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HEAVEN’S HARVEST

MINISTRIES – FINANCE NIGHT

Do It Yourself 1040 Tax Preparation & Filing

Presented by: Jennoa R. Graham, Ph.D.

Friday, March 7, 2014

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KEY TERMINOLOGY Income – Money that is received in

exchange for a product, service or contract agreement

Tax Withholding – Installment payments that are deducted from the total income earned (gross) prior to issuing employee paycheck

Estimated Tax – Installment payments made by independent contractor from the total income received for services

Small Business is not included in this presentation

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KEY TERMINOLOGY (CONT.) Exemptions - A point system based on

IRS Form 1040 filing status, number of dependents, and adjusted gross income that reduces the amount of income used to calculate taxes owed to the IRS

Income Tax Credit – A dollar value benefit based on the type of investment activity engaged during the year that reduces the amount of taxes owed to the IRS

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KEY TERMINOLOGY (CONT.) Standard Deduction – a dollar value

benefit granted to you by the IRS based on filing status that reduces the amount of income used to calculate taxes owed to the IRS

Itemized Deduction – a dollar value benefit granted to you by the IRS based on specific personal expenses that reduces the amount of income used to calculate taxes owed to the IRSStandard Deduction is required unless the

amount of Itemized Deductions is greater than the Standard

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OVERVIEW Review the IRS Form 1040 and types

Review resources for IRS Form 1040 preparation

Discuss components of IRS Form 1040 and supporting schedules

Review resources for IRS Form 1040 online filing

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IRS FORM 1040 1040 – Individual Tax Return (Long Form)

1040EZ – Single and Joint Filers with No Dependents (Short Form)

1040A – Earned Income Credit Filers with No Business or Passive Investment Activity

1040SS – Self Employment Tax Return (not Form 1120 for Corporations)

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IRS FORM 1040 (CONT.) 1040NR – Non Resident Alien Tax Return

1040ES – Estimated Tax Payments for future Tax Return

1040V – Payment Voucher for current Tax Return liability or one previously filed (not 1040ES)

1040X – Amended (Corrected) Tax Return previously filed

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TAX RESOURCES www.irs.gov – All tax, all the time, most

reliable source – now multilingual Tax Forms

Tax Form Instructions and Calculations

Payments online Estimated for future Tax Return Current Tax Return Liability

Track Refund

Credits and Deductions

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TAX RESOURCES (CONT.) Prior Year Tax Return

Point of reference for consistency Have up to 3 years prior on hand

Preparer’s number of prior year(s) tax return General questions Clarification

Dr. Graham’s number for current tax return Specific questions Explanation

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TAX RESOURCES (CONT.) Locate & Review Prior Year Tax Return(s)

Print Current Year Tax FormSame form as prior yearNot sure, call Dr. Graham

Obtain Current Year Tax Form InstructionsLarge 200+ page documentPacket form local libraryView online via the IRS website (Slide 8)

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TAX COMPONENTS

Personal InformationPrivate and unique information that

identifies the taxpayer and legal spouseOptional donation to Presidential Election

Campaign indicator

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TAX COMPONENTS (CONT.)

Filing Status Determines the number of exemptions used to

calculate the dollar amount benefit (Slide #4)

Head of Household – Unmarried individuals providing home for a qualifying person

Qualifying Person – Child or relative meets income and residential requirements (see instructions in its entirety for this section)

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TAX COMPONENTS (CONT.)

IncomeMonies earned from both active (wages)

and passive (investments) sourcesUnearned income such as unemployment

compensation and social security benefits

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TAX COMPONENTS (CONT.)

Adjusted Gross Income Total of passive and active income less a select

amount of expenses used for self improvement

List of “self improvement” expenses that reduce the amount of income used to calculate income taxes

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TAX COMPONENTS (CONT.)

Tax and CreditsDollar value benefits that reduce the amount of

income used to calculate income taxes Investment/Expenses in specific activities Filing status, dependents, and adjusted gross income

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TAX COMPONENTS (CONT.)

Other Taxes Additional tax requirement for specific active

and passive income activities

Form 8959 Employment Tax Underpayment Adjustment – N/A

Form 8960 Net Investment Income Tax for Individuals, Estates, and Trusts

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TAX COMPONENTS (CONT.)

Payments Monies withheld from paychecks (W-2) and 1099s

Estimated tax payments (1040ES)

Earned Income Credit – money pay out benefit to low income tax payers with qualifying children

Additional tax paid for specific activities

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TAX COMPONENTS (CONT.)

Bottom Line Payments greater than (>) Taxes Owed = Refund

Refund check or direct deposit Optional payment for next year’s estimated tax

Payments less than (<) Taxes Owed = Liability Check for estimated tax underpayment penalty Pay online, check, money order Can’t pay… CALL THE IRS IMMEDIATELY!!!

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TAX COMPONENTS (CONT.)

Third Party Someone other than taxpayer and/or legal spouse

Any person you choose

PIN = Password

Refunds cannot be collected taxpayer behalf

Authorization ends on April 15th (unless Form 4868 Automatic Extension of Time to File is submitted)

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TAX COMPONENTS (CONT.)

Signatures Taxpayer AND legal spouse

Paid individual preparer or representative from tax preparation company PTIN is mandatory Firm’s EIN is mandatory (if applicable) If no firm, the “Check If Self-Employed” must be

checked

If they do not sign… you DO NOT PAY – Go Elsewhere!!

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SUPPLEMENTAL SCHEDULES Schedule B – Interest and Ordinary

Dividends Interest from bank savings or specialized

checking account Incentive from bank to customer Monthly deposits into qualifying bank account 1099-INT Interest Income

Ordinary Dividends are payments to shareholders A portion of company profits based on

percentage of shareholder ownership 1099-DIV

Income from Foreign CountriesContact a professional CPA

immediately!!!

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SUPPLEMENTAL SCHEDULES (CONT.) Schedule C – Profit(Loss) from Business

Sole Proprietor Self Employment/Contractor

Schedule D – Capital Gains (Losses) Stock Sales

Short Term = Owned > 1 year Long Term = Owned < 1 year

Form 8949 Sale of Capital Assets Details every transaction Income may be on a broker statement and not

1099-B Proceeds from Broker/Barter Exchange Transactions

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SUPPLEMENTAL SCHEDULES (CONT.) Form 8889 – Health Savings Accounts (HSA)

High Deductible Health Plan “Self improvement” expenses that reduce the

amount of income used to calculate income taxes

Form 3903 – Moving Expenses Relocation 50 miles minimum Expenses must exceed the amount employer

paid or reimbursed for the move Other Qualifications (see form instructions)

Employment requirements Military Retirees/International

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SUPPLEMENTAL SCHEDULES (CONT.) Form 8917 – Tuition and Fees Deduction

Cannot be taken WITH the education credit (Form 8863) in the same year for the same person

Max benefit is $4,000; Average benefit is $2,000

Form 8863 – Education CreditsCannot be taken with Tuition and Fees

Deduction (Form 8917) in the same year for the same person

Credit can be refundable if applicable

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SUPPLEMENTAL SCHEDULES (CONT.) Schedule A – Itemized Deductions

Personal expenses above and beyond Standard Deduction (Slide 4)

Medical/Dental ExpensesReal Estate and Personal Property Taxes Interest PaymentsCharity DonationsTheft/LossUnreimbursed Job ExpensesOther Miscellaneous Expenses

Standard Deduction is required unless the amount of Itemized Deductions is greater than

the Standard

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SUPPLEMENTAL SCHEDULES (CONT.) Schedule 8812 – Child Tax Credit

Max is 4 qualifying dependents Dependents must have a valid social

security or individual taxpayer identification number

Form 5695 – Residential Energy CreditBenefit for purchasing energy efficient

equipmentSolar electric and waterWind energyGeothermal heat

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ONLINE FILING Electronic tax return filing is mandatory

as of January 2012

Paper tax return filings are audited 100%

Two ways to file electronic tax returns Purchase tax preparation software

Download directly to PC CD installed manually to PC

Utilize tax company website Cloud environment Requires user ID and password

Estimate $200 to $600 in tax

preparation costs – It will cost more to deduct your fees from your refund

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CHOOSING A TAX PREPARER Practicing or in business at least 5 years

Has an active PTIN or CPA certified

InteractiveGreat Customer ServiceAsks QuestionsKnowledgeable and ResourcefulRespect Privacy and Confidentiality

NO PRESSURE… they work for YOU!!!

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SUMMARY With a little planning and some research

you can file your taxes on your own

Taxes must be file electronically; paper returns are audited 100%

Tax filings should be consistent every year unless there are major life/income changes

Choosing a Tax Preparer is delicate but well worth it if the relationship is right

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REFERENCES IRS (2013). Tax forms and definitions.

Internal Revenue Code, Retrieved December 8, 2013, from http://www.irs.gov