Ultimate Tax Preparation Academy

By the end of this course, you will be able to:

• Understand how to obtain a PTIN and the responsibilities that come with it.

• Apply proper due diligence compliance and documentation practices.

• Complete the IRS Due Diligence Training Module.

• Recognize the requirements of Circular 230 and adhere to the Code of Ethics.

• Stay current with tax law and recent tax law updates.

A PTIN stands for Preparer Tax Identification Number.

• It’s a number issued by the IRS to anyone who prepares or assists in preparing federal tax returns for compensation.

• If you get paid to prepare taxes, you must have a valid PTIN before you can legally file returns.

• It’s renewed every year through the IRS PTIN system (irs.gov/ptin).

• A PTIN identifies you as the paid preparer on tax returns and is required in place of your Social Security Number (for security and compliance).

✅ Key points about PTINs:

• Who needs it? All paid tax return preparers.

• Who doesn’t? Volunteers (like IRS VITA/TCE program participants) don’t need one.

• Responsibilities: As a PTIN holder, you’re responsible for accuracy, compliance, and ethical standards when preparing returns.

• Use it on all tax returns you prepare.

• Ensure accuracy and compliance with IRS rules.

• Maintain professional conduct at all times.

1. What is Due Diligence?

• Due diligence means making a reasonable effort to ensure the information on a tax return is complete and correct.

• As a paid preparer, you must not ignore facts, accept incomplete information, or knowingly submit incorrect returns.

2. Why is Due Diligence Important?

• Protects taxpayers from errors that could trigger audits.

• Protects preparers from penalties and disciplinary action.

• Ensures compliance with IRS regulations, especially for refundable credits.

3. Key Due Diligence Requirements
For certain credits, preparers must meet special requirements:

• Earned Income Tax Credit (EITC)

• Child Tax Credit (CTC) / Additional Child Tax Credit (ACTC)

• Other Dependent Credit (ODC)

• American Opportunity Tax Credit (AOTC)

The IRS requires preparers to:

1. Ask questions if information is incomplete or inconsistent.

2. Document client responses clearly.

3. Keep copies of documents or detailed notes for at least 3 years.

4. Complete Form 8867 (Paid Preparer’s Due Diligence Checklist) with each return claiming these credits.

4. Good Documentation Practices

• Keep copies of W-2s, 1099s, 1095s, birth certificates, school records, medical records, and other proof.

• Record interview notes for every client, especially when eligibility for credits is unclear.

• Securely store documents to protect client privacy.

• Have a system (physical files or secure digital folders) for at least 3 years.

5. Penalties for Non-Compliance

• $600 penalty per failure, per return, if you don’t meet due diligence requirements.

• Repeated failures can lead to suspension or loss of PTIN privileges.

Closing
“Remember — due diligence isn’t just about compliance, it’s about professionalism. By asking the right questions and keeping thorough records, you protect your clients, your business, and your reputation.”

1. What is the Office of Professional Responsibility (OPR)?

• OPR is part of the IRS.

• Its mission is to oversee tax professionals and ensure they adhere to ethical standards.

• OPR investigates misconduct and can discipline tax professionals for violations.

2. What is Circular 230?

• Circular 230 is the IRS publication that outlines the rules of practice before the IRS.

• It applies to attorneys, CPAs, Enrolled Agents, and all tax preparers with PTINs.

• It sets expectations for competence, honesty, integrity, and diligence.

3. Key Provisions of Circular 230

• Competence: Only take on work you are qualified to do.

• Due Diligence: Always verify information and prepare accurate returns.

• Conflicts of Interest: Avoid or disclose conflicts.

• Fees: No unconscionable or misleading fee arrangements.

• Advertising & Solicitation: Must be truthful and not misleading.

• Client Records: Must return client records promptly, even if fees are unpaid.

4. Consequences of Violations

• OPR has authority to:

  • Issue reprimands.

  • Suspend or disbar tax professionals from practice before the IRS.

  • Impose monetary penalties.

5. Why This Matters to You

• Following Circular 230 protects your license, PTIN, and reputation.

• It builds trust with clients and demonstrates professionalism.

Closing
“As a tax preparer, Circular 230 and the OPR serve as your guardrails. By following them, you protect yourself, your clients, and your profession.”

1. Standard Deduction & Inflation Adjustments for 2025

• For tax year 2025, the IRS has increased the standard deduction:
  • Single filers & married filing separately: $15,750
  • Married filing jointly: $31,500
  • Heads of household: $23,625

• Marginal tax brackets and other thresholds have also been adjusted for inflation.

2. One Big Beautiful Bill Act (OBBBA) — Key Provisions

• In 2025, the OBBBA introduced several new provisions including:
  • An additional standard deduction of $6,000 for individuals aged 65 or older (2025–2028)
  • Modifications to deductions and credits in some cases.

• Some provisions begin immediately; others phase in. Know which ones apply now vs. later.

3. Tax Withholding & Payroll Reporting

• For tax year 2025, withholding tables (used by employers) will remain unchanged despite other tax law updates.

• Forms W-2, 1099, and Form 941 remain as before. There are no changes for those forms yet.

4. Other Changes & Provisions to Watch

• Earned Income Tax Credit (EITC) maximums and phase-out thresholds have been adjusted for inflation.

• New rules and limits under OBBBA may affect deductions, overtime compensation, and more.

• Particular tax benefits for seniors, changes to how certain types of income are reported or deductions phased in/out.

Closing
“Whenever tax law updates, you’ll need to assess which changes apply to the clients or taxpayers you prepare. Use official IRS sources, review the legislation (like OBBBA), and always check effective dates so you apply the correct rules. Staying current isn’t optional — it’s essential."

By the end of this course, you will be able to:

• Determine the correct Filing Status and Requirements for each taxpayer.

• Identify Qualifying Dependents, distinguishing between a Qualifying Child and a Qualifying Relative.

• Differentiate between earned and unearned income under Types of Income.

• Recognize above-the-line deductions.

• Distinguish between non-refundable and refundable credits.

• Apply key Tax Credits such as the EITC, CTC, ODC, and AOTC.

• Understand and apply Tax Deductions, including standard and itemized deductions, to reduce taxable income.

1. The Five Filing Statuses

1. Single

   • Unmarried or legally separated on the last day of the year.

2. Married Filing Jointly (MFJ)

   • Married as of December 31.

   • Can file together even if only one spouse has income.

   • Provides the largest standard deduction for married taxpayers.

3. Married Filing Separately (MFS)

   • Each spouse files their own return.

   • Often results in higher tax liability.

   • May be beneficial for liability protection or when one spouse has unusual deductions.

4. Head of Household (HOH)

   • Unmarried or considered unmarried.

   • Paid more than half the cost of maintaining a home.

   • Must have a qualifying child or dependent.

   • Provides higher standard deduction than Single.

5. Qualifying Widow(er) with Dependent Child

   • Available for two years after a spouse’s death.

   • Must have a dependent child.

   • Allows the same benefits as Married Filing Jointly.

2. Requirements & Impact

• Filing status determines:

  • Standard Deduction amount.

  • Tax rates and brackets.

  • Eligibility for credits like the Earned Income Tax Credit (EITC) or Child Tax Credit.

Closing
“Filing status sets the stage for the rest of the tax return. As a preparer, it’s your job to ask the right questions about marital status, dependents, and household expenses to ensure accuracy.”

1. Qualifying Child – IRS Tests

To claim someone as a Qualifying Child, all of these must be met:

1. Relationship Test – Must be your child, stepchild, foster child, sibling, step-sibling, or descendant (e.g., grandchild, niece, nephew).

2. Age Test – Must be under age 19 (or under 24 if a full-time student) OR permanently disabled at any age.

3. Residency Test – Must live with you for more than half the year.

4. Support Test – The child cannot provide more than half of their own support.

5. Joint Return Test – The child cannot file a joint return unless it’s only to claim a refund.

2. Qualifying Relative – IRS Tests

If someone doesn’t meet the Qualifying Child tests, they may still qualify as a Qualifying Relative if:

1. Not a Qualifying Child of another taxpayer.

2. Relationship Test – Must live with you all year as a member of the household, OR be related in certain ways (e.g., parent, sibling, in-laws).

3. Gross Income Test – Their income must be below the exemption threshold ($5,200 in 2025).

4. Support Test – You must provide more than half of their total support.

3. Why This Matters

• Determines eligibility for:

  • Child Tax Credit (CTC)

  • Earned Income Tax Credit (EITC)

  • Head of Household status

• Impacts refund amount and compliance with IRS rules.

Closing
“As a preparer, always run through the dependency tests carefully. Many errors happen when clients assume someone qualifies as a dependent without meeting IRS rules. Your accuracy here protects both you and your client.”

1. Earned Income

• Income received for work performed.

• Examples:

  • Wages, salaries, tips (Form W-2)

  • Self-employment income (Schedule C)

  • Union strike benefits

  • Certain disability benefits received before retirement age

• Subject to income tax and payroll taxes (Social Security & Medicare).

• Used to calculate credits such as Earned Income Tax Credit (EITC).

2. Unearned Income

• Income not derived from work or services performed.

• Examples:

  • Interest (1099-INT)

  • Dividends (1099-DIV)

  • Capital gains (Schedule D)

  • Rental income (Schedule E)

  • Unemployment compensation (1099-G)

  • Retirement distributions (1099-R)

• Subject to income tax only (not payroll taxes).

3. Why the Difference Matters

• EITC eligibility is based only on earned income.

• Investment income limits apply for certain credits.

• Different tax treatment (e.g., long-term capital gains may be taxed at reduced rates, while wages are taxed at ordinary rates plus FICA).

Closing
“As a tax preparer, always classify income correctly. Misclassifying earned vs. unearned income can cost your client valuable credits or lead to IRS penalties.”

1. What Are Above-the-Line Deductions?

• Found on Schedule 1, Part II of Form 1040.

• Subtracted from total income to calculate AGI.

• Can be claimed whether the taxpayer uses the standard deduction or itemized deductions.

2. Common Examples of Above-the-Line Deductions

• Educator expenses (teachers can deduct classroom supplies).

• Student loan interest (up to $2,500).

• Contributions to traditional IRAs.

• Contributions to Health Savings Accounts (HSAs).

• Self-employment deductions:

  • Part of self-employment tax

  • Health insurance premiums

  • Retirement contributions (SEP, SIMPLE, qualified plans).

• Alimony paid (only for agreements before 2019).

• Penalties for early withdrawal of savings.

• Moving expenses (only for active-duty military).

3. Why They Matter

• Lowering AGI improves eligibility for credits such as the Child Tax Credit, education credits, and EITC.

• Unlike itemized deductions, above-the-line deductions are available to all taxpayers who qualify.

Closing
“Above-the-line deductions are one of the most powerful tools to reduce taxable income. They benefit taxpayers even if they don’t itemize, and they can open the door to additional tax savings.”

1. What Are Tax Credits?

• Tax credits lower a taxpayer’s tax dollar-for-dollar.

• More valuable than deductions because they reduce liability directly, not just taxable income.

2. Non-Refundable Credits

• Can reduce tax liability to zero, but not below zero.

• If the credit is larger than the tax owed, the excess is lost.

• Examples:

  • Child and Dependent Care Credit

  • Lifetime Learning Credit

  • Saver’s Credit

  • Adoption Credit

3. Refundable Credits

• Can reduce tax liability below zero, generating a refund.

• Taxpayer receives the difference even if no tax is owed.

• Examples:

  • Earned Income Tax Credit (EITC)

  • Child Tax Credit (partially refundable)

  • American Opportunity Credit (partially refundable)

  • Premium Tax Credit

4. Why It Matters

• Impacts refund vs. balance due.

• Helps preparers optimize tax planning and ensure clients claim all eligible credits.

• Misclassifying can cause clients to miss out on money or overstate refunds.

Closing
“Always check whether a credit is refundable or non-refundable. That single detail determines whether your client simply reduces their tax bill or actually receives extra money back.”

1. Earned Income Tax Credit (EITC)

• Refundable credit for low-to-moderate-income workers.

• Based on earned income and number of qualifying children.

• Requires valid SSNs, U.S. residency, and no investment income above limit.

2. Child Tax Credit (CTC)

• Credit of up to $2,200 per qualifying child under age 17.

• Up to $1,700 (2025) may be refundable as the Additional Child Tax Credit.

• Requires valid SSN for the child.

3. Other Dependent Credit (ODC)

• $500 non-refundable credit for dependents who don’t qualify for CTC.

• Applies to older children (17+), parents, or relatives supported by the taxpayer.

4. American Opportunity Tax Credit (AOTC)

• Education credit for first 4 years of higher education.

• Worth up to $2,500 per student:

  • 100% of first $2,000 of qualified expenses, plus

  • 25% of the next $2,000.

• 40% refundable (up to $1,000).

• Student must be enrolled at least half-time and not have a felony drug conviction.

Closing
“These credits directly reduce tax liability and in some cases generate refunds. Applying them correctly maximizes client benefits and ensures compliance with IRS rules.”

1. What Are Tax Deductions?

• Tax deductions lower taxable income, not tax liability directly.

• Two types:

  • Standard Deduction – A fixed amount set by the IRS, based on filing status.

  • Itemized Deductions – Specific allowable expenses listed on Schedule A.

2. Standard Deduction (2025 amounts)

• Single: $15,750

• Married Filing Jointly: $31,500

• Head of Household: $23,625

• Married Filing Separately: $15,750

• Qualifying Widow(er): $31,500

• Note: amounts adjusted annually for inflation.

3. Itemized Deductions (Schedule A)

Common categories:

• Medical & Dental Expenses – Only the portion above 7.5% of AGI.

• State and Local Taxes (SALT) – Up to $10,000 ($5,000 MFS).

• Mortgage Interest – Interest on up to $750,000 of home acquisition debt.

• Charitable Contributions – Generally up to 60% of AGI.

• Casualty/Theft Losses – Federally declared disasters only.

4. Choosing Between Standard & Itemized

• Taxpayers should use whichever provides the greater deduction.

• Most taxpayers use the standard deduction because it’s larger and simpler.

• Itemizing is beneficial for those with large mortgages, property taxes, medical expenses, or charitable giving.

Closing
“Your job is to calculate both options when appropriate. The goal is always to minimize taxable income and maximize savings — legally and ethically.”

By the end of this course, you will be able to:

• Complete Form 1040 and understand its purpose as the primary individual tax return.

• Differentiate between the Standard Deduction and Itemized Deduction to determine which provides the greatest tax benefit.

• Prepare Schedule A for Itemized Deductions such as medical expenses, taxes, mortgage interest, and charitable contributions.

• Prepare Schedule B to report Interest and Ordinary Dividends.

• Complete Schedule C to calculate Profit or Loss from Business for sole proprietors.

• Apply Schedule D to report Capital Gains and Losses from the sale of investments.

• Use Schedule E to report Supplemental Income and Loss, including rental real estate, royalties, partnerships, S corporations, and trusts.

1. What is Form 1040?

• Form 1040 is the Individual Income Tax Return filed annually with the IRS.

• It summarizes a taxpayer’s income, deductions, credits, and taxes owed or refunded.

• It acts as the central hub: all supporting forms (Schedules A, B, C, D, E, etc.) attach to it.

2. Key Sections of Form 1040

• Personal Information: Filing status, name, SSN, dependents.

• Income Section: Wages, interest, dividends, self-employment, retirement, etc.

• Adjustments & Deductions: Above-the-line adjustments, standard or itemized deduction.

• Tax & Credits: Tax calculation, credits (non-refundable and refundable).

• Payments: Withholding, estimated payments, refundable credits.

• Refund or Amount Owed: Final balance due or refund amount.

• Signature & PTIN: Both taxpayer and preparer (if paid) must sign.

3. Supporting Schedules

• Schedule A – Itemized Deductions

• Schedule B – Interest & Dividends

• Schedule C – Business Income/Expenses

• Schedule D – Capital Gains/Losses

• Schedule E – Supplemental Income (rental, partnerships, S corps)

• Each schedule flows into Form 1040 to calculate taxable income and tax liability.

4. Why It’s Important

• The IRS uses Form 1040 to determine whether taxpayers have paid enough tax or owe more.

• For preparers, it’s the starting point and final summary of every return.

• Errors on Form 1040 can delay refunds, trigger audits, or cause penalties.

Closing
“Think of Form 1040 as the dashboard of a tax return. Every other form connects back to it. As a preparer, your job is to ensure it accurately reflects the taxpayer’s situation.”

1. What is the Standard Deduction?

• A fixed amount set by the IRS that reduces taxable income.

• Varies by filing status (Single, MFJ, HOH, etc.) and is adjusted annually for inflation.

• Simplifies tax filing because no receipts or itemization are needed.

• Example (2025 amounts):

  • Single and Married Filing Separately: $15,750

  • Married Filing Jointly: $31,500

  • Head of Household: $23,625

2. What are Itemized Deductions?

• Taxpayers list specific deductible expenses on Schedule A.

• Common itemized deductions include:

  • Medical expenses (above 7.5% of AGI)

  • State and local taxes (SALT) — capped at $10,000

  • Mortgage interest

  • Charitable contributions

  • Certain casualty and theft losses (if federally declared disaster)

3. Choosing Between Them

• Taxpayer generally chooses the method that results in the larger deduction.

• If itemized deductions > standard deduction, itemizing provides more benefit.

• If itemized deductions < standard deduction, taxpayer should claim the standard deduction.

4. Special Considerations

• Some taxpayers are required to itemize (e.g., nonresident aliens).

• High earners with large mortgage interest or charitable contributions may benefit from itemizing.

• For most taxpayers, the standard deduction provides greater simplicity and benefit.

Closing
“As a tax preparer, always calculate both if there’s a chance itemizing could beat the standard deduction. Remember — the goal is to minimize taxable income legally and maximize your client’s tax benefit.”

Schedule A is used to calculate and report itemized deductions instead of taking the standard deduction. Taxpayers itemize when their deductible expenses are greater than the standard deduction, or when they are required to itemize (for example, nonresident aliens). 

1. Medical and Dental Expenses

• Deductible only to the extent they exceed 7.5% of Adjusted Gross Income (AGI).

• Includes doctor visits, prescriptions, insurance premiums (if not pre-tax), medical mileage.

• Example: If AGI is $60,000, only medical expenses above $4,500 are deductible.

2. State and Local Taxes (SALT)

• Deductible up to a maximum of $10,000 ($5,000 if MFS).

• Includes state income taxes, local income taxes, property taxes, or sales taxes.

• Taxpayer chooses between income tax or sales tax deduction.

3. Mortgage Interest and Points

• Interest paid on loans secured by a primary or secondary residence.

• Limited to interest on up to $750,000 of acquisition debt ($1M for older loans).

• Mortgage insurance premiums (PMI) may also qualify.

4. Charitable Contributions

• Cash donations generally deductible up to 60% of AGI.

• Non-cash donations require receipts and possibly appraisals.

• Must donate to a qualified 501(c)(3) organization.

5. Casualty and Theft Losses

• Only deductible if the loss occurred in a federally declared disaster area.

• Rare for most taxpayers but still part of Schedule A.

Closing
“Schedule A requires good recordkeeping and documentation. As a preparer, your role is to verify eligibility, apply limits, and calculate whether itemizing provides a better benefit than the standard deduction.”

1. What is Schedule B?

• A supplemental schedule to Form 1040.

• Required if:

  • The taxpayer has more than $1,500 of taxable interest or ordinary dividends, OR

  • The taxpayer received interest/dividends from a foreign account, OR

  • The taxpayer is a grantor or transferor of a foreign trust.

2. Interest Income

• Reported to the taxpayer on Form 1099-INT.

• Common sources: savings accounts, checking accounts, CDs, U.S. Treasury bonds.

• Taxable interest is entered in Part I of Schedule B.

3. Ordinary Dividends

• Reported on Form 1099-DIV.

• Ordinary dividends come from corporate earnings distributed to shareholders.

• Qualified dividends may be taxed at a lower capital gains rate, but they are still first reported on Schedule B, Part II.

4. Foreign Accounts

• Part III of Schedule B asks if the taxpayer had a financial interest in, or signature authority over, a foreign account.

• If “Yes,” the taxpayer may also need to file FBAR (FinCEN Form 114).

5. Why It Matters

• Even small amounts of unreported interest can trigger IRS notices.

• Proper completion of Schedule B ensures compliance and avoids penalties.

Closing
“Always check for Forms 1099-INT and 1099-DIV when preparing a return. If totals exceed the threshold or foreign accounts exist, you’ll need to complete Schedule B.”

1. Purpose of Schedule C

• Reports business income and expenses for self-employed taxpayers.

• Applies to: freelancers, contractors, gig workers, and small business owners (not corporations or partnerships).

• Net profit or loss is carried to Form 1040, Schedule 1, and then to Form 1040.

2. Key Sections of Schedule C

• Part I: Income

  • Gross receipts/sales from business activities.

  • Returns and allowances (if any).

  • Other business income.

  • Subtotal = Gross income.

• Part II: Expenses

  • Common categories:

    • Advertising

    • Car and truck expenses

    • Contract labor

    • Depreciation

    • Insurance (business only)

    • Office expenses

    • Supplies

    • Travel & Meals

    • Utilities

    • Wages (if employees)

  • Total expenses subtracted from income.

• Part III–V (less common for beginners)

  • Cost of Goods Sold (if inventory).

  • Vehicle information (if deducting car/truck expenses).

  • Other expenses not listed in Part II.

3. Net Profit or Loss

• Net profit = Income – Expenses → taxable as self-employment income.

• Net loss may offset other income, subject to IRS limits.

• Net profit also subject to self-employment tax (reported on Schedule SE).

4. Importance of Recordkeeping

• Accurate receipts and logs are required to support deductions.

• Good bookkeeping ensures compliance and reduces audit risk.

Closing
“Schedule C is where many small business clients rely on you most. By carefully recording income and allowable expenses, you can help them minimize taxes while staying compliant.”

1. Purpose of Schedule D

• Reports gains and losses from the sale or exchange of:

  • Stocks, bonds, mutual funds

  • Real estate (not primary residence exclusion)

  • Cryptocurrencies

  • Other capital assets

• Net gain or loss flows to Form 1040.

2. Short-Term vs. Long-Term

• Short-term: Assets held 1 year or less → taxed at ordinary income tax rates.

• Long-term: Assets held more than 1 year → taxed at favorable capital gains rates (0%, 15%, or 20% depending on income).

3. Reporting on Schedule D

• Part I – Short-Term Capital Gains and Losses

• Part II – Long-Term Capital Gains and Losses

• Part III – Summary: Combine short-term and long-term results.

4. Supporting Forms

• Form 1099-B reports sales of securities (basis, proceeds, holding period).

• Form 8949 often used to list individual transactions → totals flow to Schedule D.

5. Capital Loss Rules

• Capital losses can offset capital gains.

• If losses exceed gains, up to $3,000 ($1,500 if MFS) can offset other income.

• Remaining losses can be carried forward indefinitely.

Closing
“Schedule D is crucial for investment clients. By correctly classifying short-term vs. long-term transactions and applying loss limits, you ensure accurate reporting and tax savings.”

1. Purpose of Schedule E

• Used to report income or loss that is not from wages or self-employment.

• Main categories:

  • Rental Real Estate

  • Royalties

  • Partnerships (Form 1065 K-1)

  • S Corporations (Form 1120-S K-1)

  • Trusts & Estates (Form 1041 K-1)

  • REMICs (also known as Real Estate Mortgage Investment Conduit), farm rentals, and other pass-through activities

2. Rental Real Estate

• Reported in Part I of Schedule E.

• Includes rental income received and deductible expenses like:

  • Mortgage interest

  • Property taxes

  • Repairs and maintenance

  • Insurance

  • Depreciation

• Net rental income/loss flows to Form 1040, Schedule 1.

3. Royalties

• Payments for use of intellectual property (books, music, patents) or natural resources.

• Reported in Part I, alongside rental income.

4. Partnerships and S Corporations

• Reported in Part II of Schedule E.

• Taxpayer receives a Schedule K-1 showing their share of income, deductions, and credits.

• This is pass-through income → it is taxed on the individual’s return, not at the business level.

5. Trusts and Estates

• Also reported in Part II using Schedule K-1 from Form 1041.

• Reflects income distributed to beneficiaries.

6. Why It Matters

• Schedule E income often interacts with other tax rules, such as passive activity loss limitations and qualified business income deduction (QBI).

• Accurate reporting ensures compliance and prevents IRS notices.

Closing
“Schedule E brings together multiple types of supplemental income and losses. Whether your client owns rental property, receives royalties, or holds a partnership interest, your role is to ensure everything flows correctly into Form 1040.”

By the end of this course, you will be able to:

• Understand and apply information from W-2 and W-4 forms.

• Accurately report income using various 1098 and 1099 forms.

• Prepare Small Business Tax Returns using Schedule C.

• Perform a Schedule C Record Reconstruction when business records are incomplete, using IRS guidance Schedule C Training Module.

• Calculate and report Self-Employment Taxes.

• Prepare and file Tax Extensions when additional time is needed.

• Prepare and file Tax Amendments (Form 1040-X) to correct previously filed returns.

1. What is a W-2?

• Issued by employers to employees after year-end (by January 31).

• Summarizes wages earned and taxes withheld during the year.

• Must be included in the employee’s federal and state income tax return.

2. Key Boxes on the W-2

• Box 1 – Wages, tips, other compensation (federal taxable wages).

• Box 2 – Federal income tax withheld.

• Box 3 & 4 – Social Security wages and tax withheld.

• Box 5 & 6 – Medicare wages and tax withheld.

• Box 12 – Various codes (e.g., retirement contributions, employer-provided benefits).

• Box 16–20 – State and local wages and taxes.

3. Why It’s Important

• Ensures correct reporting of income.

• Verifies how much tax has already been paid.

• Impacts eligibility for credits, deductions, and refunds.

Closing
“As a tax preparer, accuracy in entering W-2 information is critical. Even small mistakes in wages or withholding can result in incorrect refunds or IRS notices. Always double-check W-2 entries before finalizing a return.”

1. What is Form W-4?

• Completed by employees when they start a job or when personal/financial situations change.

• Instructs employers how much federal income tax to withhold from paychecks.

• Updated in 2020 to make it simpler and more accurate (eliminated “allowances”).

2. Key Sections of the W-4

1. Step 1: Personal Information

   • Filing status (Single, Married, Head of Household).

2. Step 2: Multiple Jobs or Spouse Works

   • Ensures correct withholding if the taxpayer has more than one job or a working spouse.

3. Step 3: Claim Dependents

   • Enter qualifying dependents to reduce withholding (Child Tax Credit, ODC).

4. Step 4: Other Adjustments (Optional)

   • Other income not from jobs (interest, dividends, retirement).

   • Additional deductions (itemized vs. standard).

   • Extra withholding per paycheck.

5. Step 5: Employee Signature

   • Form must be signed and dated to be valid.

3. Why the W-4 Matters

• Directly impacts whether a taxpayer gets a refund or owes taxes at filing.

• A properly completed W-4 ensures withholding matches tax liability.

• Clients often come to you asking: “Why do I owe?” → The answer usually starts with their W-4.

Closing
“Form W-4 is one of the most important tools taxpayers have for controlling their tax outcome. As a preparer, guiding clients through W-4 adjustments can help them balance their paychecks and avoid surprises at tax time.”

Common 1098 Forms

1. Form 1098 – Mortgage Interest Statement

   • Reports mortgage interest (and points) a taxpayer paid to a lender if it’s $600 or more in a year.

   • Used to claim the mortgage interest deduction on Schedule A when itemizing.

2. Form 1098-E – Student Loan Interest Statement

   • Reports student loan interest paid, if $600 or more in a year.

   • Taxpayer may deduct up to $2,500 of student loan interest as an above-the-line deduction (Schedule 1).

3. Form 1098-T – Tuition Statement

   • Issued by colleges/universities.

   • Reports qualified tuition and related expenses.

   • Used to claim education credits like the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC).

4. Form 1098-C – Contributions of Motor Vehicles, Boats, and Airplanes

   • Issued by charities.

   • Reports the value of large non-cash charitable donations (like cars or boats).

   • Used to substantiate a charitable contribution deduction on Schedule A.

⚠️ Key Reminder for Students

• All 1098 forms are informational documents — they help taxpayers (and the IRS) verify deductions and credits.

• Just like 1099s, the IRS receives a copy too, so numbers must be entered correctly on the return.

  
  

Common 1099 Forms

1. 1099-NEC (Nonemployee Compensation)

   • Reports income paid to independent contractors, freelancers, or self-employed workers.

   • Must be reported on Schedule C and is subject to income tax + self-employment tax.

2. 1099-MISC (Miscellaneous Income)

   • Reports various types of income such as rents, royalties, prizes/awards, or legal settlements.

   • Not used for contractor pay anymore (moved to 1099-NEC).

3. 1099-INT (Interest Income)

   • Issued by banks, credit unions, or financial institutions.

   • Reports interest earned on savings, CDs, or bonds.

   • Flows into Schedule B if total interest > $1,500.

4. 1099-DIV (Dividends)

   • Issued by corporations or mutual funds.

   • Reports dividends paid to shareholders, including ordinary dividends and qualified dividends.

   • May also report capital gain distributions.

5. 1099-G (Government Payments)

   • Reports unemployment compensation, state tax refunds, or other government payments.

   • Unemployment is taxable; state refunds may or may not be taxable, depending on deductions claimed.

6. 1099-R (Retirement Distributions)

   • Reports distributions from pensions, annuities, IRAs, 401(k)s, or retirement plans.

   • May be fully or partially taxable depending on contributions and plan type.

⚠️ Key Reminder for Students

• All 1099 forms must be reported accurately.

• The IRS receives a copy directly from the payer, so missing or underreporting 1099 income almost always triggers a notice or audit.

  
  

Purpose:

• Schedule C is an IRS form used to report income and expenses from a sole proprietorship or single-member LLC.

• It determines whether the business made a profit or loss, and that amount flows into the taxpayer’s Form 1040.

• It is also the starting point for calculating self-employment tax (on Schedule SE).

Who Uses Schedule C?

• Sole proprietors (self-employed individuals).

• Freelancers and gig workers (Uber, DoorDash, consultants, designers, etc.).

• Single-member LLCs (treated as disregarded entities for tax purposes).

? What’s Reported on Schedule C?

1. Income (Part I)

   • Gross receipts/sales

   • Returns and allowances

   • Other business income

2. Expenses (Part II)

   • Ordinary and necessary business expenses, such as:

     • Advertising

     • Car & truck expenses

     • Office expenses & supplies

     • Rent, utilities, insurance

     • Meals & travel

     • Wages (if any employees)

3. Cost of Goods Sold (Part III)

   • Required if business maintains inventory.

4. Net Profit or Loss

   • Income – Expenses = Profit (taxable) or Loss (may offset other income, subject to rules).

? Why It Matters

• The net profit from Schedule C is added to other income (like wages or interest) on the 1040.

• That profit is also subject to self-employment tax (Social Security and Medicare) via Schedule SE.

• Ensures compliance and allows taxpayers to take all legitimate business deductions.

✅ In short:
Schedule C is the tax form that sole proprietors, freelancers, and single-member LLCs use to report business income and expenses. It calculates profit or loss, which flows directly into the individual’s tax return.

1. What is Record Reconstruction?

• A method of re-creating income and expense records when original documentation is missing or incomplete.

• Ensures accurate tax reporting and compliance.

• Uses secondary evidence such as bank statements, receipts, mileage logs, invoices, and even industry standards.

2. IRS Guidance on Record Reconstruction

• IRS Publication 583 (Starting a Business and Keeping Records) and Publication 463 (Travel, Gift, and Car Expenses) provide recordkeeping rules.

• IRS allows “reasonable reconstruction” when original records are unavailable, provided it’s consistent and supported.

• Court cases (Cohan Rule) allow reasonable estimates of expenses if there’s a basis for the estimate.

3. Steps to Reconstruct Income

• Bank Deposits Method: Review bank statements and total deposits. Identify business-related deposits.

• 1099 Forms: Match reported payments (1099-NEC, 1099-K, etc.).

• Cash Income: Use invoices, appointment logs, or industry averages.

• Third-Party Records: Vendor statements, PayPal/Stripe, Square reports.

4. Steps to Reconstruct Expenses

• Bank & Credit Card Statements: Highlight business transactions.

• Mileage Reconstruction: Use calendars, maps, or IRS standard mileage rate.

• Supplies/Inventory: Vendor receipts, purchase history, or supplier invoices.

• Rent/Utilities: Lease agreements, utility bills.

• Other Expenses: Advertising, insurance, phone bills.

5. Document Everything

• Keep worksheets showing how you calculated totals.

• Separate business vs. personal expenses.

• Be conservative — no “padding.”

• Attach explanations if necessary for IRS review.

Closing
“Schedule C Record Reconstruction is about accuracy, consistency, and reasonable support. Even if a client’s records are poor, the IRS expects you to use available evidence to prepare a truthful return.”

1. What Are Self-Employment Taxes?

• Self-employed individuals must pay both the employee and employer share of:

  • Social Security (12.4%)

  • Medicare (2.9%)

• Total = 15.3% self-employment tax.

• Applies to net earnings from self-employment of $400 or more.

2. How to Calculate Self-Employment Tax

1. Start with Net Profit from Schedule C (business income – business expenses).

2. Multiply by 92.35% (0.9235) → IRS adjustment for deductible employer portion.

3. Apply the tax rates:

   • Social Security (12.4%) on the first $168,600 of net earnings (2024).

   • Medicare (2.9%) on all net earnings.

   • Additional Medicare Tax (0.9%) may apply if income > $200k (single) or $250k (MFJ).

4. Report total on Schedule SE.

3. Reporting Self-Employment Tax

• Schedule SE is filed with Form 1040.

• Half of the self-employment tax is an above-the-line deduction on Schedule 1 (reduces AGI).

• Taxpayer may need to make quarterly estimated tax payments (Form 1040-ES).

4. Why It Matters

• Ensures contributions to Social Security and Medicare.

• Avoids IRS penalties for underpayment.

• Helps taxpayers plan ahead (especially if no withholdings are taken).

Closing
“Self-employment tax is often a surprise to new business owners, but it’s simply their way of covering Social Security and Medicare contributions. As a tax preparer, you can guide clients to plan for these taxes with accurate calculations and estimated payments.”

1. What is a Tax Extension?

• A formal request to the IRS for more time to file a tax return.

• For individuals (Form 1040) → File Form 4868.

• For businesses (1120, 1120-S, 1065, etc.) → File Form 7004.

• Grants up to 6 extra months to file:

  • Individuals: April 15 → October 15

  • Partnerships & S Corps: March 15 → September 15

  • C Corporations: April 15 → October 15

⚠️ Important Reminder: An extension to file is not an extension to pay. Taxes owed must be paid by the original deadline to avoid penalties and interest.

2. Why File an Extension?

• Avoids the late-filing penalty (5% per month).

• Provides time for accuracy and reduces audit risk.

• Allows time to gather missing or corrected forms (W-2s, 1099s, K-1s).

• Helps clients facing personal hardships (illness, travel, emergencies).

• Protects against filing incomplete or inaccurate returns.

3. How to File an Extension

Form 4868 (Individuals):

• File electronically through IRS Free File or tax software.

• Or mail a paper form by the original due date.

• Provide estimated tax liability and make a payment if taxes are owed.

Form 7004 (Businesses):

• Used for corporations, partnerships, and certain trusts.

• Must be filed by the original due date of the return.

4. Benefits of Filing an Extension

• Extra 6 months to file a complete, accurate return.

• Reduces stress and allows proper record review.

• Helps ensure clients take all deductions and credits.

• Prevents unnecessary penalties for late filing.

Closing

“Filing an extension is simple but powerful. It buys time to file an accurate return, but remember — it does not delay the requirement to pay. As a preparer, it’s your responsibility to help clients estimate their tax liability, pay by the original due date, and use the extension to prepare the most accurate return possible.”

1. What is Form 1040-X?

• An IRS form used to correct errors on a previously filed individual tax return.

• Amends Form 1040, 1040-SR, or 1040-NR.

• Can be filed for up to three years from the original filing date (or two years from the date tax was paid, whichever is later).

2. Reasons to File an Amendment

• Wrong filing status (e.g., filed as Single instead of Head of Household).

• Missed income (W-2s, 1099s, K-1s, etc.).

• Incorrectly claimed or missed deductions/credits.

• Adjustments from corrected tax forms (like a corrected 1099 or W-2).

• IRS requests or notices requiring changes.

⚠️ Do not file Form 1040-X for simple math errors — the IRS automatically corrects those.

3. How to File Form 1040-X

• File electronically (IRS allows e-filing for recent years) or by mail.

• Include any corrected forms or new schedules (W-2, 1099, Schedule A, Schedule C, etc.).

• Explain changes clearly in Part III (Explanation of Changes).

• Pay any additional tax owed as soon as possible to reduce penalties and interest.

4. Deadlines

• 3 years from the original filing date, or

• 2 years from the date the tax was paid (whichever is later).

5. Why It Matters

• Keeps the taxpayer compliant with IRS rules.

• May increase refunds if deductions/credits were missed.

• Avoids penalties or audits from unreported income.

Closing
“Amending a return is about accuracy and compliance. Form 1040-X gives taxpayers a second chance to correct mistakes. As a preparer, it’s your job to know when an amendment is required and how to file it properly to protect your client’s financial future.”

By the end of this course, you will be able to

• Apply Due Diligence requirements by learning how to effectively interview clients, ask the right questions, and document responses to ensure compliance with IRS standards.

• Identify which documents to request from clients and maintain good recordkeeping practices to support accuracy and compliance. Examples include:

  • Income Documents: W-2s, 1099s (MISC, NEC, INT, DIV, G, R, SSA, etc.), K-1s.

  • Expense/Adjustment Records: Mortgage interest (Form 1098), tuition (Form 1098-T), student loan interest (Form 1098-E), childcare expenses with provider details.

  • Proof of Dependents: Birth certificates, Social Security cards, school or medical records showing residency.

  • Health Coverage Documentation: Form 1095-A (Marketplace), 1095-B, or 1095-C.

  • Other Key Records: Prior-year tax returns, business income/expense records, mileage logs, and charitable contribution receipts.

1. Review Prior-Year Information (if available)

• Look at the client’s prior-year tax return before the meeting.

• Note recurring items like dependents, business income, or retirement contributions.

• Identify red flags or missing information to follow up on.

2. Gather Essential Tools and Forms

• Client Intake Sheet (basic info: name, SSN, address, DOB, dependents).

• IRS Form 13614-C (Intake/Interview Sheet) if following IRS VITA/TCE standards.

• Form 8867 (Paid Preparer Due Diligence Checklist) for credits like EITC, CTC, AOTC, or HOH.

• Notebook, secure laptop/tablet, or client management software.

3. Create a Comfortable Environment

• Meet in a quiet, private space to protect confidentiality.

• Assure the client their information will be kept secure and confidential.

• Encourage them to bring all paperwork in an organized folder.

4. Have a Document Request Checklist Ready

Ask the client to bring:

• Income documents: W-2s, 1099s, K-1s, SSA statements.

• Expense/adjustment records: 1098 (mortgage), 1098-E (student loan interest), 1098-T (tuition), childcare receipts.

• Dependent documentation: Birth certificates, SSNs, school/medical records for residency.

• Health coverage documents: 1095-A, 1095-B, 1095-C.

• Other records: Prior-year returns, business income/expense records, mileage logs, charitable contribution receipts.

5. Prepare Key Questions in Advance

Examples:

• “Who lived in your household this year?”

• “Did you receive any income not reported on a W-2 or 1099?”

• “Did you pay for childcare, tuition, or student loan interest?”

• “Do you have proof of health coverage for the full year?”

• “Did you make charitable donations or have large out-of-pocket medical expenses?”

6. Focus on IRS Due Diligence

• Document responses clearly.

• Keep copies of important documents.

• Never rely on verbal answers alone for credits requiring documentation.

7. Protect Yourself and the Client

• Always explain why you’re asking for certain information.

• Maintain secure records for at least three years (IRS requirement).

• Provide the client with a clear next-step plan (missing documents, expected filing date, payment or refund details).

✅ In summary: Preparing for a tax client interview means reviewing prior information, organizing tools, requesting the right documents, and planning due diligence questions. The goal is to make the interview efficient, compliant, and client-friendly.

1. Why Recordkeeping Matters

• IRS Compliance: The IRS requires tax preparers to keep certain records (like due diligence checklists and supporting documents) for at least three years.

• Audit Protection: Good records protect both you and the client if the IRS questions a return.

• Accuracy & Consistency: Keeps carryovers (losses, credits, depreciation) consistent year-to-year.

• Professional Protection: Written documentation proves you asked the right questions and complied with IRS due diligence.

2. Records Tax Preparers Should Maintain

a. Client Information & Intake

• Signed engagement letter or service agreement.

• Completed client intake/interview forms.

• Copy of government-issued ID (to confirm identity).

b. Income Documentation

• W-2s (wages).

• 1099s (NEC, MISC, INT, DIV, G, R, SSA, K-1s).

• Business income records (invoices, bank statements).

c. Expense & Adjustment Documentation

• Mortgage interest (Form 1098).

• Tuition (Form 1098-T).

• Student loan interest (Form 1098-E).

• Childcare provider receipts (with EIN/SSN).

• Charitable donation receipts.

• Mileage logs or auto expense records.

d. Proof of Dependents

• Birth certificates.

• Social Security cards.

• School or medical records proving residency.

e. Health Coverage Documents

• Form 1095-A (Marketplace).

• Form 1095-B or 1095-C.

f. Other Key Records

• Prior-year tax returns.

• Signed copies of filed returns (electronic or paper).

• Notes from client interviews.

• Any correspondence with the IRS.

3. Best Practices for Recordkeeping

• Organize by Category: Income, expenses, dependents, health coverage, etc.

• Use Digital Tools: Scan and store documents in secure, encrypted software.

• Retention Period: Keep tax records for at least 3 years (7 years recommended for business or complex cases).

• Confidentiality: Secure physical files in locked cabinets and protect digital files with encryption and password protection.

4. Benefits to Clients

• Easier tax preparation each year.

• Faster resolution if IRS notices or audits occur.

• Maximized credits and deductions (since no information is lost).

• Peace of mind knowing their preparer is professional and compliant.

✅ In summary:
Tax client recordkeeping is not just a best practice — it’s an IRS requirement and your legal protection. Organized, thorough, and secure records help ensure accuracy, compliance, and client trust.

1. Personal Information

• What is your full legal name, date of birth, and Social Security number?

• What is your current address and how long have you lived there?

• What was your filing status last year? (Single, Married Filing Jointly, Head of Household, etc.)

• Did your marital status change this year (marriage, divorce, separation)?

2. Dependents

• Do you have any children or dependents?

• Who lived in your household for more than half the year?

• Do you provide more than half of their financial support?

• Can you provide documentation (birth certificate, Social Security card, school/medical records)?

3. Income

• Did you receive W-2 wages from employment?

• Did you receive 1099s (NEC, MISC, INT, DIV, R, SSA, G, K-1s)?

• Did you have any cash income or tips?

• Did you receive unemployment benefits?

• Did you have any self-employment or side business income?

• Did you receive any retirement distributions or Social Security income?

4. Expenses & Adjustments

• Did you pay mortgage interest (Form 1098) or property taxes?

• Did you pay student loan interest (Form 1098-E)?

• Did you or your dependents have college tuition or education expenses (Form 1098-T)?

• Did you pay for childcare (provider info required)?

• Did you make any charitable contributions?

• Did you have any significant medical or dental expenses?

5. Health Coverage

• Did you have health insurance all year?

• Do you have a Form 1095-A, 1095-B, or 1095-C?

• Were you or your dependents enrolled in Marketplace coverage?

6. Prior-Year & General Compliance

• Do you have a copy of your prior-year tax return?

• Did you receive any IRS letters or notices this year?

• Did you make any estimated tax payments during the year?

• Do you own or operate a business, rental property, or farm?

7. Closing Questions

• Is there anything else you think might affect your taxes?

• Do you have any life changes (new job, move, retirement, inheritance) not yet covered?

• Would you like me to help you plan for next year’s taxes (estimated payments, withholding adjustments, recordkeeping tips)?

✅ Tip for Students (Tax Preparers-in-Training):

• Always ask open-ended questions to avoid yes/no answers.

• Always document responses in your records for compliance and protection.

• Don’t rush — accuracy matters more than speed when learning.

• Join professional groups or tax communities (such as National Association of Tax Professionals, IRS.gov for Tax Pro, and Social Media groups.

• Always follow Circular 230 and due diligence rules.

1. Why Client Data Protection Matters

• Confidentiality: Clients trust you with sensitive information (SSNs, bank accounts, income records). Protecting that data is essential for maintaining trust.

• Compliance: IRS regulations (Pub. 4557 – Safeguarding Taxpayer Data) require tax professionals to have a data security plan.

• Risk Management: Data breaches or lost files can lead to identity theft, IRS penalties, lawsuits, and reputational damage.

2. Common Risks to Client Data

• Physical theft: Stolen paper files, unlocked office cabinets, lost laptops.

• Cyber threats: Phishing emails, malware, ransomware, unsecured Wi-Fi.

• Human error: Accidentally emailing the wrong person, weak passwords, improper disposal of documents.

3. Best Practices for Protecting Client Data

a. Physical Security

• Store paper records in locked, fireproof cabinets.

• Restrict office access to authorized staff only.

• Shred or securely dispose of old documents.

b. Digital Security

• Use encrypted software and secure cloud storage.

• Require strong, unique passwords and enable multi-factor authentication (MFA).

• Keep tax software and anti-virus programs up to date.

• Never use public Wi-Fi for client work unless using a VPN.

c. Communication Security

• Never email tax returns unencrypted.

• Use secure client portals for document exchange.

• Confirm identity before sharing sensitive information over phone/email.

d. Staff Training

• Train employees on phishing awareness, password protection, and confidentiality rules.

• Create written policies for handling, sharing, and disposing of client data.

4. IRS Requirements & Guidance

• IRS Publication 4557: Safeguarding Taxpayer Data (must-have resource).

• Gramm-Leach-Bliley Act (GLBA): Requires financial professionals to safeguard client data.

• Written Information Security Plan (WISP): Many states and the FTC require tax professionals to maintain a formal security plan.

5. Benefits of Strong Data Protection

• Builds trust and credibility with clients.

• Protects your business from penalties and lawsuits.

• Reduces the chance of data breaches and identity theft.

• Helps you stay compliant with IRS and state regulations.

Closing Statement
“Protecting client data is not just a legal requirement — it’s a professional responsibility. Strong safeguards show clients that you value their trust, and they ensure that your tax practice operates safely, securely, and compliantly.”

Congratulations on your big accomplishment! Great job on completing the Final Exam — you did it! Many of you might be wondering, “What’s next in my tax journey?” Don’t worry, this is just the beginning. The skills and confidence you’ve built here will serve as the foundation for your continued success in the tax industry.

To strengthen your skills and build real-world confidence, you have the option to use real live tax software to complete a series of practice tax returns using a variety of forms and scenarios. These exercises are designed to help you apply tax concepts, identify the correct filing status, and handle common tax situations you’ll encounter with clients.

To gain access and put your learning into practice, please email taxes@demoretaxservice.com with your full name, email address, and phone number for two-way authentication into the live tax software. You’ll receive instructions with the next steps.

Be sure to explore the additional resources in the Academy — they’re designed to help you confidently begin your tax journey.

Again, congratulations and thank you! I truly hope you enjoyed the Ultimate Tax Preparation Academy course and gained valuable knowledge to elevate your tax career. Remember, this is just the beginning of your journey — keep learning, growing, and striving for excellence!

If you ever have questions or need guidance, or need a mentor don’t hesitate to reach out. Your Favorite Tax Coach, Dee!

Welcome to the Ultimate Tax Preparation Academy Resource Center!

Congratulations again on taking the next step toward building your knowledge and starting your own tax business, or even exploring the idea of becoming a tax professional. This resource center was created to help you continue learning, growing, and applying what you learned during the course.

I hope you take full advantage of the resources provided throughout the training. I encourage you to review each section carefully, take your time applying what you learn, and use these tools to help build a strong foundation for your tax business journey.

Be sure to subscribe to my YouTube podcast, “Let’s Talk Taxes,” where I share tax tips, business guidance, industry updates, motivation, and real-world tax preparation insights to help you succeed in the tax industry.

Remember, this is only the beginning. Continue sharpening your skills, asking questions, and investing in your growth as a tax professional.

Thank you again for being part of the Ultimate Tax Preparation Academy family. I wish you continued success as you grow your knowledge, build your confidence, and take the next steps toward your tax business goals.

Stay focused, keep learning, and remember — you got this!

*** Contact Information:

Your Favorite Tax Coach – Dee

O: 817-726-2181

E: demoretaxservice@gmail.com
W: De’More Tax Service LLC - demoretaxservice.com

W: A2Z Tax Software - a2zprotaxsoftware.com

>>> I offer a PTIN Tax Firm Partnership Program not ready to venture on their own called > Introducing the PTIN Tax Firm Partnership Program – Your Tax Season Game-Changer! W: demoretaxservice.com/ptin/