From 4491
From 4491
Scanned and copied from 4491
Out of Scope
report savings bond interest as it accrues every year
On Schedule C Part 1
return and allowances, cost of goods sold, and other income
Depreciation is out of scope for the VITA/TCE Program
For Business expenses: Rent or Lease—Vehicle, Machinery, and Equipment
This category includes the rent for cars, trucks, vans, machinery, equipment, and other personal property. Leases of more than 30 days are out of scope.
Cost of Goods Sold
net losses are out of scope
Savings Incentive Match Plans for Employees (SIMPLE) IRA
Simplified Employee Pension (SEP) IRA 4491 Pg 11-5
Distributions from SEP or SIMPLE
Royalty income when on 1099-MISC – Royalty on Sched K-1 is IN SCOPE
other income, deductions, credits, etc., reported on Schedule K-1 is out of
scope
topic of casualty losses is out of scope
Form 6251, Alternative Minimum Tax, is out of scope
Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes is out-of-scope
Residential energy-efficient property credit (Form 5695, Part II
These topic are out of scope
• Alternative Motor Vehicle Credit: Form 8910, Alternative Motor Vehicle Credit, is used to claim a credit
for alternative motor vehicles, such as qualified hybrid or advanced lean-burn-technology vehicles, put in
service for business or personal use and which meet other requirements.
• Plug-In Electric Vehicle Credit: The law modifies the credit for qualified, plug-in electric drive vehicles
purchased after December 31, 2009. The law also creates a special tax credit for two types of plug-in
vehicles—certain low-speed electric vehicles and two- or three-wheeled vehicles.
• Conversion kits: The law also provides a tax credit for plug-in electric drive conversion kits.
Taxpayers who hold qualified mortgage credit certificates (MCCs) under a qualified state or local government
program may claim a nonrefundable credit for mortgage interest paid
Topics of alternative motor vehicle credit, plug-in electric vehicle credit, and the credit for plug-in electric
drive conversion kits are out of scope
First time home buyer credit repayment due to condemnation
Types of payments
You will notice that the Payments section of Form 1040 also lists these
credits:
• Form 4136, Credit for Federal Tax Paid on Fuels
• Form 2439, Notice to Shareholder of Undistributed Long-Term Capital
Gains
• Form 8801, Credit for Prior Year Minimum Tax
• Form 8839, Qualified Adoption Expenses
• Form 8885, Health Coverage Tax Credit
Refer to Paid Preparer
Determining the basis of property inherited from a decedent in 2010 is complex and outside the scope of the VITA/TCE Program. If a taxpayer sold property that was inherited in 2010, refer the taxpayer to a professional tax preparer
Refer taxpayers who may qualify for the health coverage tax credit to a professional tax preparer.
Innocent Spouse Relief
Income Topics
• Other Gains/Losses
• Farm Income
• Dependent child under the age of 18 (age 24 if a full-time student), who has investment income of more than $1,900
Distributions from Educational Savings Accounts and Qualified Tuition Programs (under Sections 529 and 530) are reported on Form 1099-Q.
When
• The funds were not used for qualified education expenses, or
• The distribution was more than the amount of the qualified expenses
Note 1099-Q is not available in software because if all funds used for qualified educational expenses none of the funds are taxable.
Amounts in Form 1099-INT, boxes 1 and 3, are reported as taxable interest, and the
amount in box 8 is reported as tax-exempt interest. Be sure that any other entries on the Form 1099-INT are entered in their proper places on Form 1040; for example, box 2 goes in the Adjustments section, box 4 goes in the Payments section, and box 6 goes in the Credits section. If any other boxes contain amounts, refer the taxpayer to a professional tax preparer.
If you are preparing a paper return, be sure the amounts in Form 1099-DIV, boxes 1a and 1b, are recorded on the correct lines on the return. Be sure that any other entries on the Form 1099-DIV are entered in their proper places on the Form 1040; for example, box 2a goes on the Capital Gain line in the Income section unless a Schedule D is required, box 4 goes in the Payments section, and box 6 goes in the Credits
section. If any other boxes contain amounts, refer the taxpayer to a professional tax preparer.
This training covers alimony paid under a divorce or separation instrument executed after 1984. Other rules apply to agreements executed before 1985. If the agreement was executed before 1985, refer the taxpayer to a professional tax preparer.
Car and truck expenses – actual expenses (can only do standard mileage)
Accounting method - (Only cash method is in scope for the VITA/TCE Program, if taxpayers
use another method, refer them to a professional tax preparer
Sale of assets other than stock, mutual funds, and the sale of a personal residence
If tax payer does not know basis of sold asset
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) repealed the estate tax for decedents dying after December 31, 2009 and before January 1, 2011. As a result, the basis of the assets inherited from decedents who died in 2010 is calculated differently. Generally, for the estates of decedents dying after
December 31, 2009 and before January 1, 2011, the basis of assets acquired from the decedent is the lesser of the decedent’s adjusted basis or the fair market value of the property on the date of the decedent’s death. However, there are some exceptions to the general rule. This change is only for the year 2010. The law providing
for estate tax is scheduled to be reinstated on January 1, 2011. Determining the basis of property inherited from a decedent who died in 2010 can be very complex. Refer the taxpayer to a professional tax preparer.
Transactions, such as like-kind exchanges, wash sales, and worthless securities
Form 1099-B is prepared by the broker who handled the sale of the stock. If box 3, 9, 10, 11, or 12 has an entry, refer the taxpayer to a professional tax preparer
Taxpayers who owned and used a home for less than two years (and so do not meet the ownership and use test) may be able to claim a reduced exclusion under certain conditions. These include selling the home due to a change in place of employment (beyond a certain distance), health, or unforeseen circumstances.
If any apply, refer the taxpayer to a professional tax preparer
Gain or loss from sale of home - If the taxpayer used the home for business purposes or as
rental property after May 6, 1997, refer the taxpayer to a professional tax preparer
Alternative valuation issues and determining the adjusted basis of property received as a gift can be very complex and are outside the scope of this training. Advise the taxpayer to seek assistance from a professional tax preparer
Adjusted basis - Decreases to basis include deductible casualty losses and gains a taxpayer postponed from the sale of a previous home before May 7, 1997. Decreases can also include depreciation during the time the home was used for business purposes or as rental property. If any of these decreases apply, the taxpayer needs to be referred to a professional tax preparer.
Distributions from an IRA - Taxpayers who made nondeductible contributions should be referred to a professional tax preparer.
The Roth IRA distributions could be partially taxable and subject to a
10% additional tax if they do not meet these requirements:
- Made on or after age 59½, or
- Made because the taxpayer was disabled, or
- Made to a beneficiary or to an estate, or
- To pay certain qualified first-time homebuyer amounts (up to a $10,000 lifetime limit)
IRA rollover - Form 1099-R will be issued to the taxpayer by the financial institution. If it was a direct rollover by the institution to another institution, box 7 will contain code G. If there is no code G, then the taxpayer must have redeposited the full amount into an appropriate account within 60 days. If this was not done, the distribution may be partially or fully taxable; refer the taxpayer to a professional tax preparer.
When client has been using General Rule to determine taxable portion of a pension or annuity
Other issues related to reporting retirement income that you may encounter. Some of the following distributions are subject to various additional taxes that are computed on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. If certain exceptions are met, the additional tax does not apply. Only the exceptions for early distributions not subject to the additional tax (Part I of Form 5329) are included in scope for the VITA/TCE training. Refer taxpayers who must complete other information on Form 5329 to a professional tax preparer. Form 5329 and exceptions are covered in Lesson 28, Other Taxes.
If Form 1099-R, box 7 indicates a distribution code of A, it
is a lump-sum distribution and qualifies for special tax treatments. Taxpayers with this situation should be referred to a professional tax preparer.
If the taxpayer is subject to an additional tax due to excess IRA contributions or early distributions, refer them to professional tax preparer.
Any other income, deductions, credits, etc., reported on Schedule K-1 is out of scope for VITA/TCE
Refer taxpayers who rent their property at less than fair rental value to a professional tax
preparer.
If client wants to treat a lump sum payment as received in the earlier year or years
self-employed health insurance
Investment interest is outside the scope of the volunteer program and should be referred to a professional tax preparer
Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes is out-of-scope
Taxpayers whose total contributions are more than 20% of their AGI may be able to deduct only a percentage of their contributions and must carry over the remainder to a later tax year. Anyone affected by this limit should see a paid preparer
If you find taxpayers claimed an education credit in a prior year and they were refunded part or all of the expenses they used to claim the American opportunity or lifetime learning credit, they may have to repay all or part of the credit. This is beyond the scope of the VITA/TCE program
Taxpayers who must complete Form 1116 (Foreign tax credit) because they cannot qualify for the election to enter straight on 1040 pg 2.
Taxpayers who must file household employment taxes should be referred to a professional tax preparer.
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