introduction to federal income tax law · introduction to federal income tax law. 2 nttc training...
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Introduction to Federal Income Tax Law
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Tax law basics
Types of
─ Income
─ Deductions
─ Credits
Form 1040 and Schedules 1-3
Training materials available
Lesson Topics
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All income is taxable
─ Unless the law says it is not
No deduction is allowed
─ Unless the law says it is
No credit is allowed
─ Unless the law says it is
Tax Law Basics
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Gross Income
Minus adjustments
= Adjusted gross Income
Minus deductions
= Taxable Income
Tax Law Basics
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Two types of income
─ Taxable
• Earned
• Unearned
─ Nontaxable
• Earned
• Unearned
Types of Income
Pub 4012 Tab D
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Taxable income
─ Must be reported
─ Subject to tax
Nontaxable income
─ May be reportable
─ Exempt from tax
Types of Income
Pub 4012 Tab D
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Examples of earned income: income received from work
─ Wages
─ Self-employment
─ Long term disability payments prior to minimum retirement age
─ Union strike benefits
Types of Income
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Examples of unearned income: income not produced from work
─ Unemployment compensation
─ Interest and dividends
─ Capital gains
─ Social security benefits
─ Retirement income
─ Schedule E rental income
─ Scholarship income
─ Alimony
Types of Income
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Adjustments and deductions reduce taxable income
─ Two types
• Adjustments to gross income
• Itemized or standard deduction
Types of Deductions
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Credits reduce tax liability dollar for dollar
─ Nonrefundable
• Limited to tax liability
• Cannot reduce tax liability below $0
─ Refundable
• Can reduce tax liability below $0
• Entered in Other Payments section Form 1040
Types of Credits
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Form 1040: Filing status, identity, and dependents
Form 1040: Income, adjustments, and tax liability
Additional income (Schedule 1)
Adjustments to Income (Schedule 1)
Additional taxes (Schedule 2)
Nonrefundable credits, refundable credits, and payments (Schedule 3)
Form 1040 and Related Schedules
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Form 1040, Page 1 top
Filing Status
and Identity
Dependents
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Form 1040, Page 1 bottom
Income and Adjustments
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Form 1040, Page 2 top
Tax Liability
Payments and RefundableCredits
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Schedule 1
Additional Income
Adjustments to Income
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Schedule 2
Tax
Other Taxes
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Schedule 3
Nonrefundablecredits
Payments and
refundable
credits
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IRS Resources
linklearncertification.com
Form 6674 – Certification Test and Retest
Pub 4491 – Training Guide
Pub 17 – Your Federal Income Tax for Individuals
Tax Aide Resources
Pub 4012 – Volunteer Resource Guide (modified)
TaxSlayer Practice Lab –Sections 4 & 6 of HOME page
NTTC Workbook – Practice Exercises
Training Materials
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Training exercises
Practice exercises
Quizzes
Available in Portal Library and by ordering through
Portal
NTTC Workbook
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Training Exercises Practice Exercises
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For Instructor to use in a classroom setting
Contain all the core topics usually encountered on the Advanced Exam
Separate Instructor Guide
For counselors to reinforce/refresh knowledge and skill
For counselors to demonstrate proficiency and meet certification requirements
Two Types of Exercises
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Pub 4012
Primary reference tool during tax season
Modified NTTC version in Portal Library (Recommended)
Volunteer Resource Guide
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WWW.LINKLEARNCERTIFICATION.COM
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Form 6744 contains all tests
─ Counselors are required to pass three tests with 80% or better
1. Volunteer Standards of Conduct
2. Intake/Interview and Quality Review
3. Advanced Course
Pay attention to wording on test questions
VITA/TCE Volunteer Assistor’s Test/Retest
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Questions…
Comments…
Introduction to Income Tax