Introductory Tax Course eBook

CE Credits: 8 Federal Tax Law, 2 Regulatory Ethics

The Introductory Tax Course covers short forms, Form 1040. The student will learn how the American Tax System began, how to interview the taxpayer to determine what filing status they should use and what tax credits the taxpayer may qualify for.

At the end of this course, the student will be able to do the following:

• Explain how a nonrefundable credit affects the taxpayer’s tax liability.
• Recognize what is professional responsibility in tax preparation.
• Realize what the tax preparer’s responsibilities are to the taxpayer.

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Part I: Ethics 

This chapter will explain how to determine who qualifies as a tax return preparer, what representation rights a preparer has, how that individual is bound by the Circular 230 guidelines, and what it means for a tax preparer to behave ethically and responsibly.

Part 2: Federal Tax Law

Compiling Taxpayers Information 

Preparing tax returns is an art; knowing which questions to ask will help determine the best tax situation for the individual. Just imputing information into software does not prepare an accurate tax return. The saying is true: “garbage in, garbage out”. Entering incorrect information so that the taxpayer receives a higher refund is not the best situation for you or the client. This chapter provides you with a brief overview of current year forms and sample questions to determine the best tax position for the taxpayer. Asking the taxpayer, the right questions from the beginning provides the tax preparer accurate answers needed to complete the tax return.

Filing Status, Dependents and Deductions 

This chapter will present an overview of the Tax Cuts and Jobs Act standard deduction and what circumstances permit taxpayers to claim a higher standard deduction. You will also learn what an exemption is, what exemptions each of the filing statuses can claim, and how to identify a qualifying dependent.

Income 

The IRS has the authority to tax all income from whatever source it is derived. This includes compensation for services, gains from dispositions of property, interest and dividends, rent and royalties, pensions and annuities, gambling winnings, and even illegal activities. All such income a person receives is collectively referred to as “worldwide income.” However, not all money or property is taxable or subject to tax. This chapter will cover the different types of taxable and nontaxable income and show you where and how to report such wages on a professionally prepared tax return. A tax professional must recognize the different kinds of taxable income, tax-exempt income, and other income included in Schedule 1, line 21, and must know how to figure out the taxable percentage on Social Security benefits.

Tax Credits and Payments 

A nonrefundable tax credit reduces the amount of tax liability that may have to be paid. Unlike a deduction, which reduces the amount of income that is subject to taxation, a credit directly reduces the tax itself. There are two types of credits: nonrefundable, which cannot reduce tax liability below zero, and refundable, which can reduce tax liability below zero, resulting in the need for a refund.

Adjustments to Income 

In this chapter, students will learn how various expenses are used to “adjust” or lower the taxpayer’s income to arrive at his or her adjusted gross income (AGI). They will also learn how the Tax Cuts and Jobs Act (TCJA) has impacted adjustments at the federal level and how to handle any previous-year returns that preceded those TCJA-mandated changes.

Itemized Deductions

When computing taxable income, personal expenses cannot be claimed as itemized deductions; however, tax rules do allow for some deductions that are essential for daily living. These specific expenses are deductible as itemized deductions. A standard deduction is a set amount that the taxpayer can claim based on his or her filing status. Itemized deductions are shown on the tax return using Schedule A, Itemized Deductions. The taxpayer must decide whether to itemize deductions or use the standard deduction and should choose whichever option is best for their tax situation. 

Other Taxes and Taxpayer Penalties

This chapter provides an overview of miscellaneous taxes from the Form 1040 and reported on Schedule 2 that a taxpayer might be assessed. This includes excess Social Security tax, additional taxes on IRAs, the Alternative Minimum Tax, and household employment taxes. 

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