Tax Laws

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Tax information you might want to know : 

Tax information you might want to know This is part FOUR of FOUR parts. This presentation will go over some of the basic TAX LAWS you need to be familiar with. It will cover: FILING STATUS DEDUCTIONS CHILD TAX CREDIT EARNED INCOME TAX CREDIT INJURED SPOUSE and OTHER INCOMES.

Filing Status : 

Filing Status The IRS does not give your customer the choice of what their filing status is. The FIRST step of determining a customers filing status is asking if they are: MARRIED OR NOT MARRIED The filing status effects the deductions and credits available to them.

Filing Status : 

Filing Status 1. Married Filing Joint This person is married a. If the taxpayer is married, THEY ARE MARRIED!! b. This is the best filing status that will be used Even if the spouse does not work 2. Married Filing Separate This person is married a. You will rarely use this filing status. b. It gives the lowest standard deduction. c. The taxpayer does NOT receive EIC using this status There are two options if MARRIED

Filing Status : 

Filing Status 1. Single This person is NOT married and: a. They have NO dependents or: b. The dependents are NOT related to the taxpayer 2. Head of Household This person is NOT married and: a. They paid for over half the cost of keeping up a home for a qualifying person. b. If someone is divorced or is legally separated for the last 6 months of the year, then they can claim HOH There are 2 options if NOT MARRIED:

HOH Qualifications for dependent : 

HOH Qualifications for dependent 1. A qualifying dependent must be 18 or under OR 2. 23 or under and a full time student OR 3. Permanently and totally disabled The relationship of the qualifying dependent must be……………………… In order to file Head of Household you need to have a dependent that meets one of these three tests AND the relationship test.

HOH Qualifying a dependent : 

HOH Qualifying a dependent 1. Son, daughter, grandchild, foster child OR 2. Brother, sister, niece, nephew, whom the taxpayer cares for as their own child AND Qualifying dependent must have lived with the taxpayer in the United States for more than half the year In order for the customer to file Head of Household their dependent must also have this type of relationship and meet one of the previous circumstances. Remember how to qualify a dependent because it also effects the customers EIC (explained later)

Slide 8: 

Filing status effects: How much the customer can deduct from their income before the IRS starts to tax them. If the customer might qualify for EIC There are two ways the program calculates this deduction. The customer only receives one of these amounts, whichever is higher. Most of your customers will receive the Standard deduction that the IRS allows. The TOTAL of their Itemized deductions must be higher than the given IRS standard deduction. More than likely the customer will have a large mortgage interest statement on a home to qualify for the Itemized deduction. The next 3 slides will explain in more detail

Standard Deduction : 

Standard Deduction If your filing status is: Your deduction is: Married Filing Joint $10,950 Married Filing Separate $5,450 Head of Household $8,000 Single $5,450 A standard deduction is a dollar amount that reduces the amount of income on which you are taxed

Itemized Deductions : 

Itemized Deductions Mortgage interest Real estate taxes Charitable contributions Ad valorem taxes (car tags) A portion of medical expenses A portion of job expenses State tax paid from W-2’s Gambling losses up to gambling winnings The customer will bring these amounts and forms into your office, just enter them into the program

Filing Status Percentages : 

Filing Status Percentages

Standard DeductionsAND Itemized Deductions : 

Standard DeductionsAND Itemized Deductions If the taxpayer has more money from itemized deductions than their standard deduction amount, then they’ll qualify to use itemized deductions. If you are unsure which is higher just enter the amounts on the Itemized Deduction form in the program The program figures this out for you and takes the higher of the two options, not both.

Child Tax Credit : 

Child Tax Credit Not everyone will receive this credit, the program will determine the amount. Up to $1000 per child Child must be 16 or under (1993 -) Amount of credit is based on taxable income and other factors If some ones taxable income is 0 then they do not receive CTC

What is EIC ? : 

What is EIC ? A refundable tax credit for certain people who work and have earned income under about $35,000 The Earned Income Credit is available to families and individuals that qualify. The credit can be as much as $4,300 To claim it, you must have earned income, or, in other words, you must have been employed some part of the year

Qualifications for EIC : 

Qualifications for EIC 1. The taxpayer must have a valid Social Security Number And ONE of these 3: a. Qualifying dependent must be 18 or under Or b. 23 or under and a full time student Or c. Permanently and totally disabled The relationship of the qualifying dependent must be…..

Qualifying a dependent : 

Qualifying a dependent The relationship of the qualifying dependent must be….. Son, daughter, grandchild, foster child Brother, sister, niece, nephew, whom the taxpayer cares for as their own child Qualifying dependent must have lived with the taxpayer in the United States for more than half the year

Average EIC Chart : 

Average EIC Chart

What is an Injured Spouse ? : 

What is an Injured Spouse ? If your spouse owes money to the IRS or FMS dept, you might want to file INJURED SPOUSE You must file a joint tax return. The IRS can still seize all or part of your refund to cover your spouse's debt. YOU cannot do a RAL

Other Income : 

Other Income Some Taxpayers will receive income other than W-2 income. Most common are… 1099 MISC 1099R Unemployment Social Security W-2G Dividends Interest

1099 Business Miscellaneous : 

1099 Business Miscellaneous Income received for NON W-2 jobs such as contractors, lawn workers, painters etc.. This income is subject to self employment tax and will lower the refund, however: They can deduct expenses incurred to do their job, this will lower the tax due.

1099-R : 

1099-R Distributions from pensions, annuities, 401K plans or individual IRA’s Pay special attention to the code in box 7, this will determine if there is a 10% penalty on the distribution IN ADDITION to the tax Most often 1 is a penalty and 7 is not The program figures this out, just enter what’s on the form

Unemployment : 

Unemployment Issued on a 1099G Taxed the same as regular income This income is not used to increase the taxpayers EIC amount

Social Security : 

Social Security Issued on a 1099-SSA Only the taxpayer and spouse’s is relevant not the dependents social security Social security is Not tax free. Usually it is BUT: It CAN be taxed if the taxpayers income is enough for their filing status.

Interest & Dividends : 

Interest & Dividends Issued on 1099-Int & 1099-Div Taxed as regular income Interest is from bank accounts or bonds Dividends are usually from stock holdings

GAMBLING WINNINGS : 

GAMBLING WINNINGS Usually if someone has won MORE than $600 the casino will send them a W2-G Issued on W2-G Taxed as regular income Gambling losses can be deducted up to gambling winnings.

In The Program : 

In The Program Other Incomes

Slide 32: 

After viewing this presentation you should be familiar with. 1. FILING STATUS 2. DEDUCTIONS 3. CHILD TAX CREDIT 4. EARNED INCOME TAX CREDIT 5. INJURED SPOUSE 6. OTHER INCOMES Your customers will ask you about these things so make sure you know how to explain them.

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