Union College VITA site operations update and FAQ

UPDATED as of Tuesday March 29, 2022:  

All operations still Fully Remote with a backlog of returning clients.  

Unable to serve any new clients at this time.  We expect to expand operations in 2023.

We apologize but we are unable to respond to the huge volume of inquiries by phone at this time.  The best way to reach us is our UnionVITA@gmail.com address.

At this time, Union College VITA site is the ONLY operating VITA site in Schenectady County, according to the IRS database.  

There used to be six VITA/TCE sites in Schenectady County.  All the other sites in Schenectady County have unfortunately closed.  As a result, we are overwhelmed and swamped with demand.  Our storefront site at the Kenney Community is tiny and with Omicron rates still high and many of our long time clients medically vulnerable and/or elderly, it would be unsafe to operate in a face to face modality.

The Union VITA operations mode currently is virtual/remote only.  As infection rates hopefully continue to decline and the weather improves, we hope to add a Valet VITA option and possibly other forms of face-to-face in person VITA in suitable, large well-ventilated spaces at nearby community nonprofits.  We will update this page when that happens.

In addition, we are still testing out our 2022 filing season software on taxpayers we have served in previous years. Normally we close in early/mid March.  We are planning to stay open later than usual this year to accommodate the overwhelming demand and take more new clients this year.

We have a strong goal of educating taxpayers to help them learn to take pride and ownership in the accuracy of the returns we assist them in preparing.  We painstakingly confirm and explain every line on our clients' returns before asking our clients to sign electronically to authorize efiling their returns.  We don't want our clients to authorize us to efile their returns before all their questions have been answered.

Frequently Asked Questions:

Q: Obviously Union College VITA can't prepare the returns of every qualifying taxpayer in Schenectady County.  What are other free options for low and moderate income taxpayers in this area?  Do any of them offer traditional in-person VITA?

There are some other VITA sites in Albany, Rensselaer, and Saratoga Counties, unfortunately again, fewer  than there used to be.  You can check the IRS database to find other VITA sites in adjacent counties.  At this time, the closest site listed is 14 miles away from ours.  Most of the other sites in this area offer traditional face-to-face traditional VITA.  

You can also call the United Way CA$H Coalition, of which the Union College VITA site is a member, at their 2-1-1 phone number to make an appointment through them.  The CA$H Coalition offered Valet VITA options last year and is working on offering them again later this filing season.

NYS Department of Tax & Finance also offers a great remote virtual webinar program where they will coach taxpayers through do-it-yourself prep of federal and NY tax returns using free Facilitated Self Assistance software.

Q: What are Union's remote options at this time?  Do you have plans to offer more options later in the season?

Union College VITA currently offers two remote options

Option 1) Our remote Facilitated Self Assistance (FSA) option.  This model is available for taxpayers in the Capital District with income under $73,000, both returning AND new.  Under this model, you would email us to request a link to a secure website where you would be preparing your own return in FREE  consumer-friendly do-it-yourself software.  It is a consumer version of the same professional software our volunteers use.  If you have questions as you are working on your return, you can email us for answers to your questions as you work on your returns.  If there is anything you are unsure about, we urge you to talk it through with us before you efile.  This can be a great opportunity to take ownership and pride in preparing your own tax return. 

Option 2) Union's remote Virtual VITA site is available for taxpayers in the Capital District with incomes under $58,000.  At this time, we can only serve our returning clients in this option.  Each week in March we will revisit the question of whether we can take in new clients and update this page.  In this program, you would email us to request that send you a secure link to a website where you can upload photos of your tax documents.  We would then conduct to "soup to nuts" full service preparation of your taxes, communicating with you via phone, text, email, and/or Zoom, depending on your preferences as your return works through our remote process.  The secure platform we use to host your tax documents was created by our partners at Code for America.

Option 1 is best for those with relatively simple tax circumstances, as well as comfort with using a computer with remote assistance.

Option 2 is best for those with more complicated returns, especially households with children potentially eligible for refundable credits.  You can use either a smart phone or a tablet or laptop to send us photos of your tax info.  

Unfortunately, both of the above options require some degree of comfort with technology, as well as access to a computer or tablet or smartphone.  

Remote VITA is great in some ways (it removes barriers of travel, parking, weather, childcare and also allows us more flexible scheduling) but sometimes frustrating in others.  The software we use is great when it works smoothly (which is MOST of the time) but can occasionally be frustrating to navigate.

So we are hoping and planning to offer in-person versions of both of the above options later during this filing season as the weather improves and infection rates continue to decline.  Possibilities we are working on with the United Way CA$H Coalition include helping taxpayers at in-person FSA or in-person "Valet VITA"events hosted at nonprofits in Schenectady with large, well-ventilated spaces and good secure wifi.

What exactly is Valet VITA?

Valet VITA is a hybrid remote option.  You would travel to a site hosted by a local nonprofit where you would do a face-to-face intake interview and sign a consent that gives us permission to scan your tax documents into our system.  Then you would leave and we would work on your tax return, contacting you by phone or Zoom to answer your questions.  A week or so later you would return to the same site to review the tax return we have prepared for you.  After all your questions have been answered and we confirm all the information on the return with you, you would sign an authorization to efile and then we would efile your return.

How does in-person FSA (sometimes called FSA) work?

FSA is a do-it-yourself model.  In-person FSA means you would be working in a community space at a local nonprofit with IRS certified VITA volunteers circulating around the room to answer questions as needed in person. You could either bring your own laptop OR use a computer provided by the host site.

Who is staffing Union College VITA this year?

As always, Union VITA is staffed by IRS certified VITA volunteers.  In the past, Union College VITA volunteers were concurrently enrolled in Union's Economics 391, Income Tax Policy & Practice class.  This year, the class is not being offered, but alumni of prior year Eco 391 classes have stepped up to assist.  The CA$H Coalition has also recruited community volunteers to help us with many years of experience at other sites that are now closed.

The biggest cause of Errors and Robo-Audits for Low and Moderate Income Taxpayers may surprise you

The rules for who is allowed to claim a dependent are VERY confusing.  The rules are really hard to navigate.  There are many different types of dependents and which set of rules applies can be super-confusing!  

Thousands of dollars in refundable state & federal credits can be at stake if the wrong taxpayer claimed a dependent!   Robo-Audit letters are very common for low income families with children who qualify for refundable credits.  The Robo-Audit letters are confusing and intimidating, and many taxpayers who filed correct returns do not understand how to respond to them.

An ounce of prevention is worth a pound of cure.  A mistake is much harder to fix after you submit the efile than before.  Tricky situations where you will want to reach out for help BEFORE you file include: 

1) A Qualifying Child dependent who lived in multiple households during the tax year and/or was supported by more than one taxpayer.   The tie-break rules for which taxpayer gets to claim such a dependent can be very tricky.  Over the years, we have seen a lot of prior year returns prepared by paid tax preparers who got that wrong.  We have been able to amend the return so the taxpayer entitled to claim the Qualifying Child gets their rightful tax credits.

2) If a teenager under 19 has substantial income of their own from a part-time job, it can often be tricky to figure out if they are still a dependent of the parent who is providing the roof over their heads.  This is a question where a Zoom or speakerphone call with the parent and teen to clarify the dependency issue BEFORE either the parents or teens file can save a lot of trouble.  

3) If a young adult under 24 was enrolled in higher education last year, the dependency rules can again be hard to navigate.

4) If a disabled adult of any age was living with a relative, the dependency rules can get complicated.

5) Multigenerational households can also be confusing to sort out.  Typical issue:  grandparent, parent, grandchild all live in a home and perhaps an aunt or uncle too.  Multiple adults may contribute to the support of the household and/or the grandchild.  Who gets to claim a young child can make a huge difference in the refunds for the taxpayer claiming the child.

Robo-Audits are common in these situations even if the taxpayers did everything right.  

If you claimed a child in any of the above situations, you may very well get a Robo-Audit letter.  The letters are confusing and bullying in tone.  The National Taxpayer Advocate has studies showing that many taxpayers who get such letters filed correct returns, but are so confused or intimidated by the language in the letters that they fail respond to them.

Don't ignore audit letters of any kind, including Robo-Audit letters and don't sign anything you don't understand.  

Before you file:  do your research and talk it over with a knowledgeable VITA volunteer if you are unsure.  

Go-to resource for anyone unsure whether they can claim a dependent:  read VERY carefully the seven pages in Tab C (pages C1-C7) in IRS Pub 4012, the so-called "VITA Bible."  Don't overlook the sometimes critical footnotes on these 7 pages about dependents.  An ounce of prevention is worth a pound of cure.  If you are not sure, consult a knowledgeable VITA volunteer.

After you file:  Don't ignore scary IRS letters you don't understand.  They do NOT improve with age.  If your return was prepared at the Union College VITA site, please email Professor Mary O'Keeffe at UnionVITA@gmail.com immediately to discuss what documents you need to gather to support the dependents claimed on your return, and how best to respond.  Possible options including reaching out to your local Taxpayer Advocate at the IRS Taxpayer Advocate Service or your nearby Low Income Taxpayer Clinic.

Fascinating moments in public finance history

I have lately been reading a lot of American history. Currently working my way through Andrew Roberts' The Last King of America: the misunderstood reign of George III, page 112-113 excerpted below.

On 19 March 1763, on Charles Townshend's proposal, a Bill was introduced to reduce the duty on West Indies molasses, in order to help Rhode Island rum distillers. Back in 1733, the Molasses Act had imposed a deliberately prohibitive duty of sixpence per gallon on the importation of all foreign (effectively French West Indian) molasses into Britain and the British colonies. Because British West Indies plantations did not produce enough molasses to satisfy the huge North American demand for rum, it had led to widespread smuggling into the thirteen colonies: merchants would bribe corrupt customs officials roughly a penny a gallon to underreport the quantity of molasses on board their ships by a factor of ten.*

The asterisked footnote particularly intrigued me:

*Although they lied to the Revenue, the merchants insured their ships for the correct amount, which is how historians were able to spot the discrepancies.

The Molasses Act had been intended to harm not the American rum industry but the French West Indian planters. It had initially been passed for five years and was regularly extended, and after coming before the Commons' Expiring Laws' Continuance Commitee on 9 March it was decided ten days later to renew it for another year, only with Charles Townshend's amendment to reduce the duty to twopence. ... This two-thirds reduction was proposed 'the more effectually to secure the payment of it.' British ministers believed it was necessary to control colonial smuggling which had become so well established in America that iwas considered almost customary. Agents of the American colonies argued that the duty ought to be set at one penny, which Thomas Hutchinson, Lieutenant Governor of Massachusetts, reported to London 'would be generally agreeable to the people here, and the merchants would readily pay it.'

The Lieutenant Governor's assertion seems quite plausible, given that the merchants were already paying one cent per gallon in bribes! Of course, the corrupt customs officials might not be too happy with the improved compliance, since their lucrative bribes would dry up if tax compliance improved. However, Townshend did not heed this and stuck with the two-pence proprosal. The book goes on:

Charles Townshend made 'heavy complaints' in his speech to the House of Commons Ways and Means Committee about 'the state of our revenues in North America', which at that time amounted to less than the 7,000 pounds it cost to collect. The King's response to Townshend's proposal to reduce the molasses duty by two-thirds was to complain vociferously.

Union College VITA 2021 Tax Team: Ingrid Burke

Hello! My name is Ingrid Burke. I am a junior at Union College and I am majoring in economics. The areas of tax policy that I am most interested in are retirement, charity, and education taxation. 

 

Union College VITA 2021 Tax Team: Kaila Paguio

 

I'm Kaila Paguio, a junior at Union College. I'm studying economics with a math minor. I'm interested in learning about tax policy and how it can fight poverty and reduce income inequality. My favorite part of the class is helping low-income families get their maximum refund.

Union College VITA 2021 Tax Team: Helen Wong

 

My name is Helen Wong and I am currently a junior at Union College. I am originally from San Francisco, California and I am pursuing a double major in psychology and economics. I am most interested in learning more about tax policies that impact low-income households since it is a subject that impacts my family and I personally. Outside of my academic interests, I love reality tv (especially 90 Day Fiancé), eating good food, and occasionally reading comics.

Union College VITA 2021 Tax Team: Tad Ye

 

Hello! My name is Tad Ye, I am currently a junior studying economics and computer science. I am originally from Brooklyn, NY. This course has allowed me to learn more about tax policy and apply the learning in helping the people around the community complete their tax returns. Ever since my first job I always wonder why did I not get the full wage I was promised? But with this course I understand different tax policy and what is intriguing is the different tax credits individuals are qualified for! With the new $300 cash donations for qualified charities for people who do not itemize it encourages everyone to give back!

Union College VITA 2021 Tax Team: Julissa Boyer Perez

 

Hello! My name Julissa Boyer Perez and I am a junior studying Sociology with a double minor in economics and Russian. I am originally from the Dominican Republic but I grew up in New York City. I am really interested in learning about tax policy because I am from a low income household and the changing policies can affect my family. I think that this class is a great opportunity for me to understand how finances work in real life, with actual vulnerable taxpayers. 

Union College VITA 2021 Tax Team: Daniel Donnelly

 

Hello, my name is Daniel Donnelly, from Long Island, New York. I am currently a junior here at Union College, as an economics major and history minor. One of my favorite things I have learned thus far in this course is determining people's filing status and who is considered a Qualifying Child or Qualifying Relative. One of my favorite parts about the tax process is quality reviewing other students' work and speaking to clients on the phone/zoom. I look forward to working with you people and am really excited to be here!

Union College VITA 2021 tax team: Sophia Zachar

 

Hello, my name is Sophia Zachar and I am a senior at Union College with a major in economics and a minor in statistics.  My favorite part of tax policy is the various aspects of higher education and how they affect taxes.

Union College VITA 2021 Tax Team: Izzy Riker

 

My name is Izzy Riker I am a junior at Union College. I am an economics and sociology double major. I am on the women’s soccer team and the women in economics club on campus. I really enjoy learning about tax policy and how it can help to reduce income inequality and encourage employment. I would love to be able to combine my majors to help improve quality of life through economic policy. 

Union College VITA 2021 tax team: Erin O'Shea

 

My name is Erin O’Shea and I am a junior at Union College, majoring in economics with a minor in data analytics. Here at Union I am a part of the women’s soccer team and tour guide program. I am someone who loves to help others and very interested in tax policy. I am specifically interested in how tax policy intersects with retirement savings plans and education. I am really excited to help. 

Union College VITA 2021 tax team: Ali Sommers

 

Hello! My name is Ali Sommers and I am a junior economics major at Union College. Some things I do on campus are play on the women's lacrosse team, work as an affiliate caller, and volunteer at Cocoa House. One part of tax policy that particularly interests me is the child credit. The most recent proposals from Biden and Romney are interesting and would greatly benefit many families. I am excited for the opportunity to learn about tax policy first hand and happy to help the Schenectady community. 

Reviving this blog with gratitude and hope for the future

Fifteen years ago, in the late spring of 2005, I agreed to take over responsibility for teaching Union College´s Eco 391 class, ¨Income Tax Policy & Practice,¨ a service-learning class that involved supervision of the students in operating a Volunteer Income Tax Assistance (VITA) site at the college´s  Kenney Community Center, a building that had previously served as a somewhat notorious bar and grill.

Union College Kenney Community Center (formerly the Alps Bar & Grill)
in Schenectady NY (city with the 13th highest child poverty rate in the country)

Fifteen years later, I am still doing it.  It has been quite a ride.

Gratitude:

I am grateful to my colleague, Professor Therese McCarty, for creating and launching the VITA  program at Union before handing it over to me when she became Dean and Academic VP of the college in 2005.  I am grateful to all the Kenney Center staff and other colleagues at Union who have supported the program.  I am grateful to all my students who have labored so hard to master the subtle intricacies of our nation´s tax system and conscientiously apply it on behalf of our clients.

Above all, I am grateful to the many client taxpayers we have had the honor to serve face-to-face in this cozy former bar & grill space:  each year hundreds of you have entrusted us with your confidence and provided a great deal of intrusive personal information we needed in order to prepare and quality review your tax returns.   We have treated that very sensitive information with the utmost care and confidentiality it deserves.  We are especially honored that so many of you have come back year after year.

We are in awe of the challenges that many of you face on a daily basis and we thank you for your patience with us and our meticulous process.  Thank you for keeping a sense of humor as we worked  together to do the best we could with the complex tax laws, which are at times quite arbitrary and unfair.  (Please know we are doing what can to advocate for needed changes!)

We know that some of you traveled to meet with us on multiple CDTA buses after a long workday on your feet emptying bedpans, driving forklifts, caring for disabled clients, helping special needs students, stocking shelves, driving school buses and many other challenges we can only imagine.  Some of you are homeless and live in shelters.  Many of you are caring for multiple generations, your children as well as your elders in frail health.  Some of you brought your children or elders along with you because they could not be left alone at home while you worked with us on your taxes.  It was an honor to meet everyone.

Please know that I have been thinking of all of you.

I imagine that many of you have lost your jobs and are worried about the future.  Others of you are still in essential jobs that require facing a significantly increased risk of contracting this terrifying disease and perhaps bringing it home to your family.  Many of you are cooped up in small spaces in these scary times.

My heart goes out to all of you.

I can not help with your health challenges (I am a ¨Doctor¨ with a PhD in economics, not a medical doctor!) but I will do what I can to help with your ongoing tax challenges.

Some of you have called to leave messages that you are being audited.  For reasons I will discuss in a subsequent post, most of those audits right now are New York State audits, not IRS audits.  Please know that I am checking voicemails daily and will call you back promptly to work with you remotely to help you assemble the supporting  documents you need to prevail in your audits.  (All of you received copies of your tax returns with my office phone number on it.  If you have lost your copy, you can find my contact info here.)

Some of you have questions about the COVID-19 stimulus payments or the status of delayed refunds.  I will call you back and try to answer those questions too.  I am sorry that our country´s complex tax system is adding to the confusion and uncertainty you face right now.

I hope we will be able to work face-to-face again in a future year, but nothing is certain right now, even whether I will still be alive in filing season 2021. I have so many fond memories of handshakes and hugs and shared joys and sorrows.

Reflections on the larger scheme of things and trying to find meaning in tax policy reform

Although I had been studying and teaching public finance theory since the 1970s, I was totally unprepared for the experiences awaiting me when I agreed to take over the VITA program in 2005.

For many years before 2005, I had been filing quite complicated tax returns for my own upper middle class household, including a Schedule C business and various types of investment income.  Before 2005, I blithely imagined that the low-income taxpayers who were the target clientele for VITA sites would have far simpler tax returns than my own family´s.  My daughters were enthusiastic when I told them of what I was about to do.  They said, ¨Mom, you will be great at this!  You are the income tax goddess!¨

Little did my daughters know, little did *I* (the so-called Tax Goddess!) know how much I had to learn.

• Taxes for low-income VITA taxpayers can be far more complicated and trickier than those for higher income taxpayers
  
• VITA tax refunds can be very large relative to taxpayer incomes
  
• The biggest cash federal antipoverty program in our country has been operated by the IRS since the mid-1990s (and enjoys surprisingly broad bipartisan support)

• Effective marginal tax rates for VITA taxpayers can be extremely volatile, making any kind of sensible tax planning extremely hard to do
  
• Many tax breaks that appear to be targeted at low income taxpayers do not in fact serve them very well
  
• Typical VITA taxpayers are far more likely to be audited than middle and upper middle class Americans

All of these issues, which existed in 2005, are--if anything--now worse in 2020.

It has indeed been discouraging.  I started this blog in 2008 as a way reflecting on subtle and tricky issues in the tax code that I thought should be exterminated in the name of simplifying and rationalizing our country´s tax system.  (If you are curious about the name of my blog, read this post.)

I had initially approached teaching this class filled with wide-eyed optimism.  In November 2005, a bipartisan presidential advisory panel issued a remarkably thoughtful report with a critically acclaimed blueprint for simplifying our country´s tax code.  I was also excited to discover that my college classmate, Nina Olson, the country´s National Taxpayer Advocate, was writing smart and sensible reports to Congress on needed changes to our country´s tax system.  

But for so many years, those sensible, thoughtful reports have seemed like voices crying in the wilderness.  Each year, the so-called ¨VITA bible,¨ the Pub 4012 has gotten longer and more convoluted and challenging to navigate as Congress passes more and more complicated tax laws affecting low-income American taxpayers.

My students have done an outstanding job of rising to the increasing challenges and assisting our taxpayers, but it feels like we are just sorcerer´s apprentices.  

It is heart-breaking to see the enormous amount of wasted energy that goes into compliance with a needlessly complex tax system that has caught up some of our country´s most vulnerable citizens.

And, so I had pretty much given up blogging here.  

What was the point in being just another voice crying in the wilderness?  Nobody in a position to make change happen has seemed to care about making our tax system more understandable, less Kafkaesque, and less stressful.

I am getting old.  I was still in my early 50s when I began doing this.  Now I am in my late 60s.

But I keep on keeping on with serving our local taxpayers, many of whom gratefully come back year after year after year.  I know that the work my students do relieves a lot of stress.  And I know my students learn a ton from working with them.

But is there any hope that I can be part of an effective movement for a fairer, simpler tax system?

I had pretty much given up on thinking so.

But in this topsy-turvy Coronavirus world run by an administration far more chaotic than anything I could have ever imagined back when I was a college student almost 50 years ago, I have somehow decided to begin hoping again and blogging again.

In large measure, a request from one of my Eco 391 students to do a reading and research course with me this spring term has given birth to renewed hope.  Carrie is a psychology major with an economics minor and she and I are both particularly intrigued by Nina Olson´s call for the use of a Taxpayer Anxiety Index.

In a world that has so much to be anxious about, particularly for those with the least material resources, why does our convoluted tax system have to add to the stress and anxiety folks are experiencing?

Thanks especially to Carrie for inspiring me to reflect and write in this way.  Carrie and her classmates and the 15 cohorts of VITA students who preceded them will likely be around far longer than I will be.  I hope and believe their VITA experience will inform their lives as citizens, professionals, and community members.

Stay tuned for more to come.  Whether *I* survive to serve again directly during filing season 2021 remains to be seen, but I hope some of my ideas for needed change will live on after me.

Octochamps may be facing big tax bills

photo credit: Mark Bowen: Scripps National Spelling Bee

The National Spelling Bee (NSB) champions made history Thursday night.  For the first time in the history of the bee, there was an eight-way tie.  (There had never been more than two co-champs before and even those were extremely rare until recently.)  First prize is $50,000 in cash and the bee sponsors decided that the prize money will not be split.  Each speller will take home $50,000.  All spellers are under 16 years old, due to spelling bee eligibility rules. Under current law, kiddie tax rules will apply on their unearned income over $2,200. 

To the best of my understanding, spelling bee prizes are not considered wages or self-employment income in a ¨trade or business¨ so they constitute unearned income subject to kiddie tax.    So the prize money in excess of $12,750 will face federal taxes at the maximum 37% tax rate.  State taxes may also apply.

In addition to the $50,000 in cash prize, there are hundreds of dollars of prizes like reference books from Encyclopedia Britannica and Merriam-Webster, whose fair market value is also subject to taxation at the kiddie tax rates.

Note:  As Kay Bell reported last month, Congress is currently considering changes to the Kiddie Tax rules because of unintended impacts on children in Gold Star families.

How and why I bought an ACA policy for my family

Originally posted in fall 2013--updated January 2017

I signed up for an ACA policy myself.  Although I do not qualify for subsidies, it still provides very good coverage at a price much lower than my current policy.  (My current policy is a COBRA policy based on my late husband's prior family policy coverage at his job.)  Even without subsidies, our new policy will cost less than half of what we would be paying if we stayed on COBRA, and also much less if we bought one of the nongroup policies currently available on the open market in New York State.

Because I am in great health and also fortunate to be able to cover "the small stuff", effectively self-insuring for small routine expenses, the best choice for me appeared to be a no frills high deductible "Bronze" policy from a highly rated HMO, Capital District Physicians Health Plan (CDPHP).  Our family has used CDPHP in the past.  They have a very solid track record and we have confidence in the physicians we have used who are part of their network.  In fact, a recent issue of Consumer Reports showed that CDPHP ranked #1 health care plan in New York State and among the top 20 health plans anywhere in the country by the National Council on Quality Assurance, a national nonprofit accreditation agency.

There were several other choices that also looked quite appealing and might meet other family's needs and circumstances better including a number of plans from MVP, also a well ranked health plan in the rankings cited by Consumer Reports as a "best buy."

Update:  I have now had three full years of this coverage and have just started my fourth year.  It has worked well for me, providing access to an excellent network of health care providers at much lower cost than I would have been able to obtain before ACA.  My first year (unsubsidized) premium for a high deductible Bronze family policy was $626/month.  It has increased an average of $23 per year over each of the past three years, less than 4% per year.  This is more than the overall CPI but less than many of the headlines suggest.  It has also qualified me to open a Health Savings Account.  I recognize that others, particularly in other states, have had worse experiences.

FAQ for the VITA Basic Exam Topics

Updated Jan 17 to include FAQs for Advanced Test (appended at the end)

All references are to IRS Pub 4012.   Convenient terminology (QC is "Qualifying Child," QR is "Qualifying Relative", and "custodial taxpayer" refers to a taxpayer who lived with his/her QC for more than half the year.)

Q: Do I have to file a tax return?

Check Tab A for answers.  Page A-1 is "for most people" but if your taxpayer qualifies as the dependent of another taxpayer, check page A-2.  Also check "special situations" on page A-3.

Q: Can I claim an exemption for myself on my tax return?

If someone else CAN claim you as their dependent (even if they choose not to do so), you may NOT claim a personal exemption for yourself.

Easy cases:

1) If you provided more than 50% of your own support, nobody else can claim you.

2) If you were over 24 on Dec 31 and not disabled and made more than $4,050 in gross taxable income in 2016, nobody else can claim you.  (Note:  for this purpose, Social Security benefits would not count as gross taxable income unless you have a lot of other income as well.)

3) If you were over 19 on Dec 31 and not disabled AND not a full-time student and made more than $4,050 in gross taxable income in 2016, then nobody else can claim you.

Other cases are harder--you will need to work through Table 1 on page C-5 to rule out the possibility that you are someone else's QC dependent and then through Table 2 on page C-6 to rule out the possibility that you are somone else's QR dependent.

Q: Can I can claim someone else as my dependent?

If you yourself can be claimed as a dependent, the answer is unequivocally NO.  Dependents may not claim others as dependents.

Otherwise, work carefully through Table 1 on page C-5 to see if the potential dependent is your QC dependent. If that doesn't work, carefully go through Table 2 on page C-6 to see if the potential dependent in your QR dependent.

Q: What happens if more than one person can qualify to claim the same person as their dependent?

See page C-4 of Tab C.

Q: How do I know if my child qualifies for the Child Tax Credit?
If your QC child was under 17, see pages G-8 and G-9 of Tab G.

Q: How do I know if I can qualify for the Child and Dependent Care Credit?
If you had a child under 13 or disabled dependent of any age in daycare to allow you to work, see pages G-3 and G-4 of Tab G.   To enter the information about daycare expenses qualifying for that credit, go to line 49 of Form 1040 and click on that line.

Q: How do I know if a child is my QC for the Earned Income Credit (EIC)?
Check page I-4 of Tab I.

Q: What filing status is most advantageous?

For a given level of  income, the hierarchy from lowest to highest tax is generally:

MFJ  (or QW)  <  HOH  < Single
Q: How do I know if I can claim Head of Household (HoH) filing status?

Carefully use the decision tree on page B-1 of Tab B.  You MUST have at least one Qualifying Person (as defined on page B-3) in order to claim HoH.

Q:  What counts as Minimum Essential Coverage (MEC) under the Affordable Care Act?

See page ACA-4 of the ACA tab (near the front of your book) for a list of the types of coverage that count.

Q: What happens if I (or my dependents) didn't have MEC for all 12 months of 2016?

Unless an exception applies, you will have to pay an additional penalty tax (called an "Individual Shared Responsibility Payment") on line 61 of  your Form 1040 tax return.

Q:  Where can I find a list of the exceptions to the ACA penalty?

See page ACA-7 in the ACA tab for the list.

Q: What are the types of education tax benefits allowed?  Which one do I use?

These are described in a table on pages J-2 and J-3 of Tab J.  There are many types and the details differ among them.  The most common ones for current students are American Opportunity Credit, Lifetime Learning Credit, and the Tuition and Fees deduction.  In general, a student enrolled in the first four years of post-secondary education at least half time will benefit most from the AOC, so you should always try that one first.  Students who are very part-time or past the first four years will not not qualify for AOC, so you would go with Lifetime Learning credit or Tuition and Fees deduction for them.

Q: How do I enter education tax benefits for current students?

Go to Form 1040 and click on line 50 to go to the education benefit menu.

Q: How do I enter student loan interest?

Student loan interest of up to $2,500 paid by the taxpayer is deductible as an adjustment to income.  Go to Form 1040 and click on line 33 to enter this deduction.

Q:  What kinds of income needs to be reported on a tax return?

See page D-1 of Tab D for a list of what needs to be reported and doesn't need to be reported.

Q:  I am not sure where to enter a particular type of income?

See pages D-3 through D-6 of Tab D.

Q: How do I enter my itemized deductions?

Itemized deductions go on Schedule A. Click on line 40 of Form 1040 to go to the itemized deductions menu.

Q: What expenses count as medical deductions on Schedule A?

The expenses must be UNreimbursed and paid by the taxpayer (or spouse if it is a joint return).  The expenses must be for the medical care of the taxpayer, spouse, or dependents.  Health insurance and long term care insurance count, as do hospital, doctor, dentist, and medical equipment bills.  Prescription drugs and insulin count, but other over-the-counter nonprescription drugs do not.

Q:  What taxes I paid count as Itemized Deductions on Schedule A?

Only state/local income taxes OR state/local sales taxes, real estate taxes, and personal property taxes count.  (There are some obscure "other taxes" that might count but they are out of scope for VITA.)

Q: What expenses count as interest deductions on Schedule A?

Mortgage interest (including interest, late fees, and points) count.  "Mortgage insurance premiums" reported on a 1098 are also deductible as mortgage interest but "homeowners insurance" premiums are NOT deductible.  Note that you can often find real estate tax information on a Form 1098 because homeowners often pay their real estate taxes through the bank holding their mortgage.

Q:  What are the rules for charitable deductions?

Taxpayers must have written documentation for ALL donations.  A cancelled check or credit card receipt is enough if the donation is under $250.  For donations of $250 and above the taxpayer must have a letter or statement from the organization stating that no good or services were provided in exchange for the contribution.  The recipient must be a tax-exempt organization under IRS rules.  Individuals and political organizations never qualify as tax-exempt.

Q:  What are the rules for gambling income and losses?

Gross winnings must be declared as other income on line 21 of Form 1040.  (Click on line 21 to go to the menu to enter this income.)  If the taxpayer also had losses, they can only deducted if the taxpayer itemized deduction on Schedule A, and they are limited to the amount won.

Q:  How does the Retirement Savings Tax Credit work?

Taxpayers who contribute to qualified retirement plans such as 401k plans, 403b plans, and IRAs may get this credit if their income qualifies and if they are NOT full-time students.   Many taxpayers make their contributions on a W-2.  Check the codes in box 12 of the W-2.  If you do not recognize the code, look it up on page D-10 of Tab D.  See Sheryl Berringer's Form 8880 for an example of how this credit is calculated.

Q:  What do I do with a 1095-A form?

A 1095-A form means that your taxpayer "purchased a health insurance policy" in the ACA "marketplace" also known as "the exchange".  (In New York State, the name of the ACA exchange is called "New York State of Health," but other states have exchanges known by other names.)  If your taxpayer purchased a "bronze" or "silver" or "gold" or "platinum" policy, then he or she may be eligibile for Premium Tax Credits and/or may have received Advance Premium Tax Credits, so you MUST prepare a Form 8962 in that case.  Refer to your Pub 5157A homework examples 6 and 7 for help with how to deal with this case.

Note:  if your taxpayer underestimated their 2016 income at the time they originally purchased their policy, they will generally have to pay back some of their Advanced Premium Tax Credits (reported on line 46 of Form 1040)  See example 7 in Pub 5157A for how this works.

If your taxpayer overestimated their 2016 income at the time they originally purchased their policy, they may get some additional Premium Tax Credit added to their refund (reported on line 69 of Form 1040).  See example 6 in Pub 5157A for how this works.

Q:  What do those mysterious codes in Box 7 of 1099R mean?
See page D-23 and D-24 of your Pub 4012.

Q: My taxpayer has a 1099-C form for "Cancellation of Debt"?  What is that and what do I do with it?

Cancellation of debt means that someone that your taxpayer owed money to agreed to forgive some or all of their debt.  The appropriate tax treatment of Cancellation of Debt depends on the type of debt.

If the debt forgiven is credit card debt, then you would report the amount of loan forgiven as "Other Income" on line 21 of Form 1040.  See page D-44 and D-48 of your 4012 for more guidance.

If the debt forgiven is home mortgage debt on a primary residence, then you do NOT need to report the debt forgiven as income THIS year, but when you sell the home, you will need to reduce the basis by the amount of the loan forgiven.  See page D-52.

Q: My taxpayer has a 1099-MISC with an amount listed in box 7 as "non-employee compensation."  What do I do?

The IRS generally considers such taxpayers to be self-employed and you will need to prepare a Schedule C or Schedule C-EZ to report both the revenues and expenses for the business.  See page D-30 of your Pub 4012.

Q:  My taxpayer is self-employed but received cash payments instead of (or in addition to) the amounts reported on the 1099-MISC.

All receipts of the business MUST be reported on the Schedule C or C-EZ.   See page D-29 of your Pub 4012.

Q: How do I deal with business expenses for a self employed person?

See pages D-34 and D-35

Q:  My taxpayer sold securities?  What do I do?

You will need to file a Schedule D for your taxpayer.  See pages D-36 and D-37.

If your taxpayer realized a net gain on the sale of their securities, then the net gain will be reported on line 13 of their Form 1040.  The applicable tax rate depends on whether the gain is short-term or long-term.  Short-term gains are taxed the same as ordinary income, but long term gains are taxed far more generously.

If your taxpayer realized a net loss on the sale of their securities, they report up to $3,000 in net losses on line 13.  If their net losses exceed $3,000, the losses in excess of $3,000 may be "carried forward" and applied to future year's returns.

Q: My taxpayer had "Capital Loss Carryforwards" from a prior year.  What do I do with them?

See the guidance at the bottom of page D-36 of Pub 4012.

Q:  What is the cost basis for a security my taxpayer sold?

If your taxpayer purchased the security, the basis is generally the original price paid for the security.  Often (but not always) you will find that amount reported on a 1099-B brokerage statement.

If your taxpayer inherited the security, the basis is the value of the security ON THE DATE OF DEATH of the person from they inherited it.

Q:  I have a question not listed above.  Help!
Check the Table of Contents of  Pub 4012  on pages 1-2.

Search the PDF of Pub 4012 using a key word or phrase.

Check Pub 17

Tax Prom!

To my great surprise, I recently learned that there is an annual "Tax Prom" for members of the "tax community," held at the Ritz Carlton Hotel in Washington DC.

Who is the "tax community," I wondered.

Apparently, ordinary American taxpayers are not members of the "tax community," since tickets are $500 per person (of which $288 "may be tax-deductible to the fullest extent of the law," according to the event's 501c3 nonprofit sponsor, The Tax Foundation), placing it out of the reach of most American households.

Opportunities with additional perks for the extra generous are available at various levels from bronze ($6,500) through diamond ($40,000).  Noteworthy sponsors include soda companies (Coca Cola and Pepsi), a tobacco company (Altria), and alcohol and beer trade groups.  Amazon and Walmart as well as other large corporations are also represented, along with H&R Block, Intuit, and various accounting firms.

The website boasts that last year's prom broke all records for the number of Congressional representatives and staff attending.  (It is unclear what, if any, price they are asked to pay for their attendance.)

The invitation page states:  "Engage with more than 500 of the tax community's most influential executive branch officials, congressional staffers, members of Congress, sponsors, and non-profits. Establish yourself or your organization as a critical voice in the tax reform debate."

The website is here:  https://taxprom.com/

Links for lunch talk on taxes to Union Scholars

IRS Publication 17 Your Federal Income Tax
IRS Publication 970 Tax Benefits for Education
Form 1040 and Instructions for Form 1040
Kelly Erb explains how to understand your W-2  and your 1099-MISC


Comic relief:

Tax errors: tax software, tax professionals, and even the US Treasury Secretary make them!
Adventures in the tax code: When is an Xbox taxable income?
And about those cars given away by Oprah?  More discussion, including Jon Stewart's take
If the IRS discovered the quadratic formula ...

2018:  update "the really big postcard"

Humor can be helpful in relieving the often tedious details in tax laws but THIS is serious

"My parents told me they will not claim me as their dependent this year.  That means I can claim myself"  Not necessarily!  See here.

After graduation, what will you and Warren Buffett's secretary most likely have in common?

Step by step: preparing a workbook return in TaxWise

Once again, Eco 391 students are preparing for the VITA certification exam to be given on the first day of class, practicing by working on the workbook returns (which are similar to the scenarios that come up on the VITA exam and also similar to many situations that come up "in real life" for taxpayers at our VITA site.)  Some tips are listed below.  Any other readers of this blog can find this case study in Pub 4491W on pages 11-15.

1) First step:  before you even open TaxWise, review and annotate the Intake & Interview sheet.  Use the information in Tab B of Pub 4012 to determine the filing status of the taxpayer.  Use the information in Tax C of Pub 4012 to determine whether any of the people who live with and/or are supported by the taxpayer can be claimed as dependents.  Circle any entries marked "Yes" on page 2 of the Intake/Interview sheet and annotate with the documents or information from the interview notes.  You can see my annotated sheets for the Beringer case below. (My annotations are in red. Click on the images to see larger versions. If you have questions about any of this, please feel free to post questions below or in the Nexus class discussion forum.)

Step 2: Start a new return in TaxWise.  Begin by filling in the Main Info screen using the information from the taxpayer's Intake and Info sheet and the Social Security cards for the taxpayer and dependents.  Since this taxpayer has two "Qualifying Children" who lived with her as dependents, you should enter Code 1 on their lines and check the EIC box on their lines to bring up the Earned Income Credit forms.  This taxpayer also has a "Qualifying Relative" dependent (her mother), and you should enter her as Code 3.  Since QR dependents never qualify a taxpayer for EIC, you would not check the EIC box on the taxpayer's mother's line.  Note that Willie Cash is not a QR dependent (why?) and no information for Willie should be entered on the tax return.

After you have filled out the Main Info screen completely, you should see a green checkmark next to the Main Info in the left sidebar and you can move on.

Step 3: Enter all information from the taxpayer's documents in the appropriate forms or worksheets.  Also, make sure that the relevant information from every entry marked "Yes" on page 2 of the return is entered into the appropriate place in TaxWise.  (Tab K has some helpful information for this or, again, feel free to post a question on the discussion forum.)

Step 4: Look at every form in the left sidebar and "get the red out," by completing the requested information in every red field.

After the entire left sidebar has no more red, print the return to a PDF and walk line by line through the 1040, explaining to your imaginary taxpayer (Sheryl Beringer) the reasoning behind each of the entries in her return.  (Note to my class--this is exactly what we did in 2014 TaxWise back at our training session in November.  What you are doing in this first exercise is the same scenario in 2015 TaxWise.  You will notice that some of the answers are slightly different, due to minor inflation adjustments in the tax parameters between 2014 and 2015.)   

If class members have questions, please feel free to email me or to post questions on the discussion board in Nexus.  I am happy to go into your TaxWise return and troubleshoot if you are having difficulty with anything. Anyone else with questions is welcome to post them in the comments section below.