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VITA FINAL TEST WITH ALL ANSWERS
QR: Quality Reviewer - correct answer-Mandated by the IRS, every return that is prepared at a VITA site, MUST be double-checked by a designated reviewer paper return - correct answer-a tax return that must be physically mailed to the respective IRS office e-file/e-file return - correct answer-a tax return that is electronically transmitted to the IRS through the software greeter - correct answer-A person who ensures that each client is "in-scope," and assigns clients to volunteers (located at the intake station) ITIN - correct answer-At times, individuals will not have a social security number; however, that does not exempt them from paying taxes. Therefore, they need to apply for an ITIN (Individual tax identification number) how taxes work in the US - correct answer--fill out W-4 to tell employer how much to withhold from each paycheck -"pay as you go" tax system -Jan-April -receive a refund for an overpayment or pay for an underpayment Tax Calculation - correct answer--all income is taxable unless excluded by federal law -deductions and credits help lower amount of taxable income and taxes due -some deductions and credits are geared towards students and higher education Types of Taxes - correct answer-FICA, income, self-employment, state income, state disability Who requires a tax return - correct answer--They owe taxes (like FICA) -Have self-employment income greater than $400 (or will owe FICA taxes) -Their gross income exceeds the filing requirement threshold who should file a tax return - correct answer--They have withholdings/estimated payments that can be refunded -Qualify for refundable credits -File a state return Filing Status - correct answer--All filing statuses are based on the last day of the tax year
-Important because it changes how tax calculations are made, deduction amounts, and how each person on the return is liable for the tax payments Married Filing Jointly (MFJ) - correct answer--most beneficial status -Married and lived together, OR -Married and lived apart, but not legally separated/divorced, OR -spouse died but did not remarry in the same year Qualifying Widow(er) - correct answer--second most beneficial -Does not remarry after the death of a spouse, AND -Has a dependent child who qualifies, AND -spouse died in the prior 2 years Head of Household (HOH) - correct answer--Are unmarried or "considered unmarried" on the last day of the tax year, AND -Paid more than half the cost of keeping up a home for the required period of time, AND -Had a qualifying person living in their home for more than half the year (except for temporary absences, such as school) qualifying person - correct answer--single (whether or not the child can be claimed as a dependent), OR -A married child who can be claimed as a dependent, OR -A dependent parent, OR -A qualifying relative who lived with the taxpayer more than half the year, and is one of the relatives listed on the chart, and can be claimed as a dependent by the taxpayer single - correct answer-unmarried married filing separately - correct answer--Legally married, but chooses to file separately or cannot agree to file jointly -California is a communal property state -VITA does not do this dependency general rules - correct answer--dependent taxpayer test -joint return test -citizen or resident test Dependent Taxpayer Test - correct answer--A taxpayer who can be claimed as someone else's dependent cannot claim a dependent -A dependent cannot be claimed by more than one person Joint Return Test - correct answer-You generally cannot claim a married person as a dependent if he or she files a joint return
Wages and Salaries - correct answer--W-2 form -most common -Reports total income, withholdings, and other taxes from employer Tip Income - correct answer--W-2 box 8 -all tip is taxable and generally reported on W- Scholarship Income - correct answer--1098-T to report qualified tuition and related expenses deemed necessary for an institution -excess scholarship is taxable income -Any scholarship, grants, or fellowships used for qualified expenses are non-taxable income -If they are used for non-qualified expenses, it will be taxable -Scholarship income will be taxed as ordinary income if scholarship > qualified expenses - correct answer--scholarship income -taxable if scholarship < qualified expenses - correct answer--educational credit -nontaxable qualified expenses - correct answer--Tuition and fees required to attend the institution -Course-related expenses such as books, supplies, and equipment required for the enrollment of the course non-qualified expenses - correct answer--Room and board -Travel -Research -Expenses not required for the enrollment of the course 3 types of students with 1098-T and methods - correct answer--undergraduate: net method -graduate: circle method -foreign student: 1042-S method 1098-T net method - correct answer--net box 5 and box 1 for scholarship income/educational credit -confirm whether individual amount was actually spent/received 1098-T circle method - correct answer--Tuition Fee Remission is not taxable -look at tuition fee remission table -Net method generally does not work if the student has tuition fee remission because the non-taxable amount is still included in Box 5 -transaction with the word "tuition" and "fees" are non-taxable -transactions with "stipend", "scholarship", "grant" are taxable -equal amounts of positive and negative negate each other
interest/dividends - correct answer--1099-INT/1099-DIV -Checking and Saving accounts -Bonds 1099-INT/1099-DIV - correct answer-A form used to report unearned income from interest/dividends alimony - correct answer--Only applies to divorce agreements Post-1984 and Pre- 2018: -Alimony is included as income for the receiver and a deduction to AGI for the giver -Post-2018 agreements: Alimony is no longer considered income retirement income forms - correct answer--1099-SSA -1099-R -IRAs 1099-SSA (Social Security Income) - correct answer--box 5 -not taxable but reported on 1040 -Form used to report Social Security Benefits -taxable if half of the taxpayer's social security benefits and gross income is greater than a certain amount depending on the filing status 1099-R: Retirement Income - correct answer--catch-all form for all things related to distributions of retirement accounts -Important boxes: 1, 2a, 2b, 4, 7 -Common retirement plans: 401(k), Employer-sponsored plans (UCRP), Traditional IRA, Roth IRA Traditional IRA - correct answer-A retirement plan where an individual contributes with pre-tax dollars, and the distributions are taxed Roth IRA - correct answer-Retirement plan where an individual contributes with after- tax dollars, and the distributions are tax-free Retirement forms: 1099-R, 1099-SSA, IRAs BOX 2a/2b - correct answer--taxable amount should be listed -traditional IRA: fully taxable unless nondeductible contributions were made (VITA doesn't do this) -ROTH IRA: qualified distributions are non-taxable (must be 59+ or disabled) -pension/annuities: generally fully taxable but must use Simplified Method Simplified Method - correct answer-Method is used for calculating the tax-free/taxable portion of the pension/annuity plan. Not so common, but important for the IRS exam. Box 7 distribution code - correct answer-"7": Normal distribution "1": Early withdrawal
work -VITA only uses standard mileage to calculate for-hire drivers: Schedule C - correct answer--deduct the business part of their interest: car loan, state and local taxes on the car, parking fees, tolls, business portion of their cellular, expenses, inter-company fees, and ride-share insurance. -What should NOT be expensed with the standard mileage: gas, car washes, insurance, depreciation, commuting miles, and registration fees. 1099-K - correct answer--reports credit card transactions -related to online platforms (i.e. Uber/Lyft) -Breaks down monthly transactions net operating losses: Schedule C - correct answer-If a client has more expenses than income, they will have a loss which is OUT OF SCOPE for VITA stocks/capital gains - correct answer--Whenever someone sells a stock, or an asset, we will file Form 8949 and Schedule D -In terms of the VITA at UCLA site, we mainly deal with clients who come in with a 1099-B from their brokerage firm 1099-B - correct answer-form that reports an individual stock transactions; it lists information like dates, sales price and cost basis - correct answer-The original price that the individual purchased a stock/asset short-term stocks - correct answer-Stocks that are held for one year or less; tax is calculated like ordinary income long-term stocks - correct answer-Stocks that are held for more than a year; advantageous because there is a more favorable tax rate (capital gains rate) gains and losses - correct answer--profit -sales price-basis -gains are taxable -losses are deductible up to $3000, remainder is carried to next year wash sales - correct answer--A sale and purchase of the same stock/security that results in a loss within 30 days -Losses made from these transactions are not allowed and cannot be claimed; this is an "adjustment" to capital gains/losses -loss is added to the cost of the new stock or securities adjustments - correct answer-Items that the IRS deems not taxable income Student Loan Interst - correct answer-1098-E form
1098-E Form - correct answer-A form that reports the amount of interest a taxpayer has paid on a student loan (maximum of $2,500) to qualify for adjustment on 1098-E - correct answer--Must be for the taxpayer, spouse, or dependent when the loan was taken -Was used to pay for qualified expenses -Was for an eligible student -If you are filing MFS or can be claimed as a dependent you cannot claim this adjustment traditional IRA Adjustment - correct answer--IRS allows an individual to reduce their AGI by a certain limit depending on their income max adjustment on traditional IRA adjustment - correct answer-$6,000 or $7,000 if age is over 50 Traditional IRA - correct answer--A tax advantage retirement plan (compared to the Roth IRA) -Individuals are eligible to claim a tax adjustment (which will lower your gross income). Standard Deduction VS Itemized Deduction - correct answer--The standard deduction is given to everyone regardless of their expenses -Itemized deduction/itemizing deductions is useful for clients with certain expenses (Out of Scope) -Taxpayers can only take one type of deduction: generally for VITA sites, standard deductions are more advantageous anyways Standard Deduction - correct answer--A set amount that can lower a taxpayer's taxable income -Nonresident tax filers cannot take a standard deduction, and must itemize -Based on filing status (derives the "most advantageous" status) Itemized Deduction - correct answer--Eligible expenses that individual taxpayers can claim on federal income tax returns which decrease their taxable income -If the client can benefit more from itemizing their deductions, refer them to a professional -VITA does not do itemized deductions filing status: Single standard deduction (2020) - correct answer-$ filing status: Married Filing Jointly/Qualifying Widower standard deduction (2020) - correct answer-$ Filing Status: Married Filing Separately standard deduction (2020) - correct answer- $ Filing Status: Head of Household standard deduction (2020) - correct answer- $
Mike is 42, unmarried, and has no dependents. Last year in 2020, he earned $350 in tips as a waiter at the House of Meatballs. Select the statement that is true. - correct answer-Mike's $350 in tips will likely be reported on his W-2 and the total tip amount is taxable. When using the graduate student "circle" method to determine taxable income, which of the following line items should be circled on the 1098-T? - correct answer- Regents Stipend Honors Department Scholarship STEM Grant credits - correct answer-calculated as the last part of the tax equation that helps lower the client's tax liability dollar for dollar Nonrefundable Credit - correct answer-Credits that can reduce your tax liability, but no further than 0 (cannot give you a refund) refundable credit - correct answer-Credits that can reduce your tax liability, and in excess, will generate a refund common nonrefundable credits - correct answer--Child and Dependent Care Credit -Child Tax Credit -Lifetime Learning Credit -Retirement Savings Contributions Credit common refundable credits - correct answer--American Opportunity Credit -Earned Income Credit child and dependent care credit - correct answer--credit of up to $6,000 ($3000 for individual) to reduce tax by a portion of their child and dependent care expenses to work or look for work -credit allows taxpayers to reduce tax liability -taxpayer and spouse must have earned income -MFS cannot claim the credit expenses that qualify for Child and Dependent Care Credit - correct answer-- Preschool, home daycare, before/after school care, dependent care, housekeeper, cook, etc -expenses must allow taxpayer to work or look for work -for qualifying person's care and to provide for well-being and protection -going to school full-time qualifying persons for Child and Dependent Care Credit - correct answer--A qualifying child (SARA) under the age of 13 whom the taxpayer claims as a dependent or -A dependent or spouse who is incapable of self-care (unless they made more than the gross income test, file joint return, or can be claimed) qualified care providers - correct answer--Must have a name, address, ITIN (or SSN)
-Cannot be a dependent of the taxpayer, the taxpayer's child who is under age 19 at the end of the year, or the taxpayer's spouse -MFS cannot qualify for the credit -The taxpayer (and spouse, if married) must both have earned income during the year Child Tax Credit - correct answer--A nonrefundable credit that allows taxpayers to claim a tax credit of up to $2,000 per qualifying child, which reduces their tax liability -The additional Child Tax Credit is the refundable portion of the Child Tax Credit (up to $1,400) eligibility for child tax credit - correct answer-taxpayer must have at least one qualifying child -under 17 -live with taxpayer more than 6 months -does not provide more than 50% of its support -meets relationship criteria, is US citizen, and have SSN qualifying child for child tax credit - correct answer--under age 17 on December 31 of the tax year -Lived with the taxpayer for more than six months of the year -Did not provide over half of his or her own support -Meets the relationship criteria -Is a U.S. citizen, U.S. national, or resident of the United States -Must have a valid Social Security number credit for other dependents - correct answer--A nonrefundable credit that allows taxpayers to claim a tax credit of up to $500 for dependents who cannot qualify for the Child Tax Credit. -meant for those taxpayers that have dependents but don't qualify for the child tax credit such as dependents over age of 17 qualifying person for Credit for Other Dependents - correct answer--A dependent -A U.S. citizen, U.S. national, or resident of the United States with an SSN. ATIN, or ITIN education credits - correct answer--Tax credits available to help the taxpayer offset the costs of higher education by reducing the amount of income tax -refundable credit for taxpayers or their dependents who have qualified educational expenses. -claim the credit, the taxpayer, spouse, or dependent (who are actually claimed on the tax return) must have more qualified expenses than scholarship on their 1098-T. qualifying for education credits taxpayers - correct answer--Cannot be claimed as a dependent (person claiming them will get the credit) -Dependent must be enrolled in a secondary-education institute -Cannot be filing MFS -Must be resident aliens/U.S. Citizens -Must have qualifying expenses
-Cannot be a dependent of another person california returns - correct answer-For every federal return, there may be a state return that comes along in this case. VITA at UCLA only prepares California state returns. California Resident vs. Non-resident - correct answer-Based on intent and the facts that are presented by the client california resident - correct answer--Present in CA for other than temporary purposes or lives in CA but located outside CA temporarily -Files Form CA 540 and must report worldwide income California Non-resident - correct answer--Present in CA for temporary or transitory purpose -Ex: Out of state students -Files Form CA 540NR and must report CA income only Nonrefundable California Renter's Credit - correct answer-nonrefundable credit for California residents paying rent on property taxpayer qualifies for Nonrefundable California Renter's Credit if - correct answer-- Was not a minor living with a parent or a guardian. -Paid rent for half or more of the tax year on principal residence. -The rented property is not exempt from property tax (University apartments do not qualify) foreign student/nonresident return - correct answer-nonresident is an individual who is not a US citizen how does VITA help international students? - correct answer-with F-1/J-1 visas file their nonresident tax return (1040-NR) tests to determine whether or not someone is a resident/alien - correct answer- Green Test/ Substantial Presence Test (SPT) Green Card Test - correct answer-if an individual has a green card anything during the tax year, they are considered residents green card - correct answer-alien registration card issued by US Citizen and Immigration Services Substantial Presence Test - correct answer-determines if an individual has stayed in the US for a substantial amount of time
Individual qualifications of the Substantial Presence Test - correct answer--must be present in the US for 31 days of the current tax year and present in the US for 183 days during the past 3 years -exclude days spent for medical purposes or commute for work exemption for individual under Substantial Presence Test - correct answer--students present under an F, J M, or Q visa -teachers present under J or Q visa -individual is exempt from the Substantial Presence Test and will be considered a nonresident for a certain # of years non-resident and exempt individuals - correct answer--must file form 8843 for themselves and spouse/kids individual exemption years for students - correct answer-Years 1-5: exempt from SPT and file as nonresident After Year 5: use SPT and may file as resident individual exemption years for teachers - correct answer-Years 1-2: exempt from SPT and file as nonresident After Year 5: Use SPT and may file as resident nonresident filing statuses - correct answer--nonresident considered married regardless of which country they are officially married in -"married nonresident alien" filing status is equal to MFS but VITA is able to assist nonresidents in this case nonresident filing status for married - correct answer-if married to US citizen or resident alien, both can elect to file 1040 under MFJ -vita advise them to go to a professional because signed declaration must be made dependents for Non-resident aliens - correct answer--non-resident aliens cannot claim dependents -exception are non-residents from Canada, Mexico, S Korea, and India income for non-resident aliens - correct answer--non-residents only report income that they made in the US -interest income for banks are exempt for all non-resident -must file Schedule OI or Schedule Other Information treaties for non-resident aliens - correct answer--often times non-resident aliens will have treaties from their countries -agreements made between the US and respective country that allows favorable tax treatment of certain income -tax treaties located in Publication 4011 Schedule OI - correct answer--helps identify which country the individual is from and what treaties they are trying to claim -Form used to report details about the nonresident individual such as native country, travel dates, days present, and tax treaty amounts
Form 8843 - correct answer--The form will indicate how many days the individual should not be included -Indicates the type of visa the individual was on -Does not necessarily need income to file the form (can be standalone) -Due on June 15th, 2020 instead of April 15th 3 nonresident filling statuses - correct answer--Single nonresident alien -Married nonresident alien (considered MFS, out of scope) -Qualifying widower (very uncommon) -An individual is considered married regardless of the country -Resident alien and a nonresident can elect to filing MFJ (we do not do) tax treaty - correct answer--Agreements made between the U.S. and the respective country that allows a favorable tax treatment of certain income -Nonresident aliens cannot take the standard deduction; they must itemize income for nonresidents - correct answer--Only income earned in the U.S. is taxed for nonresident aliens -However, if a treaty exists between the U.S. and the respective country, adjustments must be made China treaty - correct answer--Exempts $5,000 of income from wages -Interest income on personal bank accounts such as Wells Fargo and Chase are exempt Canada treaty - correct answer--Allows a $10,000 exemption of wages (any wage UNDER $10,000) -Interest income on personal bank accounts such as Wells Fargo and Chase are exempt India treaty - correct answer--Allows the individual to take the standard deduction -Interest income on personal bank accounts such as Wells Fargo and Chase are exempt how does VITA help nonresident? - correct answer-students with f visas teachers and professors with j visas resident alien - correct answer-foreign nationals who are generally subject to tax in the same manner as a US citizen SPT mathmatical test - correct answer-183= 3rd year (days x 1/6) + 2nd year (days x 1/3) + 1st year (current year days x 1) Form 1042-S - correct answer-A form used to report and to describe income earned by a nonresident and their withholdings Form 1042-S lines - correct answer--Income Code (16, 19, 20) -Gross Income -Exemption Code -Withholdings
1042-S Method - correct answer--Assuming the individual filled out the proper forms regarding taxes from UCLA and/or their department, their scholarship income will be shown on -income code 16 -should match their 1098-T and BruinBill -put into scholarship income nonresident alien students - correct answer--do not have to pay FICA taxes -In the case that the employer withheld FICA taxes, students can file Form 843 to request an abatement -Exemptions no longer exist (or it became $0 technically) for both residents and nonresident aliens Nonresident Returns: California 540NR - correct answer--Used to report only California income -Non-residents for federal purposes, tend to be nonresidents for California CA540NR method - correct answer--California pulls all numbers from Federal (Column A) -Must adjust using Column B and C to get columns D (Federal income + recognized adjustments from CA) -Final taxable portion of income us Column E two types of W-2s - correct answer--Tax treaty already applied: Fill "Income Exempt from Tax" only -Tax treaty not applied: Fill "General Information" AND "Income Exempt from Tax"
