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Assessment 5 Tax Credits on 1040 to Reduce Tax Liability
Assessment 5 Tax Credits on 1040 to Reduce Tax Liability
Assessment 5 Tax Credits on 1040 to Reduce Tax Liability . Determine eligibility for available tax credits and complete an official worksheet for each credit, to demonstrate eligibility.
Note: Completing a tax form requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order. Incorrect entries in previous assessments will result in incorrect entries in future assessments. Do not complete Assessment 5 until you have submitted and received faculty feedback for Assessment 4.
Context
“When a new source of taxation is found it never means, in practice, that the old source is abandoned. It merely means that the politicians have two ways of milking the taxpayer where they had one before.” — Henry Louis Mencken, one of the most influential American writers of the early twentieth century.
Politicians have a penchant for finding ways for doing one of two things:
Questions to Consider
To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.
• How do tax credits directly benefit an individual taxpayer? • Which is more advantageous: a deduction or a tax credit? • What can you do if you have already filed your tax return and you discover you are eligible for a tax credit?
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Assessment 5 Tax Credits on 1040 to Reduce Tax Liability
Resources
Required Resources
The following resources are required to complete the assessment.
Internet Resources Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.
IRS.gov is the homepage for the federal IRS Web site. Use the tabs at the top of the page to navigate the site. The Interactive Tax Assistant and Tax Trails are tools that walk you through a series of questions to find answers to tax questions. Download the appropriate forms and publications from the IRS Web site to complete this assessment.
• IRS.gov. (n.d.). Retrieved from http://www.irs.gov/ • IRS. (n.d.). Interactive tax assistant. Retrieved from http://www.irs.gov/uac/Interactive-Tax-
Assistant-(ITA)-1 • IRS. (n.d.). Tax trails. Retrieved from www.irs.gov/Individuals/Tax-Trails%2d%2d%2dMain-Menu
Assessment Instructions
Note: The assessments in this course are presented in sequence and must be completed in order. In Assessments 2–5, you will work step-by-step toward completing a 1040 tax return and all the necessary related forms, based on a provided scenario. Do not complete Assessment 5 until you have submitted and received faculty feedback for Assessment 4.
This assessment will require significant research and critical thinking to complete each required form successfully. An incorrect entry on one form will create incorrect entries in other forms.
There are two parts to this assessment. Be sure to complete both parts and submit the necessary materials.
• Part 1:
Determine eligible tax credits by completing official worksheets. • Part 2: Complete Schedule A and the 1040.
Preparation
• Read the information provided in the scenario below. • Download the following tax forms and instructions from IRS.gov, linked in the Resources under the Required Resources heading: ◦ 1040. ◦ Schedule A. ◦ 2441. ◦ 3800. ◦ 5884.Part 1
Use the information in the scenario, on IRS.gov, and in the interactive IRS tools to interpret official rules and instructions to determine available tax credits.
• Complete an official worksheet for each tax credit to demonstrate eligibility. • Submit each tax credit worksheet.
Part 2
Use the information in the scenario, on IRS.gov, and in the interactive IRS tools to Interpret official rules and instructions to complete the following:
• Complete Schedule A. • Enter data from Schedule A into the 1040. • Apply the rules and tax tables to calculate the tax owed and the amount of any refund. • Submit Schedule A and the completed 1040.
Scenario
Assessment 5 Tax Credits on 1040 to Reduce Tax Liability
• Jacob and Taylor Weaver, ages 45 and 42 respectively, are married and are filing jointly in • 2014.
◦ They have three children, Ashley, age 9; Patrick, age 6; and John, age 18. ◦ Social Security numbers are: Jacob, 222-33-4444; Taylor, 555-66-7777; Ashley, 888-
99-1234; Patrick, 789-56-4321; John, 123-45-6789. • Jacob is self-employed as a contractor.
◦ 2014 net income: $133,000. ◦ Clients owe him a total of $53,000 for work completed in 2014. ◦ 2014 estimated tax payments: $18,000.
• Taylor works part-time as a paralegal. ◦ She earned $26,000 in 2014. ◦ Federal income withholding: $2,350.
• Weavers $350 paid with their 2013 state tax return. • Jacob and Taylor bought their house in 2014.
◦ Home mortgage interest: $7,246. ◦ Property tax: $2,230.
• Charities: $4,500. • $435 to rent a moving truck. • $8,000 to put new siding on the house. • $11,600 for child care expenses ($5,800 for each child).
◦ It was paid to Lil Tigers Daycare, 1115 S. Garrison St., Muncie, IN 47305 (EIN 98- 7654321).
• Taylor is a part-time student at Ball State University in Muncie. ◦ She received a 1098-T indicating tuition and fees for 2014 in the amount of $6,011.
• Health insurance for the family, through Taylor’s job, cost $6000 for all 12 months of 2014. ◦ They paid deductibles and co-payments of $550.
• Dental insurance for the family was $1200. • Car insurance for the family car was $600.
Assessment 5 Tax Credits on 1040 to Reduce Tax Liability
How to use the scoring guide
Tax Credits on 1040 to Reduce Tax Liability Scoring
Guide
Use the scoring guide to enhance your learning.
ACTIVITY
Interpret official rules and instructions to determine available tax credits.
Analyze tax rules to complete tax credit worksheets to prove eligibility.
Apply laws and rules to correctly enter data on Schedule A.
Apply rules and tax tables to record the correct tax owed on the 1040.
Correctly calculate the amount of a refund on the 1040.
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