Agenda

1
Welcome to the 2007-2008 VITA Program!
Hello my name is Trainer Name Taxes 101 for
new volunteers November 2007
2
Training sessions for new volunteers
You are HERE!
3
Taxes 101

• Introduce to basic taxation concepts
• Make volunteers aware of the training timeline
  Pre-Test submission deadline
• Make everyone excited and energized about the
  Baruch VITA Program

4
After this session

• Baruch VITA Textbook will be posted in early
  December
• Must be printed by you for January training
• Pre-test will be available online starting in
  early December ? due Wed Jan 2nd

5
Baruch VITA Textbook

• Taxation concepts in plain language
• Simple case scenarios to follow
• Try it Yourself problems (with answers)
• Pre-Test questions (submitted electronically)
• January training exercises
• Sample problems (with answers)

6
Pre-Test

• 40 multiple-choice test based on federal and
  state concepts
• Must score 30 out of 40 questions to pass
• Submit electronically on-line
• You will be allowed several attempts
• Pass by Wed Jan 2nd,
• Do not wait until the last moment!

7
So how does the tax return preparation process
begin?

• With a client interview

8
Interview process (1)

• Client comes in with their documents, signs in
  and fills out page 1 of the Client Intake Sheet
• Next available volunteer introduces himself and
  goes over the Client Intake Sheet (fills out page
  2) and the documents
• Screen make sure clients situation is within
  the scope of VITA
• You prepare the return in front of the taxpayer
  (asking any follow up questions as needed)

9
Interview process (2)

• Once you are done, have it reviewed by a
  shift/site manager
• Explain what credits (if any) the taxpayer
  qualifies for and the amount of refund/balance
  due
• Taxpayer signs the return in your presence and
  you inform them where to mail it
• Fill out statistical information, Next!!!

10
Do I have to know everything?

• NO!
• Know the general guidelines
• Look everything else up in instruction booklets
  available for each form
• Check out the Volunteers Corner/Reference
  Library on our website, www.Baruch.cuny.edu/vita

11
So lets talk about some basic concepts
12
Federal vs. NY State tax law

• Federal tax law is enacted by Congress and
  enforced by the IRS.

• NY State tax law is enacted by NY State
  legislature and is enforced by the NY State Dept.
  of Taxation Finance

13
Therefore

• We have to learn two different sets of forms
  schedules
• Tax rate percentages are different
• Different mailing addresses, etc.
• Luckily, basic tax concepts are mostly the same

14
But dont worry

• well explain everything!

15
Main federal forms

• 1040EZ - shortest
• 1040A
• 1040 - longest form, covers every situation
• Our training will be based on Form 1040
• The use of a form DOES NOT affect any tax amounts

16
Where are the instructions again?

• Every main form has a thick booklet
• Every schedule that may need to be attached has
  its own 1-5 page instruction pamphlet
• Feel free to look up anything you want!

17
I was sleeping, what did you just say?
DONT MEMORIZE LOOK IT UP
18
So here it is
19
The Tax Formula
20
You will see this formula over and over again!

• Have it handy for the exercises, and exams
  (ahem!)
• And it will help your understanding too!

21
Repeat out loud!
22
Basic federal concepts

• Filing Status
• Types of Income
• Types of Adjustments
• Standard vs. Itemized Deductions
• Exemptions Tax Calculation
• Refundable/Non-Refundable Credits

23
Filing Status

• Determined as of December 31st, 2007
• Single
• Married Filing Jointly (combine income/expenses)
• Married Filing Separately
• Head of Household (has to have a dependent)
• Qualifying Widow(er) (has to have a child)
• A spouse is never a dependent
• MFJ can have only one working taxpayer

24
Determining Filing Status Flow Chart
25
Case scenarios

• A 29 year old bartender who lives by himself
• A 26 year old man who is married, but whose wife
  does not work
• A married couple who do not speak to each other
  and live separately
• A 35 year old woman who is single and has a child
  that she supports
• A 46 year old man whose wife died in 2005, and
  whose 10 year old son lives with him

26
Case scenarios

• A 29 year old bartender who lives by himself
  Single
• A 26 year old man who is married, but whose wife
  does not work Married Filing Jointly
• A married couple who do not speak to each other
  and live separately Married Filing Separate
• A 35 year old woman who is single and has a child
  that she supports Head of Household
• A 46 year old man whose wife died in 2005, and
  whose 10 year old son lives with him Qualifying
  Widower

27
Very good everyone!

• So whats a dependent?
• ANYONE? TRY TO GUESS?

28
Dependents

• Qualifying Child
• Relationship test
• Age test under 19 or under 24 and full-time
  student
• Did not provide 50 or more of own support
• Lived with taxpayer for more than half of the
  year
• Temporary absences allowed for school, vacation,
  etc.
• Child born/died - count as of 12/31/2007
• No income limits
• Qualifying Relative
• Relative (does not have to live with) or Member
  of Household that lived with taxpayer for the
  whole year
• Gross income less than 3,400 (for 2007)
• Taxpayer must provide more than 50 of support

29
Test your knowledge

• Randys son, Paul, earned 4,300 last year. Paul
  is 18 years old and started college in September
  2007. He is a full-time student. Does Pauls
  earned income of 4,300 preclude Randy from
  claiming Paul as a dependent?

30
Test your knowledge

• Randys son, Paul, earned 4,300 last year. Paul
  is 18 years old and started college in September
  2007. He is a full-time student. Does Pauls
  earned income of 4,300 preclude Randy from
  claiming Paul as a dependent?
• No, there is no gross income limit for qualifying
  children

31
So youre saying a full-time student can have
earned 30,000 from an internship, and still be a
dependent?

• YEP!

32
So the dependent gets away from paying taxes?

• NO! Who are you kidding?
• Dependents may need to file their own return
  since their income is never included on the
  parents return!!!

33
When must a taxpayer file?

• When taxpayers income exceeds certain limits
  (even if no tax is due)
• Look up the detailed tables in the instruction
  booklet

34
When should a taxpayer file?

• To claim a refund of withheld taxes
• To claim refundable credits
• Earned Income Tax Credit
• Additional Child Tax Credit

35
So if a taxpayer doesnt file, they wont get a
refund, even if mathematically they should?

• YES!

36
Most dependents with small income can generally
get back all of the taxes they paid during the
year

• But they wont, unless YOU PREPARE a return for
  them!!!

37
Can we start talking about money?

• Lets discuss the different types of income

38
Income types

• Earned income amounts received for work
  performed such as wages, commissions,
  self-employment, etc.
• Unearned income interest/dividends, pensions,
  Social Security, unemployment, etc.
• Gross Income sum of earned and unearned income.

39
Tax Formula
40
So which income is taxable?

• You dont have to guess, the answer is on the
  next slide

41
We did the work for you!
42
The main Form 1040

• Has a line for every type of income, adjustments,
  credits, etc.
• You are NOT responsible for all of them!!!

43
Examples of income Form 1040

• Line 7 - Wages, salaries, commissions, tips
• Line 8a - Taxable interest
• Line 8b - Tax-exempt interest
• Line 9a - Ordinary dividends
• Line 9b - Qualified dividends
• Line 10 - Taxable refunds and credits
• Line 11 - Alimony received
• Line 12 - Business income
• Line 13 - Capital gains
• Line 14 - Other gains

• Line 15 - IRA distributions
• Line 16 - Pensions and annuities
• Line 17 - Rents, royalties, estate or trust
  income
• Line 18 - Farm income
• Line 19 - Unemployment compensation
• Line 20 - Social security benefits
• Line 21 - Other income

44
Form W-2
45
Regular wage income

• Most popular form every employee receives one
• Examine form W-2, which is sent to the taxpayer
  by end of January
• If taxpayer has multiple W-2s OR if Married
  Filing Jointly ? add amounts
• A dependents income is NEVER included on the
  taxpayer tax return
• FEDERAL INCOME TAX WITHHELD BOX 2

46
Form 1099-INT
47
Interest

• Regular interest (box 1)
• Tax-exempt interest (box 3)
• Example municipal bonds
• Early withdrawal penalty (box 2)
• Report as an adjustment
• DO NOT SUBTRACT FROM OTHER INTEREST INCOME

48
So what if I was considered an independent
contractor?

• Then you would receive a form 1099-MISC for
  Miscellaneous Income.

49
1099-MISC
50
Business Income Self-Employment Income

• Must attach Schedule C-EZ to report income
• Must attach Schedule SE to calculate
  self-employment tax
• Treatment
• Report earnings in income section
• 50 of SE tax in adjustment section
• 100 of SE tax in other taxes section

51
What if I worked for myself?

• Same rules as if you were an independent
  contractor

52
Schedule C or C-EZ

• Gross Income Expenses Net Income
• Baruch VITA volunteers may complete Schedule C-EZ
  ONLY (less then 5,000 in expenses)
• Taxpayers with more than 5,000 in expenses
  should be referred to a paid preparer

53
SCHEDULE SE(Self-Employment tax)

• Must be completed if NET EARNINGS from Schedule
  C-EZ were more than 400
• Treatment
• Report adjustment in amount of 50 SE tax
• and
• Report full SE tax on the back of Form 1040
• This tax is paid in addition to taxes obtained
  from the tax tables

54
1099-R (IRA distributions, Pensions, Annuities)
55
If taxable portion is determined

• then prepare the return, otherwise send the
  taxpayer to a paid preparer!

56
Social Security Benefits

• Social Security benefits might be fully
  non-taxable or partly taxable
• Use the Social Security worksheet in 1040
  Instructions, page 28
• Only the TAXABLE PORTION is added to Gross Income!

57
Supplemental Security Income

• SSI makes monthly payments to people who have low
  income and few resources and are
• Age 65 or older
• Blind or
• Disabled.
• SSI is NEVER taxable

58
Case Scenarios

• Your client has 5,000 is SSI benefits, he did not
  receive any other form of support SSI benefits
  are never taxable!
• Your client has a small business, and made 45,000
  in income, and wants to report 6,500 in Expenses
  Sorry, this would require Schedule C, which is
  out of the scope of the VITA program.

59
Income outside the scope of VITA Program

• Schedule C Long form
• Schedule D Capital Gains and Losses (sale of
  stock, sale of house, etc.)
• Schedule E Rents, royalties, income from
  partnerships, estates, trusts, etc.
• Schedule F Farm Income
• Please send these taxpayers to a paid preparer!

60
What if the taxpayer received Jury Duty Pay?

• Look up whether the income is taxable, whether
  you are allowed to do it, and prepare according
  to the rules!

61
We now understand the several different types of
income

• What should we do next?

62
Adjustments?

• What are Baruch VITA volunteers allowed to
  adjust?

63
Tax Formula
64
Types of adjustments

• Deduction for 50 of SE tax
• Penalty on early withdrawal
  of savings
• IRA Deduction
• Student Loan Interest Deduction
• Educator Expenses Deduction
• Tuition Fees Deduction

65
So whats the purpose of adjustments?

• Adjustments lower your Gross Income!

66
Be careful with education expenses

• Taxpayer may claim a Tuition Fees Deduction or
  non-refundable credits (discussed later) called
  the Education Credits (Hope Credit or Lifetime
  Credit)
• NO double-dipping a taxpayer cannot take both
  the adjustment and the refundable credit

67
Lets say Gross Income is 40,000 and total
adjustments are 4,000

• then AGI (Adjusted Gross Income) is

68
Very good everyone!

• AGI (Adjusted Gross Income) is 36,000

69
So once I get to AGI?

• You can lower your income MORE by the amount of

70

• Standard OR Itemized deduction
• Exemptions (Personal / Dependency)

71
Tax Formula
72
Standard Deduction

• Baruch VITA ALLOWED!!!
• Standard amount signed into law by Congress based
  on filing status
• Look up in the tables

73
Itemized Deduction

• Baruch VITA NOT ALLOWED!!!
• Itemized means the adding up of eligible
  state income taxes, medical dental expenses,
  charity contributions, mortgage interest
  payments, etc.
• The higher the taxpayers income, the higher the
  chances they will itemize

74
The Itemized deductions must in total be greater
than the Standard amount

• in order to be beneficial to the taxpayer.

75
Can you figure this out?

• Married couple with 30,000 in AGI
• Standard deduction is 10,700 for 2007
• You can prepare this return.

• Married couple with 80,000 in AGI
• Have a house, baby medical payments in last year
  total 15,000
• 15,00010,700 therefore send the taxpayer away
  because we cannot do itemized deductions

76
Tax Formula
77
So, how many exemptions?

• Claim one exemption for yourself
• Claim one exemption for your spouse, if MFJ
• Claim one exemption for each dependent
• Once you claim an exemption for the dependent,
  the dependent can no longer claim his own
  personal exemption
• Once a dependent is claimed by one parent (lets
  say filing separately), the other parent will get
  a cute letter from the IRS if they also try to
  claim the dependent

78
Wait! Wait! Wait!

• There are personal and dependency types of
  exemptions??????

79
YES!Two types of exemptions exist

• Personal (you, plus spouse if MFJ)
• Dependency (up to the amount of dependents you
  have)
• Every exemption is 3,400, so count them up!!!

80
Can you multiply 3,400 by

• Married couple
• Married couple with twin girls
• Married couple with twin girls and a
  father-in-law living with the couple
• Single parent with a 6-year old boy and a dog
• Just widowed (in Oct. 2007) Joe, with no children
• Student, claimed as a dependent on parents tax
  return
• Student, not claimed as a dependent on parents
  tax return
• Student, living with a roommate

81
Can you multiply 3,400 by

• Married couple - 2
• Married couple with twin girls - 4
• Married couple with twin girls and a
  father-in-law living with the couple - 5
• Single parent with a 6-year old boy and a dog - 2
• Just widowed (in Oct. 2007) Joe, with no children
  - 2
• Student, claimed as a dependent on parents tax
  return - 0
• Student, not claimed as a dependent on parents
  tax return - 1
• Student, living with a roommate - 1

82
How can I remember all of this?

• Imagine 3,400 hanging over your head
• If someone takes it ? you cannot
• If no one takes it ? you can

83
REMEMBER!

• Adjusted Gross Income Standard/Itemized
  Deduction Personal/Dependency Exemptions
• Taxable Income

84
Tax Formula
85
Tax calculation

• Must use tax tables if taxable income is under
  100,000
• Look up the amount of taxable income based on the
  filing status
• Make sure to use the CORRECT tax table
• Federal instructions have two tax tables that
  look very similar
• NYS and NYC have separate tax tables

86
I have a silly question!

• What do I do with the tax once I find it?

87
Write it on the appropriate line

• Simply copy it down
• Do NOT add, subtract, multiply or divide anything
• This is the number you use going forward

88
Hold on!I owe this much in taxes?

• Dont panic, we will lower it!
• Non-refundable/Refundable Credits
• Amount you already paid (WITHHOLDINGS)

89
Tax Formula
90
Credits are they all alike?

• Non-refundable bring tax liability to 0
• Credit for Child and Dependent Care Expenses
• Credit for the Elderly or the Disabled
• Education Credits
• Retirement Savings Contributions Credit
• Child Tax Credit
• Refundable bring tax liability below 0
  (generate a refund)
• Earned Income Credit
• Additional Child Tax Credit

91
Case scenarios

• Tax liability 1,000. Non-refundable credits
  worth 300. Balance owed?
• Tax liability 1,000. Non-refundable credits
  worth 1,600. Balance owed?
• Tax liability 1,000. Non-refundable credits
  worth 300 and refundable credits worth 400?
• Tax liability 1,000. Non-refundable credits
  worth 1,600 and refundable credits worth 400?

92
Case scenarios

• Tax liability 1,000. Non-refundable credits
  worth 300. Balance owed? - 700
• Tax liability 1,000. Non-refundable credits
  worth 1,600. Balance owed? - 0
• Tax liability 1,000. Non-refundable credits
  worth 300 and refundable credits worth 400? -
  300
• Tax liability 1,000. Non-refundable credits
  worth 1,600 and refundable credits worth 400?
  refund 400

93
Is there anyway to pay even less?

• Yes, if the taxpayer paid taxes during the year,
  then you can subtract their withholdings from
  their balance owed

94
Tax Formula
95
Federal Tax Withholdings how much the
taxpayer has already paid during the year
96
After all is said and done, Marys tax from the
tables was 1,200 and withholdings during the
year were 4,200.

• Does Mary owe? Does she get a refund?

97
Tax Formula
?
98
Were almost at the end
99
Signing the return

• Taxpayer MUST sign the return, date it, and put
  his/her occupation
• If Married Filing Jointly, both must do it.
• Volunteers NEVER EVER sign any returns, because
  signatures legal liability in case of errors
• Taxpayer assumes the responsibility for our work
  they cant sue us, breathe!!!

100
Site Identification Number (SIDN)

• Every return that you prepare must have a SIDN
  number for tracking and quality purposes S
  15019999 (training)
• SIDN will be given for each individual location
• This does not affect taxpayer returns in any way,
  it just lets the IRS count how many returns we did

101
The number of returns we prepare

• affects our funding.
• Please make sure that we can have a Baruch VITA
  2008-2009 Program.

102
Assembling the return

• Any forms that shows federal tax withholdings
  must be attached
• Main form 1040
• Supporting schedules in order of completion
• No worksheets
• Client Intake Sheet is to be retained
• Remind taxpayers to make a copy of their return
  and keep for at least 3 years

103
Mailing the return

• Look on the back page of 1040 Instructions and
  find New York State
• Check/no-check different addresses
• Federal NYS have different addresses

104
Recordkeeping and privacy

• During the interview
• Be considerate to the taxpayer situation
• If you are uncomfortable at any point ? let your
  site manager know
• After the interview
• Never discuss actual taxpayer situations and/or
  name names
• Do not fool around if there are clients waiting
  be professional!
• Please place statistical info sheets Client
  Intake Sheets in the appropriate place

105
The End

• but before you go
• one more little thingie

106
Pop Quiz!

• Did you really think we would let you go that
  easy?

107
Try it Yourself 1

• Filing status
• Mary and Joe are married. Whats the most
  advantageous filing status they can choose?

108
Try it Yourself 2

• Filing status
• Mary is a single mom. She fully supports her
  8-year old. Does she have to file as single?

109
Try it Yourself 3

• Dependents
• Johns parents are divorced. Both mother and
  father want to claim him as a dependent. Can they?

110
Try it Yourself 4

• Income
• Sam and Tom file a joint return (MFJ). Sam earned
  15,000 and Tom earned 19,000 in wages. How much
  wages do they report on their joint return?

111
Try it Yourself 5

• Adjustments
• Henrys only income is wages of 23,000. He takes
  a tuition fees deduction of 500. Whats his
  AGI?

112
Try it Yourself 6

• Exemptions
• A married couple files a joint return and claims
  three kids as dependents. How many exemptions do
  they get?

113
Try it Yourself 7

• Tax
• Kats taxable income is 12,387. Whats her tax?

114
Try it Yourself 8

• Tax Credits
• Georgia paid tuition for her daughter. Is there
  some tax benefit she can get?

115
Try it Yourself 9

• Tax Credits
• Marc heard something that Earned Income Tax
  Credit is really cool. He just does not know why.

116
Try it Yourself 10

• Refunds
• Alices total tax is 478. Her withholdings are
  978. Does she owe something?

117
The (Real) End

• Youve managed
• with flying colors
• Woohoo! )