
probing questions to verify information on tips or decision tree when
the Intake and Interview Sheet. The two determining if person can be
alternate methods for applying the claimed as a dependent.
dependency tests are the Interview Tips
and the Can You Claim an Exemption for a
Dependent? decision tree.
The Interview Tips provide more guidelines Refer to Publication 4012 tab C
Lesson 6 - Page 2 of 18
and definitions to help you along. Only the
Interview Tips incorporate all the exceptions
allowed for the Support Test. Use the
Interview Tips for the Support Test if the
dependent is:
A child with divorced or separated
parents, or
Supported by two or more people who
together provide more than half the
dependent’s support (Multiple Support)
Begin by applying the rules for a Qualifying Refer to Publication 17 for more
Child. If these tests are not met, then you detail.
can continue on to the tests for a Qualifying
Relative. Remember, a dependent may be
either a Qualifying Child or Relative to be
claimed as a dependent.
Relationship
Let’s review step one of the Interview Tips Direct the students attention to
in Publication 4012, Tab C. Tab C Interview Tips in
Publication 4012.
Lesson 6 - Page 3 of 18
Read and discuss “Age” on
page 6-3.
Residence
The child must have the same principal Stress qualifying child must live
residence as the taxpayer for more than with taxpayer for more than ½ of
half the year. The child can be out of the the year. 183 days for 2007
home for temporarily absents due to special
circumstances such as education, illness, Discuss temporary absents.
vacation, business, or military service. Give examples i.e. school,
illness, military service.
Example page 6-3: Hugh’s daughter died Discuss death and kidnapping
on January 15 of the tax year. If she met all as it relates to the residence
the dependency tests up until her death, test.
Hugh can claim an exemption for her on his
return.
Lesson 6 - Page 4 of 18
detailed information regarding the residency Review this example if time
test. allows.
Special rules that apply to custodial and This is a special exception to the
non-custodial parents will be discussed Residency Requirement
later in this lesson.
Ask participants to locate this
chapter in their Publications 17.
Additional Rules
Once the first four tests are met then we
proceed to several more. You will find later
when we talk about Qualifying Relatives
that the next five steps will also apply.
If a U.S. taxpayer legally adopts a child who Note: Children are usually
is not a U.S. citizen or resident, this test is citizens or residents of the
met as long as the child lives with the country in which their parents
taxpayer as a member of the household all are citizens. So, if either parent
year. is a U.S. citizen, a child born in a
foreign country can be
Foreign exchange students generally are recognized as a U.S. citizen for
not U.S. residents and do not meet the tax purposes.
citizen or resident test.
Joint Return
Let’s look at steps 6 and 7 in the Interview Page 6-4
Tips of Publication 4012. To pass the joint
return test, the dependent must not file a
joint return for the year, unless:
Lesson 6 - Page 5 of 18
The joint return is filed only to claim a
refund of taxes withheld, and
No tax liability would exist for either
spouse on separate returns
Review step 8 and the associated footnotes Note: Taxpayers are allowed to
in Publication 4012. It is possible for a child choose who can claim the
to meet the Qualifying Child tests for more exemption, but this choice may
than one taxpayer, but the dependency affect who can receive other tax
exemption can only be claimed on one tax benefits that require a Qualifying
return. Child.
If the Qualifying Child is actually claimed on Discuss the idea of these tie-
more than one tax return in a given year, breaker rules. If taxpayers
the IRS will apply the “tie-breaker rules” cannot decide who will claim the
listed within Tab C in Publication 4012. qualifying child, IRS will decide.
Lesson 6 - Page 6 of 18
spouse as a dependent on their
return?” If someone “can” then
they cannot claim themselves
(or others) regardless if the
person actually “did” claim them
as a dependent.
Dependents who do not meet the first few Discuss Qualifying Relative
tests for Qualifying Child could meet slightly rules. Relationship, Residency,
different tests and be a Qualifying Relative. Gross Income, Support, and
Joint Return.
Would some read the notes that apply to Note: Relationship by marriage
unrelated persons on page 6-6 and let’s does not end in divorce or
discuss each as we read? death.
Lesson 6 - Page 7 of 18
Qualifying Child of Another Taxpayer Page 6-6
Step 3 of the Interview Tips states that an Advise the students that a
individual cannot be claimed as a person cannot be a qualifying
dependent as a Qualifying Relative if they relative if already a qualifying
meet the tests to be another taxpayer’s child of another taxpayer.
Qualifying Child for the tax year, even if that
other taxpayer is not claiming them as a
dependent.
Will someone read the first example page Review first example on 6-7.
6-7?
Support
Step 6 addresses support. The taxpayer Note: This is another difference
must have provided more than 50% of the between qualifying child and
dependent’s total support for the tax year. qualifying relative.
Lesson 6 - Page 8 of 18
Let’s look at the second example on page Review this example with
6-7. students as time permits.
Social Security benefits received by a child Read the second Tip on page
and used towards support are considered 6-7.
provided by the child.
Multiple support means that two or more Note: Only one person can
people together, who could claim the provide more than half, but see
person as a dependent except for the the exception to the rule here.
support test, provide more than half the
dependent’s support. However, only one
taxpayer can claim the exemption for a Tip page 6-8:
dependent with Multiple Support. The taxpayers who provide
Individuals who provide more than 10% of Multiple Support for a dependent
the person’s total support can agree that decide among themselves who
one of them can take the person’s will take the exemption for the
exemption. Step 10 will guide you in asking year. Volunteer tax preparers do
if the taxpayer has the appropriate not decide.
documentation.
The Form 2120 or similar statement must Hand out Form 2120, Multiple
be attached to the return. The other Support Declaration.
supporting taxpayers must sign this written
statement agreeing not to claim the Note: Multiple Support
exemption for that year Agreements apply only to a
Qualifying Relative.
Lesson 6 - Page 9 of 18
Let’s read the examples on page 6-8. Ask students if anyone has any
question regarding either
example.
Joint Return
To pass the joint return test, the dependent This general rule applies to both
must not file a joint return for the year, qualifying children and relatives
unless: and was previously discussed.
The joint return is filed only to claim a
refund, and
No tax liability would exist for either
spouse on separate returns
As a volunteer you will always ask “Can Refer students to Tab C in the
your parents or someone else claim you or Volunteer Resource Guide
your spouse as a dependent on their tax
return?”
Lesson 6 - Page 10 of 18
Method 2: How do I use the Page 6-9
decision tree?
A quicker way for more experienced Tip: Note that the general rules
volunteers to apply the dependency tests is that apply to both Qualifying
to refer to the Can You Claim an Exemption Child and Qualifying Relative
for a Dependent decision tree within Tab C are listed at the top of the
in Publication 4012. decision tree. It then goes on to
apply the specific rules for each
type of dependent.
Remember, the decision tree does not Note: The exceptions are in the
incorporate the exceptions allowed for the last block of the decision tree
Support Test. For those exceptions you and refer you back to Table 3 on
may also need Table 3 of Publication 4012. the previous page.
Codes for dependents and non- Refer to the tip on page 6-10
dependents – select the correct and have someone read.
Lesson 6 - Page 11 of 18
dependent code from the drop-down list. Note: The dependent codes
correspond to the applicable
List non-dependents only if they are boxes on Form 1040 and
Qualifying Children for the Earned Income 1040A.; box 6c1 - children who
Credit or Dependent Care Credit. lived with you; box 6c2 –
children who did not live with
you due to divorce or
separation; 6c3 – number of
dependents not listed above.
Lesson 6 - Page 12 of 18
Taxpayer Scenario Page 6-13
Let’s take a look at the intake sheet for our Refer students to Vanessa’s
taxpayer Vanessa Franklin. As you recall, intake sheet Family and
Vanessa is married, but lives apart from her Dependent Information is shown
husband, and has two children. Her mother on the top of page 6-14.
also lives with her. She was employed as a
sales associate in a retail department store
for the entire tax year. She also had her
own cosmetics business. Her husband was
employed as a cook for most of the tax
year, but collected some unemployment
compensation.
Now let’s apply the dependency tests to Have the students work
Vanessa’s children? independently and compare
results when finished.
Lesson 6 - Page 13 of 18
As you gain comfort with using the process
you may find the Interview Tips work better Remind the students about the
at times. It is probably easier to show the importance of updating the
taxpayer how you reached your decision intake sheet as part of the
using the Decision Tree. quality review process.
Lesson 6 - Page 14 of 18
questions throughout this lesson. Try
answering each one, and then compare
your responses with the correct answers at
the end of the lesson.
Lesson 6 - Page 15 of 18
Q3: If you answered “no,” what additional A3: The volunteer needs to
information would you need? determine if the spouse had any
income, or if anyone else can
claim the spouse as a
dependent.
Let’s continue with the sample interview. See the Sample Interview that
starts on page 6-20. This
interview concerns Loretta.
Q5: If your answer is “no,” what additional A5: The volunteer needs to
information would you need? address the level of support to
make the correct decision. Did
the daughter provide more than
50% of her own support? The
taxpayer must determine what
percent of the total amounts she
spent, and compare that with
what her daughter provided for
her own support.
The volunteer helps Janet complete the Refer to class to the worksheet
Worksheet for Determining Support from in Publication 17.
Publication 17. Together they determine
that the daughter provided more than 50%
Lesson 6 - Page 16 of 18
of her own support for 2007.
The volunteer can now complete Part III of Stress updating the intake sheet
the Intake and Interview sheet. The for the quality review process.
volunteer already determined that the
taxpayer will file Married Filing Separately,
so the box for MFS should be checked. The
volunteer should also note that Loretta
provided more than 50% of her own
support, so the quality reviewer will know
why Loretta is not being claimed as a
dependent. On line 7, the volunteer will
write “1” since only the son, Rodney,
qualifies as a dependent.
Lesson 6 - Page 17 of 18
On a paper return, you complete lines 6a
through 6d by hand. When listing
dependents on line 6c, you will check the
box in column (4) to indicate if the
dependent is eligible for the Child Tax
Credit.
The Filing Status and Exemptions section of See the graphic at the bottom of
your Form 1040 should look like the graphic page 6-21.
on page 6-21.
Lesson 6 - Page 18 of 18
Lesson 7: Military Unique Filing Status & Exemption Situations
Objective
Determine unique filing status issues you may encounter when helping service
members whose spouses are nonresident aliens (not U.S. citizens or permanent
resident aliens).
Introduction
Lesson 7 - Page 1 of 18
Tax situations involving nonresident aliens Refer to the Intake and Interview
can be complex. If the taxpayer has a J, Q, sheet.
F, or M visa, ask the Site Coordinator if
there is a volunteer who is certified to
prepare these types of returns.
If there isn’t a certified volunteer at the site Remind the students that some
or if you are faced with a situation not taxpayers need professional tax
covered in this lesson, refer the taxpayer to help.
a professional tax preparer.
Lesson 7 - Page 2 of 18
have valid social security numbers and
must follow the same tax laws as U.S.
citizens, including the requirement to report
worldwide income on their tax returns.
Lesson 7 - Page 3 of 18
2007: 150 days. 2006: 1/3 of 150=50 days exempt individual and cannot
2005: 1/6 of 150 days=25 days. exclude those days they are
Total days=225 days. physically present in the U.S.
Lesson 7 - Page 4 of 18
Refer to TIP on page 7-3.
If the taxpayer will be applying for an ITIN, A return with an ITIN can be e-
you may prepare the return. Follow the filed. A return missing an ITIN
instructions in the Volunteer Resource cannot be e-filed.
Guide under Tab 1, Starting TaxWise.
The section is entitled, Apply for an ITIN.
This section will also instruct you on how to
advise the taxpayer to file the return and
application.
Local Taxpayer Assistance
IRS Taxpayer Assistance Centers or Centers can be found by using
acceptance agents can help the taxpayer http://www.irs.gov/localcontacts/
complete Form W-7 or Form W-7SP. Most
acceptance agents, other than the IRS,
charge a fee for this service.
Gabriela lived in the U.S. for 120 days in Ask does Gabriella meet the
2007 (from September to December) as a Substantial Presence test?
nonresident alien. She was also in the U.S. The answer is NO.
for 120 days in each of the years 2005 and Address the answer after
2006. Gabriella does not have a tax home following the decision tree.
in another country. Does Gabriella meet the
Substantial Presence test?
Lesson 7 - Page 5 of 18
Following the decision tree, you find that
Gabriella does not meet the Substantial
Presence test. For tax purposes, she is
considered a nonresident alien.
Lesson 7 - Page 6 of 18
Kingman has four filing status options:
1. The citizen/resident alien can file
as Married Filing Separately
2. The couple may chose to file as
Married Filing Jointly
3. The citizen or resident alien
spouse may qualify for Head of
Household under the regular rules for
a married person who is considered
unmarried for Head of Household
purposes
4. The citizen/resident alien may
qualify to file as Head of Household,
even while living with the nonresident
alien spouse
Lesson 7 - Page 7 of 18
x Both people qualify to make the
choice to be treated as U.S.
residents for the entire year
x The name, address, and SSN or ITIN
of each spouse
Lesson 7 - Page 8 of 18
their joint return.
Paul and Gabriella must report their See the note about future
worldwide income for the year and for all separate returns
later years unless the choice is ended or
suspended. Although Paul and Gabriella
must file a joint return for the year they
make the choice, they may file either joint or
separate returns for later years.
Lesson 7 - Page 9 of 18
Volunteer Resource Guide to see if the
citizen spouse qualifies to file as Head of
Household.
Lesson 7 - Page 10 of 18
Raul can claim Head of
Question 3 page 7-6: Household status since his
Raul is a U.S. citizen and serving in the spouse is a nonresident alien,
U.S. Army in Japan. His wife and his she does not choose to file a
children live with him and he is able to claim joint return with him, and Raul
the children as dependents. Raul’s wife, a meets the other qualifications for
citizen of Japan, chooses not to be treated Head of Household. If Raul had
as a resident alien for tax purposes. She not met the other qualifications
does not want to file a joint return with him. for Head of Household, he
would have to file as Married
Raul meets all of the other qualifications for Filing Separately.
Head of Household. Even though he is
married and living with his spouse, can he
claim Head of Household status?
Yes No Answer 4: Yes.
Lesson 7 - Page 11 of 18
they file a joint return and meet the EIC
qualifications.
Page 7-6
Personal Exemptions
Direct students to the personal
Can the citizen/resident alien spouse claim exemptions decision tree in the
the personal exemption of the nonresident Volunteer Resource Guide,
alien spouse when the nonresident alien under tab C.
spouse does not meet the Substantial
Presence test and does not choose to file a
joint return?
Lesson 7 - Page 12 of 18
income and cannot be claimed as a
dependent on anyone else’s U.S. tax return.
She has an ITIN for now. Major Tom can
claim her personal exemption on his tax
return.
Page 7-7
How do I enter the filing status into
TaxWise?
Turn to Tab 1, Starting TaxWise in the Display TaxWise (if available) or
Volunteer Resource Guide. Find the Main refer students to Volunteer
Information Screen screen shots. Notate on Resource Guide Main
the appropriate pages how to claim the Information Screen screen shot.
nonresident alien spouse’s personal
exemption for each of these situations.
Lesson 7 - Page 13 of 18
Dependency Exemptions Page 7-7
Lesson 7 - Page 14 of 18
If a child is a nonresident alien, before Have students use the decision
addressing the dependency exemption tree in the Volunteer Resource
question, it is necessary to confirm the Guide under Dependency
child’s U.S. residency status for tax Exemption for Qualifying Child.
purposes. Turn to the Nonresident Alien or
Resident Alien decision tree in the
Volunteer Resource Guide.
Lesson 7 - Page 15 of 18
An Adoption Taxpayer Identification
Number (ATIN) can be obtained when a
domestic adoption is pending and other
rules are met. An ATIN can be obtained in Guide students to the section in
the case of a foreign adoption when the Publication 17.
child already possesses a green card or a
certificate of citizenship (a form claiming
citizenship because a child was born
overseas to a U.S. citizen).
Lesson 7 - Page 16 of 18
Ramsey may be able to take her
personal exemption.
Before filing a tax return, U.S. citizens Re-enforce what filing status
married to non-citizens must determine options are available for U.S.
what filing status options are available and citizens married to non-citizens.
whether the non-citizen spouse will be
treated as a resident alien for tax purposes Remind students to use the
or as a nonresident alien? decision tree to determine
residency status of a non-
To determine the residency status of a non- citizen.
citizen, use the Nonresident Alien or
Resident Alien decision tree in the Remind students of the green
Volunteer Resource Guide. card or substantial presence
test.
Resident aliens follow the same tax laws as
U.S. citizens. Nonresident aliens follow Remind students when a U.S.
another set of tax laws, most of which are citizen or resident alien may
outside the scope of the VITA/TCE claim the non-resident alien
program. spouse’s income.
A married couple, where a citizen or
resident alien is married to a person who Remind students that a child
does not meet the Green Card or born to a U.S. citizen is usually a
Substantial Presence test, still has the U.S. citizen even if born in
option of making the choice to treat the another country.
nonresident spouse as a resident alien and
file as Married Filing Jointly. Re-iterate the rules regarding
non-resident alien stepchildren.
If the nonresident alien spouse does not
meet the Green Card or Substantial
Presence tests and does not choose to file
a joint return, under certain circumstances,
the U.S. citizen or resident alien can file as
Head of Household even though the couple
lives together.
Lesson 7 - Page 17 of 18
A U.S. citizen’s child is usually a U.S.
citizen by birth, even if the child is born in
another country.
Lesson 7 - Page 18 of 18
Lesson 8: Income - Wages, Interest, Etc.
Objective
Determine what income is taxable and what is specifically excluded by law as
well as what income is earned and which is unearned. Determine how to
correctly report income on a tax return.
Introduction
This lesson will help you determine a
taxpayer’s income that is reportable on
his/her tax return. You will begin to learn
how to complete the income section on
Form 1040, lines 7 through 22. We will be Refer to the chart shown on
covering lines 7 through 11 in this lesson. page 8-1. Briefly go over what
sections will be covered in the
The chart on Pg. 8-1 shows what line you course you are instructing.
use to report each type of income on Form
1040. It also shows which income topics will Stress the importance of
be covered at each certification level. volunteers preparing only
returns within the scope of their
Note that some types of income are not certification.
included in this training at any certification
level. Have students get out the Intake
and Interview Sheet and the
As you can see, Income is a very big topic. Volunteer Resource Guide
You will want to have all tools and reference
materials at hand as you work through each
tax return.
A: According to Section 61 of
Lesson 8 - Page 1 of 14
the Internal Revenue Code,
gross income means all income
from whatever source derived,
unless specifically excluded or
exempted by law.
There are several more income terms used Point out terms on F1040
on Form 1040: “total income”, “adjusted (TaxWise or paper). Briefly go
gross income (AGI)”, and “taxable income”. over how each is calculated or
have students read How is
taxable income calculated on a
tax return?, student guide, Pg.
8-2.
Lesson 8 - Page 2 of 14
section of the Intake and Interview Sheet Have students take out the
with the taxpayer. Intake and Interview Sheet and
the income section... Briefly go
over each line.
Many kinds of income are reported on a Note that not all income is
variety of information forms and documents reported on an information
depending on the source. In addition to return.
completing Part IV of Form 13614, you will
need to ask the taxpayer to show you all Stress that careful review and
Form(s) W-2, Form(s) 1099, and others input of information
statements reporting income. returns/income documents will
help prepare an accurate return.
Form W-2 is the document that employers Refer to Pub 678W, for
Lesson 8 - Page 3 of 14
must have available for their employees by examples of Form W-2 or to the
January 31. Most employers use a Form W-2 for Vanessa Franklin
standardized form. found in the appendix.
Q: What are some of the things that are A: Wages, tips, compensation,
reported on the Forms W-2 examples you FIT, Social Security tax,
are looking at? Advanced EITC, Employer
Identification Number, etc.
Let’s take a look at some of the tools Refer to the Volunteer Resource
available to help you enter income correctly Guide, yellow TaxWise Income
on the tax return. tab, income chart.
Ask students to find FW-2.
This chart will help you identify what kind of
income is reported on common information
returns and how to report it. Go over each line in student
guide, Pg. 8-4, Entering Form(s)
Look at the Volunteer Resource Guide, Tab W-2 into TaxWise. (Paper sites
2, and find the page titled How/Where to should skip this activity.)
Enter Income. Have students follow along in
the Volunteer Resource Guide,
TaxWise Income Tab 2.
Demonstrate on TaxWise if
available
Lesson 8 - Page 4 of 14
Q: How do you enter Form W-2 in A: Link for Form W-2
TaxWise?
Review the six boxes with statements on Confirm students have located
the top of the TaxWise Form W-2. the six statements starting with
“Check if this W-2 is
handwritten…”
Q: What do you do if boxes 3, 4, 5 and 6 on A: Check the fifth box and enter
Form W-2 do not match box 1 of Form W- data exactly as it appears on
2? Form W-2.
Q: What if an address on Form W-2 is A: Check the third box and enter
different than the taxpayer’s correct data exactly as it appears on
address? Form W-2.
Once you enter all Form(s) W-2 into Note that TaxWise also
TaxWise, the program automatically reports automatically carries necessary
the total on line 7 of Form 1040. information for credits,
deductions, withholding, etc.
from Form(s) W-2 to other
sections of the tax return.
Q: If the taxpayer indicated that he/she A: Did you report all your tips to
received tip income (the Intake and your employer? Did you receive
Interview Sheet, Part IV, item 6) what more than $20 a month? Do you
Lesson 8 - Page 5 of 14
follow-up questions might you want to ask? have a record of the amount you
received?
Q: On what pages will you find information A: Identify pages in current Pub
about tip income? 17 (Note that main topics are in
bold with sub-topics listed
below.)
You’ve found the answer to the question: Have participants turn to the
“All tips you receive are income and are appropriate page and read the
subject to federal income tax.” first sentence of the first
paragraph under Tip Income,
Introduction.
Allocated Tips
Have students read section and
discuss where it’s reported.
Lesson 8 - Page 6 of 14
Other W-2 Income
The term, “household employee” refers to Stress that a return preparer will
one who works in someone’s home correctly determine this income
performing household duties such as caring only by interviewing the taxpayer
for children, cleaning, or cooking. and noting it on the Intake and
Interview form...
Generally, if a taxpayer, working as a
household employee, earned less than Refer to the Volunteer Resource
$1,500 a year while working in the Guide Tab 2, How/Where to
employer’s home, the employer is not Enter Income for a TaxWise
required to provide the taxpayer with Form screenshot of where to enter this
W-2. The income, however, must be income.
included on line 7 of the taxpayer’s Form
1040.
Lesson 8 - Page 7 of 14
taxable. screenshot of where to enter this
income. Note that TaxWise will
Taxable scholarship or fellowship is automatically make the proper
reported on line 7 of F1040. If the taxpayer notation on the return if the
did not receive a W-2, write “SCH” on the income is entered in this field.
dotted line next to line 7.
Lesson 8 - Page 8 of 14
interest income? Have a student read the four
bullets aloud. After each of the
first three, instruct class to look
at resource materials as follows:
x If the taxpayer has Series HH bonds, x Find the place on the Intake
they receive interest twice a year. Ask and Interview Sheet where
the taxpayer for the bank statements you would note that a
reporting the interest received. taxpayer had interest income.
(A: Part IV, item 3)
x Ask if the taxpayer holds any loans or
seller-financed mortgages.
Interest on a Roth IRA is generally never Have students read the section
taxable. Interest on a traditional IRA is tax and then discuss the example
deferred. Do not include that interest until on page 8-9 (Mike).
the taxpayer makes withdrawals from the
Lesson 8 - Page 9 of 14
IRA. The taxpayer will be issued a Form Note that they will learn about
1099-R to report a distribution. . Form 1099-R in a later lesson
Lesson 8 - Page 10 of 14
additional notes made.
Now let’s look at how you report dividends. Have students read the TaxWise
Dividends are reported on Lines 9a and 9b Hint, student guide, Pg. 8-13.
of Form 1040. On TaxWise, however, you Review the Volunteer Resource
will never enter the amounts directly to Guide, TaxWise Tab 2 Income;
those lines. How/Where to Enter Income;
Schedule B, Ordinary Dividends;
Dividend Statement for
Schedule B, Line 5 Dividend
Income pages.
Lesson 8 - Page 11 of 14
(comments in the margins).
The 1099-G will not tell you whether the Refer to Form 13614.
refund is taxable. You must determine that
through your interview with the taxpayer.
Let’s practice.
Lesson 8 - Page 12 of 14
determine whether you will need to Discuss the four bullets at the
complete a state tax refund worksheet. bottom of page 8-14.
x Did you receive a refund for part of your Suggest students jot these
2006 state and/or local income taxes in questions in their Volunteer
2007? Resource Guide under Tab 2 on
x If yes, did you itemize your deductions the Income page for use at the
for tax year 2006? site.
x If yes, did you include the state and/or
local income taxes that you paid for that
year?
x If yes, use the state tax refund worksheet
to see if any of the refund is taxable.
Once you have determined that you must Refer to Publication 4012,
complete a state tax refund worksheet, link TaxWise Tab 2, How/Where to
to it on TaxWise and follow the instructions. Enter Income
(Paper filers complete
worksheet in the 1040
instructions.)
What is alimony?
Lesson 8 - Page 13 of 14
Summary:
Lesson 8 - Page 14 of 14
Lesson 9: Income - Business Income or Loss
Objective
Determine how to assist taxpayers with household business income, including
self-employment income.
Introduction
Business or self-employment income or loss
is reported on Form 1040, line 12. This
includes income from a business a taxpayer
owns and income from work as an
independent contractor. In this lesson, you
will learn how to probe taxpayers for this
kind of income and determine which returns
with business income you can prepare at a
VITA/TCE site. You will learn how to
compute the net profit from business on
Schedule C-EZ to report on line 12.
Q: Where on the Intake and Interview Sheet A: Part IV, Item 10, Self
is the probe for self-employment or Employment Income - business,
business income? farm, hobby (1099-Misc or any
earned income not
reported on W-2)
Lesson 9 - Page 1 of 7
themselves as self-employed. It is important
to frame your interview questions to
determine if they had self-employment
income, that is, received compensation for
working that was not reported on Form W-2.
Q: Can anyone think of one or more A: Did you have any income
questions you might ask? from a business or side job?
Did you work as an independent
contractor? Did you get a W-2
for all your jobs? Did you receive
documents other than Form W-2
that show your earnings from
work?
Lesson 9 - Page 2 of 7
VITA/TCE sites can prepare returns for self- Emphasize that taxpayers who
employed taxpayers only if they qualify to must use Schedule C are to be
report their business income on Schedule referred to a professional tax
C-EZ. preparer.
Taxpayers can use Schedule C-EZ only if Refer to the Publication 4012,
they meet all the conditions shown in the TaxWise Income Tab 2, and
flowchart in Part I, General Information on Schedule C-EZ Business
Schedule C-EZ. Income page.
x Did not have an inventory at any time x Inventory are items the
during the year taxpayer buys or makes for
resale to others
x Did not have a net loss from this x Expenses were not greater
business than income—in other words,
the business showed a profit
or broke even
x Had only one business as either a sole x Has only one Schedule C-EZ
proprietor or statutory employee business to report (one for
each spouse, if MFJ). (Note
that income shown on a Form
W-2 with the “statutory
employee” box checked is
Lesson 9 - Page 3 of 7
considered self-employment
income for income tax
purposes.)
x Had no employees during the year x Was not required to issue any
Forms W-2
x Are not required to file Form 4562, x Was not required to compute
Depreciation and Amortization for this depreciation on business
business. See Schedule C, line 13, assets. Note that taxpayers
instructions. who claim actual vehicle
expenses rather than
standard mileage rate usually
must compute depreciation.
x Do not have prior year unallowed passive x This is very unlikely. It might
activity losses from this business occur only if at sometime in
the past, the taxpayer had
business losses and was not
actively involved in making
business decisions
In your probing interview, walk the taxpayer Stress that the volunteer must
through these conditions, making notes on determine that the business
Intake and Interview Sheet. qualifies to be reported on
Schedule C-EZ before starting
to prepare the return. This will
mean estimating business
income and expenses.
Lesson 9 - Page 4 of 7
Q: Based on the interview, does Jason A: Yes
qualify to fill out a Schedule C-EZ?
Lesson 9 - Page 5 of 7
net earnings from self-employment of $400
or more. Taxpayers may deduct half of the
SE Tax from income as an adjustment. SE
tax is computed on Schedule SE. SE Tax
and adjustment amounts are transferred to
Form 1040.
Q: Where will you find the questions you A: In Part I: General Information
must ask to determine if a taxpayer qualifies Schedule C-EZ. The Publication
to report SE income on Schedule C-EZ? 4012 has a TaxWise screen
shot of it in TaxWise Income
Tab 2 section, Schedule C-EZ
Business Income page.
Q: Did the volunteer cover all the questions A: Yes, the nine points to qualify
about Vanessa’s business that needed to for Schedule C-EZ were
be asked prior starting return preparation? addressed. The volunteer also
asked about information
documents.
Q: How would you document this interview A: Check “yes” on Item 10, Part
on Intake and Interview Sheet? IV. Note that the taxpayer
qualifies for Schedule C-EZ, that
there are no 1099-MISC, and
indicate which records to review
during return prep.
Lesson 9 - Page 6 of 7
wages, salaries, and tips is earned income. key concepts: self-employment
income, earned income, net
We learned how to calculate net business business income.
income and where to report it on a tax
return.
Lesson 9 - Page 7 of 7
Notes
Lesson 10: Income – Capital Gain or Loss
Objective
Prepare students to determine if Schedule D is needed to report capital gains
and/or losses on the sale of assets. Determine an asset’s holding period,
adjusted basis, net short-term and long-term capital gains or losses, the taxable
gain or deductible loss, the tax liability, and the amount of any capital loss
carryover. Apply net gains and losses to the Schedule D and help the taxpayer
with loss carryover.
Introduction
This lesson will help you assist taxpayers
who must use Schedule D to report capital Instruct students to have
gains and/or losses on the sale of assets. In Publications 4012, 678W, 17
this lesson we will discuss the sale of stock and Form Schedule D and 1040
and the sale of a personal residence. If the Instructions for referral.
taxpayer has sold any other assets,
consider referring him/her to a professional
tax preparer.
Lesson 10 - Page 1 of 12
x The asset’s basis or adjusted basis – the
original cost plus/minus certain other
costs/damage after the purchase.
Lesson 10 - Page 2 of 12
What is a stock’s “basis?”
Page 10-2
All of this information is mainly for your Allow time for students to read
awareness. In order for you to prepare the the two paragraphs. Reinforce
return, the taxpayer must have the that the taxpayer must have all
Lesson 10 - Page 3 of 12
purchase and sales dates and adjusted information needed to determine
basis of the shares sold. basis and holding period.
Now we are going to go on to how you will Have students open P678W, to
enter the information about the stock sale the example of Form 1099-B, in
on the tax return. First, let’s take a closer the Advanced Comprehensive
look at Form 1099-B. Problem, as you read What
information do I need from Form
1099-B, Student Guide.
Lesson 10 - Page 4 of 12
commissions and fees.
Information from Form 1099-B is entered on Have students open their 4012,
Schedule D. Part I for short-term sales and to TaxWise Tab 2, Schedule D-
Part II is for long-term sales. When Capital Gains and Losses page.
preparing a return, determine the holding Point out Schedule D, Parts I
period for each block of stock sold. This will and II
indicate whether the sale should be
reported in Schedule D Part I (short term) or
Part II (long term).
After recording the information in columns a Review Capital Gain and Loss
through e, the gain or loss is calculated in Worksheet in Pub 4012,
column f. TaxWise Tab 2, Schedule D-
Capital Gains and Losses page.
If you enter the information in TaxWise by
linking to a Capital Gain or Loss Worksheet, Note instructions for mutual
TaxWise will automatically determine the funds entries with various
holding period, compute gain or loss, and purchase dates.
then carry the transaction to the correct part
of Schedule D.
Lesson 10 - Page 5 of 12
included capital gain distributions?
Lesson 10 - Page 6 of 12
Note that TaxWise will
automatically calculate the loss,
and generate the carryover
worksheet, if applicable.
Lesson 10 - Page 7 of 12
Who must file Schedule D for the Page 10-10
sale of a home?
Will someone read the statement and all Discuss each of the four points.
four options?
Lesson 10 - Page 8 of 12
not the taxpayer’s main home will generally
have to be reported as income.
Lesson 10 - Page 9 of 12
heart all the provisions of the
ownership and use tests. (In the
unlikely event you get a
The point of this exercise was to volunteer, let him/her try.) Ask
demonstrate the importance of using your participants to open their eyes
reference materials. Reliance on them, and explain the point of the
rather than memory, will help you to offer a exercise.
high quality of service to your VITA
customers. The ownership and use tests Reinforce that Student Guide
can be found in Publication 17. Publication should not be used as a
17 is a reference that will always be reference at the site.
available at your site.
Married Homeowners
Five-year Test Period Suspension and Page 10-11
Reduced Exclusion
Allow time to read Married
Let’s take a few moments to read about Homeowners, Five-year Test
some special rules for married homeowners Suspension and Reduced
and for those that don’t fully meet the use Exclusion, Student Guide.
and ownership tests.
Go over the examples and have
Remember that the reduced exclusion is out students complete the exercises
of scope but you can advise the taxpayer. using Pub 17, as a reference.
Lesson 10 - Page 10 of 12
to calculate a gain or loss?
Q: Where would you find information on A: Pub 17, under Sale of home,
what to include in adjusted basis? subtopic-adjusted basis.
Let’s continue with our sample interview of Designate students to read the
the taxpayer. sample interview aloud while the
rest of the class makes notes on
the Intake and Interview Sheet.
Lesson 10 - Page 11 of 12
Suggest students add a probe to
rule out previous business use
of the home.
Lesson 10 - Page 12 of 12
Lesson 11: Income - Retirement Income
Form 1040 Lines 15 and 16
Objective
Identify and report the taxable portion of retirement income received by the
taxpayer. Understand the types of retirement income and the forms used to
report them. Identify when taxpayers of retirement are required to take a
minimum distribution from a retirement plan and when they may need to adjust
their withholding.
Introduction
Lesson 11 - Page 1 of 11
First, let’s define some terms and discuss General information about
some general information about retirement retirement distributions
distributions. pages 11-1 to 11-4
Lesson 11 - Page 2 of 11
Form 1099-R is used by payers to report Review examples of Form 1099-
distributions from pensions, annuities, R in Publication 678W,
retirement or profit-sharing plans, IRAs, and Advanced Comprehensive
insurance contracts. You will use Problem. Briefly describe the
information from boxes 1, 2a, 2b, 4, 5, 7, information found in boxes 1, 2a,
and 9b, as well as the checkbox (next to 2b, 4, 5, 7, and 9b and the
box 7) that indicates if this is an IRA/SEP/SIMPLE checkbox.
IRA/SEP/SIMPLE distribution. (Refer to Form 1099-R
Instructions to Recipients or
TaxWise Help for box 7
distribution codes.)
Lesson 11 - Page 3 of 11
We will now do some reading that will help
you determine the additional information
that is needed to calculate the taxable
portion of distributions from IRAs or
pensions/annuities. First we will focus on
IRAs. IRA Distributions
pages 11-3 to 11-6
Lesson 11 - Page 4 of 11
• Were the contributions deducted from
income in the year they were made? Ask questions (e.g. Why ask
that?) to confirm understanding
of the purpose of the interview
questions.(determine if the
If so, the entire distribution is taxable. taxpayer has a basis in the IRA)
Report it on Form 1040, lines 15a and 15b,
or on Form 1040A, lines 11a and 11b.
Note that if it is entered on
TaxWise Form 1099-R, TaxWise
will automatically carry it to the
Distributions from a Roth IRA are not proper lines on Form 1040.
taxable as long as they meet the criteria you
read about. If the distribution does not meet
the criteria, some or all of it may be taxable.
Refer the taxpayer to a professional tax
preparer.
Lesson 11 - Page 5 of 11
the taxpayer does not have to pay the
additional tax.
Lesson 11 - Page 6 of 11
Allow time to read, page 11-7 &
8. (Note that limitations on
contributions to IRAs will be
covered in Lesson 17,
Adjustments to Income.)
If there is no code G, you will need to ask Note that in this case, the
the taxpayer when the funds were re- distribution code is often ‘1’
deposited and if it was into an appropriate (premature distribution). Stress
account. the importance of probing these
taxpayers to determine if the
amount was rolled over.
Lesson 11 - Page 7 of 11
Volunteer Resource Guide,
TaxWise Income Tab 2, 1099-R
Exclusion Worksheet page.
Q: What questions and would you ask and A: Q1: Was this distribution from
why? a traditional IRA?
Q: What if the distribution code is ‘1’ A: Q1: Did you roll over this
(premature distribution)? distribution into another qualified
retirement plan?
Lesson 11 - Page 8 of 11
These questions are necessary
to determine if the transaction
qualifies as a non-taxable
rollover distribution.
Lesson 11 - Page 9 of 11
If the payer has not calculated the taxable you review the TaxWise Hint on
amount of the distribution and reported it on page 11-9
Form 1099-R, box 2, you will need to
complete a worksheet to calculate it. (For paper sites, review
instructions below the TaxWise
Hint on page 11-9 while
participants follow along on the
Simplified Method Worksheet,
Form 1040 instructions.)
Lesson 11 - Page 10 of 11
The minimum distribution rules discussed Minimum Distributions
for traditional IRAs apply also to pension page 11-12
plans.
Retirement Income Withholding
and Estimated Tax Payments
page 11-12
Lesson 11 - Page 11 of 11
Notes
Lesson 12: Income - Rental Income and Expense
Objective
Identify and report rental income and expenses for U.S. citizens and resident
aliens. Determine how to allocate rental income expenses when property is used
for personal purposes. Identify when the at-risk and passive activity rules are
applicable and how to compute deductible depreciation expenses.
Introduction
This lesson will help you identify and report This lesson is only for Military
rental income and expenses for U.S. and International VITA students.
citizens and resident aliens residing in U.S
or abroad. To do this, you need to know Note that this lesson does not
how to allocate rental income and expenses apply to taxpayers who are in
when property is used for personal the business of renting
purposes. You must also be able to identify properties.
when the at-risk and passive activity rules
are applicable and compute deductible Have students take out Intake
depreciation expenses. and Interview Sheet.
Form 13614, Intake and Interview Sheet Advise that volunteers should
(Part IV, Income) does not list income from note rental income next to Part
rent, but it is important to ensure that all IV, Item 11.
income is accurately reported on the return.
Ask taxpayers if they rented out their home Have students take out the
or other property during the tax year. Volunteer Resource Guide.
Suggest that customize the
Income Tab D section with notes
to help them gather all
necessary information about
rental income and expense from
the taxpayer.
Lesson 12 - Page 1 of 9
must be reported?, Student
Guide, 12-1, 2 aloud.
We do not expect you to memorize all the Have students take out Pub 17.
details about the taxation of rental income.
Instead, we would like you to get in the
habit of looking up information, as needed,
in Publication 17, which you will have at
your site.
Lesson 12 - Page 2 of 9
own generally report mortgage interest and will be covered in a later lesson
property taxes as itemized deductions on
Schedule A. However, when a taxpayer Briefly review TaxWise Hint, pg.
rents out a home, those become rental 12-2.
expenses along with the cost of repairs,
maintenance, and certain other operating Instruct students to open the
expenses. Deductible rental expenses are Volunteer Resource Guide,
reported on Schedule E. TaxWise Income Tab 2,
Schedule E-Rental Income and
Loss page. Advise them that
they should refer to this page
whenever they enter rental
income and expenses.
Let’s read more about rental expenses and Allow time to read Partial Year
how they are allocated if the home was Student Guide, pg.12-3. Stop at
rented for a partial year. the exercise.
Lesson 12 - Page 3 of 9
Q: If you had a question about how to A: Pub 17, appropriate pages
handle a taxpayer’s rental expense, where from Chapter on Rental Income
would you find the information? and Expenses
Q: What question might you ask a taxpayer A: Possible responses: Did the
to determine whether an expenditure was work you had done add to the
for a repair or an improvement? value of the property? Was this
repair part of an extensive
remodeling of the property?
Lesson 12 - Page 4 of 9
Review exercise answers aloud.
Lesson 12 - Page 5 of 9
Guide.
Q: What question might you ask a taxpayer A: Possible answers: Did you
to determine if he/she met active manage the property yourself or
participation requirements? hire someone to do it? Were you
involved in reviewing rental
agreements, arranging for
repairs and improvements or
other property management
tasks?
Review exercises.
Lesson 12 - Page 6 of 9
purchase price of the property, including the
cost of improvements, but not including the
value of the land on which it sits. When
property is converted from personal use to Review example on Student
rental use, the basis is the lesser of the Guide, pg.12-11
adjusted basis or fair market value (FMV) at
the time of conversion Designate students to read text
below the example on Student
Guide, pg.12-11 to the bottom of
the page
Review exercise.
Lesson 12 - Page 7 of 9
building? Have you made any
improvements to the property?
Have you purchased appliances
or other assets for use in the
property?
When renting out part of the property, Stress that because the rules for
certain expenses must be divided between claiming rental income and
rental use and personal use expense are detailed and
Lesson 12 - Page 8 of 9
sometimes complex, volunteers
Limitations on the deductibility of a rental should refer to their research
loss apply to taxpayers who use rental materials every time they
property for personal purposes prepare a tax return.
Lesson 12 - Page 9 of 9
Notes
Lesson 13: Income - Unemployment Compensation
Objective
Identify how to report unemployment compensation.
Introduction
Lesson 13 - Page 1 of 2
in which they received
The total for all amounts in box 1 of Form(s) unemployment compensation.
1099-G should be entered on:
Line 3 of Form 1040EZ TaxWise Hint page 13-1.
Line 13 of Form 1040A From line 19, link to create each
Line 19 of Form 1040 1099-G. Enter any withholding
amounts in box 1 and box 4.
TaxWise automatically displays
the total unemployment income
on line 19 and includes the
withholding on line 64 of Form
1040.
Lesson 13 - Page 2 of 2
Lesson 14: Income - Social Security Benefits
Form 1040, Line 20a
Objective
Determine how to assist taxpayers who have social security and railroad
retirement benefits
Introduction
This lesson will help you assist taxpayers
who have social security and railroad
retirement benefits.
Lesson 14 - Page 1 of 8
Again demonstrate with
TaxWise or the Volunteer
Railroad Retirement Benefits (RRBs) are Resource Guide.
benefits paid to railroad employees working
in jobs that are covered by the Railroad
Retirement Act. The RRA benefits have two
components: tier 1 (social security
equivalent benefits) and tier 2 (pension plan
benefits treatment).
Two categories of RRB’s. Tier 1
How are these benefits reported to the and Tier 2. Details to follow.
taxpayer?
Form SSA-1099
Social security benefits are reported to the
taxpayer on Form SSA-1099, Social
Security Benefit Statement. To correctly
calculate the taxable portion, you need to
know the amount in box 5 (Net Benefits).
Taxpayers who did not receive Form SSA-
1099, or have misplaced it, can get a
printout of benefits from their local social
security office. These numbers are reported
on Form 1040, line 20a and b, and on Form
1040A, line 14a and b. See Publication
4012 for specific information on how the
data on Form SSA-1099 is input into
TaxWise.
Explain contents of SSA-1099.
Display one if possible or use a
sample from Publication 678W
Demonstrate linking TW to
complete SSA-1099 worksheet
input. Advise participants of
Medicare Premium input.
Form RRB-1099 and Form RRB-1099R
Railroad retirement benefits are reported on
Form RRB-1099 (Tier 1) and Form RRB-
1099R (Tier 2). These benefits fall into two
Lesson 14 - Page 2 of 8
categories that are treated differently for
income tax purposes. See Publication 4012
for specific information on how the data on
Form RRB- 1099 and Form RRB-1099R is
input into TaxWise.
Lesson 14 - Page 3 of 8
How do I find the taxable portion of social
security benefits and railroad tier 1
benefits?
Discuss this example with the
The taxable amount, if any, of a taxpayer's class.
social security benefits depends upon filing
status and other reportable income. Part of
the following benefits received by the
taxpayer may be taxable:
• Social security benefits
• Railroad retirement benefits, tier 1
(social security equivalent portion)
Lesson 14 - Page 4 of 8
TIP page 14-3:
The taxable portion of social
security benefits is never more
than 85% of the net benefits the
taxpayer has received. In many
cases, the taxable portion is less
If the taxpayer files a joint return, combine than 50%.
the income and benefits of both spouses
when completing the worksheet. Even if the
spouse received no social security benefits,
include the spouse’s other income when
completing the worksheet. If both spouses
received benefits, combine both their
benefits and income when completing the
worksheet for the return.
The process:
Input both incomes if joint return.
Lesson 14 - Page 5 of 8
and Form RRB-1099. Link from
Form 1040, line 16a to enter the
information on Form RRB-1099-
R.
Lesson 14 - Page 6 of 8
Lump-Sum benefit Payments Page 14-4
Some taxpayers may have received a lump-
sum benefit payment in 2007. This payment
could be for both the current tax year and
the prior tax year. Box 3 of the taxpayer's
Form SSA-1099 or Form RRB-1099 will
show the lump-sum payment. The form will
also show the year, or years, of the
payment.
Lesson 14 - Page 7 of 8
Exercises (continued) page 14-5
Question 2: Joan presents you with her A2: B. There are (ONLY) two
Form SSA-1099, which includes a lump- options available for figuring the
sum benefit payment for both 2006 and taxable portion of social security
2007. For which option would you refer her benefits paid as lump-sum
to a professional tax preparer? benefit payments. The first
option allows the taxpayer to
report the whole payment in the
year it was received. The other
option is a special procedure
that must be used to figure the
taxable portion of the benefits
assigned to the earlier years.
Refer taxpayers who want to
use this option to a professional
tax preparer or to Publication
915, Social Security and
Equivalent Railroad Retirement
Benefits.
Lesson 14 - Page 8 of 8
Lesson 15: Income – Other Income
Objective
This lesson will help you determine:
x Other forms of income and how to report other sources of income.
x How to properly report income earned from worldwide sources.
x Who is eligible for foreign income exclusion and how to calculate the
excludible amount using Form 2555, Foreign Earned Income or Form
2555 EZ, Foreign Earned Income Exclusion.
This lesson includes Military, Foreign Earned Income, and Worldwide Income.
Students should be directed to disregard the material that does not apply to their
site.
Introduction
This lesson will help you determine other Important Preliminary note:
forms of income and how to report other This lesson contains three
sources of income. components:
1. Regular “other” income
This lesson will also help you properly 2. Worldwide Income
report income earned from worldwide 3. Military Foreign Earned
sources. To do this, you need to be able Income Exclusion
to identify the type of income and, if
reportable, convert it to the equivalent That is why there are three
U.S. dollar value of the foreign currency. summaries. Chose the section(s)
This requires using the contemporaneous appropriate to the volunteers you
exchange rate or, if not known, an are training.
average annual exchange rate.
Remind the students that all
This lesson will help you determine who is income is taxable unless
eligible for the foreign earned income excluded.
exclusion and how to calculate the
excludible amount by using Form 2555, Refer the students to the
Foreign Earned Income, or Form 2555- Volunteer Resource Guide and
EZ, Foreign Earned Income Exclusion. IRS Pub 17
Lesson 15 - Page 1 of 18
Form 1040, Line 21: Other Income Page 15-1
The volunteer continues working with our Review the Scenario with the
taxpayer, Vanessa Franklin. Recall that students
Vanessa is married but, lives apart from
her husband. She qualifies to file as Display the intake sheet.
Head of Household. Her husband was
employed as a cook for most of the tax
Lesson 15 - Page 2 of 18
year, but collected some unemployment
compensation. They do not live in a
community property state.
Example:
In 2007, Alfredo Kendall earned $40,000 This is a good illustration of the
while working in Dallas, Texas, for Dade concept of “worldwide income.
Corporation. In September 2007, he
transferred to their office in Stuttgart, $40,000 in Texas
Germany. While in Germany, he earned $30,000 in Stuttgart
$30,000 (U.S. dollars). All of Alfredo’s $70,000 total
wages, including the income he earned in
Germany, is included in his gross income; We will discuss conversion issues
enter $70,000 on line 7 of his Form 1040. shortly.
Lesson 15 - Page 3 of 18
same way on the return. Likewise, income ways that are not used in the
earned in the U.S. and not taxed will be United States. Question the
treated in the same way if earned outside taxpayer closely to ensure that the
the U.S. The lines on which income is taxpayer is reporting all worldwide
reported on Form 1040 are the same income. Review the income
whether the U.S. citizen or U.S. resident records to ensure that includable
alien is living within or outside U.S. amounts are accurate and
boundaries. complete.
EXERCISES
Q1: Marta Bremer, a U.S. citizen, lives in A1: D.
Mussbach, Germany. Her 2007 income Marta’s gross income includes
included $22,000 in wages earned in her:
Germany. She earned $300 in interest $22,000 wages,
from her U.S. bank and $2,000 $ 300 interest, and
unemployment compensation from the $2.000 unemployment,
state of Iowa. What is Marta’s gross $24,300
income? - all of which should be reported
A. $2,300 on her tax return.
B. $22,300
C. $24,000
D. $24,300
Lesson 15 - Page 4 of 18
into U.S. dollars using the “exchange
rate.”
In other words:
Amt of foreign currency
Exchange rate of foreign
currency to one U.S. dollar
3,000 Euros
.74855 = $4,000.75
Q3: Caryn received 200 Euros on a day A3: A. Dividing 200 Euros by the
that the exchange rate was .75514 Euros .75514 exchange rate comes to
to one U.S. dollar. In U.S. dollars, she $264.85.
would have ____.
A. $264.85 200 Euros
B. $377.57 .75514 = $264.85.
C. $115.03
D. $11.50
Lesson 15 - Page 5 of 18
Q4: Given an exchange rate of .7000, A4: C. Dividing 36,000 Euros by
how much is 36,000 Euros worth in the .7000 exchange rate comes to
U.S. dollars? $51,428.57.
A. $252.00 36,000 Euros
B. $25,200.00 .7000 = $51,428.57
C. $51,428.57
D. $61,614.00
Lesson 15 - Page 6 of 18
Where to Obtain Exchange Rates
In mid-January, the IRS distributes Remind the students that the
exchange rates for various currencies to phone numbers are in Pub 54.
its worldwide offices, including the prior You could also share the following
year’s average annual exchange rate US Treasury web site:
information. http://fms.treas.gov/intn.html#rates
(if available)
To obtain exchange rates, call the IRS
International office at 215-516-2000, or
the overseas IRS offices. The phone
numbers of these offices are listed in
Publication 54, Tax Guide for U.S.
Citizens and Resident Aliens Abroad. You
may also contact banks that provide
international currency exchange services.
Lesson 15 - Page 7 of 18
Exercises (Continued) page 15-5:
Q5: You can generally use the average A5: C.
annual exchange rates posted in the IRS The average annual exchange
worldwide offices for taxpayers who rate should be applied only when
_____. the taxpayer received foreign
A. Have blocked income in a foreign income evenly throughout the
country year and when the exchange rate
B. Earned income in a country with remained relatively stable.
fluctuating currency values
C. Received foreign income evenly
throughout the year
Enter the taxpayer’s address at the time TaxWise help is the F1 key in the
the money was earned. For Section e, disk based version of the
TaxWise Help can be used to determine software.
the appropriate country code. Enter the
foreign employer’s information. List the
compensation amount in U.S. dollars.
Lesson 15 - Page 8 of 18
What is the foreign earned
income exclusion? Page 15-6
Exercises
Q6: page 15-6: Miranda has lived in A6: B. Miranda is not eligible for
Puerto Rico since 1999. Is she eligible for the foreign earned income
the foreign earned income exclusion? exclusion because Puerto Rico is
A. Yes not a foreign country.
B. No
Lesson 15 - Page 9 of 18
What is a qualifying tax home?
To claim the foreign earned income
exclusion, the taxpayer’s tax home must
be in a foreign country. The tax home is Very Important Note:
defined as the country in which the Generally, most military personnel
taxpayer is permanently or indefinitely and their dependents will not
engaged to work as an employee or a qualify for the foreign earned
self-employed individual, regardless of income exclusion.
where the family home is maintained.
Lesson 15 - Page 10 of 18
Exercises (continued) page 15 - 7
Q2: True or False? Alan has lived and
worked in China since August 16, 2000. A2: A. Generally, the tax home is
For 2007, China is his tax home. the country in which taxpayers
A. True maintain their place of business.
B. False Because Alan works in China, it is
considered to be his tax home.
For taxpayers who do not have a
regular place of business because
of the nature of the work, their tax
home is the place where they
regularly live.
How do I determine the tax
home? Page 15-7
Lesson 15 - Page 11 of 18
“no,” the taxpayer is considered to be
indefinitely assigned to the new location
abroad and is eligible for the foreign
earned income exclusion.
Lesson 15 - Page 12 of 18
The period of stay is the amount of time
the taxpayer stays in the foreign country. Bona fide means:
To meet the period of stay requirement, 1. made in good faith without
the taxpayer must be either: fraud or deceit
A U.S. citizen or resident alien from a 2. made with earnest intent :
tax treaty country who is a bona fide SINCERE
resident of a foreign country (or 3. neither specious nor
countries) for an uninterrupted period counterfeit : GENUINE
that includes an entire tax year, or
A U.S. citizen or U.S. resident alien
who is physically present in a foreign
country or countries for at least 330 full
days during any period of 12
consecutive months
Lesson 15 - Page 13 of 18
physical presence test rules. To qualify,
the taxpayer must be physically present in
a foreign country 330 full days during a
period of twelve consecutive months.
Lesson 15 - Page 14 of 18
country. Where the payments come from
or where they are deposited is not a factor
in determining the source of the income.
Lesson 15 - Page 15 of 18
Example 15-11
Could someone read the example on
page 15-11? Discuss this example.
Lesson 15 - Page 16 of 18
exclusion are:
•Self-employment tax
•Itemized deductions Note: This section says, “Self-
•Moving expenses employment tax (self-employment
income may be exempt from
After adjusting the exclusion for any income tax but not self-
deductions allocable to excluded income, employment tax”. This is an
enter the amount of the foreign earned advanced tax topic.
income exclusion in parenthesis on Form
1040 line 21. Subtract the amount from
the income to arrive at total income on
line 22.
TaxWise Hint: Link from Line 21 of
Form 1040 to Form 2555 or Form
2555EZ in the area designated for
Form 2555 or 2555EZ only.
Taxpayer Example
Page 15-12
Ask two people to do the
interactive interview on 15-13 and
then give the class the opportunity
for discussion.
Lesson 15 - Page 17 of 18
not finished yet! It is very likely that of Form 1040
adjustments, deductions, and credits will
considerably reduce the total tax owed.
Summary
Page 15-14
Can someone read each of the points in
the summary on page 15-14? Note:
To ensure a more accurate return,
Are there any questions or concerns? correctly identify income from all
sources, and know the difference
This is the end of the income section of between taxable and non-taxable
the course this summary is meant to income.
recapitulate the whole income section.
Lesson 15 - Page 18 of 18
Lesson 16: Military Income
Objective
Determine which items received by service members are reportable on the tax
return and the status of any medical separation pay or related to service in a
combat zone.
Community property laws may impact he income reported by some military
members on their returns.
Introduction
Lesson 16 - Page 1 of 9
What is includible income? Caution:
Includible items are subject to tax and must If the amount shown in box 1 of
be reported on the taxpayer’s tax return. Form W-2 differs from the last
The items listed in Table 1 of Publication 3 Leave and Earnings Statement
are included in gross income, unless the for 2006, advise the taxpayer to
pay is for service in a combat zone or in a contact the local accounting and
qualified hazardous duty area declared by finance or payroll office for an
statute. All includible military income will explanation.
generally be shown in box 1 of Form W-2
and reported on line 7 of Form 1040.
Lesson 16 - Page 2 of 9
What is military separation with Page 16-2
disability severance pay?
The veteran’s service must have been Note: The benefits are not
terminated through separation or discharge subject to federal or state
under honorable conditions. Disability income tax.
compensation varies with the degree of
disability and the number of dependents,
and is paid monthly.
Lesson 16 - Page 3 of 9
amount of the disability benefit is calculated
by the VA, based on the percentage of
disability and other factors.
Q3: Disability payments sent directly from A3: C. Once the VA sends the
the VA to the discharged service member letter of determination, all
_____. pension payments are offset by
A. Are taxable the disability percentage paid
B. Appear on the taxpayer’s Form W-2 directly from the VA, which are
or 1099-R not taxable and not included in
C. Are not included on the taxpayer’s any Form W-2.
Form W-2 or 1099-R
D. May begin before the VA issues the
letter of determination
The President of the United States Refer your students to the IRS
designates these areas by Executive Order Web site (www.irs.gov) or to the
The U.S. Armed Forces are engaging or DFAS (Defense Finance and
have engaged in combat. An area becomes Accounting Service) for a
a combat zone and ceases to be a combat complete list.
zone on the dates the President designation
is made.
Lesson 16 - Page 4 of 9
operations in a qualified hazardous duty
area, or performing qualifying service
outside the qualified hazardous duty area,
are treated as if they are in a combat zone
solely for the purposes of the extension of
deadlines.
Lesson 16 - Page 5 of 9
x Hostile fire/imminent danger pay is paid
due to dangers or risks from the combat
zone
Lesson 16 - Page 6 of 9
for which the member becomes Note: As a volunteer, you need
eligible while in the combat zone. to be exact in entering the W-2
Military pay earned while hospitalized into TaxWise as it appears.
due to wounds, disease, or injury
incurred in the combat zone can also
be excluded.
x Commissioned officers (including
limited duty officers) may exclude
pay according to the rules for
enlisted members. However, the
amount of the exclusion is limited to
the highest rate of enlisted pay plus
the amount of imminent
danger/hostile fire pay received for
each month during any part if which
they served in a combat zone or
were hospitalized as a result of their
combat zone service.
Lesson 16 - Page 7 of 9
Taxpayer Example Page 16-6
The Military Comprehensive Problem in the Guide the class through this
Publication 678-W has an example of Form sample interview. If it is
W-2 with combat pay excluded. Here’s how available you should
a volunteer might help a taxpayer that has demonstrate entering a W-2 with
combat pay: combat zone pay using the
TaxWise software.
Lesson 16 - Page 8 of 9
Will someone read the first bullet on page Discuss each response.
16-6?
Lesson 16 - Page 9 of 9
Notes
Lesson 17: Adjustments to Income
Objective
Determine which, if any, adjustments to income a taxpayer is eligible to claim on
their return. Adjustments to income are amounts that a taxpayer is eligible to
claim on their return. The results is an “adjusted gross income” which is used to
figure the taxpayer’s tax. Adjustments are applied to reduce income before
figuring the tax; credits are subtracted directly from the tax liability.
Introduction
This lesson will help you determine which, if Adjustments are considered
any, adjustments to income a taxpayer is Intermediate. However, Basic
eligible to claim on their return. Adjustments courses should cover Tuition &
to income are amounts that a taxpayer can Fees Deduction.
subtract from total income. The result is an
“adjusted gross income” (AGI), which is a
factor in computing several deductions and
credits.
Lesson 17 - Page 1 of 15
We will go over each one of the
adjustments, but first we will look at how
you will identify the adjustments to income
that a taxpayer may be able to claim. To do
this, you will need to ask if the taxpayer had
the types of expenses listed on the
Adjustments section of the 1040.
A: IRA deduction
A: Alimony paid
Lesson 17 - Page 2 of 15
Suggest students customize
their Volunteer Resource Guide
throughout this lesson, adding
Q: What are some of the questions you notes to remind them about
might ask? additional information they will
need to gather.
A: Solicit discussion of effective questions;
examples:
• You said you were a teacher. Did you
buy any supplies for your classroom?
• I see you are divorced. Did you pay or
receive alimony?
• Did you pay any interest on a student
loan?
• You said you received some jury duty
pay. Did you have to turn it over to your
employer?
• Did you pay for college or vocational
school?
Lesson 17 - Page 3 of 15
Taxpayer Example Page 17-3
The taxpayer must reduce education
expenses by certain reimbursements they
received:
• Expense reimbursement not included on
Form W-2
• Tax-free interest on U.S. Series EE and I
Savings Bonds
• Non-taxable distributions from a Qualified
Tuition Program (QTP) or Coverdell
Education Savings Account (ESA)?
.
Q: What questions might you ask the
taxpayer to gather information about
possible reimbursements?
A: Solicit discussion of effective questions;
possible answers:
• Did you receive reimbursement that is
not listed on Form W-2? Review TaxWise Hint on page
• Did you redeem tax-free interest on U.S. 17-3. Advise students to input
Series EE and I Savings Bonds? total qualified expenses and
• Did you receive non-taxable earnings TaxWise will automatically
from a Qualified Tuition Program (QTP) impose the $250 limitation.
or Coverdell Education Savings Account
(ESA)? Note that excess educator
expenses may be deductible as
Educator expenses are entered on line 23 employee business expenses
of Form 1040. (subject to the 2% of AGI
limitation) on Schedule A.
Lesson 17 - Page 4 of 15
deduction (Form 1040, line 27)
from the information entered on
Schedule C-EZ.
See Appendix A for Vanessa’s
If you establish that the taxpayer or spouse completed Form C-EZ and Form
has self-employment income, you will SE
calculate the self-employment tax using
Schedule SE. This topic was covered in the
lesson on business income.
Lesson 17 - Page 5 of 15
Taxpayers who qualify to deduct alimony
payments will not necessarily have any
documentation. You will have to gather this
information through the interview. Let’s see Have students refer to an Intake
what tools you will have. and Interview Sheet.
Lesson 17 - Page 6 of 15
There are several different kinds of IRAs
which you already learned about in Lesson
11 (Retirement Income). In this lesson, we
will be discussing contributions to traditional
IRAs, which may be deductible as an
adjustment to income.
Lesson 17 - Page 7 of 15
Note that the taxpayer can
choose to deduct contributions
made between 1/1 and 4/15,
2008 on their 2007 or 2008 tax
return.
Lesson 17 - Page 8 of 15
Q: If you wanted to get the definition of
compensation for IRA purposes or the
contribution limit rules for spousal IRAs,
where could you find the information?
Lesson 17 - Page 9 of 15
Note: It is important to list both
traditional and Roth IRAs on the
IRA Worksheet in TaxWise.
This information may have an
affect on the Retirement Savers
Credit which will be discussed in
Lesson 26
Q: Where on Form 13614 is this deduction Have students review the Intake
addressed? and Interview Sheet.
Lesson 17 - Page 10 of 15
A: Part V, Item 3, Education related
expenses
Lesson 17 - Page 11 of 15
the jury pay in income and deduct it as an
adjustment to income as a write-in on line
36.
Form 8917, Tuition and Fee Deduction, will Review Vanessa’s Form 8917
help you compute the taxpayer’s Modified located in Appendix A.
AGI for this deduction. TaxWise will
complete this part of Form 8917
automatically.
Eligibility requirements, pages
17-14 &15
Allow time to read Who Is
eligible for this deduction?,
pages 17-14 &15. Review
examples.
Now let’s look at qualified tuition and Allow time to read What are
expense. qualified tuition and expenses
and What is an eligible
educational institution?, pages
17-15 & 16 or refer participants
to Publication 17, Chapter 19,
Education-Related Adjustments
for a definition of qualified
education expenses.
Lesson 17 - Page 12 of 15
Refer students to Intake and
Interview Sheet
Let’s take a moment to talk about how you
will gather information from the taxpayer.
Lesson 17 - Page 13 of 15
As time permits, designate
students to role play and/or
enter the Taxpayer Example,
pages 17-16 &17 into TaxWise.
Lesson 17 - Page 14 of 15
Summary Page 17-20
In this lesson, you learned how to identify
and work with these adjustments to income: Solicit questions and comments.
• Half of self-employment tax
• Penalty on early withdrawal of savings
• Alimony paid
• IRA deduction
• Student loan interest deduction
• Tuition and fees adjustment
Lesson 17 - Page 15 of 15
Notes
Lesson 18: Military Moving Expenses
Objective
Determine which military members are entitled to an adjustment to income for
moving expenses. This includes determination of qualifying moves, allowances
and reimbursements, moving expenses and completion of Form 3903.
Introduction
This lesson will help you determine which
military members are entitled to an
adjustment to income for moving expenses.
To do this, you will need to determine
qualifying moves, allowances and
reimbursements, moving expenses, and
complete Form 3903.
Note: the special rules for
military members on active duty
To deduct moving expenses as an who move for PCS.
adjustment to income, the taxpayer
generally must meet certain time and
distance tests. However, a member of the
Armed Forces on active duty who moves
because of a permanent change of station
does not have to meet these tests.
Note: the service members’
travel voucher for the move will
contain much of the information.
Un-reimbursed moving expenses are
deducted using Form 3903. Military
members receive a variety of moving
reimbursements and allowances, which
must be considered when determining if the
expenses are deductible. The service
member’s travel voucher will contain much
of the information needed to compute the
deduction.
Lesson 18 - Page 1 of 7
What is a permanent change of Page 18-1
station?
Lesson 18 - Page 2 of 7
• Moving household goods and
personal effects
• Reasonable travel and lodging TIP page 18-2:
expenses Publication 521, Moving
Expenses, has detailed
information on deductible and
nondeductible moving
expenses. This publication
also contains a special section
To qualify as “reasonable,” the route taken on Members of the Armed
must be the shortest, most direct route Forces.
available, from the former home to the new
home. Additional expenses for stopovers or
side trips are not deductible as moving
expenses.
Lesson 18 - Page 3 of 7
DITY payments are entered as income on
line 7 of Form 1040. Service members may
not take a moving expense deduction
based on the expenses approved by the
finance office when settling the DITY move,
as they have already been used to reduce
taxable income.
Lesson 18 - Page 4 of 7
Answer 2: B. The $1,000 DITY
payment should be included as
gross income on
line 7. However, nontaxable
allowances such as dislocation
allowances, temporary
lodging allowances and mileage
allowances provided by the
military should not be
included as gross income on the
service member’s tax return,
How do I calculate the adjustment? even if they exceed
Deductions can only be claimed for the allowable expenses.
amount of expenses not covered by a
nontaxable reimbursement or moving
allowance. To calculate the amount of a
service member’s moving expense
adjustment, complete Form 3903, Moving
Expenses:
• Allowable expenses are shown on
line 3. TaxWise Hint page 18-4:
• All reimbursements and allowances Link from line 26 of Form 1040
are included on line 4. to access Form 3903, Moving
• If the expenses are greater than Expenses. Check the box near
reimbursements, the difference will the top of the form to indicate an
be carried to line 26 of Form 1040, Armed Forces PCS move. Line
and reduce the taxpayer’s Adjusted 2 is broken into two separate
Gross Income. entries: one allows you to enter
• If all reimbursements were the miles traveled and compute
nontaxable allowances, then no the standard mileage amount;
amount is included in line 7 wages, there is a separate line for “other
even if the reimbursements were travel costs.” If you need to add
greater than the allowable expenses. together expenses or
When this occurs, Form 3903 is not reimbursements, link from lines
needed. 1, 2 or 4 to bring up a scratch
pad. If you determine that
nontaxable reimbursements are
greater than allowable moving
expenses, remove Form 3903
before continuing with the
return.
Lesson 18 - Page 5 of 7
Taxpayer Example Page 18-4
Service members can deduct allowable Go through this Sample
moving expenses either in the year in which Interview with the class to
they were incurred or the year in which they determine if the Sierras had any
were paid, whether or not there was deductible moving expenses.
reimbursement by the government. Note this is the Sierra tax return
that is referred to on page 18-5
Service members using the cash method of
accounting (the most common) can deduct
moving expenses in the year of
reimbursement if the expenses were paid in
the year:
• Before the year of reimbursement, or
• Immediately after the year of
reimbursement but by the due date,
including extensions, for filing the
return for the reimbursement year
Lesson 18 - Page 6 of 7
Taxpayer Example Page 18-5
Have two students demonstrate
this interview.
Lesson 18 - Page 7 of 7
Notes
Lesson 19: Standard Deduction and Tax Computation Screening
and Interviewing
Objective
Determine the taxpayer’s correct standard deduction amount, identify who can
take the standard deduction, and explain how the deduction is calculated.
Explain how tax is computed and reported.
Introduction
This lesson will help you determine the
taxpayer’s correct standard deduction
amount, identify who can take the standard
deduction, and explain how the deduction is
calculated. You will also need to help Instruct students to find standard
taxpayers understand how their tax is deduction amounts in
computed and reported. Publications 4012 or 17.
Lesson 19 - Page 1 of 5
taxes, on Schedule A of Form 1040. The
standard deduction is higher for taxpayers
who are 65 or older or blind. If you have a
choice, you can use the method that gives
you the lower tax.
Lesson 19 - Page 2 of 5
were born before January 2, 1943.
If a taxpayer is blind on the last day of the Refer to the footnote on the
year and the taxpayer did not itemize table in Publication 4012, Tab F.
deductions, then they are entitled to a
higher standard deduction. Discuss qualifications for age
and blindness.
Q: Loretta and Chauncey are married. They A: If they file jointly and take the
are under 65 and neither is blind. Neither standard deduction, it will equal
can be claimed as a dependent on $10,700. If they file separately,
someone else’s tax return. What would their they can each take a standard
standard deductions be? deduction of $5,350.
Lesson 19 - Page 3 of 5
The deduction is generally limited to the
greater of:
• $850, or
• The individual’s earned income
for the year, plus $300
Lesson 19 - Page 4 of 5
Example:
Mr. and Mrs. Brown are filing a joint return. Discuss example on page 19-6
Their taxable income is $25,300. First find and have students look up tax in
the range that includes their income: table of Publications 678-W, 17
$25,300-$25,350. Then read across to the and/or Form 1040 Instructions.
column that applies to their filing status:
MFJ/Tax $3,016.
Lesson 19 - Page 5 of 5
Notes
Lesson 20: Itemized Deductions
Objective
Calculate and accurately report itemized deductions on Schedule A. Calculate
taxable income. Use interviewing techniques and tools learned in previous
lessons to determine if a taxpayer should itemize deductions.
Introduction
Q: Are all medical and dental expenses Note: Itemized deductions reduce
deductible? the amount of income taxed.
Use standard or itemized
A: Unreimbursed medical and dental deductions, whichever results in the
expenses totaling more than 7.5% of the lowest tax.
AGI are deductible.
See TIP, page 20-2: If you and a
taxpayer disagree as to whether a
Lesson 20 - Page 1 of 10
Let’s review whose expenses are covered. particular expense is deductible,
then politely refer the taxpayer to a
Now let’s review the types of medical and professional tax preparer. The
dental expenses covered. taxpayer may be correct, but you
should not deduct an expense
unless you are sure it is deductible.
Have students work Exercise Q1 on page Review answer when complete. A1:
20-3. The total of qualified medical and
dental expenses is $3250.
Lesson 20 - Page 2 of 10
Review state and local income taxes or Line 5, Schedule A.
general sales tax.
Explain the general sales tax option. Compare state and local income
taxes withheld to the general sales
tax option to determine the best tax
advantage.
Foreign income taxes paid may be claimed Refer to Pub. 17 chapter on Taxes
on line 8. If customer has paid foreign for expenses that are not deductible.
income tax, the Foreign Tax Credit may
yield the lowest tax benefit. If the customer
wants to claim the Foreign Tax Credit using
Form 1116, refer to a professional tax
preparer unless you are certified in
International issues.
Lesson 20 - Page 3 of 10
Taxpayer Scenario Page 20-6
Now let’s get back to our taxpayer Vanessa Ask two students to role play the
Franklin in the Taxpayer Scenario in the Vanessa scenario regarding
student text (page 20-6). Vanessa’s tax deductions.
You will find a copy of Vanessa’s Form Refer to the appropriate screen
1098 that lists her real estate taxes, in the shots under Tab 4 of 4012 and/or
appendix at the back of your student guide. demonstrate entering Vanessa’s
deductible taxes in TaxWise.
From 1991 through 1998, Alfredo and Cindy Review & discuss the example.
Kendall borrowed a total of $91,000 using
their home as security. Alfredo and Cindy
used the loans to pay off gambling debts,
overdue credit payments, and some
nondeductible medical expenses.
The total amount of Alfredo and Cindy’s
secured debt is currently down to $72,000.
The fair market value of their home is
$230,000, and they carry $30,000 of
outstanding acquisition debt (the amount
used to buy, build, or improve their home).
If Alfredo and Cindy file a joint return, they
can deduct the interest on their loans
because:
Lesson 20 - Page 4 of 10
not exceed $100,000, and
• The total amount of the secured debt
($72,000) is not more than the home’s
fair market value minus any outstanding
acquisition debt ($230,000 - $30,000 =
$200,000)
Points are the charges paid by a borrower Refer students to Publication 17 the
and/or seller to a lender to secure a Interest Expense chapter to help
loan. They are also called: determine if points are fully
Loan origination fees (including VA and deductible.
FHA fees)
Maximum loan charges
Premium charges
Loan discount points
Prepaid interest
Only points paid as a form of interest (for Advise students to see Publication
the use of money) can be deducted on 17, “Items You Cannot Deduct”.
Schedule A. Review the items with class.
Now let’s get back to our taxpayer Vanessa Ask for two volunteers to read the
Franklin. sample interview on page 20-10 in
the student text.
Lesson 20 - Page 5 of 10
shots under Tab 4 of 4012 and/or
demonstrate entering Vanessa’s
interest expenses in TaxWise.
Example
Susan ran a 10K organized by the Chamber Review the example use student
of Commerce to benefit a qualified participation.
charitable organization. She paid the race
organizers a $30 entry fee and received a
“free” t-shirt and pancake breakfast after
the race.
Susan did not make a contribution to the
qualifying organization. She paid the
Lesson 20 - Page 6 of 10
Chamber of Commerce, which allotted
funds to the benefiting organization.
Therefore, none of Susan’s entry fee is tax
deductible. If the race had been organized
by the qualifying organization itself, part of
her entry fee may have been deductible.
Let’s work Exercise (Q5) on page 20-13. Review answers. Answer 5: $632.
Lesson 20 - Page 7 of 10
taxpayer’s AGI can be deducted. Other
miscellaneous deductions are deductible
regardless of AGI.
Which deductions are subject to the 2% Review student text on page 20-14
limit and which deductions are exempt listing deductions subject to 2% limit
from the 2% limit? and a listing of deductions that are
exempt from the 2% limit.
Let’s work Exercise (Q6) on page 20-15. Review answers. A6: $695.
Lesson 20 - Page 8 of 10
4. Subtract line 42 (exemptions) from line
41 to determine the taxable income
amounts.
5. Calculate the tax on line 44.
Medical and Dental Expenses Discuss each topic briefly and ask
Qualified medical and dental expenses are the students if they have questions.
those the taxpayer paid during the tax year
for the taxpayer, spouse, and dependents.
Taxes
Taxpayers can elect to deduct state,
local, or general sales taxes.
In addition, taxpayers may also deduct:
State, local, or foreign real estate taxes
State and local personal property tax
payments
Interest
Generally, the taxpayer receives Form
1098, Mortgage Interest Statement, which
shows the deductible amount of interest
paid by the taxpayer.
Lesson 20 - Page 9 of 10
Gifts to Charity
The contributions to qualifying organizations
that taxpayers can deduct include:
Monetary donations
Dues, fees, and assessments paid to
qualified organizations above the value
of benefits received
Fair market value of used clothing and
furniture
Cost and upkeep of uniforms that have
no general use but must be worn while
performing donated services for a
charitable organization
Unreimbursed transportation expenses
that relate directly to the services the
taxpayer provided for the organization
Part of a contribution above the fair
market value for items received such as
merchandise and tickets to charity balls
or sporting events.
Taxpayers should keep receipts and
records of all their contributions.
Miscellaneous Deductions
For some miscellaneous deductions, only
the portion that exceeds 2% of the
taxpayer’s AGI can be deducted. Other
miscellaneous deductions are deductible
regardless of AGI.
Lesson 20 - Page 10 of 10
Lesson 21: Military Employee Business
Objective
Determine and claim qualified employee business expenses for members of the
Armed Forces. Use the interviewing techniques and tools discussed in the
Screening and Interviewing lesson. Determine where to report the deductible
expenses.
Introduction
This lesson will help you determine which
expenses are deductible and where to claim Caution: As you go through this
them on a tax return. You will learn the lesson remind the students that
deductible and nondeductible expenses for Congress is allowing taxpayers
the Armed Forces, such as uniforms, to deduct the costs they incur in
education and travel that are related to generating taxable income. In
working as a member of the Armed Forces. general, if the costs are not
These expenses may be reported on Form connected to generating taxable
2106 with one exception. Reservists deduct income there is no deduction.
them on Schedule A as a Miscellaneous
Itemized Deduction subject to the 2% limit. Remind the students that we are
talking about unreimbursed
To determine itemized deductions of special expenses, or expenses that
interest, use the interview techniques and exceed the reimbursement they
tools discussed in the Screening and receive.
Interviewing lesson. Ask taxpayers if they
had any work-related expenses, and Stress the 2% “limit”, or
whether they received any reimbursements. threshold.
Lesson 21 - Page 1 of 14
What are uniform expenses? Page 21-1
Military personnel can deduct the cost of Discuss these two basic rules
buying and maintaining uniforms if the for uniforms.
uniforms are: specifically required as a
condition of employment, and not adaptable
to general use as regular clothing.
The same rules apply for active duty Read and discuss each of the
personnel and reservists. Exercises on page 21-2.
Lesson 21 - Page 2 of 14
What are work-related educational Page 21-3
expenses?
Sgt. Vance Ventura, an Army pilot, incurred Consider a scenario that would
educational expenses to obtain an make Sgt. Vance Ventura’s
accounting degree. He cannot deduct his accounting degree deductible?
accounting degree expenses on
Schedule A because the degree qualified
him for a new trade or business.
Lesson 21 - Page 3 of 14
What are deductible and nondeductible Page 21-3
educational expenses?
Lesson 21 - Page 4 of 14
chapter on Business Deduction for
Work-Related Education in Pub 970, Tax
Benefits for Education.
Lesson 21 - Page 5 of 14
Lodging
Taxi fare
Laundry and/or dry cleaning
Tips
Lesson 21 - Page 6 of 14
What are work-related travel expenses? TIP page 21-5:
TDY stands for temporary duty
Examples of work-related travel expenses and TAD stands for temporary
for members of the Armed Forces include: additional duty.
Lesson 21 - Page 7 of 14
competent orders, and
Whether or not the reservist was
compensated
Lesson 21 - Page 8 of 14
100 miles. You can link from the
entry field to a scratch pad to
add up the separate items
(vehicle expenses, lodging and
50% of food) if you wish.
TaxWise will carry the “RC”
reservist expenses to line 24 on
the front of Form 1040, and the
remainder to line 21 of Schedule
A.
Note: “RC” stands for Reserve
Component of business
expenses
Lesson 21 - Page 9 of 14
For information on using the standard meal
allowance instead of actual expenses, see
Publication 463, Travel, Entertainment, Gift,
and Car Expenses.
Lesson 21 - Page 10 of 14
to be a local transportation expense? not away from home is an
A. Daily meals taken during a week-long allowable local transportation
training session while on duty expense.
B. Gasoline used to drive to and from one’s
regular place of work
C. Taxi fare to travel to a local work-related
convention on a work-related topic, while on
duty
D. Elaborate lunch to treat top-ranking
military official visiting base
Lesson 21 - Page 11 of 14
the expense of traveling from his regular
work location to the meeting location.
Capt. Glendale traveled from his duty Discuss with the students.
station in California to Washington, DC, for
a conference. He was away for five days.
The Army advanced $700 to Capt.
Glendale for the trip. His actual expenses
were $625. When he filed his travel voucher
with the Army, he returned the extra $75.
He does not have to complete
Form 2106.
Lesson 21 - Page 12 of 14
How do I complete Form 2106? Page 21-9
Lesson 21 - Page 13 of 14
Complete Step 3 when the employer did not
reimburse the employee in full. Line 10 of
this section shows the amount of the
deduction that can be claimed on Schedule
A, Form 1040. This amount may be reduced
when you apply the 2% AGI limit.
Lesson 21 - Page 14 of 14
Lesson 22: Business Travel Expenses
Objective
Identify deductible business-related travel expenses. Determine if claiming
standard expenses for meals and mileage will result in the best tax advantage.
As a part of this lesson students will learn how to correctly report reimbursements
the taxpayer has received and how to make sure the taxpayer has records to
substantiate expenses paid.
Introduction
This lesson will show you how to report
deductible business-related travel
expenses. To do this, you need to be able
to identify deductible expenses, determine
if claiming standard expenses for meals and
mileage will result in the best tax
advantage, make sure the taxpayer has
records to substantiate expenses paid, and
correctly report reimbursements that
taxpayer received.
Lesson 22 - Page 1 of 8
Because these relate to the taxpayer’s job,
they cannot include any personal expenses,
such as sightseeing, entertaining, family
visits, or family expenses.
Lesson 22 - Page 2 of 8
One cannot deduct expenses for travel
away from one’s tax home for any period of
temporary employment of more than 1 year.
Lesson 22 - Page 3 of 8
What records must the taxpayer Page 22-3
have?
Vehicle Expenses
Lesson 22 - Page 4 of 8
may use the standard mileage rate only if
they meet one of these requirements:
x Owned the vehicle and used the
standard method the first year the
vehicle was put into service
x Leased the vehicle and is using the
standard method for the life of the
lease
Lesson 22 - Page 5 of 8
entertainment expenses? meals/entertainment and for
A. Taxpayers may deduct meal incidental expenses or use the
expenses for family members if the standard method for one or the
travel can be proven to be primarily other.
business related.
B. Taxpayers can deduct 100% of meal Show the students the
and entertainment expenses that are not information behind the TaxWise
subject to DOT hours of service. Deductions tab in the Volunteer
C. Taxpayers may report the actual Resource Guide.
amounts for meals/entertainment and for Demonstrate this with the
incidental expenses or use the standard TaxWise software (if available).
method for one or the other.
D. All of the above. Note: Determine if a Form 2106
is needed, then determine if the
Form 2106-EZ is appropriate.
Lesson 22 - Page 6 of 8
Form 2106 is divided into two parts. Part I
calculates total travel expenses, and Part II
calculates vehicle expenses. If the taxpayer
incurred qualified vehicle expenses, you
should complete Part II before entering an
amount in line 1 of Part 1:
x Section A requests general
information about vehicle use. The
“placed in service” date is the date
the taxpayer began using the vehicle
for business.
x Section B (line 22) is for taxpayers
who choose to use the standard
mileage rate for the vehicle.
x Sections C and D are for taxpayers
who are using the actual expense
method to calculate their vehicle
expenses. This is beyond the scope
of the volunteer program; refer the
taxpayer to a professional tax
preparer.
Lesson 22 - Page 7 of 8
EXERCISES Page 22- 5
Lesson 22 - Page 8 of 8
Lesson 23: Credit for Child and Dependent Care
Objective
Determine a taxpayer’s eligibility for the credit for child and dependent care
expenses. Calculate the amount of the credit.
Introduction
Some taxpayers may not be aware of this Stress to the students their
credit. Your time and effort may result in a knowledge will help educate
lower tax for the taxpayer. the taxpayer and may reduce
their tax.
The first step is determining if the taxpayer is
eligible for the credit. Remember to use the
interview techniques and tools you were
introduced to in the Interview lesson.
Notice that the child and dependent care credit Allow the students to look at
expense is addressed. an Intake and Interview sheet.
Lesson 23 - Page 1 of 12
What is the child and dependent care Page 23-1
credit?
Lesson 23 - Page 2 of 12
Now that you have an understanding of the
basics of this credit, we will turn our attention to
what resources you will need available to help
the taxpayer and then we will focus on
determining eligibility.
You’ll need:
Family and Dependent Information section
of the Intake and Interview Sheet.
Volunteer Resource Guide (Pub 4012) Have students locate each
Form 2441 and instructions. product.
Publication 17
As we go over each test, keep in mind that the Stress this is an important
taxpayer must satisfy all five to qualify for point.
the credit.
Lesson 23 - Page 3 of 12
What is the qualifying person test? Page 23-2
A qualifying person can be any of the following: Point out that only the
A qualifying child who is the taxpayer’s custodial parent can take this
dependent and under age 13 when the care credit. If the child is not being
was provided. claimed as a dependent by
Dependents who were physically or the taxpayer because the
mentally unable to care for themselves and non-custodial parent is taking
for whom the taxpayer can claim a the exemption under the
dependency exemption. This person must special rules for children of
have lived with the taxpayer for more than divorced and separated
half the year. No age limit applies if the parents, only the custodial
qualifying child dependent is permanently parent may treat the child as
and totally disabled. a qualifying person for this
A spouse who is physically or mentally credit. For more, see
unable to care for themselves. Publication 17, Chapter 3.
Jim paid someone to care for his wife, Janet. Refer to this example in the
Janet is physically unable to care for herself. lesson on page 23-2
Jim also paid to have someone prepare meals
for their 12 year old daughter, Jill. Both Janet
and Jill are qualifying persons for the credit.
Team up the students or get
Let’s take a minute to practice asking interview two volunteers to role play the
questions. scene in the lesson,
page 23-3.
Lesson 23 - Page 4 of 12
have earned income during the year.
The rules governing the credit treat such a State that a full time student
spouse as having earned income for any is defined as enrolled and
month they are a full time student or are attending a school for the
physically or mentally unable to care for number of hours or classes
themselves. the school defines as full
time. The spouse must be a
full time student for some part
of five calendar months
The income is considered to be $250 for each during the year.
month there is one qualifying person
in the home or $500 for each month there
are two or more qualifying persons in the
home.
It’s time for another chance to practice asking Follow the same guidelines
interview questions. as before using the example
on page 23-4 of the lesson.
Lesson 23 - Page 5 of 12
What is the work-related expense Page 23-4
test?
Expenses that do not qualify include amounts Point out that small amounts
paid for food, clothing, education or of these expenses can be
entertainment. included if they are incident to
and can’t be separated from
the cost of care.
Lesson 23 - Page 6 of 12
or a higher grade.
The cost of overnight camp.
The cost of transporting a qualifying person
from the taxpayer’s home to the care
location and back.
Lesson 23 - Page 7 of 12
the end of the year, even if he or she is not
the taxpayer’s dependent
Lesson 23 - Page 8 of 12
If the provider is an individual, their TIN is their
Social Security Number. If the provider is an
organization, the TIN is their Employer
Identification Number (EIN).
Here is a chance to practice what you have Have the students do the
learned. practice exercise on
page 23-7 of the lesson.
Review answers when done.
Lesson 23 - Page 9 of 12
and used our resources to determine
taxpayer’s eligibility.
Lesson 23 - Page 10 of 12
While the taxpayer may still be able to claim
the credit, the amount of excluded benefits is
not included in work related expenses and also
reduces the dollar limit of the credit.
Lesson 23 - Page 11 of 12
Taxpayer Scenario Page 23-11
It’s time to put it all together and complete
Form 2441.
Use the Vanessa scenario
Remember Vanessa and her daughter Zoe? that begins on page 23 -11 of
the lesson to complete
Well, let’s do her Form 2441 on TaxWise. Form 2441 on TaxWise.
Lesson 23 - Page 12 of 12
Lesson 24: Education Credits
Objective
Determine if a taxpayer qualifies for an education tax credit.
Introduction
Lesson 24 - Page 1 of 11
What are Education Credits? Page 24-1
Lesson 24 - Page 2 of 11
Advise the student of other
If any are not true, an education credit can’t possible options such as the
be claimed. Tuition and Fees adjustment or
deduction on Schedule A
or C-EZ if the education is work
related.
Lesson 24 - Page 3 of 11
institution during this lesson and it’s now
time to define this term. Remind the student the taxpayer
will need to supply this
An eligible institution is any college, information. The school should
university, vocational school or other post- be able to tell the student if it is
secondary educational institution eligible to an eligible institution. If the
participate in a student aid program taxpayer doesn’t know, neither
administered by the U.S. Department of do we.
Education.
Lesson 24 - Page 4 of 11
expenses
x Course related books, supplies,
equipment and nonacademic activities
which are not required to be paid to the
institution as a condition of enrollment or
attendance
x Any course of other education involving
sports, games or hobbies, unless the Have students read the three
course is part of the student’s degree examples that begin at the
program or (for the Lifetime Learning bottom of page 24-3 and
Credit) helps the student acquire or continue at the top of page 24-4
improve job skills in the student course material.
Lesson 24 - Page 5 of 11
this form carefully, just as you would a W-2. with the taxpayer that the
amount in box 1 or 2 is the
The most frequently completed boxes will amount actually paid during the
be: year.
x Box 1 showing payments received for
qualified tuition and related expenses
x Box 2 showing amounts billed for
qualified tuition and related expenses
x Box 8 showing if the student was at least Read the example at top of page
half time 24-5 in student guide. Point out
x Box 9 showing if the student is a this is an example of reducing
graduate student expenses by nontaxable
amounts received.
Lesson 24 - Page 6 of 11
credits. Let’s look at the specifics on who
can take the Hope Credit.
Taxpayers can take the Hope Credit for a There are five questions, the
student if they can answer yes to these first three must all be yes and
questions: the last two must be no in order
x As of the beginning of the tax year, was to claim this credit.
the student still a college freshman or
sophomore?
x Was the student enrolled in a program
that leads to a degree, certificate or
other credential?
x Was the student taking at least one-half
the normal full-time workload for the
course of study for at least one
academic period beginning during the
year?
And no to these:
x Was the Hope Credit claimed for the
student’s expenses in more than one
previous tax year?
x Has the student been convicted of a
felony for possessing or distributing a Point out that if all the Hope
controlled substance? Credit conditions are not met,
the taxpayer may be able to take
the Lifetime Learning Credit for
all or part of the student’s
qualified expenses.
Lesson 24 - Page 7 of 11
Lifetime Learning Credit Page 24-6
Lesson 24 - Page 8 of 11
To determine the amount of the credit you
will need to apply your knowledge and let
TaxWise help you with making an accurate
claim.
Form 1040 line 6b is blank.
The program detects if the taxpayer is
entered as a student but can be claimed as
a dependent by someone else.
This is where your knowledge
TaxWise will not catch other errors, such as and skill becomes important.
taking more than one benefit for the same
taxpayer.
Step 3 has you entering each student’s Remind students that the
qualifying expenses. amount entered should be
qualified expenses reduced by
Do not enter expenses in excess of the limit any untaxed benefits.
for the credit.
Lesson 24 - Page 9 of 11
section, apply the limits, transfer the
amounts to part III of the form, apply the
income test and do the calculations. Advise paper preparers that an
Alternative Minimum Tax
The good news is, TaxWise does this step worksheet may be required to
for you. figure the credit.
Taxpayer Scenario
In an earlier lesson, on adjustments to Page 24-9
income, we met Vanessa and determined
that she was eligible for the Tuition and Ask for two volunteers to do the
Fees adjustment. Now we need to consider sample interview.
the education credits.
Lesson 24 - Page 10 of 11
Quality Review Page 24-9
Reviewing your work is always important. If
you completed Form 8863 make sure that
the name(s), SSN(s) and amounts are
correct. Verify that only one benefit has
been claimed for each taxpayer and no
benefit has been claimed for an expense
paid with a non taxable item such as a
scholarship.
Lesson 24 - Page 11 of 11
Notes
Lesson 25: Child Tax Credit
Objective
Determine a taxpayer’s eligibility for the child tax credit and the additional child
tax credit. This credit is unique because it can be both nonrefundable and
refundable.
Introduction
The child tax credit portion is a Point out that the non refundable
nonrefundable credit that allows a taxpayer portion can only reduce tax
to claim a credit against their tax of up to liability.
$1000 per qualifying child.
Lesson 25 - Page 1 of 10
Note: Form 8812 must be
The additional child tax credit affects completed to claim the
taxpayers who are not able to claim the full additional child tax credit
amount of the child tax credit. If the
taxpayer is able to take the additional child Remind the students not to
tax credit as well as the child tax credit, the confuse these credits with the
result may be a refund even if the taxpayer child and dependent care credit.
owes no tax.
Lesson 25 - Page 2 of 10
dependent because of either of the claim a nondependent child as a
following: qualifying child for the purposes
x The taxpayer (and spouse if Married of the child tax credit only, Form
Filing Jointly) can be claimed as a 8901, Information on Qualifying
dependent on someone else’s return Children Who Are Not
or Dependents.
x The taxpayer’s qualifying child is
married and files a joint return for the
tax year ( other than a joint return Display TaxWise and select
filed as a claim for refund and no tax Form 8901 from the list of forms.
liability would exist for either spouse Complete the information for the
if they had filed separate returns) nondependent child. TaxWise
will check the CTC block on
Let’s take a look at how TaxWise handles Form 8901 if the child meets the
this. age, relationship and residency
tests. The qualifying
nondependent child will be
included in the Child tax credit
calculation on Form 8812. The
nondependent will not appear on
Are there any questions or comments on the main information screen.
this information?
Respond as needed.
In most cases the custodial parent may Custody for this purpose means
claim the dependency exemption for the the child lives in the parent’s
qualifying child. main home.
Lesson 25 - Page 3 of 10
noncustodial parent must attach
Form 8332 or similar statement
to their return each year the
exemption is claimed.
Would someone read the example on 25-3?
Lesson 25 - Page 4 of 10
income for residents of American Samoa) or
their AGI is more than what we just talked
about, the worksheet in Publication 972,
Child Tax Credit, must be used to figure the
credit.
Read or have volunteers read
the two examples at the bottom
of page 25-3 & top of page 25-4.
Let’s complete and review Exercises 1 thru A1: A, Paul and Marie are not
3 on page 25-4. eligible for the maximum credit
and will have to use Publication
972.
A2: Yes, Jack is a qualifying
child for the child tax credit.
A3: C, Nick who is Single with a
modified AGI of $70,000 and a
tax liability of $5,000 is eligible
to claim the maximum amount of
$1,000 per qualifying child.
This is where the interview techniques and Show Part II of Form 13614 and
tools you learned in the Screening and point to sections as you go over
Interviewing lesson get put to use. the information.
Lesson 25 - Page 5 of 10
Using the sheet, verify that the child: Remember the special rules for
x Is under 17 on or before December divorced, separated or never
31 married parents.
x Lived with the taxpayer for at least 6
months of the year.
x Meets the relationship criteria
x Is a U.S. Citizen, U.S. National or Point out that based on the
resident of the United States. information entered into
Dependents/Nondependents
section of the Main Information
Sheet, TaxWise automatically
checks the CTC box.
This section may be incomplete or the
taxpayer may be unsure of how to respond.
In these situations, use your Volunteer
Resource Guide which contains helpful
questions to ask the taxpayer.
That was paper, now for TaxWise. Note: If you have a question
TaxWise will automatically calculate the about the amount that shows on
credit if you have: line 53, Form 1040 link to
display a completed worksheet.
x Correctly completed the
This may help understand the
Dependents/Nondependents section
results of the calculation.
of the main information sheet and
x Correctly completed the tax return
through line 51 (Form 1040) or line
31 (Form 1040A)
Page 25-6
Taxpayer Scenario
Display or refer to the completed
We are going to go back and visit our
Part II, Form 13614 for Vanessa.
taxpayer, Vanessa Franklin.
Lesson 25 - Page 6 of 10
Notice that the information indicates that Ask for two volunteers to do the
both children are qualifying children for the interview at top of page 25-7.
credit.
Vanessa’s tax liability on line 46 is $915. Display Form 1040 lines 46 –53
Remember that she took the child and on TaxWise.
dependent care credit in the amount of
$420. Since the credits are applied against
tax in order she has a $495 ($915-$420=
$495) tax liability remaining. Since the
remaining liability is less than the $2000 of
child tax credit, she can only take an
amount equal to the remaining tax, in this
case $495 on line 52, Form 1040.
Here is how you might explain this to Have the same volunteers
Vanessa. continue the interview at top of
page 25-8.
Let’s take a moment to review Vanessa’s
Tax Credit Worksheet. It is very similar to Display or refer to worksheet on
the worksheet in TaxWise. page 25-8
Lesson 25 - Page 7 of 10
Q: Why would there be any unused child
tax credit?
A: The tax liability is less than the allowed
credit.
Read the example in middle of
page 25-9 to illustrate.
Once eligibility has been established, Form 8812, Additional Child Tax
complete Form 8812. If TaxWise is being Credit
used the system will verify eligibility and
calculate the credit amount which will Note: If you want to view the
appear on line 68 of the payments section calculations, link to bring up the
of Form 1040. completed Form 8812.
Take a moment to read and complete A: Yes, Jose and Yolanda are
Exercise 4 at the top of page 25-10. eligible for the additional child
tax credit. They were eligible to
claim the child tax credit, but
since their tax liability is zero
there is no benefit to claim.
Even though their AGI was
below $11,750 they had social
security and Medicare withheld.
Lesson 25 - Page 8 of 10
Remember that Vanessa did not use the
entire amount of the non refundable child
tax credit to offset her tax and her earned
income was more than $11,750.
Once the CTC block had been checked on Note any unusual situations on
the Main Information Screen or Form 8901 the intake and interview sheet.
has been completed, TaxWise will compute For example, if a person is listed
the credit. When doing a paper return be in the family and dependent
sure to use all appropriate worksheets. section but can’t be claimed as
anyone’s dependent, make a
Be sure to note any unusual situations on note if the non dependent child
the Intake and Interview Sheet to provide is eligible for the child tax credit.
Quality Review with a clear path to an
accurate return.
Lesson 25 - Page 9 of 10
Summary Page 25-12
The child tax credit is a non refundable
credit that can reduce a taxpayer’s tax
liability.
Lesson 25 - Page 10 of 10
Lesson 26: Miscellaneous Credits
Objective
Calculate and report the different nonrefundable credits.
Introduction
What does the term nonrefundable credit Have a student read from
mean? Publication 17, Nonrefundable
credits.
Respond to inquiries.
It is important to know that these credits are Refer students to that section of
applied against tax in the order they are the form as a visual aid.
listed on lines 47 – 55 of Form 1040. Caution: The order of credits
listed on Form 1040 is subject to
change based on pending
legislation.
Lesson 26 - Page 1 of 12
What is the Foreign Tax Credit Page 26-1
(FTC)?
It was mentioned earlier there were some Additional references: For more
conditions, when met, did not require the information you can refer to the
completion of the Form 1116. Form 1116 Instructions and
Form 1040 Instructions.
Turn to your Volunteer Resource Guide and
find the tab that says TaxWise
Nonrefundable Credits. Find the page with Compare the TaxWise version
Form 1116. This is the Form 1116 in of Form 1116 and the paper
TaxWise which looks different than the Form 1116.
paper version of Form 1116 from IRS.
Lesson 26 - Page 2 of 12
Here is what you would do in TaxWise:
x Add up all the qualified foreign tax
paid shown on Form(s) 1099 INT If TaxWise can be displayed,
and DIV. TaxWise Schedule B demonstrate, otherwise have
statement does not have a place to students follow along on page
enter foreign tax paid on interest or 26-2.
dividends, so you will have to
remember to make these entries if
there is foreign tax paid.
x From the line for foreign tax credit of Caution: In the 4012 the
TaxWise Form 1040, link to open TaxWise example is from tax
TaxWise Form 1116. year 2006 and foreign tax credit
x In the Volunteer Resource Guide is shown on line 47. The line
under the TaxWise tab “TaxWise number for foreign tax credit for
Nonrefundable Credits”, look at tax year 2007 may be different
TaxWise Form 1116 and note the based on tax law changes.
entry space where you enter the
foreign tax paid.
x By using TaxWise Form 1116 and
not entering it directly on Form 1040,
TaxWise will apply the limitations
and enter the credit on the line for
foreign tax credit on Form 1040.
Lesson 26 - Page 3 of 12
Assign exercise questions 1 – 3.
Take a few minutes to check your Review answers with students
understanding of what has been covered so when done.
far. Q1: True. The $300 limitation
applies to whether or not a
taxpayer has to complete Form
1116. A taxpayer does not have
to file Form 1116 if the total
foreign taxes paid are less than
or equal to $300 or $600 if
Married Filing Jointly
Q2: No. Clyde needs to
complete Form 1116 because
his foreign tax paid exceeds
$300. Clyde will need to seek
the assistance of a paid
professional tax preparer.
Q3: Yes. If the foreign taxes for
a married couple who file a joint
return are less that or equal to
$600, the couple is not required
to complete Form 1116. Judy
and Mark do not have to
complete a Form 1116 because
their foreign taxes are less than
$600.
Lesson 26 - Page 4 of 12
Individuals who qualify are:
x Under age 65, retired on permanent
and total disability, receiving taxable
disability income and who have not
reached the mandatory retirement
age their company has set or
x Age 65 or older
Ask for a volunteer to read the
Tip on page 26-3
Lesson 26 - Page 5 of 12
In TaxWise the information from the Main
Information sheet and income information
entered on the return is used to:
x Determine whether a taxpayer may
be eligible for the credit
x Complete most of the Schedule R if
the taxpayer is eligible
Lesson 26 - Page 6 of 12
Retirement Savings Contributions Page 26-6
Credit
Caution: Line numbers may
This credit is calculated on Form 8880 and change due to late legislation.
is reported on line 53 of Form 1040.
Lesson 26 - Page 7 of 12
You may want to write these codes on a
Form W-2 for future reference.
Ask a student to read the tip at
Remember, you asked the taxpayer about the bottom of page 26-6.
expenses for an IRA or other retirement
account during the intake and interview
process.
Lesson 26 - Page 8 of 12
Are there any questions on that example? Respond to inquiries.
The next example relates to reducing the Ask for a volunteer to read the
eligible contribution. second example on page 26-7.
Form 8880 will appear in the forms tree on Ask a student to read the
the left with a red exclamation point and will TaxWise hint at the bottom of
have to be completed prior to return page 26-7.
completion.
Lesson 26 - Page 9 of 12
OK, that’s three down and three to go.
Lesson 26 - Page 10 of 12
Taxpayer’s may be able to claim this credit Have the students read the
of a qualifying vehicle place in service for last 3 paragraphs on
business or personal use after 2005. The page 26-10. When finished
vehicle must meet certain requirements and point out the manufacturer will
be a new: provide certification that the
x Advanced lean burn technology vehicle is a qualifying vehicle
vehicle and information about the
x Qualified alternative fuel vehicle phase-out percentage.
x Qualified fuel cell vehicle
x Qualified hybrid vehicle
Lesson 26 - Page 11 of 12
In order to calculate the credit must have
the actual paper titled “Mortgage Credit Have the students read from the
Certificate”. The amount of the credit is on TaxWise Hint to the end of page
the certificate. 26-12.
Let me ask you; is anyone who has If any hands are raised, ask one
purchased a home eligible for this credit? for the answer.
Lesson 26 - Page 12 of 12
Lesson 27: Other Taxes
Objective
Determine the additional taxes that apply to each taxpayer’s situation.
Introduction
After you’ve subtracted your tax credits, Refer to other taxes section on
determine whether there are any other the Form 1040. Review lines
taxes you must pay. that will be discussed in this
lesson.
“Other taxes” are separate from the income
tax figured from the tax tables or using the Note: Pay attention to the level
Tax Computation Worksheet. They include: at which each line is classified.
Self-employment tax, You may need to skip to certain
Social security and Medicare taxes on sections if you are teaching a
tip income, basic class.
Additional taxes on IRAs and other
qualified retirement plans, Stress the fact that the students
Advanced Earned Income Credit must be certified to prepare a
payments, and return including additional taxes
Household employment taxes on IRAs and other qualified
retirement plans, if not refer
This is a critical step in completing an taxpayers with this issue to a
accurate tax return. more experienced volunteer or a
professional tax preparer.
Lesson 27 - Page 1 of 5
SE taxes must be paid when: Basic class, skip this section
and go to taxes on unreported
The taxpayer has income as a church tip income on Page 27-2.
employee of $108.28 or more.
The taxpayer receives net earnings from
self-employment income in the amount of
$400 or more (excluding church employee
income).
Lesson 27 - Page 2 of 5
the employer. But these amounts do need
to be included on Form 1040. They will not
be subject to social security or Medicare
taxes and do not have to be included on
Form 4137.
Here is an example:
Lesson 27 - Page 3 of 5
not rolled over into another qualified plan or Note: IRA contributions or
IRA (and no other exception applies), or distributions, pensions, and
• If minimum distributions are not withdrawn annuities are covered in the
when required, or Retirement Income – IRAs and
• If excess contributions are not removed by Pensions lesson.
the due date of the return (including
extensions), Note: Remind students if they
• Then the taxpayer must pay income tax are not certified above the Basic
due and an additional tax of 10%. Level, refer taxpayers with these
• Refer to the Intake and Interview Sheet, issues to a more experienced
Part IV, question 7. If the answer is “Yes”, volunteer or to a professional tax
ask the taxpayer for any Form(s) 1099-R preparer.
that reports these payments.
Lesson 27 - Page 4 of 5
her tax return, they reported the AEIC
amount of $550 in the Other Taxes section.
They reported the EIC amount she qualified
for (again, $1776) in the Payments section.
As a result, her tax return reflected the
advance payment of her EIC and she is
allowed the remaining amount as part of her
2007 refund.
Check your answers on
Let’s do the exercises on page 27-7. page 27-9.
Lesson 27 - Page 5 of 5
Notes
Lesson 28: Foreign Tax Credit
Objective
Determine which taxes and types of foreign income are eligible for the Foreign
Tax Credit. Accurately compute the credit using Form 1116.
Introduction
Lesson 28 - Page 1 of 10
on the same income. Once to the country
where the income was earned and then to
the U.S.
The Foreign Tax Credit was created to Remind students that this is a
avoid this double taxation. This credit non-refundable credit.
allows a dollar-for-dollar reduction in U.S.
tax for the foreign tax paid.
Lesson 28 - Page 2 of 10
In general, foreign taxes paid on the
following qualify for the credit:
x Wages
x Dividends
x Interest
x Royalties
x Annuities
EXERCISES:
Question 1 and 2 on page 28-3 Assign the exercises.
Lesson 28 - Page 3 of 10
specific economic benefit for the taxpayer 514 for detailed information on
and count toward the Foreign Tax Credit. economic benefit.
Can anyone imagine what this might mean? Call on 1or 2, if any hands go
up.
Economic benefit means that the tax cannot
be a payment that results in an individual
receiving:
x Goods
x Services
x The right to use certain properties
that are not available to others who
are subject to the same generally
imposed income tax, or to the
general population under the same
terms Ask for a student to read the
example at top of page 28-4
Country Restrictions
Lesson 28 - Page 4 of 10
Let’s do exercise questions 3 and 4 on Assign exercise and review
page 28-5. when done.
Lesson 28 - Page 5 of 10
x Rents claim the credit and check box
x Annuities a, Passive category income on
x Gain from the sale of property that the 1116.
produces income or non-income
producing investment property
Lesson 28 - Page 6 of 10
paid tax is eligible for the credit.
Lesson 28 - Page 7 of 10
How do I complete Form 1116? Page 28-8
The taxpayer may not qualify for the
election which means the 1116 must be
completed.
For the top portion remember to use a Note: Also, up to 3 countries per
separate 1116 for each type of income. form.
Lesson 28 - Page 8 of 10
whether the foreign tax was actually paid
during 2007 (paid) of if the tax was billed in Note: A taxpayer using the
one year but paid in another (accrued). cash basis can choose to use
either the cash or the accrual
method to determine the credit.
But if the accrual method is
chosen, the taxpayer must
continue to use the accrual
method for this credit on all
future returns.
Next comes Part II, lines j – s. Report taxes Point out that the amount of tax
in both foreign currency and U.S. currency withheld should be shown under
amounts unless taxes on passive income the related type of income.
were reported in U.S. currency.
Note: Refer to the Worldwide
Income lesson for an
explanation of conversion rates.
The credit is figured in part III and part IV is Note: If the taxpayer has a
only needed if the taxpayer had more than carryback or carryover, refer the
one 1116 because their income fell into taxpayer to a tax professional.
more than one category.
Note: TaxWise performs the
calculations for you in parts III
and IV.
Lesson 28 - Page 9 of 10
income
x Foreign Tax Credit is reported on line
51, Form 1040
The Foreign Tax Credit and The Foreign Remember, foreign tax paid on
Earned Income Exclusion are different. excluded income cannot be
Taxpayers can choose the approach which used to claim the credit.
results in the lowest tax paid overall.
Lesson 28 - Page 10 of 10
Lesson 29: Payments
Objective
Identify the types of payments and credits that apply to taxpayers who qualify for
volunteer tax return preparation assistance.
Introduction
The “Payments” section of the tax return
lists payments or withholdings made during Refer to payment section on the
the year and refundable credits for which Form 1040.
the taxpayer may qualify.
Review lines that will be
By the time you reach the payment section discussed in this lesson.
you should have the taxpayer’s income
sources and tax withholding or payment Refer to the Publication 4012,
information. This information taken from Tab 6, Other Tax Payments.
x Federal income tax withheld from
Form(s) W-2 and Form(s) 1099
x 2007 estimated tax payments and
amounts applied from the 2006 return
Who is familiar with form W-4, W-4P, and Provide an overview of the pay
W-4V? as you go and federal income
tax withholding system. Explain
purpose of the withholding
forms.
Lesson 29 - Page 1 of 4
Let’s look at the Income section in
Publication 4012, Tab 2 and review the
different forms that include income tax Note: You may refer students to
withholding. the Understanding Taxes on
IRS.gov for additional insights
into the “pay as you go” system.
Lesson 29 - Page 2 of 4
Let’s take a look at Gloria’s situation on
page 29-3.
Lesson 29 - Page 3 of 4
Also be prepared to discuss
completing Form 4868 using the
paper form.
Let’s see where we stand in the Payments Team up students to role plays
area for our taxpayer Vanessa Franklin. the Taxpayer Scenario.
Lesson 29 - Page 4 of 4
Lesson 30: Earned Income Credit
Objective
Determine eligibility for the Earned Income Credit and calculate the amount of
the Earned Income Credit
Introduction
Lesson 30 - Page 1 of 8
x General EIC requirements
x EIC without a Qualifying Child
x EIC with a Qualifying Child
Point out that certain
Let’s look at the general requirements first. requirements apply to everyone
Open your 4012 to Tab H and find the who claims the EIC.
interview tips for EIC General Eligibility.
What is “earned” income for EIC Have the students find the
purposes? Earned Income Table under the
EIC tab in 4012 and review the
Several types of income need clarification. examples for what is earned
Disability Benefits: income for EIC purposes and
Benefits that the taxpayer receives under what is not earned income.
an employer’s disability retirement plan are
considered earned income until the
taxpayer reaches minimum retirement age.
This age is usually the age at which a
pension or annuity can be received if there
is no disability.
Generally a Form 1099 R is issued with a Note: The major factor with
code 3 (disability) in box 7. Once you disability income is age.
Lesson 30 - Page 2 of 8
confirm the taxpayer is under minimum
retirement age for the company, report the
taxable amount on line 7. Ask a student to read the
TaxWise Hint at the bottom of
page 30-2
What about self employment income? Remind students that they must
be certified for certain levels of
Self employment tax is paid on the net of training to prepare Schedule C-
self employment income and the expenses EZ. Also address the tip on that
incurred to earn that income. page regarding expenses.
Lesson 30 - Page 3 of 8
Let’s try a quick knowledge check. Review with class when done.
Q1 No
Page 30-4
What are the rules for taxpayers
with Qualifying Children?
For EIC purposes, a child is a qualifying Have the students review the
child if the child meets all the tests we will interview tips in 4012 and
look at next. compare them with the steps
listed under “What are the rules
Turn to Tab H in 4012, this time looking for for taxpayers with Qualifying
Interview Tips – EIC with a qualifying child. Children” on page 30-4 and 30-5
through Step 6.
Lesson 30 - Page 4 of 8
Assign exercise questions 3-9
We have covered the issues relating to who and review as you go. Ask for
qualifies for the EIC, so it’s time to check volunteers to answer questions
our understanding. and ask them to state which
interview tip was used.
Would someone read question 3? A3: Yes, she meets all the
eligibility tests to be a Qualifying
Child
A4: Yes, Lisa is a descendent of
Sam’s stepson and meets the
other eligibility requirements
A5: None of the children under
Mira’s care are qualifying
children for EIC.
A6: Yes, both children meet the
relationship, age and residency
tests.
A7: No, with just one qualifying
child, the married couple’s
income would be over the limit.
A8: Yes, Margie meets the
general eligibility requirements
and Aimee meets the Qualifying
Child rules.
A9: No, the residency test is
failed. Aimee is the qualifying
child of Laura. If you are filing a
paper return, be sure to write
Aimee’s information on
Schedule EIC.
Lesson 30 - Page 5 of 8
changed due to an error on their tax return. taxpayer qualified for the EIC?”
is answered after you have
collected all the facts using the
interview tips under the EIC tab
of the resource guide
Take a few minutes to read “Taxpayer Pair students up and have them
Scenarios” on page 30-7 including a review conduct the sample interview on
of the Family and Dependent Information. page 30-8 using the facts on
page 30-7 and the interview tips
Based on the facts gathered, the answer to under Tab H of the volunteer
question 2, part VIII of Vanessa’s intake resource guide.
and interview sheet is Yes.
Lesson 30 - Page 6 of 8
Look at the end of the lesson for the blank Read the first sentence under
forms to use for Exercise B. “Class Exercise B” on page 30-
10 to the class and then guide
the students through the
process of finding the credit
amount and how the tables are
used. Review when finished.
You have seen the process of calculating Have the students read “How do
the EIC amount by hand, but most of you I compute the Earned Income
will be using TaxWise to prepare the Credit using TaxWise?” stopping
returns. at the bottom of page 30-10.
Lesson 30 - Page 7 of 8
Summary Page 30-19
The EIC is a refundable credit designed for
low income working people. It has the
potential to create large refunds for those
who qualify.
Lesson 30 - Page 8 of 8
Lesson 31: Refund/Amount of Tax Owed
Objective
Determine the taxpayer’s refund or the amount owed and where to report these
items on the tax return. Identify what information is needed from taxpayer to
have a refund directly deposited to bank account.
Introduction
Lesson 31 - Page 1 of 7
Taxpayers can choose to apply any portion Note: See Calculating the
of their overpayment to estimated tax refund page 31-1, 2
payments for the following tax year.
Tell students estimated tax
If a taxpayer opts to receive a refund of the payments will be discussed in a
full overpayment, carry the amount on line later lesson.
73 to line 74a.
TIP: TaxWise will do this
If a taxpayer wants to apply a portion of the automatically.
overpayment to next year’s taxes, enter the
amount to be applied to the following year
directly on line 75. Calculate the remaining
amount to be refunded to the taxpayer (line Note: TaxWise will automatically
73 minus line 75) and enter it on line 74a. calculate the remaining amount
to be refunded and show it on
line 74a.
Taxpayers may receive their refund as a
check or direct deposit(s) to up the three Check or Direct Deposit Options
bank accounts. Before we take a look at the Student Guide, page 31-2
procedures, let’s take a moment to talk
about what difference it might make to the
taxpayer.
First let’s look at what information you will Refer to F1040 Instructions,
need to request a direct deposit. page 5, or TaxWise F1040,
page 2 screen.
Lesson 31 - Page 2 of 7
Now let’s take a look at the tools you will Designate students to read in
have at the site for identifying this Publication 4012, Finishing the
information. Return Tab, Pointers for Direct
Deposit of Refunds page.
Taxpayers can choose to divide their direct Direct depositing the refund to
deposited refund among up to three more than one account
accounts. Use Form 8888, Direct Deposit of Student Guide, page31-2.
Refund, to list the RTN and account number
for each deposit. Show Form 8888, on TaxWise, if
available, Student Guide, page
31-4, or in the appendix of the
Student Guide.
Lesson 31 - Page 3 of 7
Taxpayer Scenario Page 31-3
Now let’s take a look at how our taxpayer Designate students to read the
Vanessa Franklin would like to have her Sample Interview on Student
refund distributed. Guide, page 31-4. Note that
Vanessa’s account information
is included in the appendix in the
Student Guide.
Q: When would the best time to advise the A: Ideally prior to arriving at the
taxpayer of what information he/she will site to ensure he/she has
need to have his/her refund directly necessary information in hand.
deposited?
The needed information is listed at the top Have students find the banking
of Form 13614. If a taxpayer has the Information bullet above
account information to do a direct deposit or F13614, Part I.
split direct deposit, you may want to note it
in this section when you start your interview.
If the payment total is less than the amount Refer to F1040 Instructions,
of tax, calculate and report the balance due page 5, or TaxWise F1040,
on line 76 (line 63 minus line 72) of Form page 2 screen.
1040.
Lesson 31 - Page 4 of 7
Refer to the TaxWise
instructions for Electronic funds
withdrawal/direct debit – 1) debit
may be scheduled on any date
through April 15, 2008; 2) on this
page every time; 3) double
check account information, as
you would for direct deposit.
Q: What would you advise a taxpayer who A: If the tax return is not filed by
wanted to hold off on filing the return until April 15, 2008, you will be
he/she could pay? subject to a failure to file
penalty. The penalty is
calculated on the balance due
amount and lateness of the
return. Since you have a
balance due, it is especially
important that you file your
return on time.
Lesson 31 - Page 5 of 7
Taxpayers are required to pay their federal
income taxes, through withholding or
making estimated tax payments, as they
receive income. A taxpayer may owe a
penalty for underpayment of estimated tax if
the amount owed with the return is $1,000 Refer to Pub. 17 for further
or more and more than 10% of the total tax information.
liability shown on the return. There are
some situations when the penalty may be
waived.
Lesson 31 - Page 6 of 7
Quality Review Page 31-8
You should double and triple check routing
number and account numbers for direct
deposit and electronic funds withdrawal.
Lesson 31 - Page 7 of 7
Notes
Lesson 32: Quality Review of Tax Return
Objective
Explain the steps involved in the quality review process for federal tax returns.
Introduction
The goal of the volunteer program is to
provide high quality service that includes
accurate tax return preparation.
This lesson will explain the steps involved in Review the What do I need box
the quality review process for federal tax on page 32-1 with the class.
returns. Make sure students have the
forms and publications listed.
Lesson 32 - Page 1 of 10
There are three generally accepted
methods of quality review:
• Designated quality reviewer – an Point out that using a
experienced designated reviewer designated reviewer is the
• Peer review – preparers review each preferred method.
other’s work
• Self-review – volunteers review their
own work
The Quality Review Sheet is a list of items Have the students take out the
that must be verified when reviewing tax Form 8158 and review the items
returns. listed.
It is important to perform the review with the Remind the class to always
taxpayer right after completing the return include the taxpayer in the
and before it is signed. quality review process.
Lesson 32 - Page 2 of 10
For the quality review, use a printed copy of
the Quality Review Sheet to review the tax
return.
Through out this course we have been Have the students find Vanessa
preparing a tax return for Vanessa Franklin. Franklin’s source documents in
Her return has been completed and now it the appendix.
is time to perform the quality review. Using
the source documents in the appendix and
the Quality Review Sheet, do a quality
review of Vanessa’s return to determine if
the return is correct and complete
Advise the class to follow the
suggestions on page 32-2 under
Taxpayer Scenario. Allow 10
minutes.
Lesson 32 - Page 3 of 10
How do I complete the Sign Here Page 32-3
section of a paper Form 1040?
When a paper return is filed, the taxpayer(s) Remind students both spouses
must sign and date the return in the Sign must sign and date a Married
Here section of the Form 1040. Filing Joint Return.
Your Volunteer Resource Guide has Have students find the Finishing
instructions on signature procedures. the Return tab in the Volunteer
Resource Guide and spend 5
minutes reviewing the signature
information. Remind students
Publication 17 also contains
information on the signature
process.
As a volunteer you will want to ensure that Stress that this is the only
the SIDN has been entered in the box information entered in the Paid
“Preparer’s SSN or PTIN.” Preparer’s Use Only section.
The SIDN will be provided to you. Sites Have students look at the Paid
using paper forms will have forms with the Preparer’s section on page 32-3
SIDN pre-printed or you may be given a to see the location of the SIDN.
stamp or labels with the number.
Lesson 32 - Page 4 of 10
Regardless of method, you must be sure
that the SIDN is entered correctly on the tax
return.
Lesson 32 - Page 5 of 10
There are some rules regarding who is
eligible to use a self-select PIN.
If you are filing a return that requires Examples are Form 8283,
attachments other than Form W-2, Noncash Charitable
Form W-2G or Form 1099R, Form 8453 is Contributions or Form 8332,
used only to transmit supporting paper Release of Claim to Exemption
documents to the IRS. for Children of Divorced or
Separated Parents.
Lesson 32 - Page 6 of 10
Next go back to the Main Information Sheet
and see if the return qualifies for the self-
select PIN. If the return qualifies and the
taxpayer agrees to the electronic signature,
complete the information on the Main
Information Sheet.
If the return qualifies, taxpayers will need to Note: You are not authorized to
enter their PIN. enter a PIN for taxpayers who
choose to use the self-select
PIN process. They must enter
their PIN themselves.
The Practitioner PIN allows the preparer to Tell the class that more
sign the return on behalf of the taxpayer. information is available under
The taxpayer(s) must give permission for the Finishing the Return tab of
this by signing Form 8879. the Volunteer Resource Guide.
Have the class take a few
minutes to find and review the
information.
Lesson 32 - Page 7 of 10
The phrase “run diagnostics” has been
used several times so let’s take a look at
how it is done.
Simply select the Diagnostics button on the Point out that there are other
TaxWise main toolbar. A box will pop up ways to run diagnostics in
and show the diagnostic information. TaxWise:
Review warnings to see if any changes are • Hit the F10 key twice
needed. while you are in the
return. The first hit closes
If there are any electronic filing errors, click the form you are in; the
on the red text to open the form where the second hit runs the
error occurred, make corrections and rerun diagnostic.
diagnostics. Repeat this process (get the • Right-click on the
red out) until there are no more errors. TaxWise screen and
choose Diagnostics
• Press Ctrl-D
Lesson 32 - Page 8 of 10
Of course you will need to print the return. Tell the class not to use the print
To do this, just click the print button on the button while in the diagnostics
TaxWise main toolbar. screen. This will print only the
diagnostics screen.
If the taxpayer has not used the self-select Remind students for joint returns
PIN, print two copies of Form 8879 and both spouses must sign,
have the taxpayer(s) sign both copies. otherwise the return will not be
transmitted.
It’s time for one more knowledge check. Assign exercise questions 3 and
4. Review with the class when
finished.
A3: Yes, she will enter 0 for the
prior year AGI to use self-select
PIN or she can sign the 8879.
A4: Designated quality reviewer,
peer review, self-review
To wrap thing up, do the sample interview Ask for volunteers or have the
on page 32-7 class divide into groups of two.
Lesson 32 - Page 9 of 10
You may find it helpful to think of the
questions in the Quality Review Sheet in
terms of how they relate to sections of the
tax return.
Lesson 32 - Page 10 of 10
Lesson 33: Concluding the Interview
Objective
Learn how to prepare a return for filing. Determine and tell the taxpayer which
forms to keep. Explain what to tell the taxpayer if a balance is due. Effectively
conclude the interview with the taxpayer.
Introduction
Using the interview techniques and tools Emphasize the need for active
discussed in the Screening and Interviewing listening and paraphrasing with
lesson, such as active listening and building every taxpayer. This will ensure
rapport, share the following with the understanding
taxpayer:
Lesson 33 - Page 1 of 9
It can also make next year’s tax preparation
easier for taxpayers.
Lesson 33 - Page 2 of 9
Record any important information on the
front of the envelope for the next year’s
volunteer preparer. Tip: If your site does not have
storage capability or will not be
Remind the taxpayer to bring the envelope open after April 15th, make
back to the site next year. storage arrangements with your
local IRS Territory contact.
The site will not keep copies of taxpayers’
paper-filed returns or any other taxpayer- Emphasize the site only keeps
related documentation. the data needed to electronically
For e-file returns, the site will keep the file the return
following data confidential and in a secure
location until December 31 of the current In some cases, a Form 8453 will
year: need to be sent to the IRS with
• A master backup disk containing all one or more attachments. If the
electronically transmitted returns Form 8453 is sent, one copy
• One copy of Form(s) W-2 and/or Form(s) 1099 should be retained with the other
showing federal tax withheld items listed here.
• A copy of the IRS Acknowledgement Report
for transmitted federal returns
• A copy of the Declaration Control Report
(DCR) for transmitted returns may be kept
For taxpayers who have a balance due: Show a sample of Form 1040-V.
• Remind them to send Form 1040-V to the Explain each of the bullets to the
appropriate address if they wish to mail a taxpayer. Educating the
payment; for e-file returns, Form 1040-V, taxpayer is an important part of
Payment Voucher, will be generated by the providing a complete, quality
e-file software when the tax return results in return preparation experience.
a balance due.
Lesson 33 - Page 3 of 9
• Remind the taxpayer that payment must
be made by April 15, 2008 in order to avoid
penalties and interest.
• If the taxpayer is requesting an installment Show a sample of Form 9465.
agreement, remind them to submit Form
9465, Installment Agreement Request, as TIP: Form 9465 can be e-filed.
soon as possible.
• If the taxpayer can pay a portion of the Explain that they may be
amount owed by the due date, they won’t charged interest and penalties
be charged interest and penalties on that on the remainder of the unpaid
portion. balance.
Lesson 33 - Page 4 of 9
Taxpayers can also use Form W-4 to
request an additional dollar amount to be
withheld.
Lesson 33 - Page 5 of 9
Estimated tax payments are generally
required if both of the following conditions
are met – the taxpayer expects:
1. To owe $1,000 or more in tax after
subtracting federal income tax withheld and
credits from taxable income
and
2. The tax withheld and credits to be less
than the smaller of:
a) 90% of the tax to be shown on their tax For awareness only:
return for this year, or Refer to Publication 17 for the
b) 100% of the tax shown on their tax return special rules for farmers,
for last year fishermen, and higher income
taxpayers.
The decision tree in Publication 17 can help Ask students to locate this
determine if the taxpayer should make decision tree in their
estimated tax payments. Publications 17.
Look at the example in the middle of page Have a student read the
33-4. example and discuss as
needed.
Lesson 33 - Page 6 of 9
Most of the taxpayers you will assist will pay
their estimated tax in four equal
installments. However, a taxpayer can
choose to make payments for each period
based on the actual amount of income
received during that period. If the taxpayer
does not pay enough each payment period,
they may be charged a penalty even if they
are due to receive a refund when the tax
return is filed. Generally, the simplest and
safest procedure is to make sure that each
payment is at least one-fourth of the prior
year’s total tax, less tax withheld during the
period.
Lesson 33 - Page 7 of 9
• If the taxpayer seems interested in
learning more about tax preparation,
encourage them to consider volunteering.
Provide them with contact information or
take their contact information, depending on
your site’s procedures.
• Thank the taxpayer for using the service.
Lesson 33 - Page 8 of 9
Taxpayer Scenario Page 33-6
Here is one more opportunity to practice Have two students do a role play
interview skills. using the sample interview on
page 33-6 or divide the class in
groups of two for this activity.
Lesson 33 - Page 9 of 9
Notes
Lesson 34: Military Finishing and Filing the Return
Objective
Determine where and when to file a federal tax return for a United States service
member. Determine who qualifies for a deadline extension. Determine who
qualifies for special tax benefits.
Introduction
Lesson 34 - Page 1 of 15
What action should a service member who
has moved take?
Refer to TIP at the bottom of
Taxpayers who changed their mailing page 34-1. Direct Deposit is fast,
address during the year should notify the simple, safe and secure and
IRS of the change on Form 8822, Change removes concerns about mail
of Address. delivery.
Lesson 34 - Page 2 of 15
year, January through December.
Lesson 34 - Page 3 of 15
taxpayer who files on time will
not be charged the failure to file
penalty.
Lesson 34 - Page 4 of 15
Will the taxpayer owe interest and/or
penalties?
Lesson 34 - Page 5 of 15
and show the amount paid in order to
receive credit for the payment.
Lesson 34 - Page 6 of 15
What is the extension rule for married
taxpayers?
Lesson 34 - Page 7 of 15
Exercises (continued) page 34-5
Q6: A6: A. April 15
Pvt. Franklin, a U.S. citizen, is a calendar-
year taxpayer. What would the due date be
for him to file a return if his assigned tour is
in Puerto Rico?
A. April 15
B. June 15
D. June 16
Lesson 34 - Page 8 of 15
incurred in a combat zone.
Use the formula:
In these instances, the extension does not
apply to a spouse. 180 days
+ days of the filing period the
Taxpayer missed
Lesson 34 - Page 9 of 15
period for filing the refund claim
that were left when the taxpayer
entered the combat zone on
December 30th (December 30,
2005 – April 15, 2006).
180 CZ extension
+106 days for the filing season
the taxpayer was away
=286
Lesson 34 - Page 10 of 15
still qualify to defer the payment of back
taxes by:
x Serving their initial period of service
(the period of active duty following
recall to active duty from an inactive
reserve or national guard unit or for
regular military, the period following
induction or first enlistment)
x Showing that the ability to pay back
taxes has been materially impaired
because income has dropped as a
result of going into military service
Lesson 34 - Page 11 of 15
a joint return from a spouse serving in the
combat zone, a signed authorization to act
on the taxpayer’s behalf can be accepted. Note: The final return is the one
for the year in which the
The IRS also accepts a written statement taxpayer dies.
explaining that the spouse is serving in the
combat zone. The statement must be
signed by the spouse who is not serving in
the combat zone, and attached to the
return.
Lesson 34 - Page 12 of 15
For information on signing a joint return if
one spouse has died or cannot sign the
return, see Publication 17 Index, keyword:
Signatures.
Lesson 34 - Page 13 of 15
EXERCISES Q8 page 34-9 Discuss the answer with the
Exercise 8: students.
Mr. Tim Morris, a civilian employee of the A8: The answer is:
United States, died in 2007 as a result of 2004, 2005, 2006, 2007
injuries he suffered during a terrorist attack
in 2005. What years are Mr. Morris’ income
liabilities forgiven?
A. 2004 through 2007
B. 2005 through 2007
C. 2004 through 2007
Lesson 34 - Page 14 of 15
individual tax returns by April 15
Taxpayers who changed their mailing
address should notify the IRS of the
change on Form 8822, Change of
Address
Taxpayers who cannot pay the tax
due with their tax return should
attach Form 9465, Installment
Agreement Request
Extension rules vary depending on
whether the taxpayer lives in the U.S.
or outside the U.S.
The income tax liability of a member
of the Armed Forces is forgiven if a
member dies as a result of service in
a combat zone or from a terrorist or
military action outside the U.S.
The terrorist or military action
forgiveness also applies to an
individual who is a U.S. employee at
death and dies from wounds or
injuries incurred in a terrorist or
military action regardless of where
the action occurred
Only the decedent’s part of the joint
income tax liability is eligible for the
refund or tax forgiveness.
Lesson 34 - Page 15 of 15
Notes
Lesson 35: Amended Returns
Objective
Determine how to amend a 2007 return that was originally created using
TaxWise at your volunteer site.
Introduction
The focus of this lesson is to help you Make sure the students have
determine how to amend a 2007 return that copies of Form 1040X and
was originally created using TaxWise at instructions.
your volunteer site.
Lesson 35 - Page 1 of 6
When is an amended return Page 35-1
required?
Returns are not usually amended for math Tell the students if their site
errors. The IRS corrects computation errors e-files returns, math errors are
and normally writes the taxpayer and asks usually non-existent.
for a missing schedules or forms.
Can anyone tell me why a tax return will Listen for the responses on
require amending? page 35-1 of the text and make
sure each bullet is covered.
Please read the TIPs on page 35-1. Any
questions? An injured spouse claim is filed
using Form 8379, not Form
1040X
Lesson 35 - Page 2 of 6
Form 1040X Page 35-2
Before we get started in TaxWise, let’s look
at the Form 1040X. Have the students look at the
upper left corner for the revision
This form is not year specific, but you want date.
to be sure you are using the latest version
of the form.
Note the sentence under the
VITA/TCE clients are calendar year Form 1040X header.
taxpayers. They report income received Read it to the class.
from January 1 through December 31 and
claim allowable deductions paid during the
same period. If you were doing the 1040X Point out that if the original
by hand you would put 2007 after calendar return is on the computer,
year. TaxWise will enter the date for
you.
The 1040 X has three columns:
x Column A is used to show the original or
IRS adjusted figures from the original
return or previous amendment
x Column C is used to show the corrected
figures
x The differences between the figures in
columns A and C are reflected in column
B.
Lesson 35 - Page 3 of 6
What are the time limits on Page 35-3
amending a return?
Time periods for claiming a refund are Pub. 17 has the definition. Have
suspended for a period when a taxpayer is the class research and read it in
financially disabled. These circumstances the pub.
will be very rare occurrences.
Point out that if the taxpayer
There are a few exceptions to the three appears to qualify for an
year rule. Claiming a bad debt for worthless exception to the three year time
securities is one. There are also some limit, they should refer the
Military issues. taxpayer to a professional tax
preparer.
Lesson 35 - Page 4 of 6
The advice is different if the taxpayer owes
money on the amended return.
x Form 1040X should be filed and any
taxes due paid by the April due date to
avoid any interest and penalties
x See Form 1040X Instructions for how to
include all the correct information on the
check or money order
Lesson 35 - Page 5 of 6
original return in TaxWise, and
ask for students to read each
point.
Summary
Page 35-6
Let’s review when a return can be
amended, how to send it to the IRS and the
impact of the amended on the taxpayer’s
refund and state return.
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VITA/TCE - 2007 FACILITATOR'S TRAINING GUIDE -
Community
Network
...It’s Your Resource
x Training Materials
x Asset Building Strategies
x Volunteer Opportunity Information
x Partner Opportunity Information
x Tips on helping taxpayers in these categories:
- Disabled
- Military
- Low-income
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