Practice Scenario 8
Concepts
In this exercise, you will be applying the following concepts:
 IRS and Industry Procedures
z
Electronic Signatures
z
Recordkeeping Requirements
 ProFiler® Expertise
z
Form 1099-G for State Tax Refunds
z
Occupational Diagnostics (Deductions@Work®)
z
Standard versus Itemized Deductions
z
Business Code Lookup
 Lessons Learned
z
Dependents, Child Tax Credit, and Earned Income Tax Credit
z
Additional Child Tax Credit
z
Child Care Credit
z
Form 1099-MISC and Self-Employment Income
z
Due Diligence and the Earned Income Tax Credit
z
ADP W-2 Download
z
Schedule M Information
z
Electronic Signature and Storage (ESS)
Products and Services
Refer to your Jackson Hewitt Products and Services Overview Guide if you need assistance with
any product or service in this exercise. As a reminder, the guide contains the following information
for each product and service:
 Recap
 Client Benefits
 Fees
ProFiler® Practice Scenarios
8-1
IRS and Industry Procedures
This section provides information you need to know to apply IRS industry procedures.
Electronic Signatures
Taxpayers who wish to e-file must sign their return electronically using a five-digit personal
identification number (PIN). ProFiler® uses only the Practitioner PIN Program method. Under this
method, taxpayers can choose either of the following:
 ProFiler-generated PIN - Taxpayers authorize Jackson Hewitt to generate a PIN on their
behalf
 Taxpayer-selected PIN - Taxpayers choose a five-digit number and either enter it in ProFiler
or authorize you to enter it for them
The appropriate box is checked on Form 8879 to indicate which method was chosen by the
taxpayer. Once it is signed by all taxpayers and the preparer, the return is ready for processing.
On Married Filing Jointly (MFJ) returns, if one of the taxpayers is absent, leave the absent
individual’s PIN blank and put the return on hold. Absent taxpayers may complete Form 8879 by
choosing their PIN and authorizing you to enter it. Once they complete this step, the form can
be mailed, faxed, or returned to the tax preparation office. When received in the office, open the
previously saved return, enter YES for question 10112, “Preparer – Is the taxpayer present?” or
question 9965, “Preparer – Are both taxpayer and spouse present?” and then enter the missing
PIN. This completes the return and allows the office to process it.
In either case, the completed Form 8879 must be retained in the taxpayer’s file at the Jackson
Hewitt Tax office.
Recordkeeping Requirements
The IRS requires that you keep a copy of each W-2 in a client’s file. When a W-2 has been
successfully downloaded into ProFiler using the CIC Plus, TALX, or ADP methods, no paper copies
are necessary.
You must also keep copies of any Forms W-2G and Forms 1099-R, as well as any supporting
documents that are not included in the electronic return data. An example of such a document is a
depreciation worksheet.
Remind the taxpayer to keep their client packet and any supporting documentation for items on their
tax return for at least three years. They can request a copy of their tax return from any Jackson
Hewitt office with appropriate identification.
When a completed return is presented for electronic filing only, you must keep a copy of the
completed return and Forms W-2, W-2G, and 1099-R in the client file. If a taxpayer gives you a
return already completed by a paid preparer, it must contain the paid preparer’s signature.
8-2
ProFiler® Practice Scenarios
ProFiler Expertise
This section describes how ProFiler helps you handle the following situations.
Form 1099-G for State Tax Refunds
When a taxpayer receives Form 1099-G reporting a state tax refund from a prior year, do not select
the Form 1099-G box in the “Sources of Income” section of ProFiler. Instead, enter YES when
asked in the “State Tax Refund and Estimated Tax Paid” section, “Did you have any of the following:
 Refund from last year’s state income tax returns
 State estimated tax payments for 2010
 Prior year state income tax refund credited to 2010
 2009 state estimated or extension payment after December 31, 2010
 Other tax payments made in 2010 for prior year’s tax”
Occupational Diagnostics (Deductions@Work®)
Some occupations are likely to have specific deductions. For example, mechanics may have
expenses for work tools. Whether you use the normal or accelerated interview, a reminder
diagnostic message appears in sections that include related occupational deductions if a
corresponding deduction has not been entered.
Standard versus Itemized Deductions
Taxpayers often bring information about expenses they know are deductible and look to you for
advice about the best way to file their return. ProFiler will choose either the standard deduction or
the total itemized deductions, depending on which is most advantageous.
If the taxpayer’s allowable deductions are less than the standard deduction for their filing status, you
should explain to the taxpayer why the standard deduction is being taken. However, you should
check your state’s rules to determine whether they allow itemizing on the state tax return even when
the taxpayer does not itemize on their federal tax return. It may actually be more advantageous to
itemize on the federal tax return when considering the federal and state tax returns together.
Business Code Lookup
ProFiler has many built-in features to help you locate the information needed to complete various
schedules. When you reach question 1524, “Enter the business code that most closely matches
the client’s principal business or profession,” you are directed to use ProFiler’s question Help to
view a complete list of business codes. When you click “select a business code” in the “Help”
section, ProFiler loads Adobe Acrobat and displays a list of business codes. Follow the instructions
on the screen to select an appropriate code.
If you need additional instructions, consult the ProFiler Help screen.
ProFiler® Practice Scenarios
8-3
Practice Tax Return Scenario
Use the Client Information provided in the following section to prepare a tax return. After you
complete the return, review the “Lessons Learned” section to see how you did.
Client Information
Fred D. (05-22-1968, 400-00-4008) and Angela A. (07-17-1967, 410-00-4008) Hefron are married
and live in the home Fred inherited at 202 Stoney Drive in Your City, YS and ZIP Code. Fred works
as a trades Journeyman. Angela is a janitor. Their evening (home) phone number is
718-000-0004. After Fred inherited the home from his uncle he took out an equity loan to help his
family catch up on some nagging bills they had outstanding (Form 1098 shown).
Fred and Angela’s children, Jonathan N. Hefron (04-04-1998, 401-00-4008) and Lucy R. Hefron
(10-16-2008, 402-00-4008), and Angela’s mother, Mona A. Sherwood (08-10-1945, 403-00-4008),
lived with them for the entire year. Fred and Angela provided all of the support for Jonathan, Lucy,
and Mona. Mona’s only income was Social Security benefits of $10,700.
Last year the Hefron’s tax return was prepared by an Enrolled Agent who has an accounting and
tax office in a plaza near their home. Fred and Angela paid him $380 for the tax preparation. This
year Fred heard at work that Jackson Hewitt can download his W-2. He would like you to try it. His
paystub is shown.
When you ask Fred and Angela for their email address and explain the benefits of the new online
Jackson Hewitt Discount Shopping site and document storage capabilities they give you email
address. The email address is [email protected].
Fred and Angela moved to Your City, YS and ZIP Code, for Fred to complete his apprenticeship.
When you ask about their moving expenses, Fred tells you that Timely Builders paid them because
they plan to offer him a better position in Your City once he completes the apprenticeship program.
The new position will have better pay and benefits, since Fred will be able to join the Trades Union.
The Hefrons received a state refund from their 2009 state tax return, as shown. They had $14,153
in itemized deductions on their joint federal return for 2009. They deducted state and local income
tax instead of general sales tax.
The Hefrons paid Nanny Services (EIN 00-0400804) $3,900 to care for Lucy after their move. The
daycare center is located at 128 Kingston Lane, Your City, YS and ZIP Code.
Fred opened an Individual Retirement Account (IRA) this year. See his Form 5498 for contribution
information.
Angela started a janitorial business on the side to make some extra money. In addition to the
income shown on Form 1099-MISC, Angela received $638 in cash from her clients and spent $153
for supplies. She started the business this year and uses the cash method of accounting.
The Hefrons have not claimed the Earned Income Tax Credit in any prioir years.
8-4
ProFiler® Practice Scenarios
The Hefrons paid the following amounts in 2010:
Over-the-counter drugs ................................................................................... $178
Prescription drugs............................................................................................ $379
Dentist bill ........................................................................................................ $456
Eyeglasses ...................................................................................................... $209
Hospital bill ................................................................................................... $3,200
Balance due for tax year 2007 state tax return.................................................. $75
Personal property tax (Angela’s car) ............................................................... $435
Visa® credit card interest (personal) ................................................................ $379
United Fund (payroll deduction) ................................................................... $1,640
Contribution to Senator Jones ........................................................................... $75
Professional dues (Fred) ................................................................................. $575
Safety equipment (Fred) .................................................................................. $420
Tax preparation ................................................................................................ $380
Professional journal (Fred) .............................................................................. $241
Investment journals (Fred)............................................................................... $480
Fred is a Cub Scout leader. He drove 418 miles when they went camping in June as part of his Cub
Scout leader duties.
Neither Fred nor Angela withdrew any money from their retirement plans during the last five years
and have no plans to withdraw money from their retirement plans prior to retirement.
They authorize Jackson Hewitt to discuss their return with the IRS. The Hefrons do not want to
purchase the Gold Guarantee® product. They are not interested in attending a Jackson Hewitt
income tax course.
After you explain their available options, Fred and Angela decide to apply for a Refund Anticipation
Loan (RAL) and receive a check for their funds. They consent to disclosure of the information on
their tax return to a bank only. The Hefrons are not on active military duty. They have valid state
driver’s licenses (Fred: #T654973, issue date 07-10-2010, expiration date 05-31-2013; Angela:
#T657321, issue date 07-10-2010, expiration date 07-31-2013) as identification. Fred’s employer’s
phone number is 718-000-1262. Their home telephone number is the best to way to reach them.
The Hefrons are not filing bankruptcy and they have never had a defaulted RAL discharged through
bankruptcy.
The Hefrons choose to use the IRS PIN program and have Jackson Hewitt generate the PINs for
them.
Prepare the Hefrons’ tax return.
ProFiler® Practice Scenarios
8-5
CO.
FILE
DEPT
ABC 123456
CLOCK VCHR. NO.
654321
12345
00000000 1
Earnings Statement
TIMELY BUILDERS
12 BUILDER DRIVE
GREENVILLE, SC 29601
Social Security Number
400-00-4008
Taxable Marital Status:
MARRIED
Earnings
3
State
2
LOCAL
2
rate
hours
this period
year to date
Regular
$10.00
40.00
$400.00
$21,400.00
Overtime
$15.00
3.50
$52.50
$3,000.00
Vacation
$0.00
$600.00
Sick
$0.00
Gross Pay
Deductions
$452.50
12/24/2010
Pay Date:
12/31/2010
FRED D. HEFRON
74 BUILDER DRIVE
GREENVILLE, SC 29601
Exemptions/Allowances:
Federal:
Period Ending:
Other Benefits and
Information
this period
total to date
Dependent Care Benefits
$0.00
$0.00
Health Savings Account
$0.00
$0.00
$25,000.00
Statutory
Federal Income Tax
$39.95
$500.00
Social Security Tax
$28.06
$1,550.00
Medicare Tax
YS State Income Tax
$6.56
$362.50
$19.69
$250.00
AS State Income Tax
$46.15
$600.00
$3.07
$120.00
Local Income Tax
Important Notes
We will be starting our United Fund drive soon and look forward
to your participation
Other
401(k)
66.28 *
$1,000.00
Adjustment
Net Pay
$242.74
* Excluded from federal taxable wages
Your federal taxable wages this period are
8-6
$386.22
ProFiler® Practice Scenarios
a. Employee's social security number
22222
410-00-4008
OMB No. 1545-0008
b. Employer identification number (EIN)
2
Federal income tax withheld
4
Social security tax withheld
6
Medicare tax withheld
7 Social security tips
8
Allocated tips
9 Advance EIC payment
10
Dependent care benefits
1 Wages, tips, other compensation
00-4008001
15295.55
c. Employer's name, address, and ZIP code
508.90
3 Social security wages
16295.55
YOUR COUNTY SCHOOL SYSTEM
1010.32
5 Medicare wages
16295.55
1412 NEWKIRK DRIVE
YOUR CITY
YS
236.29
ZIP CODE
d. Control number
7231A45J
12a See instructions for box 12
HEFRON
13
Statutory
Retirement
employee
plan
Third Party
X
202 STONEY DRIVE
G
1000 00
1000.00
12b
sick pay
Code
ANGELA A
Suff. 11 Nonqualified plans
Cod
ode
Last name
e. Employee's first name and initial
12c
Code
14 Other
YOUR CITY
YS
C
Code
12d
ZIP CODE
f. Employee's address and ZIP code
15 State
Employer's state ID number
16 State wages, tips, etc.
YS
Form
15295.55
Wage and Tax
Statement
W-2
18 Local wages, tips, etc.
17 State income tax
20 Locality name
19 Local income tax
912.20
Department of the Treasury—Internal Revenue Service
2010
Copy B—To Be Filed
l d With
h Employee’s
l
’ FEDERAL Tax Return.
This information is being furnished to the Internal Revenue Service.
CORRECTED (if checked)
PAYER'S name, street address, city, state, ZIP code, and telephone no.
1
Rents
OMB No. 1545-0115
FOREIGN AUTO SALES GROUP INC.
2
Royalties
$
3
YOUR CITY
YS
Form
Other income
4
RECIPIENT'S identification
number
00-4008006
410-00-4008
RECIPIENT'S name
5
A
$
Fishing boat proceeds
$
7
6
8
773.80 $
$
9
City, state, and ZIP code
ZIP CODE
Payer made direct sales of
$5,000 or more of consumer
products to a buyer
(recipient) for resale
11
Account number (see instructions)
13
10
Excess golden parachute
$
Section 409A deferrals
15b
Section 409A income
16
$
14
$
$
1099-MISC
ProFiler® Practice Scenarios
Gross proceeds paid to
an attorney
This is important tax
information and is
being furnished to
the Internal Revenue
Service. If you are
required to file a
return, a negligence
penalty or other
sanction may be
imposed on you if
this income is
taxable and the IRS
determined that it
has not been
reported.
$
State tax withheld
$
Form
Crop insurance proceeds
12
payments
15a
Substitute payments in lieu of
dividends or interest
Street address (including apt. no.)
202 STONEY DRIVE
Medical and health care payments
$
Nonemployee compensation
HEFRON
YS
Copy B
For Recipient
$
YOUR CITY
1099-MISC
Federal income tax withheld
ZIP CODE
PAYER"S federal identification
number
ANGELA
Miscellaneous
Income
2010
$
55 SOLDIERS DRIVE
$
(keep for your records)
17
State/Payer's state no.
18
State income
$
$
Department of the Treasury - Internal Revenue Service
8-7
CORRECTED (if checked)
OMB No. 1545-0112
Payer's RTN (Optional)
PAYER'S name, street address, city, state, ZIP Code, and telephone no.
Northwestern Bank
2010
1. Interest Income
$
Allen, MO 63333
21.05
2. Early withdrawal penalty
(800) 000-8084
$
PAYER'S federal identification number
RECIPIENT'S identification number
00-4008003
Form 1099-INT
3. Interest on U.S. Savings Bonds and Treas. Obligations
$
400-00-4008
RECIPIENT'S name
Fred D. & Angela A. Hefron
4. Federal income tax withheld
5. Investment expenses
$
$
Street address (including apt. no.)
6. Foreign tax paid
202 Stoney Drive
$
7. Foreign country or U.S.
possession
City, state, and ZIP Code
Your City
Interest Income
YS
8. Tax-exempt interest
9. Specified private activity
bond interest
$
$
ZIP Code
Account number (see instructions)
Form 1099-INT
(keep for your records)
Co
For Reci
This is impo
informatio
being furnish
Internal
Service. I
required to file
a negligence p
other sanction
imposed on y
income is tax
the IRS determ
it has not been
Department of the Treasury - Internal Revenue
CORRECTED (if checked)
Payer's RTN (Optional)
PAYER'S name, street address, city, state, ZIP Code, and telephone no.
OMB No. 1545-0112
Capital Federal
2010
1. Interest Income
$
Ballston, NC 27777
145.38
2. Early withdrawal penalty
(800) 000-8804
$
PAYER'S federal identification number
RECIPIENT'S identification number
00-4008004
38.99
Form 1099-INT
3. Interest on U.S. Savings Bonds and Treas. Obligations
$
400-00-4008
RECIPIENT'S name
Fred D. Hefron
4. Federal income tax withheld
5. Investment expenses
$
$
Street address (including apt. no.)
6. Foreign tax paid
202 Stoney Drive
$
7. Foreign country or U.S.
possession
City, state, and ZIP Code
Your City
YS
Interest Income
8. Tax-exempt interest
9. Specified private activity
bond interest
$
$
ZIP Code
Account number (see instructions)
Form 1099-INT
(keep for your records)
Co
For Reci
This is impo
informatio
being furnish
Internal
Service. I
required to file
a negligence p
other sanction
imposed on y
income is tax
the IRS determ
it has not been
Department of the Treasury - Internal Revenue S
CORRECTED (if checked)
PAYER’S name, street address, city, state, ZIP code, and telephone no.
Your State Tax Authority
Capital City
YS
1 Unemployment compensation
OMB No. 1545-0120
$
2010
2 State or local income tax
refunds, credits, or offsets
ZIP Code
$ 584.00
PAYER’S federal identification number
00-4008005
RECIPIENT’S identification number
400-00-4008
Fred & Angela Hefron
Street address (including apt. no.)
202 Stoney Drive
City, state, and ZIP code
YS
ZIP Code
Account number (see instructions)
Form
8-8
1099-G
Form
1099-G
4 Federal income tax withheld
$
5 ATAA payments
RECIPIENT’S name
Your City
3 Box 2 amount is for tax year
Certain
Government
Payments
Copy B
For Recipient
6 Taxable energy grants
This is important tax
information and is
being furnished to the
$
$
Internal Revenue
Service. If you are
7 Agriculture payments
8 Check if box 2 is
required to file a return,
trade or business
䊳
$
a negligence penalty or
income
other sanction may be
9 Market gain
imposed on you if this
income is taxable and
$
the IRS determines that
10a State
10b State identification no. 11 State income tax withheld
it has not been
reported.
(keep for your records)
Department of the Treasury - Internal Revenue Service
ProFiler® Practice Scenarios
CORRECTED (if checked)
RECIPIENT’S/LENDER’S name, address, and telephone number
OMB No. 1545-0901
* Caution: The amount shown
may not be fully deductible by you.
Limits based on the loan amount
and the cost and value of the
secured property may apply. Also,
you may only deduct interest to
the extent it was incurred by you,
actually paid by you, and not
Form 1098
reimbursed by another person.
Mortgage Makers Enterprises
2010
1200 Dollar Way
77011
TX
(800) 000-8004
Houston
RECIPIENT’S federal identification no.
PAYER’S social security number
1
00-4008007
400-00-4008
$
PAYER’S/BORROWER’S name
Fred D & Angela A
2
Hefron
Mortgage interest received from payer(s)/borrower(s)*
5,764.21
3
202 Stoney Drive
Points paid on purchase of principal residence
Refund of overpaid interest
$
4
City, state, and ZIP code
YS
Your City
Zip Code
Mortgage insurance premiums
$
Account number (see instructions)
5
Real Estate Taxes paid $1,181.89
Form
1098
Copy B
For Payer/Borrower
$
Street address (including apt. no.)
Mortgage
Interest
Statement
(keep for your records)
The information in boxes 1,
2, 3, and 4 is important tax
information and is being
furnished to the Internal
Revenue Service. If you are
required to file a return, a
negligence penalty or other
sanction may be imposed on
you if the IRS determines
that an underpayment of tax
results because you
overstated a deduction for
this mortgage interest or for
these points or because you
did not report this refund of
interest on your return.
Department of the Treasury - Internal Revenue Service
CORRECTED (if checked)
TRUSTEE’S or ISSUER’S name, street address, city, state, and ZIP code
1
Future Builders, LLC
IRA contributions (other
than amounts in boxes
2-4, 8-10, 13a, and 14a)
2
Rollover contributions
$
Des Moines,
IA
50336
TRUSTEE’S or ISSUER’S federal
identification no.
3
PARTICIPANT’S social security
number
00-0400809
400-00-4008
PARTICIPANT’S name
Form
Roth IRA conversion
amount
$
5 Fair market value of account
6 Life insurance cost included in
box 1
1,215.00
$
IRA
SEP
8 SEP contributions
Street address (including apt. no.)
Roth IRA
9 SIMPLE contributions
$
$
11 If checked, required minimum
distribution for 2011.
12a RMD date
Copy B
For
Participant
$
SIMPLE
10 Roth IRA contributions
$
202 Stoney Drive
5498
4 Recharacterized contributions
$
7
Fred D. Hefron
IRA
Contribution
Information
2010
1,200.00
$
77 Planters Hwy
OMB No. 1545-0747
12b RMD amount
This information
is being
furnished to
the Internal
Revenue
Service.
$
City, state, and ZIP code
Your City
YS
13a Postponed contribution
ZIP Code
13b Year
13c Code
$
14a Repayments
14b Code
$
Account number (see instructions)
TradIRA004008
Form
5498
ProFiler® Practice Scenarios
(keep for your records)
Department of the Treasury - Internal Revenue Service
8-9
1 Wages, tips, other comp.
2 Federal income tax withheld
24000.00
3 Social security wages
4 Social security tax withheld
25000.00
5 Medicare wages and tips
123456 20/ABC
6 Medicare tax withheld
3 Social security wages
4 Social security tax withheld
5 Medicare wages and tips
6 Medicare tax withheld
362.50
Dept.
Corp.
654321
ABC
Employer Use Only
d Control number
123456 20/ABC
c Employer's name, address, and ZIP code
Dept.
Corp.
654321
ABC
TIMELY BUILDERS
12 BUILDER DRIVE
12 BUILDER DRIVE
SC
b Employer's FED ID number
29601
GREENVILLE
a Employee's SSA number
57-2587950
8 Allocated tips
9 Advance EIC payment
10 Dependent care benefits
11 Nonqualified plans
12a See instructions for box 12
14 Other
12b
D
SC
b Employer's FED ID number
400-00-4008
7 Social security tips
a Employee's SSA number
57-2587950
1000.00
400-00-4008
8 Allocated tips
9 Advance EIC payment
10 Dependent care benefits
11 Nonqualified plans
12a See instructions for box 12
14 Other
12b
12c
12d
12d
13 Stat Emp.
Ret plan
3rd party sick pay
13 Stat Emp.
X
FRED
29601
GREENVILLE
16 State wages, tips, etc.
572587950
17 State income tax
12000.00
18 Local wages, tips, etc.
250.00
19 Local income tax
Federal Filing Copy
Wage and Tax
Statement
SC
29601
Employer's state ID no.
YS
16 State wages, tips, etc.
2145161
12000.00
18 Local wages, tips, etc.
17 State income tax
20 Locality name
Copy B to be filed with employee's Federal Income Tax Return
8-10
15 State
12000.00
120.00
W-2
HEFRON
74 BUILDER DRIVE
SC
Employer's state ID no.
SC
3rd party sick pay
e / f Employee's name, address, and ZIP code
HEFRON
74 BUILDER DRIVE
15 State
Ret plan
X
e / f Employee's name, address, and ZIP code
GREENVILLE
29601
7 Social security tips
12c
FRED
Employer Use Only
c Employer's name, address, and ZIP code
TIMELY BUILDERS
GREENVILLE
2 Federal income tax withheld
1550.00
25000.00
d Control number
1 Wages, tips, other comp.
500.00
600.00
19 Local income tax
20 Locality name
YLC
2010
OMB No. 1545-0008
W-2
Federal Filing Copy
Wage and Tax
Statement
2010
OMB No. 1545-0008
Copy B to be filed with employee's Federal Income Tax Return
ProFiler® Practice Scenarios
Lessons Learned
This section describes the lessons you should have learned from this exercise.
Dependents, Child Tax Credit, and Earned Income Tax Credit
ProFiler identifies the Hefrons’ son and daughter, Jonathan and Lucy, as their qualifying children
for the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC), based on answers to your
questions about their relationship, the dependents’ ages, how long they lived together during the
year, and whether any of the qualifying dependents provided more than half of their own support.
Angela’s mother, Mona, qualifies for a dependent exemption. You must ask the Hefrons these
questions and faithfully record the answers. Never assume that you know the answers without
asking.
Beginning in 2009, the following items for determining whether an individual is a qualifying child for
any tax benefit have been modified:
 To be a qualifying child, the child must be younger than the taxpayer.
 If a taxpayer’s child files a joint return, then they cannot be the taxpayer’s qualifying child,
unless the return was filed only as a claim for refund.
 If a child can be claimed as a qualifying child by their parents, but no parent claims them,
then they cannot be claimed by anyone else unless another individual’s AGI is higher than the
highest AGI of any parent of the child.
 The taxpayer’s child is a qualifying child for purposes of the CTC only if they can and do claim
an exemption for the child.
ProFiler offers the following four categories for a dependent:
 Children who lived with the taxpayer for more than six months
 Children who did not live with the taxpayer due to divorce or separation
 Other dependents such as children who lived with the taxpayer for less than seven months,
parents, grandparents, cousins, and unrelated members of the taxpayer’s household
 Nondependent children (such as the custodial parent’s child) or a disabled adult who lived
with the taxpayer
You should have entered Jonathan and Lucy as children who lived with Fred and Angela for more
than six months, and Mona as an “Other dependent,” because she is Angela’s parent.
Additional Child Tax Credit
The Additional Child Tax Credit is a refundable credit that is available to some taxpayers with
earned income above $3,000 who are not able to use all of their nonrefundable CTC, because their
tax liability is too low. ProFiler uses the answers you provide to complete Form 8812, Additional
Child Tax Credit, and enters the allowable credit for eligible taxpayers on the appropriate line on
Form 1040.
ProFiler® Practice Scenarios
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Child Care Credit
When you correctly enter answers to all questions in the “Dependent Exemptions” section and enter
the amount paid to providers, allocating it among the qualifying individuals, ProFiler performs the
following:
 Completes Form 2441, Child and Dependent Care Credit
 Enters the credit on the appropriate line on Form 1040
On an MFJ return, both taxpayers must either have earned income or meet one of the other
requirements. When the taxpayer has no qualifying individuals or a filing status of MFS, no
questions concerning child care expenses are asked.
Form 1099-MISC and Self-Employment Income
All income that Angela earned “on the side” is taxable and must be reported on the Hefrons’ tax
return regardless of whether Angela received a Form 1099-MISC. Nonemployee compensation is
self-employment income and is reported on Schedule C. Although Angela had two sources of
self-employment income, she has only one business and should have only one Schedule C.
You should ask Angela about any expenses she had while providing her custodial services.
Explain that she needs to have documentation to support her expenses. Her travel to a location is
considered commuting mileage and is not an allowable business expense, unless she is traveling to
additional locations after completing her first assignment.
Net self-employment income (or loss) impacts the amount of earned income used to calculate the
Additional Child Tax Credit.
Due Diligence and the Earned Income Tax Credit
When preparing Schedule C for self-employed taxpayers, ask all the questions you need to be
confident in the information you are reporting. This includes, but is not limited to, assuring yourself
that the taxpayer understands all recordkeeping requirements for self-employed individuals.
ADP W-2 Download
The following information is required when downloading an ADP W-2 into ProFiler.
If the taxpayer brings in an ADP paystub, use the Company Code, File Number, and exact federal
income tax withholding amount, including cents.
If the taxpayer brings in an ADP W-2 and you want to save time by downloading instead of manually
keystroking the data into the tax return, you must provide the control number, who earned the
income (on a MFJ return), and the amount in Box 1.
In this scenario, Fred, Angela, and their family moved to another state. Fred’s employer, Timely
Builders, failed to update his address on his paystub and W-2. If you used the ADP W-2 download
feature in ProFiler, then you received a diagnostic message at the end of Fred’s W-2 download
stating that the employee’s address in Box E is different. You should have entered NO for question
2889, “Is the employee address in Box E identical to the client’s present address?” Then you have
the opportunity to correctly identify the employee address as it appears on the W-2.
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ProFiler® Practice Scenarios
Schedule M Information
The Making Work Pay Credit (MWPC) is part of the American Recovery and Reinvestment Act
(ARRA) of 2009. It is equal to 6.2% of a taxpayer’s earned income, but cannot be more than $400
($800 if MFJ). The credit is reduced if the modified AGI is more than $75,000 ($150,000 if MFJ)
To be eligible to receive the MWPC, the individual must have a valid Social Security number (SSN).
The credit is refundable. This means it will be shown in the Payments section of Form 1040,
Page 2.
The MWPC cannot be taken in any of the following situations:
 The modified AGI is $95,000 ($190,000 if MFJ) or more.
 The individual is a nonresident alien.
 The individual can be claimed as a dependent on someone else’s tax return.
Electronic Signature and Storage (ESS)
Beginning with tax season 2010, there will be more than one method to sign and store Front
Office Paperwork (FOP): Electronic Signature & Storage (ESS), or manual signatures and filing
cabinets. ESS provides an alternative to manually signing and storing FOP documents. ESS
allows customers to electronically sign (eSign) FOP documents instead of using the traditional
pen-to-paper signature. The documents are also stored electronically, which reduces the number
of documents that must be signed and stored in the actual office. Because customers will have
electronic access to their FOP documents via JacksonHewitt.com, they will not have to leave the
Jackson Hewitt office with a large stack of papers after completing the tax interview.
ESS is NOT an alternative to signing tax returns, so tax return signature documents, such as Form
8879, must still be signed with a PIN and/or manually. A copy of the signed Form 8879 must be
kept on file for three years after the return due date, or the date the return is filed, whichever is later.
When ESS is the selected option for signatures, the FOP Wizard screen shows the printer as
“iDentifi.eSign” and the button for printing the FOP documents displays “eSign” instead of “Print.” In
the case of a jointly filed return, where one of the taxpayers is not present during the original signing
process, all documents must be reviewed by the taxpayer and the tax preparer prior to placing the
document package “On Hold” for signature by the second taxpayer. Click on Pages to View to
review all pages in the document package, and then click Hold.
For more information about ESS, review the ESS Rollout Guide.
ProFiler® Practice Scenarios
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ProFiler® Practice Scenarios