Helpful Hints for Intermediate Tax Preparers How to handle 1099-MISC forms

Helpful Hints for Intermediate Tax Preparers
How to handle 1099-MISC forms
Look at the 1099-MISC form to see where amounts are shown. If in box 7, then that must be reported as
earned income and is subject to about 15% Social Security taxes, regardless if any income tax is due or
not. Good part is that it counts for the EIC! That is done using a Sch C. If the amount is in Box 3, that is
for awards, prizes, moving incentives and is not considered earned income subject to Social Security or as
earned income for the EIC.
BOX 7 Amounts:
1. Select existing 1099-MISC form under Sch C Pg 1 and it
will open for Data entry.
2. Then compete the Sch C. Remember to enter any Cash
received as a third party receipt on line 1b via a linked
Scratch Pad. That will add any amounts to 1099-MISC
already entered.
3. Mileage for the year is entered on page 2. Be sure to
mark the X in the ‘calculate business miles’ If you enter
mileage for the 2nd half, then the first half is calculated.
Do not Override. The amount is entered on line 9 of
page 1 for you.
4. A Sch SE is added to return to collect the Social Security
and no work is needed on you part except to explain it to
the tax payer. TaxWise automatically takes care of the
complications of the 2% reduction for 2011.
BOX 3 Amounts:
1. Add a new 1099-MISC under 1040 WKT 7
2. Enter the information and amount in Box 3
3. Line 21 of the 1040 Pg 1 will now be properly filled out,
even if there is a W2-G as well.
4. You should not have to use a scratch pad to enter any
information of Line 21.
Helpful Links for Vehicle Tax and Property Tax Information
A portion of auto registration is a tax, but not all, is a valid deduction shown on Line 8 of Sch A. If
you don’t have the detail from the taxpayer (it is called LICENSE FEE), do a Google Search for
“California Vehicle Registration tax” That should offer a DMV site
(https://www.dmv.ca.gov/FeeCalculatorWeb/vlfForm.do) where with the Vin and License plate, you
can get the information on the deductible portion.
Property Tax information can be found by doing a Google Search on “Contra Costa County Tax
Collector” Click on the left column under “Look up / Pay Taxes” That will take you to payment
history page where what was paid on what date is shown. Be sure to use just current tax year
payments. http://www.co.contra-costa.ca.us/index.aspx?nid=1742 Also, only taxes based on the
assessed value of the property are considered deductible by both California and the IRS.
Not an official IRS Document
EKS Contra Costa
1/17/2013
Helpful Hints for Intermediate Tax Preparers
California and Local Sales Tax Deduction
Most often, the CA sales tax will be a larger amount than the total sum of State Income Tax which is: 1)
that paid last April; 2) State Withholding for this tax year; 3) SDI payments. So ALWAYS do the following
entry for a return with Itemized deductions. TaxWise will take the higher amount automatically.
1. Click on the little triangle by Sales Tax on line 5b of the Sch A. Link to a ‘NEW’ then ‘Sales
Tax Worksheet’. It cannot be added form a forms search.
2. Only getting red out, place ‘CA’ on Line 1 about ½ way down under ‘state of residency’.
3. Then click the YES button on Line 3 and enter ‘1.0’ on the red line (that is base adder for
most of Contra Costa County) For Richmond and Concord residents, that is ‘1.5’.
4. Now put 7.75, the full State tax rate, on line 4.
5. You can add separate, large sales tax paid for a car, boat, or home
6. Return to the Sch A and complete the return
State Tax Refunds if Itemized last year – Return Available
Look at last year’s return and if Sch A, box 5b, sales tax is marked, you are done! Mark ‘No’ on 1040 Page
1 and continue with the return. Ignore the worksheet.
1. If the box 5a on the prior year is marked, call up a ‘StateTax Refund’ Worksheet by linking to a
new form from line 10 of the 1040 page 1. Enter the refund amount from the 1099-G on
Line 1. (Returning clients will have the information added automatically.)
2. Enter amount from Sch A 5a on line 2 of the worksheet. Use the IRS calculator to enter an
estimate of the prior year sales tax from 5b. It will not be on the return. Search Google for “irs
state sales tax deduction” and click on the IRS link to http://apps.irs.gov/app/stdc/stdc.html Enter
data as instructed. It’s easy.
3. Complete the rest of the form from the prior year’s return, filling in only the red items. Line 16 of
the worksheet should be from line 43 of the prior year return but show the actual difference
between line 42 and line 41 and may be negative, even though it is shown as $0.
4. TW will enter the proper taxable amount on the 1040 Line
State Tax Refunds only if Itemized last year – Return Not Available
If the return is not available, you will have to enter the full amount of the tax refund as income on
line 10. You may want to do this at the end of the return so that they can see how it will or will not
affect the amount due / refund. It may be worthwhile to go home and “find” last year’s return.
1. Do it in this order, otherwise the worksheet will be called up and you may not be able to
enter information directly!
2. Enter the amount on line 10 of 1040 page 1
3. Then mark the ‘yes’ box on line 10.
State Disability Insurance (SDI) for Sch A Itemized Deduction
SDI is a deductible State Tax and should be added to any State withholding made in the tax year as
well as payment made to the State via estimated tax payments or actual tax due paid in April of the
tax year. If that is higher than Sales Tax, TaxWise will use the higher.
To handle this properly, always show the SDI as a ‘local tax’ in box 19 of the W2 when working with
a client with itemized deductions. Put ‘SDI’ in Box 20. Do this even though the amount may not be
there but in Box 14. About 25% of employers show the amount in box 19. This is the one
exception to “Key it as you see it”.
Do NOT enter any SDI in the very bottom of the W-2. That will count the SDI twice in the Schedule
A Line 5 calculation. That amount on the bottom is used to calculate excess SDI collected from
more than one employer and if you make over $90,000, some may be refundable via the 540.
Unlikely at a VITA site.
Not an official IRS Document
EKS Contra Costa
1/17/2013
Helpful Hints for Intermediate Tax Preparers
What’s New for 2012
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Most Tax Law items due to expire were ‘extended’ again. That includes Sales Tax
Deduction, Residential Energy Credits, Teachers Instructional Supplies, and Education
Expense Adjustment. Items which still had a year to run were extended for two to 5 years.
Those we see at VITA include Add’l CTC eligibility at $3,000, Three children for EITC,
American Opportunity Credit for 4 years and a portion refundable.
Schedule C limits back to $5,000 in expenses.
No refund chart. New fraud filters in place result only in a commitment of “within 21 days”.
“Where’s my refund?” for tracking on line is the best advice.
New Worksheet for Line 21 Income – 1040 Wkt 7. That lists W2-G as well as 1099-MISC
with box 3 income. No need for scratch pads.
Education Credits requires education institution name, address and EIN for each student.
Do page 2 first. Watch tricky wording on 4 years total of Hope/ American Opportunity for
each student.
Child Tax Credit will ask ‘Substantial Presence’ question if dependent has an ITIN. Look at
page A4 in 4012 if less than 1 year in the home. Otherwise ‘YES’, they were present.
W-2 question about contacting employer and phone # for those with ITINs ????
New ITIN’s will only be valid for 5 years. New documentation requirements for children.
Not an official IRS Document
EKS Contra Costa
1/17/2013