Welcome to the 2013-2014 Volunteer Basic Tax Training: A Session

1. Welcome to the 2013-2014 Volunteer Basic Tax Training:A Session

2. SaveFirst Volunteer Overview • Basic Tax Training • A Session • B Session • Certification • Volunteer Standards of Conduct Test (B session training) • Tax Year 2013 IRS Basic Test • Attend Testing Session or On Your Own • Passing score: 80% or better • Must pass before serving at the tax site. • Volunteer Hours at Site • January 20 – March 8 • Complete Availability Form at End of Training

3. The impact you will have as a SaveFirst volunteer this season • Serve a record 6,800 families this year • Save Alabama families over $2 million in commercial fees • Provide a quality, reliable service and an alternative to a costly, predatory industry for hard-working families • Watch the SaveFirst video! https://vimeo.com/69241080

4. Resources • SaveFirst Basic Volunteer Training Agenda • SaveFirst Basic Volunteer Training Notes • SaveFirst Basic Training Summary Chart • SaveFirst Basic Training Practice Exercise: Beth Branch • Helpful Tips for New Topics on 2013 IRS Basic Certification Exam (use on the test) • Selections from IRS Publication 4012 Volunteer Resource Guide • Impact Alabama Staff

5. Training Outline: A Session • 1) Tax Terminology • 2) Federal Income Tax Process and Form 1040 Overview • 3) Tax Preparation Process • 4) Exemptions • 5) Filing Status • 6) Filing Basics • PRACTICE EXERCISE: BRANCH • 7) Income • PRACTICE EXERCISE: BRANCH • 8) Standard Deduction • 9) Earned Income Tax Credit • 10) Child Tax Credit • 11) Child and Dependent Care Credit • PRACTICE EXERCISE: BRANCH • 12) Volunteer Paperwork and Availability

6. Form 1040 • Two-page form • Contains all of the information we will use to file tax returns! • Automatically loaded in TaxWise

7. Filing Status • Affects tax liability • Based on marital status and family situation • Single • Married Filing Jointly • Married Filing Separately • Head of Household • Qualifying Widow(er) with Dependent Child Choose correct Filing Status on Lines 1-5

8. Exemption • Amount the taxpayer can claim for himself, his spouse, and his dependents that decreases taxable income. • $3,900 for each exemption Total # of Exemptions found on line 6d

9. Exemption A taxpayer may claim 2 types of exemptions: 1) Personal exemption (lines 6a/6b) • Taxpayer can claim herself (and spouse) 2) Dependency exemption (line 6c) • Taxpayer can claim qualifying dependents

10. Dependent • An individual whom the taxpayer supports financially or who lives with the taxpayer • Qualifying child, or • Qualifying relative

11. Earned vs Unearned Income • Earned: income received through work (wages, salary, tips, etc.) • Unearned: income other than pay from work(interest, social security, retirement, etc.) Income is entered on Lines 7-21 Total income is found on Line 22

12. Adjustment • Decreases the amount of income on which the taxpayer will be taxed Adjustments are entered on Lines 23-35 Total adjustments are found on Line 36

13. Adjusted Gross Income (AGI) • Amount of taxable income after adjustments are made AGI found on Lines 37/38 (bottom of 1040 page 1) ADJUSTED GROSS INCOME Total Income (Earned and Unearned) Adjustments

14. Deduction • Amount subtracted from the AGI to further decrease taxable income • Standard deduction: based on filing status, age, blind status • Itemized deductions: taxpayer can chose to enter expenses if larger than standard deduction amount (or if filing status is Married Filing Separately and spouse itemizes) Standard/Itemized Deduction(s) found on Line 40

15. Taxable Income • Any income that is subject to federal income tax • Can include both earned and unearned income Taxable Income found on Line 43 TAXABLE INCOME Adjusted Gross Income (AGI) Deductions

16. Tax Liability • Amount of tax owed for the year based on the taxable income Tax Liability (before credits are subtracted) found on Line 46 of 1040.

17. Tax Credit • Direct reduction of the taxpayer’s liability • Nonrefundable credits • Refundable credits

18. Nonrefundable Tax Credit • Reduces the tax liability – only to zero. • Child and Dependent Care Expenses • Retirement Savings Contribution Credit • Child Tax Credit Nonrefundable Credits entered on Lines 47-53 Total Nonrefundable Credits found on Line 54

19. Refundable Tax Credit • Reduces tax liability to zero, then taxpayer will receive the remainder of the credit value as a refund. • Earned Income Credit, • Additional Child Tax Credit Refundable Tax Credits entered on Lines 64-67

20. Withholding • Amount of money that can be taken from each form of income and received by the government each pay period Total Withholding found on Line 62

21. Training Outline: A Session • 1) Tax Terminology • 2) Federal Income Tax Process and Form 1040 Overview • 3) Tax Preparation Process • 4) Exemptions • 5) Filing Status • 6) Filing Basics • PRACTICE EXERCISE: BRANCH • 7) Income • PRACTICE EXERCISE: BRANCH • 8) Standard Deduction • 9) Earned Income Tax Credit • 10) Child Tax Credit • 11) Child and Dependent Care Credit • PRACTICE EXERCISE: BRANCH • 12) Volunteer Paperwork and Availability

22. Federal Income Tax Process

23. TOTAL INCOME Earned Income

24. TOTAL INCOME Unearned Income Earned Income

25. TOTAL INCOME TAXABLE INCOME after adjustments, deductions, and exemptions Unearned Income Earned Income

26. TOTAL INCOME TAXABLE INCOME after adjustments, deductions, and exemptions Unearned Income Earned Income TAX LIABILITY

27. TOTAL INCOME TAXABLE INCOME after adjustments, deductions, and exemptions Unearned Income TAX CREDITS Earned Income AMOUNT OWED OR REFUNDED TAX LIABILITY

28. Form 1040 Overview • Filing Status • Exemptions • 7: Wages • 8: Interest • 9: Dividends • 19: Unemployment • 20: Social Security • 21: Other Income • 30: Early Penalty • 37/38: AGI • 40: Deduction(s) • 42: Exemptions • 43: Taxable Income • 46: Tax Liability • 48, 50, 51, 53: NR Credits • 54: Total NR Credits • 59b: Homebuyer Payment • 61: Total Tax • 62: Withholding • 64a, 65: R Credits • 72: Total Payments • Refund • Amount You Owe

29. Training Outline: A Session • 1) Tax Terminology • 2) Federal Income Tax Process and Form 1040 Overview • 3) Tax Preparation Process • 4) Exemptions • 5) Filing Status • 6) Filing Basics • PRACTICE EXERCISE: BRANCH • 7) Income • PRACTICE EXERCISE: BRANCH • 8) Standard Deduction • 9) Earned Income Tax Credit • 10) Child Tax Credit • 11) Child and Dependent Care Credit • PRACTICE EXERCISE: BRANCH • 12) Volunteer Paperwork and Availability

30. Tax Preparation Process • Part 1: Preliminary Interview • Part 2: Preparing the Return in TaxWise • Part 3: Quality Review (by Advanced Volunteer or Site Coordinator) • Part 4: Finishing the Return • Part 5: Filing the Return

31. Tax Preparation Process • Part 1: Preliminary Interview • Taxpayer completes pages 1 and 2 of Intake/Interview Form • Verify photo ID(s) & Social Security cards(s) • Ensure taxpayer cannot be a dependent of anyone else (Pub 4012: C-4 to C-6) • Determine dependents (Pub 4012: C-3 to C-7) • Complete part of Section II “To be completed by a Certified Volunteer Preparer” • Determine filing status (Pub 4012: B-1 to B-3) • REVIEW pages 1-2 of I/I Form • Collect necessary forms • “Yes” or “No” answer for all questions on pg 2 • Write your full name at the bottom of page 3

32. Identification • Photo IDs • Verify photo IDs for taxpayer (and spouse) • Social Security cards • Obtain and verify a SS card (original or copy) • Verify SS numbers for taxpayer (and spouse) • Verify SS numbers for dependent(s) • Enter name EXACTLY as it appears on SS card!

33. Acceptable Documents other than SS Card • SSA letter • Name, SS number and statement that taxpayer applied for a card • Form SSA-1099 statement • ITIN card or letter • Issued for nonresidents who need to file tax returns but cannot receive SS cards • 9XX-XX-XXXX (enter just like SS number) • ATIN for dependent • Issued for child while adoption is pending • 9XX-XX-XXXX (enter just like SS number)

34. Why conduct an interview? • You get to know the taxpayer and build a relationship • You might discover credits and deductions that could increase the taxpayer’s refund • You might discover important income documents that must be recorded • You may find that the return is out of scope • Required by the IRS for due diligence

35. Tax Preparation Process • Part 1: Preliminary Interview • Part 2: Preparing the Return in TaxWise • Part 3: Quality Review • Part 4: Finishing the Return • Part 5: Filing the Return

36. Training Outline: A Session • 1) Tax Terminology • 2) Federal Income Tax Process and Form 1040 Overview • 3) Tax Preparation Process • 4) Exemptions • 5) Filing Status • 6) Filing Basics • PRACTICE EXERCISE: BRANCH • 7) Income • PRACTICE EXERCISE: BRANCH • 8) Standard Deduction • 9) Earned Income Tax Credit • 10) Child Tax Credit • 11) Child and Dependent Care Credit • PRACTICE EXERCISE: BRANCH • 12) Volunteer Paperwork and Availability

37. Exemptions/Dependents – Line 6 • Refer to Pub 4012 – Tab C • C-1: Exemptions Summary • C-2: Personal Exemptions Chart • C-3: Overview of Rules for Claiming an Exemption for a Dependent • C-4: Overview of Rules for Qualifying Child of More Than One Person • C-5: Chart for Determining Dependency Exemption (Qualifying Child) • C-6/7: Chart for Determining Dependency Exemption for Qualifying Relative • C-8: Chart for Determining Dependency for Children of Divorced or Separated Parents or Parents Who Live Apart

38. Personal Exemptions – Lines 6a/6b • Each personal exemption decreases the taxable income by $3,900. • Taxpayers can claim exemptions for: • Taxpayer (themselves) UNLESS the taxpayer can be claimed as a dependent by someone else. • Spouse UNLESS the spouse can be claimed as a dependent by someone else.

39. Personal Exemptions • Remember: It’s not whether the taxpayer IS claimed as a dependent, but whether the taxpayer CAN BE claimed as a dependent that determines whether the taxpayer can claim an exemption.

40. Dependency Exemptions – 6c • Each dependency exemption decreases taxable income by $3,900. • A taxpayer can claim exemptions for: • qualifying children • qualifying relatives • These qualifying individuals typically live in the taxpayer’s home and generally receive significant financial support from him/her.

41. Determining Dependency Exemptions Turn to Tab C-5 in Pub 4012 ALWAYS USE THIS CHART TO DETERMINE THE NUMBER OF QUALIFYING PERSONS!

42. Qualifying Child or Relative? • If no one else can claim the taxpayer or spouse as a dependent, you need to determine if the other people living in the house can be Qualifying Children, and if not see if they can be Qualifying Relatives. • Remember: Each dependent decreases the taxable income by $3,900!

43. Determining Exemptions • Qualifying Child/Relative: follow Dependency Exemption chart on C-5 to see if person is a Qualifying Child • If you get through every step and answer No in Step 9, then you can claim the person as a Qualifying Child. • If answer YES in Step 9, then go to C-4 for chart on Qualifying Child of More Than One Person • If answer Yes in Step 7 AND parents are divorced or live apart, use charts on C-3, C-4, and C-8. • If answer NO to Steps 5-7, you will be directed to the Chart for Dependency Exemption for Qualifying Relative on C-6/7 if not a Qualifying Child.

44. Qualifying Child: The Taxpayer Eligibility Test

45. Qualifying Child: The Marital Status Test

46. Qualifying Child: The Joint Return Test

47. Qualifying Child: The Citizenship Test

48. Qualifying Child: The Relationship Test

49. Qualifying Child: The Age Test

50. Qualifying Child: The Residency Test