Download Form 1040 Tax Return Study Guide - VITA 2025 and more Exams Advanced Education in PDF only on Docsity!
VITA UCLA STUDY GUIDE 2025
Form 1040 Summary document for entire tax return Gross Income Income in form of money, goods, property, services (not exempt from tax) Adjustments Amount that reduces gross income (AKA "above the line deductions") Adjusted Gross Income Gross income minus adjustments Deductions Amounts that lower AGI, which therefore reduces taxable income. Itemized vs Standard deductions. VITA only files standard deductions Taxable Income Amount taxed after AGI reduced by deductions Tax Tables Annually standardized table that determines the amount of tax owed based on taxable income True or False: Being in a higher tax bracket means that entire income is taxed at the higher rate False Only the amount of income that pushes you into the next tax bracket is taxed at the higher rate, income below taxed at lower rates Tax Liability Tax that the taxpayer is responsible for paying. Calculated from tax tables Tax Credits Reductions/Credits given to pay the taxpayer's tax liability under certain eligibility criteria Withholdings Money taxpayer already paid to the IRS throughout the year by having it deducted from paychecks
Individuals are required to file if: -They owe taxes -Have self-employment income greater than $ -Their gross income exceeds the filing requirement threshold Recommended to file is they have withholding that can be refunded or qualify for refund credits What are the 5 general filing statuses -Single -Married filing jointly -Married filing separately -Head of household -Qualifying widow(er) Filing Status: Single On last day of 2018: -Not married -Legally separated or divorced -Widowed and not remarried after 2 years of death of spouse Filing Status: Married Filing Jointly On last day of 2018: -Legally married -Were married and lived together -Were married and lived apart (not legally sparated or divorced) -Did not remarry after death of spouse (in year spouse dies) Filing Status: Married Filing Separately (VITA doesn't do it) On last day of 2018: -Married and chooses to file separate returns -Married and cannot agree to file a joint return Usually results in higher taxes Filing Status: Qualifying Widow -Does not remarry after the death of a spouse -Has a dependent child -Spouse died in the prior two years
descendant, sibling, half-sibling, cousin (only if lived with taxpayer the entire year), parent, ancestor, step siblings, stepparents, in-laws Taxable Income: -Earned Income: Wages and Salary (W2), Nonemployee Compensation (1099-MISC) -Unearned Income: Scholarship Income (1098-T), Interests and Dividends (1099-INT/1099-DIV), Tax Refund or Unemployment (1099-G) Nontaxable Income: -Gifts -Inheritance -Certain Investments Income: Wages and Salaries (W-2) -Reports total income, withholdings, other taxes from employer Income: Scholarship Income (1098-T) -Reports qualified tuition and related expenses deemed necessary for an institution -Qualified Expenses: Tuition and fees, required course expenses -Non-qualified expenses (considered taxable unearned income): Room and board, travel, research, expenses not required Income: Interest and Dividends (1099-INT/-DIV) -Reports unearned income from interest/dividends -Common types are checking and saving accounts, bonds Income: Social Security Benefits (1099-SSA) -Reports social security benefits -Social Security benefits may be taxable if benefits and gross income is greater than a certain amount Income: Non-Employee Comp. (1099-MISC) -Reports nonemployee compensation used to pay an independent contractor or self-employed person -Recipients can generally report their expenses that offset business income Income: Schedule C (1099-MISC)
-Supplemental form attached to 1040 that lists income, expenses, other info about taxpayers business -Common expenses (must be able to confirm): Mileage, supplies Income: Unemployment Comp. (1099-G) -Report unemployment compensation and state and local taxes Adjustments: Student Loan Interest (1098-E) -Reports amount of interest a taxpayer has paid on a student loan -Maximum of $2, To qualify, the loan: -Must be for the taxpayer, spouse, or dependent -paid for qualified expenses -was for an eligible student Cannot be claimed if MFS or can be claimed as a dependent Adjustments: Traditional IRAs Personal savings plan offers a tax advantage to encourage people to save for retirement. Contributors to this plan are eligible for tax adjustment Nonrefundable Credit Can reduce tax liability, but no further than zero. These are deducted first Ex: -Child and Dependent Care Credit -Child Tax Credit -Lifetime Learning Credit -Retirement Savings Contributions Credit Refundable Credit Can reduce tax liability, and give refund in excess Ex: -American Opportunity Credit -Earned Income Credit Credits: Child and Dependent Care Credit -Nonrefundable credit up to $6,000 to reduce tax when money spent on child and dependent care expenses -Taxpayer must have to use childcare to work or look for work to qualify
Refundable tax credit for most people who work but do not have high incomes Three general sets of rules: -Rules for everyone -Rules for taxpayers with qualifying child -Rules for taxpayers who do not have qualifying child Earned Income Credit: Rules for Everyone -Taxpayer and qualifying children have valid SSNs -US citizen or resident alien all year -Not MFS -Earned income under a certain threshold -No foreign earned income -Has less than $3,500 investment income -Cannot be qualifying child of another person Earned Income Credit: Rules for Taxpayer with Qualifying Child Qualifying child must be a dependent who cannot be claimed by another txpayer Earned Income Credit: Rules for Taxpayer without Qualifying Child -Must be at least 25 years old, but less than 65 on the last day of 2018 -Must have lived in US for more than half the year Affordable Care Act Requires US citizens or resident aliens to have qualifying health care coverage (Minimum essential coverage, MEC) for each month of the year -Proof of MEC only requires their word. Official documentation is in forms 1095-A,B,C Common healthcare that have MEC Medicare, most Medicaid, Employer insurance, UC SHIP, Insurance purchased on the marketplace or from an insurance company ACA: Health Coverage Exemption -Went without healthcare coverage for less than 3 consecutive months (short gap coverage) -Nonresidents -Income below filing threshold ACA: Shared Responsibility Payments (SRP) If taxpayer doesn't have MEC and doesn't qualify for coverage exemption, need to make payment on their tax return
Additional Taxes: Self-Employment Taxes Social Security and Medicare taxes collected primarily from individuals who work for themselves Tax Penalties: Early withdrawal from IRAs If rules for contributions and distributions are not followed, additional penalties may be due: -Withdraw from IRA before age 59.5, 10% tax -Distribution code 1 in box 7 means additional tax Resident Aliens Foreign nationals who are generally subject to tax like they were a US citizen Resident aliens if they pass: -Green Card Test -Substantial Presence Test (SPT) Resident Alien: Green Card Test Resident Alien if they have a green card any time in 2018. Also, if foreign citizen marries US citizen, then they are resident alien if they choose to be Resident Aliens: Substantial Presence Test Taxpayer must be: -Present in US for 31 days of current tax year AND -Present in US for 183 days during past three years Resident Aliens: Exempt Individuals Individuals exempt from SPT if they are: -Students present under "F", "J", "M", or "Q" visa OR -Teachers present under "J" or "Q" visa File as nonresident initially, then later (after 5 years for students, 2 years for teachers) use SPT, may file as resident Nonresident Returns: 1040NR Need to file if: -were a nonresident alien student/teacher and had no income subject to tax -conducted personal services earned less than $ -have tax treaties exempting certain amounts of income below filing requirement All nonresident returns need Schedule OI, Form 8843, and Form 1042-S Nonresident Filing Differences
India: -Student on F, J, or M immigration status may take standard deduction China: -Student entitled to $5,000 exemption each year reasonably necessary to complete education -Scholar exempt from tax on earned income for three years Income: Tuition Fee Remission (1098-T) -Amount of tuition paid by employer -UCLA TA's have part of their tuition waived -Tuition Fee Remission is nontaxable, so omitted from tax return Nonresident Returns: Deduction and Exemptions Nonresidents cannot use the standard deduction. MUST itemize (Except students from India because of tax treaty) Nonresident Returns: Credits -Most credits are not available to nonresidents -Cannot claim dependents -EIC and AOTC disallow nonresidents from claiming Nonresident Returns: Child Tax Credit Nonresident can claim child tax credit if all are met: -Child is US citizen, national, or resident alien who resides with taxpayer -Child is a son, daughter, adopted child, grandchild, stepchild, foster child -Child under 17 by end of year -Child qualifies as their dependent -Child has valid SSN Nonresident Returns: Out of Scope -Closer Connection Election: Choice to claim closer connection to foreign country to avoid US despite meeting residency requirements -Dual Status: Individual both resident alien and nonresident alien in same year -Resident Aliens with Treaties: An individual who was once a non-resident alien, but now qualifies to be a resident alien and wants to claim a tax treaty (Most common with China tax treaty) VITA procedure for nonresident
1.Use form 13614-NR 2.Use ITIN if client does not know SSN 3.Many nonresident clients at UCLA will have a Glacier Form CA 540: Residency California Resident: -Present in CA for other than temporary purposes or lives in CA and is located outside CA temporarily -Files CA 540 and must report worldwide income CA Nonresident: -Present in CA for temporary or transitory period -Files Form CA 540NR and must report CA income only CA 540: Adjustments CA does not tax: -Unemployment compensation -Social Security benefits -Interest from government bonds -State income tax refunds -CA lottery winnings CA does not recognize international tax treaties CA 540: Nonrefundable Renter's Credit Nonrefundable credit for CA residents paying rent on property Qualifies if: -Was not a minor living with a parent or guardian -Paid rent for half or more of the tax year on principal residence -Rented property is not exempt from property tax
