Understanding how Federal Income Tax is calculated, Credits and Deductions, Interview Process, Value to your Clients.

YOUR VALUE PROPOSITION “Going The Extra Mile for Your Client” Positioning your practice in a competitive landscape
YOUR VALUE PROPOSITION     Going The Extra Mile for Your Client    Positioning your practice in a competitive landscape
Your Value Proposition A major factor of what your value is to your client is having the knowledge and understanding of: ü What a federal income tax is ü How a federal income tax is calculated ü Federal Income Tax Brackets ü Understanding of Deductions and Credits and how they impact your clients return ü How to interview your client and get your client the biggest refund their entitled to ü How and Why you charge your fee
Your Value Proposition A major factor of what your value is to your client is having the knowledge and understanding of   ...
Timeline DECEMBER December Is here you will begin the process of marketing and planting seeds for clients for tax preparation. In our “Marketing 101” video’s we spoke about: ü How to approach clients about tax preparation. ü Understanding the Market Segmentation, who will you file first. ü How to utilize Marketers and Referral agents. ü Utilizing Incentives to generate referrals. As the annual filing season approaches. You will start to find clients that are interested in an “Estimate”. Remember estimates turn into returns. Now that you have client’s interested in utilizing your services, you MUST have a good understanding of how an income tax is calculated, before you understand how to get them the most money they qualify for.
Timeline DECEMBER December Is here you will begin the process of marketing and planting seeds for clients for tax preparat...
UNDERSTANDING THE FORMULA FOR CALCULATING INCOME TAX
UNDERSTANDING THE FORMULA FOR CALCULATING INCOME TAX
WHAT IS THE PURPOSE OF INCOME TAXES? The first income tax in the United States was implemented in 1861 to help the federal government cover the costs of the Civil War, according to the Library of Congress. This tax was repealed 10 years later, and after several variations was eventually replaced by the 16th Amendment to the U.S. Constitution, which allowed the government to collect an income tax as a source of federal revenue. The 16th Amendment was ratified in 1913. Since then, federal income taxes have come to be seen as an indispensable part of what Oliver Wendell Holmes described as the price paid "for a civilized society," according to the U.S. Department of the Treasury. The framers of the Constitution enumerated the government's obligation to provide for the common defense and promote the general welfare. Taxes on income are the method by which the government collects the revenue necessary to execute these functions. Another useful function of public taxation, according to the Treasury, is in educating the public about the real cost of the government's services. Knowing how much a certain policy will cost before it's implemented encourages lively debate and the rational cost-benefit arguments that are central to policy decisions undertaken by the citizens of a republic. A policy of general taxation thus encourages a broad public understanding of what the government does and how it operates, information vital to voters.
WHAT IS THE PURPOSE OF INCOME TAXES  The first income tax in the United States was implemented in 1861 to help the federal...
Q: How do you calculate federal income tax? A: QUICK ANSWER In the United States, federal income tax liability is calculated on a progressive basis, explains the Internal Revenue Service. This means that as you earn more income, higher earnings are subject to be taxed at a higher percentage. Earnings from income is therefore grouped into brackets that are determined by the IRS. Only the money that is earned within a particular tax bracket is subject to that particular tax rate, and it does not apply retroactively. FULL ANSWER To accurately determine federal income tax liability, you must first determine your filing status, explains the IRS. Definitions of filing statuses are available on IRS.gov. Once that is determined, add together all income earned for a given year, and then subtract your personal exemption to determine the Adjusted Gross Income, or AGI. You are allowed to claim one personal exemption for yourself and one for your spouse, if married. However, if somebody else can list you as a dependent on his tax return, you are not permitted to claim a personal exemption for yourself. For tax year 2015, the personal exemption amount is $4,000, which is up from $3,950 in 2014, according to the IRS. The personal exemption amount phases out for taxpayers with higher incomes. Next, subtract any deductions from the AGI to determine your modified adjusted gross income, known as the MAGI. There are two main types of tax deductions: the standard deduction and itemized deductions. You can claim one type of deduction on your tax return, but not both. For example, if you claim the standard deduction, you cannot itemize deductions – and vice versa. Use whichever deduction results in the lowest tax liability. Using the MAGI and appropriate IRS tax table, multiply each amount of income by the appropriate percentage, and add together the totals to estimate total tax liability.
Q  How do you calculate federal income tax  A  QUICK ANSWER In the United States, federal income tax liability is calculat...
How to Calculate Federal Income Tax – Rates Table & Tax Brackets The United States income tax laws are based on a progressive tax system. Basically, this setup means that you pay a percentage of your income, owing more taxes when you make more money, and contributing fewer tax dollars when you make less money. Theoretically, a progressive system distributes the tax burden more heavily onto those who make more money and thus have more ability to pay, and away from those who can’t afford as much. Over time, tax deductions, credits, exemptions, and loopholes have modified and complicated our system. But at heart the American income tax system uses a relatively simple series of stepped tax rates to determine how much you owe.
How to Calculate Federal Income Tax     Rates Table   Tax Brackets The United States income tax laws are based on a progre...
How Much You’re Taxed Your total tax owed is based on your adjusted gross income or (AGI). When you fill out Form 1040 (or when your tax preparation software program fills it out for you), you’ll enter the appropriate totals for all of the income you earned from various categories such as wages, alimony, unemployment, or business profits. Then, you’ll take an assortment of deductions, such as for contributing to an IRA or paying student loan interest. Deductions mean that you’re reducing your taxable income, ultimately lowering the amount you pay in taxes. You’ll also deduct money from your income for your personal tax exemption as well as any dependents’ exemptions. Once you add up all of your income and subtract your deductions and exemptions, you end up with your adjusted gross income – and that number is your taxable income. (Some types of income, such as qualified dividends, aren’t taxed at normal rates, but we’ll deal only with normally taxed income here.)
How Much You   re Taxed Your total tax owed is based on your adjusted gross income or  AGI . When you fill out Form 1040  ...
How Much You’ll Owe After you figure out your taxable income, you can determine how much you owe by using the tax tables included in the Form 1040 instructions. 1040 Tax Table Though it looks like a complicated table of calculations, it’s really a very straightforward approach. You just look up your income, choose your filing status (single vs. head of household, or married filing jointly vs. married filing separately), and then find your spot on the chart. Example. Mr. and Mrs. Brown are filing a joint return. Their taxable income on Form 1040, line 43, is $25,300. First, they find the $25,300-25,350 taxable income line. Next, they find the column for married filing jointly and read down the column. The amount shown where the taxable income line and filing status column meet is $2,891. This is the tax amount they should enter on Form 1040, line 44. At Least But Less Than Single Married filing jointly Married filing separately Head of Household YOUR TAX IS-- $25,200 $25,250 $3,330 $2,876 $3,330 $3,136 $25,250 $25,300 $3,338 $2,884 $3,338 $3,144 $25,300 $25,350 $3,345 $2,891 $3,345 $3,151 $25,350 $25,400 $3,353 $2,899 $3,353 $3,159
How Much You   ll Owe After you figure out your taxable income, you can determine how much you owe by using the tax tables...
How Much You’ll Owe For simplicity’s sake, the tax tables list income in $50 chunks, making the math a lot easier once you round things off. The tables only go up to $99,950, so if your income is $100,000 or higher, you’ll use a separate worksheet to quickly calculate your tax. For example, if your taxable income (line 43 on your Form 1040) is $41,049, then using the tax tables you can easily find that your tax would be: $6,113 if you file as single $5,246 if you’re married filing jointly or as a qualifying widow or widower $6,113 if you’re married filing separately $5,506 if you’re filing as head of household
How Much You   ll Owe For simplicity   s sake, the tax tables list income in  50 chunks, making the math a lot easier once...
What Are Tax Brackets? Tax tables show the total amount of tax you owe, but how does the IRS come up with the numbers on those tables? Perhaps the most important thing to know about the progressive tax system is that not all money is taxed at the same rate. The first dollar you earn in a year is taxed at a lower rate than the last dollar you earn. If you make $95,000 in a year and your neighbor makes $60,000, you’ll both start out paying the same rate, but you’ll end with a higher rate. When you pass certain thresholds, the percent of income that you owe in taxes goes up, but the rate on the money you already earned doesn’t change. This protects you, for example, from paying an inflated tax rate if you lose a high-paying job, take a pay cut, give up some shifts, or miss some commissions. You don’t owe more until you make more.
What Are Tax Brackets  Tax tables show the total amount of tax you owe, but how does the IRS come up with the numbers on t...
What Are Tax Brackets? For instance, if you are filing as single, your adjusted gross income up to $9,075 is taxed at 10%. Then, every dollar between $9,076 and $36,900 is taxed at 15%. These groupings are called tax brackets. You don’t pay higher taxes just for having a higher projected salary; you pay higher taxes beginning on the day you start officially taking home the money in the next bracket. Tax Brackets for Income Earned in 2014 Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household 10% Up to $9,075 Up to $18,150 Up to $9,075 Up to $12,950 15% $9,076 – $36,900 $18,151 – $73,800 $9,076 – $36,900 $12,951 – $49,400 25% $36,901 – $89,350 $73,801 – $148,850 $36,901 – $74,425 $49,401 – $127,550 28% $89,351 – $186,350 $148,851 – $226,850 $74,426 – $113,425 $127,551 – $206,600 33% $186,351 – $405,100 $226,851 – $405,100 $113,426 – $202,550 $206,601 – $405,100 35% $405,101 – $406,750 $405,101 – $457,600 $202,551 – $228,980 $405,101 – $432,200 39.6% $406,751 or more $457,601 or more $228,801 or more $432,201 or more
What Are Tax Brackets  For instance, if you are filing as single, your adjusted gross income up to  9,075 is taxed at 10 ....
What Are Tax Brackets? Tax Brackets for Income Earned in 2014 Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household 10% Up to $9,075 Up to $18,150 Up to $9,075 Up to $12,950 15% $9,076 – $36,900 $18,151 – $73,800 $9,076 – $36,900 $12,951 – $49,400 25% $36,901 – $89,350 $73,801 – $148,850 $36,901 – $74,425 $49,401 – $127,550 28% $89,351 – $186,350 $148,851 – $226,850 $74,426 – $113,425 $127,551 – $206,600 33% $186,351 – $405,100 $226,851 – $405,100 $113,426 – $202,550 $206,601 – $405,100 35% $405,101 – $406,750 $405,101 – $457,600 $202,551 – $228,980 $405,101 – $432,200 39.6% $406,751 or more $457,601 or more $228,801 or more $432,201 or more Using these brackets, you can calculate the tax for a single person with an adjusted gross income of $41,049: The first $9,075 is taxed at 10% = $907.50 The next $27,825 is taxed at 15% = $4,173.75 The last $4,149 is taxed at 25% = $1,037.25 Each bracket has a maximum, so the last dollars you earn are the only ones that really require any math from you. In this example, the total tax comes to $6,118.50. But wait, didn’t the tax tables say the total tax would be $6,113? Yes. It’s a little quirk of the IRS that the tax tables usually tell you that your tax owed is a few dollars less than what actually calculating it out will tell you. Who knows why this is, but the good news is that what’s in the tax tables is what the IRS will legally determine that you owe, so you’ll save a few bucks. Consider it a margin of error in your favor.
What Are Tax Brackets  Tax Brackets for Income Earned in 2014 Tax rate  Single filers  Married filing  jointly  or  qualif...
Marginal Tax Brackets The highest tax bracket that applies to you is called your marginal tax bracket. It’s the one bracket that you cross into but don’t make it out of by the end of the year. Since you don’t hit the maximum in this bracket, this is the percentage you’re going to keep your eye on. It’s the rate that you’ll be taxed for extra income at the end of the year. Remember, the progressive tax system taxes your money based on when you earn it. If you get a raise late in the year, you’ll find that a bigger chunk goes to Uncle Sam. If you’re considering taking a second job for some extra cash during the holiday season, you’d end up paying the rate in your marginal tax bracket for this extra income at the end of the year. The tax isn’t going to ruin the extra cash in December, but don’t be surprised when you end up owing a little more in April.
Marginal Tax Brackets The highest tax bracket that applies to you is called your marginal tax bracket. It   s the one brac...
Factors that Impact a Return You, Your Income / Your Deductions or Expenses/ Payments and Adjustments or Credits About You Filing Status • Single • Married Filing Jointly • Married Filing Separately • Head of Household • Qualifying Widow(er) Number of Dependents • 0,1,2,3,4,5 or More Income • Employment (W-2) • Unemployment • Self-Employment Income • Social Security Benefits • Non-Taxable Combat Pay • Interest • Rental, Royalty and Passive Income • Investments or Dividends (1099-DIV) • Capital Gain or Loss • Other Income Expenses or Deductions • • • • • • • • • Home Ownership Charitable Donations Medical Expenses Health Insurance (See new rules) Childcare Expenses Education Expenses Job Expenses & Tax Prep Fees Quarterly Taxes Paid Other Itemized Deductions, Adjustments or Credits • Earned Income Credit • Additional Child Tax Credit • Refundable American Opportunity Credit • Healthcare Premium Credit • Federal Income Taxes Withheld • Child Care Credit • Nonrefundable American Opportunity Credit • Lifetime Learning Credit • Child Tax Credit
Factors that Impact a Return You, Your Income   Your Deductions or Expenses  Payments and Adjustments or Credits  About Yo...
Federal Income Tax Withholding When you start a new job, you’ll complete Form W-4. This is the Employee's Withholding Allowance Certificate, from which your employer determines your rate of tax withholding. It’s based on the personal allowances you declare or calculate, your income and any additional tax you wish to withhold. The amount your employer takes out of your paychecks to pay the federal income taxes. The amount your employer withholds is based on the information you provide on the W-4. The more allowances you claim on Form W-4, the less income tax withheld. This will give you bigger paychecks, but a smaller tax refund (or potentially no tax refund or a tax bill at the end of the year). The amount of federal tax withheld is reported on your W-2, Box 2.
Federal Income Tax Withholding When you start a new job, you   ll complete Form W-4. This is the Employee s Withholding Al...
UNDERSTANDING DEDUCTIONS AND CREDITS “Making sure your client is getting the biggest refund allowed”
UNDERSTANDING DEDUCTIONS AND CREDITS    Making sure your client is getting the biggest refund allowed
What's the DIFFERENCE between a Deduction and a Credit? You'll often hear the terms "tax credit" and "tax deduction" used to refer to the various tax breaks to which you might be entitled. However, these terms refer to two different things with different impacts on your taxes. Which is better: a tax credit or a tax deduction? Which are you more likely to qualify for? Are their limits on how many you can take? Here is a primer on the differences and some of the rules regarding tax credits and tax deductions. Deductions can reduce your taxable income
A tax deduction reduces the overall amount of income the IRS considers to be "taxable," but only if you itemize your deductions. Basically, every taxpayer is entitled to what is called the "standard deduction," which is $6,200 for single taxpayers and $12,400 for married couples filing jointly for the 2014 tax year. You should add up all of the deductions you qualify for, and if the amount is less than the standard deduction, you'll be better off not itemizing. But itemized deductions are higher for many people, and some common deductions can save you thousands of dollars. For example, if you itemize deductions, you are entitled to deduct any interest you pay on your mortgage. There are also deductions known as "above-the-line deductions" that you can take even if you choose not to itemize. Student loan interest is one of these, as are qualified moving expenses and some types of retirement savings. Teachers can deduct up to $250 in classroom expenses, even if they don't itemize.
What s the DIFFERENCE between a Deduction and a Credit  You ll often hear the terms  tax credit  and  tax deduction  used ...
What's the DIFFERENCE between a Deduction and a Credit? Is there a limit to the deductions you can take?
There is a limit to deductions if your income is high enough. For individual taxpayers with adjusted gross income -- basically your total income minus any of those above-the-line deductions -- of more than $254,200, or married taxpayers filing jointly with AGI above $305,050, there is a limit on the amount of itemized deductions you can claim in 2015. Only certain types of itemized deductions are affected by the limit, such as interest paid, gifts to charity, and job expenses, as well as various others. Some deductions -- including medical expenses, investment interest expenses, and casualty and theft loss -- are not subject to any limitations. Credits reduce the amount of tax you owe
A tax credit works a little differently from a deduction in that it reduces the amount of tax you owe, dollar for dollar. For example, if after your deductions the tax tables say you owe $3,000, but you have $500 in tax credits, your tax liability drops to $2,500. Most tax credits are intended to benefit lower-income individuals, and most phase out above a certain income level. For example, the Child and Dependent Care Credit, which is one of the IRS' most popular credits, can give you up to 35% of the first $3,000 of qualifying child care expenses per child. However, the percentage is incrementally phased out for those who make more than $15,000 per year. Most tax credits can reduce the amount of your tax owed, but they can do no more. For example, if you are entitled to a $700 child care credit, but your tax for the year is just $500, you won't receive an additional $200; your tax for the year will simply be reduced to zero. There are, however, what are known as "refundable" credits. For example, the American Opportunity Tax Credit can be worth up to $2,500 toward the cost of qualified higher-education expenses, and up to 40% ($1,000) of the credit is refundable. So if you are entitled to the full $2,500 credit and your tax for the year is just $2,000, you will get the full credit as part of your tax refund. Just like most other credits, this one also begins phasing out above incomes of $80,000 and disappears completely above $90,000
What s the DIFFERENCE between a Deduction and a Credit  Is there a limit to the deductions you can take    There is a limi...
What's the DIFFERENCE between a Deduction and a Credit-Review A Credit directly decreases your taxable liability. A Deduction lowers your taxable income. This lowers the amount of tax you owe, but by decreasing your tax bracket -- not by directly lowering your tax. Ex: If you're in the 25% bracket, a $1,000 deduction lowers your taxes by $250. A $1,000 credit lowers the bill by the full $1,000. A Credit can be nonrefundable or refundable. A nonrefundable credit lets you reduce your tax liability to 0. A refundable credit can also reduce your liability to 0. If there's any amount left over from your refundable credit, you get the balance of the credit back. A Deduction can only lower your taxable income. You can't get money back from a deduction.
What s the DIFFERENCE between a Deduction and a Credit-Review A Credit directly decreases your taxable liability. A Deduct...
DEDUCTIONS “Ensuring your client gets All The Tax Deductions Possible When Filing”
DEDUCTIONS     Ensuring your client gets All The Tax Deductions Possible When Filing
What Are Tax Deductions? OVERVIEW The federal tax law allows you to deduct several different personal expenses from your taxable income each year. This can really pay off during tax season because the reduction to taxable income reduces the amount of income that is subject to federal income tax. However, not all expenses you incur will provide tax savings; the Internal Revenue Code is very specific about the types of expenses you can deduct and the taxpayers who may claim them. Above the line deductions Personal income tax returns require the calculation of Adjusted Gross Income (AGI) before arriving at the final taxable income amount. The deductions you may take to arrive at AGI tend to be less restrictive than below-the-line deductions since their limitations have no relation to your AGI. As an example, the moving expense deduction for work-related relocations allows you to deduct the full cost of your move provided you meet the deduction-specific requirements. You don’t need to reduce the deduction when your AGI reaches certain levels. Similarly, the alimony payments you make to a former spouse are fully deductible irrespective of your AGI. Below the line deductions Deductions you take below the line reduce your Adjusted Gross Income (AGI). Many of these deductions have varying limitations that directly relate to the amount of AGI you report. Most below-the-line deductions relate to the expenses you itemize on the Schedule A attachment to your personal income tax return. Some common itemized deductions include medical and dental expenses and work-related miscellaneous deductions.
What Are Tax Deductions  OVERVIEW The federal tax law allows you to deduct several different personal expenses from your t...
2015 Deductions for Individuals Work-Related Health Care • • • • • • • • • • Deductible Business Expenses Standard Mileage Rates Home Office Business Use of Car Business Travel Expenses Bad Debt Business Entertainment Expense Depreciation and Amortization Investments • • • Sale of Home Individual Retirement Arrangements (IRAs) Capital Losses Education • • • • Student Loan Interest Tuition and Fees Deduction Work-Related Educational Expenses Teacher's Educational Expenses Medical and Dental Expenses Health Savings Account (HSA) Itemized Deductions • • • • • • • • • • • • Standard Deduction Deductible Taxes Property Tax Real Estate Tax Sales Tax Charitable Contributions Gambling Loss Miscellaneous Expenses Interest Expense Home Mortgage Interest Union/Club Expenses Moving Expenses Miscellaneous Deductions • • Alimony Paid Casualty, Disaster and Theft Losses
2015 Deductions for Individuals Work-Related  Health Care                                            Deductible Business E...
Standard Deduction vs. Itemized Deductions “Should I itemize or use the standard deduction?”
Standard Deduction vs. Itemized Deductions    Should I itemize or use the standard deduction
Standard Deduction vs. Itemized Deductions Should I itemize or claim the standard deduction? It depends. Choose the method that results in the largest deduction for you. The value of your itemized deductions might be more than the amount you'll receive as a standard deduction. If so, you should probably itemize. Otherwise, it's usually better to claim the standard deduction. Don't forget to take the state's tax results into consideration when making your choice.
Standard Deduction vs. Itemized Deductions Should I itemize or claim the standard deduction  It depends. Choose the method...
Standard Deduction Standard deduction The standard deduction is a fixed dollar amount that reduces the income you’re taxed on. Your standard deduction varies according to your filing status. In 2015, the standard deduction is: • For single or married filing separately -- $6,300 ($6,200 in 2014) • For married filing jointly or qualifying widow(er) -- $12,600 ($12,400 in 2014) • For head of household -- $9,250 ($9,100 in 2014) Your standard deduction increases if you're blind or age 65 or older. It increases by $1,550 if you're single or head of household and by $1,250 if you’re married or a qualifying widow(er). About two out of every three returns claim the standard deduction. The standard deduction: Allows you a deduction even if you have no expenses that qualify for claiming itemized deductions. It eliminates the need to itemize deductions, like medical expenses and charitable donations. Lets you avoid keeping records and receipts of your expenses in case you're audited by the IRS.
Standard Deduction Standard deduction The standard deduction is a fixed dollar amount that reduces the income you   re tax...
Standard Deduction vs. Itemized Deductions You can either claim the standard deduction or itemize your deductions -- whichever lowers your tax the most. Itemized deductions Itemized deductions also reduce your taxable income. Ex: If you're in the 15% tax bracket, every $1,000 in itemized deductions knocks $150 off of your tax bill. You might benefit from itemizing your deductions on Form 1040, Schedule A if you: • Have itemized deductions that total more than the standard deduction you’d receive • Had large, uninsured medical and dental expenses • Paid mortgage interest and real estate taxes on your home • Had large, unreimbursed expenses as an employee • Had a large, uninsured casualty (fire, flood, wind) or theft losses • Made large contributions to qualified charities • Had large, unreimbursed miscellaneous expenses However, your itemized deductions might total less than your standard deduction. If so, you you would claim the standard deduction rather than the itemized deduction. If your itemized deductions are more than the standard deduction you would claim the itemize deductions rather than claim the standard deduction. You might want to do this if you'd pay less tax. This can happen if you itemize on your state return and get a larger tax benefit than you would if you claimed the standard deduction on your federal return.
Standard Deduction vs. Itemized Deductions You can either claim the standard deduction or itemize your deductions -- which...
Itemized Deductions • • • • • • • • • • • Deductible Taxes Property Tax Real Estate Tax Sales Tax Charitable Contributions Gambling Loss Miscellaneous Expenses Interest Expense Home Mortgage Interest Union/Club Expenses Moving Expenses
Itemized Deductions                                              Deductible Taxes Property Tax Real Estate Tax Sales Tax C...
CREDITS “Become credit savvy and so your clients can be Refund Happy”
CREDITS     Become credit savvy and so your clients can be Refund Happy
What Are Tax Credits? OVERVIEW Credits work better than deductions as refund boosters. For each credit dollar, your taxes go down a dollar. A tax credit is a dollar-for-dollar reduction of the income tax you owe. Tax credits reduce the amount of income tax you owe to the federal and state governments. Credits are generally designed to encourage or reward certain types of behavior that are considered beneficial to the economy, the environment or to further any other purpose the government deems important. In most cases, credits cover expenses you pay during the year and have requirements you must satisfy before you can claim them. index returns 0 for the first paragraph all will be ignored How tax credits work A tax credit is a dollar-for-dollar reduction of the income tax you owe. For example, if you owe $1,000 in federal taxes but are eligible for a $1,000 tax credit, your net liability drops to zero. Some credits, such as the earned income credit, are refundable, which means that you still receive the full amount of the credit even if the credit exceeds your entire tax bill. Therefore, if you owe $400 in tax and claim a $1,000 earned income credit, you will receive a $600 refund.
What Are Tax Credits  OVERVIEW Credits work better than deductions as refund boosters. For each credit dollar, your taxes ...
What Are Tax Credits? Even with zero tax liability, you may still qualify With refundable credits, if you qualify, you can still use the credit even if you have no tax liability. Some taxpayers may find that nonrefundable credits, deductions or other circumstances leave them with zero taxes due. Even with no taxes owed, taxpayers can still apply any refundable credits they qualify for and receive the amount of the credit or credits as a refund. This means that if you end up with no taxes due and you qualify for a $2,000 refundable tax credit, you will receive the entire $2,000 as a refund. For this reason, when doing your taxes, you calculate refundable tax credits after figuring in all nonrefundable credits, deductions and tax payments. Each credit has different qualifications "Tax credits are created in the tax code, by Congress, to benefit certain groups of citizens," Williams says. To make sure that the correct group of citizens benefits from the credit, all tax credits come with a set of qualifications that the taxpayer needs to meet in order to receive the credit. Some common requirements include an income level within a certain range, family size, or a requirement that the taxpayer had some earned income. While some credits are specifically for lower-income taxpayers, others have much higher income thresholds. Many of the credits even have a step scale in which taxpayers with lower incomes are eligible for a larger credit than taxpayers at the higher end of the income scale
What Are Tax Credits  Even with zero tax liability, you may still qualify With refundable credits, if you qualify, you can...
Credits for Individuals Family & Dependents • • • • • Earned Income Tax Credit Child and Dependent Care Credit Adoption Credit Child Tax Credit Credit for the Elderly or Disabled Health Care • • Premium Tax Credit (Affordable Care Act) Health Coverage Tax Credit Income and Savings • • • • • • • Earned Income Tax Credit Saver's Credit Foreign Tax Credit Excess Social Security and RRTA Tax Withheld Credit for Tax on Undistributed Capital Gain Nonrefundable Credit for Prior Year Minimum Tax Credit to Holders of Tax Credit Bonds Education • • Lifetime Learning Credit American Opportunity Tax Credit Homeowners • • • • Mortgage Interest Credit Residential Energy Efficient Property Credit Nonbusiness Energy Property Credit Low-Income Housing Credit (for Owners) Electric Vehicle Credit • • • • Plug-in Electric Drive Motor Vehicle Credit Plug-in Conversion Credit (Section 30B(i)) Alternative Fuel Vehicle Refueling Property Credit (Section 30C) New Qualified Fuel Cell Motor Credit (Section 30B(b))
Credits for Individuals Family   Dependents                      Earned Income Tax Credit Child and Dependent Care Credit ...
Refundable vs. Non-Refundable Tax Credits There Are Two Main Types of Credits That Can Reduce Your Tax Bill Tax credits, available through the IRS, can bring you a substantial savings on your Federal income tax bill. A tax credit reduces your tax liability dollar-for-dollar. This means that a $500 tax credit actually takes $500 off your tax balance due. A tax deduction, on the other hand, reduces your taxable income and is equal to the percentage of your marginal tax bracket — for example, if you’re in the 25% tax bracket, a $500 tax deduction will save you $125 in taxes (because 0.25 × $500 = $125). Now you can see why a tax credit is more valuable than a dollar-equivalent tax deduction. However, not all tax credits are created equal. Most tax credits are nonrefundable, which means that any excess amount expires the year in which it is used and is not refunded to you. However, some tax credits are refundable and can actually increase your tax refund. Whether or not a tax credit is refundable, it is worth the effort to make sure you are claiming every credit that you’re eligible for.
Refundable vs. Non-Refundable Tax Credits There Are Two Main Types of Credits That Can Reduce Your Tax Bill Tax credits, a...
Refundable Tax Credits Refundable Credits Refundable credits are the most versatile type of tax credit. These credits are treated just like tax payments that you make to the IRS, such as income taxes withheld from your paycheck or estimated tax payments that you make throughout the year. In other words, a refundable credit is subtracted from the amount of taxes you owe (after deductions), similar to the way the tax withheld from your paycheck is subtracted from your total yearly tax liability. Refundable tax credits are called “refundable” because they can reduce your tax liability below zero and allow you to receive a tax refund. If you qualify for a refundable credit and the amount of the credit is larger than the tax you owe, you will receive a refund for the difference. "A refundable credit is considered a payment of tax, similar to payroll withholding." This means that the amount of a refundable credit is subtracted from the amount of taxes owed, just like the amount of tax you had withheld from your paycheck. For example, if you owe $800 in taxes and qualify for a $1,000 refundable credit, you would receive a $200 refund. With some of the larger refundable credits, like the Earned Income Tax Credit, the amount of your refund can be substantial. This makes refundable credits some of the most valuable parts of your tax return. A refundable tax credit is particularly advantageous because it can reduce your tax liability to below zero. If the amount of a refundable tax credit is more than the amount of taxes due, the difference will be given back to you as a tax refund. If you are already owed a tax refund, the refundable credit will be added to increase the amount of your refund. Here are some examples of refundable tax credits: • Additional Child Tax Credit • Earned Income Tax Credit (EITC) • Health Coverage Tax Credit • Small Business Health Care Tax Credit
Refundable Tax Credits  Refundable Credits  Refundable credits are the most versatile type of tax credit. These credits ar...
Non-Refundable Credits Non-Refundable Tax Credits Nonrefundable credits are another great way to decrease your tax bill. A nonrefundable credit is subtracted from your income tax liability, up to the total amount you owe. But unlike a refundable tax credit, a nonrefundable credit cannot reduce your tax balance beyond zero. Any unused portion of a nonrefundable tax credit will expire in the year the credit is claimed and cannot be carried over. Some examples of nonrefundable tax credits include: • Adoption Tax Credit • Child Tax Credit • Foreign Tax Credit • Mortgage Interest Tax Credit
Non-Refundable Credits Non-Refundable Tax Credits Nonrefundable credits are another great way to decrease your tax bill. A...
Partially Refundable Tax Credits Partially Refundable Tax Credits Certain tax credits are considered partially refundable because they fit into both categories. In these cases, only a portion of the tax credit can be refunded to you. This type of credit is a bit more complicated — it can be subtracted from the amount of taxes owed and (to an extent) applied to increase the tax refund. The American Opportunity Tax Credit (AOTC) is an example of a partially refundable credit. The maximum credit amount is $2,500 per eligible student, per year. If the credit reduces your tax liability to zero, you can receive up to 40% of the remaining credit amount (up to $1,000) as a tax refund.
Partially Refundable Tax Credits Partially Refundable Tax Credits Certain tax credits are considered partially refundable ...
Let’s Review 2015 Tax Provisions
Let   s Review  2015 Tax Provisions
2015 Tax Provisions for Individuals: A Review From tax credits and educational expenses to the AMT, many of the tax changes affecting individuals for 2015 were related to the signing of the American Taxpayer Relief Act (ATRA) in 2012–tax provisions that were modified, made permanent, or extended. With that in mind, here’s what individuals and families need to know about tax provisions for 2015. Personal Exemptions:
 The personal and dependent exemption for tax year 2015 is $4,000. Estate and Gift Taxes: In 2015 there is an exemption of $5.43 million per individual for estate, gift and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $14,000. Standard Deductions: The standard deduction for married couples filing a joint return in 2015 is $12,600. For singles and married individuals filing separately, it is $6,300, and for heads of household the deduction is $9,250. The additional standard deduction for blind people and senior citizens in 2015 is $1,250 for married individuals and $1,550 for singles and heads of household. Alternative Minimum Tax (AMT): AMT exemption amounts were made permanent and indexed for inflation retroactive to 2012. In addition, nonrefundable personal credits can now be used against the AMT. For 2015, exemption amounts are $53,600 for single and head of household filers, $83,400 for married people filing jointly and for qualifying widows or widowers, and $41,700 for married people filing separately. Income Tax Rates: In 2015 the top tax rate of 39.6 percent affects individuals whose income exceeds $413,201 ($464,851 for married taxpayers filing a joint return). Marginal tax rates for 2015– 10, 15, 25, 28, 33 and 35 percent– remain the same as in prior years. Due to inflation, tax-bracket thresholds increased for every filing status. For example, the taxableincome threshold separating the 15 percent bracket from the 25 percent bracket is $74,900 for a married couple filing a joint return. Marriage Penalty Relief: The basic standard deduction for a married couple filing jointly in 2015 is $12,600.
2015 Tax Provisions for Individuals  A Review From tax credits and educational expenses to the AMT, many of the tax change...
2015 Tax Provisions for Individuals: A Review From tax credits and educational expenses to the AMT, many of the tax changes affecting individuals for 2015 were related to the signing of the American Taxpayer Relief Act (ATRA) in 2012–tax provisions that were modified, made permanent, or extended. With that in mind, here’s what individuals and families need to know about tax provisions for 2015. Pease and PEP (Personal Exemption Phaseout): Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) limitations were made permanent by ATRA (indexed for inflation) and affect taxpayers with income at or above $258,250 (single filers) and $309,900 for married filing jointly in tax year 2015. Flexible Spending Accounts (FSA): Flexible Spending Accounts are limited to $2,550 per year in 2015 and apply only to salary reduction contributions under a health FSA. The term “taxable year” as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made. Specifically, in the case of a plan providing a grace period (which may be up to two months and 15 days), unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,500 limit for the subsequent plan year. Further, employers may allow people to carry over into the next calendar year up to $500 in their accounts, but aren’t required to do so. Long Term Capital Gains: In 2015 taxpayers in the lower tax brackets (10 and 15 percent) pay zero percent on long-term capital gains. For taxpayers in the middle four tax brackets the rate is 15 percent and for taxpayers whose income is at or above $413,201 ($464,851 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.
2015 Tax Provisions for Individuals  A Review From tax credits and educational expenses to the AMT, many of the tax change...
2015 Individual Tax Credits Adoption Credit: In 2015 a nonrefundable (i.e. only those with a lax liability will benefit) credit of up to $13,400 is available for qualified adoption expenses for each eligible child. Child Tax Credit: For tax year 2015, the child tax credit is $1,000. A portion of the credit may be refundable, which means that you can claim the amount you are owed, even if you have no tax liability for the year. The credit is phased out for those with higher incomes.. Child and Dependent Care Credit: The child and dependent care tax credit was permanently extended for taxable years starting in 2013. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income. Earned Income Tax Credit (EITC): For tax year 2015, the maximum earned income tax credit (EITC) for low and moderate income workers and working families increased to $6,242 (up from $6,143 in 2014). The maximum income limit for the EITC increased to $53,267 (up from $52, 427 in 2014) for married filing jointly. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
2015 Individual Tax Credits Adoption Credit  In 2015 a nonrefundable  i.e. only those with a lax liability will benefit  c...
2015 Individuals – Education Expenses Coverdell Education Savings Account: You can contribute up to $2,000 a year to Coverdell savings accounts in 2015. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education. American Opportunity Tax Credit: For 2015, the maximum American Opportunity Tax Credit that can be used to offset certain higher education expenses is $2,500 per student, although it is phased out beginning at $160,000 adjusted gross income for joint filers and $80,000 for other filers. Lifetime Learning Credit: A credit of up to $2,000 is available for an unlimited number of years for certain costs of post-secondary or graduate courses or courses to acquire or improve your job skills. For 2015, the modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $108,000 for joint filers and $54,000 for singles and heads of household. Student Loan Interest: In 2015 you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $65,000 (single) or $130,000 (married filing jointly). The deduction is phased out at higher income levels. In addition, the deduction is claimed as an adjustment to income so you do not need to itemize your deductions. 2015 Individuals – Retirement Contribution Limits: For 2015, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $18,000. For persons age 50 or older in 2015, the limit is $24,000 ($6,000 catch-up contribution). Contribution limits for SIMPLE plans remain at $12,500 for persons under age 50 and $15,500 for persons age 50 or older in 2015. The maximum compensation used to determine contributions increased to $265,000. Saver’s Credit: In 2015, the AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and-moderate-income workers is $61,000 for married couples filing jointly, $45,750 for heads of household, and $30,500 for married individuals filing separately and for singles. Give us a call if you need help understanding which deductions and tax credits you are entitled to.
2015 Individuals     Education Expenses Coverdell Education Savings Account  You can contribute up to  2,000 a year to Cov...
What Have We Learned So Far? Let’s Recap…
What Have We Learned So Far  Let   s Recap
Step 1 TAX PROFESSIONAL TRAINING We Offered: UFSTSG Tax Institute Certified Tax Courses You’ve learned how to prepare tax returns and research tax issues for most Form 1040 individual, non-business taxpayers and small business taxpayers (self-employed/Schedule C). With the completion of the Comprehensive Tax Courses, you will be qualified for employment or self-employment as a tax professional and ready to start earning money.
Step  1  TAX PROFESSIONAL TRAINING  We Offered  UFSTSG Tax Institute Certified Tax Courses You   ve learned how to prepare...
MARKETING Step2 We learned: “How To Market” and the importance of Marketing. Owners: Market for Managers, Preparers, Marketers and Client’s Managers: Market for Preparers, Marketers and Client’s Preparers: Market for Marketers and Clients Clients: Because of the quality of Service, your Clients will do the marketing for you and your office!
MARKETING Step2 We learned     How To Market    and the importance of Marketing. Owners  Market for Managers, Preparers, M...
SOFTWARE Step 3 We learned: UFS 1040 Pro Software Most Commonly Used Forms: Questionnaire, Income Statements, Credit forms. Software Navigation: • • • • • • Overview of UFS 1040 Pro Dashboard and Web Software. Basic navigation of the software. The “Power of an Estimate” Real life Software Scenarios Understanding how the software calculates Utilizing the Bank Products • Imputing fee’s • Transmitting the return
SOFTWARE Step 3 We learned  UFS 1040 Pro Software Most Commonly Used Forms  Questionnaire, Income Statements, Credit forms...
Discovery Step 4 Now that you have done a fantastic job at marketing and you have clients wanting estimates. Estimates help you WIN the clients business. Your competition will be STATUS QUE. Most every taxpayer already has a tax preparer. Have a Understanding of: -What is your potential clients reason for considering switching tax preparers? -What are your clients needs? More money, better experience? More accurate return? More knowledgeable tax professional? Just shopping around? What if any is there pain?
Discovery Step 4 Now that you have done a fantastic job at marketing and you have clients wanting estimates. Estimates hel...
Step 5 Do The Math: Understanding How a Tax Refund is Calculated Before you begin asking any further questions, we need to first understand how the federal income tax is calculated. For most people, tax is collected by an employer at a rate that estimates your tax for the year. Your actual earnings and the deductions that you’re allowed to claim might cause you to pay too much tax, which leads the Internal Revenue Service to issue you a refund. "The idea behind a tax refund is quite simple,” When you pay more tax than you owe, the Internal Revenue Service returns the overpayment as your refund.
Step  5  Do The Math  Understanding How a Tax Refund is Calculated  Before you begin asking any further questions, we need...
5th Interview Process “Ways To Increase Your Clients Tax Refund You Need to Think About” Our Interview Process begins with Understanding what questions to ask a client for each Deduction and each Credit to qualify the client. Through due-diligence and research, reviewing your clients tax status, consulting with your client can help them take advantage of several tax deductions and credits that they may qualify for. Asking the right questions will ensure your client doesn't miss any of the deductions or credits they deserve, so they get your biggest refund, GUARANTEED.
5th  Interview Process     Ways To Increase Your Clients Tax Refund You Need to Think About    Our Interview Process begin...
Bringing it All Together Now That You Understand: ü How to Market to find Clients and you will have those clients in front of you looking for estimates and to get their taxes filed. ü You have a clear understanding of what your client needs are, when they come to you for an estimate. ü You Understand and know how to recognize the type of documents/forms that your clients will be bringing you. ü You also now understand how to operate the software and how to take your clients information and put it in the software. Congratulations! The tax return is initially complete. The software has calculated your clients tax return or refund due. What’s next is to determine if your client “Qualifies” for any more money. We do this by asking “Discovery Questions” during our interview process.
Bringing it All Together  Now That You Understand      How to Market to find Clients and you will have those clients in fr...
THE INTERVIEW PROCESS “Going The Extra Mile for Your Client” MEETING YOUR CLIENTS EXPECTATIONS
THE   INTERVIEW  PROCESS    Going The Extra Mile for Your Client    MEETING YOUR CLIENTS EXPECTATIONS
3 Important Questions You MUST Ask EVERY Client… Remember you are in the service Industry, you work for your Client, meeting there expectations starts with uncovering what they are. Here’s how: Our Interview Process starts with 3 Simple Questions: We Ask the Client: 1. How much did you get back on your tax return last year? (This question allows us to ascertain the clients knowledge of their own tax return.) 2. Are you filing the same way? Did Anything change in your filing status or income from last season? (Here I am getting the client to articulate to me what exactly has changed that may impact what they received back last season. Also it set’s up my next question) 3. What are you hoping to get back this year? (Tax Preparation is a Service oriented business. We work for our client, not for the IRS. Your job is to try and meet my clients expectations) (With this question we get an idea of what our client expects from their return after any fee’s that my be charged. This answer let’s me know what amount my client will be satisfied with based on their expectations.)
3 Important Questions You MUST Ask EVERY Client    Remember you are in the service Industry, you work for your Client, mee...
Example Conversation Question 1: (Tax professional) “Terry how much did you get back on your tax return last year?” Answer: (Client Terry)“I believe I got back $6,500” Question 2: (Tax professional) “Are you filing the same way? Has anything changed with your filing status or income?” Answer: (Client Terry) No, I made a little more money this year. Question 3: (Tax professional) “Ok, based on that how much where you hoping to get back this year?” Answer: (Client Terry)“I was hoping to get back the same, maybe a little more if possible.” Tax Professional Response: “Ok Terry I will definitely take a look for you. I know you work hard for your money. That’s why I’m going to help you get back every dollar you deserve. As mentioned its just an estimate, it’s absolutely free. I can tell you that each year the IRS has new tax incentives that many people don’t realize they qualify for as well as one’s that expire that maybe you once qualified for. However; because I am aware of the recent tax law updates, I will review your information and I may have a few questions for you to see if you qualify for a few. How does that sound?” “Preparer Interview’s client to uncover any/all Deductions/Credits that client is entitled to, utilizing estimate questionnaire”
Example Conversation Question 1   Tax professional     Terry how much did you get back on your tax return last year     An...
Meeting your Clients Expectations By understanding How an Income Tax is calculated and each credit and deduction that is available. You can now meet your clients expectations and help them get every dollar they are entitled too.. Example “What did you get back last year?” $3,000 “Did anything change? Are you filing the same way as last year?” “What do you hope to get back this year?” $3,000 or maybe a little more Difference between what your able to find you client in addition money they qualify for and what they expect is your fee. See Example: Client Terry expects: $3,000 Preparer after due diligence has client at: $3,600 “before bank and prep fee’s” Preparer: “Terry after reviewing your return and evaluating your situation, I have been able to find some credits/deductions/exemptions,etc. that you qualify for. After everything fee’s included I have you getting back $3,100 in your bank, how does that sound?” $3,600 - $3,100 = $500 prep fee Terry: “That’s sound fantastic! Thank You!” Preparer: Great! You can also earn some more money Terry, by referring me your friends and family. Let’s finish up your return and I’ll discuss more in detail how you can earn as much as $100 per referral.
Meeting your Clients Expectations By understanding How an Income Tax is calculated and each credit and deduction  that is ...
Your Value Proposition THE PRICE OF EXPERT ADVICE What Are You Charging For? YOUR GOAL AS A TAX PROFESSIONAL: You work for your client, NOT the IRS! Your goal as a tax professional is to understand the complexities of the tax code and to ensure you get every credit and deduction your client deserves. Ensuring they get the largest refund their entitled to. Ø Your knowledge and understanding of Federal Income Taxes and how they are calculated Ø Your knowledge of the complex Income Tax Code Ø Your Certified Tax Professional Tax Law Training Ø Your Understanding and Knowledge of current Credits and Deductions Ø Your ability to apply every credit and/or deduction that your client is entitled to utilizing software that is accurate and up-to-date. Ø Professionalism Ø Integrity Ø Trust.. ”
Your Value Proposition THE PRICE OF EXPERT ADVICE What Are You Charging  For  YOUR GOAL AS A TAX PROFESSIONAL  You work fo...
THE CHALLENGE Presenting your practice to your clients is largely a matter of communicating and delivering on a relevant value proposition WHAT YOU CHARGE IS WHAT YOU ARE WORTH TO YOUR CLIENT!! “Your Knowledge and Understanding is your Value”
THE CHALLENGE Presenting your practice to your clients is largely a matter of communicating and delivering on a relevant v...
THE OPPORTUNITY Demonstrating that you provide value is particularly critical in today’s increasingly competitive market. An advisory relationship is based on the quality of the professional services you provide to your clients. As a Tax Professional your knowledge and understanding of the aforementioned topics not only justifies your fee, but it can also give your clients compelling reasons to do business with you, rather than your competition because of your knowledge and understanding. Your value proposition should resonate with clients, and clearly show the links between your services and your fee structure.
THE OPPORTUNITY Demonstrating that you provide value is particularly critical in today   s increasingly competitive market...
CONGRATULATIONS! YOU ARE READY TO EARN GREAT MONEY AS A TAX PROFESSIONAL! TIP: Utilize scenarios and interview sheet provided with this training. Practice apply every Credit and Deduction to each scenario so that you become familiar with how they calculate…Many of the client’s you provide estimates for will ask you questions. Having a knowlegde of how an income tax is calculated, coupled with an understanding of the impact of deductions and credits and who qualifies for them, followed by practing scenairos that allowing you to have a visual of a clients particular situation will help prove value to your clients. HAVE A GREAT TAX SEASON!
CONGRATULATIONS  YOU ARE READY TO EARN GREAT MONEY AS A TAX PROFESSIONAL   TIP  Utilize scenarios and interview sheet prov...