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Liberty Tax Service Basic Income Tax Course WELCOME CLASS ONE

Liberty Tax Service Basic Income Tax Course WELCOME CLASS ONE. Introduction. Welcome to the Liberty Tax Service Online Basic Income Tax Course.

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Liberty Tax Service Basic Income Tax Course WELCOME CLASS ONE

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  1. Liberty Tax ServiceBasic Income Tax CourseWELCOMECLASS ONE

  2. Introduction Welcome to the Liberty Tax Service Online Basic Income Tax Course. This tax course is designed to teach you how to prepare basic forms and schedules for individual income tax returns. The manual is based on Internal Revenue Service (IRS) Publication 17, other relevant IRS Publications and form instructions for tax year 2008. Publication extracts are provided at the end of each chapter. The chapter text compliments and supplements the publication extracts. The text and extracts must be read together for a full understanding of the material. Tests, problems, and examples will refer to both publication extracts and text material.

  3. COMPANY PROFILE Founded in 1997, Liberty Tax Service is the fastest growing retail tax preparation company in the industry’s history. Founder and CEO John T. Hewitt has 39 years of tax industry experience, the most of any CEO in the tax preparation business. Hewitt is also the founder of Jackson Hewitt Tax Service (NYSE: JTX). Liberty Tax Service (www.libertytax.com) operates 3,200 offices throughout the United States and Canada, and has prepared over 5,000,000 individual income tax returns. The company focuses on computerized income tax preparation and electronic filing of returns. Emphasis on customer service including audit assistance, a money back guarantee and free tax return checking are just a few of the “above and beyond” features offered by Liberty Tax Service.

  4. LIBERTY TAX SERVICE IS BUILDING THE #1 FRANCHISE TEAM IN THE INDUSTRY! We have the #1 corporate culture in the industry. We are setting the standard and constantly improving while we’re having fun! Would you like to join the Liberty Tax Service team of franchisees, and grow with the fastest growing international tax service ever? Liberty’s franchise opportunity is noted in the franchise industry rankings for solid growth, excellence and affordability. • In January 2008, Entrepreneur magazine ranked Liberty Tax Service as #3 on its Franchise 500 overall list of best franchises. • Liberty Tax Service is the only tax service included on Hispanic Trends magazine’s 2006 and 2007 elite list of the “25 Top Franchises for Hispanics.”

  5. My Background • Been doing individual, corporate and partnership returns for over 10 years • I have been with Liberty Tax since October 2006 • I own/operate 3 offices currently (East Brunswick, Freehold, Trenton) • Exploring expansion opportunities

  6. Liberty Mission • Set the standard • Improve each day • Have some Fun These principles is what Liberty Tax Service is built upon. Our goal is to be the #1 Tax Prep company

  7. Office Age & Our Goals East Brunswick: 5th Tax Season Freehold: 4th Tax Season Trenton: 2nd Tax Season • Expansion • Increase Tax Return count 40%

  8. Working for Liberty Tax Examples of Qualities of our Employees • Friendly personality • Enjoys working with people • Enthusiastic and motivated • Works well within a team • Tax knowledge • Improves each day

  9. THE TAX INDUSTRY • An industry dominated for 50 years by one major player, H&R Block. • The trend toward electronic tax filing is soaring, with a record 86 million individual returns e-filed in tax season 2008, up a robust 12 percent. The IRS reports that about 60% of all returns in 2008 were e-filed. • A growing market since more and more people pay taxes each year. • Approximately 62% of all tax return filers paid someone to prepare their tax return this year (up from 51% in 1996).

  10. ONLINE INCOME TAX COURSE 2009TABLE OF CONTENT • Introduction; Chapter 1: Filing Information • Chapter 2: Exemptions and Dependents • Chapter 3: Filing Status • Chapter 4: Wages, Salaries, Tips, etc and Withheld Taxes • Chapter 5: Interest, Dividends, and Other Income • Chapter 6: Standard Deduction and Your Income Tax • Chapter 7: Tax Credits & Midterm Exam (take home) • Chapter 8: Itemized Deductions • Chapter 9: Retirement Benefits • Chapter 10: Social Security Benefits & Other Credits

  11. ONLINE INCOME TAX COURSE 2009TABLE OF CONTENT • Chapter 11: Basis of Property and Capital Gains • Chapter 12: Depreciation • Chapter 13: Other Itemized Deductions • Chapter 14: Profit or Loss from Business • Chapter 15: Rental Real Estate, Royalties, Partnerships • Chapter 16: Adjustments • Chapter 17: Other Taxes • Chapter 18: Additional Payments, Penalties, etc. • Chapter 19: Extensions, Amended Returns, Electronic Filing, & Final Exam (take home) • Final Exam Review

  12. Chapter 1: Filing Information • Chapter Content • Overview of Form 1040, U. S. Individual Income Tax Return • Who Must and Who Should File a Tax Return • Other Filing Information • Key Ideas • Objectives • Become Familiar with Form 1040 • Identify Who Must and Who Should File a Return • Understand Other Basic Filing Information

  13. FILING A TAX RETURN • Filing a Tax Return means sending your return to the Internal Revenue Service (IRS) by mail or by computer. The information on your return determines your tax liability on the income you received and the amount of the refund you are due or the amount you need to pay to the IRS. • Before preparing a return, you need to determine whether you are required to file or whether you should file even if you are not required to do so. Filing requirements are shown in charts prepared by the IRS. In this chapter, you will learn how to read the charts along with some other basic filing information. • First, to provide an overview of the tax preparation process and to introduce some of the terms and concepts you will need to know to prepare a tax return, let us take a look at each section of Form1040, U.S. Individual Income Tax Return. The Form 1040 overview will also identify the chapters that discuss each topic in detail.

  14. FORM 1040 OVERVIEW Tax Year - Your tax is figured on the amount of income you receive and the expenses you incur during a tax year. For most individuals, the tax year is a calendar year. This Form 1040 is for tax year 2008.

  15. FORM 1040 OVERVIEW Tax Year

  16. FORM 1040 OVERVIEW Tax Year - Your tax is figured on the amount of income you receive and the expenses you incur during a tax year. For most individuals, the tax year is a calendar year. Label - If you do not receive a preprinted label from the IRS, enter your name, address and social security number (and your spouse’s name and/or social security number if applicable) here.

  17. FORM 1040 OVERVIEW Label

  18. FORM 1040 OVERVIEW Tax Year - Your tax is figured on the amount of income you receive and the expenses you incur during a tax year. For most individuals, the tax year is a calendar year. Label - If you do not receive a preprinted label from the IRS, enter your name, address and social security number (and your spouse’s name and/or social security number if applicable) here. Filing Status (Covered in Chapter 3) - Your filing status generally depends on whether you are considered married or unmarried on the last day of the tax year.

  19. FORM 1040 OVERVIEW Filing status

  20. FORM 1040 OVERVIEW Tax Year - Your tax is figured on the amount of income you receive and the expenses you incur during a tax year. For most individuals, the tax year is a calendar year. Label - If you do not receive a preprinted label from the IRS, enter your name, address and social security number (and your spouse’s name and/or social security number if applicable) here. Filing Status (Covered in Chapter 3) - Your filing status generally depends on whether you are considered married or unmarried on the last day of the tax year. Exemptions (Covered in Chapter 2) - Exemptions further reduce the amount of your income that is taxed. On page 2 of Form 1040, you subtract a certain dollar amount for each exemption you claim.

  21. FORM 1040 OVERVIEW Exemptions

  22. FORM 1040 OVERVIEW Income (Covered in Chapters 4, 5, 9, 10, 11, 14 & 15) - All income in the form of money, goods, services and property you receive during the tax year is reported here.

  23. FORM 1040 OVERVIEW Adjusted Gross Income (Covered in Chapter 16) - Adjustments are various items you are allowed to DEDUCT (subtract) from your total income. Total income minus adjustments is called ADJUSTED GROSS INCOME or AGI.

  24. FORM 1040 OVERVIEW Tax And Credits (Covered in Chapters 6, 7, 8, 13) - Your TAXABLE INCOME (the amount of income on which your income tax is computed) is figured here by subtracting the STANDARD DEDUCTION or your ITEMIZED DEDUCTIONS (a total dollar amount of certain expenses that may be used in place of the standard deduction) and exemptions from your AGI. Credits reduce your tax. The credits in this section of Form 1040 are called NONREFUNDABLE CREDITS(if you do not owe any income tax, these credits do not result in a refund of the unused amount of the credit).

  25. FORM 1040 OVERVIEW Non-refundable Credits Taxable Income

  26. FORM 1040 OVERVIEW Other Taxes (Covered in Chapter 17) - Certain additional taxes such as self-employment tax or social security tax on tips are shown here. These taxes are added to your tax to arrive at your TOTAL TAX.

  27. FORM 1040 OVERVIEW Payments (Covered in Chapters 4, 10, 18) - Generally, as you receive income you are required to pay at least 90% of your income tax liability during the tax year. WITHHELDTAXES are paid to the IRS from money due to you by the payer (e.g., your employer). ESTIMATED TAX PAYMENTS are tax payments you paid directly to the IRS.

  28. FORM 1040 OVERVIEW Payments

  29. FORM 1040 OVERVIEW Payments (Covered in Chapters 4, 10, 18) - Generally, as you receive income you are required to pay at least 90% of your income tax liability during the tax year. WITHHELDTAXES are paid to the IRS from money due to you by the payer (e.g., your employer). ESTIMATED TAX PAYMENTS are tax payments you paid directly to the IRS. Refund - You are entitled to a refund if the payments you made (and/or your refundable credits) are greater than the total tax.

  30. FORM 1040 OVERVIEW Refund

  31. FORM 1040 OVERVIEW Payments (Covered in Chapters 4, 10, 18) - Generally, as you receive income you are required to pay at least 90% of your income tax liability during the tax year. WITHHELDTAXES are paid to the IRS from money due to you by the payer (e.g., your employer). ESTIMATED TAX PAYMENTS are tax payments you paid directly to the IRS. Refund - You are entitled to a refund if the payments you made (and/or your refundable credits) are greater than the total tax. Amount You Owe (Covered in Chapter 18) - If you have not paid the full amount of the tax you are liable for, you must pay the additional amount due with your return.

  32. FORM 1040 OVERVIEW Amount You Owe

  33. FORM 1040 OVERVIEW Payments (Covered in Chapters 4, 10, 18) - Generally, as you receive income you are required to pay at least 90% of your income tax liability during the tax year. WITHHELDTAXES are paid to the IRS from money due to you by the payer (e.g., your employer). ESTIMATED TAX PAYMENTS are tax payments you paid directly to the IRS. Refund - You are entitled to a refund if the payments you made (and/or your refundable credits) are greater than the total tax. Amount You Owe (Covered in Chapter 18) - If you have not paid the full amount of the tax you are liable for, you must pay the additional amount due with your return. Third Party Designee - You can allow the IRS to discuss your return with a friend, family member, any other person or the paid preparer by checking the “Yes” box and completing the requested information in this section of your return.

  34. FORM 1040 OVERVIEW Third Party Designee

  35. FORM 1040 OVERVIEW Payments (Covered in Chapters 8, 10, 18) - Generally, as you receive income you are required to pay at least 90% of your income tax liability during the tax year. WITHHELDTAXES are paid to the IRS from money due to you by the payer (e.g., your employer). ESTIMATED TAX PAYMENTS are tax payments you paid directly to the IRS. Refund - You are entitled to a refund if the payments you made (and/or your refundable credits) are greater than the total tax. Amount You Owe (Covered in Chapter 18) - If you have not paid the full amount of the tax you are liable for, you must pay the additional amount due with your return. Third Party Designee - You can allow the IRS to discuss your return with a friend, family member, any other person or the paid preparer by checking the “Yes” box and completing the requested information in this section of your return. Sign Here - You must sign and date the return and give your occupation. Both you and your spouse must sign even if only one of you had income. Generally, anyone you paid to prepare the return must sign in the PAID PREPARER’S USE ONLY section.

  36. FORM 1040 OVERVIEW Sign Here

  37. WHO MUST FILE AND WHO SHOULD FILE You must file if you are a: • U.S. citizen • U.S. resident • Resident of Puerto Rico • And you meet the filing requirements that apply to you. Different requirements apply if you can be claimed as a dependent on another’s tax return or if you owe certain taxes in addition to income tax.

  38. Filing Requirements For Most Taxpayers The filing requirements for most taxpayers are determined by three factors. These are: • GROSS INCOME • FILING STATUS • AGE

  39. Filing Requirements For Most Taxpayers Gross Income - includes all income in the form of money, goods, services and property you received during the tax year that is not exempt from tax including any income from sources outside the U.S. (even if you may exclude part or all of it). Each type of income that must be reported will be discussed in subsequent chapters. Income that is subject to tax includes the following: • Wages, salaries, bonuses and commissions • Certain types of fringe benefits • Tips • Unemployment compensation • Interest (some types of interest are tax exempt) and dividends • Refund of state and local taxes (for some taxpayers who itemize deductions) • Alimony or separate maintenance payments received • Income from self-employment • Others on pages 1-6 and 1-7 in your book.

  40. Filing Requirements For Most Taxpayers 2. Filing Status - Depends on whether you are single or married and on your family situation. Your filing status is determined on the last day of your tax year, which is December 31 for most taxpayers. Each filing status will be discussed in Chapter 3. 3. Age - If you are age 65 or older on the last day of your tax year, your gross income for your filing requirement can generally be higher than that of other taxpayers. You are considered to be age 65 on the day before your 65th birthday. For example, if your 65th birthday was on January 1, 2009, you are considered to be 65 in 2008.

  41. Filing Requirements For Most Taxpayers If you are a U.S. citizen or resident alien who cannot be claimed as a dependent, you must file a return if your gross income is at least the amount shown for your age and filing status in Table 1-1.

  42. Filing Requirements – Problem 1 Tom was not married at the end of 2008 and he lived alone. His marital status is single and his filing status is single. On December 31, 2008 he was 35 years old so he chooses under 65 as his age. In 2008, he had a part time job as a carpenter for which he received wages of $8,650. He also made $300 from his snow plowing business. Tom does not have to file a return. True or False?

  43. Filing Requirements – Problem 1 Tom was not married at the end of 2008 and he lived alone. His marital status is single and his filing status is single. On December 31, 2008 he was 35 years old so he chooses under 65 as his age. In 2008, he had a part time job as a carpenter for which he received wages of $8,650. He also made $300 from his snow plowing business. Tom does not have to file a return. False His income from wages ($8,650) plus his self-employment income ($300) gives him a gross income of $8,950. Because his gross income was at least $8,950, Tom must file a return.

  44. Filing Requirements – Problem 2 Bob and Emily were married and living together at the end of 2008. Bob turned 65 on January 1, 2009 and Emily was 67 at the end of 2008. They are both retired. Bob receives a pension of $16,600 and they received $3,250 in interest and dividends. Their marital status is married living with spouse, and married filing a joint return is their filing status. They have no other income and they do not have to file a return. True or False?

  45. Filing Requirements – Problem 2 Bob and Emily were married and living together at the end of 2008. Bob turned 65 on January 1, 2009 and Emily was 67 at the end of 2008. They are both retired. Bob receives a pension of $16,600 and they received $3,250 in interest and dividends. Their marital status is married living with spouse, and married filing a joint return is their filing status. They have no other income and they do not have to file a return. True Because Bob turned 65 on January 1 he is considered to be 65 at the end of 2008, so both spouses are 65 or older. Their gross income is $19,850 (pension of $16,600 plus interest and dividends of $3,250). They do not have to file a return because their gross income is less than $20,000.

  46. Filing Requirements – Problem 3 Joe is married but has not lived with his wife for two years. Their child lives with Joe. Joe was age 40 in 2008 and his gross income was $10,800. Joe’s marital status is married, with a child, living apart and his filing status is head of household. Joe does not have to file a return. True or False?

  47. Filing Requirements – Problem 3 Joe is married but has not lived with his wife for two years. Their child lives with Joe. Joe was age 40 in 2008 and his gross income was $10,800. Joe’s marital status is married, with a child, living apart and his filing status is head of household. Joe does not have to file a return. True The gross income limit for his age and filing status is $11,500 so he does not have to file a return. If Joe had to use the married filing separate filing status, he would have to file a return because his gross income is more than $3,500.

  48. Filing Requirements For Dependents If you can be claimed as a dependent on someone else’s tax return, the factors that determine if you must file are: • Gross Income • EARNED INCOME (includes wages, tips and professional fees) • UNEARNED INCOME (includes interest, dividends, pensions, unemployment compensation, and taxable social security benefits) • Marital Status • Age • Blindness

  49. Filing Requirements For Dependents

  50. Filing Requirements For Dependents

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