Credits [PDF]

This chapter will show you that credits are valuable tax savers. In Chapter 3, you learned about the. Child Tax Credit.

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14

Credits OVERVIEW This chapter will show you that credits are valuable tax savers. In Chapter 3, you learned about the Child Tax Credit. In Chapter 10, you learned about the Earned Income Tax Credit. In this chapter, you will learn about other credits that may be claimed on Form 1040A. One common credit is the Child and Dependent Care Credit. Another credit that is less common, but still important to be familiar with, is the credit for the elderly and disabled. Lastly, the premium tax credit (PTC) will need to be considered on every tax return that you prepare. Education credits will be covered in Chapter 16.

OBJECTIVES At the conclusion of this chapter, you will be able to determine the eligibility and calculations for the: • Child and Dependent Care Credit, and compute the credit. • Credit for the elderly or disabled. • Premium tax credit (PTC).

TAX TERMS Look up the definitions of the following terms in the glossary: • Advance of the premium tax credit (APTC).

• Federal poverty level (FPL).

• Affordable Care Act (ACA).

• Limitation on premium tax credit repayment.

• Benchmark Premium.

• Marketplace/Exchange.

• Bronze/Silver/Gold/Platinum plans.

• Net premium tax credit.

• Cafeteria plan.

• Nonrefundable credit.

• Child and Dependent Care Credit.

• Open enrollment period.

• Coverage family.

• Qualified health plan.

• Credits.

• Refundable credit.

• Department of Health and Human Services • Saver’s Credit. (HHS or DHHS). • Excess advance premium tax credit.

• Shared responsibility payment.

14.1

14.2 H&R Block Income Tax Course (2016)

CREDITS VS. DEDUCTIONS Before we begin this discussion of credits, it is important to review the difference between credits and deductions. While both credits and deductions help taxpayers reduce the amount of tax they must pay, they do so in different ways. Deductions, such as the standard deduction or itemizing deductions, lower the tax by reducing the amount of income that would otherwise be taxable. Lower taxable income results in a lower tax liability. Unlike deductions, credits do not come into play until after taxable income has been computed and the tax determined. Then, credits may be used to reduce the tax already determined dollar for dollar. Some credits are nonrefundable, and some are refundable. Nonrefundable means that the combined amount of these credits cannot reduce the taxpayer’s tax liability below zero. Refundable credits may reduce the taxpayer’s tax liability below zero, and the difference is refunded to the taxpayer.

CHILD AND DEPENDENT CARE CREDIT Single parents and two-career couples must find ways to care for their young children while they work. The Tax Code provides a way for such parents to recoup some of their expenses for child care through a nonrefundable tax credit. This credit is also available to taxpayers caring for disabled dependents and spouses. Study page 1 of Form 2441 in Illustration 14.1 on page 14.8. A taxpayer who incurred and paid expenses for the care of a qualifying person while they worked or searched for work may be entitled to a tax credit based on the amount paid during the year for those services.

Requirements To claim the Child and Dependent Care Credit, the taxpayer must meet the following requirements: • Married taxpayers generally must file a joint return (but see “Married taxpayers” on the next page). • The care must have been provided so the taxpayer (and the spouse, if married) could work or look for work. • The taxpayer must have some earned income. Taxpayers who are married and are living together both must have earned income (unless one spouse was a student or disabled, as explained later). • The taxpayer and the person(s) for whom the care was provided must have lived in the same home. • The person who provided the care must not be someone the taxpayer can claim as a dependent. Services provided by the taxpayer’s child under age 19 do not qualify, even if the provider is not a dependent.

Credits 14.3

Married taxpayers who meet the following requirements may claim the credit even if not filing a joint return: • The taxpayer paid over half the cost of maintaining a household for the year, which was the principal residence of both the taxpayer and a qualifying person for more than half the tax year. • During the last six months of the tax year, the taxpayer’s spouse was not a member of the household.

Qualifying Persons To claim a credit for qualified expenses (defined below), the care must have been provided for one or more qualifying persons. Qualifying persons include: • A dependent who is a qualifying child and has not reached their 13th birthday when the care was provided. Note: For purposes of this credit, the child is considered to have attained the age of 13 on their birthday, not the day before. Generally, the taxpayer must be entitled to claim a dependency exemption for the child, but an exception applies for children of divorced or separated parents. • The taxpayer’s spouse who is physically or mentally incapable of self-care and lived with the taxpayer for more than half of 2015. • A disabled person of any age who is physically or mentally incapable of self-care, lived with the taxpayer for more than half of 2015, and whom the taxpayer claims as a dependent or could claim as a dependent except that: ○○ The disabled person had gross income of $4,000 or more. ○○ The disabled person filed a joint return. ○○ The taxpayer (or their spouse if filing jointly) could be claimed on another taxpayer’s 2015 return. Exception: In cases of divorced or separated parents, the child will be the qualifying child of the custodial parent for purposes of this credit, even if the noncustodial parent claims the dependency exemption for the child.

Qualified Expenses Qualified child or dependent care expenses are those incurred for the primary purpose of assuring the well-being and protection of a qualifying person while the taxpayer works or looks for work. Expenses for care provided outside the home for the qualifying child, disabled dependent, or disabled spouse can be counted, provided the qualifying person regularly spends at least eight hours each day in the taxpayer’s home. If the care is provided in a dependent care center (one that cares for more than six persons for a fee), the center must comply with all relevant state and local laws. Certain expenses do not qualify for the Child and Dependent Care Credit. The cost of transportation to and from the child care facility does not qualify, and neither do overnight camp expenses. Also, any expense allocable to the education of a child in kindergarten or higher does not qualify. The total cost of schooling below kindergarten qualifies only if the cost of schooling cannot be separated from the cost of care.

14.4 H&R Block Income Tax Course (2016)

mExample: June and Henry Stark both work. Their son, Harry, attends first grade at a private school. After school, the Starks pay to have Harry transported to a child care center, where they pick him up after work. The expenses for the private school and the transportation do not qualify for the Child Care Credit. The amount they pay the child care center does qualify. If Harry were in an all-day preschool setting where educational activities were part of the child care service, the entire cost would qualify for the credit.m Expenses for in-home care of a qualifying child, disabled dependent, or disabled spouse also qualify for the credit. Qualified expenses for in-home care may include amounts paid for cooking and light housework related to the care of a qualifying individual as well as actual care. Amounts paid for chauffeur or gardening services do not qualify. Total qualified expenses include gross wages paid for qualified services, plus the cost of meals and lodging furnished to the employee, plus the employer’s social security, medicare, FUTA (federal unemployment), and any other payroll taxes paid on the wages. See the discussion of Schedule H later for more information about paying employment taxes for household help. A taxpayer who hires a household worker and pays wages of $1,900 or more during the year to that worker must pay the employer’s share of social security and medicare taxes. Remember, payments to any of the following do not qualify for the credit: • A person who either the taxpayer or the spouse may claim as a dependent. • The taxpayer’s child who is under age 19. • An overnight camp. Complete Exercise 14.1 before continuing to read.

Computing the Credit The Child and Dependent Care Credit for 2015 is a percentage of the smallest of the following: • The amount of qualified expenses incurred and paid during the year. • $3,000 for one qualifying individual or $6,000 for two or more qualifying individuals. • The taxpayer’s earned income (defined later) for the year or, for married taxpayers filing jointly, the earned income for the year of the spouse earning the lesser amount. The lines on Form 2441 are, for the most part, self-explanatory. Those that require a bit of added explanation are discussed below. Line 1. Taxpayers must report the care provider’s name, address, and identifying number (the social security number for an individual or the employer identification number for a business). If the care provider is a tax-exempt organization (a church, for example) and they do not provide a number, enter “Tax-exempt” in column (c). Enter the total amount actually paid to each institution or individual in column (d). The IRS provides Form W-10 to assist taxpayers in obtaining information from child care providers. The taxpayer should direct the provider to complete Form W-10 or a similar document to provide the necessary information to the taxpayer.

Credits 14.5

The IRS can use the information on line 1 to match what the taxpayer paid the care provider with the amount the care provider reports as income on their tax return. Therefore, all amounts actually paid to the care provider (by the taxpayer, their employer, or anyone else) during the year must be entered. Any amounts incurred, but not yet paid, would not be reported on line 1. If the taxpayer pays social security, medicare, and other payroll taxes for a child care provider’s services within their home, those amounts would not be listed on line 1, because they were not actually paid to the child care provider. These amounts would, however, be entered as part of the total qualified expenses for each qualifying person in column (c), line 2. mExample: Carol Cruz hired Michelle Garner to come to her home to care for her five-year-old son while Carol worked. She paid Michelle $2,000 during the year. In addition, Carol paid the federal government $153 as the employer’s share of social security and medicare taxes. Carol should enter only $2,000 in column (d), line 1, because that’s the amount that is income to Michelle, even though the full $2,153 expense qualifies for the Child and Dependent Care Credit and would be entered in column (c), line 2.m Line 2. On this line, enter the name and social security number of each qualifying person for whom care was provided, as well as the amount incurred and paid during the taxable year for the care of each person. If there are more than two qualifying persons, attach a statement. The amount on this line could be more than the amount on line 1, as seen in the Carol Cruz example above. It could also be less than the amount on line 1, as in the following example. mExample: Bess and Jim Franklin paid Betty Gessell $1,200 to look after their three-year-old daughter, Margaret. They took Margaret to Betty’s home. Of that amount, $1,000 was for expenses incurred in 2015, and $200 of that amount was for expenses incurred in December 2014 that they paid in January 2015. The Franklins should enter the full $1,200 on line 1, column (d), and $1,000 on line 2.m Often, the total of the amount on line 1 and the amount on line 3 (the total of the line 2 amounts) will be the same, but not always, as illustrated in the examples above. Also, line 3 cannot exceed the maximum amount ($3,000 for one qualifying individual or $6,000 for two or more qualifying individuals). Another situation where the amount on line 3 might not be the same as the total from line 1 is if the taxpayer’s employer paid any portion of the child care expenses and excluded the amount from income. In such a case, the taxpayer must complete Part III on the second page of the form. The amount to be entered on line 3 is determined in that section of the form. We will defer discussion of these benefits for the moment, and return to them in the next section. Line 4. Enter the primary taxpayer’s earned income on line 4. The primary taxpayer is the one named first in the heading on the first page of the tax return. Earned income includes taxable salaries, wages, tips, strike benefits, other employee compensation, disability income reported as wages, and net income or loss from self-employment. Earned income does not include nontaxable employee compensation (like 401(k) contributions), pensions and annuities, social security and railroad retirement benefits, workers’ compensation, nontaxable scholarships or fellowship grants, nontaxable workfare payments, income of nonresident aliens that is not derived from a U.S. business, or income received for work while an inmate in a penal institution.

14.6 H&R Block Income Tax Course (2016)

Taxpayers have a choice when it comes to nontaxable combat pay. They can elect to treat it as earned income for the Child and Dependent Care Credit just as they can for the Earned Income Credit. The credit should be figured both ways to determine which way gives the greater tax benefit. Line 5. If the taxpayer is filing a joint return, enter the spouse’s earned income on line 5. Otherwise, enter the amount from line 4 on line 5. Student or disabled. If the taxpayer or the spouse was disabled or was a qualified full-time student, multiply the number of months the taxpayer or spouse met such a condition by $250 ($500 if two or more qualifying persons are listed on line 2). Add the result to any earned income from other months, and enter the total on line 4 or 5. Only one spouse may use this adjustment in any given month. mExample: Wallace and Lena Birch file jointly. Wallace was disabled and incapable of self-care during 2015. He received social security benefits, but received no earned income. Lena was a full-time student through May, and she worked part-time through the end of the year, earning $8,000. The remainder of their income was from investments. Lena paid a nurse to care for Wallace while she went to school and worked. Wallace’s earned income on line 4 will be $3,000 [$250 2 12 months disabled]. Lena’s earned income on line 5 will be $8,000. Because Wallace used this adjustment every month, Lena may not use it for the months she was a student; but in this case, it does not matter because she has sufficient earned income.m Credit Limitation The taxpayer’s Child and Dependent Care Credit is limited to their tax liability; any excess is lost. With certain credits, like the Child Tax Credit or adoption credit, the excess may be refundable. However, this is not so for the Child and Dependent Care Credit. Line 10. Taxpayers using Form 1040A will enter the tax liability from Form 1040A, line 30. mExample: Mary Cubby’s tentative Child Care Credit on Form 2441, line 9, is $960. However, her tax liability on Form 1040A, line 30, is only $693. She will enter $693 on Form 2441, line 10. Her credit on line 11 will be limited to the lesser of line 9 or line 10.m Note: If the taxpayer paid qualified expenses in 2015 that were incurred in 2014, they must figure that portion of the credit using Worksheet A, Worksheet for 2014 Expenses Paid in 2015, in Publication 503, Child and Dependent Care Expenses. Add the amount from the worksheet to the 2015 credit. Such a taxpayer should add the marginal notation “CPYE,” the name and social security number of the person for whom the expenses were paid, and the amount of the credit based on prior-year expenses above line 9.

Employer-Provided Benefits Some employers provide on-site child care for their employees’ children. Others pay directly for third-party child care or allow employees to reduce their salaries and save the reduction in accounts (described below) specifically earmarked to pay for child care expenses. In these cases, the value of the child care or the amount paid by the employer or from the account is not reported to the employee as taxable income. Section 125 plans (also called cafeteria plans or flexible spending accounts) are salary reduction arrangements offered by some employers. These plans allow employees to reduce their salaries by a

Credits 14.7

certain amount in return for one or more nontaxable benefits. A common example is a flexible spending account (FSA) used to pay child care expenses or medical expenses. If the employer did not include such amounts in taxable income, the taxpayer must reduce the amount of expenses eligible for the credit by the amount excluded from income. The amount of child or dependent care benefits (DCB) is shown in box 10 of Form W-2. When a taxpayer’s W-2 shows dependent care benefits, they must complete Part III of Form 2441, even if they are not claiming any Child Care Credit. Part of the benefits provided by the employer may not be excludible. If the benefits provided by the employer exceed the smallest of (1) the amount of qualified expenses, (2) the lesser of the taxpayer’s or the spouse’s earned income, or (3) $5,000 ($2,500 MFS), the difference is taxable (see Form 2441, line 26). Any taxable amount should be added to the taxpayer’s wages entered on 1040A, line 7, and the letters “DCB” written to the left of line 7. mExample: Becky A. Marshall files as head of household. During 2015, the Tiny Tot Center charged Becky $2,000 to care for her two-year-old son, Dylan, while she worked. Her employer paid $500 of the cost of the child care and entered that amount in box 10 of her Form W-2. Becky paid the other $1,500 herself. Becky’s earned income and adjusted gross income (Form 1040A, line 21) are both $31,600. Her Form 2441 is shown in Illustrations 14.1 and 14.2.m Most of the entries on Becky’s Form 2441 are self-explanatory, but some further explanation may be helpful. First, consider the order in which the form should be completed. One would logically expect to complete Part I first, then Part II, and so on; but think again. In this case, because Becky received employer-provided dependent care benefits, she first completes Part I, then Part III, and then Part II. Lines 2 and 3. Even though the Tiny Tot Center received $2,000 for caring for Becky’s son while she worked, only $1,500 is entered on line 2, because excluded benefits do not count toward the credit. The figure on line 3 comes from Part III, line 31, on page 2. Line 16. This line shows the amount of qualified expenses incurred, the total of line 1, column (d). Notice that it differs from the amount on line 2, which had to be reduced by the excluded benefits. Lines 19 and 20. The definition of earned income, for purposes of the exclusion, is similar to that of the credit. Do not include the dependent care benefits shown on line 12 or any other nontaxable earned income. However, the taxpayer may elect to include nontaxable combat pay in earned income. Line 22 asks if any amount on line 12 is from a sole proprietorship or partnership. If so, enter the amount here. If not, enter zero. Line 24 is used by those self-employed individuals who file Form 1040 and deduct benefits on Schedules C, E, or F. Line 25. Becky is able to exclude from income all of her benefits from her employer. She has no taxable DCB to enter on Form 1040A, line 7. To summarize: Employer-provided benefits for dependent care that are shown in box 10 of a taxpayer’s Form W-2 must always be entered on Form 2441 to determine the excludible amount. If the taxpayer is claiming the Child and Dependent Care Credit, the excluded benefits reduce the qualified expenses eligible for the credit. If the total benefits exceed the allowable excludible amount, the balance is entered as taxable income on 1040A, line 7, with the marginal notation “DCB.”

14.8 H&R Block Income Tax Course (2016) Illustration 14.1

Credits 14.9 Illustration 14.2

14.10 H&R Block Income Tax Course (2016)

Complete Exercises 14.2 and 14.3 before continuing to read.

CREDIT FOR THE ELDERLY OR THE DISABLED This is a seldom-used credit, because it has not been indexed for inflation since 1985, and the income limits are very low. Income includes nontaxable social security over $5,000 or other nontaxable pensions. Taxpayers might qualify for this credit if either of the following applies: 1. They’re age 65 or older. 2. They’re under age 65, and they (all of the following apply): • Retired on permanent and total disability. • Received taxable disability benefits. • Have not reached mandatory retirement age (the age when their employer’s retirement program would require them to retire). Taxpayers who pass the age or disability test must also fall below the limits set for their filing status to claim this credit. TAXPAYERS WHO ARE:

GENERALLY CANNOT TAKE THE CREDIT IF: Their AGI is: Or they received:

Single, head of household, or qualifying widow(er).

$17,500 or more

Married filing jointly and only one passes the age or disability test.

$20,000 or more

Married filing jointly and both pass the age or disability test.

$25,000 or more

$7,500 or more of nontaxable social security or other nontaxable pensions, annuities, or disability income.

Married filing separately and lived apart from spouse for the entire year.

$12,500 or more

$3,750 or more of nontaxable social security or other nontaxable pensions, annuities, or disability income.

$5,000 or more of nontaxable social security or other nontaxable pensions, annuities, or disability income.

mExample: Agatha Humphrey is 70 years old and received $13,500 from a taxable pension and $1,500 in nontaxable social security income. From this example, you can see how low the income limits are to receive the small credit. Agatha’s Schedule R is in Illustrations 14.3 and 14.4.m

Credits 14.11 Illustration 14.3

14.12 H&R Block Income Tax Course (2016) Illustration 14.4

Credits 14.13

B

lockWorks Tip: The software has been programmed to automatically generate Schedule R and calculate the credit when the taxpayer meets the qualifications for the Credit for the Elderly or the Disabled.

PREMIUM TAX CREDIT On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act. There are various tax implications associated with the Affordable Care Act (ACA), most of which pertain to more complicated tax returns. The provision that we will cover in this course is the individual mandate, which states that, beginning in January 2015, most U.S. citizens and residents are required to have qualified health insurance coverage, qualify for an exemption, or be subject to the ACA tax penalty. As it applies to income tax returns, ACA requires all taxpayers to state whether or not they had qualified health insurance for themselves and their tax household for every month in 2015. The premium tax credit (PTC) is a credit that helps pay the cost of coverage through the Marketplace. It is either advanced to the taxpayer or refunded through their income tax return. It is important that you understand the basics of ACA compliance so that you can conduct a tax interview that correctly applies the premium tax credit.

Eligibility Taxpayers are eligible for the PTC if they meet all of the following requirements: • Purchase coverage through the Marketplace and all applicable enrollment premiums (for which they were responsible to pay) are paid by the due date of the tax return (not including extensions). • Are a U.S. citizen or lawfully-admitted resident. • Have household income for their family size that is 100% through 400% of the federal poverty level (FPL) in states where Medicaid was not expanded. It is effectively 139% through 400% of FPL in states where Medicaid was expanded. There are three FPL charts: one for the 48 contiguous states plus the District of Columbia, and separate ones for Alaska and Hawaii. If a taxpayer moves during the year, or if spouses live in separate states and more than one chart would apply, the chart listing the highest amount is used. • Are not eligible for affordable coverage through an employer-sponsored plan. Coverage is considered affordable if it does not exceed 9.5% of household income for self-only coverage. For this purpose, any additional cost for family coverage is not considered. • Are not eligible for coverage through a government program, such as medicare, Medicaid, TRICARE, CHIP, etc.

14.14 H&R Block Income Tax Course (2016)

• Do not file a married filing separately tax return. An exception is available to certain victims of domestic abuse and spousal abandonment. • Cannot be claimed as a dependent by another person.

Tax Household The individual mandate of ACA requires taxpayers to state, through their tax return, whether they and everyone in their tax household had qualified health insurance for the tax year. Tax household includes everyone for whom an exemption is claimed on the tax return and anyone for whom the taxpayer could have claimed an exemption, but did not. mExample: Miki (34) is a paralegal. She is not married and does not have any children. She shares a condominium with her brother, Alec (28), who works in construction. Alec is not married and does not have any children. Miki has one Form W-2 with $48,000 wages, and files single using Form 1040-EZ. Alec also has one Form W-2 with $47,000 wages, and files single using Form 1040-EZ. Even though Miki and Alec share a residence, their tax households consist only of themselves. Miki’s tax household is herself only. Alec’s tax household consists of himself only.m mExample: Manuel (23) works in food service. Manuel and Leticia (25) are the unmarried parents of Lucas (2). Manuel shared an apartment all year with Lucas and Letitia. Leticia has no income. Manuel has two Forms W-2 and files head of household claiming both Lucas and Letitia as dependents using Form 1040A. Manuel’s tax household consists of himself, his son, Lucas, and Lucas’s mother, Letitia.m mExample: Taylor (47) works as a teacher. She is not married and has two children, Francis (20) and Regina (16). Taylor owns a townhouse where Francis and Regina live. Francis is a full-time student at the local college and works part-time as a tutor. Regina is a high school student and works part-time in retail. Neither Francis nor Regina pay more than half of their own support. Taylor files as head of household claiming Regina as her dependent using Form 1040A. Taylor chooses not to claim Francis, so that she may claim her own education expenses. Even though Taylor does not claim Francis on her tax return, she is eligible to do so. Taylor’s tax household consists of herself and both her children, Francis and Regina.m Complete Exercise 14.4 before continuing to read.

Qualified Health Insurance Taxpayers and people in their tax household usually have qualified health insurance through one of the following: • Employer-sponsored coverage. • Government program. • Marketplace. • Direct through the individual market.

Credits 14.15

Qualified health insurance provides minimum essential coverage to its beneficiaries. Coverage through any of the plans listed above will generally comply with the individual mandate. The following plans do not provide minimum essential coverage: • Stand-alone coverage for vision care, dental care, accident, disability, or worker’s compensation. • Coverage in the following TRICARE and Medicaid programs: ○○ Optional coverage of family planning services. ○○ Optional coverage of tuberculosis-related services. ○○ Coverage under “pregnancy-only” Medicaid. ○○ Coverage limited to treatment of emergency medical conditions. ○○ Coverage for medically needy individuals (also referred to as spend-down). ○○ Coverage authorized under §1115(a)(2) of the Social Security Act (Medicaid demonstration projects). ○○ Coverage that is solely limited to space availability in a facility of the uniformed services for individuals excluded from TRICARE coverage for care from private sector providers (also called space available TRICARE coverage). ○○ Coverage for an injury, illness, or disease incurred or aggravated in the line of duty for individuals who are not active duty (also called line of duty TRICARE coverage). Note: Although the plans listed in the chart above do not provide minimum essential coverage, taxpayers who have any of these coverages will be able to claim an exemption from the ACA penalty (more information on this later).

Monthly Coverage Coverage is determined every month, so it is possible that there are various scenarios. mExample: Christopher (45) was an employee at a printing company in January 2015 and had coverage through his employer. He was laid off in mid-May. Christopher was eligible to purchase COBRA coverage, but chose not to purchase it. Christopher was also eligible to purchase coverage through the Marketplace because he had a qualifying event, but was unaware of the option. Christopher began working at a grocery store in mid-September and once again had coverage through his employer effective on October 1. In this example, Christopher has qualified coverage for eight months (January through May at the printing company and October through December at the grocery store) and no coverage for four months (June through September). Christopher may have to pay the ACA tax penalty unless he qualifies for an exemption, to be discussed later.m mExample: Raquel (29) works at a hotel. She is unmarried and has two children, Anna (3) and Jeremy (8). In January 2015, Raquel did not have health insurance coverage because her employer did not offer coverage to its employees and she believed she could not get coverage any other way. However, Raquel made sure that her children had coverage through the Children’s Health Insurance Plan (CHIP).

14.16 H&R Block Income Tax Course (2016)

When Raquel had her 2014 tax return prepared at H&R Block and was directed to the health care portal by her Tax Professional, she purchased health insurance through the Marketplace with coverage beginning in March 2015. In this example, the tax household consists of Raquel and both of her children. Raquel has qualified coverage for ten months and no coverage for two months (January through February). The children had qualified coverage for all 12 months. Raquel may have to pay an ACA tax penalty unless she qualifies for an exemption, to be discussed later.m mExample: Warren (57) and Emily (56) Bixby are married and file a joint return. They have four adult children who do not reside with them. Warren is self-employed, and in January 2015 had coverage he purchased directly from an insurance broker. In March 2015, he learned that he could purchase lower cost insurance through the Marketplace. His Marketplace plan went into effect beginning May 2015. Emily had employer-sponsored coverage in January 2015. Emily maintained coverage through her employer all year. In this example, the tax household consists of Warren and Emily. Each has 12 months of qualified coverage, but Warren has four months of direct purchase and eight months of Marketplace coverage, while Emily has 12 months of employer-sponsored coverage.m

State and Federal Marketplaces Individuals without health insurance coverage or those looking for more affordable coverage may purchase coverage through a state Marketplace or the federal Marketplace if their state does not operate its own Marketplace. H&R Block offers enrollment services through its portal . Coverage may be purchased during the annual open enrollment period. For coverage in calendar year 2015, the open enrollment period ran from November 15, 2014, through February 15, 2015, to submit an initial application, plus an extension to April 15 to complete the application, if necessary. For coverage in calendar year 2016, the open enrollment period was November 15, 2015, through January 31, 2016. Individuals may also purchase coverage outside the open enrollment period during special enrollment periods, generally 60 days, following certain life events where there was a change in: • Family status (marriage, divorce). • Location. • Citizenship/residency status. • Family size or household income that affects eligibility for the APTC. • Loss of other types of qualifying coverage, such as employer-sponsored coverage. An insurance plan that is certified by the Marketplace provides minimum essential coverage and follows established limits on cost-sharing (like deductibles, copayments, and out-of-pocket maximum amounts). A qualified health plan will have a certification by each Marketplace in which it is offered.

Credits 14.17

Plans in the Marketplace are categorized into four types—Bronze, Silver, Gold, or Platinum—based on the percentage the plan pays of the average overall cost of providing coverage to members. The percentages the plans will spend, on average, are 60% (Bronze), 70% (Silver), 80% (Gold), and 90% (Platinum).

Form 1095-A Taxpayers who had coverage through the Marketplace will be sent a Form 1095-A, Health Insurance Marketplace Statement, regardless of whether they were eligible for the APTC or elected to receive it. The 2015 forms must be issued by January 31, 2015. All taxpayers who obtained coverage through the Marketplace for themselves, a spouse, or dependents and received either the APTC, or are eligible to claim the PTC on their tax return, must have a Form 1095-A to complete their tax return.

T

ax Tip: Some divorced taxpayers may experience a situation where tax benefits for dependents are divided between the parents, and one parent enrolls the child in a Marketplace plan, but the other parent claims the child’s dependency exemption. This situation requires an allocation of information on Form 1095-A between the two parents.

Form 1095-A is divided into the following three parts: • Part 1, Recipient Information, reports identification information on the recipient and spouse. • Part 2, Coverage Household, reports information on the individuals covered by the insurance policy and the dates of coverage. • Part 3, Household Information, reports information required to reconcile the credit. The information is reported for every month of the year. Column A reports the total monthly premium for the plan without considering any amount that may be paid by the APTC. Column B reports the second lowest cost silver plan (SLCSP) as determined by the Marketplace. This is the benchmark against which the taxpayer’s APTC is calculated. Column C reports the amount of APTC paid, if any. This information is used to complete Form 8962, Premium Tax Credit. Using the information from the example that begins on page 14.15, see Illustration 14.5 on page 14.18 for Warren Bixby’s Form 1095-A.

Form 1095-B Form 1095-B, Health Coverage, is issued to taxpayers who are enrolled in the following types of healthcare coverage: • Group coverage through eligible employer-sponsored plans. • Group coverage through self-insured employer plans. • Federal or state government agencies such as most Medicaid programs, Medicare Part A, CHIP, TRICARE, coverage administered by the Department of Veterans Affairs, coverage for Peace Corps volunteers, and Nonappropriated Fund Health Benefits Program of the Department of Defense.

14.18 H&R Block Income Tax Course (2016) Illustration 14.5 X.X

Credits 14.19 Illustration 14.6

14.20 H&R Block Income Tax Course (2016) Illustration 14.7

Credits 14.21

• Miscellaneous types of plans, such as private health insurance plans, Medicare Part C, Refugee Medical Assistance, coverage provided to business owners who are not employees, and coverage under group health plans provided by a foreign government, if certain requirements are met. Illustration 14.6 on page 14.19 shows Emily Bixby’s Form 1095-B from the previous example.

Form 1095-C Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is issued to taxpayers who are enrolled in the following type of health care coverage: Applicable large employers (ALEs)–An ALE is an employer that employed on average at least 50 fulltime employees, including full-time equivalent employees (FTEs). A full-time employee is one who works on average at least 30 hours of service per week, or 130 hours of service per month. For purposes of determining whether an employer is an ALE, the FTE value of all employees who are not full-time is taken into account by adding their total monthly hours of service (maximum 120 hours per employee/month) and dividing by 120 hours to arrive at the number of FTE employees. Using Emily Bixby’s information (from the previous example), but now assuming her employer is an ALE, Illustration 14.7 on page 14.20 shows her Form 1095-C.

Form 8962 Form 8962, Premium Tax Credit, calculates the taxpayer’s PTC and reconciles it with any APTC received. Form 8962 must be filed for any taxpayer who received the APTC. Form 8962 may also be prepared for any taxpayer who is eligible for the PTC but did not receive the APTC. Information from Form 1095-A is used to complete Form 8962. Part 1 Part 1 of Form 8962 determines the amount the taxpayers are expected to contribute toward their own health care insurance premiums. Line 1. In line 1, “family size” means the taxpayer; their spouse, if filing a joint return; and the dependents, if any, claimed on the tax return. Compare that to “tax household,” as previously discussed, which means the taxpayer; their spouse, if filing a joint return; and all dependents, whether or not claimed by the taxpayer. Tax family is used to calculate the PTC, while tax household is used to determine if any ACA tax penalty is due. Lines 2a, 2b, and 3. Household income is the modified AGI of all individuals in the tax family who are required to file a tax return. Household income does not include the modified AGI for individuals in the tax family who file a tax return only to claim a refund of withholdings or estimated payments. Line 4. FPL for family size. As covered earlier, there are three charts. Line 5. Divide household income by FPL to get the family’s household income as a percentage of FPL. Line 6. If the percentage of FPL is greater than 400%, the client is not eligible for the PTC. Line 7. Look up the applicable figure in the instructions by the FPL that is calculated in line 5.

14.22 H&R Block Income Tax Course (2016)

Lines 8a and 8b. Multiply household income by the applicable figure to get the family’s contribution amount for their health care insurance, and then divide that amount by 12 to get the amount of their monthly contribution. Part 2 Part 2 completes the calculation of the PTC and reconciles it with the amount of any APTC the taxpayer received. Part 3 Part 3 determines the amount, if any, of the APTC the taxpayer owes. For most taxpayers, the reconciliation process is simple. If the amount of APTC the taxpayer received exceeds the PTC calculated in Part 1, the taxpayer is required to pay back the excess, up to a limit for those with income less than 401% of the FPL, through the tax return. If the amount of APTC, if any, is less than the PTC calculated in Part 1, the taxpayer will receive that amount on their tax return in the form of a refundable credit. mExample: William is single and files as head of household. He is the sole provider for his son, Maxwell. William’s APTC is equal to the PTC calculated in Part 1. William’s Form 8962 showing the reconcilliation is shown in Illustration 14.8 on page 14.23.m

T

ax Tip: A taxpayer’s life circumstances can change any time during the year. A change in income can change an APTC with either an increase or decrease. It is important that they know they can contact the Marketplace when things change so that there are no surprises at tax time.

Shared Policy Allocation For taxpayers who share a policy with individuals outside their tax family, the reconciliation process is more complicated and requires information from Form 1095-A to be allocated between the individuals. Allocation is required for taxpayers who purchased coverage through the Marketplace, when at least one of the following applies to their situation: • A member of the tax family enrolled someone outside the tax family in qualified coverage. • A member of the tax family was enrolled in qualified coverage by someone outside the tax family. • The taxpayer got divorced or legally separated in 2015. • The taxpayer is married at the end of the year but filing a separate return. • One policy covers two or more tax families. Taxpayers who married during the year are also potentially eligible for an alternative calculation because they may have had both single and family plans in the same year.

Credits 14.23 Illustration 14.8

14.24 H&R Block Income Tax Course (2016) Illustration 14.9

Credits 14.25

Note: The shared policy allocation is a complex tax topic. It is covered here at an awareness level. Only experienced Tax Professionals should prepare returns for taxpayers who qualify for it. See Illustration 14.9 on page 14.24 for page 2 of Form 8962 where the allocation is computed. mExample: Jason and Vivienne were married at the beginning of 2015. They have three children together, and the family of five lived together at the beginning of the year. Jason and Vivienne enrolled in Marketplace coverage for themselves and their three children in December 2014. In April 2015, the couple separated and Vivienne and the youngest children moved out of the home. In September, the spouses became legally separated. Jason will file his tax return as head of household claiming the oldest child as his dependent, and Vivienne will also file as head of household, claiming the two younger children. Jason and Vivienne will need to complete a policy allocation because their Marketplace plan covered individuals in two tax families.m

Groups Exempt from the Individual Mandate Membership in one of the following groups exempts taxpayers from the individual mandate: • Health care sharing ministry. A health care sharing ministry is a §501(c)(3) organization continuously in existence since December 31, 1999, whose members share a common set of ethical or religious beliefs and share medical expenses in accordance with those beliefs and without regard to the state where the member lives or works. • Federally recognized Indian tribes and individuals who are eligible for health services through the Indian Health Services. • Certain religious sects that have objections to insurance, including medicare and social security. • Nonresident aliens. • Undocumented immigrants. How individual members of certain groups obtain their exemption from the individual mandate: Members of health care sharing ministries, federally recognized Indian tribes, and non-tribal members eligible for Indian Health Services:

Through the Marketplace or on Form 8965, which is filed with their tax return.

Members of certain religious sects:

Through the Marketplace.

Nonresident aliens:

By filing Form 1040-NR.

Undocumented immigrants:

Form 8965, which is filed with their tax return.

Note: Certain exemptions require the taxpayer to complete a form and mail it with any required documentation to the Marketplace. If approved, the client will receive an exemption certificate number that will need to be reported on Form 8965, Health Coverage Exemptions.

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ax Tip: Tax Professionals should first look at claiming exemptions directly on the tax return as opposed to those available through the Marketplace because the tax return exemptions are claimed directly on Form 8965 and additional steps, such as submitting the Marketplace exemption application for approval by the Marketplace, are not required.

14.26 H&R Block Income Tax Course (2016)

Exemptions Available Due to Various Circumstances The following circumstances make taxpayers eligible for exemptions from the individual mandate: • Household income is below the filing status threshold. The software is programmed to recognize when a taxpayer is subject to the penalty but qualifies for this exemption. • U.S. citizen or resident living outside the U.S. To qualify, the taxpayer must have spent 330 full days outside of the U.S. during a 12-month period or have been a resident of a foreign country or U.S. territory. • Incarceration. Individuals qualify for this exemption for any month they are in a penal institution or correctional facility. The exemption is obtained by submitting an application to the Marketplace. • Short coverage gap. Individuals qualify for this exemption if they did not have qualified coverage for less than three consecutive months. This exemption can only be claimed at the first occurrence and does not apply when the coverage gap is three or more months. • Coverage by May 1. This exemption is available for individuals who had a coverage gap at the beginning of the year. Individuals qualify for this exemption if they purchased qualified health coverage that went into effect no later than May 1, 2015. • Coverage is considered unaffordable. If the minimum premium amount (either through employer sponsored or Marketplace coverage) is more than 8% of household income, the coverage is considered unaffordable, and the individual qualifies for an exemption. • CHIP coverage beginning after the start of the year. An exemption is available to individuals who applied for and obtained CHIP coverage during the open enrollment period, still leaving a gap at the beginning of the year. In addition to the circumstances listed on the previous page, exemptions are also granted when the taxpayer experienced any of the following hardships (this list is not all-inclusive): • Canceled health policy. • Lives in a state that did not expand Medicaid coverage. • Domestic violence. • Homelessness. • Eviction in the past six months or facing eviction or foreclosure. • Shut-off notice from a utility company. • Fire, flood, or other natural or human-caused disaster that caused substantial damage to the taxpayer’s property. • Bankruptcy in the last six months. • Medical expenses in the last 24 months that resulted in substantial debt. • Unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member. • Death of a close family member.

Credits 14.27

B

lockWorks Tip: BlockWorks has been programmed to determine if a taxpayer qualifies for the following ACA tax return exemptions based on information entered into the software. Some exemptions require more entries than others: • Household Income Below the Return Filing Threshold Exemption. • Gross Income Below the Return Filing Threshold Exemption. • Coverage is Considered Unaffordable Exemption. • Aggregate Self-Only Coverage Considered Unaffordable Exemption. • Short Coverage Gap Exemption.

This course gives you a good foundation of knowledge on the ACA examptions. Practice in the software and enrolling in upper-level courses will provide more information on how to prepare returns with ACA exemptions. mExample: Michael (25) and Michelle (23) are married. They have two children, Thomas (1) and Stephanie (2), who live with them all year and who do not provide more than half of their own support. Michael and Michelle file a joint return and have combined wages of $18,856. They have no other income. The couple is not required to file a tax return, but do so to claim the Earned Income Credit and Additional Child Tax Credit. Neither Michael nor Michelle had health insurance coverage in 2015, but both children had coverage through CHIP. Michael and Michelle are subject to the ACA penalty, but because their income is below their filing status threshold, they qualify for an exemption. The portion of their Form 8965 that reflects their exemption based on their circumstanes is in Illustration 14.12 on page 14.28.m The example above requires the following screens for Form 8965 in BlockWorks: Illustration 14.10

14.28 H&R Block Income Tax Course (2016) Illustration 14.11

Illustration 14.12

Credits 14.29

CHAPTER SUMMARY In this chapter, you learned: • Credits are valuable to taxpayers because they reduce tax liability dollar for dollar. Nonrefundable credits may not reduce a taxpayer’s tax liability below zero. Refundable credits may reduce the taxpayer’s tax liability below zero, and the difference is refunded to the taxpayer. • Taxpayers who pay someone else to care for their child or disabled dependent or spouse while they work or look for work may be eligible for the Child and Dependent Care Credit. The credit is computed on Form 2441 for taxpayers filing Form 1040 or Form 1040A. • The amount of expenses eligible for the Child and Dependent Care Credit must be reduced by any employer-provided assistance that qualifies for exclusion from income. • The premium tax credit (PTC) is a credit that helps pay the cost of coverage through the Marketplace. It is either advanced to the taxpayer, or refunded through their income tax return. It is important that you understand the basics of ACA compliance so that you can conduct a tax interview that correctly applies the premium tax credit.

Suggested Reading For further information on the topics discussed in this chapter, you may wish to read the following sections of IRS Publication 17: • Chapter 32, Child and Dependent Care Credit. • Chapter 33, Credit for the Elderly or the Disabled. • Chapter 37, Premium Tax Credit. You might also wish to read sections of IRS Publication 503, Child and Dependent Care Expenses.

a single Tparent who works full-time and pays daycare expenses forMyoneclientof hisis two chilhe Tax Institute at H&R Block Research Question:

dren. His four-year-old goes to a preschool that costs more than $6,000 a year. His ten-year-old attends an after-school care program free of charge at a community center. He can claim both as qualifying children on his tax return. The client does not have a pre-tax dependent care benefit available at work. Can he use $6,000 to compute the child care credit? Or, is he limited to $3,000 because he has paid expenses for only one of the children? may figure credit for child and dependent care expenses Ausing theYourfullclient $6,000. Under the regulations (Reg. §1.21-2(a)(1)(ii)), the $6,000 nswer:

applies “if there are two or more qualifying individuals with respect to the taxpayer.” Under Reg. §1.21-1(b)(1)(i), a qualifying individual includes a “taxpayer’s dependent (who is a qualifying child) who has not attained age 13.” Since your client has two qualifying children under the age of 13, he is considered to have two qualifying individuals, and the higher (i.e., $6,000) limit applies.

1 15

Chapter Name BlockWorks Practice 3 OVERVIEW The BlockWorks Practice Session 3 is devoted to entering case studies into BlockWorks. This practice session will help you become familiar with the preparation of taxpayers’ income tax returns in the BlockWorks software and develop your tax interview skills at the tax desk. The case studies are set up as role-playing exercises to give you the experience of interviewing a client. This will help you start thinking of the kinds of questions you will ask to ensure a thorough tax interview, resulting in an accurate tax return.

INSTRUCTIONS To complete the BlockWorks Practice Session 3, you will complete Case Studies 15.1 and 15.2 in the BlockWorks software. The case study return information can be found in your workbook starting on page W15.1. The case studies are set up in your workbook as interviews with taxpayers at the tax desk. To complete these case studies, you will need to partner with another participant in class. One individual will play the role of the Tax Professional and the other individual will play the role of the taxpayer. Each case study in your workbook is set as two scripts; the Tax Professional and the taxpayer. Use the script associated with your role to ask or answer questions and complete the case study return in the BlockWorks software. Lastly, you will spend the remainder of class enter prior ITC chapter case study returns in the BlockWorks software. Your instructor will provide you with guidance as to which chapter case studies you should enter into BlockWorks.

15.1

16

Education Credits OVERVIEW Many clients, or their dependents, take education courses. Whether taxpayers are taking classes themselves or assisting children who are enrolled in education courses, there may be tax benefits available to clients with expenses for education. This chapter covers three common tax breaks for higher education: the American Opportunity Credit, the lifetime learning credit, and the tuition and fees deduction.

OBJECTIVES At the conclusion of this chapter, you will be able to: • Determine which expenses are eligible expenses for the American Opportunity Credit, the lifetime learning credit, and the tuition and fees deduction. • Determine eligibility for the American Opportunity Credit and compute the credit. • Determine eligibility for the lifetime learning credit and compute the credit. • Determine eligibility for the tuition and fees deduction and compute the deduction. • Compare/contrast the three benefits to obtain the maximum benefit for the taxpayer.

TAX TERMS Look up the definitions of the following terms in the glossary: • American Opportunity Credit (AOC). • Credits. • Lifetime learning credit. • Nonrefundable credit. • Refundable credit. • Tuition and fees deduction.

16.1

16.2 H&R Block Income Tax Course (2016)

CREDITS VS. DEDUCTIONS Recall from previous discussions that both credits and deductions help taxpayers reduce the amount of tax they must pay, although they do so in different ways. Deductions, such as the standard deduction, lower tax by reducing taxable income. Lower taxable income results in less tax. Unlike deductions, credits do not come into play until after taxable income has been computed and the tax determined. Then, credits may be used to directly reduce the tax. This chapter will focus on two credits and a deduction: • The American Opportunity Credit is a credit that may be partly refundable. • The lifetime learning credit is a nonrefundable credit. • The tuition and fees deduction is taken as an adjustment to income, which means it may reduce taxable income. is a helpful rule to think about the “tax benefit” hierarchy of TeducationHerebenefits: ax Tip:

1. Nontaxable benefits (for example, Pell Grants). 2. Refundable credits. 3. Nonrefundable credits. 4. Deductions.

EDUCATION CREDITS For 2015, there are two education credits: the American Opportunity Credit (AOC) and the lifetime learning credit. This chapter will cover qualification and eligibility rules for both. There is another education credit, the Hope credit, that has not been available since 2009. It was replaced, at the time temporarily, by the AOC. We will not cover the details of the Hope credit, but it is important for Tax Professionals to know that it existed because taxpayers who want to claim the AOC must consider the years they claimed the Hope credit.

American Opportunity Credit The AOC was created by the American Recovery and Reinvestment Act of 2009 (ARRA) and until recently, was scheduled to expire in 2017. The Protecting America from Tax Hikes “PATH” Act of 2015 made the AOC permanent. The AOC is a credit of up to $2,500 per eligible student, and up to 40% of the credit ($1,000) may be refundable. Let’s take a closer look at the AOC.

Education Credits 16.3

Who Can Claim the AOC Generally, a taxpayer may claim the AOC if they meet all the following requirements: • The taxpayer pays qualified education expenses for higher education. • The qualified education expenses are paid for an eligible student. • The eligible student is the taxpayer, spouse, or dependent for whom the taxpayer actually claims an exemption. Who Cannot Claim the AOC A taxpayer may not claim the AOC if any of the following are true: • The taxpayer’s filing status is MFS. • The taxpayer is claimed as a dependent on anyone else’s tax return. • The taxpayer’s modified adjusted gross income (MAGI) is above $90,000 ($180,000 for MFJ). For the AOC, MAGI equals AGI plus: • Foreign earned income exclusion. • Foreign housing exclusion. • Foreign housing deduction. • Income excluded by bona fide residents of American Samoa. • Income excluded by bona fide residents of Puerto Rico. Note: The issues in the above list are advanced topics and are not covered in this course. If you have a client with any of these types of income, please consult an experienced Tax Professional in your office and/or IRS Publication 970, Tax Benefits for Education. • The taxpayer (or spouse) was a nonresident alien for any part of 2015, and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Note: Issues of resident vs. nonresident aliens are beyond the scope of this course. If you have a client with these issues, please consult an experienced Tax Professional in your office and/or IRS Publication 519, U.S. Tax Guide for Aliens. • The taxpayer claims the lifetime learning credit or the tuition and fees deduction for the same student in 2015. Illustration 16.1 on page 16.4 is a very useful guide to who may claim the AOC for 2015. Dependents. A student who is claimed as a dependent on someone else’s return may not claim an education credit for that tax year on their own return. Any qualified tuition and fees paid on behalf of a dependent student are treated as paid by the person who claims the dependency exemption. The expenses may be paid using the taxpayer’s money, the student’s money, loans, gifts, inheritances, and savings. mExample: Tracy Batt’s dependent son, Donald (19), is a full-time student at Rowan University. All of Donald’s tuition was paid with his own money and student loan proceeds. Nonetheless, Tracy may claim the AOC based on all of Donald’s qualified expenses.m

16.4 H&R Block Income Tax Course (2016) Illustration 16.1

Education Credits 16.5

If a taxpayer is eligible to claim the student as a dependent but does not do so, only the student may claim the AOC for their qualifying expenses. mExample: Tracy Batt (from the preceding example) qualifies to claim Donald as a dependent, but her taxable income is already zero, so she chooses not to do so. Although Donald may not claim his own exemption, he may claim the AOC based upon all of his qualified expenses.m Qualified Education Expenses Qualified expenses for the AOC are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Eligible educational institution. An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education (USDOE). This includes virtually all accredited public, nonprofit, and proprietary (privately-owned, profit-making) postsecondary institutions. It also includes certain educational institutions located outside the United States that are eligible to participate in a student aid program administered by the U.S. Department of Education. Certain related expenses. For purposes of the AOC, expenses for books, supplies, and equipment needed for a course of study are qualified education expenses, whether or not the materials are purchased from the educational institution. Expenses involving student activities, sports, games, or hobbies are qualified expenses only if they are required by the institution as part of a degree program. Nonqualified expenses. Expenses for meals, room and board, athletic fees, insurance, transportation, and other personal living expenses are not qualified education expenses for the AOC. mExample: Terri Dougherty is a degree candidate at State University. In addition to her tuition and required course fees, she purchased her textbooks from an online bookstore not affiliated with the university. For the AOC, the tuition and course fees and the expense for Terri’s books are qualified expenses.m mExample: Jefferson is a sophomore in Local State University’s degree program in dentistry. In 2015, in addition to tuition, Jefferson is required to pay a rental fee to the university for dental equipment he will use in the program. Because the equipment rental is needed for his course of study, the rental fee is a qualified education expense for the AOC.m mExample: In 2015, Krissy enrolled at Private College for her freshman year. In addition to her tuition, Krissy had to pay a separate student activity fee. The fee is required of all students, and is used solely to fund the student government; none of the fee covers personal expenses for any student. Although the fee is labeled as a “student activity fee,” the fee is required for Krissy’s attendance at Private College, and is a qualified expense for the AOC.m Reduction of qualified educational expenses. Qualified educational expenses paid with tax-free funds may not be used to claim the AOC. Qualified expenses must be reduced by any nontaxable benefits (including but not limited to): • Scholarships. • Grants. • Veteran’s or military educational benefits.

16.6 H&R Block Income Tax Course (2016)

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ax Tip: Tax-free funds specifically designated to pay expenses other than qualified expenses (such as a scholarship specifically designated to pay room and board) do not reduce qualified educational expenses.

Qualified expenses must also be reduced by excludible amounts withdrawn from the student’s Coverdell Education Savings Account (Coverdell ESA) or qualified tuition plan (QTP). For information on Coverdell ESAs and QTPs, see IRS Publication 970, Tax Benefits for Education.

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ax Tip: If you have a client who has taken distributions from an ESA or a QTP plan, please partner with an experienced Tax Professional in your office and refer to IRS Publication 970, Tax Benefits for Education.

Qualifying Academic Periods The AOC is available for the year in which the qualified expenses are paid. The qualifying education must begin during that year or within three months following that year. For example, amounts paid in 2015 for an academic period that begins before April 1 2015, are eligible expenses for 2015. An academic period begins on the first day of classes. Student loans. If the proceeds of a loan are used to pay expenses, the education credit is based on the amount of the expenses paid (rather than the amount of the loan payments) and are considered paid in the year the institution was paid, not in the year the loan was repaid. When the loan proceeds are disbursed directly to the institution, the expenses are considered paid when the student’s account is credited. If the actual date is unknown, the expenses are considered paid on the last day the institution would have accepted the payment for that academic period. Third-party payments. In cases where a third party makes a payment directly to the educational institution to pay for a student’s qualified expenses, the student is treated as having paid the expenses. Expenses refunded. If qualified expenses are refunded by the institution (for example, because the student withdraws from a class) before the filing of the return for that tax year, the credit is based on the amount paid after subtracting the refund. However, if the student files their return claiming a credit for the full amount and later receives a refund, they will have to recapture (pay back) some of the credit claimed. The recapture is beyond the scope of this course. If you have a client with this issue, please consult an experienced Tax Professional in your office and/or refer to IRS Publication 970. mExample: In December 2015, Tiffany Knight paid $2,000 in qualified expenses for the spring 2015 semester. Early in 2015, before filing her 2015 tax return, she withdrew from a foreign language class and received a tuition refund of $400. Her 2015 AOC will be based on $1,600 of qualified expenses.m

Education Credits 16.7

Eligible Student For 2015, an eligible student for the AOC is a student who meets all of the following conditions: • The student has not claimed an AOC in any four earlier tax years (this includes any tax years in which the Hope credit was claimed for the student). • The student did not complete the first four years (generally, the freshman, sophomore, junior, and senior years) of postsecondary education before 2015. Note: Academic credit awarded solely on the basis of performance on proficiency exams is not taken into account when determining whether the student has completed the four years of postsecondary education. • The student was enrolled at least half-time in a program leading to a degree, certificate, or other recognized academic credential for at least one academic period beginning in 2015. Note: The standard for “at least half-time” is determined by each eligible educational institution. If the student is not certain if they were at least a half-time student, the institution can tell them. • The student had not been convicted of any federal or state felony for possessing or distributing a controlled substance as of the end of 2015. These requirements are outlined in Illustration 16.2 on page 16.8. Complete Exercises 16.1, 16.2, and 16.3 before continuing to read.

Calculating and Claiming the AOC The AOC is available up to $2,500 per eligible student on the tax return. The amount of the AOC is the sum of: 1. 100% of the first $2,000 of qualified education expenses paid for the eligible student. 2. 25% of the next $2,000 of qualified education expenses paid for the eligible student. The maximum AOC which may be claimed for 2015 is $2,500 times the number of eligible students on the tax return. Up to 40% of the AOC may be a refundable credit. Income Limitation As previously covered, certain levels of MAGI reduce or eliminate the AOC. We covered the definition of MAGI on pages 16.2 and 16.3. Now, let’s take a look at its effect on the AOC. The AOC is phased out for taxpayers with MAGI between $80,000 and $90,000 ($160,000 and $180,000 MFJ). The AOC is not available to taxpayers with MAGI above $90,000 ($180,000 MFJ).

16.8 H&R Block Income Tax Course (2016) Illustration 16.2

Education Credits 16.9

The credit for taxpayers filing a joint return is computed by multiplying the tentative credit by: $180,000 – Modified AGI $20,000 For all other filing statuses, multiply the tentative credit by: $90,000 – Modified AGI $10,000 mExample: Jack and Jill are married and will file a joint 2015 tax return. They have a tentative AOC of $2,500 and MAGI of $165,000. Their AOC is reduced to $1,875: $2,500 2 $180,000 – $165,000 = $1,875 m $20,000

Form 1098-T Generally, an eligible educational institution must send each enrolled student Form 1098-T (or an acceptable substitute) each year. Form 1098-T contains the information needed to help claim the AOC. Refer to Form 1098-T in Illustration 16.3 on page 16.10. Following is a brief explanation of each entry on Form 1098-T: Box 1 shows the total amount of payments received by the institution for the student’s qualified expenses. This amount has been reduced by reimbursements or refunds, if any. Box 2 indicates the net amount of tuition and qualified expenses billed to the student.

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ax Tip: The amounts in boxes 1 and 2 of Form 1098-T may differ from the amount the client actually paid. Be sure to use the amount paid or deemed paid in 2015 to calculate the AOC.

The institution may choose to report either payments actually received (box 1) or amounts billed (box 2) during the year for qualified education expenses. Box 3 will be checked if the educational institution has changed their method of reporting. Box 4 contains any adjustments made for a prior year’s qualified expenses previously reported on Form 1098-T. If there is an entry in this box, the taxpayer may need to recapture a prior year’s education credit. See IRS Publication 970 if you encounter this situation. Box 5 shows the total of all scholarships or grants received by the institution on behalf of the student. As mentioned earlier, these amounts will reduce the amount of qualified expenses in box 1 for purposes of the education credit. Box 6 contains adjustments to scholarships or grants for a prior year. As with box 4, if there is an entry in this box, the taxpayer may be looking at some credit recapture. Box 7 will be checked if the amount in box 1 or 2 includes amounts for an academic period beginning after December 31, 2015, and before April 1, 2016. Because these amounts are eligible for a 2015 education credit, this check box does not change any of the entries on the 2015 tax return.

16.10 H&R Block Income Tax Course (2016)

Box 8 will be checked if the student is considered to be carrying at least one-half the normal full-time work load for their course of study at the institution. As you know, the student must be at least a halftime student for at least one academic period during the year to qualify for the AOC. Box 9 will be checked if the student is enrolled in a graduate program. Such a student is probably not eligible for the AOC. If the student is still in the first four years of postsecondary education, they can receive the AOC. Box 10 shows the total amount of reimbursements or refunds of qualified expenses made by an insurer. As with box 4, these amounts will reduce the amount of qualified expenses for purposes of the education credit. Illustration 16.3

Claiming the AOC The AOC is claimed on Form 8863 (refer to Illustrations 16.4 through 16.6 on pages 16.12–16.14). We’re going to walk through Form 8863 using this example: mExample: Mary Williams (745-14-8456) is single and cannot be claimed as a dependent by any other taxpayer. In 2015, Mary enrolled full-time at a local college (the college is a qualifying educational institution) to earn a degree in law enforcement. The first year of Mary’s postsecondary education was 2015. Mary received Form 1098-T from the college. Mary’s expenses meet all of the qualifications for the AOC. In addition to the expenses reported on Form 1098-T, Mary spent $712 for needed textbooks, which she purchased through an online book retailer. Mary’s 2015 AGI (and MAGI) is $39,000. Mary’s Form 1098-T is shown in Illustration 16.3, above. Mary’s AOC is claimed on Form 8863 (see Illustrations 16.4, 16.5, and 16.6). Mary had no other credits on her tax return. Note: Mary’s total qualified education expenses are $6,312. Subtracting out the $1,000 grant leaves expenses of $5,312. However, only $4,000 is entered in Form 8863, Part III, line 28. This is because $4,000 is the maximum amount of qualified education expenses upon which the AOC is based.m

Education Credits 16.11

Nonrefundable AOC As previously covered, up to 40% of the AOC may be available to the taxpayer as a refundable credit. However, it is extremely important to note that the refundable part of the AOC is not available to all taxpayers. A taxpayer does not qualify for the refundable credit if he or she is any of the following: • Under age 18 at the end of 2015. • Age 18 at the end of 2015 and earned income was less than one-half of the taxpayer’s support. • A full-time student over age 18 and under age 24 at the end of 2015 and earned income was less than one-half of the taxpayer’s support. And: • Has at least one parent who was alive at the end of 2015. • Is not filing a joint return for 2015. Complete Exercise 16.4 before continuing to read.

LIFETIME LEARNING CREDIT The amount of the lifetime learning credit is 20% of the total qualified expenses for all eligible students on the tax return. The maximum amount of expenses allowed per tax return is $10,000; therefore, the maximum annual credit is $2,000 per return, regardless of the number of eligible students. This is significantly different than the AOC maximum of $2,500 per student. However, the lifetime learning credit may be claimed for an unlimited number of tax years.

Qualified Expenses Qualified expenses for the lifetime learning credit include expenses incurred by a student for either of the following reasons: • The student is enrolled in a course that is part of a degree program for undergraduate or graduate-level courses. • The student took courses to acquire or improve job skills. There is no requirement that the student attend school on at least a half-time basis. For example, a Tax Professional may claim the lifetime learning credit for a tax course provided by an eligible educational institution (as defined earlier), even if this is the only class they take. They need not be enrolled on a half-time basis or in a degree program. For purposes of the lifetime learning credit, qualifying expenses generally do not include books. This is a significant difference from the AOC we covered earlier. The lifetime learning credit phases out for taxpayers with MAGI between $55,000–65,000 ($110,000– 130,000 MFJ).

16.12 H&R Block Income Tax Course (2016) Illustration 16.4

Education Credits 16.13 Illustration 16.5

16.14 H&R Block Income Tax Course (2016) Illustration 16.6

Education Credits 16.15 Illustration 16.7

16.16 H&R Block Income Tax Course (2016)

mExample 1: John and Lisa Proctor have modified AGI of $75,000. Their dependent son, Joseph, is a college freshman at the beginning of the tax year. Joseph does not attend school on at least a half-time basis. The Proctors paid qualified education expenses totaling $6,000. The lifetime learning credit for 2015 is $1,200 [$6,000 2 20% = $1,200].m mExample 2: The facts are the same as in Example 1, except the qualified expenses are $12,000. In this case, the lifetime learning credit would be $2,000 [$10,000 2 20% = $2,000].m The lifetime learning credit and the AOC may not be claimed for the same student for the same year, but each credit may be claimed for different students for the same year. The flowchart in Illustration 16.7 is an excellent reference to help determine who may claim the lifetime learning credit for 2015. Claiming the Lifetime Learning Credit The lifetime learning credit is claimed on Form 8863, Part III. As with the AOC, the calculation is pretty straightforward. Let’s assume Mary Williams (from the example on page 16.10) is in her fifth year of college in 2015. In this case, Mary will not qualify for the AOC (she has completed her first four years of postsecondary education), but she will qualify for the lifetime learning credit. Mary’s completed Form 8863 is presented in Illustrations 16.8, 16.9, and 16.10 on pages 16.17 through 16.20.

TUITION AND FEES DEDUCTION Congress has extended the tuition and fees deduction through 2016. Taxpayers may deduct up to $4,000 as an adjustment to income for qualified tuition and related expenses. The deduction is a per-return limit, not a per-student limit. The deduction is figured on Form 8917, Tuition and Fees Deduction, and claimed on Form 1040A, line 19. See Illustration 16.13 on page 16.22.

Who Is an Eligible Student? An eligible student is any student who is enrolled in any postsecondary educational institution which is eligible to participate in a student aid program administered by the Department of Education. This would include almost all accredited public, nonprofit, and proprietary (privately-owned, profit-making) postsecondary institutions.

Who May Claim the Deduction? In order to claim the deduction, the taxpayer must have paid the qualified expenses for themselves, a spouse, or a dependent who is claimed as an exemption by the taxpayer. If the taxpayer did not pay the expenses, they cannot claim the deduction. If the dependent paid the expenses and the taxpayer claims the dependency exemption, no one claims the deduction. The chart in Illustration 16.11, on page 16.20, is a helpful guide to determine who may claim the deduction in the case of a dependent student.

Education Credits 16.17 Illustration 16.8

16.18 H&R Block Income Tax Course (2016) Illustration 16.9

Education Credits 16.19 Illustration 16.10

16.20 H&R Block Income Tax Course (2016) Illustration 16.11

TUITION AND FEES DEDUCTION Who Can Claim a Dependent’s Expenses?

Education Credits 16.21

Phaseout of Tuition and Fees Deduction The tuition and fees deduction phases out for taxpayers with MAGI between $65,000 ($130,000 MFJ) and $80,000 ($160,000 MFJ). Unlike some tax benefits, which phase out at a more or less constant rate, the tuition and fees deduction phases out in steps, as shown below in Illustration 16.12. mExample: Let’s assume Mary Williams (from previous examples) has an AGI of $70,000 and is in her fifth year of college. In this case, Mary does not qualify for the AOC, because she is in her fifth year, and she will not qualify for the lifetime learning credit because her income is too high. Mary qualifies for the tuition and fees deduction. The first page of her 1040A and her completed Form 8917 is presented in Illustrations 16.13 and 16.14 on pages 16.22 and 16.23.m Illustration 16.12

16.22 H&R Block Income Tax Course (2016) Illustration 16.13

Education Credits 16.23 Illustration 16.14

16.24 H&R Block Income Tax Course (2016)

Qualified Expenses Qualified expenses for the tuition and fees deduction are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Related expenses may include student-activity fees and expenses for course-related books, supplies, and equipment. These are eligible expenses only if they must be paid to the institution as a condition of enrollment or attendance. Room and board are not qualified expenses. mExample: Blake is a sophomore in University K’s degree program in microbiology. This year, in addition to tuition, he is required to pay a fee to the university for the rental of the lab equipment he will use in the program. Because the equipment rental fee must be paid to the university, it is a qualified expense.m mExample: Stacy attends College J. Her tuition and fees for the year were $3,458. She also purchased books at the off-campus Wildcat Bookstore, costing $257, for her classes. Her qualified expenses for the tuition and fees deduction would be $3,458, because this expense was not paid to the institution.m Remember: Expenses used for education credits are not necessarily qualified expenses for the tuition and fees deduction. Also, any student who uses an education credit cannot use the tuition and fees deduction, even for expenses above those used for the credit. Complete Exercise 16.5 before continuing to read.

CHAPTER SUMMARY In this chapter, you learned: • Which educational expenses are eligible expenses for the tuition and fees deduction, the American Opportunity Credit (AOC), and the lifetime learning credit. • The tuition and fees deduction of up to $4,000 is available for degree candidates and students taking college courses to maintain or improve their current job skills. The deduction is figured on Form 8917 and entered on Form 1040A, line 19. • Taxpayers who pay for higher education may qualify for one or more education tax breaks. • The AOC is available for degree candidates who have not completed their first four years of postsecondary education as of the beginning of the tax year. • The lifetime learning credit is available for all years of higher education for degree candidates and students taking college courses to maintain or improve their current job skills.

Suggested Reading For further information on the topics discussed in this chapter, you may wish to read the following sections of IRS Publication 17: • Chapter 19, Education-Related Adjustments. • IRS Publication 970, Tax Benefits for Education, is also an invaluable resource for this topic.

Education Credits 16.25

T

he Tax Institute Tax in the News Research Question: Our clients have contributed about $5,000 to a Coverdell ESA for their son. They opened the account when he was a child (when they were still called Education IRAs!) and have contributed intermittently since then. Unfortunately, their son, who will soon turn 18, told them he has no intention of continuing his education after high school. What happens to the money at this point? Can the funds be rolled over to another kind of savings account for him, such as a Roth IRA?

A

nswer: Your clients may not roll over the unused ESA funds into any type of IRA, either for themselves or for their son. There are three possibilities for the ESA, rather than closing the account and distributing all of the funds. • First, your clients should keep in mind that the ESA can remain intact until their son turns 30. Although he may be adamant about not going to college right now, he could change his mind in a few years. Also, education expenses for ESAs include tuition and other costs for qualifying vocational schools, which may be a type of education that interests their son. • Second, the ESA can be rolled over tax-free to an ESA for another family member who is related to their son in one of several ways, including his siblings and first cousins. • Finally, as a point of information, the ESA can be rolled over tax-free to a qualified tuition program (QTP) for their son. Obviously, for this family, a QTP rollover may not be a good choice. If your clients decide to close the account and distribute all of the funds, the earnings portion of the distribution will be taxable to their son. The distribution will be reported on Form 1099-Q, Payments from Qualified Education Programs. For more information, including a list of acceptable relatives for rollover purposes, see “Coverdell Education Savings Account (ESA)” in IRS Pub. 970, Tax Benefits for Education, and instructions to Form 1099-Q. Note that we assume your client’s son is not a special needs beneficiary. If he were, the age limitation does not apply and the funds could remain in the ESA indefinitely.

17

Retirement OVERVIEW You have probably read or heard news stories stating that Americans are not saving nearly enough for retirement. The IRS Tax Code seeks to encourage retirement savings by making a variety of tax breaks available to taxpayers when they save for retirement. This chapter will cover some of the more common retirement savings plans available to individual taxpayers. In retirement planning, generally there are two parts. The first part of retirement is building your retirement accounts, so that when you retire—the second part—you can strategically withdraw the funds to live out your retirement. This chapter covers a brief overview of both contributing to and taking distributions from retirement plans.

OBJECTIVES At the conclusion of this chapter, you will be able to: • Explain the features of commonly available retirement accounts and the tax benefits of contributing to these accounts. • Determine if a taxpayer is eligible to contribute to a traditional or Roth IRA, and determine the deductible amount of traditional IRA contributions. • Determine a taxpayer’s eligibility for the retirement savings contribution credit and calculate the amount of the credit. • Determine and accurately report the taxable portion of social security or tier 1 railroad retirement benefits. • Identify and accurately report taxable qualified retirement plan and IRA distributions. • Explain the consequences of an early retirement plan and IRA distributions.

17.1

17.2 H&R Block Income Tax Course (2016)

TAX TERMS Look up the definitions of the following terms in the glossary: • 401(k) plan.

• Defined contribution plan.

• 403(b) plan.

• Distribution.

• 457 plan.

• Pension.

• Annuity.

• Rollover.

• Contribution.

• Roth IRA.

• Defined benefit plan.

• Traditional IRA.

TYPES OF RETIREMENT PLANS While there are a wide variety of retirement plans, for our purpose, we are going to focus on qualified plans and nonqualified plans. Qualified Plans A qualified plan is a plan that is eligible for favorable tax treatment because it meets the requirements of both the following: • IRC §401(a). • The Employment Retirement Income Security Act of 1974 (ERISA). A qualified plan is allowed some very advantageous tax treatment: • Employers may deduct the annual allowable contributions that they make for each plan participant. • Contributions and earnings on those contributions are tax-deferred until withdrawn for each participant. • In some cases, taxes may be deferred even further through a transfer into a different type of IRA account (we will cover IRA accounts later in this chapter).

Retirement 17.3

Nonqualified Plans As you probably suspect, a nonqualified plan is basically the opposite of a qualified plan. Nonqualified plans do not meet the requirements of IRC §401(a) and ERISA, and do not qualify for favorable tax treatment. Nonqualified plans are: • Usually designed to meet specialized retirement needs of key executives and other select employees. • Exempt from the discriminatory and top-heavy testing to which qualified plans are subject. Contributions to a nonqualified plan are usually nondeductible to the employer. Nonqualified plans do allow employees to defer taxes until retirement; at retirement, distributions from a nonqualified plan are usually made in the form of an annuity. Note: You do need to know the basic features of qualified vs. nonqualified plans, but do not get too wound up in it. We are going to concentrate on contributions to and distributions from qualified plans or plans that are basically treated as qualified plans.

QUALIFIED PLANS There are two kinds of qualified plans, defined benefit and defined contribution plans. A defined benefit plan is a retirement plan where the employee receives a predetermined formula-based benefit at retirement. The most common known type of defined benefit plan is a pension, in which the retirement benefit is calculated by a formula based on number of years worked, age, and the taxpayer’s history of earnings with the employer. Another type of defined benefit plan is an annuity. An annuity is a series of payments under a contract, made at regular intervals over a period of more than one year. The taxpayer can buy the annuity contract alone or with the help of their employer. Annuities are often purchased from life insurance companies. For these types of retirement accounts, generally the employer and/or employee makes payments to fund the pension or annuity. A defined contribution plan (also called a deferred compensation plan) is a retirement plan where the employee and/or employer make pre-tax contributions into a retirement account where the contributions and earnings grow tax-free until the money is withdrawn. The most commonly known type of deferred compensation plan is a 401(k). The following are common types of deferred compensation plans that you may encounter at the tax desk.

17.4 H&R Block Income Tax Course (2016)

401(k) Plans A widely available and popular type of qualified deferred compensation plan is the 401(k) plan. 401(k) plans take their name from IRC §401(k), which governs their existence. As a qualified plan, 401(k)s offer significant tax advantages: • Employee contributions to the plan are tax-deferred. This means the employee does not pay federal income tax on the amount of the contributions in the year contributed. Most states also allow contributions to be tax-deferred, although some contributions may be subject to local income tax. Tax is not paid until the taxpayer receives a distribution, or, in other words, withdrawal, from the plan. • Earnings on the contributions are also tax-deferred until the taxpayer receives a distribution from the plan. Employer-Matching Contributions The 401(k) plans may also have another potential benefit. The employer may opt to match all or part of the employee’s contributions to the account. This may be done by: • Making an additional contribution to the account on behalf of the employee. • Offering a profit-sharing contribution to the plan. mExample: Ted’s employer offers their employees a 401(k) plan. The employer offers a matching contribution for each percent the employee contributes, up to 5%, of their annual salary to the plan. If Ted contributes 10% of his annual salary to the plan, his employer will make matching contributions equal to 5%. This means Ted is saving 15% of his annual salary for an out-of-pocket expenditure of only 10%.m advantage of any employer-matching contribution is a fanTtastic wayTaking to help build retirement savings. Depending on the taxpayer’s ax Tip:

available cash flow, it is always advantageous for the taxpayers to make the minimum contribution to the retirement plan to receive the employer’s maximum matching contribution, because the employer’s matching contribution is free money.

403(b) Plans A 403(b) plan is a tax-advantaged retirement savings plan available for employees of the following types of organizations: • Public education. • Some nonprofit. • Cooperative hospital service. Employee contributions to a 403(b) plan are tax-deferred, and so are earnings on the plan.

Retirement 17.5

Note: Technically, 403(b) plans are not qualified plans. However, their main features are identical to those of qualified plans. For our purpose, we are going to treat 403(b) plans the same as a qualified plan.

457 Plans 457 plans are tax-advantaged, deferred-compensation retirement plans available primarily to governmental employees. These 457 plans are not qualified plans, but their primary features are identical to qualified plans. Contributions to the plan, and earnings on those contributions, are tax-deferred until the employee receives distributions from the plan.

Contribution Limits As wonderful a deal as a deferred-compensation plan is, employees are not allowed to contribute an unlimited amount to their plan. The IRS does set annual maximum limits on the amount that can be contributed. These amounts are indexed for inflation and generally rise each year (much as the allowable amount for the standard deduction generally rises each year). Taxpayers who exceed retirement contribution limits may be subject penalties if the excess amount is not withdrawn by April 15th of the following tax year. For 2015, the maximum annual allowable contribution is $18,000. Taxpayers over the age of 50 are allowed an annual “catch up” contribution of $6,000. Note: As mentioned, allowable contributions to plans are generally set as a percentage of an employee’s salary. Therefore, the maximum amount any one taxpayer can contribute is a function of both the maximum annual limit and the allowable percentage of salary that may be contributed. mExample: John Conners’ annual salary is $100,000. His employer sponsors a 401(k) plan, which allows each employee to contribute a percentage of their annual salary up to the IRS annual contribution limit. John chooses to contribute the amount of 5% of his annual salary. Therefore, for 2015, John’s 401(k) contribution is $5,000 [$100,000 2 5% = $5,000].m

Identifying Contributions to a Deferred-Compensation Plan In order to accurately and completely prepare a tax return, it is essential to know how much the taxpayer contributed to a deferred-compensation plan. Fortunately, the taxpayer’s Form W-2 generally contains all the information you need. Recall from Chapter 2 that there are a variety of codes that can be entered on Form W-2 to communicate a great deal of information. We are interested in box 12 and the codes that identify deferred-compensation plans. Refer to Illustrations 17.1 and 17.2 on the following page. mExample: Illustration 17.1 shows John Conners’ Form W-2 (from our earlier example). Notice the difference between the amount in box 1 and the amounts in boxes 3 and 5. The $5,000 difference is the amount John contributed on a tax-deferred basis to his 401(k) plan. The $5,000 401(k) contribution is reported in box 12 with the code D.m Complete Exercise 17.1 before continuing to read.

17.6 H&R Block Income Tax Course (2016) Illustration 17.1

Illustration 17.2

Retirement 17.7

IRAS An individual retirement arrangement (IRA) is a personal savings plan that gives taxpayers tax advantages for saving money for retirement. Two tax advantages of an IRA are that: • Money contributed to the IRA may be fully or partially deductible. • Amounts in the IRA grow tax-free and are not taxed until the money is withdrawn from the IRA account. Generally, a qualifying taxpayer has the option to fund two types of IRA accounts, a traditional IRA and a Roth IRA. Details about both types of IRAs will be discussed later.

Compensation To qualify to contribute to an IRA, a taxpayer must have earned income, or compensation. For IRA purposes, compensation includes wages, salaries, tips, commissions, professional fees, bonuses, net self-employment income, and other amounts the taxpayer receives for providing personal services, as well as alimony payments. If the taxpayer’s Form W-2 shows any nonqualified plan distribution or §457 plan distribution in box 11, that amount must be subtracted from the taxpayer’s wages when determining their compensation for IRA purposes. Investment income, foreign earned income, or business income where the taxpayer does not actively participate does not qualify as compensation for IRA contributions. Any foreign earned income, housing exclusion, or deduction the taxpayer is claiming must be subtracted to arrive at total compensation. For 2015, the maximum allowable contribution to an IRA (traditional or Roth) is the lesser of the following: • $5,500 ($6,500 if the taxpayer has reached age 50 by the end of the tax year). • 100% of the taxpayer’s compensation. For this purpose, a taxpayer is considered to have reached age 50 on the day before their birthday. Thus, a taxpayer born January 1, 1965, is considered to have reached age 50 at the end of 2015. Please note that the total of all traditional and Roth IRA contributions combined for the year cannot exceed $5,500 ($6,500 if age 50 or older). So a taxpayer could contribute $5,500 to their traditional IRA or $5,500 to the Roth IRA, but not $5,500 to both their traditional and Roth IRAs because their combined IRA contribution would equal $11,000. If the taxpayer wishes to contribute to both their traditional and Roth IRA, they would have to split the $5,500 maximum contribution limit between both accounts. For example, a taxpayer could contribute $2,500 to their traditional IRA and $3,000 to their Roth IRA.

17.8 H&R Block Income Tax Course (2016)

TRADITIONAL IRAS In order to establish and contribute to a traditional IRA, a taxpayer must have taxable compensation and must not have reached age 70½ by the end of the tax year. For this purpose, a taxpayer is considered to have reached age 70½ six months after their 70th birthday. Contributions to traditional IRAs may be deductible from gross income, as an adjustment to income on Form 1040A, line 17, if the taxpayer qualifies for the deduction. The advantage of a traditional IRA is that the taxpayer can often deduct amounts set aside for retirement and then watch the fund grow tax-free while in the IRA account. When the taxpayer reaches age 59½, they can withdraw the funds from the IRA without a penalty. However, the money is generally taxable at that time. The taxpayer is often in a lower tax bracket due to retirement, and will pay less income tax. Money placed in an IRA should be considered a long-term investment because amounts withdrawn before the taxpayer reaches age 59½ are usually subject to a 10% early withdrawal penalty.

Different Sets of Rules There are separate sets of rules concerning the deductibility of traditional IRA contributions for each of three different types of taxpayers: • Taxpayers who are active participants in employer-maintained retirement plans at any time during the year. • Taxpayers who are not active participants, including joint filers whose spouses are not active participants. • Joint filers who are not active participants, but whose spouses are active participants.

Who Is an Active Participant? A taxpayer is an active participant in an employer-maintained retirement plan if they participate at any time during the year in any of the following: • A qualified retirement, profit-sharing, or stock bonus plan (for example, a §401(k) plan). • A qualified annuity plan. • A §403(b) tax-sheltered annuity plan (available to employees of public schools and certain tax-exempt organizations). • A SIMPLE plan. • A government plan (other than a §457 plan). • Certain pension plans funded solely by employee contributions. • A plan established by a self-employed taxpayer (for example, a qualified plan or SEP). You do not need to become an expert in retirement plan terminology to know if an employee is covered by an employer-maintained plan. If box 13, the “Retirement plan” box, on the employee’s Form W-2 is marked, the employee is an active participant. If the employee believes the box should not have been marked, they should obtain a corrected Form W-2 from their employer.

Retirement 17.9

An individual is not treated as an active participant solely because of their coverage under social security or railroad retirement (tier 1 or tier 2). A person who is receiving retirement benefits from a former employer’s plan is not treated as an active participant unless they are covered under a current employer’s plan.

Taxpayers Who Are Not Active Participants IRA contributions made by taxpayers who are not active participants (and whose spouses are not active participants) are fully deductible up to the maximum allowable contribution amount. A taxpayer who uses the married filing separately status and who did not live with their spouse at any time during the year is treated as a single taxpayer for this purpose. If spouses both have compensation, each may establish an IRA, contribute, and deduct an amount within the limits. The allowable IRA contribution (and deduction) is computed separately without regard to any community property laws. An eligible married taxpayer may also establish a spousal IRA (an IRA for their spouse) even if the spouse has received little or no compensation for the tax year. A couple making contributions to a spousal IRA must file a joint return. mExample: Jim (48) and Sally (51) Spencer are filing jointly for 2015. Jim earned $35,000, and Sally earned $2,500. Jim may contribute up to $5,500 to his IRA for 2015. If Jim contributes the $5,500, Sally’s compensation for IRA purposes is $32,000 [$35,000 + $2,500 – $5,500 = $32,000]. The Spencers may contribute up to $6,500 to Sally’s IRA for 2015.m An IRA may be established and contributed to until the due date (not including extensions) of the return for the year. That is, a contribution made to an IRA on or before April 15, 2016, may be designated for 2015, and a deduction is allowed on the 2015 return. Therefore, contributing to an IRA is one of the few actions a taxpayer can take to reduce tax liability after the tax year has ended. mExample: Lorna Mendiola (39), a single taxpayer who is not an active participant in an employer-maintained retirement plan, computed her taxable income to be $54,689 and her tax to be $9,463. Because she had only $9,369 withheld from her pay, she would owe the federal government $94. Lorna did not like the idea of paying additional income tax, so on April 14 she opened a traditional IRA at her bank and contributed $4,000. She changed her return to show a $4,000 IRA deduction. Now, her taxable income is reduced to $50,689, and her tax becomes $8,463. Thus, Lorna receives a refund of $906, and she saved $4,000 for her retirement.m

Taxpayers Who Are Active Participants When considering taxpayers who are active participants in an employer-maintained retirement plan, we must be mindful of the distinction between contributing to an IRA and deducting that contribution. For active participants, the amount that may be contributed to a traditional IRA is the same as it is for nonparticipants. However, the amount that may be deducted is often limited. The limitation depends on the taxpayer’s modified AGI.

17.10 H&R Block Income Tax Course (2016)

Modified AGI (MAGI), for traditional IRA purposes, is determined by adding the following amounts to regular AGI (without regard to any IRA deductions): • Student loan interest deduction from Form 1040A, line 18 (or Form 1040, line 33). • Tuition and fees deduction from Form 1040A, line 19 (or Form 1040, line 34). • Excludible employer-provided adoption benefits from Form 8839, line 20. • Excludible U.S. Savings Bond interest from Form 8815, line 14. • Domestic production activity deduction from Form 1040, line 35 (beyond the scope of this course). • Certain excludible foreign and U.S. possession income (beyond the scope of this course). The chart in Illustration 17.3 below summarizes the phaseout ranges for 2015. Illustration 17.3

2015 TRADITIONAL IRA MODIFIED AGI PHASEOUT RANGES FOR ACTIVE PARTICIPANTS Filing Status S, HH, MFS*

Full Deduction $61,000 or less

Deduction Reduced $61,001–70,999

No Deduction $71,000 or more

MFJ, QW MFS**

$98,000 or less

$98,001–117,999

$118+,000 or more



$1–9,999

$10,000 or more

*Did not live with spouse at any time during the year **Lived with spouse at some time during the year

Nonparticipating Spouses A separate set of deduction limitations applies to married taxpayers who are not active participants in employer-maintained retirement plans, but who are filing joint returns with spouses who are active participants in such plans. These taxpayers are referred to as nonparticipating spouses. For 2015, a nonparticipating spouse is allowed a full deduction for a traditional IRA contribution if the couple’s modified AGI is $183,000 or less. If their modified AGI is greater than $183,000 but less than $193,000, the maximum deduction allowed is reduced. If their modified AGI is $193,000 or higher, no deduction is allowed. BlockWorks provides a two-page worksheet, called the IRA Deduction Worksheet – Line 32, to help Tax Professionals compute taxpayers’ total allowable contributions to their traditional IRAs and to determine how much of any traditional IRA contribution is deductible. The worksheet is shown in Illustrations 17.4 and 17.5.

Retirement 17.11

mExample: Henri (39) and Michelle (39) Duval are married and filing a joint return on Form 1040A. Henri earned $69,700 and is an active participant in an employer-maintained retirement plan. Michelle earned $32,500 and is not an active participant. The Duvals’ total income is $102,200. Their only adjustment to income is a $151 student loan interest deduction, which makes their adjusted income $102,049. When determining MAGI for the traditional IRA deduction, the $151 student loan interest deduction is added back. This makes their MAGI equal to $102,200 [$102,049 + $151 = $102,200]. Henri and Michelle would like to contribute $5,500 each to their traditional IRAs for 2015, but they do not want to contribute more than they can deduct. Because Henri is an active participant in an employer-maintained retirement plan and the Duvals’ modified AGI is greater than $98,000, Henri’s traditional IRA contribution deduction is limited to $4,350. However, Michelle is able to make the full $5,500 traditional IRA contribution because she is not an active participant in an employer-maintained retirement plan and the Duvals’ modified AGI is less than $183,000. The Duvals’ BlockWorks IRA Deduction Worksheet – Line 32 is shown in Illustrations 17.4–17.5. The Duvals are excited to be receiving a $9,850 IRA deduction on their Form 1040A, line 17.m

ROTH IRAS Roth IRAs are an excellent way to save, not only for retirement, but beyond. Unlike traditional IRAs, taxpayers can make contributions to their Roth IRA after they reach age 70½. Since Roth IRAs do not have required distributions, the taxpayer could leave contributions in the account as long as they wish. Unless specific rules prescribe otherwise, the rules that apply to traditional IRAs also apply to Roth IRAs. For instance: • To make contributions, the taxpayer must receive compensation during the year. • Contributions must be made by the due date of the return, not including extensions. • Contributions for each spouse are limited for 2015 to the lesser of $5,500 ($6,500 for those age 50 and older) or total compensation. • Taxpayers can make contributions for themselves and a nonworking or lower-income spouse, if they file a joint return. Allowable Roth IRA contributions must be reduced by any amounts contributed to a traditional IRA, regardless of whether such contributions were deductible. Not Deductible. The main difference between a traditional IRA and a Roth IRA is that contributions to a Roth IRA are not deductible on Form 1040A. Qualified distributions, however, are exempt from tax. This means that the money earned inside the Roth IRA is usually tax-free. Because Roth IRA contributions are not deductible, these contributions are not reported on the tax return. However, it is important for the taxpayer to keep records of their Roth IRA contributions.

17.12 H&R Block Income Tax Course (2016) Illustration 17.4

Retirement 17.13 Illustration 17.5

17.14 H&R Block Income Tax Course (2016)

The maximum allowable Roth IRA contribution is phased out based on the taxpayer’s modified adjusted gross income. This phaseout range applies whether or not the taxpayer or spouse is an active participant. Participation in an employer-maintained retirement plan has no effect on Roth IRA contributions, and contributions can be made even after the taxpayer has reached age 70½. See Illustration 17.6 for a table of the 2015 Roth IRA modified AGI phaseout ranges based on the taxpayer’s filing status. Illustration 17.6

2015 ROTH IRA MODIFIED AGI PHASEOUT RANGES Filing Status S, HH, MFS*

Full Contribution Less than $116,000

Contribution Reduced $116,000–130,999

No Contribution $131,000 or more

MFJ, QW MFS**

Less than $183,000

$183,000–192,999

$193,000 or more

$0

$1–9,999

$10,000 or more

*Did not live with spouse at any time during the year **Lived with spouse at some time during the year

For Roth IRA purposes, modified AGI is computed in the same manner that it is for traditional IRAs, except that income resulting from the conversion of a traditional IRA into a Roth IRA is not included. The BlockWorks 2015 Maximum Roth IRA Contribution Worksheet is used to compute the amount of Roth IRA contributions a taxpayer (and spouse) may make to their Roth IRA accounts. This worksheet is shown in Illustration 17.7. For taxpayers whose traditional IRA deduction is reduced because they participate in an employer retirement plan and their modified AGI exceeds the threshold amount per filing status, the taxpayer may wish to contribute the exact amount of their traditional IRA contribution deduction to their traditional IRA and contribute the remaining portion to their Roth IRA, assuming their Roth IRA contribution is not limited due to their MAGI. mExample: Henri and Michelle Duval (from the preceding example) still wish to maximize Henri’s 2015 IRA contribution limit, because the Duvals are very proactive about saving for their retirement. Because Henri’s traditional IRA contribution deduction is limited to $4,350, he wants to contribute as much as he can to his Roth IRA. Because the Duvals’ modified AGI is below $183,000, Henri is allowed to contribute $1,150 to his Roth IRA account [$5,500 – $4,350 = $1,150]. This way, he maximizes his $5,500 IRA contribution limit. Henri’s BlockWorks 2015 Maximum Roth IRA Contribution Worksheet is shown in Illustration 17.7.m

Retirement 17.15 Illustration 17.7

17.16 H&R Block Income Tax Course (2016)

Roth IRA Conversion. Taxpayers who have a traditional IRA have the ability to transfer all or part of the funds from their traditional IRA into a separate Roth IRA account. This transfer is called a Roth IRA conversion. The taxpayer is required to pay income tax on the transferred amounts in the year of conversion. The Roth IRA conversion is reported using Form 8606, Nondeductible IRAs. The traditional IRA funds may be transferred to the Roth IRA using the following methods: • The taxpayer receives a distribution from their traditional IRA and personally contributes the money into their Roth IRA within 60 days of the distribution. This is called a rollover. • The taxpayer requests the traditional IRA trustee to transfer the funds directly into their Roth IRA. This is called a trustee-to-trustee transfer. • The taxpayer reclassifies their traditional IRA account as a Roth IRA, if the account is maintained by the same trustee. • The taxpayer transfers all or part of their traditional IRA funds into a new Roth IRA account that is maintained by the same trustee. If you are preparing a return for a taxpayer who has made a Roth IRA conversion, additional research may be required. More information about a Roth IRA conversion can be found in IRS Publication 590, Individual Retirement Arrangements (IRAs).

SIMPLE IRA A SIMPLE IRA is a retirement plan generally setup by small employers to allow employees to contribute pre-tax compensation into the plan. Employers are required to either make a matching contribution based on the employee’s elective deferred compensation or a nonelective contribution that must be paid to all eligible employees, regardless of whether the employee makes contributions to their account. The employer receives a deduction on the business return for the contribution they made to the employee’s accounts. Unlike a traditional IRA, the employee does not receive a contribution adjustment on their return, because their contributions are made by their employer on their behalf prior to calculating and remitting federal and state income tax. The employee taxpayers are then taxed on the SIMPLE IRA funds when they take distributions from the account. For more information, see IRS Publication 560, Retirement Accounts for Small Businesses. Complete Exercises 17.2 and 17.3 before continuing to read.

Retirement 17.17

RETIREMENT SAVINGS CONTRIBUTION CREDIT Qualified lower- and middle-income taxpayers who make retirement plan contributions may be eligible to claim a nonrefundable credit on their tax returns. This “Saver’s Credit,” for short, is available in addition to any allowable deduction—which makes this one of the very few situations where a double benefit may be claimed. A 2015 Saver’s Credit is not available to taxpayers who were: • Born after January 1, 1998. The year changes each year. • Claimed as a dependent on someone else’s 2015 return. • Full-time students during any part of five calendar months in 2015.

Qualified Contributions Contributions that qualify for the Saver’s Credit include: • Contributions to traditional and Roth IRAs. (As with the traditional IRA deduction, contributions for 2015 made in 2015 give rise to a credit for 2015.) • Voluntary salary deferrals to §401(k) plans, §403(b) tax-sheltered annuity plans, governmental §457 plans, SEPs, and SIMPLE plans. • Voluntary employee contributions to qualified retirement plans. • Contributions to §501(c)(18)(D) plans. While a thorough understanding of the details of each plan type is not necessary at this time, it is important to be aware of the types of plans that are available. Generally, when qualified contributions are made by an employee to an employer-maintained plan, they can be found in box 12 of their Form W-2 denoted by code D, E, F, G, H, or S. You may want to review the box 12 codes for Form W-2 (Illustration 17.2). Employers’ matching contributions do not count toward the credit. Also, mandatory contributions do not qualify for the credit. Contributions are considered mandatory if they are required as a condition of employment. mExample: Michael Oxenbacher (46) voluntarily deferred $1,000 of his salary into his employer’s §401(k) plan. He also contributed $500 to a traditional IRA and $250 to a Roth IRA. All of these contributions are qualified contributions for the Saver’s Credit.m

17.18 H&R Block Income Tax Course (2016)

Contributions that qualify for the Saver’s Credit must be reduced by any distributions from the same types of plans made in the two tax years prior to the current year until the due date of the current year’s return (including extensions). Thus, for 2015, distributions made after December 31, 2012, and before April 15, 2016, (October 15, 2016, if an automatic six-month extension was requested) reduce the amount eligible for the credit. mExample: Suppose that Michael Oxenbacher (from the preceding example) had taken a $600 distribution from his §401(k) plan on January 8, 2015. His $1,750 qualified contributions must be reduced by the $600 distribution when computing the Saver’s Credit.m The following do not reduce the amount eligible for the Saver’s Credit: • Distributions directly rolled over or transferred from one trustee to another. • Distributions of funds converted from a traditional IRA to a Roth IRA. • Loans from qualified employer plans treated as distributions. • Distributions of excess contributions or deferrals (plus earnings). • Distributions of contributions made during the tax year (plus earnings) and withdrawn before the due date of the return (including extensions). • Distributions of dividends on stock held by an employee stock ownership plan. • Distributions from a military retirement plan. mExample: On June 17, 2015, Robert Demler withdrew (i.e., took a distribution) $1,300 from his traditional IRA. On August 13, 2015, he rolled over the funds into a new traditional IRA. On December 3, 2015, he contributed $2,000 to the new IRA. Robert is not required to reduce his $2,000 contribution, which qualifies for the Saver’s Credit, by the amount he rolled over in 2015. However, if he had kept the money from the original distribution, he would have been required to reduce his qualified contribution to $700 [$2,000 – $1,300 = $700].m

Amount of Credit The Saver’s Credit is based on qualified contributions up to $2,000 per taxpayer or $2,000 for each spouse on a joint return in 2015. The credit rates are 10%, 20%, or 50%, depending upon filing status and modified AGI. In this case, AGI is modified only for certain excluded foreign and U.S. possession income. The rates are shown on the following page in Illustration 17.8.

Retirement 17.19 Illustration 17.8

SAVER’S CREDIT RATES Modified Adjusted Gross Income Married Filing Head of Household Jointly

All Others

Credit Rate

Up to $36,500

Up to $27,375

Up to $18,250

50%

$36,501–39,500

$27,376–29,625

$18,251–19,750

20%

$39,501–61,000

$29,626–45,750

$19,751–30,500

10%

Over $61,000

Over $45,750

Over $30,500

0%

The credit is computed on Form 8880, Credit for Qualified Retirement Savings Contributions, shown in Illustration 17.9. The credit is then entered on Form 1040A, line 34. mExample: Stephanie Ackerman (35) is a teacher using the head of household filing status. During 2015, she deferred $2,150 of her salary into her employer’s §403(b) tax-sheltered annuity plan. On April 13, 2015, she contributed $4,000 to her Roth IRA for 2015. Back in 2013, she had withdrawn $750 from the Roth IRA when she was having a tough time making ends meet. Stephanie’s modified AGI is $33,600, and her Form 1040A, line 28, amount is $1,799. Based on Stephanie’s modified AGI, she qualifies for a $200 retirement savings contributions credit (Saver’s Credit), which is reported on her Form 1040A, line 34. Her completed Form 8880 is shown in Illustration 17.9.m Complete Exercise 17.4 before continuing to read.

SOCIAL SECURITY AND EQUIVALENT RAILROAD RETIREMENT BENEFITS Many taxpayers who are retired or disabled or whose spouses or parents are deceased receive social security or equivalent tier 1 railroad retirement benefits (RRB). Like many other amounts in tax law (such as the allowable standard deduction), social security benefit amounts are indexed for inflation, which generally results in the benefit amount increasing from year to year.

17.20 H&R Block Income Tax Course (2016) Illustration 17.9

Retirement 17.21

Depending upon each taxpayer’s situation, up to 85% of a taxpayer’s social security or equivalent tier 1 RRB may be taxable. Taxpayers with income above a certain threshold will pay tax on a portion of their benefits. Note: For purposes of this section, the term social security benefits applies only to payments made under the Old-Age, Survivors, and Disability Insurance (OASDI) program. OASDI benefits are funded through the social security payroll tax, are based upon prior earnings, and may be partially taxable. Social security benefits do not include Supplemental Security Income (SSI). SSI is a federal program providing income assistance based on financial need for the aged, blind, and disabled. While the Social Security Administration administers both programs, SSI benefits are not taxable.

Full Retirement Age For workers born before 1938, full retirement age is age 65. The retirement age is gradually being increased to age 67 for workers born after 1937. The table in Illustration 17.10 shows how this change is being phased in. Barring change, the entire process will be complete in 2027. Illustration 17.10

FULL RETIREMENT AGE Year of Birth 1937 and earlier

Full Retirement Age 65 years

Year of Birth 1943–1954

Full Retirement Age 66 years

1938

65 years, 2 months

1955

66 years, 2 months

1939

65 years, 4 months

1956

66 years, 4 months

1940

65 years, 6 months

1957

66 years, 6 months

1941

65 years, 8 months

1958

66 years, 8 months

1942

65 years, 10 months

1959

66 years, 10 months

The full retirement age is 67 years for everyone born in 1960 and later.

Reporting Social Security and Equivalent Railroad Retirement Benefits Form SSA-1099 is used to notify the taxpayer of total social security benefits received during the year. This form is shown in Illustration 17.11. Form RRB-1099 is used to notify the taxpayer of tier 1 RRB received during the year. This form is shown in Illustration 17.12.

17.22 H&R Block Income Tax Course (2016) Illustration 17.11

Illustration 17.12

Retirement 17.23

Study Form SSA-1099, Social Security Benefit Statement, in Illustration 17.11 and Form RRB-1099 in Illustration 17.12 as you read through the next section describing the forms. Note: There are minor differences between the forms. The following references are for the SSA-1099. Box 1. Recipient’s name. Box 2. Recipient’s social security number. Box 3. Total amount of benefits paid. This figure may not agree with the actual money the taxpayer received, due to adjustments for items withheld, such as Medicare Part B premiums. All adjustments are itemized in the box labeled “Description of Amount in Box 3” (SSA-1099). Box 4. Recipients who have not yet reached full retirement age and who earned more than $15,720 in wages and net self-employment income during 2015 may be required to pay some of their benefits back to the Social Security Administration. Box 4 shows the total amount of benefits repaid, if any. The earnings limit, above which some benefits may need to be repaid, is $41,880 for taxpayers who reached full retirement age in 2015. There is no earnings limit for recipients who reached full retirement age before 2015. Box 5. Net benefits received. This amount is the difference between the figure in box 3 and the figure in box 4. Box 6 (Box 10 on RRB-1099). Taxpayers may choose to have federal income tax withheld from their benefits. The amount of tax withheld is shown here and should be included on Form 1040A, line 40.

Computing Taxable Benefits The amount of a taxpayer’s social security or tier 1 RRB subject to federal tax varies from zero to 85%, depending upon filing status and income. The level of taxability is based on modified AGI (defined below) increased by one-half of the net benefits received by the taxpayer (and spouse, if MFJ). See Illustration 17.13 for the taxability ranges. Illustration 17.13

TAXABLE SOCIAL SECURITY BENEFITS

S, HH, QW

None of Benefits Taxable $0–25,000

Up to 50% of Benefits Taxable $25,001–34,000

Up to 85% of Benefits Taxable $34,001 & over

MFJ

$0–32,000

$32,001–44,000

$44,001 & over

Filing Status

$1 & over MFS* * If married filing separately and did not live with spouse at any time during the year, use single.

17.24 H&R Block Income Tax Course (2016)

is a handy rule of thumb to help determine if a portion of social TsecurityHere or RRB benefits are taxable: generally, if 50% of the total benefits ax Tip:

plus all other income do not exceed $25,000 ($32,000 MFJ, $0 if MFS and the taxpayers lived together at any point during the year), none of the benefits are taxable.

Modified adjusted gross income is the sum of the following: • Regular AGI (without taking any social security or RRB tier 1 benefits into account). • Any excluded employer-provided adoption benefits. • Tax-exempt interest (for example, municipal bond interest). • Any interest from qualified U.S. Savings Bonds excluded because the taxpayer has qualified education costs. • Any excluded foreign earned income or housing allowance, or certain U.S. possession income. • Any student loan interest deduction. • Any tuition and fees deduction. • Any domestic production activities deduction. H&R Block provides a worksheet you will use to determine the taxable amount of social security benefits. The BlockWorks Social Security Taxable Benefits Worksheet is shown in Illustration 17.14. The worksheet looks intimidating, but don’t worry—it is very easy to use if you read each line carefully and follow the instructions. The taxable amount of the social security or RRB income appears on line 19 of the worksheet. If line 19 of the worksheet shows that some of the benefits received are taxable, enter the taxable amount on Form 1040A, line 14b. Also, enter the benefits received (line 1 of the worksheet) on line 14a. If line 19 of the worksheet shows that none of the benefits received are taxable, enter net benefits for this income on Form 1040A, line 14a, and enter $0 on line 14b. If the taxpayer is married filing a separate return and did not live with their spouse at any time during the year, they would also enter “D” in the space to the left of line 14a and enter $0 on line 14b. mExample: Samuel and Carol Walters are filing a joint return. Their Form 1040A, before calculating taxable social security, shows AGI of $50,000, made up of the following entries: • Line 7 (wages) – $40,000. • Line 8a (taxable interest) – $10,000. They also received nontaxable municipal bond interest of $2,000 (Form 1040A, line 8b). Box 5 of Sam’s Form SSA-1099 shows $6,000. On Form 1040A, $6,000 is entered on line 14a, and $5,100 is entered on line 14b. The Walterses’ Social Security Taxable Benefits Worksheet is shown in Illustration 17.14.m

Retirement 17.25 Illustration 17.14

17.26 H&R Block Income Tax Course (2016)

Tier 1 Railroad Retirement Benefits Generally, social security benefits and tier 1 RBB receive the same tax treatment. However, railroad retirement disability benefits that are payable to individuals who would not be entitled to social security disability benefits, or that are in excess of the social security benefits to which an individual would be entitled, generally are fully taxable. Similarly, railroad retirement benefits that are payable at an age earlier than comparable social security benefits, or in an amount greater than the social security benefits, are generally fully taxable. See IRS Publication 575, Pension and Annuity Income, for more information. Railroad retirement benefits described in this paragraph are reported to the taxpayer on Form RRB-1099-R (rather than on Form RRB-1099) and are treated as pension income. Pension income is discussed in the next section. Complete Exercise 17.5 before continuing to read.

RETIREMENT ACCOUNT DISTRIBUTIONS A distribution is when a taxpayer takes money out of a retirement account. Generally, distributions from pensions, annuities, profit-sharing and retirement plans (including §457 state and local government plans), IRAs, insurance contracts, etc., are reported to the recipient taxpayer on Form 1099-R, Distribution From Pension, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. This form is shown in Illustration 17.15. Illustration 17.15

Retirement 17.27

Study Form 1099-R in Illustration 17.15 as you read through the next section describing this form. Box 1. Gross distribution. This is the gross amount the taxpayer received for the year. Box 2a. Taxable amount. This is generally the taxable portion of the amount received. If there is no entry in this box, the payer may not have all the facts needed to figure the taxable amount. In that case, the first box in box 2b, taxable amount not determined, should be checked. Box 2b. Taxable amount not determined. If the first box is checked, the payer was unable to determine the taxable amount, and box 2a should be blank, except for an IRA. In that case, the recipient must compute the taxable amount. Box 2b. Total distribution. If the total distribution box is checked, all the funds in the account were distributed to close out the account. A lump sum distribution or rollover could trigger a total distribution of account funds. Box 3. Capital gain (included in box 2a). If the participant was in the plan prior to 1974, this portion of the distribution may be eligible for the capital gain election. See the instructions for Form 4972 or IRS Publication 575. Box 4. Federal income tax withheld. If any federal tax has been withheld, the amount is shown here. Include this amount on Form 1040A, line 40. Box 5. Employee contributions or insurance premiums. This box may contain the amount of the employee’s after-tax contributions to the plan. If the Form 1099-R is for a pension rather than a total distribution, the total employee contributions should be shown in box 9b in the first year of periodic payments. For succeeding years, any amount shown in box 5 will be the amount of employee contributions recovered tax-free during the year. Box 6. Net unrealized appreciation in employer’s securities. Net unrealized appreciation (NUA) is the untaxed increase in value in employer’s securities received as part of the distribution. This amount generally is not taxed until the securities are sold. If you encounter a Form 1099-R with an entry in box 6, you will need to do some reading about net unrealized appreciation. Here again, the instructions for Form 4972 will give you a good start. Box 7. Distribution code(s). As you know, this box contains one or two codes that describe the distribution. Although there may be both a number and a letter entered in box 7, there generally should be no more than one of each.

17.28 H&R Block Income Tax Course (2016)

With all of the different types of distributions that can be reported on Form 1099-R, the list of codes has grown quite long. Here is a list of the more common ones, along with their meanings for 2015. A complete list of codes can be found on the back of copy C of Form 1099-R. If you encounter a Form 1099-R with a code you do not understand, you will need to do some research or consult with a more experienced Tax Professional: 1

Early distribution; no known exception to penalty applies (as far as the payer knows).

2

Early distribution; exception to penalty applies (for example, conversion to a Roth IRA).

3

Disability.

4

Death (includes payments to a beneficiary).

7

Normal distribution.

A

May qualify for ten-year averaging and/or capital gain election (as far as the payer knows).

G

Direct rollover to a qualified retirement plan, tax-sheltered annuity, §457(b) plan, or IRA, or from a conduit IRA to a qualified plan.

J

Early distribution from a Roth IRA, no known exception to penalty applies (as far as the payer knows).

Q

Qualified distribution from a Roth IRA.

T

Roth IRA distribution due to death or disability or taxpayer has reached age 59½, but the payer does not know if the five-year holding period was met.

Box 8 is used to show the current actuarial value of an annuity contract. This amount may be needed for Form 4972. Box 9a is used when the total distribution is made to more than one person. The taxpayer’s percentage of the total distribution is shown here. Box 9b shows the amount of the employee’s total investment in the retirement account. This amount is used to compute the taxable portion of the distribution. Boxes 12–17. State and local tax information. Any state or local income tax withheld will be shown in boxes 12 and 15, respectively. Enter these amounts on the appropriate lines of the state and local tax returns. Also, include them in itemized deductions on line 5 of federal Schedule A, if the taxpayer itemizes and does not elect instead to deduct state and local general sales taxes. If the state or local distribution amount is different from the federal amount, the appropriate amounts will be shown in boxes 14 and 17, respectively.

TAXABLE DISTRIBUTION Distributions from a qualified retirement account are generally fully or partially taxable because the retirement account was funded with pre-tax contributions and the earnings grew tax-free while in the account.

Retirement 17.29

A fully taxable distribution is a distribution where the taxpayer did not make after-tax contributions, or from which all after-tax amounts have been recovered in previous years. If the taxpayer made no contribution to the pension plan or annuity (for example, the employer paid all the costs), or if the taxpayer made only pre-tax contributions to a plan (such as in a §401(k) plan), the entire distribution amount received during the year is taxable. Examine line 12 on the first page of Form 1040A. When a distribution from a retirement account, excluding an IRA, is fully taxable, enter the total amount directly on line 12b and make no entry on line 12a. mExample: Harry Murphy (67) receives a fully taxable monthly distribution from his 401(k) of $1,600 ($19,200 annually). His Form 1099-R is shown in Illustration 17.15. Harry's fully taxable 401(k) distribution of $19,200 is reported on his Form 1040A, line 12b.m A partially taxable distribution is a distribution where the taxpayer has made after-tax contributions to the retirement account. When the taxpayer receives a distribution from this account, a portion of the distribution represents a nontaxable return of their after-tax contribution (investment or cost). Fortunately, most payers will have the required information to compute the taxable amount of the distribution and report it to the recipient on Form 1099-R, box 2a. For payers who do not know the amount of after-tax contributions made by the taxpayer, the payer will leave box 2a blank and check box 2b, taxable amount not determined. In this situation, the taxpayer is required to determine their taxable amount of the distribution. When reporting a partially taxable distribution from a retirement account, excluding an IRA, the total distribution amount received for the year is entered on Form 1040A, line 12a. The taxable amount is entered on Form 1040A, line 12b. There are several methods for computing the taxable amount of a partially taxable distribution. Which one you will use depends mostly on when the payments started. The methods have undergone considerable changes over the years, but we will concentrate on the most recent rules. The older general rule will be presented later for your awareness. Simplified Method The simplified method may be used to compute the taxable portion of a pension or annuity with a starting date after July 1, 1986, and before November 19, 1996, where the taxpayer has after-tax contributions in the plan. However, taxpayers are required to use the simplified method if their pension or annuity starting date is after November 18, 1996. The pension or annuity must meet the following three conditions to use the simplified method: • The payments must be from a qualified pension, profit-sharing, or stock bonus plan; a qualified employee annuity plan; or a tax-sheltered annuity (403(b) plan). • The annuitant (the receiver of the payments) must be under 75 years of age when the payments begin, or, if 75 or older, there must be fewer than five years of guaranteed payments. • The payments are for either the annuitant’s life or the joint life of the annuitant and a beneficiary.

17.30 H&R Block Income Tax Course (2016)

Under the simplified method, the taxpayer’s excludible amount is determined by using a simple table. The table included on the Simplified Method Worksheet shows the anticipated number of monthly payments based on the age of the annuitant(s) for a pension or annuity starting after November 18, 1996. Note, the joint and survivor columns are to be used only for pensions and annuities starting after December 31, 1997. The age of the taxpayer is their age on the date the pension payments begin. This is important to note since often a pension will begin in a year before the taxpayer reaches their full retirement age. mExample: Thomas Bloom’s birthday is November 15, 1950. His first pension payment was made on March 1, 2015. Therefore, the age to use for the table is 64, as he would not reach age 65 until November 15, 2015.m The taxpayer’s after-tax investment, or cost in the pension or annuity, is divided by the appropriate number from the table to determine the excludible amount of each payment. For partly taxable pensions and annuities with starting dates after December 31, 1986, part of each payment received is excludible until the taxpayer has recovered their cost. Once the cost is recovered, the pension or annuity is fully taxable. If the taxpayer (and their beneficiary, in the case of a joint and survivor annuity) dies before the cost has been fully recovered, the unrecovered amount is deducted on the taxpayer’s (or beneficiary’s) final return as a miscellaneous itemized deduction on their Form 1040, Schedule A. The excludible amount of each payment never changes (until it ceases entirely when the final beneficiary dies or the cost is fully recovered), even though the annuity or pension payments may increase due to cost-of-living provisions or for other reasons. mExample: George Castle (69), a single taxpayer, began receiving a pension of $1,500 per month for life from the Leisure Retirement Funding Pension Fund on March 1, 2015. His Form 1099-R is shown in Illustration 17.16. George’s after-tax investment in the pension was $74,100. In 2015, he recovered $3,529 of his investment ($352.86 per month for ten months). George’s Simplified Method Worksheet is shown in Illustration 17.17. He will report $15,000 on line 16a (12a) and $11,471 on line 12b of his 2015 Form 1040A.m When entering a partially taxable qualified retirement plan Bor traditional IRA distribution into BlockWorks, scroll to the bottom of the lockWorks tip:

pension input screen in BlockWorks. Here, you will make entries to compute the taxable amount using the simplified method. Table 1 is used unless the spouse is a beneficiary of the pension, in which case Table 2 is used and the sum of both taxpayers’ ages is entered in the “Age at starting date” box, such as in Illustration 17.18.

Retirement 17.31

General Rule The general rule for calculating the excludible portion of pension and annuity payments may be used if a taxpayer started receiving payments before November 19, 1996. If the taxpayer started receiving payments on or after that date, the simplified method must be used in most cases. In cases of purchased annuities and other nonqualified plans, the general rule must be used regardless of the annuity starting date. Because the general rule involves using complex actuarial tables, we will not discuss it in this course. If you encounter a pension or annuity that must be (or is being) recovered using the general rule, you will need to do some research and partner up with an experienced Tax Professional. IRS Publication 939, General Rule for Pensions and Annuities, is a good place to start. There was also a death benefit exclusion available for certain beneficiaries of pensions and annuities in the past. This exclusion was repealed for deaths occurring after August 20, 1996. If you ever need more information about this exclusion, see IRS Publication 939, General Rule for Pensions and Annuities. Complete Exercise 17.6 before continuing to read. Illustration 17.16

17.32 H&R Block Income Tax Course (2016) Illustration 17.17

Retirement 17.33 Illustration 17.18

IRA DISTRIBUTIONS Distributions from traditional and Roth IRAs are also shown on Form 1099-R. If a distribution is from an IRA (or a SEP or a SIMPLE IRA), an appropriate code will be entered in box 7, and the small box to the right of box 7 will be checked. Traditional IRAs. Distributions from traditional IRAs are usually reported on Form 1099-R as fully taxable because the IRA trustee does not know how much, if any, of the taxpayer’s IRA contributions were nondeductible. Sometimes, the “Taxable amount not determined” box is checked. If any nondeductible contributions had been made, the taxpayer must use Form 8606 to compute the taxable portion of any distributions. If the IRA distribution is fully taxable, enter the full amount on Form 1040A, line 11b. If the distribution is partly taxable, enter the gross amount on line 11a and the taxable portion on line 11b. mExample: Mildred Zigler (69), a single taxpayer, withdrew $3,000 from her traditional IRA on December 11, 2015. She made no contributions to her traditional IRA in 2015. Mildred has an $800 basis in her IRA from a nondeductible contribution she made in 1998 (report on Form 8606, line 2). According to her IRA trustee statement, her IRA was worth $17,582 at the end of 2015 (report on Form 8606, line 6). Mildred’s Form 8606 is shown in Illustration 17.19. After completing Form 8606, Mildred will enter $3,000 on Form 1040A, line 11a and $2,883 on line 11b. The amount on line 14 of her Form 8606 is her remaining basis, and she will carry it to line 2 (unless the line number changes) of the next Form 8606 she files.m Roth IRAs. Qualified distributions from Roth IRAs are exempt from tax. A qualified distribution is one that: • Is taken after the end of the five-year period that began January 1 of the tax year for which the account was set up. • Is made after the account owner has died, becomes disabled, or reaches age 59½ or is used to buy, build, or rebuild the taxpayer’s first home. Part III of Form 8606 (on page 2, which is not shown) is used to determine the taxable amount of any nonqualified distribution. If you need additional information, see IRS Publication 590. Complete Exercise 17.7 before continuing to read.

17.34 H&R Block Income Tax Course (2016) Illustration 17.19

Retirement 17.35

EARLY DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS The Tax Code imposes an additional 10% early withdrawal penalty tax on the taxable portions of most early distributions from qualified retirement plans and IRAs. An early distribution generally is one made before the taxpayer has reached age 59½ and is denoted by code 1 in box 7 of Form 1099-R. The 10% early withdrawal penalty is only reported on Form 1040. There are, however, several exceptions (shown below) to the penalty available. The penalty does not apply to the recovery of cost (investment) or any amount rolled over in a timely manner. See the IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) for a full discussion of IRA rollovers. mExample: On June 4, 2015, Nahima Meda (33) left her job and took a total distribution from her §401(k) plan. Her Form 1099-R shows a fully taxable distribution of $9,700. She did not roll over any of the money. The early distribution is also subject to a 10% penalty tax.m The early distribution penalty is sometimes computed in Part I of Form 5329, shown in Illustration 17.20. There are several exceptions to the penalty. If any of these apply, a code is entered on Form 5329, line 2. The penalty will not apply in the following cases. Note: Exceptions 01 and 06 do not apply to IRAs. Exception 02 applies to IRAs and to employer plans, but only if the taxpayer no longer works for that employer. Exceptions 07, 08, and 09 apply only to IRAs. 01

The distribution was made to an employee who separated from service during or after the year in which they reached age 55 (age 50 for qualified public safety employees).

02

The distribution is part of a series of substantially equal periodic payments, made at least annually for the life of the participant (or joint lives of the participant and beneficiary) or the life expectancy of the participant (or the joint life expectancies of the participant and beneficiary).

03

The distribution was made due to permanent and total disability.

04

The distribution was made due to the death of the employee.

05

The distribution was made in a year that (and to the extent that) the taxpayer’s unreimbursed medical expenses exceed 10% (7½% if taxpayer or spouse is age 65 or older) of adjusted gross income (whether the taxpayer itemizes or not).

06

The distribution was made to an alternate payee under a qualified domestic relations order (usually a separation agreement or divorce decree).

07

The distribution was made from an IRA in a year (and to the extent that) an unemployed taxpayer paid health insurance premiums.

08

The distribution was made from an IRA to pay qualified higher education expenses for the taxpayer, spouse, their child, or their grandchild (whether or not the student is the taxpayer’s dependent).

09

The distribution (up to $10,000 lifetime limit) was made from an IRA to pay qualified firsttime homebuyer expenses.

10

The distribution was made due to an IRS levy of the qualified plan.

11

The distribution was made to a reservist while serving on active duty for at least 180 days.

12

Other. For other exceptions, refer to the instructions for Form 5329. Also, use this code if more than one exception applies. For additional exceptions applicable to annuities, see IRS Publication 575 or the instructions for Form 5329.

17.36 H&R H&R Block Block Income Tax Course (2016) (2015)

Further explanation on some of the exceptions may be helpful at this point. Age 55. Observe carefully the wording of exception 01. The recipient must have separated from the service of their employer before receiving the distribution. They need not have actually reached their 55th birthday prior to the separation, as long as they do so by the end of the year. Medical expenses. Exception 05 does not require that the money from the distribution itself be used to pay the medical expenses—simply that the taxpayer’s medical expenses for the year exceed 10% of AGI (7½% if taxpayer or spouse is age 65 or older), even if the taxpayer doesn’t itemize. This exception may apply to all or part of the distribution. mExample: Alan Trimble is 40 years old and has an AGI of $40,000, including his $5,000 early IRA distribution. His unreimbursed medical expenses total $4,800. Alan can escape penalty on $800 using exception 05 [$4,800 – ($40,000 2 10% = $4,000) = $800].m Unemployed taxpayers. To qualify for exception 07, the distribution must be made to a taxpayer who has received unemployment compensation payments for 12 consecutive weeks. This exception does not apply to any distribution made more than 60 days after the taxpayer has returned to work. This exception only applies to IRAs. Qualified higher education expenses, for the purpose of exception 08, has the same meaning as for the education credits, plus room and board if the student is enrolled on at least a half-time basis. The expenses must be paid for the taxpayer, the spouse, or the child or grandchild of the taxpayer or spouse. The child or grandchild need not be the taxpayer’s dependent. mExample: In 2015, Carmen DiGiorgio (43) took $5,000 out of his traditional IRA to pay toward his son’s college tuition. The distribution is fully taxable, but not subject to the 10% penalty. His Form 5329 is shown in Illustration 17.20.m Qualified first-time homebuying expenses, for the purpose of exception 09, are any costs of acquiring or constructing a principal residence for a first-time homebuyer. The term first-time homebuyer is misleading; what it really means is someone who has not owned a home during the two-year period prior to the date of acquisition of the home to which this exception applies (up to $10,000). The distribution must be used to pay qualified expenses within 120 days after the date of distribution. The expenses must be paid for the taxpayer, spouse, their child or their grandchild, or parent or grandparent. Five-year period. A Roth IRA distribution (up to $10,000) used to pay first-time homebuying expenses not only meets the penalty exception but is not subject to taxation at all if it was made after the end of the five-year period beginning with January 1 of the year for which the first contribution was made. So, for example, if you first contributed to a Roth IRA for 2009, you could take a qualified distribution of up to $10,000 to buy your first home any time after 2013—and pay no tax or penalty! The second page of Form 5329 contains a taxpayer signature section. The taxpayer (and paid preparer, if any) needs to sign Form 5329 and complete the address on page 1 only if the form is not attached to a tax return, but is sent to the IRS by itself. That could happen, for example, if the taxpayer does not meet the gross income filing requirements but had an early distribution subject to the penalty.

Retirement 17.37 Illustration 17.20 X.X

17.38 H&R H&R Block Block Income Tax Course (2016) (2015)

If the only penalty a taxpayer owes is the 10% penalty for an early distribution, and their Form 1099R correctly shows code 1, Form 5329 need not be completed if they meet none of the exceptions. Such taxpayers may enter the 10% penalty directly on Form 1040, line 59, and write “No” to the left of the line under the heading “Other Taxes,” indicating that there is no Form 5329 attached. Complete Exercise 17.8 before continuing to read.

CHAPTER SUMMARY In this chapter, you learned how to: • Explain the features of commonly available retirement accounts and the tax benefits of contributing to these retirement accounts. • Determine if a taxpayer is eligible to contribute to a traditional or Roth IRA as well as determine if their traditional IRA contributions were deductible. • Determine a taxpayer’s eligibility for the retirement savings contribution credit and calculate the amount of the retirement savings contribution credit. • Determine and accurately report the taxable portion of social security or tier 1 railroad retirement benefits. • Identify and accurately report taxable qualified retirement plan and IRA distributions. • Explain the consequences of early retirement plans and IRA distributions.

Suggested Reading For further information on the topics discussed in this chapter, you may wish to read the following sections in IRS Publication 17: • Chapter 10, Retirement Plans, Pensions, and Annuities. • Chapter 11, Social Security and Equivalent Railroad Retirement Benefits.

Retirement 17.39

Our client turned 55 Tin 2015 and took three early distributions from three different 401(k) plans he Tax Institute Tax in the News Research Question:

during 2015. Two of the 401(k)s are with his two former employers, and one is with his current employer. Can the age 55 exception apply to all three distributions, or only to the two from the client’s previous employers?

A

nswer: From the facts you have given, all three of the 401(k) distributions are subject to the 10% early distribution penalty. In order to apply the §72(t)(2)(A)(v) “age 55” penalty exception to an early distribution from a retirement plan, two conditions must be met: 1. The distribution must be made to an employee after he or she has separated from service with the employer maintaining the plan. 2. The separation must occur during or after the calendar year in which the employee attained age 55. Unfortunately, many taxpayers do not understand this second condition. They mistakenly believe that as long as they are either retired or no longer working for a particular employer, they are free to begin taking distributions from their former employer’s plan once they turn 55. The second condition means that if the separation from service occurs before the year the employee turned 55—whether because of retirement, changing jobs, a lay-off, etc.—the age 55 exception does not apply to that employer’s plan. While the distributions from your client’s former employers meet the first condition, i.e., they were made after he separated from service, they do not meet the second condition because he left those companies before the year in which he turned 55. The distribution from your client’s current employer’s plan clearly does not qualify for the exception because he has not separated from service for this employer. Thus, the three distributions are subject to the early withdrawal penalty unless another exception applies. Note: It is not clear why your client was able to take a 401(k) distribution from his current employer. In general, a plan distribution is not permitted unless an employee has reached age 59½, or has left the employer, or is eligible for a “hardship” distribution. Plans may allow hardship distributions for certain contingencies, but they are subject to the early distribution penalty.

18 Ethics

OVERVIEW “The ethical decision is always the fearsome decision. When something matters enough that we are afraid of the consequences–afraid that even the honorable choice could result in harm or loss or sorrow–that’s when ethics are involved.” Henry W. Bloch Ethical behavior is taking responsibility for personal conduct. Ethical rules and regulations established by the IRS and other agencies provide the guidelines for tax preparers. This chapter will inform you of the basic guidelines and show you how to apply those guidelines at the tax desk. This responsibility extends beyond satisfying individual responsibilities, and beyond the requirements of society’s laws and regulations. Ethical behavior recognizes a responsibility to the taxpayer, to fellow tax preparers, and to H&R Block, even if this behavior requires personal sacrifice. The underlying reason for a high level of ethical conduct by any professional is the need for public confidence in the quality of service by the professional, regardless of the individual providing the service. Our business is built from the relationships we create and maintain with H&R Block clients, other tax preparers, and regulatory agencies. It is important that we follow the principles that set the foundation for ethical standards in our business practices

OBJECTIVES At the conclusion of this chapter, you will be able to: • Define due diligence. • Identify scenarios that present a conflict of interest. • State key requirements of client confidentiality. • Identify situations of noncompliance and respond appropriately. • Perform best practices that fulfill ethical requirements.

TAX TERMS Look up the definitions of the following terms in the glossary: • Circular 230

• Noncompliance

• Disclosure

• Privilege

• Due diligence 18.1

18.2 H&R Block Income Tax Course (2016)

DUE DILIGENCE Due diligence is required by all tax preparers to ensure that the Tax Code is correctly applied in all matters. Taxpayers do not know tax law. They come to tax preparers for guidance and expertise that help them comply with their tax obligations. It is up to the tax preparer to apply due diligence accordingly. Specific situations in which tax preparers must exercise due diligence include: • Preparing, reviewing, and filing tax returns and other documents related to IRS matters. • Determining the correctness of oral or written representations the tax preparer makes to the Department of the Treasury. • Determining the correctness of oral or written representations the tax preparer makes to clients with reference to any matter administered by the IRS.

Accurate and Complete Tax preparers must prepare accurate and complete returns. A tax return is accurate and complete when all income is included and the taxpayer qualifies for all deductions and credits that are claimed. It is a primary due diligence responsibility to know the tax law and use sound judgment to determine eligibility. An ethical tax preparer completes every tax return accurately and completely. This attempt is made regardless of such factors as EITC implications or taxpayer reluctance to provide accurate and complete information. Defining Error and Fraud Occasionally, in spite of our best efforts, taxpayers make mistakes on the information they provide. Tax law provides ways to correct errors. Correspondence with the IRS, either by letter or by an amended return, will correct accidental tax errors. If taxpayer gives information to purposely deceive the IRS, this behavior is fraud and cannot be tolerated. Do not sign a return that is fraudulent. Do not assist a taxpayer in unlawful activity. A tax preparer may not: • Sign a tax return that is frivolous (obviously improper or unlawful). • Take a position advising a change on a tax return that does not have a greater than 50% likelihood of being sustained on its merits. Under tax law, to perform your duties as a paid tax preparer, you may occasionally have to explain to a taxpayer that their cooperation is required before you can continue to prepare their tax return. If a taxpayer does not have receipts or documentation for business expenses and refuses to reconstruct them or obtain substitute records, you cannot sign the return. There is a difference between a taxpayer who is overwhelmed by other responsibilities and one with an intent to commit fraud. It is your responsibility to apply a reasonability check to determine the reality.

Ethics 18.3

Thorough Interview A thorough interview consists of asking questions whenever information is incomplete or seems inaccurate or inconsistent. The client’s answer to one question might often lead a tax preparer to ask a follow-up question. It is an interesting fact of tax preparation that each client brings a unique set of circumstances. A tax preparer might ask the same question to several different clients, but should never expect the same answer. Likewise, similar answers might have different outcomes based on other factors on the return.

Reasonablility Check A reasonability check is when a tax preparer considers the client’s information before making any conclusions. A reasonability check should be applied to the client’s individual answers and to their whole tax picture. A tax preparer should look at all the factors and ask, “Does this make sense?” Do not sign a return that has not met your reasonability check, and make sure to complete a thorough interview in every case. The IRS requires that you document the questions and answers asked about the significant issues on the return, especially on a return which includes a significant benefit from EITC.

T

ax Tip: It is not the tax preparer’s responsibility to “audit” taxpayer records.

Applying due diligence is not auditing–it is the process through which a thorough interview culminates in an accurate and complete return.

Appropriate application of due diligence provides an accurate and complete return that ensures: • All income is reported. • The taxpayer meets all required criteria for claiming: ○○ Dependency exemptions. ○○ Credits and deductions. ○○ Similar items. Contemporaneous Records The contemporaneous records requirement of due diligence is the immediate documentation of your questions and each taxpayer’s responses. Although it is specifically required on all EIC claims, tax preparers should always document their questions and the client’s answers if they think the IRS might question any item on the return. tax preparers can use the Notes section in their software to include any explanation or additional information that they think the IRS might question. See Illustration 18.1 on page 18.4. Note: Taxpayers must have access to anything entered into their tax return or tax file. Therefore, the notes should be written in a professional manner.

18.4 H&R Block Income Tax Course (2016) Illustration 18.1

T

ax Tip: The contemporaneous records requirement pertains to information that the IRS may need to understand the taxpayer’s circumstances. In the words of an IRS speaker at a recent IRS forum, “If it isn’t documented, it didn’t happen!”

Complete Exercise 18.1 before continuing to read.

CONFLICT OF INTEREST Conflicts of interest can arise in many situations. A conflict may be present from the moment a relationship is initiated with a client, or the conflict may develop well after work has started with a client. In either case, tax preparers must be diligent in acknowledging that a conflict could or has occurred, and take appropriate actions to resolve the situation. Circular 230 and the H&R Block Code of Ethics expressly deal with conflicts of interest. Both documents prohibit or strongly discourage conflicts of interest across many situations, including: • Client representation. • Relations with customers, competitors, suppliers, co-workers. • Political and investment activities.

Ethics 18.5

Circular 230 provides that a tax preparer is not allowed to represent a client before the IRS if a conflict of interest exists. Examples of situations where a conflict of interest exists include: • One client will be adversely affected by representation of another client. mExample: Simon and Felicia are married. During a meeting with their tax preparer, Sam, they disclose having profound financial problems, and that they are seriously considering divorce. They also tell Sam that Simon’s small business is failing and may close, and they may have to file for personal bankruptcy. If Simon and Felicia stay married, a conflict of interest will not exist. However, if they divorce, a conflict could exist because the best interests of Simon and Felicia may not be the same. In fact, they could be opposite. If Simon and Felicia divorce, Sam must explain to both of them what a conflict of interest is and that one has arisen in their case. He must also ask if they want to waive the conflict and continue with him as their representative, or one or both cease their relationship with him and find new representatives. If they decide to waive the conflict, Sam must obtain separate, signed waivers from both Simon and Felicia.m • A significant risk that representation of one or more clients will affect the tax preparer’s responsibility to other clients. mExample: Carmen is an enrolled agent with a successful tax practice. Carmen works alone. Because of increased compliance activity by the IRS, Carmen has increased her audit caseload by 100% over the prior year. She works 60 to 70 hours per week just representing her audit clients. Carmen may only take on additional tax return preparation or audit clients if she can do so without harming her existing clients. While not impossible, it is not reasonable to believe Carmen can increase her workload above 70 hours per week and still effectively serve all of her clients.m • The tax preparer has a personal interest in the outcome. mExample: A tax preparer advertises that they can get the maximum refund for clients and charges a fee based on a percentage of the refund.m

Exceptions to Conflict of Interest Rules When a conflict of interest is acknowledged, a tax preparer may still represent the clients under the following circumstances: • The tax preparer reasonably believes they can provide competent and diligent representation to each affected client. • The representation is not prohibited by law. • Each affected client gives informed consent, confirmed in writing, stating that they waive the conflict. The IRS requires tax preparers who obtain written conflict of interest waivers from clients to retain the waivers for at least 36 months from the date the representation concludes, and to provide the waivers to the IRS upon request. Complete Exercise 18.2 before continuing to read.

18.6 H&R Block Income Tax Course (2016)

CLIENT CONFIDENTIALITY It is a requirement that all tax returns and tax return information shall remain confidential. A tax return, for this purpose, includes: • All types of tax returns. • Tax information forms (for example, Forms W-2, 1099, or 1098). • Declaration of estimated tax. • Supporting schedules, attachments, or lists filed with the IRS. Tax return information includes: • A taxpayer’s identity. • The nature, source, and amount of income. • Payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, over-assessments, and tax payments. • Any other data received, recorded, prepared, or furnished to the IRS, or furnished or collected by the IRS. The information that a taxpayer is the client of a tax preparer or tax preparation business is confidential and must not be disclosed without the taxpayer’s express consent.

Privileged Communications Certain communications between attorneys or other authorized tax preparers and their clients are privileged. This means that clients may instruct their tax preparer to refuse to share specific communications and information with the government. The scope of privilege depends on the status of the tax preparer and their relationship to the client. There are two levels of privilege in the field of taxation: • Attorney-client privilege exists between attorneys and their clients. Clients may assert this privilege to protect confidential communications and information. Attorneys are professionally obligated to raise this privilege on behalf of their clients, unless the client instructs otherwise. • I.R.C. §7525 privilege applies to communications and information between certain federally authorized tax preparers and their clients. Specifically, for I.R.C. §7525, federally authorized tax preparers are those with one of the following designations: ○○ Attorney. ○○ Certified public accountant (CPA). ○○ Enrolled agent (EA). ○○ Enrolled actuary. ○○ Appraiser.

Ethics 18.7

Privilege Under §7525 Is Narrow The §7525 privilege exists between any federally authorized tax preparer (listed above) and their client. This privilege is narrow in scope. It applies only to tax advice, not to tax return preparation. It also does not apply to state tax matters, criminal tax matters, or corporate tax matters.

Limited Disclosure A tax preparer must not provide a copy of a taxpayer’s tax return to any other party. In specific circumstances, tax preparers may disclose confidential tax return information. The most common exceptions are the: • Related party exception ○○ In situations where tax preparers are preparing tax returns for two or more related parties, they may use information obtained from the first return and disclose it to the second party in the form it appears in order to prepare the second return. ○○ The taxpayers are related parties and: • The first taxpayer’s interest in the information is not adverse to the second taxpayer. • The first taxpayer has not expressly prohibited the disclosure or use of the information.

T

ax Tip: Related parties for the purposes of the related party exception

include husband and wife, parent and child, grandchild and grandparent, partner and partnership, trust or estate and beneficiary, trust or estate and fiduciary, corporation and shareholder, or members of a controlled group of corporations.

• Written consent exception ○○ A tax preparer may disclose otherwise confidential information of a taxpayer if he or she obtains written consent. The written consent must be dated and signed by the taxpayer, and express consent must be one of the following situations: • To a third person as directed by the taxpayer. • In preparing a tax return for a second taxpayer, not a related party. • To other tax preparers or administrative personnel employed by the same tax preparation firm to the extent necessary for quality or peer review and processing the return.

T

ax Tip: A tax preparer should release a joint return to either or both spouses named as the taxpayers, because the return belongs to each spouse.

18.8 H&R Block Income Tax Course (2016)

mExample: Jerry, a tax preparer, receives a call from Samantha, another tax preparer who works in a different office for the same company. Samantha is preparing a return for a prior client of Jerry’s, and she needs some information not available on the prior year’s return. Jerry does not know Samantha. Jerry should take the following actions: • After learning what information Samantha needs, tell her he will call her back and ask for her phone number. • Use a reliable source, such as an internal list, a phone book, directory assistance, or the internet, for the correct phone number of the office from which Samantha said she was calling. Compare the number with the one provided by Samantha. • Call the number found at a reliable source and ask for Samantha. • After positively identifying Samantha, release the information to her.m

Registered Tax Return Preparers For federal tax purposes, no privilege exists between a client and a tax preparer who is a Registered Tax Return Preparer. A tax preparer who is a Registered Tax Return Preparer must promptly respond to proper requests for records and information. The Registered Tax Return Preparer must: • Not neglect or refuse to submit available records and information upon a lawful and proper request by the IRS. • Not interfere or attempt to interfere with any proper or lawful efforts by the IRS to obtain information. • Promptly advise the client of any noncompliance and the consequences of such noncompliance if the Registered Tax Return Preparer knows the client has not complied with any tax law.

Request for Information Not in Possession If requested records or information are not in the tax preparer’s possession or are outside his or her control, the tax preparer must promptly notify the IRS. Any available information regarding the identity of the person possessing the records or information must be provided to the IRS. Tax preparers are required, if necessary, to ask the taxpayer about the identity of any person who may have possession or control of the requested records and information. The tax preparer is not required to expand the inquiry about the records and information beyond the taxpayer. mExample: Carolyn is an Enrolled Agent who works in a tax office that is open all year. In June, she received a letter from the IRS, in which she was instructed to provide all information and documents in her possession regarding Veil Corporation. Peter and Jan, clients for whom she prepares personal income tax returns only, own a controlling interest in Veil. Carolyn has no information or documents pertaining to Veil and does not know of any individual who may be in possession or control of the information. However, because Peter and Jan own a controlling interest in Veil, she is required to ask them if they have, or know who has, any documents or information that pertain to Veil Corporation.m

Ethics 18.9

Generally, requests from the IRS are sent directly to the taxpayer Trather than to the tax preparer. Thus, the tax preparer will not know of the ax Tip:

request unless the client brings it to their attention.

Complete Exercise 18.3 before continuing to read.

COMPLIANCE It is generally understood that taxpayers must comply with the revenue laws of the United States by filing accurate and complete tax returns and related documents. Circular 230 provides guidance regarding a tax preparer’s responsibilities when they have knowledge that a client has not complied with the Tax Code: §10.21 Knowledge of client’s omission. A practitioner who, having been retained by a client with respect to a matter administered by the Internal Revenue Service, knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper which the client submitted or executed under the revenue laws of the United States, must advise the client promptly of the fact of such noncompliance, error, or omission. The practitioner must advise the client of the consequences as provided under the Code and regulations of such noncompliance, error, or omission. Noncompliance issues include: • Refusing to provide records and information lawfully requested by the IRS. • Reporting inaccurate income. • Claiming deductions or credits for which the taxpayer does not qualify. When a tax preparer has knowledge that a client has not complied with any tax law, they must: • Advise the client promptly of the fact of the noncompliance, error, or omission. • Advise the client of the consequences of such noncompliance, error, or omission. The tax preparer’s duty is complete upon informing the client of the noncompliance and the consequences of such actions. The tax preparer should not voluntarily inform the IRS of a client’s noncompliance. In fact, doing so is a breach of confidentiality. If a client insists that the tax preparer prepare an inaccurate or incomplete tax return, the tax preparer must refuse to prepare the tax return.

18.10 H&R Block Income Tax Course (2016)

mExample: Jennifer is a new client who has come in to have her return prepared. She is single, has a daughter, Ashley, and wants to file head of household. During the client interview, the tax preparer asks Jennifer about others who live in the household, and discovers that Jennifer’s husband lived in the household during December, in the year previous to the tax year for which the tax preparer is preparing the return. Jennifer brought in last year’s return, so the tax preparer knows that she filed as head of household and claimed EITC for that year. After asking a few more questions, it is clear that Jennifer thought that as long as her husband did not live with her for most of the year, she did not have to file a joint return with him. It is now the tax preparer’s responsibility to inform Jennifer that she did not qualify to file as head of household for that tax year. The tax preparer must inform her of her obligation to amend the return, and the consequences for not doing so.m

Benefits of Compliance A working environment that includes ethical standards provides different benefits to taxpayers and to tax preparers. Benefits of Compliance for Taxpayers • Provides an accurate return, including all tax benefits to which they are entitled. • Reduces the risk of the IRS questioning their returns. • Increases their defense of all positions claimed. • Minimizes the risk of being subject to noncompliance penalties. Benefits of Compliance for Tax Preparers • Promotes taxpayer retention by providing a quality product. • Lessens the risk of being called for an IRS preparer audit. • Increases their defense of all positions advised. • Minimizes the risk of being subject to preparer penalties. • Shows integrity in the return preparation process.

Risks of Noncompliance The risks of noncompliance vary, from monetary penalties to loss of tax or business privileges. Different penalties are charged to the taxpayers and to the tax preparer. Risks for Taxpayers • Civil penalties with the possibility of incarceration for criminal penalties. • Loss of EITC privilege for: ○○ 2 years for intentional or reckless disregard of EITC rules. ○○ 10 years for EITC fraud.

Ethics 18.11

Risks for Tax Preparers • IRS tax preparer audit or tax preparer EITC due diligence visit. ○○ Due diligence audits are conducted annually by the IRS. ○○ Selection is based on standard criteria applied to all EITC returns. ○○ Examination to check paid preparer compliance with all four EITC due diligence requirements. ○○ IRS will interview both the employee and employer. • Criminal penalties with the possibility of incarceration. ○○ Civil penalties are strictly monetary penalties and are assessed for conduct not generally considered criminal in nature. ○○ Criminal penalties can be monetary, but may also involve prison time. This can happen when there is willful misconduct.

Complete Exercise 18.4 before continuing to read.

18.12 H&R Block Income Tax Course (2016)

DISREPUTABLE CONDUCT A tax preparer shall not commit any act of disreputable conduct. A tax preparer authorized to represent taxpayers may be disbarred or suspended from practice before the IRS for disreputable conduct. Any tax preparer may be forbidden from providing tax advice or preparing tax returns for other taxpayers.

Examples of Disreputable Conduct Examples of disreputable conduct include the following: • Committing any criminal offense under the revenue laws or committing any offense involving dishonesty or breach of trust. • Knowingly giving false or misleading information in connection with federal tax matters or participating in such activity. • Soliciting employment by prohibited means as discussed in Circular 230, §10.30. • Willfully failing to file a tax return, evading or attempting to evade any federal tax or payment, or participating in such actions. • Misappropriating or failing to properly and promptly remit funds received from clients for payment of taxes. • Directly or indirectly attempting to influence the official action of IRS employees by the use of threats, false accusations, duress, or coercion, or by offering gifts, favors, or any special inducements. • Being disbarred or suspended from practice as an attorney, CPA, public accountant, or actuary by the District of Columbia or any state, possession, territory, or commonwealth, or any federal court, or any body or board of any federal agency. • Knowingly aiding and abetting another person to practice before the IRS during a period of suspension, disbarment, or ineligibility. ○○ Maintaining a partnership to allow a disbarred person to continue practice before the IRS is presumed to be a violation.

Ethics 18.13

• Using abusive language, making false accusations and statements known to be false, circulating or publishing malicious or libelous matter, or engaging in any contemptuous conduct in connection with practice before the IRS. • Giving a false opinion knowingly, recklessly, or through gross incompetence or following a pattern of providing incompetent opinions in questions arising under the federal laws. preparers who fail to comply with the EIC rules and regulations Tmay incurTaxEIC Due Diligence penalties of $505 per return for each violation. ax Tip:

According to the H&R Block Code of Business Ethics, Tax Professionals who receive an IRS letter indicating that they have committed a paid preparer violation should notify their supervisor or District General Manager immediately.

Sanctions Related to Disreputable Conduct Penalties for a tax preparer’s disreputable conduct can be severe, including possible censure, suspension, or disbarment from practice before the IRS. Tax preparers may be prohibited from providing tax advice or preparing tax returns for any other taxpayers. More egregious behavior could result in high monetary penalties and even imprisonment. Penalties may be imposed, after a hearing, if a tax preparer: • Is shown to be incompetent or disreputable. • Fails to comply with any U.S. tax law or regulation. • Willfully and knowingly misleads or threatens a client or prospective client with intent to defraud. Penalty of $5,000 or 50% (whichever is greater) of the income derived by the preparer if the tax preparer: • Willfully understates a client’s tax liability. • Recklessly or intentionally disregards a U.S. tax law or regulation. Penalty of $1,000 or 50% (whichever is greater) of the income derived by the preparer if the tax preparer: • Understates a client’s tax liability due to a position that does not have a realistic possibility of being sustained and was not disclosed on the return or is determined to be frivolous. Terminology Understating a client’s tax liability means: • Understating the net tax liability. • Overstating the net amount creditable or refundable. Frivolous position is one that is patently (obviously) improper.

18.14 H&R Block Income Tax Course (2016)

BEST PRACTICES A tax return preparer is a person who prepares a return or claim for refund (or a substantial part of a return or claim for refund) for compensation, as well as a person who employs others to prepare all or a substantial part of a return. Signing tax return preparer. The individual tax return preparer that has the primary responsibility for the overall substantive accuracy of the preparation of the return or claim for refund. Nonsigning tax return preparer. Any tax return preparer who is not a signing tax return preparer but who prepares all or a substantial portion of a return or claim for refund with respect to events that have occurred at the time the advice is rendered.

Defining Substantial Portion Whether a schedule, entry, or other portion of a return or claim for refund is a substantial portion is determined based upon whether the person knows or reasonably should know that the tax attributable to the schedule, entry, or other portion of a return or claim for refund is a substantial portion of the tax required to be shown on the return or claim for refund. A person who gives tax advice on a position that is directly relevant to the determination of the existence, characterization, or amount of an entry on a return or claim for refund will be regarded as having prepared that entry. Factors the IRS will consider in determining whether a schedule, entry, or other portion of a return or claim for refund is a substantial portion include: • The size and complexity of the item relative to the taxpayer’s gross income. • The size of the understatement attributable to the item compared to the taxpayer’s reported tax liability. A single tax entry may constitute a substantial portion of Tthe tax Caution: required to be shown on a return. ax Tip:

De Minimis Rule for Nonsigning Preparers For purposes of determining whether a nonsigning preparer has prepared a substantial portion of a return, the schedule or other portion is not considered to be a substantial portion if the schedule, entry, or other portion of the return or claim for refund involves amounts of gross income, amounts of deductions, or amounts on the basis of which credits are determined that are: • Less than $10,000. • Less than $400,000 and also less than 20% of the gross income as shown on the return or claim for refund (or for an individual, the individual’s AGI).

Ethics 18.15

If more than one schedule, entry, or other portion is involved, all the schedules, entries, or other portions will be aggregated to apply this rule. mExample: A tax preparer prepares Schedule B (Form 1040) for an individual taxpayer, reporting $4,000 in dividend income. At the same time, the tax preparer also gives oral advice about Schedule A, which results in a claim of a medical expense deduction totaling $5,000. The tax preparer is not a “nonsigning tax return preparer” because the total aggregate amount of the deductions on Schedule A is less than $10,000. However, if the medical expense deduction totaled $15,000 and the taxpayer’s AGI is $50,000, the tax preparer would be a nonsigning tax return preparer.m Preparing a Return that Affects Entries on Another Return If an entry or entries reported on one return (the “first return”) affect an entry reported on another return (the “second return”), the preparer of the first return is a nonsigning preparer of the second return if the entry or entries reported on the first return are directly reflected on the second return and constitute a substantial portion of the second return. mExample: A tax preparer who is the preparer of a partnership return is considered a tax return preparer of each partner’s individual tax return if the entry or entries on the partnership return that are reportable on each partner’s individual tax return(s) constitute a substantial portion of that return.m One Preparer Per Position Rule A tax return preparer is subject to a §6694 penalty if the individual is primarily responsible for a position on the return or claim for refund giving rise to an understatement. The preparer is subject to the penalty if all the following are true: 1. There was no substantial authority for the position. 2. The preparer knew (or reasonably should have known) of the position. 3. Either the position wasn’t disclosed or there was no reasonable basis for the position. Under the final regulations, there is only one person within a firm who will be considered primarily responsible for each position giving rise to an understatement and thus subject to a §6694 penalty (a change from the previous regulation, where the rule was that there was one preparer subject to penalty per firm—the signing preparer). Identifying the Individual Who is Primarily Responsible for the Position If there is a signing return preparer within the firm, the signing tax return preparer will be considered the person who is primarily responsible for all the positions on the return or claim for refund giving rise to the understatement. However, if the IRS receives credible information from any source, it can conclude, on the basis of that information, that a nonsigning tax return preparer is primarily responsible for the position(s) giving rise to an understatement. In that case, a nonsigning tax return preparer within the signing tax return preparer’s firm will be considered the tax return preparer that is primarily responsible for the position(s) on the return. If the information supports the conclusion that either the signing tax return preparer or a nonsigning tax return preparer is primarily responsible for the position giving rise to the understatement, the penalty may be assessed against either of the individuals, but not both.

18.16 H&R Block Income Tax Course (2016)

Preparer Tip: Because the IRS will look at “credible information” to determine who is responsible for the position in question, it is necessary for preparers to contemporaneously document advice given and received, and retain that documentation. Advisors should document what information the signing preparer gave them, what advice was asked for and the date, as well as the response they gave and the date. Even though there is a one-preparer-per-position rule, it is still true that the firm that employs the preparer, as well as the individual preparer, may both be subject to penalty with respect to the same position(s) if certain conditions are met. And under the final regulations, it is possible that there may be more than one preparer of the same return within a single firm (for example, a signing preparer and a nonsigning preparer) who may be subject to penalties, if they were each primarily responsible for different positions. Substantial Authority An unreasonable position does not meet the substantial authority standard. The substantial authority standard is an objective standard involving an analysis of the law and application of the law to the relevant facts. For this purpose, all authorities relevant to the tax treatment of an item, including the authorities contrary to the treatment, are taken into account in determining whether substantial authority exists. The weight accorded an authority depends on its relevance and persuasiveness, and the type of document providing the authority. Authorities Used to Determine if Substantial Authority or Reasonable Basis Exists. Reg §1.6662-4(d)3(iii) Provisions of the Internal Revenue Code and other statutory provisions. Regulations (proposed, temporary, and final) construing such statutes. Revenue rulings and revenue procedures. Tax treaties regulations thereunder, and Treasury Department and other official explanations of such treaties. Court cases. Congressional intent as reflected in committee reports, joint explanatory statements of managers included in conference committee reports, and floor statements made prior to enactment by one of the bill’s managers. General explanations of tax legislation prepared by the Joint Committee on Taxation (the Blue Book). Private letter rulings and technical advice memoranda issued after October 31, 1976. Actions on decisions and general counsel memoranda issued after March 12, 1981 (as well as general counsel memoranda published in pre-1955 volumes of the Cumulative Bulletin). Internal Revenue Service information or press releases. Notices, announcements and other administrative pronouncements published by the Service in the Internal Revenue Bulletin.

Ethics 18.17 Illustration 18.2

18.18 H&R Block Income Tax Course (2016)

DISCLOSURE Form 8275, Disclosure Statement, shown in Illustration 18.2 on the next page, is filed to disclose items or positions that are not otherwise disclosed on a tax return. Accuracy-related penalties can be avoided if the return position has a reasonable basis. Accuracy-related penalties attributable to the following types of misconduct cannot be avoided by disclosure on Form 8275: • Negligence. • Disregard of regulations. • Any substantial understatement of income tax on a tax shelter item. • Any substantial valuation misstatement. • Any substantial overstatement of pension liabilities. • Any substantial estate or gift tax valuation understatements.

ELECTRONIC FILING An Electronic Return Originator (ERO) is an authorized IRS e-file provider that originates the electronic submission of tax returns to the IRS. H&R Block is an ERO, as well as a tax return preparer. The IRS considers that confirmation of individual taxpayer identification numbers is critical in preventing taxpayer fraud. Tax preparers, whether operating independently or as part of a tax preparation company, play a key role in preventing taxpayer fraud. EROs are tasked with the responsibility of ensuring that all taxpayer identification numbers (TIN) are transcribed correctly from source documents to the electronic filing. most common reasons e-filed returns are rejected: T• Use ofThean incorrect TIN on a tax return. ax Tip:

• Mismatches between name and TIN. • The same TIN on more than one return.

Verifying Taxpayer Identification Numbers EROs must confirm the identities and taxpayer identification numbers (TINs) of taxpayers, spouses, and dependents listed on returns. Ask clients for their TIN cards to avoid including incorrect numbers for taxpayers, spouses, and dependents on tax returns. Tax preparers should ask clients not known to them to provide two forms of identification that include their name and current address. Picture IDs are preferable.

Ethics 18.19

Nonstandard Information Documents Tax preparers must never alter or advise a taxpayer to alter any information on Forms W-2, W-2G, 1099-R, or any other documents. If a taxpayer submits Forms W-2, W-2G, or 1099-R in which the taxpayer’s SSN, name, or address have been altered, question the taxpayer to be sure the TIN, name, and address reported on Form 1040 are all correct and document how this determination was made. Then: • Enter nonstandard form code on the e-file submission. See Illustration 18.3, below. • Inform the taxpayer that the IRS will later send them a notice that the information on the return does not match the information they have previously received from an employer or other sources. The IRS notice will request additional or updated information. Illustration 18.3

For any other changes, the taxpayer should request a corrected W-2 from the employer. If the employer does not honor the request, the tax preparer should prepare a substitute Form W-2, using the information from the taxpayer’s most reliable records. Tax preparers Should be Alert for Suspicious or Altered Forms An ERO or tax preparer who observes or becomes aware of suspicious activity concerning the filing of tax returns or potentially abusive returns should report it to the IRS. For additional information about e-file requirements, see IRS Publication 1345 and Revenue Procedure 2007-40. Income tax returns may be prepared using other documentation of income and federal tax withholding, such as pay stubs and leave and earnings statements. However, returns prepared based on these nonstandard documents must not be electronically filed prior to the ERO’s receipt of the related Form W-2, W-2G, or 1099-R. If the taxpayer is unable to provide a correct Form W-2, W-2G, or 1099-R, the return may be filed after February 14, and after completing Form 4852 (substitute W-2). When Form 4852 is used, the nonstandard indicator must be included in the e-file record, and the Form 4852 must be retained in the same manner as Forms W-2, W-2G, and 1099-R.

Negotiating Checks is Forbidden A tax preparer is forbidden to endorse or otherwise negotiate any check issued to a client by the government in respect of a federal tax liability. mExample: Paul operates a tax preparation business in an economically disadvantaged part of town. Many of his clients do not have banking relationships. They have to pay high fees to cash checks. Last year, Paul ran a promotion in which he offered to cash federal refund checks for no charge for clients who paid to have him prepare their federal and state tax returns.

18.20 H&R Block Income Tax Course (2016)

Paul should quickly change his promotional offer. As a tax preparer, Paul cannot cash federal income tax refund checks for his clients or anyone else. This prohibition applies regardless of whether Paul is authorized to represent taxpayers or is an unenrolled preparer.m

Return Preparation Issues Tax preparers are required to complete all of the following actions: • Sign the tax return, and enter their preparer tax identification number (PTIN) in the space provided on the return, after it has been completed and before it is presented to the taxpayer. • Enter the business address in the space provided on the return. • Furnish the taxpayer with a completed copy of the return at the time the return is presented for the taxpayer’s signature. • Retain one of the following for a period of three years after the close of the return period: ○○ A copy of the taxpayer’s completed return. ○○ A record of the name, TIN, taxable year of the taxpayer, and type of return prepared.

CHAPTER SUMMARY In this chapter, you learned to: • Define due diligence. • Identify scenarios that present a conflict of interest. • State key requirements of client confidentiality. • Identify situations of noncompliance and respond appropriately. • Perform best practices that fulfill ethical requirements. Ethical behavior is a positive choice. Tax preparers must always strive to conduct their business relationships to the highest ethical standard.

Suggested Reading For further information on the topics discussed in this chapter, you may wish to read IRS Publication 470, Limited Practice Without Enrollment, or Circular 230, Regulations Governing Practice before the Internal Revenue Service.

Ethics 18.21

had health Tinsurance coverage through her employer for all of 2015.A client Her husband lost he Tax Institute Tax in the News Research Question:

coverage at the end of 2014 when he left his job and he has not obtained any other coverage since then. Her 2015 income is significantly higher than his – about $75,000 for her versus about $15,000 from various temporary jobs for him. The ACA penalty on their joint return is over $1,300. There are no exceptions that apply. However, the penalty is much lower ($325) if we take only his income into account. If we file a separate return for him, can we disregard her income for the penalty calculation and, if so, is it recommended to do so? Is there a way to exclude her income from the penalty calculation but still have them file a joint return? you file a separate return for the husband, you would include only Ahis ownIfincome in MAGI for the penalty calculation. As for whether you nswer:

should do so, it is best to run the numbers both ways to make sure the advantage of the penalty reduction is not offset by higher taxes that result from filing two separate returns.

F

or your last question, no, it is not possible to consider only the MAGI of the uninsured spouse just for the ACA penalty calculation but otherwise get all the advantages of filing a joint return. Here are some points to consider when deciding whether to file separate returns for a married couple in order to reduce the penalty: • The penalty calculation itself. The minimum annual penalty for one uninsured adult in 2015 is $325 and that is the penalty the uninsured husband would pay on an MFS return in this situation. Depending on the relative and total incomes of the two spouses, it could be that the penalty on a joint return is the same or not much higher than on a separate return, or that an uninsured spouse would pay an even higher penalty on a separate return. • The MFS tax calculation. The tax calculation for a married taxpayer filing a separate return is usually the least favorable calculation. The extra tax the higher income spouse would pay on an MFS return could more than eclipse the lower penalty the lower earning spouse would pay on a separate return. • Itemized deductions. For a couple that would ordinarily itemize deductions, decisions have to be made about how the spouses will split the deductions on their separate returns. If the higher earning spouse claims most of the deductions in order to minimize her taxes, the lower earning spouse could be left with nothing to deduct. • Children. The couple would also need to consider which one of them will claim exemptions for children or other dependents. Again, if the higher earning spouse claims all of the exemptions the lower earning spouse could be at a disadvantage. Also, dependent related tax credits may be reduced or disallowed altogether if they file MFS.

22 19

State Tax Final Fundamentals Exam I OVERVIEW This entire session will be devoted to state tax theory. Please refer to the State Tax participant’s guide you received with your course materials.

19.1

22 20

State Tax Final Fundamentals Exam II OVERVIEW This entire session will be devoted to state tax theory. Please refer to the State Tax participant’s guide you received with your course materials.

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21

Final Test Review OVERVIEW This entire session is devoted to a review of the class to help you prepare for the Final Test. Your instructor will lead the review and use various questions and scenarios to help you prepare. You will also be expected to complete two tax returns in this review using BlockWorks. The returns are comprehensive returns, incorporating many of the concepts you have learned. The review returns are not intended to replicate the tax returns on the Final Test. You will have time available to ask any questions you may have. However, this will not be a session where participant questions dominate the entire time period. Similar to the Midterm Test, the Final Test will consist of three parts: • Part I – Ten questions for you to determine a taxpayer’s: ○○ Correct and most favorable 2015 filing status. ○○ Greatest number of personal and dependent exemptions. ○○ Eligibility to claim the Earned Income Credit. • Part II – Ten multiple-choice questions which may cover any material presented in the course. • Part III – Two tax returns completed using BlockWorks and then specific information from these returns are entered into the online test.

INSTRUCTIONS Your instructor has review questions that may be used to review topics covered during the class. You will also be given time to complete two tax returns and discuss the results in class. The returns should be completed in class using BlockWorks. You will also be given an opportunity to ask questions on any subjects about which you need more clarity after having reviewed for the final. The final is open-book, and you may also use any notes you have taken during the class. You may find it helpful to have a copy of the Tax Season 2016 Desk Card and copies of 2015 Forms 1040EZ and 1040A where they are readily available for viewing. The Desk Card can be found in the Appendix on page A.24. You can see copies of Forms 1040EZ and 1040A in Chapter 1, beginning on page 1.12.

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Final FinalExam Test OVERVIEW This entire session will be devoted to the Final Test. The test will consist of three parts: • Part I – Ten questions for you to determine a taxpayer’s: ○○ Correct and most favorable 2015 filing status. ○○ Greatest number of personal and dependent exemptions. ○○ Eligibility to claim the Earned Income Tax Credit. • Part II – Ten multiple choice questions which may cover any material presented in the course, plus an additional three questions on Ethics. • Part III – Two final tax returns completed using BlockWorks, from which specific information will be entered into the online test.

INSTRUCTIONS To complete the Final Test, you should do the tax returns using BlockWorks. Your instructor will give you directions about completing the return. Once you complete the return to your satisfaction, enter the online site, as directed by your instructor, and follow the on-screen directions to complete your Final Test. When you access the site, Part I of the test will appear. Answer those questions and then you will see Part II. After entering the answers for both Part I and Part II, Part III will appear. Use the information from the returns you just completed and enter the requested information. The final is open-book, and you may also use any notes you have taken during the class. You may find it helpful to have a copy of the Tax Season 2016 Desk Card and copies of 2015 Forms 1040EZ and 1040A where they are readily available for viewing. The Desk Card can be found in the appendix on page A.24. You can see copies of Forms 1040EZ and 1040A in Chapter 1, beginning on page 1.4.

22.1

A

Appendix TABLE OF CONTENTS ITEM OR TOPIC

PAGE

2015 Tax Rate Schedules

A.3

2015 Tax Computation Worksheet

A.4

2015 Tax Table

A.5

2015 Earned Income Credit (EIC) Table

A.17

Desk Card

A.24

Poster – Tax Computation Process

A.27

Poster – Filing Status

A.29

Poster – A Dependent Is . . .

A.31

Compliance

A.33

Conversations

A.35

Client Experience

A.36

Interviewing the Client

A.37

BlockWorks Hot Keys and Symbols

A.41

A.1

A.2 H&R Block Income Tax Course (2016)

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Appendix A.3 Illustration X.X

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Appendix A.5

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Appendix A.7

A.8 H&R Block Income Tax Course (2016)

Appendix A.9

A.10 H&R Block Income Tax Course (2016)

Appendix A.11

A.12 H&R Block Income Tax Course (2016)

Appendix A.13

A.14 H&R Block Income Tax Course (2016)

Appendix A.15

A.16 H&R Block Income Tax Course (2016)

Appendix A.17

A.18 H&R Block Income Tax Course (2016)

Appendix A.19

A.20 H&R Block Income Tax Course (2016)

Appendix A.21

A.22 H&R Block Income Tax Course (2016)

Appendix A.23

A.24 H&R Block Income Tax Course (2016)

Appendix A.25

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Appendix A.27

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Appendix A.31

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Appendix A.33

COMPLIANCE IRS Changes Every year, the IRS conducts audits of offices and Tax Professionals. These may be random audits or the result of a complaint. Cases may be forwarded to the Criminal Investigation division for possible prosecution or fines, and penalties may be assessed against the Tax Professional and/or the Company. As a Tax Professional, you can help to manage the risk to the Company, to your office, and to yourself.

Managing Risk Managing risk involves verifying paperwork and information. You should verify client information on documents such as: • Income information worksheets. • Forms 8453/8879. • Form 1040. Ensure client understanding of filing status, dependents, income, and deductions. Other issues to clarify and check include: • Business losses. • Rental property losses. • Child care credits. • EIC returns. • Schedules A/C characteristics that manage to “sweeten the pot.” • Income sources, such as daycare and cleaning services. • Schedules A/C with round dollar amounts. • Schedule A with no mortgage, but high deductions that include non-documented items. None of these are definitive indicators of misrepresentation or falsification, but they may cause increased scrutiny by the IRS and raise questions regarding our responsibility to file an accurate return. Record your efforts to obtain appropriate documentation and exercise due diligence by recording those efforts in BlockWorks. These notes protect you and H&R Block.

Handling Clients Before clients sign and submit their returns, encourage them to review the return in its entirety. In high-risk cases, such as those listed above, you should advise your client, “This may expose your return to a higher degree of scrutiny by the IRS. Without excellent documentation, this could be challenged.” If you know the client is not providing accurate information or does not have the documentation required to verify any claim, you have the “right to refuse” to complete the return until accurate information is provided, and you should refuse to prepare such a return.

A.34 H&R Block Income Tax Course (2016)

Do not, under any circumstances, accuse a client of attempting to defraud the IRS. Instead, focus on the client’s lack of documentation. Indicate that when the client is able to provide accurate and sufficient documentation to support the claim, you will be glad to complete the return. Until the documentation is supplied, you should not file the return.

Privacy and Confidentiality According to the FBI, identity theft is the fastest growing crime in the United States today. As of 2015, only three states have not enacted legislation regarding the notification of clients if their personal information is exposed due to computer theft, hacking, or other security breach. Safeguarding clients’ and associates’ personal information is a high priority, and failure to do so is a violation of law. Whether the data is maintained on paper or electronically, you should take every precaution to protect the information from loss, misuse, and unauthorized access, disclosure, alteration, and destruction. Remember to point to numbers, rather than saying them aloud whenever possible. Speak low enough that others sitting around your desk cannot overhear clients’ sensitive information. Explain why you need the information you ask for. Ensure that client information is not on your desk, and is securely stored. Immediately retrieve items from the printer. Verify that all documents that you provide to the client belong to that client. All clients should be advised that any documents not used are shredded, and documents that remain at the office are stored in a secure location.

Section 7216 of the Internal Revenue Code Section 7216 generally requires that you obtain the client’s written consent before using their information for purposes other than preparing their return or before you may share their tax return information with affiliates or third parties. There are certain exceptions to this rule, but if you have any questions, you should seek legal advice.

The Gramm-Leach-Bliley Act (GLB) Gramm-Leach-Bliley (GLB) is another privacy law that applies to tax return preparers. Under GLB, you must provide, at least on an annual basis, “clear and conspicuous” notice of H&R Block’s policies and procedures for protecting customers’ nonpublic personally identifiable information (“NPI”). The Gramm-Leach-Bliley Act of 1999, also known as the Financial Services Modernization Act, is the umbrella for several consumer financial privacy issues that apply to H&R Block. First, GLB requires us to: • Disclose to clients the types of information we collect about them. • Disclose to clients our information-sharing practices. • Permit clients to decide, by opt-out or opt-in, whether or not we may share information with third parties. Second, GLB requires us to be aggressive in safeguarding clients’ personal information: • Manage the physical security of our offices, computers, and client records to minimize vulnerability to information theft and unauthorized access to, or disclosure of, personal client information. • Manage the security and integrity of our computer systems to prevent unauthorized access and protect the data processed and stored by these systems.

Appendix A.35

CONVERSATIONS Listening Listening as a method of taking in information is used far more than reading and writing combined, yet is the least understood function of all. When we think about listening, we tend to assume it is basically the same as hearing. As a result, we make little effort to learn or develop listening skills. Listening involves a more sophisticated mental process than hearing, demanding energy and discipline. Listening is an active, rather than passive, process. Listening is: • Taking in information from the client while remaining nonjudgmental and empathetic. • Acknowledging the client in a way that invites communication to continue. • Providing limited, but encouraging, input to the client’s response. • Carrying the client’s idea one step forward. As a listener, you have a responsibility in the communication process for moving your relationship with the client forward. Listening occurs on three levels: • Spurts. • Hearing sounds and words. • Active listening. LEVELS

DESCRIPTION

Level 3

Listening in spurts: tuning in and tuning out to the voices around you, being aware of others but mainly paying attention to yourself. Halflistening: following the discussion long enough to get your chance to talk. Passive listening: listening but not responding, faking attention, preparing for your turn to speak.

Level 2

Hearing sounds and words, but not really listening: staying at the surface of communication, not paying attention to the deeper meaning of what’s being said. Hearing what the client is saying, but not making an effort to understand the intent.

Level 1

Active listening: not evaluating the words, looking at things from the client’s point of view. Acknowledging and responding. Being empathetic to the client’s feelings and thoughts.

A.36 H&R Block Income Tax Course (2016)

To improve your skills at listening to clients: • Find areas of common interest. • Take the initiative to find out what the client knows. • Focus your attention on the client’s central ideas in the conversation. • Make meaningful notes. • Hold your response until you have listened to the client’s full point. • Ask questions to clarify for understanding. • Summarize the client’s statement back to them to ensure full understanding. • Focus on the content of the statement rather than the delivery style.

CLIENT EXPERIENCE Tax Interview It is vital that your tax interview engages clients in a dialogue. Clients do not want to be questioned or interrogated. They want to work with you to achieve the best possible result. During the tax interview, your clients will be sharing personal information. It is important that your language, behavior, and attitude demonstrate respect and empathy. The client experience protocol for the tax interview helps clients feel secure and builds confidence: • Engage the clients throughout, explaining what you are doing and why. • Give clients the opportunity to ask questions. • Maintain confidentiality and privacy of all client information. • Demonstrate your proficiency with our tax preparation software while you focus on the clients. • Educate the clients, providing relevant and actionable advice. • Orient the clients to where you are in the process and what remains to be done.

Appendix A.37

INTERVIEWING THE CLIENT Overview The way you handle questions—asking and answering them—sets the atmosphere of professionalism and competency.

Types of Questions Several types of questions can be used during your interview, each with appropriate and inappropriate use. Some question types are: TYPE AND DEFINITION

APPROPRIATE USE

Open—Clients are expected to volunteer the answer. “How soon do you want your refund?”

Keep clients alert, involved, and thinking. Bring an uninvolved client back into the conversation.

Closed—Yes or no answers. “Did you pay any student loan interest this year?”

Prompted by BlockWorks. Guide the conversation to another topic.

Rhetorical—No answer is expected. “What client Compel clients to think, but not reply, when an doesn’t want to claim every allowable credit?” answer is not required. Avoid using questions that might embarrass clients.

Posing Questions Many times a good question may be poorly delivered, causing confusion. The following are common mistakes that new Tax Professionals make when asking questions. Pitfalls and Poor Questions • Asking questions only one way, followed by a long pause. • Answering too quickly when asked a question. • Stating rather than asking—no inflection at the end of a question. • Asking a question with an obvious answer in mind.

A.38 H&R Block Income Tax Course (2016)

How to Ask Effective Questions 1. Pause slightly to attract attention. 2. Ask the question and: ○○ Make eye contact with the client. ○○ Lift your voice at the end. 3. Pause until you get a reply. 4. Rephrase the question to clarify or suggest the type of answer you desire. 5. Wait for the answer and respond. Handling Questions and Answers Client questions are where the interview meets the real world—where the focus shifts from theoretical to actual. Before the Interview • Anticipate questions and prepare answers. • Prepare an answer and rehearse the delivery. During the Interview • Repeat or rephrase the question for clarity. • Thank the client for asking a good question. • Answer the question and check for understanding. If You Do Not Know the Answer • Repeat the question (verbatim or paraphrased). It gives you time to formulate the correct answer. • Ask for the question to be repeated (sometimes the clients make it clearer). • Don’t bluff—admit that you don’t know but will find out. Remember that no one Tax Professional knows all of the answers. The legal code for taxes is immense, but you also have an immense volume of references available to you. Your desktop has the catalog of IRS Publications, BlockWorks has help files, and you have an office full of other Tax Professionals you can ask.

Appendix A.39

Discussion Can Get Out of Hand Discussion is absolutely essential. It is a chance for your clients to clarify what they think they heard, associate it with what they already know, and begin thinking about how they can apply it. It is also a chance for you to establish a conversation with your clients, rather than just a one-way information feed. However, too much discussion can result in: • Getting off subject. • Running a subject into the ground. • Allowing one or two clients to dominate your time, angering your other appointments. • Rushing because you are behind time. Avoid Getting Sidetracked Here’s how to redirect the energy without losing the dynamic. STEP

ACTION

EXAMPLE

1.

Validate the current digression. “Steve, that’s an interesting point you make.”

2.

Tease forward to a pertinent section.

“In fact, we’ll be discussing options to get your refund to you in a little while.”

3.

Empower the client.

“That is a good point and I will be discussing this with you in more detail later in the interview. Let me make myself a note to remind me later to discuss this with you.”

4.

Redirect to the topic.

“Steve, didn’t I hear you mention something about going back to school? Let’s see if you qualify for an education credit.”

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Appendix A.41

A.42 H&R Block Income Tax Course (2016)

Glossary 401(k) Plan Deferred compensation plan available through a wide range of employers. Contributions to a 401(k) plan are tax deferred to the employee (income tax is not charged on the amount of the contribution at the time it is made). Distributions from the plan are taxed as ordinary income to the recipient when received. 403(b) Plan Deferred compensation plan available to employees of many public educational institutions and non-profit organizations. Also known as a tax-sheltered annuity plan. 457 Plan Deferred compensation plan available to employees of many government entities and certain tax-exempt non-governmental entities. Abatement The reduction or elimination of an assessed penalty. Accelerated Cost Recovery System (ACRS) The system of depreciation in effect from 1981 through 1986. The Tax Reform Act of 1986 contained several changes to the rules for property placed in service after 1986. See also Modified Accelerated Cost Recovery System (MACRS). Accelerated Depreciation One of various methods of depreciation that yield larger deductions in the earlier years of the life of an asset than does the straight-line method. The double (or 200%) declining balance method is an example of an accelerated depreciation method. Accountable Plan A plan for reimbursing employees for ex­penses such as meals, entertainment, travel, and transportation incurred for business purposes on behalf of the employer, within a reasonable time (no more than 60 days). A plan is an accountable plan if the employer requires the em­ployee to account for all business expenses and to return any ex­cess reimbursements. For employees under an accountable plan, reimbursements are not entered on the tax return as in­come, and the expenses are not deductible.

Accounting Method The method under which income and expenses are determined for tax purposes. Major accounting meth­ods are the cash method and the accrual method, both of which are defined elsewhere in this glossary. Accounting Period The 12-month period which a taxpayer uses to determine federal income tax liability. Unless a taxpayer makes a specific choice to the contrary, his accounting period is the calendar year. Accrual Method of Accounting One of the two most common methods of accounting, the other being the cash method defined elsewhere in this glossary. Under the accrual method of ac­counting, income is reported in the tax year earned, whether or not received, and deductions are claimed in the tax year in­curred, whether or not paid. Accrued Interest Interest that has been earned but not yet paid or credited; for example, interest earned on a bond since the last interest payment was made. Acquisition Debt Debt incurred to acquire, construct, or im­prove the taxpayer’s principal or secondary residence. Active Income and Losses For purposes of the passive loss rules, income and losses must be divided into three categories: active, passive, and portfolio. Active income and losses are those for which the taxpayer performs services. Examples are wages, salaries, tips, bonuses, and income and losses from business and partnership activities in which the taxpayer materially participates. See also Passive Income and Losses and Portfolio Income and Losses. Active Participant A taxpayer who is covered by a qualified employer-maintained retirement plan, or a qualified self-employed retirement plan, if even for only one day during the year.

G.1

G.2 H&R Block Income Tax Course (2016) Actual Expenses (Regular Method) The method of deducting automobile expenses incurred for business based on actual costs incurred. Adaptation A type of improvement that adapts a unit of property (UOP) to a new or different use that is consistent with the taxpayer’s original intended use when the UOP was placed in service. Additional Child Tax Credit A refundable credit available to taxpayers with earned income exceeding $3,000 or with three or more qualifying children and whose regular child tax credit exceeds tax liabilities minus other nonrefundable credits. The additional child tax credit is computed on Form 8812. See also Child Tax Credit. Adjusted Basis The cost or other original basis of property reduced by adjustments, such as depreciation allowed or allowable and increased by capital improvements and other adjustments. Adjusted Gross Income (AGI) Adjusted gross income equals gross income less reductions that are allowable, regardless of whether personal deductions are itemized. Adjustment to Income An expense which may be deducted even if the taxpayer does not itemize deductions. Adjustments to income are subtracted from gross income to arrive at adjusted gross income. Examples include educator expenses, alimony paid, and student loan interest payments. Adoption Credit A nonrefundable credit for qualified adoption expenses incurred for each eligible child. The credit cannot exceed $13,400 per child (for 2015). The limit is a per-child limit, not an annual limit, and can be carried forward for up to five years or until used. Adoption Taxpayer Identification Number An Adoption Taxpayer Identification Number (ATIN) is a temporary nine-digit number issued by the IRS to individuals who are in the process of legally adopting a U.S. citizen or resident child but who cannot get an SSN for that child in time to file their tax return. Advance of the Premium Tax Credit (APTC) Also known as the advance payment of the premium tax credit, or advance(d) premium tax credit. The amount of the monthly health insurance premium paid in advance by the federal government in order to help eligible individuals lower their monthly premium costs.

Affordable Care Act (ACA) Two separate pieces of legislation, which provide Americans with better health security by comprehensive health insurance reforms: The Patient Protection and Affordable Care Act, and The Health Care and Education Reconciliation Act of 2010. Alimony Payments Payments made by one spouse to the other spouse or former spouse under a written separation or divorce instrument. Qualified alimony and separate maintenance payments are included in the gross income of the recipient and are deductible by the payer. Child support payments and property settlements are not treated as alimony. Alternate (Straight-Line) Method Under this meth­od, the MACRS (or ACRS) deduction is computed using a straight-line percent and, in some cases, an optional longer recovery period. Alternative Minimum Tax (AMT) The alternative minimum tax was de­signed to prevent higher-income taxpayers from escaping taxation through excessive use of certain tax breaks. A taxpayer may be subject to this tax if he has certain minimum tax adjustments or tax preference items and his alternative minimum taxable income ex­ ceeds the exemption allowed for his filing status and income level. The alternative minimum tax is computed on Form 6251. Amended Return A tax return filed on Form 1040X after the original return has been filed. An amended return is used to correct an error or to claim a more advantageous way of filing the original return. An amended return can also be used to carry back an unused credit or net operating loss. American Opportunity Credit (AOC) Credit for qualifying education expenses paid for eligible students. The AOC may be partially refundable. Amortization The deduction of certain capital expenses over a fixed period of time. Amortization is claimed on Form 4562. Amortizable expenses include intangible assets such as: business start-up expenses, qualified forestation or reforestation costs, goodwill, going-concern value, covenants not to compete, franchises, trademarks, trade names, and §197 costs.

Glossary G.3 Amount Realized The amount received by a taxpayer on the sale or exchange of property. The amount received is the sum of the cash and the fair market value of any property or services plus any of the seller’s liabilities assumed by the purchaser. Determining the amount realized is the starting point for arriving at realized gain or loss. Annuitant A person who receives a pension or an annuity. Annuity A fixed sum payable to a person at specified intervals for a specific period of time or for life. Payments represent a partial return of capital and a return on the capital investment. Annuity Starting Date The first day of the first period for which an amount is due as an annuity payment under an annuity contract. Anti-Churning Rules Regulations designed to prevent taxpayers from using a more advantageous depreciation system when depreciating property is converted from personal use to business use. Applicable Credit Amount A credit available to decedents which reduces the amount of tax and the applicable exclusion amount. Applicable Exclusion The amount that can pass estate tax-free for each person. Applicable Percentage A factor used to calculate the amount of the taxpayer’s share of the applicable benchmark plan based on the taxpayer’s income in relation to the federal poverty level. Appointee Another person authorized by the taxpayer to exchange information with the IRS for the benefit of the taxpayer. Archer Medical Savings Account (MSA) A trust or custodial account created before 2004 exclusively for the purpose of paying the qualified medical expenses of a high deductible health plan of the account holder. For 2004 and later years, Archer MSAs are replaced by health savings accounts (HSAs). See also Health Savings Account (HSA).

Asset An item of useful or valuable property. At-Risk Rules Special rules limiting the taxpayer’s deductible business, partnership, S corporation, or real estate loss to cash invested plus debt he is legally obligated to pay and the adjusted basis of any property contributed. Audit An IRS examination and verification of a taxpayer’s return or other transactions with tax consequences. An office audit is an audit by the IRS which is conducted in the agent’s office. A field audit is conducted by the IRS on the business premises of the taxpayer or in the office of the tax practitioner representing the taxpayer. Automated Collection System (ACS) IRS automated system that generates a series of phone calls and letters to attempt collection of pastdue taxes. Away From Home Overnight For purposes of deducting travel expenses, a trip away from one’s tax home for a period longer than an ordinary workday, during which time one is released from duty to obtain rest. Bad Debts Business accounts receivable that have been included in income in a prior year that are uncollectible, legally binding debts owed to the taxpayer that are totally worthless and uncollectible, and debts the taxpayer must pay that he guaranteed in connection with his business or for a profit may be de­ductible as bad debts. Basis The amount assigned to an asset from which gain or loss is determined for income tax purposes. For assets acquired by purchase, basis is cost. Special rules govern the basis of property received by virtue of another’s death or by gift, the basis of stock received on a transfer of property to a controlled corporation, the basis of the property transferred to the corporation, and the basis of property re­ceived upon the liquidation of a corporation. Basis of Stock When a stock is purchased, the amount paid for the stock. If the stock is received as a gift, basis is generally the basis of the previous owner or the fair market value when received. The basis of inherited stock is usually its fair market value on the date of the decedent’s death.

G.4 H&R Block Income Tax Course (2016) Benchmark Premium Also known as the premium for the applicable second-lowest cost Silver plan (SLCSP) offered by the Marketplace in the taxpayer’s family size, expressed as a percentage. Beneficiary The owner or recipient of funds in an account, such as an IRA, or from an insurance policy or will. Bequest A gift by will of personal property. A bequest is not includable in the income of the recipient. Basis is usually the value of the property at the date of death of the decedent. If a bequest of money is to be paid at intervals, then to the extent that it is paid out of income from property, it is taxable income to the re­cipient. Betterment A type of improvement that a) ameliorates a problem or defect that existed when the UOP was acquired or, b) is a material addition to the UOP or, c) increases the UOP’s productivity, efficiency, or strength. Bona Fide Residence Test The qualification for eligibility to claim the foreign earned income exclusion that is based on intent to make a home in the foreign country for an indefinite period of time. Bond A note obliging a corporation or governmental unit to re­pay, on a specified date, money loaned to it by the bondholder. The holder receives interest for the life of the bond. If a bond is backed by collateral, it is called a mortgage bond. If it is backed only by the good faith and credit rating of the issuing company, it is called a debenture. Boot Cash or property of a type not included in the definition of a nontaxable exchange. The receipt of boot is taxable if boot received exceeds boot paid. Examples of nontaxable exchanges that could be partially or completely taxable due to the receipt of boot include transfers to controlled corporations and like-kind exchanges. Bronze/Silver/Gold/Platinum plans These are the four levels of qualified health plans (QHPs) offered by Marketplaces, based on the value of the coverage provided. Business Assets Assets used in a trade or business or used to produce rental or royalty income.

Business Gifts The cost of qualified gifts given in the course of trade or business is de­duc­tible to a maximum of $25, per year per client or customer. The $25 limit does not apply to promotional items costing $4 or less on which the taxpayer’s name is clearly imprinted and is one of a number of identical items you widely distribute. Business-Use Property Property used for the production of income. Examples include rental houses, machinery, factories, office buildings, and similar items. Cafeteria Plan A plan wherein an employer offers a choice of nontaxable fringe benefits from which participating employees may select. The plan may be funded with employer contributions, employee contributions (usually through salary reduction agreements) or a combination of both. It is also often called a §125 plan or a flexible spending account (FSA). Calendar Year A year that begins on January 1 and ends on December 31. Call An option to purchase stock at a fixed price within a specified period of time. Callable A bond issue, all or part of which may be redeemed before maturity by the issuing corporation under specific conditions. The term also applies to preferred shares of stock, which may be re­deemed by the issuing corporation. Capital Asset Broadly speaking, unless specifically excluded by the Tax Code, capital assets are anything owned for personal purposes, pleasure, or investment. Major categories of noncapital as­sets include property held for resale in the normal course of business (inventory), trade accounts and notes receivable, de­preciable property, and real estate used in a trade or business. Capital Expenditure An expenditure made for assets with useful lives of more than one year. Usually capital expenditures may not be deducted in the year they are paid, even if they are paid in connection with a trade or business. In other words, they are capitalized and generally may be depreciated or amortized.

Glossary G.5 Capital Gain The gain from the sale or exchange of a capital asset. Capital Gain Distributions Amounts paid by mutual funds, re­gulated investment companies, and real estate investment trusts. These amounts represent the shareholder’s portion of gain from the sale of capital assets owned by these investment companies. Capital gain distributions are taxed in the year constructively received and are always considered to be held long term. Capital Gain or Loss Holding Period The length of time a capital asset is owned by the taxpayer. Assets owned 12 months or less are held short term; those owned more than 12 months are held long term. Capital Improvement An improvement made to extend the useful life of a property or add to its value. Major repairs, such as the replacement of a roof, are considered to be capital improvements. The costs of capital improvements to business property must be capitalized and may be depreciated. Capitalize To treat the cost of additions and improvements to property as a capital improvement. Capital Loss The loss from the sale or exchange of a capital asset. Up to $3,000 ($1,500 MFS) of net capital loss is deductible annually with the excess carried forward to future years. Losses on personal-use assets are not deductible. Capital Stock Shares of stock which represent ownership of a portion of the corporation. Carryback/Carryover Provisions in the Tax Code that allow certain losses or credits to be used in a tax year other than the tax year incurred. A carryover is to a future year. A carryback is to a prior year. Cash Method of Accounting One of the two most common methods of accounting, the other being the accrual method defined elsewhere in this glossary. Under the cash method of ac­counting, income is reported in the tax year actually or con­struc­tively received and ex­penses are deducted in the tax year paid.

Casualty Loss A casualty is the complete or partial destruction of property resulting from an identifiable event of a sudden, unexpected, or unusual nature. Examples are floods, storms, fires, earthquakes, auto accidents, and terrorist attacks. Individuals may deduct a casualty loss only if the loss is incurred in a trade or business, in a transaction entered into for profit, or is a personal loss arising from a disaster such as those mentioned above. Individuals deduct personal casualty losses as itemized deductions on Schedule A, subject to a $100 nondeductible amount and a re­duction of the loss by 10% of the taxpayer’s AGI. Use of Form 4684 is required. Certificate The actual piece of paper that is evidence of ownership of stock in a corporation. Charitable Contributions Money or property donated to a qualified charitable organization. Such donations are deductible on Schedule A as an itemized deduction. Child and Dependent Care Credit A nonrefundable tax credit of 20–35% of employment-related child and dependent care expenses for amounts of up to $6,000, available to individuals who are em­ployed and have a qualifying child or dis­abled spouse or dependent. The credit is computed on Form 2441 and reported on line 49, Form 1040, line 31, Form 1040A, or line 47, Form 1040NR. Child Support Payments Payments pursuant to a court order, divorce decree, or other legal obligation. Payments for child support do not constitute alimony and are not includable in gross income by the recipient or de­duc­tible as alimony by the payer. Child Tax Credit A nonrefundable credit of up to $1,000 per dependent child under age 17 at the end of the tax year. Circular 230 Regulations governing the practice of attorneys, certified public accountants, enrolled agents, enrolled actuaries, and appraisers before the IRS. Civil Penalty IRS penalty, assessed only when a return has a balance due, a monetary penalty, generally based on the amount of the understated tax, unpaid tax, or tax due. CLADR See Class Life Asset Depreciation Range.

G.6 H&R Block Income Tax Course (2016) Claim of Right A term used in the Tax Code in connection with money or other property received as income which the recipient holds, but which he is required to restore to the payer in whole or in part in a later year because it develops that he did not have an unrestricted right to the income. Class Life Asset Depreciation Range (CLADR) This system of depreciation was used for assets placed in service prior to January 1, 1981, and must continue to be used for assets whose depreciation was set up under that system. The CLADR system provided guidelines for depreciation lives for the assets listed in each guideline class. Closed Year A tax year for which the statute of limitations has expired. The taxpayer cannot claim a refund and the IRS cannot collect additional taxes (with certain uncommon exceptions). Collectibles A group of capital assets which includes works of art, rugs, antiques, precious metals, gems, stamps, coins, and alcoholic beverages, the net gains from which are taxed at a maximum rate of 28%. Collection Hold An IRS determination made when a taxpayer is currently unable to pay any of an overdue tax liability. It is a temporary remedy during which penalties and interest continue to accrue. Combat Pay Pay received by a servicemember assigned to a combat zone, which is exempted from income. Combat Zone An area designated by an Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat. Commission (1) The broker’s fee for purchasing or selling se­curities or property for a client. (2) An allowance paid to a salesperson or agent for services rendered. Commodity Futures Contracts to buy or sell some fixed amount of a commodity (wheat or soybeans, for example) for a fixed price at a future date. Common-Law Marriage A marriage established in a state that legally recognizes nonceremonial marriages. The parties must have the legal capacity and the intent to marry,

and they must live together and present themselves publicly as husband and wife. Common Stock Shares in the ownership of a corporation that are entitled to residual dividends, after bonds and preferred stock have first received interest and dividends. A common stockholder usually has a vote in deciding company affairs, including the election of a corporation’s board of directors. Community Income Income of a married couple, living in a community property state, that is considered to belong equally to each spouse, regardless of which spouse receives the income. Community Property Property considered to belong in equal shares to a husband and wife. This concept of ownership for property ac­quired after marriage is followed in Arizona, Cali­for­nia, Idaho, Lou­isiana, New Mexico, Nevada, Texas, Washing­ton, and Wis­consin. Commuting Traveling from one’s residence to one’s regular place of business and back to the residence. Compensation Wages, commissions, tips, professional fees, and net self-employment income from services rendered; that is, earned income. For IRA purposes, compensation also includes alimony and separate maintenance payments. Condemnation The taking of property by a public authority. The property is condemned as the result of legal action, and the owner is compensated by the public authority. The power to condemn property is known as the right of eminent domain. Conduit IRA An IRA used to hold temporarily a distribution from a qualified employer-maintained retirement plan, until such time as it can be rolled into another qualified employer-maintained retirement plan. Confidentiality A set of rules or a promise that limits access or places restrictions on certain types of information. . Conflict of Interest A situation that has the potential to undermine the impartiality of a person because of the possibility of a clash between the person’s self-interest and professional interest or public interest.

Glossary G.7 Controlled Group This refers to a controlled group of corporations that is one or more chains of corporations connected through stock ownership with a common parent corporation. Constructive Receipt A cash-basis taxpayer is taxed on in­come only as it is received. But if the income was unreservedly subject to his demand and he could have received it but chose not to do so, it is regarded as having been constructively re­ceived by him and is taxable. For example, interest credited to a savings account is constructively received even if the taxpayer has not withdrawn it. Contract Price An amount payable to the seller and equal to the gross selling price when no mortgages are involved. If a mortgage is assumed, the contract price is the gross selling price minus the amount of the mortgage plus the excess (if any) of the mortgage over the seller’s basis and expenses of sale. Contribution (1) Gift to a qualified charitable organization, generally deductible on Schedule A. (2) Money placed in a retirement fund, such as an individual retirement arrangement or an employer-maintained retirement plan. Conversion (IRA) Reclassification of a traditional IRA to a Roth IRA. This process may or may not involve relocation of the funds. Any converted amounts are taxed to the extent they were not taxed previously, but are not subject to an early distribution penalty. Convertible A bond or preferred stock that may, under specified conditions, be exchanged for common stock or another security, usually of the same corporation. Copyright The exclusive legal right to sell, reproduce, or publish a literary, musical, or artistic work. Cost (1) Cash and/or the value of property given to acquire the property received. (2) The purchase price paid for property, or the value at which property is taken into income (as in services paid for with property). Cost is the amount that is most often applied against the amount realized from sale of property in de­termining the gain or loss. It is also the figure most often used in determining the depreciation or cost recovery deduction.

Cost Depletion A method for recovering the taxpayer’s investment in natural resources or timber. The cost is recovered ratably as the resource is extracted or the timber harvested. Total cost depletion cannot be claimed in excess of basis. Percentage de­pletion, the other method for computing depletion of natural re­sources, is defined elsewhere in this glossary. Cost Method of Inventory Valuation Valuing inventory purchased during the year at cost; that is, the invoice price less any discounts plus transportation or other costs incurred in acquiring the merchandise. Cost of Goods Sold Beginning inventory plus direct purchases, direct labor costs, and overhead costs less withdrawals for personal use and ending inventory. Sole proprietors compute their cost of goods sold in Part III of Schedule C (Form 1040). Cost of Maintaining a Home Expenses necessary to maintain a taxpayer’s residence. These costs include mortgage interest and real estate taxes (or rent), fire and casualty insurance on the dwelling, upkeep and repairs, utilities, paid domestic help, and food consumed in the home. Cost Recovery The writing off of the capital cost of qualified assets over a specified time period. See also Accelerated Cost Re­covery System (ACRS) and Modified Accelerated Cost Re­covery System (MACRS). Coupon Bond A bond with interest coupons attached. The cou­pons are clipped as they come due and are presented by the bond holder for payment of accrued interest. Coverage Family Includes all individuals in tax family who are enrolled in a qualified health plan, and are not eligible for minimum essential coverage other than coverage in the individual market. Coverdell Education Savings Account (ESA) A tax-favored savings plan under which any number of taxpayers may contribute up to a total of $2,000 per eligible beneficiary. Contributions are non-deductible. Earnings and withdrawals are tax free and penalty free if used to pay for qualified higher education expenses.

G.8 H&R Block Income Tax Course (2016) Credits Reductions of tax liability allowed for various purposes to taxpayers who meet the qualifications. Some credits are refundable; that is, the IRS will send the taxpayer a refund for any amount in excess of the tax liability. Some credits are nonrefundable; that is, they can only reduce tax liability to zero. Some credits may be carried to other tax years. Criminal Penalty IRS penalty assessed in cases where the taxpayer has willfully engaged in criminal conduct. Penalties may be monetary or incarceration. Custodial Parent The parent with whom a child lived for the greater number of nights during the year. De Minimis Safe Harbor Election An annual election that allows a taxpayer to deduct property costing $500 or less per item or with a useful life of 12 months or less. Dealer A person or firm that regularly buys and sells property. A person is classified as a dealer if at the time of the sale, he held the property primarily for sale to customers in the ordinary course of business. Gains from the sale of such property are ordinary gains, not capital gains. Deceased Spousal Unused Exclusion The unused portion of a decedent’s applicable exclusion amount to the extent that this amount does not exceed the basic exclusion amount in effect in the year of the decedent’s death. Decedent A person who has died owning property. Declaration Control Number (DCN) A unique 14-digit number assigned by the Electronic Return Originator (ERO) (or transmitter, in the case of online filing), to each electronically filed tax return. Declining Balance Method of Depreciation An accelerated me­thod of depreciation. The percentage is determined by the type of property. The depreciable basis for the next year is reduced by the depreciation deduction taken in the current year. Deductions Amounts that may be subtracted from income that is otherwise taxable.

Deferred Compensation Compensation that will be taxed when received or upon the removal of certain restrictions on receipt and not when earned. For example, contributions to a qualified retirement plan on behalf of an employee are considered deferred compensation. Such contributions will not be taxed to the em­ployee until the funds are made available or distributed to the employee, usually upon retirement. Deferred Gain Nonrecognition of realized gain at the time of a tax-deferred exchange. Deferred gain on the sale of a principal residence generally applies only to those sales made before May 7, 1997. Defined Benefit Plan An employee benefit plan that provides determinable benefits not based on employer profits. The most common type of defined benefit plan is a pension plan. Defined Contribution Plan An employee benefit plan that provides a separate account for each person covered and pays benefits based on account earnings. Examples include §401(k) plans and profit-sharing plans. Department of Health and Human Services (HHS and DHHS) The federal agency that oversees the Centers for Medicare and Medicaid Services (CMS). CMS administers programs for protecting the health of all Americans. Dependency Exemption An exemption for an individual who qualifies as the taxpayer’s dependent ($4,000 for 2015). Dependent An individual whose personal exemption may be claimed on another person’s income tax return. To be claimed as a dependent, a person must meet certain tests, all of which are discussed in Chapter 4. Dependent Care Credit A nonrefundable credit based on ex­penses paid for a dependent’s care. Such care must enable the taxpayer to be gainfully employed or to look for gainful employment. The credit is computed on Form 2441 and reported on line 49, Form 1040, line 31, Form 1040A, or line 47, Form 1040NR. Depletion The process by which the cost or other basis of a natural resource (for example, an oil and gas interest) is recovered upon extraction and sale of the resource. The two ways to determine the depletion

Glossary G.9 allowance are the cost and percentage methods, both of which are defined elsewhere in this glossary. Depreciable Asset Tangible personal property or real property used in business or held for the production of income with a determinable useful life of more than one year. Depreciation The deduction of a reasonable allowance for the wear and tear of assets used in a trade or business or held for the production of income. Direct Skip Outright bequest or gift to a skip person. Disability A disadvantage or handicap as recognized by law. See Permanent and Total Disability. Disability Pension A taxable pension from an employer-funded disability plan or a disability provision of a retirement plan. Until the recipient reaches normal retirement age, a disability pension generally is reported on line 7 of Forms 1040 or 1040A (or line 1 of Form 1040EZ) and treated as wages for purposes of the child care, child tax, and earned income credits. Disaster Loss If a casualty is sustained in an area designated as a disaster area by the President of the United States, the casualty is designated a disaster loss. A disaster loss may be treated as having occurred in the taxable year immediately preceding the year in which the disaster actually occurred. Thus, im­mediate tax benefits are provided to victims of the disaster. Disclosure The release of tax information by an IRS employee. Disposition The act of taking an asset out of service in a trade or business. A disposition occurs when an asset is sold, abandoned, exchanged, retired, destroyed, or converted to personal use. Distribution Money or property a taxpayer receives from a retirement plan, such as an individual retirement arrangement (IRA) or an em­ploy­er-maintained retirement plan. Dividend A stockholder’s share of the profits of a corporation. An insurance dividend is not a true dividend but a return of premium. Divi­dends from a savings and loan association or credit union are interest, not dividends.

Divorce Decree (Final) A decree issued after a divorce is declared final by the court. This action dissolves the marriage and returns the spouses to unmarried status. Alimony payments made as a result of this decree are de­duc­ tible by the payer and income to the recipient, if requirements are met. Divorce Decree (Interlocutory) A divorce decree that is not yet final. Alimony paid under an interlocutory decree is de­duc­tible by the payer and income to the recipient, if requirements are met. Domestic Production Activities Deduction This deduction provides a tax savings against income attributable to domestic production activities. Qualified production activities include manufacturing, producing, growing, and extracting tangible personal property, computer software, sound recordings, and the construction and substantial renovation of real property, including infrastructure. The production of certain films is also a qualifying activity, as are certain engineering or architectural services. Due Diligence Reasonable steps taken by a Tax Professional in order to satisfy compliance with the tax law. Early Distribution A distribution from a qualified retirement plan or individual (IRA) retirement arrangement before the plan participant has reached age 59½. Such distributions are subject to a 10% penalty tax if a qualified exception does not apply. Earned Income Income from personal services as distinguished from income generated by property or other sources. Earned income includes all amounts received as wages, tips, bonuses, other employee compensation, and self-employment income, whether in the form of money, services, or property. Earned Income Credit (EIC or EITC) A refundable tax credit for qualified taxpayers based on earned income, adjusted gross income, and the number of qualifying children. Easement A right held by an individual to use property owned by someone else for a limited purpose, usually to gain access. For example, an easement may give Person A the right to use a path through Person B’s property to get to his own.

G.10 H&R Block Income Tax Course (2016) Education Expense Deduction Employees may deduct education expenses as an itemized deduction if the expenses are incurred either to maintain or improve existing job-related skills, or to meet the express requirements of the employer, or legal requirements to retain current employment status. Such expenses are not deductible as an itemized deduction, if the education is re­quired to meet the minimum educational requirements for the taxpayer’s job, or if the education qualifies the taxpayer for a new trade or business. Education expenses may also qualify the taxpayer for a tuition and fees deduction, an American Opportunity Credit, or a lifetime learning credit. All of these are defined elsewhere in this glossary. Educator Expenses Deduction An above-the-line deduction of up to $250 for classroom supplies, books, and equipment, and available to eligible educators of students in kindergarten through 12th grade. Electronic Funds Withdrawal A payment method which allows the taxpayer to authorize the U.S. Treasury to electronically withdraw funds from their checking or savings account. Electronic Return Originator (ERO) An Authorized IRS e-file provider that originates the electronic submission of returns to the IRS. Eligible Educator Any educator who works at least 900 hours during a school year as a teacher, instructor, counselor, principal or aide in a public or private elementary or secondary school. Eligible Foster Child A child, other than the taxpayer’s biological child, stepchild, or adopted child, who was placed with the taxpayer by an authorized placement agency or by a court order, decree, or judgment. Eminent Domain The right of a government authority to take private property for public use upon paying fair compensation to the owner. EITC Earned Income Tax Credit. Employee For income tax purposes, an employee is to be distinguished from an independent contractor. This is important, because the withholding of income taxes on wages applies only to employees. Also, employee status will affect the manner and ex­tent of some deductions and credits. The regulations state that

an employee is one who is subject to the will and control of the employer not only as to what shall be done but also as to how it shall be done. See also Statutory Employee. Employee Stock Option (ESO) An option granted to an employee to purchase the employer’s stock. Employee stock options to which special income tax treatment is accorded are known as statutory options.

Employer Identification Number (EIN)

An EIN is also known as a federal tax identification number, and is used to identify a business entity. It is also used by estates and trusts which have income which is required to be reported on Form 1041, U.S.

Income Tax Return for Estates and Trusts.

Employer-Maintained Retirement Plan A qualified retirement plan funded in full or in part by employer contributions on behalf of employees. Employment Expenses Ordinary and necessary expenses re­ quired to perform the duties for which the taxpayer was hired. Enforced Collection Action IRS process to collect payment of past-due taxes by levying a taxpayer’s income or assets, attach a tax lien to a taxpayer’s property, or by seizing and selling a taxpayer’s property. Enrolled Actuary An enrolled actuary is any individual who has satisfied the qualifications set forth in the regulations of the Joint Board for the Enrollment of Actuaries and who has been approved by the Joint Board to perform actuarial services under the Employee Retirement Income Security Act (ERISA) of 1974. Enrolled Agent (EA) An enrolled agent is a person who has earned the privilege of practicing, that is, representing taxpayers, before the Internal Revenue Service. Enrolled agents, like attorneys and certified public accountants (CPAs), are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can practice before. Entertainment Expenses Such expenses are deductible by employees and self-employed taxpayers only if the expenses are directly related to or associated with a trade, business, or profession. To prevent abuses, various restrictions and documentation re­quirements have been imposed on the deductibility of entertainment

Glossary G.11 expenses. The deduction for qualified business entertainment is limited to 50% of cost. Estate A taxable entity that is established upon the death of a taxpayer. It consists of all the decedent’s property and personal effects. The estate exists until the final distribution of its assets to the heirs and other beneficiaries. During the period of administration, the executor must usually file a return. Estimated Tax The amount of tax a taxpayer expects to owe for the year after subtracting expected amounts withheld and certain refundable credits. Estimated Tax Voucher A statement by an individual of (1) the amount of income tax he estimates he will incur during the current taxable year on income that is not subject to withholding (examples include interest, dividends, and alimony), (2) the excess amount over that withheld on income which is subject to withholding, and (3) his estimated self-employment tax. Advance payment of tax may be required (on as many as four payment dates) unless estimated tax due after withholding and credits is less than $1,000. Estimated (Useful) Life The period of time over which a depreciable asset will be used by a particular taxpayer. The estimated useful life is used to determine the annual tax deduction for pre-1981 depreciation. Ethics The application of values to behavior. Exempt Individuals Individuals who are not required to maintain minimum essential coverage for any month they qualify for an exemption. Excess Advance Premium Tax Credit An additional tax liability the taxpayer will owe when the Advance Premium Tax Credit is greater than the Premium Tax Credit. Excess Social Security Tax Withheld If a taxpayer worked for more than one employer during 2015, and more than $7,347 was withheld for social security tax, the excess over the maximum is included in the Payments section of the return. The excess amount has the same character as withholding tax. Exchange A transfer of property for other property or services. Exchanges of like-kind property are often permitted with no immediate tax consequence.

Excludable Amount of Pension The portion of pension distributions that are not taxable. Excluded Gain Generally applies to gains realized on the sale of a principal residence. A taxpayer may exclude up to $250,000 ($500,000 MFJ) of gain on the sale if he owned and occupied the residence for at least two of the five years prior to the sale. Exclusion An amount of income that is not included in gross income because the Tax Code excludes it. Exclusion Percentage Used to compute the excludable amount of a pension under the general rule. This percentage is determined by di­viding the taxpayer’s total contribution by the expected re­turn. Ex-Dividend Date The date before which a stockholder must purchase stock to qualify to receive the next dividend payment. Exemption An amount ($4,000 for 2015) allowed by law as a re­ duction of income that would otherwise be taxed. See also Personal and Dependency Exemptions. Exemption from Withholding Status claimed on Form W‑4 directing the employer not to withhold federal income taxes from the employee. An employee who had no tax liability and received a full refund of any federal income tax withheld in the preceding tax year, and who expects the same conditions to apply in the current tax year, may claim exemption from withholding. Expanded/Non-Expanded Medicaid States This term refers to states that chose either to expand Medicaid or not. Individuals in the expanded states may be eligible for Medicaid coverage. Expected Return The total amount an annuitant expects to receive under a pension or annuity contract. This is generally determined by multiplying the annual payment by the annuitant’s expected life multiple from government actuarial tables. Expenses For federal income tax purposes, expenses are divided into four categories: (1) trade or business expenses, (2) ex­penses in connection with production of income, in connection with management, conservation, or maintenance of property held for production of income, (3) expenses in connection with the

G.12 H&R Block Income Tax Course (2016) determination, collection, or refund of any tax, and (4) personal, family, or living expenses. Expenses in the first three categories are generally deductible in determining taxable income. Expenses in the fourth category are not deduc­tible, except in a few cases (me­dical expenses, charitable contributions, etc.) in which they are specifically allowed by law. Expenses are to be distinguished from ‘“capital expenditures,’’ defined elsewhere in this glossary. Expenses of Sale When paid by the seller, these expenses re­duce the sale price of property. Examples are commissions to a broker or real estate agent, legal fees, and transfer taxes. Expensing A term used to refer to the §179 ex­pense deduction, defined elsewhere in this glossary. Fair Market Value (FMV) The amount at which property would change hands between a willing buyer and a willing seller, neither being under compulsion to buy or sell and both having reasonable knowledge of the relevant facts.

Fair Rental Value

The amount the owner of property could reasonably expect to receive from a stranger for the same type of lodging; generally, the amount at which a home with its furnishings could be rented to a similar size family in a similar location.

Family Size (tax family) The number of all the individuals a taxpayer can claim personal exemptions for on their tax return. This includes the taxpayer, spouse (if married filing jointly), and any qualifying children or qualifying relatives. Fast Track Mediation Expedited IRS process that provides a trained mediator who facilitates communication between the IRS and a taxpayer. The mediator’s recommendations are not binding on either party. Federal Income Tax Withheld The amount taken out of income by the payer and submitted to the IRS as an advance payment of the taxpayer’s federal income tax. Federal Poverty Level (FPL) A measure of income issued annually by the Department of Health and Human Services and used to determine eligibility for certain programs and benefits.

FICA (Federal Insurance Contributions Act) The law that provides for social security and medicare benefits. This program is financed by payroll taxes imposed equally on the employer and employee. For 2015, the employer is required to withhold 1.45% from each employee’s gross wages for medicare tax and 6.2% of each employee’s wages up to $118,500 for social security tax. Fiduciary One who acts for an estate or trust to manage the property of the estate or trust. Finance Charges Amounts paid for the privilege of making purchases on a deferred-payment basis. First In, First Out (FIFO) An accounting method for determining the cost of inventories. Under this method, the first items purchased are treated as being the first items sold. Ending inventory is valued using the cost of later purchases, or the lower of cost or market. Fiscal Year An accounting year ending on the last day of any month except December. Flat Dollar Method/Percentage of Income Method Methods used to calculate the shared responsibility penalty payment. Flexible Spending Account (FSA) An FSA allows employees to be reimbursed for medical expenses. FSAs are usually funded through voluntary salary reduction agreements with an employer. No employment or federal income taxes are withheld from contributions. The employer may also contribute. See also Cafeteria Plan. Foreign Tax Credit or Deduction A credit or deduction avail­able to a U.S. citizen or resident alien, and in limited circumstances to a U. S. nonresident alien, who incurs or pays in­come taxes to a country other than the United States. Foster Child A child, other than the taxpayer’s biological child, stepchild, or adopted child, who lived with the taxpayer. See also Eligible Foster Child. Fraudulent Return A return filed with the intent to evade taxes known by the taxpayer to be due. The taxpayer’s conduct was intended to conceal, mislead, or otherwise prevent the collection of taxes. The civil fraud penalty is generally 75% of the entire underpayment.

Glossary G.13 Frivolous Return A return that does not contain sufficient information to determine the accuracy of the tax liability, or a return that contains information indicating the amount of tax shown on the return is substantially incorrect. It involves a frivolous position or intent to delay or impede administration of the tax laws. The penalty for filing a frivolous return is $5,000 for each occurrence. Fringe Benefits Compensation or other benefits received by an employee that are not in the form of cash. Some fringe benefits (for example, accident and health plans, and group-term life insurance) may be excluded from the employee’s gross income and, therefore, are not subject to federal income tax. Full Retirement Age The age at which a worker qualifies to receive full social security benefits; increasing incrementally from age 62 to age 66. Full-Time Student An individual who is enrolled in a school for the number of hours or courses considered by the school to be full time. School includes elementary and secondary schools, post-secondary colleges, and technical and trade schools. It does not include on-the-job training, correspondence schools, or night school. However, a student will not be disqualified by night classes that are part of a full-time course of study. Fully Taxable Pensions Pensions for which taxpayers contributed none of the cost or have recovered their cost in previous years. Gain The excess of the amount realized from a sale or exchange over the adjusted basis of the property sold or exchanged. General Depreciation System The most commonly used MACRS system. Personal property is depreciated using the declining-balance method (double or 150%, depending on the recovery class) switching to straight-line when that method results in the larger deduction. Residential rental property is de­preciated using the straight-line method over 27.5 years, and nonresidential real property is depreciated using the straight-line method over 39 years (31.5 years for property placed in service before May 13, 1993). General Partner A partner who is personally liable for the partnership’s debts.

General Partnership A partnership composed of general partners only. General Power of Appointment The right to direct the distribution of property to an unrestricted class of beneficiaries, including the person holding the power (the holder), the estate of the holder, the creditors of the holder, or the creditors of the estate of the holder. General Rule Used to determine the taxable portion of a pension or annuity, generally replaced by the simplified method for periodic payments starting after November 18, 1996. General Sales Tax A general sales tax is a sales tax imposed on retail sales of a broad range of items at a single rate. General Straight-Line Depreciation System A MACRS system of depreciation using the straightline method over the normal MACRS recovery period for the asset. Gift A transfer of property from one person or entity to another without consideration or compensation. For income tax purposes, the words “gift” and “contribution” usually have separate meanings, the latter word being used in connection with contributions to charitable, religious, etc., organizations, whereas the word “gift” refers to transfers of money or property to private individuals, needy persons, friends, relatives, etc. The recipient of a gift is not required to include it in his gross income, and the maker of the gift is not entitled to deduct it (except for business gifts to customers of $25 or less per donee per year). Gift Tax A graduated federal tax paid by donors on gifts ex­ ceeding $14,000 (for 2015) per donee. Golden Parachute A contract given by a corporation to its top executives that offers benefits such as stock options, cash bonuses, and generous severance pay to the executives in the event of a merger or takeover. Such payments are treated as compensation. Goodwill The ability of a business to generate income in excess of a normal rate on assets due to superior managerial skills, market position, new product technology, etc. In the purchase of a business, goodwill represents the difference between the purchase price and the value of the net assets. Goodwill must be amortized over a 15-year period and is subject to

G.14 H&R Block Income Tax Course (2016) recapture when the business is sold. Amortization is computed on Form 4562.

mother or father for the entire year, and may claim either on his or her tax return.

Government Bonds Issued at a Discount Certain U.S. Govern­ment bonds are issued at a discount and do not pay interest during the life of the bond. Instead, the bonds are re­deem­able at increasing fixed amounts. Thus, the difference between the purchase price and the amount received upon redemption represents interest income to the holder. A cash-basis taxpayer may defer recognition of taxable income until such bonds are re­ deemed or until the year of final maturity, whichever is earlier. Alternatively, the taxpayer may elect to in­clude the annual increase in the value of the bond in gross in­come on an annual basis.

Health Savings Account (HSA) A trust or custodial account created after 2003 exclusively for the purpose of paying the qualified medical expenses of a high deductible health plan of the account holder.

Gross Estate All property owned or considered to be owned by a decedent at the moment of their death. Gross Income Total worldwide income received in the form of money, property, or services that is subject to tax. Gross Profit Gross receipts less the cost of goods sold. Gross Rents Total income from rents before expenses or the depreciation or cost recovery deduction. Group Term Life Insurance Life insurance coverage purchased by an employer for a group of employees. Such insurance is renewable on a year-to-year basis and does not accumulate in value; that is, no cash surrender value is built up. The pre­miums paid by the employer on such insurance are usually not taxed to an employee unless coverage exceeds $50,000. Guaranteed Return A specific amount to be paid by an annuity. This may be a certain payment for a given number of years or a given amount to be paid regardless of death. Hardship Withdrawal A withdrawal from a §401(k), 403(b), or 457 plan that is permitted when the plan participant has an immediate and heavy financial need and the withdrawal is necessary to meet that need. Head of Household The filing status used by an unmarried (or married, but qualified to be unmarried for tax purposes) taxpayer who pays more than half of the cost of maintaining a household for a qualifying child who is a dependent for more than six months, or for his or her

Hobby Loss A nondeductible loss arising from a personal hob­by as contrasted with a loss arising from an activity engaged in for profit. Holding Period The period of time property has been owned for income tax purposes. The holding period determines if gain or loss from the sale or exchange of a capital asset is long or short term. Home-Office Expenses Expenses of operating a portion of a residence used for business or employment-related purposes. Several restrictions limit the deduction for home-office expenses. Household Employee An individual who performs nonbusiness services for the taxpayer in or around the taxpayer’s home. Such services include child and dependent care, house cleaning, cooking, and yard work. Household Expenses A portion of total support; the value of lodging plus food consumed in the home, utilities paid, and repairs made. The total is divided equally among all family members. Each member’s share of household expenses is part of his total support. Household Income The modified adjusted gross income (MAGI) of the taxpayer and spouse, plus the MAGI of all dependents that are claimed on the taxpayer’s tax return and required to file a tax return of their own. Household Income as a Percentage of the Federal Poverty Level This is the taxpayer’s household income divided by the federal poverty level for the taxpayer’s family size, expressed as a percentage. Husband and Wife A status that, among other things, entitles a couple to file a joint federal income tax return. For the purpose of joint returns, common-law marriages are recognized only if the state in which the two persons reside recognizes such marriages or if the state in which the marriage began recognizes common-law

Glossary G.15 marriages. The status as husband and wife on the last day of the tax year governs the right to file a joint return. See also Marriage. Hybrid Method of Accounting A combination of accounting methods, usually of the cash and accrual methods. Identifying Numbers All taxpayers and dependents must have identifying numbers. Indi­viduals generally use their social se­curity numbers (SSN). Certain resident and nonresident aliens use individual taxpayer iden­tification numbers (ITIN). Certain children in the process of being adopted may receive adoption taxpayer identification numbers (ATIN). Businesses, estates, trusts, partnerships, and payers of dividends and interest, use employer identification numbers (EIN). Improvement A change to a piece of property that adds to the value of property, prolongs its useful life, or adapts it to new uses. Improvement Safe Harbor for Small Taxpayers An election to deduct, rather than capitalize, the cost of improvements to buildings. The cost may not be more than the lesser of 2% of the unadjusted basis of the building or $10,000. A qualifying taxpayer has average annual gross receipts of $10 million or less for the last three years. Imputed Interest In the case of certain long-term sales of property, the IRS has the authority to convert some of the gain from the sale into interest income if the contract does not provide for a minimum rate of interest to be paid by the purchaser. Such converted interest is called imputed interest. Income The word “income,” in its broad sense, is the gain de­rived from capital, labor, or a combination of the two. It is distinguishable from the capital itself. Ordinarily, for income tax purposes, the word ‘’income’’ is not used alone. Rather it is used within such descriptive terms as gross income, taxable income, and adjusted gross income, all of which are defined elsewhere in this glossary. Independent Contractor A taxpayer who contracts to do work according to his own methods and who is not subject to control except as to the results of such work. An employee, by contrast, is subject to the control of the employer as to the me­thods to be used to obtain the desired results.

Individual Tax Identification Number (ITIN) An ITIN is a tax processing number only available for certain nonresident and resident aliens, their spouses, and dependents who cannot get a Social Security Number (SSN). It is a 9-digit number, beginning with the number “9”, formatted like an SSN (NNN-NNNNNN). Individual Retirement Arrangement (IRA) A personal savings plan that allows a taxpayer to accumulate money tax deferred until withdrawal, usually upon retirement. The primary two types of IRAs are traditional IRAs and Roth IRAs, both of which are defined elsewhere in this glossary. Individual Shared Responsibility Provision/ Individual Mandate The requirement that applicable individuals must obtain health insurance coverage or potentially be subject to a penalty in the form of an additional tax. Inherently Facilitative Costs Certain amounts paid to acquire property in addition to the cost of the property itself. These costs may include transportation and shipping fees, commissions, appraisals, application fees, and regulatory approval fees. Inheritance As distinguished from a bequest, property acquired through laws of descent and distribution from a person who dies intestate (without leaving a will). Prop­ erty so acquired usually takes as its basis the fair market value at the date of the decedent’s death. An inheritance of property is not a taxable event, but the income produced by an inheritance is taxable. Installment Method A method of accounting enabling a taxpayer to spread the recognition of gain on the sale of property over the payment period. Under this procedure, the seller computes the gross profit percent from the sale (that is, the gain divided by the contract price) and applies it to each payment received to arrive at the amount of the gain to be recognized. Insurance Dividends Amounts paid to policy holders are not dividends on capital stock, but are a rebate of a portion of the premiums paid for the insurance. Such dividends reduce the cost of the insurance and are not taxable, unless in excess of the total premiums paid. Interest paid when the dividends are left with the insurance company is reported to the taxpayer as in­terest and is taxable.

G.16 H&R Block Income Tax Course (2016) Intangible Personal Property Property, other than real property, with no intrinsic value; its value lies in the rights conveyed. Exam­ples include cash, insurance, stock, goodwill, and patents. Interest Received An amount received for the use of money that is to be repaid in full at a specified time or on demand. Interlocutory Decree A temporary court judgment where terms are stated and in force until a final decree is issued. See Divorce Decree (Interlocutory). Internal Revenue Service (IRS) The division of the U.S. Treasury Department responsible for collecting taxes and tax law enforcement. Interview Necessary component of due diligence requirements. Inventory A list of articles of property. For income tax purposes, inventory refers only to a list of articles comprising stock in trade—articles held for sale to customers in the regular course of a trade or business. The cost of goods sold during the year is determined by adding to the inventory at the beginning of the year and the purchases during the year, and subtracting from this sum the inventory at the close of the year. Investigative Costs Certain costs for investigating or pursuing the acquisition of real property to determine whether and which property to purchase. Investment Income This term generally includes income from interest, dividends, capital gains, and other types of distributions. The subject can be fully explored in IRS Publication 550, Investment Income and Expenses (Including Capital Gains and Losses). Investment Interest Interest paid on loans acquired to purchase or hold investment property. Investment interest is de­ductible as an itemized deduction to the extent of net investment income. It is reported on Schedule A, line 14. Investment Property Property owned primarily for its potential increased value. Examples include land, stock, works of art, and collectibles. Involuntary Conversion The receipt of money or other property as reimbursement for the loss or destruction of property through theft, casualty, or condemnation. Any gain

realized on an involuntary conversion can, at the taxpayer’s election, be con­sidered non-recognizable for federal income tax purposes if the owner reinvests the proceeds within a prescribed period of time in similar property. Itemized Deductions Certain personal expenditures allowed by the Tax Code as deductions from adjusted gross income. Ex­amples are certain medical expenses, qualified interest on home mortgages, and charitable contributions. Itemized deductions are reported on Form 1040, Schedule A. A taxpayer who itemizes deductions may not claim the standard deduction. Jointly Owned Property Property held in the name of more than one person. Joint Return A return combining the income, exemptions, cred­its, and deductions of a husband and wife. Joint Tenancy (with Right of Survivorship) A form of joint ownership. Each tenant has an undivided interest in the entire property. On death of one of the owners, the survivor becomes the owner of the whole. A joint tenancy may involve more than two persons. Joint Venture An enterprise participated in by associates acting together, with a community of interests, each associate having the right to participate in its management. For income tax purposes, a joint venture is treated as a partnership, not taxable in its own capacity, but regarded as a taxpayer for the purpose of computing its taxable income, which is distributable among the associates in the proportions agreed upon. Such distributive shares are reported by the associates on their individual income tax returns. Land Value The value of the land in a sale where the total sale price includes land as well as any improvements to the land. Last In, First Out (LIFO) An accounting method for valuing in­ventories for tax purposes. Under this method, the last items purchased are treated as being the first items sold. Ending inventory is valued using the cost of the items with the earlier purchase dates. Lawfully Present Immigration status determines whether individuals who are not U.S. nationals/citizens are lawfully present.

Glossary G.17 Legally Blind Able to see no better than 20/200 in the better eye with corrective lenses, or having a field of vision not more than 20 degrees. Legally Separated Separated under a decree of separate maintenance that requires the spouses to live apart. Leasehold Improvements An amount paid to improve a unit of leased property by either the lessor or lessee. Lessee One who rents property from another. In the case of real estate, the lessee is also known as the tenant. Lessor One who rents property to another. In the case of real estate, the lessor is also known as the landlord. Levy An IRS enforced collection action in which the IRS confiscates property and sells it to satisfy a tax debt. Lifetime Learning Credit A nonrefundable credit equal to 20% of the first $10,000 of qualified higher education tuition and fees paid during the year on behalf of the taxpayer, his spouse, or his dependents. Like-Kind Exchange An exchange of property held for productive use in a trade or business or for investment (except in­ventory and stocks and bonds) for property of the same type. Unless different property is received (called boot), the exchange is nontaxable in the current year. Any gain or loss is not recognized until the property received in the exchange is sold or disposed of. Like-kind exchanges are reported on Form 8824. Limitation on Premium Tax Credit Repayment If the advanced premium tax credit is greater than the premium tax credit, the taxpayer’s additional tax liability may be limited. The limit is based on filing status and household income as a percentage of the federal poverty line. Lineal Ancestor A direct, in-line family predecessor of the taxpayer; e.g., parent, grandparent, great-grandparent, etc. Lineal Descendant A direct, in-line offspring of the taxpayer; e.g., child, grandchild, great-grandchild, etc.

Liquidation (1) The process of converting securities or other property into cash. (2) The dissolution of a corporation with cash (remaining after sale of its assets and payment of all in­debtedness) being distributed to the shareholders. Liquidation Distributions A return of capital received be­cause of the partial or complete liquidation (going out of business) of a corporation. The basis of the stock on which liquidation distributions are paid is reduced by the amount of the distributions. Any amount received in excess of basis in the stock is taxable. In a liquidation that results in cancellation of the stock, a loss can be claimed the year the final distribution is received, if total distributions are less than the taxpayer’s basis. Report liquidation distributions on Schedule D, Form 1040. Listed Property Listed property includes passenger autos and other property used for transportation, property generally used for purposes of entertainment, recreation, or amusement, computers not used exclusively at a regular business establishment, and other property to be specified by the IRS. Restrictions apply to the depreciation of listed property. Limited Partner A partner whose personal liability for partnership debts is limited to the amount of money or property contributed or required to be contributed to the partnership. Limited Partnership A partnership formed under a state-limited partnership law and has at least one general partner and one or more limited partners. Lodging A portion of total support. Lodging includes the fair rental value of a room, apartment, or house in which the dependent lives, a reasonable allowance for the use of furniture and appliances, and all utilities. Long-Term Capital Gains and Losses Gains and losses on the sale or exchange of capital assets that have been held for more than 12 months. A net long-term capital gain is the excess of longterm gains over long-term losses, or vice versa for a net long-term capital loss.

G.18 H&R Block Income Tax Course (2016) Lower of Cost or Market Method of Inventory Valuation Inventory valuation considering the actual cost or the replacement cost of merchandise on the inventory date. The lower value is used, creating a reduced gross profit for the period in which the decline occurred and an approximately normal gross profit is realized during the period in which the item is sold. Lump-Sum Distribution Payment of the entire amount due at one time rather than in installments. Such distributions must come from qualified employer plans. The recipient of a lump-sum distribution may be eligible for special tax treatment of the distribution. Main Home See Principal Place of Abode. Margin A percentage of the full price of a security that must be paid as a down payment by an investor buying on credit. The required margin fluctuates, subject to federal regulations. Marketplace A resource where individuals, families, and small businesses can learn about their health coverage options; compare health insurance plans based on costs, benefits, and other important features; choose a plan; and enroll in coverage. In some states, the Marketplace is run by the state, while in others it is run by the federal government. Marriage A legal union between two individuals. Married Filing Jointly (MFJ) The filing status used by a couple who are married at the end of the tax year and not legally separated under a final decree of divorce or separate maintenance, and who record total income, exemptions, and deductions of both spouses on one tax return. Married Filing Separately (MFS) The filing status used by a married couple choosing to record their respective incomes, ex­emptions, and deductions on separate individual tax returns. Material Participation Income Active income, as distinguished from passive income, from employment as well as business and other for-profit activities in which the taxpayer takes a significant and active role.

Materials and Supplies Generally, a unit of property (UOP) with an economic life of 12 months or less or that costs $200 or less. May also include more expensive UOPs used for certain types of spare parts. Materials and supplies may be incidental or non-incidental. Incidental items are those on hand for which no record of consumption or inventory is kept and for which costs are deducted in the year paid. Otherwise, costs for non-incidental items are deducted in the year used or consumed. Medical Expenses Qualified medical expenses of an individual, spouse, and dependents are allowed as an itemized deduction to the extent that such amounts (less reimbursements) ex­ceed 10% of adjusted gross income. (7.5% of if 65 or older), Medicare Part A The medicare tax taken out of an employee’s wages, or the same tax paid by a self-employed person on net self-employment income. The Medicare A tax rate is 1.45% of gross wages (2.9% for self-employed individuals). Medicare Part B The medicare insurance premium withheld from the benefits of social security recipients. The basic premium for 2015 is $104.90 per month ($1,258.80 for the entire year). The premium will be higher if the annual income is more than $85,000 ($170,000 if MFJ). Medicare Part D The medicare insurance premium withheld from the benefits of social security recipients who choose to pay for prescriptions through medicare. Misconduct Unlawful activity such as filing a false tax return. Mileage Rate (Optional Method) The method of deducting automobile expenses based on business miles driven. The standard business mileage rate for 2015 is 57.5¢ per mile. Marketplace/Exchange A Marketplace supervised by a governmental agency or nonprofit entity that qualified individuals may use to purchase a qualified health plan. Medicaid Expansion A new Medicaid eligibility group created by the Affordable Care Act (ACA).

Glossary G.19 Military Spouses Residency Relief Act An act that prevents a servicemember’s income and property from being subject to taxation in multiple states under certain circumstances. Minimum Essential Coverage (MEC) The type of coverage an individual needs to meet the individual responsibility requirement under the Affordable Care Act (ACA). This includes individual market policies, job-based coverage, Medicare, Medicaid, CHIP, TRICARE and certain other coverage. Modified Accelerated Cost Recovery System (MACRS) The method of depreciation used for most depreciable assets placed in service after 1986. Under MACRS, costs of qualified property are written off over predetermined periods. Modified AGI (MAGI) Modified adjusted gross income. For purposes of computing a specific deduction or credit, MAGI begins with the taxpayer’s regular adjusted gross income which is then modified to account for certain types of losses, exclusions, and deductions. For example, for many tax purposes, MAGI is regular AGI plus any excluded foreign, U.S. possession, and Puerto Rican income. Modified Adjusted Gross Income (MAGI) for Premium Tax Credit Purposes For purposes of the Premium Tax Credit, MAGI is the adjusted gross income plus foreign earned income, tax-exempt interest, and social security benefits not included in income. Modified §481(a) Adjustment (Cut-off Method) The 481(a) adjustment is calculated as of the first day of the taxpayer’s taxable year of change and takes into account only amounts paid or incurred during the year of change. It does not take into account similar amounts paid or incurred in years prior to the change, so the adjustment is zero. Mortgage Credit Certificate Qualified taxpayers who receive a mortgage credit certificate from a state or local government to buy, rehabilitate, or improve their main homes may claim a credit for a percentage of their home mortgage interest. The itemized deduction for home mortgage interest must be reduced by the amount of the credit. The credit is not refundable, but any portion that is unused be­cause it exceeds tax liability may be carried over to the following three years, where it can be added to any credit for the current year. The credit is computed on Form 8396.

Mortgage credit certificates may be subject to a recapture rule if the home is sold within nine years. Moving Expenses An adjustment to income permitted to em­ployees and self-employed individuals who move for work-related reasons, providing certain requirements are met. Form 3903 is used to compute deductible moving expenses. Multiple Support Agreement If two or more persons who would otherwise be entitled to an exemption for a qualifying relative, together furnish more than half the dependent’s support (but no individual provides more than half), any one of them who furnishes more than 10% of the support is entitled to the exemption if all the others who furnished more than 10% of the support file written declarations that they will not claim an exemption for the individual for that taxable year. Form 2120 is used for this purpose. Mutual Fund (1) An open-ended investment company that in­vests money of its shareholders in a (usually) diversified group of securities of other corporations. (2) A company that is in the business of buying and selling stocks and sharing its income with those investing in it (sometimes called a regulated investment company). Necessary (Expenses) An expense that is appropriate and helpful in furthering the taxpayer’s business or income-producing activity. See also Or­dinary Expenses. Net Operating Loss (NOL) A net loss for the year attributable to business or casualty losses. In order to mitigate the effect of the annual ac­counting period concept, the law allows taxpayers to use an excess loss of one year as a deduction for certain past or future years. Net Premium Tax Credit A refundable credit the taxpayer will receive when the Premium Tax Credit is greater than the Advance Premium Tax Credit. Nonbusiness Bad Debts A bad debt loss not incurred in connection with a creditor’s trade or business. A nonbusiness bad debt is deduc­tible as a short-term capital loss, and is allowed only in the year the debt becomes entirely worthless. Noncompliance Failure or refusal to comply with the Tax Code.

G.20 H&R Block Income Tax Course (2016) Noncustodial Parent The parent who is not the custodial parent of the child. Nonparticipating Spouse The spouse of an active participant in an employer-maintained retirement plan who is not also an active participant in such a plan.

Marketplace/Exchange. Open Year A taxable year for which the statute of limitations has not yet expired.

Nonrecourse Debt An obligation for which the endorser is not personally liable.

Option An agreement to buy or sell property on or before a specified date at an established price. The sale or exchange of an option to buy or sell property results in capital gain or loss if the property is a capital asset.

Nonrecovery Property Property which does not qualify for a cost recovery deduction under ACRS or MACRS, or property the taxpayer elects to exclude from ACRS or MACRS by choosing a depreciation method not based on a number of years.

Ordinary Dividends Ordinary dividends are the most common type of distribution from a corporation. They are paid out of the earnings and profits of the corporation. Ordinary dividends are taxable as ordinary income unless they are qualified dividends.

Nonrefundable Credit A credit which cannot exceed the taxpayer’s tax liability.

Ordinary Expenses Common and accepted in the general industry or type of activity in which the taxpayer is engaged. It is one of the tests for the deductibility of expenses incurred or paid in connection with a trade or business; for the production of income; for the management, conservation, or maintenance of property held for the production of in­come; or in connection with the de­termination, collection, or refund of any tax.

Nonresident Alien A person who is not a U.S. citizen and does not live in the United States, or lives in the United States under a nonresident visa, or does not meet the substantial presence test. A nonresident alien return is filed on Form 1040NR. See IRS Publication 519. Nonsigning Return Preparer Any tax return preparer who is not a signing tax return preparer, but who prepares all or a substantial portion of a return or claim for refund with respect to events that have occurred at the time the advice is rendered. Nontaxable Distributions A general term applied to stock dividend distributions that are not taxable. These distributions generally take the form of return of capital, stock dividends, stock splits, and/or tax-free distributions. Nontaxable Exchange An exchange on which no gain or loss is recognized in the current year. Nontaxable Income Income that is by law exempt from tax. Offer In Compromise (OIC) This program seeks an agreement between a taxpayer and the IRS that settles a tax liability for less than the full amount owed. Open Enrollment Period The period during which the taxpayer is authorized to enroll in health insurance through the

Ordinary Income (Loss) Income (loss) that is fully includable in (deductible from) gross income and that does not have the characteristics of capital gain or loss. Over-the-Counter The market for securities issued by companies usually not listed on any stock exchange. Over-thecounter (OTC) trading is the principal market for U.S. government and municipal bonds. Partial Asset Disposition Election An election that allows a taxpayer to recognize gain or loss on the disposition of components of a unit of property (UOP). Generally, the election is not required if the component is sold. Partly Taxable Pensions Pensions funded through employer plans to which both pre-tax money and after-tax money has been contributed. Partner An owner of a partnership, be it an individual, an estate, a trust, a corporation, or another partnership. Partnership A form of business in which two or more persons join their money and skills in conducting the busi-

Glossary G.21 ness as co-owners. Partnerships are treated as a conduit and are not subject to taxation. Various items of partnership income, expenses, gains, and losses flow through to the individual partners and are reported on their personal income tax returns. Passive Income and Losses For purposes of the passive loss rules, income and losses must be divided into three categories: active, passive, and portfolio. Passive income and losses are those from business activities in which the taxpayer does not materially participate, and all rental activities (except those of qualified real estate professionals). See also Active Income and Losses and Portfolio Income and Losses. Patent The exclusive right of an inventor to make, use, or sell his invention for a period of years. A patent is an intangible asset that may be depreciated over its remaining life. The sale of a patent usually results in long-term capital gain treatment. Pension Payments made periodically of (generally) a definite amount for a specified period (usually life) from an em­ployer-maintained plan to workers who have met the stated requirements. Its primary purpose is to provide retirement income. Pension/Annuity Starting Date The first day of the first period for which an amount is due as a pension/annuity payment under the contract. Percentage Depletion There are two methods of computing depletion of natural resources. One is cost depletion, defined elsewhere in this glossary. The other method is percentage de­pletion, which is a specified percentage of the gross income from the property. In each year, the method which results in the greater deduction is used. Percentage depletion is allowed for nearly all natural re­sources, except timber. Permanent and Total Disability A disability that prevents an individual from engaging in any substantial gainful activity because of a medically determined physical or mental impairment that is expected to result in death, or that has lasted or is expected to last for a continuous period of not less than 12 months. Personal and Dependency Exemptions The Tax Code provides a $4,000 exemption (for 2015) for each individual taxpayer and an additional $4,000 exemption for his or her spouse if a

joint return is filed. An individual may also claim a $4,000 exemption for each dependent providing certain tests are met. Tax­payers who may be claimed as a dependent on another taxpayer’s return may not claim their own personal exemptions. Personal Expenses Expenses of an individual for personal reasons are not deductible, unless stated to be deductible under Tax Code. Personal Property Generally, all property other than real es­tate. Personal Property Tax An annual tax imposed on certain personal property, such as cars or boats, and based on the value of the property. Personal Representative The person who has, either by judicial decree or by virtue of being in possession of the property of the decedent, authority to distribute the property and responsibility for filing any tax returns of the decedent’s estate. Personal Residence The property in which the taxpayer lives and to which he returns after temporary absences. A taxpayer may have one or more residences, such as a main home and a vacation house. A residence is not limited to a house. Con­do­miniums, cooperative apartments, townhouses, mobile homes, and houseboats can all qualify as residences. Personal-Use Property Property owned for personal well-being and enjoyment. It includes a taxpayer’s home, vehicles, furniture, clothing, and other property. Physical Custody The taxpayer with whom a child lives is considered to have physical custody, regardless of who has nominal legal custody. Physical Presence Test The qualification for eligibility to claim the foreign earned income exclusion; it is based on residing in a foreign country for at least 330 full days during a 12-month period, during which time the taxpayer’s tax home is in a foreign country. Points A loan-origination fee (one-time charge paid for the use of money) that a buyer generally may deduct as interest; fully in the year paid if for the purchase or improvement of a principal residence or, if not, then over the term of the loan.

G.22 H&R Block Income Tax Course (2016) Portfolio Income and Losses For purposes of the passive loss rules, in­come and losses must be divided into three categories: active, passive, and portfolio. Portfolio income and losses are those from such sources as dividends, interest, capital gains and losses, and royalties. See also Active Income and Losses and Passive Income and Losses. Premium Tax Credit A credit available to eligible taxpayers who enroll, or whose family members enroll in a qualified health plan (QHP) through a Marketplace. Premium Tax Credit Eligibility/Advance Premium Tax Credit Eligibility Taxpayers must meet eligibility requirements in order to claim the premium tax credit or advance of the premium tax credit. A taxpayer who meets these requirements is also known as an applicable taxpayer. Prepaid Expenses Cash-basis as well as accrual-basis taxpayers usually are required to capitalize prepayments for rent, insurance, etc. that cover more than one year. Deductions are taken for the period during which the benefits are received. Prepaid Interest Interest paid in advance is deductible as an interest expense only as it accrues. The one exception to this rule involves the interest element when a cash-basis taxpayer pays points to ob­tain financing for the purchase or improvement of a principal residence if the payment of points is an es­tablished business practice in the area in which the indebtedness is incurred and the amount involved is not excessive. Points paid to refinance a principal residence, however, must be deducted over the life of the loan. Principal Payment That portion of a loan payment applied to the purchase price (contract price), as opposed to an interest payment. Principal Place of Abode (Principal Residence) The place that an individual considers to be his permanent home. A person’s abode does not change when he is temporarily absent due to illness, school, military service, etc., as long as his living area is maintained and he can reasonably be expected to return home after the temporary absence. Principal Place of Business The main place where work is performed or business is transacted, or the only fixed location at

which a taxpayer performs administrative and managerial tasks necessary for business. Principal Residence See Principal Place of Abode. Privilege Protection from being required to disclose confidential communications between two parties, such as attorney and client. Prizes and Awards The fair market value of a prize or award generally is includable in gross income. An exception applies when a qualified recipient of an award for charitable and the like achievements designates that the prize is to be transferred by the payer to a governmental unit or to certain charitable, educational, or religious organizations. Another exception is made for certain employee achieve­ment awards, such as the traditional gold watch presented upon retirement. Proprietor The sole owner of a trade or business. Proprietorship A business controlled and operated by one person. Puts and Calls These are option contracts. A put gives its holder the option to sell a particular stock at a fixed price within a specified period of time. A call gives its holder the right to buy stock under the same conditions. Put and call contracts can last up to several months and usually specify a price close to the market value of the stock at the time they are drawn. Puts are purchased by investors who think the price of the stock will fall; calls are purchased by investors who think the price will rise. Qualified Charitable Organization An entity, usually an as­sociation or nonprofit corporation, designed to provide some form of public charity or service and specifically approved by the U.S. Treasury as a recipient of deductible charitable contributions. Qualified Dividends Dividends received on shares of common stock held by the taxpayer for more than 60 days of the 121day period beginning 60 days before the ex-dividend date (for preferred stock, more than 90 days of the 181-day period beginning 90 days before the ex-dividend date). These dividends qualify for long-term capital gain treatment. Qualified Health Plan An insurance plan that is certified by the Health

Glossary G.23 Insurance Marketplace and provides minimum essential coverage. This includes Bronze, Silver, Gold, and Platinum level plans, but not catastrophic coverage plans. Pension or Profit-Sharing Plan An employer-sponsored plan that meets the requirements of IRS Code §401. If these requirements are met, none of the employer’s contributions to the plan are taxed to the employee until distributed to him. The employer is allowed a deduction in the year the contributions are made. Qualified Tuition Plan A personal savings plan, defined under §529 of the Internal Revenue Code, which allows a taxpayer to accumulate money tax deferred. Contributions are generally deductible (within limits) for state income tax purposes. Qualified distributions are tax free for federal and state income tax purposes when withdrawn. Qualifying Child (QC) A child who meets the relationship, age, residency, support, joint return, and the special test tests with regard to a taxpayer to determine the taxpayer’s eligibility to claim the dependency exemption, child tax credit, earned income credit, or child and dependent care credit with regard to the child, or to use the head of household filing status. The tests are discussed in detail in Chapter 4. Qualifying Relative (QR) A person (1) who bears a certain relationship to the taxpayer, (2) for whom the taxpayer provides more than one-half support for the year (3) whose gross income for the year is less than the exemption amount, and (4) who is not claimed as a qualifying child of any taxpayer. Qualifying Widow(er) (QW) The filing status available to a qualified taxpayer for two tax years following the year of the spouse’s death. To qualify, the surviving spouse must have been entitled to file a joint return for the year of death, remain unmarried at the end of the current tax year, and pay over half the cost of maintaining his or her home which was the principal residence the entire tax year of his or her dependent child. Railroad Retirement Tax Act See RRTA. Realized Gain or Loss The difference between the amount received upon the sale or other disposition of property and the adjusted basis of the property.

Real Property Also known as real estate, includes land, buildings, and their structural components. Reasonable Cause An inability to meet tax filing and payment responsibilities that arise despite the taxpayer’s exercise of ordinary business care and prudence, and that are due to circumstances beyond the taxpayer’s control. Recapture The inclusion of a previously deducted or excluded amount in gross income or tax liability. Recapture may be applicable to ac­celerated depreciation, cost recovery, amortization, and various credits. Recapture of Depreciation or Cost Recovery Each year that a de­preciable business asset is owned, depreciation is claimed that theoretically corresponds with the using up of the property through normal wear, obsolescence, etc. Thus, if proper depreciation has been claimed, the property should be worth its adjusted basis. If the property is sold for more than its adjusted basis, §1245 of the Tax Code requires that the gain on personal property and certain nonresidential real property (to the extent of depreciation claimed) be recaptured; that is, included as ordinary income on the tax return. The purpose of this recapture is to prevent capital gain treatment of gain resulting from claiming depreciation. The recapture of depreciation or cost recovery rules do not apply when the property is disposed of at a loss. Recharacterization Returning a converted Roth IRA back to its original classification as a traditional IRA within the specified time period allowed. Recognized Gain or Loss The portion of realized gain or loss that is subject to income taxation. Reconciliation/True-up The process used after the end of the year when federal income tax returns are filed to determine if individuals/families received the right amount of Advance Premium Tax Credit (APTC). Recovery The amount of a deduction or credit taken in a previous year which is later returned to the taxpayer. The recovered amount must usually be included in income in the year it is re­ceived, to the extent of the previous tax benefit.

G.24 H&R Block Income Tax Course (2016) Recovery of Cost The amount that was paid for income received— usually a factor only in income from sales of items purchased for resale, income from sales of property, and income from pensions or annuities. The portion of income that represents recovery of cost is not taxable. Recovery Period A period of years during which the cost of business assets is written off under ACRS or MACRS. Recovery Property Tangible depreciable property placed in service after 1980 that is not excluded from ACRS or MACRS. Generally, this is new or used property acquired for use in a trade or business or property held for the production of income. Refundable Credit A credit for which the IRS will send the taxpayer a refund for any amount in excess of the taxpayer’s tax liability. Regular MACRS Method The MACRS deduction computed using the double declining-balance method with a switch to straightline for most personal property, and the straightline method for most real property. Regular Method A deduction for business use of the taxpayer’s vehicle based on actual cost of gas, oil, repairs, tires, washing, etc., plus a deduction for depreciation. Regulated Investment Company (Mutual Fund) A company or trust that uses its capital to invest in other companies. The two principal types are closed-end and open-end mutual funds. Shares in closed-end mutual funds, some of which are listed on stock ex­changes, are readily transferable on the open market and are bought and sold like other shares. Open-end funds sell their own new shares to investors, stand ready to buy back their old shares, and are not listed. Regulations The IRS Commissioner publishes his interpretation of the Tax Code in the form of regulations. They do not have the force and effect of law except in those cases in which the law on a particular subject calls for rules on that subject to be ex­pounded through regulations. Reinvested Dividends Earnings of investment companies (mutual funds) that the shareholder has accepted as additional

shares of the company’s stock rather than as cash. They are taxable in the year constructively received. Removal Costs The cost of removing old components, parts, structures, or other assets to make way for an improvement. Rental Income Income received by the taxpayer for allowing another person’s use of the taxpayer’s property. Rental income includes advance rental payments, late payments, and current payments. Pay­ments received for lease cancellation and forfeited security deposits are rental income the year received or forfeited. Rental income is considered passive income for purposes of the passive loss rules, except for qualified real estate professionals. Repairs Current expenditures to restore business-use property to an original condition or maintain the property through minor alterations rather than to extend its useful life. The cost of re­pairs normally is deductible annually. Substantial repairs that increase the value or extend the life of the property are treated as capital improvements, and must have their cost re­covered over a number of years. Replacement Period The time during which a taxpayer must purchase appropriate replacement property in order to postpone tax on the gain from the property disposed of. Repossession Taking possession of property that was earlier sold on an installment contract because the buyer defaults on payment of the debt. Resident Alien A citizen of another country who lives in the United States and/or has resident status by law or visa, or passes the substantial presence test. See IRS Publication 519. Restoration A type of improvement that replaces a component of a unit of property (UOP) for which the taxpayer has deducted a loss. Returns of Capital (Nontaxable Distributions) A return of a shareholder’s investment generally made because an excess amount of capital has been accumulated. Returns of capital may be received in cash or reinvested to acquire additional shares at the shareholder’s request. Amounts received that are not in excess of the basis of the stock on which returns of capital are paid are not taxable. The basis

Glossary G.25 of the stock on which returns of capital are paid must be reduced. Amounts received in excess of the basis of the stock on which returns of capital are paid are reported on Sched­ule D, in Part I if stock has been owned short term, or in Part II if stock has been owned long term. Revenue Agent Report (RAR) A letter of assessment sent to the taxpayer at the close of the audit. Right The opportunity a corporation gives a shareholder to buy additional shares at a special price for a limited time. Share­holders who do not use their rights can sell them to other in­vestors. Rollover A qualified transfer of funds from one tax-favored account to another, usually of the same type. A rollover must take place within 60 days of receiving the funds. Rotable Spare Parts Materials and supplies that can be installed, removed and re-installed on the same or other property or stored for later installation. Roth IRA A type of individual retirement arrangement in which contributions are not tax deductible, earnings grow tax deferred, and qualified withdrawals are tax free. Routine Maintenance For buildings, activities a taxpayer expects to perform at least twice during a 10-year period to keep the building, including structural components and systems, in efficient operating condition. For other property, activities a taxpayer expect to perform at least twice during the property’s ADS class life to keep the property in its ordinarily efficient operation condition. Routine Maintenance Safe Harbor A required accounting method change to deduct routine maintenance costs. Royalty (1) A payment received for the right to exploit a taxpayer’s ownership of natural resources or a taxpayer’s literary, musical, or artistic creation, (2) An interest in the oil and gas in place that entitles the holder to a specified fraction, in kind or in value, of the total production from the property, free of any expense of development and operation.

Royalty Interest An interest in the oil and gas in place that entitles the holder to a specified fraction, in kind or in value, of the total production from the property, free of any expense of development and operation. RRTA (Railroad Retirement Tax Act) The law that provides for railroad retirement benefits. Safe Harbor Tax regulations that allow a (usually) simpler method of determining a tax consequence than is available following the precise language of the Code. Salvage Value The estimated value that will be realized upon the sale or other disposition of an asset at the end of its useful life. Salvage value must be taken into account when determining the depreciable amount under pre-1981 depreciation, but not under ACRS or MACRS. Saver’s Credit A nonrefundable credit based on up to $2,000 in contributions to qualified retirement plans and traditional and Roth IRAs. The credit is allowed in addition to any deduction available for the contributions. The credit is completed on Form 8880, Credit for Qualified Retirement Savings Contributions. Schedules Official IRS forms used to report various types of income, deductions, and/or credits. Scholarships and Fellowships Financial aid grants awarded to students for the purpose of attending a college or performing research. S Corporation A qualified small business corporation that has elected special tax treatment under subchapter S of the Internal Revenue Code. Unlike most corporations, which are taxable entities themselves, S corporations pass income, losses, and deductions through to shareholders to report on their individual returns. Section (followed by a number) The section of the Tax Code in which particular laws are given. Section 125 Plan See Cafeteria Plan.

G.26 H&R Block Income Tax Course (2016) Section 179 Expense Deduction An election to treat the cost of certain qualified property as a currently deductible expense rather than as a capital expenditure. Generally a maximum total deduction of $500,000 may be claimed for qualified assets placed in service in 2015. This is also referred to as expensing. Section 529 Plan See Qualified Tuition Plan. Section 1231 Gains and Losses If the combined gains and losses from the taxable dispositions of §1231 assets is a gain, such gains are treated as long-term capital gains. In arriving at §1231 gains, however, the depreciation recapture provisions (for example, §1245 and 1250) are first ap­plied to produce ordinary income. If the net result of the combination is a loss, such gains and losses for §1231 assets are treated as ordinary. Section 1245 Section 1245 assets are depreciable business use personal property and certain nonresidential real property. If the sale of these assets results in a gain, §1245 of the Code requires the gain to be treated as ordinary income to the extent of depreciation allowed or allowable. That is, the depreciation must be recaptured. Any gain in excess of the amount re­quired to be recaptured is §1231 gain, potentially taxable as long-term capital gain. Section 1250 The section that requires that gain on disposition of real property be treated as ordinary income to the extent of the depreciation claimed in excess of straight-line. Depreciation equivalent to the straight-line portion is called unrecaptured §1250 gain. Any remaining gain is §1231 gain, which is treated as capital gain. Self-Employed Individuals Taxpayers who work for themselves. They decide when, how, and where to work, obtain their own jobs or sales, pay their own expenses, and receive social security and medi­care coverage through payment of self-em­ployment tax. Self-Employment Income Self-employed individuals are taxed on their net income from self-employment and are entitled to social security and medicare benefits through the payment of self-employment tax. Self-Employment Tax For 2015, self-employed persons are subject to social security tax of 12.4% on net earnings of up

to $118,500 and medicare tax of 2.9% on all net earnings. If a self-employed individual receives wages from an em­ployer that are subject to social security tax, the amount of self-employment income subject to social security tax may be re­duced. Selfemployment tax is computed on Schedule SE. Separate Maintenance Payments Amounts paid to one spouse by the other spouse under a court order or agreement while they live apart. Service Business A business in which income is produced chiefly by personal services rendered. Shared Responsibility Payment The penalty a taxpayer must pay if they do not maintain minimum essential coverage and do not qualify for an exemption. It is calculated using the flat dollar method/percentage of income method. Shareholder An individual or entity that owns shares of capital stock. Short Sale A sale in which the seller borrows the stock certificates or other property delivered to the buyer. At a later date, the seller either purchases similar stock or property necessary to “cover” the sale, and delivers it to the lender or delivers to the lender stock or property that he already held but did not wish to transfer at an earlier date. For income tax purposes, there is no gain or loss on the transaction until the short sale is covered by purchase and transfer. Special rules apply in determining whether the gain or loss on a short sale is a long-term or short-term capital gain or loss. Short-Term Gain Gain on the sale or exchange of a capital asset held 12 months or less. Signing Return Preparer The individual tax return preparer that has the primary responsibility for the overall substantive accuracy of the preparation of the return or claim for refund. SIMPLE Retirement Plan Small employers may establish a savings incentive match plan for employees retirement plan. A SIMPLE plan can be either an IRA for each employee or a deferred compensation arrangement, such as a §401(k) plan.

Glossary G.27 Simplified Employee Pension (SEP) An arrangement under which an employer makes contributions to an employee’s in­dividual retirement account (IRA), or a self-employed person contributes to his own plan. Simplified Method The method of computing the taxable and nontaxable portions of a qualified employer plan by which the cost is recovered over a specified number of periodic payments. The number of payments is determined by finding a factor on a simple table. This method replaced the general rule, which was considerably more complex, for most pensions. Single The filing status used by an unmarried taxpayer who does not qualify for any other filing status. Skip Person A person who is more than one generation below the decedent or donor. Social Security Number (SSN) A taxpayer identification number issued by the Social Security Administration (SSA). Social Security Tax Withheld The employee’s share of social security tax that was taken out of the employee’s pay and submitted along with the employer’s share to the IRS by the employer. The employee pays 6.2% and the employer pays 6.2% of the first $118,500 of the employee’s gross wages (for 2015). Social Security Tips The amount of tips reported to an em­ployer by an employee that is subject to this tax. Tips are also subject to medicare tax. Social Security Wages Total wages paid to an employee that are subject to this tax. This amount does not include tips. Wages are also subject to medicare tax. Special Averaging A special method available to determine the tax on a qualified lump-sum distribution for any taxpayer who was born before 1936 and meets the other requirements. The tax computation is done on Form 4972. Special Enrollment Period A taxpayer can enroll in the Marketplace outside of the open enrollment period if they qualify for a special enrollment period.

Special Needs Child For the adoption credit, a child determined by the state to be difficult to adopt due to factors such as racial or ethnic background, age, a condition that requires special care, or whether the child has siblings. A special needs child must be a U.S. citizen. Spousal IRA An IRA set up by a taxpayer whose spouse has little or no compensation, for the benefit of that spouse. The designation “spousal” is significant for tax purposes only. There is no connection between a spousal IRA and the other spouse’s IRA, and no IRA may be jointly owned. Standard Deduction A base amount of income not subject to tax. The regular standard deduction for 2015 is $6,300 for single taxpayers and married persons filing separately; $9,250 for heads of household; and $12,600 for married couples filing a joint return and qualifying widow(er)s. Taxpayers who are blind and/or 65 or older have higher standard deductions. Tax­payers who may be claimed as dependents on other taxpayers’ returns may have reduced standard deductions. Standard Mileage Rate An annual deduction based on a set number of cents per mile for qualified business use of the taxpayer’s vehicle. The standard mileage rate for 2015 is 57.5¢ per mile. Standby Emergency Spare Parts A difficult-to-obtain, special-order replacement part kept on hand to avoid time loss following failure of a part to function properly. These items are treated as materials and supplies. Statements Explanations of various types of income, deductions, and/or credits reported on a schedule or directly on Form 1040. Statements may or may not be official IRS forms. State or Local Income Tax Withheld The amounts taken out of income by the payer and submitted to the state or local taxing authority as an advance payment of the taxpayer’s state or local income tax. Statutory Employee A worker who is treated as an employee for social security and medicare tax purposes and as self-employed for income tax purposes. The “Statutory employee” box on such a worker’s Form W‑2 should be marked.

G.28 H&R Block Income Tax Course (2016) Step-up Basis The basis of property inherited from a decedent “steps-up” to the Fair Market Value of the property as of the date of the death of the decedent.

Tangible Personal Property Property, other than real property, that has a physical existence and an intrinsic value. Ex­amples are livestock, machinery, equipment, and vehicles.

Stock Dividend Additional shares of stock distributed to shareholders at no cost. The number of shares received are a percentage of the shares owned. The basis of the original shares is generally apportioned equally to the total shares owned after the distribution.

Tax Bracket The rate at which income at a particular level is taxed.

Stock in Trade Property held primarily for sale to customers in the ordinary course of business; inventory. Stock Split Additional shares of stock distributed to shareholders at no cost. The number of shares received are a ratio of the shares owned. The basis of the original shares is generally apportioned equally to the total shares owned after the split. Straddle A combination of a call and a put (both of which are defined elsewhere in this glossary) written at the same time, on the same number of shares of a security, at the same price, during the same period of time. The call and put parts of a straddle are generally bought by different holders. Straight-Line Depreciation Method The most commonly used method of depreciation prior to 1981. Basis less salvage value or land value divided by useful life equals depreciation deduction. Student Loan Interest Deduction An adjustment to income (limited to $2,500) for interest paid during the year on qualified higher-education loans. SUB Pay Supplemental unemployment benefits. These benefits are generally received from a company-financed fund, and are fully taxable as wages. Substantial Authority Standard An objective standard involving an analysis of the law and application of the law to the relevant facts. Support The total amount provided on behalf of an individual. Support includes food, lodging, and other necessities, as well as recreation and other nonessential expenditures. Support is not limited to necessities, and can be as lavish as the taxpayer can afford.

Tax Court The only judicial body from which tax relief may be obtained without payment of tax. Tax Credit for the Elderly or the Disabled Eligible taxpayers 65 years old and older, and those under 65 retired on a permanent and total disability, may claim this credit. The amount of the credit, if any, is computed on Schedule R, for Forms 1040 and 1040A. Tax-Exempt Income Income that, by law, is not subject to in­come tax. Tax-Free Exchanges Transfers of property specifically ex­empt from federal income tax consequences in the current year. Examples are a transfer of property to a controlled corporation and a like-kind ex­change. Tax Home The business location, post, or station of the taxpayer. If an employee is temporarily reassigned to a new post for a period of one year or less, the taxpayer’s tax home is his personal residence, and the travel expenses are deductible. Tax Liability The amount of total tax due to the IRS after any credits and before taking into account any advance payments (withholding, estimated payments, etc.) made by the taxpayer. Tax Lien A legal claim to a taxpayer’s property filed by the IRS to secure payment of the taxpayer’s tax debt. The lien attaches to all the taxpayer’s property and all the taxpayer’s rights to the property. Tax Preference Items Tax items that may result in the imposition of the alternative minimum tax. Tax Rate Schedules Tax Rate Schedules, which appear in the ap­pendix, are used by certain taxpayers. Separate rate schedules are provided for married individuals filing jointly or qualifying wi­dow(er)s, unmarried heads of household, single taxpayers, and married individuals filing separate returns.

Glossary G.29 Tax Table The Tax Table, appearing in the appendix, is provided for taxpayers with taxable incomes of less than $100,000. Separate columns are provided for single taxpayers, married taxpayers filing jointly or qualifying widow(er)s, heads of household, and married taxpayers filing separately. Taxable Distribution A distribution of principal or income to a skip person from a trust. Taxable Estate The gross estate of a decedent, less any expenses, debts, or deductions. Taxable Income Adjusted gross income, less itemized deductions or the standard deduction, less allowable personal and de­pendent exemption amounts. This term is also used to refer to income that is not exempt or excluded from taxation. For example, “Wages are taxable income, but gifts are not.” Taxable Termination A distribution of principal or income to a skip person, due to the termination of a trust. Taxable Year The calendar year or fiscal year for which the taxable income is computed. Temporary Assignment A work assignment away from the taxpayer’s tax home, generally for a period of one year or less. De­duction of temporary assignment expenses is allowed to provide relief to those who have extra expenses because of their work. To have any deductible expenses, the taxpayer must own, or be renting or buying, lodging in the general area of the regular place of employment, and intend to return to that lodging at the end of the temporary assignment. Temporary Spare Parts Spare parts kept on hand for use until a new or repaired part can be installed. These items are treated as materials and supplies. Tenancy by the Entirety A tenancy in which parties jointly own property. After the death of one, the survivor takes the whole estate. Tenancy by the entirety can be terminated during their lifetime only by joint action of the parties. Tenancy in Common Two or more individuals jointly owning property. Each owns an undivided share of the whole. The

shares remain separate even if one party dies. Thrift Savings Plan Defined contribution plan for servicemembers. Tip Income Gratuities received by the taxpayer for services rendered. Tips of $20 or more from any one job during a calendar month must be reported to the taxpayer’s employer. Trade Date Date on which a capital asset is actually bought or sold. Trade or Business Expenses Deductions from gross income that are attributable to a taxpayer’s business or profession. Traditional IRA An individual retirement arrangement, contributions to which may or may not be deductible depending on the taxpayer’s AGI and whether or not he is covered under an employer-sponsored retirement plan. Earnings within a traditional IRA grow tax-deferred. Distributions from a traditional IRA are taxable, except to the extent they represent nondeductible contributions. Transfer Tax A tax imposed when real estate is sold or transferred from one person to another. Transportation Expenses Transportation expenses for an employee or self-employed taxpayer include only the cost of transportation (taxi fares, auto expenses, etc.) incurred in the course of business or employment when the taxpayer is not away from home in a travel status. Travel Expenses Travel expenses include meals, lodging, and transportation expenses while away from home in the pursuit of a trade or business (including that of an employee). Trust A tax entity created by a trust agreement. This entity distributes all or part of its income to beneficiaries as instructed by the trust agreement. This entity is required to pay taxes on undistributed income. Trustee A person or institution that manages the assets of an account (an IRA, for example) for the benefit of the account owner or a beneficiary.

G.30 H&R Block Income Tax Course (2016) Tuition and Fees Deduction An above-the-line deduction of up to $4,000 per tax return for qualified tuition and course-related expenses. The amount of the deduction is figured on Form 8917.

Unstated Interest Interest which must be calculated, and the sale price reduced by this amount when interest is not stated in an in­stallment agreement or the interest rate used is less than the ap­plicable rate.

Unadjusted Basis The basis of property for purposes of figuring depreciation under ACRS or MACRS. The unadjusted basis is the original cost or other basis.

Vacation Home The Tax Code places restrictions on taxpayers who rent their residences or vacation homes to others for part of the tax year. The restrictions may result in scaling down of expense deductions for such taxpayers.

Underpayment Penalty If a taxpayer did not pay enough tax on a timely basis during the year, he may be required to pay an underpayment penalty. The penalty, if any, is computed on Form 2210. Unearned Income Taxable income other than that received for services performed (earned income). Unearned income in­ cludes money received for the investment of money or other property, such as interest, dividends, and royalties. It also in­cludes pensions, alimony, un­employment compensation, and other income that is not earned. Unenrolled Tax Preparer A tax preparer who is not an attorney, CPA, enrolled agent, enrolled retirement plan agent, or enrolled actuary authorized to practice before the IRS. Unified Credit See Applicable Credit Amount. Uniformed Service Retirement Plan Defined benefit plan for servicemembers. Unit of Property (UOP) For personal property and real property other than a building, the unit of property (UOP) consists of all components that are functionally interdependent, i.e. that depend on each other to function or operate. For plant property, each machinery component that performs a discrete and major function or operation may be a UOP. For buildings, the UOP is the building itself, including its systems and structural components. Unrecaptured Section 1250 Gains Gains from the sale of §1250 property that are attributable to depreciation, equivalent to the amount which would have been claimed under a straight-line method. This gain is subject to a maximum tax rate of 25%.

Vested Benefits Pension benefits owned by the taxpayer. Wash Sale The purchase of substantially similar stock or other securities within 30 days before or after the sale of the similar stock or security at a loss. A taxpayer cannot claim a wash sale loss; instead, the loss is added to the basis of the most recently purchased substantially similar securities. Welfare to Work Credit A tax credit for employers who hire workers from welfare rolls. The credit is claimed on Form 8861. Widow (Widower) A woman (man) who has not remarried following the death of her husband (his wife). Willful Neglect A voluntary and intentional violation of a known legal duty, or reckless indifference of a known legal duty. Withholding Allowances An increase by which income tax withholding on certain income is reduced. That is, each individual withholding allowance decreases the amount of tax withheld from the income by the payer. Work Opportunity Credit A credit available to employers who hire employees from specified disadvantaged groups. The credit is claimed on Form 5884. Worksheet A record of compiled information that is generally not sent to the IRS with a tax return. Worthless Securities A loss is allowed for a security that be­comes worthless during the year. The loss is deemed to have oc­curred on the last day of the year. Special rules apply to securities of affiliated companies and small business stock.

English-Spanish Glossary of Terms: Spanish for Mexico

English to Spanish Glossary of Terms: Spanish for Mexico

English to Spanish

0-9 1040EZ 1040EZ

A A location near you Una ubicación cercana a usted A tax Un impuesto About Acerca de ACA Tax Penalty Penalidad de impuestos de la Ley ACA ACA Tax Penalty Exemption Exención de penalidad de impuestos de la Ley ACA Accelerated Cost Recovery System Sistema acelerado de recuperación de costos Accelerated Depreciation Depreciación acelerada Accelerated Management Program (AMP) Programa acelerado de gestión, Programa Acelerado de Administración Accept Status Estatus de aceptación Account Administration Fee (AAF) Tarifa de administración de cuenta (TAC) Account Executive Ejecutivo de cuenta Account Manager Administrador de cuenta Accountable Plan Plan de rendición de cuentas, Plan de rendición contable Accounting Method Método contable Accounting Period Periodo contable

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Accrual Method of Accounting Método contable de devengo Accrued Interest Interés devengado Accumulated Adjustments Account (AAA) Cuenta de ajustes acumulados (CAA) Accumulation Period Periodo de acumulación Acquisition Debt Deuda de adquisición, Adquisición de Deuda Action plans Planes de acción Active Income Ingresos activos Active Income and Losses Ingresos y pérdidas activas Active Losses Pérdidas activas Active Participant Participante activo Actual Expenses (Regular Method) Gastos reales (método regular), Gastos Actuales (Metodo Regular) Add more Income Añadir más ingresos Additional Child Tax Credit Crédito fiscal por hijo adicional, Credito fiscal adicional por hijo Adjusted Basis Base ajustada Adjusted Current Earnings (ACE) Percepciones actuales ajustadas (PAA), Ganancias Ajustadas Actuales (GAA) Adjusted Gross Income Ingresos brutos ajustados, Ingreso Bruto Ajustado Adjustment to Income Ajuste a los ingresos Adoption Credit Crédito por adopción Advance Earned Income Credit Crédito fiscal por ingresos percibidos Advance Premium Tax Credit Crédito Tributatio Anticipado por la Prima (APTC, por sus siglas en inglés)

Advance Premium Tax Credit Repayments Reembolsos de Créditos Tributatios Anticipados por la Prima Adverse action letter Carta de acción adversa, carta de medida adversa Advice Statement Recomendación Affordable Care Act (ACA) Ley de Atención Médica Asequible (Affordable Care Act o ACA, por sus siglas en inglés) AGI IBA Alimony Payments Pagos de pensión alimenticia Allowable Miscellaneous Deductions (AMID) Deducciones varias permisibles (DVP), Deducciones diversas Admisibles (DDA) Allowance Permiso, Concesión Alternate (Straight-Line) Method Método alterno (línea recta), Sistema alterno de depreciación lineal Alternative Depreciation System (ADS) Sistema alterno de depreciación (SAD) Alternative Minimum Tax Impuesto mínimo alterno Alternative Straight-Line Depreciation System Sistema alterno de depreciación en línea recta Amended Return Devolución modificada, Declaración rectificada AmeriCorps (State and National) / VISTA / National Civilian Community Corps Member AmeriCorps (estatales y nacionales) / VISTA / Miembro del Cuerpo Civil Comunitario Nacional Amortization Amortización Amount Monto

English to Spanish Glossary of Terms: Spanish for Mexico Amount Realized Monto obtenido AMT IMA An additional fee Una tarifa adicional An average of Un promedio de Annual Percentage Rate, APR Tasa de porcentaje anual, TPA Annualized Income Installment Method Método de ingresos anualizados a plazos Annuitant Beneficiario de una anualidad Annuity Anualidad Annuity Starting Date Fecha de inicio de la anualidad Anti-Churning Rules Reglas contra la pérdida de clientes Applicable Federal Rate (AFR) Tasa federal aplicable (TFA) Applicable percentage Porcentaje aplicable Application for a Refund Anticipation Check and a Solicitud de cheque de anticipo de devolución y de cuenta para el depósito de devoluciones, Solicitud para cheque anticipado de reembolso Appointment Manager (AM) Director de citas (DC), Administrador de citas (AC) Approval Aprobación Approve Online Aprobación en línea Approved Client Take Away Regalo para clientes aprobados Approved Reload Networks Redes de recarga aprobadas, Redes aprobadas de recarga Archer Medical Savings Account Cuenta de ahorros médicos Archer Archer MSA CAM Archer As fast as you choose Tan rápido como escoja Ask Pregunte

Ask your bilingual professional Pregúntele a su profesional bilingüe Assemble (return, documents, etc.) Reúna (devolución, documentos, etc.) Asset Activo Assistant District Manager (ADM) Subdirector de Distrito (SDD), Subadministrador de Distrito (SAD) Assistant Regional Director (ARD) Subdirector Regional (SDR) At H&R Block we have 50 years experience in tax preparation En H&R Block contamos con 50 años de experiencia en la preparación de impuestos At participating offices En las oficinas participantesj, En oficinas participantes ATM Cajero automático At-Risk Rules Reglas de monto a riesgo Audit Auditoría Audit assistance Asistencia en auditoría Audit Representation Representación en auditoría Audit Support Asistencia en auditoría Auto Pay Pago automático Automated Teller Machine (ATM) Cajero automático (ATM) Automatic payment Pago automático Availability Disponibilidad Average Promedio Away From Home Overnight Fuera de casa una noche

B Background check Revisión de antecedentes

Bad Debts Deudas incobrables, insolvencias Balance Saldo Balance Due Saldo adeudado, Saldo Pendiente Balance Due Loan Préstamo para saldo por pagar, Saldo pendiente de préstamo Bank Account Cuenta bancaria Bank Privacy Commitment Compromiso de privacidad del banco Bank products Productos bancarios Bankruptcy Bancarrota Based on Con base en Basic Building Blocks (B³) Course Curso Basic Building Blocks (B³) Basis Base Basis of Stock Base de acciones Be up-to-date Estar actualizado, Mantente actualizado Benchmark plan Plan de referencia Beneficiary Beneficiario Benefits Prestaciones, Beneficios Benefits for retirees Prestaciones para jubilados, Beneficios para jubilados Bequest Legado Bond Título de deuda Bottom line Resultados netos Bronze plan Plan de categoría Bronce Build Your Client/Customer Base Cree su base de clients, Crea tu base de clients Business Assets Activos del negocio, Bienes del negocio Page 3

English to Spanish Glossary of Terms: Spanish for Mexico Business Cards Tarjetas de negocios Business Day Día hábil Business Expenses Gastos del negocio Business Income Ingresos del negocio Business Interruption Interrupción de negocios Business Related Relacionados con los negocios Business Related Expenses Gastos relacionados con los negocios Business-Use Property Propiedad para uso del negocio

C Cafeteria Plan Plan de prestaciones personalizado (cafetería) Calendar Year Año calendario, Año Civil Cancellation of Health Plan Cancelación de plan de salud Capital Asset Activo fijo, Activos de capital Capital Expenditure Gasto de capital Capital Gain Ganancia de capital Capital Gain Distributions Distribuciones de la ganancia de capital Capital Gain Tax Impuesto sobre la ganancia de capital, Distribuciones de ganancia de capital, Impuesto sobre la ganancia capital Capital Improvement Mejora del capital, mejoramiento de capital Capital Investment Inversión de capital Capital Loss Pérdida de capital Capital Stock Acciones de capital Capitalize Capitalizar

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Car and Truck Expenses Gastos de automóviles y camiones Career Carrera professional, Carrera Carryback - net operating loss carryback (forward) Traslado a ejercicios anteriores, Transferencia de perdidas neto Carryover Prórroga automática Carryover Loss Pérdida de prórroga automática Cash Method of Accounting Método contable de efectivo Cash on Delivery (COD) Contra reembolso (COD), Reembolso (COD) Casualty Loss Pérdida por siniestro CBT CBT Certificate Certificado Certificate of Deposit (CD) Certificado de depósito (CD) Certification Certificación Charged by Cobrado por Charitable Contribution Contribución de caridad, Contribución Caritativa Charitable Contributions Contribuciones de caridad, Contribuciónes Caritativas Charitable donation Donativo de caridad, Donacion Caritativa Check Cheque Check charge Cargo por cheque Check processing fee Comisión por manejode cheque, Cuota por proceso de cheque Checking (review) Cheques (revisión), Chequeo (revisión) Checklist Lista de verificación Child and Dependent Care Credit Crédito por hijos y personas dependientes, Crédito por dependientes e hijos

Child Care Credit Crédito por guardería Child Support Payments Pagos de pensión alimenticia para menores, Pagos de manutención infantile Child Tax Credit Crédito fiscal por hijo Claim of Right Reclamación de derecho Classic Refund Anticipation Loan Préstamo clásico en anticipo de devolución, Préstamo de Reembolso Anticipado Clásico Client Cliente Client Income Information Worksheet Hoja de trabajo de información sobre los ingresos del cliente, Hoja de información sobre los ingresos del cliente Client Service Agreement Contrato de servicios al cliente, Acuerdo de Servicio al Cliente Client support Atención a clientes Client-take-away Regalo al cliente Collect on Delivery (COD) Contra reembolso (COD) Collectibles Cobrables Combine Combinar Commission Comisión Commodity Futures Futuros sobre mercancías, Productos Futuros Common Stock Acciones ordinarias, Acciones Comunes Common-Law Marriage Concubinato Community Income Ingresos de la comunidad Community Property Propiedad de la comunidad Commuting Traslado laboral diario, Trayecto laboral diario Company-Owned Offices Oficinas que son propiedad de la empresa, Oficinas de la empresa

English to Spanish Glossary of Terms: Spanish for Mexico Compensation Compensación Complex Return Devolución compleja Compliance Cumplimiento Condemnation Condena Connected, Confident, and Championed Conectado, confiado y defendido Consent to disclose Consentimiento para divulgar Consent to Disclose Information, 7216 Consentimiento para divulgar información, 7216 Consent to Disclose Return Tax Information Consentimiento para divulgar la información de la declaración de impuestos, Consentimiento para divulgar información de la declaración de impuestos Consent to Use Consentimiento para usar Consent to use Tax Return Information Consentimiento para usar la información de la declaración de impuestos, Consentimiento para usar información de la declaración de impuestos Constructive Receipt Recibo constructivo Consumer Price Index (CPI) Índice de precios al consumidor (IPC) Continue Continuar Continuing Education Credit (CEC) Crédito para educación continua (CEC) Continuous support Apoyo continuo Contract for Deed Contrato de escritura Contract Holder Titular del contrato Contract Price Precio contractual Contribution Contribución Convertible Convertible

Copyright Derechos de autor Cost Costo Cost Depletion Disminución de costos Cost Method of Inventory Valuation Método de costos de valuación del inventario, Método de valoración de costos del inventario Cost of Goods Sold Costo de los bienes vendidos Cost of Maintaining a Home Costo de mantener un hogar Cost Recovery Recuperación de costos Coupon Cupón Course(s) Curso(s) Coverdell Education Savings Account (ESA) Cuenta de ahorros en educación (CAE) Coverdell, Cuenta de ahorros de educación (CAE) Coverdell Credit for Child Care Expenses Crédito por gastos de guardería Credit Worthiness Capacidad crediticia, solvencia crediticia Credits Créditos Custodial Parent Progenitor que tiene la custodia, Progenitor que tiene custodia Customer Service Servicio al cliente Customer Service Agreement Contrato de servicio al clientej, Acuerdo de servicio al cliente

D Data Base Administrator (DBA) Administrador de bases de datos (ABD) Date of birth Fecha de nacimiento Dealer (commercial) Concesionario (comercial)

Dealer (securities) Corredor (valores) Death of Close Family Member Muerte de un familiar cercano Debit MasterCard MasterCard de débito Declaration Control Number (DCN) Número de control de la declaración (NCD) Declining Balance Method of Depreciation Método de depreciación de saldos decrecientes Deduction Deducción Deductions Deducciones Default Predeterminado Deferred Compensation Plan Plan de compensaciones diferidas Deferred Income Ingresos diferidos Defined Benefit Plan Plan de beneficios definido Defined Contribution Plan Plan de contribuciones definido Delete Borrar Delivery Envelope Sobre de entrega Department ID (DID) ID del departamento (IDD) Dependency Exemption Exención por dependencia Dependent Persona dependiente, Dependiente Dependent Care Credit Crédito por cuidado de personas dependientes Dependent Children without Insurance Hijos dependientes sin seguro Depletion Depreciación Depletion Allowance Permiso de depreciación Depreciable Asset Activo depreciable, Posesión depreciable Depreciation Depreciación Page 5

English to Spanish Glossary of Terms: Spanish for Mexico Direct Deposit (DD) Depósito directo (DD) Dirty dozen Docena sucia Disability Pension Pensión por discapacidad Disabled Discapacitado Disaster Loss Pérdida por desastre Disaster Victims Víctimas de desastres Disclose Divulgar Disclosure Statement For Classic RAL Declaración de divulgación para RAL Clásico Discount Descuento Discount offer Oferta de descuento Disposition (of property) Disposición (de propiedad) Distribution Distribución Distribution from pensions, annuities, retirements or profitsharing plans, IRAs, insurance contracts, etc. Distribución de pensiones, anualidades, planes de jubilación o de ganancias compartidas, CIR, contratos de seguro, etc. District Distrito District Manager (DM) Director de distrito (DD), Gerente de distrito (GD) District Office Supervisor (DOS) Supervisor de la oficina distrital (SOD) District Support Center (DSC) Centro de Asistencia Distrital (CSD) District Technical Support Specialist (DTSS) Especialista en asistencia técnica distrital (ESTD) Dividend Dividendos, Dividendo Dividend Income Ingresos por dividendos Division División Page 6

Divorce Decree (Final) Sentencia de divorcio (final) Divorce Decree (Interlocutory) Sentencia de divorcio (interlocutoria) Do you plan to file Married Filing Jointly? ¿Tiene pensado presentar como casados que presentan una declaración conjunta? Domestic Production Activities Deduction Deducción de actividades de producción nacionales, Deducción de actividades de producción domestica Domestic Violence Victims Víctimas de violencia doméstica Double check (not product name) Comprobación doble (sin nombre de producto) Drop-off services Servicios de entrega

E Earn extra income preparing taxes Gane ingresos adicionales preparando impuestos Earned Income Ingresos percibidos Earned Income Credit (EIC) Crédito por ingresos percibidos (CIP) Earned Income Tax Credit (EITC) Crédito fiscal por ingresos percibidos (CFIP) Earnings Statement – E & D Declaración de percepciones - P & D, Declaración de ganancias –P&D Easy IRA CIR fácil Easy Products Productos fáciles Easy Savings Ahorros fáciles EasyPay Pagos fáciles E-commerce Comercio electrónico Edit Editar

Education credits Créditos por educación Education Expense Deduction Deducción de gastos de educación Education Savings Account (ESA) Cuenta de ahorros para educación (CAE) Education tax benefits Beneficios fiscales por educación, Beneficios de Impuestos por Educación Educator Expenses Deduction Deducción de gastos del educador Effective Date Fecha de entrada en vigor Electronic Data Processing (EDP) Procesamiento electrónico de datos (PED) Electronic Federal Tax Payment System (EFTPS) Sistema electrónico de pago de impuestos federales (EFTPS) Electronic Filing (E-file) Declaración electrónica (E-file) Electronic Funds Transfer (EFT) Transferencia electrónica de fondos (TEF) Electronic news (eNews) Noticias electrónicas (eNews) Eligible Educator Educador apto, Educador elegible Eligible Foster Child Menor acogido elegible E-mail Correo electrónico Emerald Advance Application and Terms and Conditions Términos y condiciones de la solicitud Emerald Advance Emerald Advance™ Emerald Advance™ Emerald Card Payroll Direct Deposit Form Formulario de depósito directo de nómina de Emerald Card Emerald Card™ Emerald Card™ Emerald Cash Rewards Recompensas en efectivo Emerald Emerald Product Suite Serie de productos Emerald

English to Spanish Glossary of Terms: Spanish for Mexico Emerald Savings Application Solicitud Emerald Savings Eminent Domain Dominio eminente Employee Empleado Employer Identification Number (EIN) Número de identificación de empleado (NIE) Employer-Maintained Retirement Plan Plan de jubilación mantenido por el patrón, Plan de jubilación mantenido por el empleador Employment Expenses Gastos de empleo Enroll Now Inscríbase ahora Entertainment Expenses Gastos de representación Estate Patrimonio Estimate Estimación Estimated (Useful) Life Vida (útil) estimada Estimated Income Ingresos estimados Estimated Tax Impuesto estimado Estimator Estimador Every cent counts Cada centavo cuenta Every opportunity that might benefit you Cada oportunidad que puede beneficiarlo Eviction/Foreclosure Desalojo/Ejecución hipotecaria Excess Social Security Tax Withheld Retención excesiva de impuesto de seguridad social Exchange Cambio Exchange Rate Tasa de cambio, Tipo de cambio Excise Taxes Impuestos sobre consumos específicos Excluded Gain Ganancia excluida

Exclusion Exclusión Exclusion of income for bona fide residents of American Samoa Exclusión de ingresos para residentes de buena fe de la Samoa Estadounidense Exemption Exención Exemption Certificate Number Número de certificado de exención Exemption From Withholding Exención de retención Expenses Gastos Experience Experiencia Experienced Tax Professional Profesional con experiencia en impuestos Expertise Pericia Expires Vence Express IRA CIR rápida Extension Extensión

F Facts About Lines of Credit Datos sobre las líneas de crédito Facts About Refund Anticipation Loans Datos sobre los préstamos en anticipo de devolución Fair Market Value (FMV) Valor justo en el mercado (VJM) Fair Rental Value Valor justo de renta Farm Business Negocio agrícola Farm Operation Operación agrícola Farm Proprietor Propietario agrícola Farmer Agricultor Farming Agricultura

Farming Income Ingresos por agricultura Fast Money Options Opciones de dinero rápido Federal and State Forms Formularios federal y estatal Federal Income Tax Return Declaración fiscal federal de ingresos Federal Income Tax Withheld Retención fiscal federal de ingresos Federal Income Tax Withholding (FIT) Retención fiscal federal de ingresos (RFF) Federal Insurance Contributions Act (FICA) Ley Federal de Contribuciones de Seguros (FICA) Federal Marketplace Mercado federal Federal Poverty Level Nivel de pobreza federal (Federal Poverty Level) Federal Refund Anticipation Check Cheque federal en anticipo de devolución Federal Return Declaración federal Federal taxes paid Impuestos federales pagados Fee/Fees Tarifa/Tarifas Feel, Felt, Found Técnica de ventas Feel, Felt, Found Fellowship Beca FICA (Federal Insurance Contributions Act) FICA (Ley de contribución al seguro federal) Fiduciary Fiduciario File a tax return Presentar una declaración fiscal Filing Presentación Filing deadline Fecha límite para la presentación Filing requirements Requisitos para la presentación Page 7

English to Spanish Glossary of Terms: Spanish for Mexico Filing status Estado de la presentación Finance charge Cargo financiero Finance Charges Cargos financieros Financial Advisor (FA) Consejero financiero (CF) Financial Centers Centros financieros Financial Information Network (FIN) Red de información financiera (RIF) Financial Services Servicios financieros First In, First Out (FIFO) Primero en entrar, primero en salir (FIFO) Fiscal Planning Planificación financiera Fiscal Year Ejercicio fiscal Five-Step Disclosure Process Proceso de divulgación de cinco pasos Fixed-Rate Mortgage Hipoteca a tasa fija Flexible Spending Accounts Cuentas de gastos flexibles For an office near you Para encontrar una oficina cerca de usted Foreign earned income exclusion Exclusión de ingresos extranjeros percibidos Foreign income Ingresos extranjeros Foreign Tax Credit or Deduction Crédito o deducción fiscal extranjera Form Formulario Forms Selection Selección de formularios Foster Child Menor acogido, Hijo(a) Adoptivo(a) Franchise Franquicia Franchise Director (FD) Director de franquicias (DF) Franchise District Manager Director distrital de franquicias Free Notary Services Servicios notariales gratuitos Page 8

Friends and Family Returns Declaraciones de amigos y familiares Fringe Benefits Prestaciones sociales complementarias Front office associates Asociados de front office, Asociados de oficina frontal Full Retirement Age Edad de jubilación completa Full-Time Student Estudiante de tiempo completo Fully Taxable Pensions Pensiones completamente gravables

Gross Profit Ganancias brutas Gross Rent Renta bruta Group Term Life Insurance Seguro de vida colectivo a término Guaranteed Issue Emisión garantizada Guaranteed Loan Offer (GLO) Oferta de préstamo garantizado (OPG) Guaranteed maximum refund Devolución máxima garantizada

H G Gain Ganancia Gambling Juegos de azar, Apostar General Depreciation System Sistema general de depreciación General Rule Regla general General Sales Tax Impuesto de ventas general General Straight-Line Depreciation System Sistema general de depreciación en línea recta Get every penny you’re entitled to Reciba cada centavo al que tenga derecho Gift Regalo Gift Tax Impuesto sobre regalos Golden Parachute Contrato blindado Good Neighbor Buen vecino Goodwill Fondo de comercio Government Bonds Issued at a Discount Bonos del gobierno emitidos con descuento Gross Income Ingresos brutos

H&R Block Advantage Report Reporte H&R Block Advantage H&R Block Advantage® H&R Block Advantage® H&R Block Advantage® Statement Declaración H&R Block Advantage® H&R Block At Home™ software (not available in Spanish) Software H&R Block At Home™ (no disponible en español) H&R Block Easy IRA® Easy IRA® de H&R Block H&R Block Easy Products Productos Easy de H&R Block H&R Block Easy Savings Ahorros Easy de H&R Block H&R Block Emerald Advance ® Line of Credit Línea de crédito Emerald Advance ® de H&R Block H&R Block Emerald Card® Emerald Card® de H&R Block H&R Block Emerald Prepaid MasterCard® MasterCard® Emerald prepagada de H&R Block H&R Block Emerald Prepaid MasterCard® MasterCard® Emerald prepagada de H&R Block H&R Block Emerald Prepaid MasterCard® Table Topper Table Topper H&R Block Emerald Prepaid MasterCard®

English to Spanish Glossary of Terms: Spanish for Mexico H&R Block Emerald Product Suite Serie de productos H&R Block Emerald H&R Block Emerald Savings® Emerald Savings® de H&R Block H&R Block Emerald Savings® Emerald Savings® de H&R Block H&R Block Emerald Savings® account Cuenta Emerald Savings® de H&R Block H&R Block Emerald Savings® account Cuenta Emerald Savings® de H&R Block H&R Block Emerald Savings® Disclosures Divulgaciones Emerald Savings® de H&R Block H&R Block Franchise Franquicia de H&R Block H&R Block Guarantee Garantía de H&R Block H&R Block Income Tax Course Curso sobre impuestos sobre la renta de H&R Block H&R Block offers you many options H&R Block le ofrece muchas opciones H&R Block Premium Office Oficina premium de H&R Block H&R Block Tax Professional Profesional de impuestos de H&R Block Hardship Dificultades económicas Hardship Case Caso de dificultades excepcionalmente gravosas, Caso de dificultades Hardship exemption Exención por dificultades económicas Hardship Withdrawal Retiro de dificultades excepcionalmente gravosas, Retiro de dificultades HDHP PSDA Head of Household Jefe de familia, Cabeza de hogar

Head of Household Filing Status (HH) Estado de la declaración del Jefe de familia (CF), Estado de declaración de la cabeza de hogar (CH) Health Coverage Cobertura de salud Health and Human Services (HHS) Servicios Humanos y de Salud (HHS, por sus siglas en inglés) Health Insurance Seguro médico Health Savings Account (HSA) Cuenta de ahorros médicos (CAM) Healthcare reform law Ley de reforma de salud High Deductible Health Plan Plan de salud con deducible alto Hobby Loss Pérdida por pasatiempo Hold Suspender Holding Period Periodo de suspensión Holiday Vacaciones, Día festivo Home-Office Expenses Gastos de oficina en casa Homelessness Falta de vivienda Homeowner Propietario de vivienda Hope Credit Crédito de esperanza Household Employee Empleado doméstico Household Expenses Gastos de la casa hrblock.com hrblock.com HSA CAM Human Resources (HR) Recursos humanos (RH) Husband and Wife Marido y mujer Hybrid Method of Accounting Método contable híbrido

I I Am Worth It Yo lo valgo Identifying Numbers Números de identificación, Numero de identificacion If you are not satisfied Si no está satisfecho Ill, Disabled, or Aging Family Member Familiar enfermo, discapacitado o de edad avanzada Important tax information Información fiscal importante Imputed Interest Interés implícito In good standing Al día, En buen estado Income Ingresos Income averaging Promedio de ingresos Income Entry Asiento de ingresos, Entrada de ingresos Income tax Impuesto sobre la renta, Impuesto de ingresos Income Tax Course (ITC) Curso sobre impuesto sobre la renta (CISR), Curso de impuestos (CI) Independent Contractor Contratista independiente Individual Performance Plan Plan de desempeño individual Individual Retirement Account (IRA) Cuenta de jubilación individual (CJI) [An/your/the] Individual Taxpayer Identification Number (ITIN) [Un/su/el] número de identificación del contribuyente individual (NICI) Individual taxpayer identification number (ITIN) Número de identificación del contribuyente individual (NICI)

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English to Spanish Glossary of Terms: Spanish for Mexico Individual Taxpayer Identification Number (ITIN) Services Servicios del número de identificación del contribuyente individual (NICI) Information Document Documento informativo Inheritance Herencia Initial Inicial Installment Method (Annualized Income) Método a plazos (ingresos anualizados) Instant Money Dinero instantáneo Instant Money Anticipation Loan (IMAL) Préstamos instantáneo en anticipo de dinero (PIAD) Instant Money RAL PAD de dinero instantáneo Instant Money RAL Proceeds Producto de PAD de dinero instantáneo Instant Money Refund Anticipation Loan (Instant Money RAL) Préstamo en anticipo de devolución de dinero instantáneo (PAD de dinero instantáneo) Instant RAL PAD instantáneo Instant Refund Anticipation Loan Préstamo en anticipo de devolución instantánea Insurance Dividends Dividendos de seguros Insurance Policy Póliza de seguro Intangible Personal Property Propiedad personal intangible Interest income Ingresos por intereses Interest rate Tasa de interés, Tarifa de interés Interest Received Interés recibido Interlocutory Decree Decreto interlocutorio Internal Revenue Service (IRS) Servicio Interno de Ingresos (IRS)

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Internet Service Provider (ISP) Proveedor de servicios de Internet (PSI) Internet, the Net Internet, la red Interview (infinitive verb) Entrevistar (verbo en infinitivo) Interview (noun) Entrevista (sustantivo) Inventory Inventario Investment Inversión Investment Income Ingresos por inversiones Investment Interest Intereses sobre inversiones Investment Property Propiedad de inversión Involuntary Conversion Conversión involuntaria IPP IPP IRA CIR IRS IRS IRS Check Revisión IRS Itemize Detallar Itemized Deductions Deducciones detalladas ITIN NICI ITIN Services Servicios de NICI

J Job Trabajo Joint Return Declaración conjunta Joint Tenancy Posesión conjunta Joint Venture Joint venture, Empresa conjunta Jointly Owned Property Propiedad poseída conjuntamente, Copropiedad

L Labor Code Código laboral Land Value Valor del terreno Last In, First Out (LIFO) Primero en salir, primero en entrar (LIFO), Ultimo en entrar, primero en salir or Ultimas Entradas, Primeras Salidas (UEPS) Late fee Tarifa por retraso, Cargo por retraso Learn to prepare taxes Aprenda a preparar impuestos Leave and Earnings Statement, LES Declaración de ausencia y percepciones, DAPj, Declaracion de ausencia e ingresos, DAI Legally Blind Legalmente ciego Legally Separated Legalmente separados Lender Acreedor, Prestador Lessee Arrendatario Lessor Arrendador Lifetime Learning Credit Crédito de aprendizaje a vida, Credito de aprendizaje de por vida Limited Limitado link vínculo, Enlace Liquidation Liquidación Liquidation Distributions Distribuciones de liquidaciones Listed Property Propiedad publicada Load (as in Emerald Card) Cargar (como en Emerald Card), Recargar (como en Emerald Card) Load the loan money Cargar el dinero del préstamo

English to Spanish Glossary of Terms: Spanish for Mexico Loan Préstamo Loan Agreement Contrato de préstamo, Convenio de prestamo Loan Application Solicitud de préstamo Location near you Ubicación cercana a usted Lodging Alojamiento Long-Term Capital Gains Ganancias de capital a largo plazo Lower of Cost or Market Method of Inventory Valuation Método del monto menor entre el costo y el valor comercial para la valuación de inventarios Loyalty Lealtad Loyalty Client Rebate Program Programa de descuentos por lealtad de los clientes Lump-Sum Distribution Distribución de cantidad única, Distribucion de pago unico

M Mail a payment Enviar un pago por correo Main Home Domicilio principal, Domicilio de casa Major Franchise (MF) Franquicia primaria (FP) Malpractice Malas prácticas, Negligencia Manager, Regional Operations Support (MROS) Director de apoyo de operaciones regionales (DAOR) Managing Skills Seminars (MSS) Seminarios de habilidades de dirección (SHD) Margin Margen Marketing Mercadotecnia Marketplace Mercado

Marketplace Eligibility Appeals Decision Decisiones sobre apelaciones de elegibilidad del mercado Marketplace Exemption Application Aplicación de exención de mercado Marriage Matrimonio Married Filing Jointly Casados que presentan una declaración conjunta Married Filing Separately Casados que presentan declaraciones separadas MasterCard Zero Liability MasterCard con cero responsabilidad mastercard.com/zeroliability mastercard.com/zeroliability Material Participation Participación material Maximum Refund Devolución máxima Maximum Refund Guarantee Garantía de devolución máxima Maximum refund you are entitled to Devolución máxima a la que tiene derecho Maximum Refund, Guaranteed Devolución máxima, garantizada MBTO MBOF Medicaid Ineligibility – NonExpanded Medicaid States No elegibilidad para Medicaid – Estados sin expansión de Medicaid Medical Expenses Gastos médicos Medical Insurance Seguro médico Medicare Part A Medicare Parte A Medicare Part B Medicare Parte B Medicare Tax Withheld Retención de impuestos para Medicare Mileage Allowance Permiso de kilometraje, Millas permitidas

Mileage Rate (Optional Method) Tasa de kilometraje (método opcional), Tasa de millaje (método opcional) Military Return Devolución para militares, Declaracion para militares Minimum essential coverage Cobertura esencial mínima Miscellaneous (MISC) Diversos (DIVR), Miscelaneos Miscellaneous deductions Deducciones varias Mission Values Participant (MVP) Program Programa de participante en los valores de la misión (PVM) Modified Accelerated Cost Recovery System (MACRS) Sistema acelerado de recuperación de costos modificado (MACRS) Modified AGI (MAGI) AGI modificado (MAGI) Money Transfer Transferencia de dinero Money with no out-of-pocket costs Dinero sin costos directos, Dinero sin costo en efectivo Money you’re entitled to Dinero al que tiene derecho Mortgage Hipoteca Mortgage Credit Certificate Certificado de crédito hipotecario Mortgage Interest Intereses de la hipoteca Mortgage Services Servicios hipotecarios Moving Expenses Gastos de mudanza Multiple Support Agreement Contrato de asistencia múltiple, Acuerdo de asistencia multiple Mutual Fund Fondo de inversión My tax money Mi dinero de impuestos My tax refund Mi declaración fiscal, Mi devolucion de impuestos

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English to Spanish Glossary of Terms: Spanish for Mexico myBlockSM for the Tax Office (MBTO) myBlockSM para la oficina fiscal (MBOF) myStarting Block myStarting Block

N Nearly Casi Necessary Expenses Gastos necesarios Net Operating Losses Pérdidas operativas netas Never settle for lessSM Nunca se conforme con menosSM New Client Cliente nuevo New clients protocols Protocolos para clientes nuevos Nonbusiness Bad Debts Deudas incobrables que no son de negocios Noncustodial Parent Progenitor que no tiene la custodia Non-Profit Referral Program Programa de referencias sin fines de lucro Nonrefundable Credit Crédito no reembolsable Nonresident Alien Extranjero no residente Nontaxable Distributions Distribuciones no gravables Nontaxable Exchange Cambio no gravable Nontaxable Income Ingresos no gravables Not valid No válido Notary Public Notario público Notary Services Servicios notariales

O Offer Oferta Page 12

Office Leader (OL) Jefe de oficina (JO), Lider de oficina (LO) Office Level Satisfaction (OLS) Satisfacción a nivel de la oficina (SNO) Office Level Survey, OLS Encuesta a nivel de la oficina (ENO) Office Manager (OM) Gerente de oficina (DO) Offline Fuera de línea, Desconectado Online En línea, Conectado Online services Servicios en línea Online Tax Preparation (OTP) Preparación de impuestos en línea (PIL) Option Opción Ordinary Dividends Dividendos ordinarios Ordinary Expenses Gastos ordinarios Ordinary Income (Loss) Ingresos (pérdidas) ordinarios origination fees tarifas por tramitación Out-of-pocket expenses Gastos directos, Gastos en efectivo Out-of-state return Devolución fuera del estado, Declaracion fuera del estado Overpay Pagar en exceso Overpayment Pago en exceso

P Participating Participando Partly Taxable Pensions Pensiones parcialmente gravables Partnership Sociedad Passive Income Ingresos pasivos Passive income and losses Ingresos y pérdidas pasivas

Passive loss Pérdida pasiva Past returns Devoluciones pasadas, Devoluciones anteriores Past tax returns Declaraciones fiscales pasadas, Declaraciones de impuestos anteriores Patent Patente Pay Pagar Pay down date Fecha de pago Pay stub Talón de pago Paycheck Cheque de nómina Payroll taxes Impuestos sobre nómina Peace of Mind® Peace of Mind® Peace of Mind® Extended Service Plan Plan extendido de servicios Peace of Mind® Penalty and Interest (P&I) Sanción e intereses (S&I) Pension Pensión Pension Fund Fondo de pensión Pension Plan Plan de pensión Pension/Annuity Starting Date Fecha de inicio de la pensión/anualidad Period Periodo Permanent and Total Disability Discapacidad permanente y total Personal and Dependency Exemptions Exenciones personales y por dependencia Personal Expenses Gastos personales Personal Property Propiedad personal Personal Property Tax Impuesto sobre propiedad personal

English to Spanish Glossary of Terms: Spanish for Mexico Personal Residence Residencia personal Personal-Use Property Propiedad para uso personal Phaseout Eliminación gradual Physical Custody Custodia física Point of Sale (POS) Punto de venta (PV) Points Puntos Policies and Procedures (P&P) Políticas y procedimientos (P&P) Portfolio Income and Losses Cartera de ingresos y pérdidas Potential ACA Tax Penalty Posible penalidad de impuestos de la Ley ACA Premium Guarantee Garantía premium Premium Tax Credit (PTC) Crédito Tributario por la Prima (PTC, por sus siglas en inglés) Prepaid Expenses Gastos prepagados Prepaid Interest Intereses prepagados Prepare Taxes (to prepare taxes) Prepare los impuestos (preparar los impuestos) Pre-tax / Pretax Pre-impuesto/preimpuesto Principal Principal Principal Place of Abode (Principal Residence) Lugar de residencia principal (residencia principal) Principal Place of Business Lugar de negocios principal Principal Residence Residencia principal Printed (name) En letra de molde (nombre) Prior Client Cliente anterior Prior Client Calling Program, PCCP Programa de llamadas al cliente anterior, PLCA, Programa de llamadas a clientes previos, PLCP Prizes and Awards Premios y galardones

Pro forma Pro forma Problem Resolution Office (PRO) Oficina de resolución de problemas (ORP) Professional Tax Service (PTS) Servicio de impuestos profesional (SIP) Prohibited Prohibido Promote Your Taxpertise Promueva su experiencia fiscal Property Tax Impuesto sobre propiedad Proprietorship Propiedad, Derecho de propiedad Put to the test Poner a prueba Puts and Calls Opciones de venta y opciones de compra

Q Qualified Charitable Organization Organización de caridad calificada Qualified Dividends Dividendos calificados Qualified Health Insurance Seguro de salud que reúne los requisitos Qualified Pension or ProfitSharing Plan Plan de pensión o de ganancias compartidas calificado Qualified Tuition Plan Plan de colegiaturas calificado Qualifying Child Hijo con derecho Qualifying Relative Familiar con derecho Qualifying Widower Viudo con derecho Quality Performance Review (QPR) Revisión del desempeño de calidad (RDC) Quote (Bid/Ask) Cotización (licitar/pedir)

R RAC (Second use of term) CAD (segundo uso del término) Railroad Retirement Tax Act (RRTA) Ley de Impuesto a la Jubilación de Ferrocarriles (RRTA) RAL (Second use of term) PAD (segundo uso del término) Real Estate Propiedad inmobiliaria, Bienes Raices Real estate taxes Impuestos sobre propiedad inmobiliaria, Impuesto sobre bienes raices Real Property Bienes inmuebles Realized Gain or Loss Ganancia o pérdida obtenida Reasonable Allowance Permiso razonable Reasonable Expenses Gastos razonables Recapture Recuperación de beneficio fiscal Recent Tax Changes Cambios fiscales recientes Recognized Gain or Loss Ganancia o pérdida reconocida Recognized Religious Sect Organización religiosa reconocida Reconciliation Conciliación Recovery Recuperación Recovery of Cost Recuperación del costo Recovery Period Periodo de recuperación Refer a Friend Invite a un amigo Referral Invitación Referral fee Tarifa por invitación, Cargo por invitacion Referral form Formulario para invitación Referral program Programa de invitaciones Page 13

English to Spanish Glossary of Terms: Spanish for Mexico Refile Volver a presentar Refiling fees apply Se aplicarán tarifas por volver a presentar Refinancing Refinanciamiento Refund Devolución Refund account fee Tarifa por cuenta de devolución, Cargo por cuenta de devolucion Refund Anticipation Check Cheque en anticipo de devolución, Cheque de devolucion anticipada Refund Anticipation Check (RAC) Cheque en anticipo de devolución (CAD), Cheque de devolucion anticipada (CDA) Refund Anticipation Loan Préstamo en anticipo de devolución, Prestamo de devolucion anticipada Refund Anticipation Loan (RAL) Préstamo en anticipo de devolución (PAD), Prestamo de devolucion anticipada (PDA) Refund Deposit Account Cuenta de depósito de devoluciones Refund Options Opciones de devolución Refund Planning Planificación de devolución Refund Transfer, RT Transferencia de devolución, TD Refundable Credit Crédito no reembolsable, Credito reembolsable Regional Accounts Manager (RAM) Director regional de cuentas (DRC) Regional Director (RD) Director regional (DR) Regional Financial Analyst (RFA) Analista financiero regional (AFR) Regional Financial Support Specialist (RFSS) Especialista de asistencia financiera regional (ESFR) Regional Franchise Director (RFD) Director regional de franquicias (DRF)

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Regular Method Método regular Regulated Investment Company (Mutual Fund) Empresa de inversiones reguladas (fondo de inversión) Regulations Reglamentos, Regulaciones Reinvested Dividends Dividendos reinvertidos Reliable Accuracy Precisión confiable Reload (as in money on your Emerald Card) Recargar (como recargar dinero en su Emerald Card) Rent Renta Rental Income Ingresos por alquileres Repairs Reparaciones Repayment limitation Limitación de reembolso Replacement Period Periodo de reemplazo Reported income Ingresos declarados Repossession Recuperación, Reposesion Reschedule Volver a programar, Reprogramar Resident Alien Extranjero residente Rest assured Siéntase seguro, Tenga por seguro Results Resultados Retail Sales Ventas de menudeo Retirement Jubilación Return (noun) Devolución (sustantivo) Return on Investment (ROI) Retorno de la inversión (RI) Right Derecho Rollover Refinanciamiento Roth IRA CIR Roth

Royalty Regalías RRTA RRTA

S S Corporation Sociedad S, Corporación S SAF form Formulario SAF, Rembolso SAF SAF program Programa SAF SAF rebate Descuento SAF Safe Harbor Recinto protegido, Puerto seguro Salary Salario Salvage Value Valor de salvamento Satisfaction Guarantee Garantía de satisfacción Schedules Calendarios, Formularios Scholarships and Fellowships Becas Scrap Sales Ventas de merma Second Look at your taxes Una segunda opinión sobre sus impuestos Second Look® Review Revisión Second Look® Second lowest cost silver plan Plan de categoría Plata de segundo costo más bajo Section (followed by a number) Sección (seguida de un número) Secured Deposit Account Cuenta de depósito asegurada Self-Employed Individuals Personas que trabajan por cuenta propia Self-Employment Income Ingresos de trabajo por cuenta propia Self-Employment Tax Impuesto sobre trabajo por cuenta propia Send a Friend Envíe a un amigo

English to Spanish Glossary of Terms: Spanish for Mexico SEP PES Separate Maintenance Payments Pagos de manutención separados Service Servicio Settlement Options Opciones de acuerdos Settlement Products Productos de acuerdos Shared Responsibility Payment Pago por responsabilidad compartida Shareholder Accionista Shine in ‘09 Brille en '09 Short term Corto plazo Short-term consumer loan Préstamo a consumidores a corto plazo SIMPLE SIMPLE SIMPLE Retirement Plan Plan de jubilación SIMPLE Simplified Employee Pension (SEP) Pensión de empleados simplificada (PES) Simplified Method Método simplificado Single Soltero Skills Learning Center Centro de aprendizaje de habilidades Social Security and Medicare taxes Impuestos de seguridad social y Medicare Social Security Number (SSN) Número de seguridad social (NSS) Social Security Tax Withheld Impuesto de seguridad social retenido Social Security Tips Consejos de seguridad social Social Security Wages Salarios de seguridad social Sole proprietor Único propietario, Propietario individual

Sole proprietorship Propiedad única, Propiedad individual Solid Sólido Special Averaging Promedio especial Special Depreciation Allowance Permiso de depreciación especial, Concesión de depreciación especial Specialized Especializado Speed of refund Velocidad de la devolución Spend some. Save some. Borrow some. Gaste algo. Ahorre algo. Pida algo prestado. Spousal IRA CIR de cónyuge Stability Estabilidad Standard Deduction Deducción estándar Standard Mileage Rate Tasa de kilometraje estándar Standard or Standard Deduction (STD) Estándar o deducción estándar (DES) State Marketplaces Mercados estatales State or Local Income Tax Withheld Retención de impuesto sobre la renta estatal o local State Refund Anticipation Check (RAC) Cheque en anticipo de devolución (CAD) estatal State Return Devolución estatal Statement Declaración Statements Declaraciones Status Estatus Statutory Employee Empleado legal Stock Dividend Dividendos de acciones Stock Option Plan Plan de opciones de acciones

Straight-Line Depreciation Method Método de depreciación en línea recta Student Loan Interest Deduction Deducción de intereses sobre préstamo para estudiantes Student(s) Estudiante(s) Subject to Sujeto a Success Éxito Supplement Application Solicitud de suplemento Supplement Application for Refund Anticipation Loan Solicitud de suplemento para préstamo en anticipo de devolución Supplement To Information, Identification And Instructions In Connection With Application For Refund Anticipation Check(s) And A Refund Deposit Account Suplemento de información, identificación e instrucciones relacionadas con la solicitud de cheque(s) en anticipo de devolución y cuenta de depósito de devolución Support Asistencia Supporting forms Formularios para asistencia

T Table topper Table Topper Take the course Tome el curso Take the H&R Block Income Tax Course. Curso sobre impuestos sobre la renta de H&R Block, Tome el curso de impuestos de H&R Block Talk to our bilingual tax professionals Hable con nuestros profesionales de impuestos bilingües Talk to your tax professional Hable con su profesional de impuestos Page 15

English to Spanish Glossary of Terms: Spanish for Mexico Tangible Personal Property Propiedad personal tangible Tax (taken out of your check) Impuesto (tomado de su cheque) Tax and financial needs Necesidades fiscales y financieras Tax authority Autoridad fiscal Tax Benefit Beneficio fiscal Tax bill Proyecto de ley tributaria Tax Bracket Sección fiscal Tax Consulting Consultoría fiscal Tax Credit Crédito fiscal Tax Deductions and Benefits Deducciones y beneficios fiscales Tax Estimator Estimador de impuestos, Estimador de impuestos Tax estimator Estimador de impuestos Tax Experience Experiencia fiscal Tax fraud Fraude fiscal Tax Home Inicio fiscal Tax Household Unidad familiar a efectos fiscales Tax interview Entrevista fiscal Tax Knowledge Assessment test Prueba de evaluación de conocimientos fiscales Tax Laws Leyes fiscales Tax Liability Obligación fiscal Tax Money Dinero de impuestos Tax Planning Planificación fiscal Tax Preparation (process) Preparación de impuestos (proceso) Tax Preparation Checklist Lista de verificación de la preparación de impuestos Page 16

Tax Preparation Software Software de preparación de impuestos Tax Pro Finder Buscador de profesionales fiscales Tax Professional Profesional fiscal Tax Professional Business Builder Creador de negocios de profesionales fiscales Tax Professional Development Discussion Debate sobre el desarrollo de profesionales fiscales Tax professional passport Pasaporte de profesionales fiscales Tax Rate Tasa de impuestos Tax Rate Schedules Calendario de tasas de impuestos, Formularios de tasa de impuestos Tax Refund Devolución de impuestos Tax Return (The actual document, 1040, 1040E) Devolución de impuestos (el documento real, 1040, 1040E), Declaración de impuestos ( el documento actual, 1040, 1040E) Tax returns from the past three years Devoluciones de impuestos de los últimos tres años, Declaración de impuestos de los últimos tres años Tax Season Temporada de impuestos Tax Table Mesa de impuestos Tax talks Conversaciones de impuestos Tax Terms Términos fiscales Tax Time Tiempo de impuestos Tax Training School (TTS) Escuelas de capacitación fiscal (ECF) Tax Underpayment Reimbursement Reembolso de pago insuficiente de impuestos, Reembolso de pago incompleto de declaración

Tax Year Año fiscal Taxable Income Impuesto gravable Taxable Year Año gravable TaxCut® software (not available in Spanish) Software TaxCut® (no disponible en español) Taxes (taken out of your check) Impuestos (tomados de su cheque) Tax-Exempt Income Ingresos exentos de impuestos TaxNet TaxNet Taxpayer Contribuyente Television and Radio Promotions Promociones en televisión y radio Temporary Assignment Asignación temporal Tenancy in Common Posesión en común, Tenencia en común Term of the loan Término del préstamo Thank you for trusting H&R Block Gracias por confiar en H&R Block The EXPRESSTAX® Emerald Prepaid MasterCard® is issued by H&R Block Bank, a Federal Savings Bank, member FDIC, pursuant to a license from MasterCard International. La tarjeta MasterCard® prepagada EXPRESSTAX® Emerald es emitida por H&R Block Bank, un banco federal de ahorro, miembro de la FDIC, conforme a una licencia de MasterCard International. The H&R Block Emerald Prepaid MasterCard® is issued by H&R Block Bank, a Federal Savings Bank, Member FDIC. La tarjeta MasterCard® prepagada EXPRESSTAX® Emerald es emitida por H&R Block Bank, un banco federal de ahorro, miembro de la FDIC., La tarjeta MasterCard pre-pagada EXPRESSTAX Emerald es emitida por H&R Block Bank, un banco federal de ahorro,

English to Spanish Glossary of Terms: Spanish for Mexico miembro de la FDIC, en conformidad con la licencia de MasterCard Internacional. The H&R Block Guarantee La Garantía de H&R Block Tip Income Ingresos por propinas Toss Out Your Bills Instant Win Game: Juego de “Lance sus facturas, gane al instante”: , Juego de “Tirar sus facturas, gane al instante” Total federal estimated taxes Impuestos totales federales estimados, Impuestos federales estimados totales Trade Date Fecha de la transacción Traditional IRA CIP tradicional Transfer by phone Transferencia por teléfono Transportation Expenses Gastos de transporte Travel Allowance Permiso de viaje Travel Expenses Gastos de viaje Trust Fideicomiso Trust Experience Experiencia fiduciaria Trust Us (to trust us) Confíe en nosotros (confiar en nosotros) Trustee Fiduciario Truth in Savings Disclosure Divulgación de la verdad sobre los ahorros Tuition and Fees Deduction Deducción de colegiaturas y tarifas

U Unaffordable coverage Cobertura inasequible Underpayment Penalty Sanción por pago insuficiente, Sanción por pago incompleto Undocumented Immigrant Inmigrante indocumentado

Unearned Income Ingresos no percibidos, Ingreso no ganado Unemployment Compensation Compensación por desempleo Uninsured No asegurado Unpaid Medical Expenses Gastos médicos impagos Unrecaptured Gain Ganancia no recuperada Up-to-date Actualizado Up-to-date (to be) Al día (estar) Utility Shut-Off Corte de servicio público

V Vacation Home Residencia de vacaciones View report onscreen Ver el informe en la pantalla Void Nulo

W

Work Opportunity Credit Crédito de oportunidad laboral Workers' Compensation Compensación para trabajadores Working Families Credit Crédito para familias que trabajan Worksheet Hoja de trabajo www.hrblock.com www.hrblock.com

Y Year-Round Assistance Asistencia todo el año Your Rights As a Taxpayer Sus derechos como contribuyente Your Satisfaction is Guaranteed Su satisfacción garantizada Your Tax Preparation Fee Tarifa de preparación de sus impuestos Your Tax Preparation is Free La preparación de sus impuestos es gratuita Your Taxes, Your Way Sus impuestos, a su modo

W-2 W-2 Warranty Products Productos de garantía We Are With You Estamos con usted We will assure you Le daremos seguridad Web Page Página web Web Site Sitio web Welfare to Work Credit Crédito de bienestar social al trabajo Where is my money? ¿Dónde está mi dinero? Widow (Widower) Viuda (viudo) Withholding Allowance Permiso de retención

Z Zero Liability Cero responsabilidad Zip Code Código postal

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English-Spanish Glossary of Terms: Spanish for Puerto Rico

English to Spanish Glossary of Terms: Spanish for Puerto Rico

English to Spanish

0-9 1040EZ Formulario 1040EZ (Impuestos federales sencillos)

A A location near you Una oficina cerca de ti A tax Una contribución About Acerca de ACA Tax Penalty Multa contributiva conforme a la Ley ACA ACA Tax Penalty Exemption Exención de multa fiscal conforme a la Ley ACA Accelerated Cost Recovery System Sistema acelerado de recuperación de costos (Accelerated Cost Recovery System, ACRS) Accelerated Depreciation Depreciación acelerada Accelerated Management Program (AMP) Programa de gerencia acelerado Accept Status Aceptar estatus Account Administration Fee (AAF) Cargo de administración de cuenta Account Executive Ejecutivo de cuenta Account Manager Gerente de cuenta Accountable Plan Plan contable Accounting Method Método de contabilidad Accounting Period Período contable Page 2

Accrual Method of Accounting Método contable a base de lo devengado Accrued Interest Intereses devengados Accumulated Adjustments Account (AAA) Cuenta de ajustes acumulados Accumulation Period Período de acumulación Acquisition Debt Deuda adquirida Action plans Planes de acción Active Income Ingresos activos Active Income and Losses Ingresos y pérdidas activas Active Losses Pérdidas activas Active Participant Participante activo Actual Expenses (Regular Method) Gastos actuales Add more Income Añadir más ingresos Additional Child Tax Credit Crédito adicional por dependiente Adjusted Basis Base ajustada Adjusted Current Earnings (ACE) Ingresos actuales ajustados Adjusted Gross Income Ingresos brutos ajustados (Adjusted Gross Income, AGI) Adjustment to Income Ajuste a los ingresos Adoption Credit Crédito por adopción Advance Earned Income Credit Crédito por ingresos de trabajo anticipados Advance Premium Tax Credit (APTC) Crédito Contributivo Anticipado por la Prima (APTC, por sus siglas en inglés) Advance Premium Tax Credit Repayments Reintegros del Crédito Contributivo Anticipado por la Prima

Adverse action letter Carta de acción adversa Advice Statement Declaración de asesoramiento Affordable Care Act (ACA) Ley de Atención Médica Asequible (Affordable Care Act o ACA, por sus siglas en inglés) AGI AGI Alimony Payments Pensión pagada por divorcio o separación Allowable Miscellaneous Deductions (AMID) Deducciones misceláneas permitidas Allowance Descuento Alternate (Straight-Line) Method Método alterno Alternative Depreciation System (ADS) Sistema de depreciación alternativa Alternative Minimum Tax Contribución básica alterna Alternative Straight-Line Depreciation System Sistema alternativo de depreciación uniforme Amended Return Planilla enmendada AmeriCorps (State and National) / VISTA / National Civilian Community Corps Member AmeriCorps (estatales y nacionales) / VISTA / Miembro del Cuerpo Civil Comunitario Nacional (NCCC) Amortization Amortización Amount Cantidad Amount Realized Cantidad realizada AMT Contribución básica alterna (AMT) An additional fee Un cargo adicional An average of Un promedio de

English to Spanish Glossary of Terms: Spanish for Puerto Rico Annual Percentage Rate, APR Tasa porcentual anual (Annual Percentage Rate, APR) Annualized Income Installment Method Método de ingreso anual a plazos Annuitant Pensionista Annuity Anualidad/renta vitalicia Annuity Starting Date Fecha de inicio de la anualidad Anti-Churning Rules Reglas de prevención de transacciones deliberadas Applicable Federal Rate (AFR) Tasa federal aplicable Applicable percentage Porcentaje aplicable Application for a Refund Anticipation Check and a Refund Deposit Account Solicitud de Cheque de reintegro anticipado y Cuenta de depósito de reintegro Appointment Manager (AM) Appointment Manager (AM) (Administrador de citas) Approval Aprobación Approve Online Approve Online (Aprobación en línea) [first occurrence]; Approve Online [thereafter]. Approved Client Take Away Material para cliente cualificado Approved Reload Networks Redes aprobadas de recarga Archer Medical Savings Account Cuenta Archer MSA de ahorros médicos Archer MSA Cuenta Archer MSA As fast as you choose Tan rápido como lo elijas / Tan rápido como escojas Ask Pedir/Solicitar/Preguntar Ask your bilingual professional Consulta con tu profesional bilingüe Assemble (return, documents, etc.) preparar/agrupar/unir Asset Activo

Assistant District Manager (ADM) Asistente de gerente de distrito Assistant Regional Director (ARD) Asistente de director regional At H&R Block we have 50 years experience in tax preparation En H&R Block tenemos 50 años de experiencia en la preparación de planillas At participating offices En oficinas participantes At-Risk Rules Reglas sobre el riesgo ATM ATH Audit Auditoría Audit assistance Asistencia en auditoría Audit Assistance Asistencia en auditorías Audit Representation Representación en auditoría Audit Representation Representación en auditorías Audit Services Servicios de auditoría Auto Pay Auto Pay (Pago automático) [first occurrence]; Auto Pay [thereafter]. Atomated Teller Machine (ATM) Cajero automático (ATH) Automatic payment Pago automático Availability Disponibilidad Average Promedio Away From Home Overnight Ausente de la vivienda familiar por una noche

B Background check Verificación de antecedentes Bad Debts Deudas incobrables Balance Balance Balance Due Balance adeudado

Balance Due Loan Préstamo de balance adeudado Bank Account Cuenta bancaria Bank Privacy Commitment Compromiso de privacidad del banco Bank products Productos bancarios Bankruptcy Quiebra Based on Sobre la base de Basic Building Blocks (B³) Course Basic Building Blocks (B³) Course Basis Base Basis of Stock Base de acciones Be up-to-date Estar actualizado / Estar al día Benchmark plan Plan de referencia Beneficiary Beneficiario Benefits Beneficios Benefits for retirees Beneficios para jubilados Bequest Legado Block Advantage Statement Estado de cuenta de la ventaja de Block Bond Título Bottom line Ganancias netas Bronze plan Plan Bronce Build Your Client/Customer Base Desarrollar tu base de clientes Business Assets Activos comerciales Business Cards Tarjetas de presentación Business Day Día laboral Business Expenses Gastos de negocio Business Income Ingresos de negocios

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English to Spanish Glossary of Terms: Spanish for Puerto Rico Business Interruption Interrupción de la actividad de negocios Business Related Relacionado con el trabajo Business Related Expenses Gastos relacionados con el trabajo Business-Use Property Bienes de uso de negocios

C Cafeteria Plan Plan de beneficios tipo cafetería Calendar Year Año calendario Cancellation of Health Plan Cancelación de plan de salud Capital Asset Bienes de capital Capital Expenditure Gastos de capital Capital Gain Ganancias de capital Capital Gain Distributions Distribuciones de ganancias de capital Capital Gain Tax Contribuciones sobre ganancias de capital Capital Improvement Mejora de capital Capital Investment Inversión de capital Capital Loss Pérdida de capital Capital Stock Acciones de capital Capitalize Capitalizar Car and Truck Expenses Gastos de automóvil y camión Career Carrera Carryback - net operating loss carryback (forward) Pérdida neta de operación aplicada a años anteriores (posteriores) Carryover Traslado

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Carryover Loss Pérdida trasladada al año siguiente Cash Method of Accounting Método contable a base de efectivo Cash on Delivery (COD) Cobro a la entrega Casualty Loss Pérdida fortuita CBT CBT (Capacitación basada en computadora) [first occurrence]; CBT [thereafter]. Certificate Certificado Certificate of Deposit (CD) Certificado de depósito Certification Certificación Charged by Cobrado por Charitable Contribution Donativo / Donación Charitable Contributions Donaciones a la caridad / Donaciones de caridad / Entidades benéficas Check Revisar Check charge Cargo por cheque Check processing fee Cargo por procesamiento de cheque Checking (review) Revisión Checklist Listado Child and Dependent Care Credit Crédito por cuido de hijos y dependientes Child Care Credit Crédito por cuidado de hijos Child Support Payments Pensión alimentaria Child Tax Credit Crédito federal por dependientes Claim of Right Reclamación por derecho Classic Refund Anticipation Loan Préstamo de Rintegro Anticipado Clásico (Classic Refund Anticipation Loan, RAL)

Client Cliente Client Income Information Worksheet Hoja de cómputos para información sobre ingresos del cliente Client Service Agreement Acuerdo de servicio al cliente Client support Asistencia al cliente Client-take-away Material para cliente aprobado Collect on Delivery (COD) Cobro a la entrega Collectibles Objetos de colección Combine Combinar Commission Comisión Commodity Futures Bienes comercializados en el mercado de futuros Common Stock Acciones ordinarias Common-Law Marriage Matrimonio de hecho Community Income Ingreso de sociedad conyugal Community Property Bienes gananciales / Sociedad matrimonial Commuting Viajar de ida y vuelta al trabajo Company-Owned Offices Oficinas propias de la compañía Compensation Compensación/remuneración Complex Return Planilla compleja Compliance Cumplimiento Condemnation Expropiación Connected, Confident, and Championed Conectados, Confiados y Representados Consent to disclose Consentimiento para divulgación Consent to Disclose Information, 7216 Consentimiento para divulgación de información, 7216

English to Spanish Glossary of Terms: Spanish for Puerto Rico Consent to Disclose Tax Return Information Consentimiento para divulgar la información de la planilla Consent to Use Consentimiento de uso Consent to use Tax Return Information Consentimiento para usar la información de la planilla de (Consent to use Tax Return Information) Constructive Receipt Recibo implícito Consumer Price Index (CPI) Índice de precios al consumidor Continue Continue (Continuar) (software) Continuing Education Credit (CEC) Crédito para la educación continua (CEC) Continuous support Apoyo continuo Contract for Deed Contrato para título Contract Holder Poseedor del contrato Contract Price Precio contractual Contribution Donación (a la caridad) / contribución /aportación Convertible Convertible (bond, currency, debenture, debt, etc.) Copyright Derechos de autor Cost Costo Cost Depletion Agotamiento del activo Cost Method of Inventory Valuation Método de valuación de inventario al costo Cost of Goods Sold Costo de mercancías vendidas Cost of Maintaining a Home Costo de mantenimiento del hogar Cost Recovery Recuperación del costo Coupon Cupón

Coupon Bond Bono al portador Course(s) Curso(s) Coverdell Education Savings Account (ESA) Cuentas de ahorro para la educación Coverdell (ESA) Credit for Child Care Expenses Crédito por gastos de cuido Credit Worthiness Solvencia crediticia Credits Créditos Custodial Parent Padre o madre con custodia Customer Service Servicio al cliente Customer Service Agreement Acuerdo de servicio al cliente

D Data Base Administrator (DBA) Administrador de base de datos Date of birth Fecha de nacimiento Dealer (commercial) Distribuidor/a Dealer (commercial) Concesionario/a Dealer (securities) Revendedor/a (de valores) Death of Close Family Member Muerte de un familiar cercano Declaration Control Number (DCN) Número de control de planilla Declining Balance Method of Depreciation Método de depreciación por saldos decrecientes Deduction Deducción Deductions Deducciones Default Opción por omisión Deferred Compensation Plan Plan de compensación diferida Deferred Income Ingresos diferidos Defined Benefit Plan Plan de beneficios definidos

Defined Contribution Plan Planes de contribución definida Delete Borrar Delivery Envelope Sobre de entrega Department ID (DID) Identificación del departamento Dependency Exemption Exención de dependencia Dependent Dependiente Dependent Care Credit Crédito por cuidado de dependiente Dependent Children without Insurance Hijos dependientes sin seguro Depletion Agotamiento Depletion Allowance Descuento por agotamiento Depreciable Asset Activo depreciable Depreciation Depreciación Direct Deposit (DD) Depósito directo Disaster Victims Víctimas de desastres Disability Pension Pensión por discapacidad Disabled Discapacitado Disaster Loss Pérdida por un desastre Disclose Revelar Disclosure Statement For Classic RAL Declaración de divulgación para RAL clásico Discount Descuento Discount offer Oferta de descuentos Disposition (of property) Disposición (de bienes) Distribution Distribución

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English to Spanish Glossary of Terms: Spanish for Puerto Rico Distribution from pensions, annuities, retirements or profitsharing plans, IRAs, insurance contracts, etc. Distribuciones de pensiones, anualidades, retiros o planes de participación en las ganancias, cuentas IRA, contratos de seguros, etc. District Distrito District Manager (DM) Gerente de distrito District Office Supervisor (DOS) Supervisor de oficina de distrito District Support Center (DSC) Centro de asistencia de distrito District Technical Support Specialist (DTSS) Especialista en asistencia técnica de distrito Dividend Dividendo Dividend Income Ingresos de dividendos Division División Divorce Decree (Final) Sentencia de divorcio (definitiva) Divorce Decree (Interlocutory) Sentencia de divorcio (interlocutoria) Do you plan to file Married Filing Jointly? “Do you plan to file Married Filing Jointly?” (¿Piensa presentar la declaración como casado que radica una declaración conjunta?) Domestic Production Activities Deduction Deducción de actividades de producción doméstica Domestic Violence Victims Víctimas de violencia doméstica Double check (not product name) Revisar/Verificar Drop-off services Servicios de entrega drop-off

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E Earn extra income preparing taxes* Gana dinero extra preparando planillas* Earned Income Ingresos de trabajo Earned Income Credit (EIC) Crédito por ingresos de trabajo Earned Income Tax Credit (EITC) Crédito contributivo Earnings Statement – E & D “Earnings Statement – E & D” (Comprobante de ingresos, E & D) Easy IRA Easy IRA Easy Products Productos Easy Easy Savings Easy Savings EasyPay EasyPay (internal use) E-commerce Comercio electrónico Edit Edit (Modificar) (software) Education credits Créditos contributivos por enseñanza superior (universitaria) Education Expense Deduction Deducción de gastos de educación Education Savings Account (ESA) Cuenta de ahorros para la educación Educator Expenses Deduction Deducción de gastos de educador Effective Date Fecha de vigencia Electronic Data Processing (EDP) Procesamiento de datos electrónicos Electronic Federal Tax Payment System (EFTPS) Sistema federal de pago electrónico de contribuciones Electronic Filing (E-file) Planilla electrónica Electronic Funds Transfer (EFT) Transferencia electrónica de fondos

Electronic news (eNews) Noticias electrónicas Elementary (school) (Escuela/estudios) elemental e intermedio Eligible Educator Educador elegible Eligible Foster Child Hijo de crianza elegible E-mail Correo electrónico Emerald Advance Application and Terms and Conditions Solicitud y Términos y Condiciones de la línea de crédito Emerald Advance Emerald Advance™ Línea de crédito Emerald Advance™ Emerald Card Payroll Direct Deposit Form Formulario de depósito directo de nómina en la tarjeta prepagada Emerald Card Emerald Card™ Tarjeta prepagada Emerald Card [(La) tarjeta] Emerald Cash Rewards Recompensas de dinero en efectivo Emerald Cash Rewards Emerald Prepaid MasterCard ® Tarjeta prepagada Emerald Prepaid MasterCard ® [(La) tarjeta] Emerald Product Suite Serie de productos Emerald Emerald Savings Application Solicitud de apertura de cuenta de ahorro Emerald Savings Emerald Savings™ Emerald Savings™ Emerald Savings™ account Cuenta de ahorro Emerald Savings™ Emerald Secured Credit Card Tarjeta de crédito garantizada Emerald Secured Credit Card Eminent Domain Derecho de expropiación. Dominio eminente. Employee Empleado Employer Identification Number (EIN) Número de identificación del empleador

English to Spanish Glossary of Terms: Spanish for Puerto Rico Employer-Maintained Retirement Plan Plan de retiro mantenido por el empleador Employment Expenses Gastos de empleo Enroll Now Inscríbete ahora Entertainment Expenses Gastos de entretenimiento Estate Patrimonio Estimate Estimación Estimated (Useful) Life Vida útil estimada Estimated Income Ingresos estimados Estimated Tax Contribuciones estimadas Every cent counts Cada centavo cuenta Every opportunity that might benefit you Todas las oportunidades que te puedan beneficiar Eviction/Foreclosure Desalojo/Ejecución hiptecaria Excess Social Security Tax Withheld Retención contributiva de Seguro Social excedente Exchange Cambio Exchange Rate Tasa de cambio Excise Taxes Impuesto a la venta y uso (IVU) Excluded Gain Ganancia excluida Exclusion Exclusión Exclusion of income for bona fide residents of American Samoa Exclusión de ingresos para residentes auténticos (bona fide) de la Samoa Estadounidense Exemption Exención Exemption Certificate Number Número de certificado de exención Exemption From Withholding Exención de la retención

Expenses Gastos Experience Experiencia Experienced Tax Professional Especialista en planillas Expertise Conocimiento especializado Expires Vence / Vencimiento Express IRA Express IRA Extension Extensión

F Facts About Lines of Credit Información sobre las líneas de crédito Facts About Refund Anticipation Loans Información sobre los préstamos de reintegro anticipado Fair Market Value (FMV) Valor justo en el mercado Fair Rental Value Valor justo de alquiler Farm Business Negocio(s) agropecuario(s) Farm Operation Trabajos agropecuarios Farm Proprietor Empresario agropecuario Farmer Trabajador agropecuario Farming Actividad(es) agropecuaria(s) Farming Income Ingresos provenientes de actividades agropecuarias Fast Money Options Opciones de dinero rápido Federal and State Forms Planillas federales y estatales Federal Income Tax Return Planilla federal Federal Income Tax Withheld Retención contributiva federal Federal Income Tax Withholding (FIT) Retención contributiva federal

Federal Insurance Contributions Act (FICA) Ley Federal de Contribuciones al Seguro (FICA) Federal Marketplace Mercado federal Federal Poverty Level Nivel de pobreza federal (Federal Poverty Level, FPL) Federal Refund Anticipation Check Cheque de reintegro anticipado federal (Cheque Federal RAC) Federal Return Planilla federal Federal taxes paid Federal taxes paid (Contribuciones federales pagadas) (software) Fee/Fees Tarifa/Tarifas; Cargo/Cargos Feel, Felt, Found Sentir Fellowship Pensión (beca) para realizar pesquisas o investigaciones FICA (Federal Insurance Contributions Act) Ley Federal de Contribuciones al Seguro (FICA) Fiduciary Fiduciario File a tax return Radicar la planilla Filing Radicación de la planilla Filing deadline Fecha límite de radicación de la planilla Filing requirements Requisitos para la radicación de la planilla Filing status Estado civil para efectos de la planilla Finance charge Cargo de financiamiento Finance Charges Cargos de financiamiento Financial Advisor (FA) Consejero financiero Financial Centers Centros financieros Financial Information Network (FIN) Red de información financiera Page 7

English to Spanish Glossary of Terms: Spanish for Puerto Rico Financial Services Servicios financieros First In, First Out (FIFO) Primeras entradas, primeras salidas (First In, First Out, FIFO) Fiscal Planning Planificación fiscal Fiscal Year Año fiscal Five-Step Disclosure Process Proceso de divulgación en cinco pasos Fixed-Rate Mortgage Hipoteca de tasa fija Flexible Spending Accounts Cuentas de gastos flexibles For an office near you Para una oficina cerca de ti Foreign earned income exclusion Exclusión de ingresos ganados en el extranjero Foreign income Ingresos ganados en el extranjero Foreign Tax Credit or Deduction Deducción o crédito por contribuciones extranjeras Form Planilla Forms Selection Selección de formularios Foster Child Hijo de crianza Franchise Franquicia Franchise Director (FD) Gerente de franquicia Franchise District Manager Gerente de distrito de franquicia Free Notary Services Servicios de notario gratuitos Friends and Family Returns Planillas de amigos y familiares Fringe Benefits Beneficios marginales Front office associates Asistente de oficina Full Retirement Age Edad de retiro completo Full-Time Student Estudiante a tiempo completo Fully Taxable Pensions Pensiones completamente tributables

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G

H

Gain Ganancia General Depreciation System Sistema general de depreciación General Rule Regla general General Sales Tax Contribución sobre venta General Straight-Line Depreciation System Sistema general de depreciación uniforme Get every penny you’re entitled to Recibe cada centavo que te corresponde Gift Regalo Gift Tax Contribuciones sobre donaciones Golden Parachute Contrato blindado Good Neighbor Buen Vecino Goodwill Fondo de comercio/plusvalía/buen nombre Government Bonds Issued at a Discount Títulos del gobierno emitidos con descuento Gross Income Ganancia bruta Gross Profit Utilidad bruta Gross Rent Renta bruta Group Term Life Insurance Seguro de vida grupal Guaranteed Issue Emisión garantizada Guaranteed Loan Offer (GLO) Oferta de préstamo garantizado Guaranteed maximum refund Reintegro máximo garantizado

H&R Block Advantage Report Informe H&R Block Advantage Report [first occurrence]; H&R Block Advantage Report [thereafter]. H&R Block Advantage® H&R Block Advantage® H&R Block Easy IRA® Cuenta H&R Block Easy IRA® H&R Block Easy Products Productos H&R Block Easy H&R Block Easy Savings Cuenta de ahorro H&R Block Easy Savings H&R Block Emerald Advance™ H&R Block Emerald Advance™ H&R Block Emerald Advance™ line of credit Línea de crédito H&R Block Amerald Advance™ H&R Block Emerald Card® Tarjeta prepagada H&R Block Emerald Prepaid MasterCard® H&R Block Emerald Prepaid MasterCard® Tarjeta prepagada H&R Block Emerald Prepaid MasterCard® H&R Block Emerald Prepaid MasterCard® Table Topper Folleto informativo rígido de 4 caras (table topper) de tarjeta prepagada H&R Block Emerald Prepaid MasterCard® H&R Block Emerald Product Suite Serie de productos H&R Block Emerald H&R Block Emerald SavingsSM account Cuenta de ahorro H&R Block Emerald SavingsSM H&R Block Emerald SavingsSM Disclosures Divulgaciones de la cuenta de ahorro H&R Block Emerald SavingsSM H&R Block Emerald Savings™ Cuenta de ahorro H&R Block Emerald Savings™ H&R Block Emerald Savings™ account Cuenta de ahorro H&R Block Emerald Savings™

English to Spanish Glossary of Terms: Spanish for Puerto Rico H&R Block Emerald Secured MasterCard® Credit CardSM Tarjeta de crédito garantizada H&R Block Emerald Secured MasterCard® Credit CardSM H&R Block Express IRA H&R Block Express IRA H&R Block Financial Advisor Consejero financiero de H&R Block H&R Block Franchise Franquicia de H&R Block H&R Block Guarantee Garantía de H&R Block H&R Block Income Tax Course Curso de Preparación de Planillas de H&R Block H&R Block offers you many options H&R Block te ofrece muchas opciones H&R Block Premium Office Oficina Premium de H&R Block H&R Block Promise Promesa de H&R Block H&R Block Tax Professional Los especialistas en planillas de H&R Block Hardship Problemas económicos Hardship Case Caso de daño indebido Hardship Exemption Exención por problemas económicos Hardship Withdrawal Retiro por problemas HDHP Plan HDHP Head of Household Jefe de familia Head of Household Filing Status (HH) Jefe de familia que declara Impuestos Health and Human Services (HHS) Departamento de Salud y Servicios Humanos (HHS, por sus siglas en inglés) Health Coverage Cobertura de salud Health Insurance Seguro de salud Health Savings Account (HSA) Cuenta de ahorros para la salud (Health Savings Account, HSA)

Healthcare reform law Ley de reforma de salud High Deductible Health Plan Plan médico de deducible alto (High Deductible Health Plan, HDHP) Hobby Loss Pérdidas por juegos Hold En espera Holding Period Período de posesión Home-Office Expenses Gastos de oficina en la casa Homelessness Falta de vivienda Homeowner Propietario Hope Credit Crédito contributivo "Hope" Household Employee Empleado doméstico Household Expenses Gastos domésticos hrblock.com hrblock.com/puertorico HSA Cuenta HSA Human Resources (HR) Recursos Humanos Husband and Wife Esposo y esposa Hybrid Method of Accounting Método contable híbrido

Imputed Interest intereses impuestos In good standing Estar al día Income Ingresos Income averaging Ingresos promedios Income Entry Registro de ingresos Income tax Contribución sobre ingresos Income Tax Course (ITC) Curso de Preparación de Planillas Independent Contractor Contratista independiente

I I Am Worth It I Am Worth It (Yo lo valgo) [First occurrence (when necessary)]; I Am Worth It [thereafter] Identifying Numbers Números de identificación If you are not satisfied Si no estás satisfecho Ill, Disabled, or Aging Family Member Familiar enfermo, discapacitado o de edad avanzada Important tax information Información importante sobre Planillas

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English to Spanish Glossary of Terms: Spanish for Puerto Rico Individual Performance Plan Plan de desempeño individual (Individual Performance Plan, IPP) [first occurrence]; IPP [thereafter]. Individual Retirement Account (IRA) Cuenta de Retiro Individual (Individual Retirement Account, IRA) Information Document Documento informativo Inheritance Herencia Initial Inicial Installment Method (Annualized Income) Método de ingreso anual a plazos Instant money Dinero al Instante Instant Money RAL Préstamo instantáneo de reintegro anticipado Instant Money RAL Proceeds Fondos provenientes del préstamo instantáneo de reintegro anticipado Instant Money Refund Anticipation Loan (Instant Money RAL) Préstamo Instantáneo de Reintegro Anticipado (Préstamo RAL Instant Money) Instant RAL Préstamo instantáneo de reintegro anticipado Instant Refund Anticipation Loan Préstamo de Reintegro Anticipado Instantáneo Insurance Dividends Dividendos de seguros Insurance policy Póliza de seguro Intangible Personal Property Bienes personales intangibles Interest income Ingresos de intereses Interest rate Tasa de interés Interest Received Intereses recibidos Interlocutory Decree Decreto interlocutorio Internal Revenue Service (IRS) Servicio Federal de Rentas Internas Page 10

Internet Service Provider (ISP) Proveedor de Servicio de Internet Internet, the Net Internet Interview (infinitive verb) Entrevistar Interview (noun) Entrevista Inventory Inventario Investment Inversión Investment Income Ingresos por inversiones/inversión Investment Interest Intereses de inversión Investment Property Bienes de inversión Involuntary Conversion Conversión involuntaria IPP Plan de desempeño individual (Individual Performance Plan, IPP) [first occurrence]; IPP [thereafter]. IRA Cuenta IRA IRS IRS IRS Check Cheque del IRS Itemize Detallar Itemized Deductions Deducciones detalladas ITIN El número de ITIN

J Job Trabajo Joint Return Planilla conjunta Joint Tenancy Tenencia conjunta Joint Venture Empresa conjunta Jointly Owned Property Bienes mancomunados

K Kindergarden Kinder

L Labor Code Código de trabajo Land Value Valor del terreno Last In, First Out (LIFO) Últimas entradas, primeras salidas (Last In, First Out, LIFO) Late fee cargo por pago atrasado Learn to prepare taxes Aprende a preparar planillas Leave and Earnings Statement, LES Comprobante de licencias y salarios acumulados (Leave and Earnings Statement, LES) Legally Blind Legalmente ciego Legally Separated Separados legalmente Lender Prestamista Lessee Arrendatario, inquilino Lessor Arrendador Lifetime Learning Credit Crédito vitalicio por aprendizaje Limited Limitado/a Link Enlace Liquidation Liquidación Liquidation Distributions Distribuciones de liquidación Listed Property Propiedades listadas Load (as in Emerald Card) Cargar (a la tarjeta prepagada Emerald Card) Load the loan money Poner el dinero del préstamo Loan Préstamo

English to Spanish Glossary of Terms: Spanish for Puerto Rico Loan Agreement Acuerdo de préstamo Loan Application Solicitud de préstamo Location near you Oficina cerca de ti Lodging Alojamiento Long-Term Capital Gains Ganancias de capital a largo plazo Lower of Cost or Market Method of Inventory Valuation Método de valuación de inventario al menor costo o de mercado Loyalty Lealtad Loyalty Client Rebate Program Programa de reembolso para clientes leales Lump-Sum Distribution Distribuciones de una suma global

M Mail a payment Pago por correo Main Home Vivienda principal Major Franchise (MF) Franquicia principal Malpractice Negligencia profesional Manager, Regional Operations Support (MROS) Gerente, asistencia regional de operaciones Managing Skills Seminars (MSS) Seminarios de Habilidades Gerenciales Margin Margen Marketing Mercadeo Marketplace Mercado Marketplace Eligibility Appeals Decisions Decisiones sobre apelaciones de elegibilidad del Mercado

Marketplace Exemption Application Aplicación de exención del Mercado Marriage Matrimonio Married Filing Jointly Casado/s que radica/n una planilla conjunta Married Filing Separately Casado/s que radica/n una planilla por separado Material Participation Participación significativa Maximum Refund Máximo reintegro Maximum Refund Guarantee Garantía de máximo reintegro Maximum refund you are entitled to Máximo reintegro que te corresponde Maximum Refund, Guaranteed Máximo reintegro garantizado MBTO MBTO Medicaid Ineligibility – NonExpanded Medicaid States Sin elegibilidad para Medicaid – Estados sin expansión de Medicaid Medical Expenses Gastos médicos Medical Insurance Seguro médico Medicare Part A Parte A de Medicare Medicare Part B Parte B de Medicare Medicare Tax Withheld Retención Contributiva de Medicare Mileage Allowance Concesión por millas Mileage Rate (Optional Method) Tasa por milla (Método opcional) Military Return Planilla contributiva militar Minimum essential coverage Cobertura esencial mínima Miscellaneous (MISC) Misceláneo

Mission Values Participant (MVP) Program Programa “Mission Values Participant (MVP)” Modified Accelerated Cost Recovery System (MACRS) Sistema acelerado de recuperación de costos modificado (Modified Accelerated Cost Recovery System, MACRS) Modified AGI (MAGI) AGI modificados Money Transfer Transferencia de dinero Money with no out-of-pocket costs Dinero sin necesidad de invertir de tu bolsillo Money you’re entitled to Dinero que te corresponde Mortgage Hipoteca Mortgage Credit Certificate Certificado de crédito hipotecario Mortgage Interest Intereses hipotecarios Mortgage Services Servicios hipotecarios Moving Expenses Gastos de mudanza Multiple Support Agreement Acuerdo de manutención múltiple Mutual Fund Fondos mutuos My tax refund El reintegro contributivo myBlockSM for the Tax Office (MBTO) "myBlockSM para la oficina de preparación de planillas (MBTO) myStarting Block myStarting Block

N National Tax Advice Day Día nacional de asesoramiento sobre planillas Nearly Casi Necessary Expenses Gastos Necesarios Page 11

English to Spanish Glossary of Terms: Spanish for Puerto Rico Net Operating Losses Pérdidas netas de operación Never settle for lessSM No te conformes con menosSM New Client Cliente nuevo New clients protocols Protocolos para clientes nuevos Nonbusiness Bad Debts Deudas incobrables no relacionadas con el negocio Noncustodial Parent Padre o madre no custodio Non-Profit Referral Program Programa de recomendaciones para organizaciones sin fines de lucro Nonrefundable Credit Crédito no reembolsable Nonresident Alien Extranjero no residente Nontaxable Distributions Distribuciones no tributables Nontaxable Exchange Intercambio no tributable Nontaxable Income Ingreso no tributable Not valid No válido, Nulo Notary Services Servicios de notario

O Offer Oferta Office Leader (OL) Líder de oficina Office Level Satisfaction (OLS) Satisfacción de nivel de oficina (OLS) Office Level Survey, OLS Encuesta de nivel de oficina (Office Level Survey, OLS) Office Manager (OM) Gerente de oficina Offline Fuera de línea / Sin conexión Online En línea o conectado Online services Servicios en línea

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Online Tax Preparation (OTP) Preparación de planillas en línea (Currently not available in Spanish) Option Opción Ordinary Dividends Dividendos ordinarios Ordinary Expenses Gastos Ordinarios Ordinary Income (Loss) Ingresos (pérdidas) ordinarios/as Out-of-state return Planilla fuera del estado Overpay Pagar de más

P Participating Participando Partly Taxable Pensions Pensiones parcialmente tributables Partnership Sociedad Passive Income Ingresos pasivos Passive income and losses Ingresos y pérdidas pasivas Passive loss Pérdida pasiva Past returns Planillas pasadas Past tax returns Planillas pasadas Patent Patente Pay Pagar Pay down date Fecha de pago Pay stub Talonario de pago Payroll taxes Contribuciónes sobre la nómina Peace of Mind® Peace of Mind® Peace of Mind® Extended Service Plan Plan de servicio extendido Peace of Mind®

Penalty and Interest (P&I) Penalidades e intereses Pension Pensión Pension Fund Fondo de pensión Pension Plan Plan de retiro Pension/Annuity Starting Date Fecha de inicio de la anualidad/pensión Period Período Permanent and Total Disability Discapacidad permanente y total Personal and Dependency Exemptions Exenciones personales y de dependencia Personal Expenses Gastos personales Personal Property Bienes muebles Personal Property Tax Contribuciones sobre bienes raíces Personal Residence Residencia personal Personal-Use Property Bienes de uso personal Phaseout Eliminación por fases Physical Custody Custodia física Point of Sale (POS) Punto de venta Points Puntos Policies and Procedures (P&P) Normas y procedimientos Portfolio Income and Losses Ingresos y pérdidas de cartera Potential ACA Tax Penalty Posible multa fiscal conforme a la Ley ACA Premium Guarantee Garantía Premium Premium Tax Credit (PTC) Crédito Contributivo por la Prima (PTC, por sus siglas en inglés) Prepaid Expenses Gastos prepagados Prepaid Interest Intereses prepagados

English to Spanish Glossary of Terms: Spanish for Puerto Rico Prepare Taxes (to prepare taxes) Preparar planillas Pretax Antes de contribuciones Pre-tax Antes de contribuciones Principal Principal Principal Place of Abode (Principal Residence) lugar de residencia principal (residencia principal) Principal Place of Business Lugar principal de negocios Principal Residence Residencia principal Printed (name) En letra de molde Prior Client Cliente previo (anterior) Prior Client Calling Program, PCCP Programa de llamada a clientes anteriores (Prior Client Calling Program, PCCP) Prizes and Awards Premios y recompensas Pro forma Pro forma Problem Resolution Office (PRO) Oficina de resolución de problemas Professional Tax Service (PTS) Servicio profesional de preparación de planillas Prohibited Prohibido Promote Your Taxpertise Promueve tu conocimiento especializado en planillas Property Tax Contribuciones sobre la propiedad Proprietor Empresario por cuenta propia Proprietorship Empresa por cuenta propia Put to the test Poner a prueba Puts and Calls Opciones de compra y venta

Q Qualified Charitable Organization Organización de caridad calificada Qualified Dividends Dividendos cualificados Qualified Health Insurance Seguro de salud cualificado Qualified Pension or ProfitSharing Plan Plan cualificado de pensión o de participación en las ganancias Qualified Tuition Plan Plan cualificado de matrícula Qualifying Child Hijo cualificado Qualifying Relative Pariente cualificado Qualifying Widower Viudo(a) que reúne los requisitos Quality Performance Review (QPR) Revisión de desempeño de calidad (QPR) Quote (Bid/Ask) Cotizar

R RAC (Second use of term) Cheque RAC Railroad Retirement Tax Act (RRTA) Ley de contribuciones de retiro ferroviaria (Railroad Retirement Tax Act, RRTA) RAL (Second use of term) Préstamo RAL Real Estate Bienes raíces Real Property Bienes raíces Realized Gain or Loss Ganancia o pérdida realizada Reasonable Allowance Descuento razonable Reasonable Expenses Gastos razonables Recapture Recuperación

Recent Tax Changes Cambios recientes referentes a las contribuciones Recognized Gain or Loss Ganancia o pérdida reconocida Recognized religious sect Secta religiosa reconocida Reconcialiation Conciliación Recovery Recuperación Recovery of Cost Recuperación de costo Recovery Period Período de recuperación Referral Referido Referral fee Pago por referido Referral form Formulario de referido Referral program Programa de referidos Refile Volver a llenar la planilla Refiling fees apply Se aplican cargos por volver a someter la planilla Refinancing Refinanciamiento Refund Reintegro Refund account fee Cargo por cuenta de reintegro Refund Anticipation Check Cheque de Reintegro Anticipado Refund Anticipation Check (RAC) Cheque de Reintegro Anticipado (Cheque RAC) Refund Anticipation Loan Préstamo de Reintegro Anticipado Refund Anticipation Loan (RAL) Préstamo de Reintegro Anticipado (Préstamo RAL) Refund Deposit Account Cuenta de depósito de reintegro Refund Options Opciones de reintegro Refund Planning Planificación de reintegro Refund Transfer, RT Transferencia de reintegro (Refund Transfer, RT) Page 13

English to Spanish Glossary of Terms: Spanish for Puerto Rico Refundable Credit Crédito reembolsable Regional Accounts Manager (RAM) Gerente de cuentas regional Regional Director (RD) Director regional Regional Financial Analyst (RFA) Analista financiero regional Regional Financial Support Specialist (RFSS) Especialista regional en asistencia financiera Regional Franchise Director (RFD) Director regional de franquicia Regular Method Método regular Regulated Investment Company (Mutual Fund) Sociedad inversionista reglamentada (fondo mutuo) Regulations Reglamentos Reinvested Dividends Dividendos reinvertidos Reliable Accuracy Exactitud confiable Reload (as in money on your Emerald Card) Poner más dinero Rent Renta Rental Income Ingresos por alquiler/es Repairs Reparaciones Repayment limitation Limitación de reintegro Replacement Period Período de reemplazo Reported income ingresos declarados Repossession Recuperación de un bien Reschedule Volver a programar Resident Alien Extranjero residente Rest assured Quedarte totalmente tranquilo Results Results (Resultados) (software) Retail Sales Ventas al detal Retirement Retiro Page 14

Return (noun) Planilla Return on Investment (ROI) Rendimiento de la inversión Right Derecho Rollover Reinversión / transferencia Roth IRA Cuenta de retiro individual Roth / IRA Roth / Cuenta IRA Roth Royalty Regalías RRTA RRTA

S S Corporation Corporación S Safe Harbor Puerto seguro Salvage Value Valor residual, valor de salvamento o valor recuperable Satisfaction Guarantee Satisfacción garantizada Schedules Anexos Scholarships and Fellowships Becas (in general terms) Becas de estudio y de investigación. Becas de estudio. Becas de investigación. Scrap Sales Ventas de desechos Second Look at your taxes Segunda revisión de tu planilla Second Look® Review Revisión Second Look® Second lowest cost silver plan Plan Plata de segundo costo más bajo Section (followed by a number) Sección Self-Employed Individuals Trabajador por cuenta propia Self-Employment Income Ingresos de trabajo por cuenta propia Self-Employment Tax Contribuciones sobre el trabajo por cuenta propia

Send-A-Friend Envía a un amigo Send-A-Friend Client Referral Program Programa de referidos de clientes Envía a un amigo Send-A-Friend Program Programa Envía a un amigo SEP Plan SEP Separate Maintenance Payments Pagos de manutención por separación judicial Service Servicio Settlement Options Opciones para liquidar pagos Settlement Products Productos para liquidar pagos Settlement Products Productos de pago Shared Responsibility Payment Pago por responsabilidad compartida Shareholder Accionista Shine in ‘09 “Brillar en el 2009” Short term Corto plazo, a corto plazo Short-term consumer loan Préstamo a corto plazo para el consumidor SIMPLE Plan SIMPLE

English to Spanish Glossary of Terms: Spanish for Puerto Rico SIMPLE Retirement Plan Plan de incentivo de ahorro con contribuciones equivalentes del empleador para empleados (Savings Incentive Match Plan for Employees, SIMPLE) Simplified Employee Pension (SEP) Pensión simplificada para empleados (Simplified Employee Pension, SEP) Simplified Method Método simplificado Single Soltero/no casado/único Skills Learning Center Skills Learning Center Social Security and Medicare taxes Contribuciones de Seguro Social y de Medicare Social Security Number (SSN) Número de Seguro Social Social Security Tax Withheld Retención Contributiva de Seguro Social Social Security Tips Propinas para efectos del Seguro Social Social Security Wages Salarios para efectos del Seguro Social Sole proprietor Empresario por cuenta propia Sole proprietorship Empresa por cuenta propia Solid Sólido Special Averaging Promedio especial Special Depreciation Allowance Concesión especial para depreciación Specialized Especializado Speed of refund Velocidad de reintegro Spend some. Save some. Borrow some. Gasta un poco. Ahorra un poco. Toma prestado un poco. Spousal IRA IRA a nombre del cónyuge Stability Estabilidad Standard Deduction Deducción estándar

State Marketplaces Mercados estatales Standard Mileage Rate Tasa estándar por milla Standard or Standard Deduction (STD) Deducción estándar State or Local Income Tax Withheld Retención de contribuciones estatales o locales sobre ingresos State Refund Anticipation Check (RAC) Cheque de Reintegro Anticipado Estado (Cheque Estado RAC) State Return Planilla estatal Statement Estado de cuenta Statements Estados de cuenta Status Estatus Statutory Employee Empleado estatutario Stock Dividend Dividendos en acciones Stock Option Plan Plan de opciones de compra de acciones Straight-Line Depreciation Method Método de depreciación uniforme Student Loan Interest Deduction Deducción por intereses de préstamo estudiantil Student(s) Estudiante(s) Subject to Sujeto a Success Éxito Supplement Application Solicitud suplementaria Supplement Application for Refund Anticipation Loan Solicitud suplementaria de Préstamo de reintegro anticipado (include English when necessary)

Supplement To Information, Identification And Instructions In Connection With Application For Refund Anticipation Check(s) And A Refund Deposit Account Suplemento de información, identificación e instrucciones relacionadas con la Solicitud de Cheque(s) de reintegro anticipado y Cuenta de depósito de reintegro Support Manutención Supporting forms Formularios suplementarios

T Table topper Folleto informativo rígido de 4 caras (Table Topper) [first occurrence]; folleto informativo rígido de 4 caras [thereafter]. Take the course Toma el curso Take the H&R Block Income Tax Course. Toma el Curso de Preparación de Planillas de H&R Block. Talk to our bilingual tax professionals Consulta con nuestros especialistas bilingües en planillas Talk to your tax professional Consulta con tu especialista en planillas Tangible Personal Property Bienes personales tangibles Tax (taken out of your check) Contribución retenida Tax and financial needs Necesidades fiscales y financieras Tax authority Autoridad fiscalizadora Tax Benefit Beneficio contributivo Tax Bracket "Renglón de contribuciones Tax Consulting Consultoría en planillas Tax Credit Crédito contributivo Page 15

English to Spanish Glossary of Terms: Spanish for Puerto Rico Tax Deductions and Benefits Deducciones y beneficios contributivos Tax Estimator Tax Estimator (Calculadora contributiva) Tax Experience Experiencia en planillas Tax Home Domicilio fiscal Tax Household Unidad familiar a efectos fiscales Tax interview Entrevista fiscal Tax Knowledge Assessment test Prueba de valoración del conocimiento sobre contribuciones Tax Knowledge Assessment Tax Laws Leyes contributivas Tax Liability Responsabilidad contributiva Tax Money Dinero de contribuciones Tax Office Oficina de H&R Block [Do NOT use oficina de preparación de planillas] Tax Planning Planificación de contribuciones Tax Preparation (process) Preparación de planillas Tax Preparation Checklist Lista de documentación necesaria para la preparación de planillas Tax Preparation Software Software para la preparación de planillas Tax Pro Finder Tax Pro Finder Tax Professional Especialista en planillas Tax professional Especialista en planillas Tax Professional Business Builder Desarrollador de negocios para el Especialista en Planillas Tax Professional Development Discussion Conversación sobre desarrollo del Especialista en Planillas

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Tax professional passport Pasaporte del Especialista en Planillas Tax Rate Tasa de contribución Tax Rate Schedules Tarifas Contributivas Tax Refund Reintegro contributivo Tax Return (The actual document, 1040, 1040E) Planilla Tax returns from the past three years Planillas de los últimos tres años Tax Season Temporada de Planillas Tax Table Tabla de contribuciones Tax talks Charlas sobre Planillas Tax Terms Vocabulario contributivo Tax Time Tiempo de hacer las Planillas Tax Underpayment Reimbursement Reintegro de pagos incompletos de Contribuciones Tax Year Año fiscal Taxable Income Ingresos tributables Taxable Year Año contributivo TaxCut® software (not available in Spanish) Software TaxCut® Taxes (taken out of your check) Contribuciones Tax-Exempt Income Ingresos exentos de contribuciones TaxNet TaxNet Taxpayer Contribuyente Television and Radio Promotions Promociones por radio y televisión Temporary Assignment Lugar temporal de trabajo (context) Tenancy in Common Tenencia en común

Thank you for trusting H&R Block Gracias por tu confianza en H&R Block The EXPRESSTAX® Emerald Prepaid MasterCard® is issued by H&R Block Bank, a Federal Savings Bank, member FDIC, pursuant to a license from MasterCard International. H&R Block Bank, una Entidad Bancaria Federal de Ahorros (Federal Savings Bank), Miembro de la Asociación de Seguros de Depósito Federal (Federal Deposit Insurance Corporation, FDIC) emite la tarjeta prepagada EXPRESSTAX® Emerald Prepaid MasterCard® en con The H&R Block Emerald Prepaid MasterCard® is issued by H&R Block Bank, a Federal Savings Bank, Member FDIC. H&R Block Bank, una Entidad Bancaria Federal de Ahorros (Federal Savings Bank), Miembro de la Asociación de Seguros de Depósito Federal (Federal Deposit Insurance Corporation, FDIC) emite la tarjeta prepagada H&R Block Emerald Prepaid MasterCard®. The H&R Block Guarantee La Garantía de H&R Block The H&R Block Promise La Promesa de H&R Block Tip Income Ingresos por propinas Total federal estimated taxes Total de contribuciones federales estimadas Trade Date Fecha de comercialización Traditional IRA Cuenta IRA tradicional Transfer by phone Transferencia telefónica Transportation Expenses Gastos de transporte Travel Allowance Asignación para gastos de viaje Travel Expenses Gastos de viaje Trust Fideicomiso Trust Experience Experiencia en fideicomisos

English to Spanish Glossary of Terms: Spanish for Puerto Rico Trust Us (to trust us) Confiar en nosotros Trustee Administrador (de cuenta) fideicomisario Truth in Savings Disclosure Divulgación en las cuentas de ahorro Tuition and Fees Deduction Deducción por matrícula y gastos de educación

W W-2

Unaffordable coverage Cobertura incosteable Underpayment Penalty Multas por pago incompleto Undocumented Immigrant Inmigrante indocumentado Unearned Income Ingresos no derivados del trabajo Unemployment Compensation Compensación por desempleo Uninsured No asegurado Unpaid Medical Expenses Gastos médicos impagos Unrecaptured Gain Ganancia no recuperada Up-to-date Actualizado / Al día Up-to-date (to be) Estar actualizado / Estar al día Utility Shut-Off Corte de servicio público

Formulario W-2 (Comprobante de sueldo) Warranty Products Productos de garantía We Are With You Estamos contigo We will assure you Te aseguraremos Web Page Página web Web Site Sitio web Welfare to Work Credit Crédito de bienestar social por trabajo (Welfare-to-Work Credit) Where is my money? ¿Dónde está mi reintegro? Widow (Widower) Viudo (viuda) Withholding Allowance Deducción en la retención Work Opportunity Credit Crédito por oportunidad laboral (Work Opportunity Credit) Workers' Compensation Compensación del seguro obrero Working Families Credit Crédito para familias trabajadoras Worksheet Hoja de cómputos www.hrblock.com www.hrblock.com/puertorico

V

Y

Vacation Home Casa de vacaciones View report onscreen Ver reporte en pantalla Void Nulo

Year-Round Assistance Asistencia todo el año Your Rights As a Taxpayer Tus derechos como contribuyente Your Satisfaction is Guaranteed Tu satisfacción está garantizada Your Tax Preparation Fee Cargos por la preparación de tu planilla

U

Your Tax Preparation is Free La preparación de tus planillas es gratis Your Taxes, Your Way Tu planilla, a tu manera

Z Zip Code Código postal

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English-Spanish Glossary of Terms: US

English to Spanish Glossary of Terms: US

English to Spanish

0-9 1040EZ Formulario 1040EZ (Taxes federales sencillos)

A A location near you Una oficina cerca de ti A tax Un tax About Acerca de ACA Tax Penalty Penalidad de impuestos de la Ley ACA ACA Tax Penalty Exemption Exención de la penalidad de impuestos de la Ley ACA Accelerated Cost Recovery System Sistema acelerado de recuperación de costos (Accelerated Cost Recovery System, ACRS) Accelerated Depreciation Depreciación acelerada Accelerated Management Program (AMP) Programa de gerencia acelerado (Accelerated Management Program, AMP) Accept Status Aceptar estatus Account Administration Fee (AAF) Cargo de administración de cuenta (Account Administration Fee, AAF) Account Executive Ejecutivo de cuenta Account Manager Gerente de cuenta Accountable Plan Plan contable Accounting Method Método de contabilidad Accounting Period Período contable Accrual Method of Accounting Método contable a base de lo devengado Page 2

Accrued Interest Intereses devengados Accumulated Adjustments Account (AAA) Cuenta de ajustes acumulados Accumulation Period Período de acumulación Acquisition Debt Deuda de adquisición Action plans Planes de acción Active Income Ingresos activos Active Income and Losses Ingresos y pérdidas activas Active Losses Pérdidas activas Active Participant Participante activo Actual Expenses (Regular Method) Gastos reales (método regular) Add more Income Add more Income (Agregar más ingresos) (software) Additional Child Tax Credit Crédito de taxes por hijo adicional Adjusted Basis Base ajustada Adjusted Current Earnings (ACE) Ingresos actuales ajustados (Adjusted Current Earnings, ACE) Adjusted Gross Income Ingresos brutos ajustados (Adjusted Gross Income, AGI) Adjustment to Income Ajuste a los ingresos Adoption Credit Crédito por adopción Advance Earned Income Credit Crédito por ingresos de trabajo anticipados Advance Premium Tax Credit (APTC) Crédito Tributario Anticipado por la Prima (APTC, por sus siglas en inglés) Advance Premium Tax Credit Repayments Reembolsos de Créditos Tributarios Anticipados por la Prima Adverse action letter Carta de acción adversa Advice Statement Declaración de asesoramiento

Affordable Care Act (ACA) Ley de Atención Médica Asequible (Affordable Care Act o ACA, por sus siglas en inglés) AGI AGI Alimony Payments Pagos de pensión alimenticia Allowable Miscellaneous Deductions (AMID) Deducciones misceláneas permitidas (Allowable Miscellaneous Deductionsm, AMID) Allowance Descuentos Alternate (Straight-Line) Method Método alternativo (depreciación uniforme) Alternative Depreciation System (ADS) Sistema de depreciación alternativa (Alternative Depreciation System, ADS) Alternative Minimum Tax Tax mínimo alternativo (Alternative Minimum Tax, AMT) Alternative Straight-Line Depreciation System Sistema alternativo de depreciación uniforme Amended Return Declaración enmendada AmeriCorps (State and National) / VISTA / National Civilian Community Corps Member AmeriCorps (estatles y nacionales) / VISTA / Miembro del Cuerpo Civil Comunitario Nacional Amortization Amortización Amount Monto Amount Realized Cantidad realizada AMT AMT An additional fee Un cargo adicional An average of Un promedio de Annual Percentage Rate, APR Tasa porcentual anual (Annual Percentage Rate, APR) Annualized Income Installment Method Método de ingreso anual a plazos

English to Spanish Glossary of Terms: US Annuitant Pensionista Annuity Anualidad/renta vitalicia Annuity Starting Date Fecha de inicio de la anualidad Anti-Churning Rules Reglas de prevención de transacciones deliberadas Applicable Federal Rate (AFR) Tasa federal aplicable (Applicable Federal Rate, AFR) Applicable Percentage Porcentaje aplicable Application for a Refund Anticipation Check and a Refund Deposit Account Solicitud de Cheque de reembolso anticipado y Cuenta de depósito de reembolso Appointment Manager (AM) Appointment Manager (AM) (Administrador de citas) Approval Aprobación Approve Online Approve Online (Aprobación en línea) [first occurrence]; Approve Online [thereafter]. Approved Client Take Away Material para cliente aprobado Approved Reload Networks Redes aprobadas de recarga Archer Medical Savings Account Cuenta Archer MSA de ahorros médicos Archer MSA Cuenta Archer MSA As fast as you choose Tan rápido como lo elijas Ask Pedir/Solicitar/Preguntar Ask your bilingual professional Consulta con tu profesional bilingüe Assemble (return, documents, etc.) Preparar Asset Activo Assistant District Manager (ADM) Gerente de distrito adjunto Assistant Regional Director (ARD) Director regional adjunto

At H&R Block we have 50 years experience in tax preparation En H&R Block tenemos 50 años de experiencia en la preparación de taxes At participating offices En oficinas participantes ATM ATM Atomated Teller Machine (ATM) Cajero automático (ATM) At-Risk Rules Reglas sobre el riesgo Audit Auditoría Audit assistance Asistencia en auditoría Audit Assistance Asistencia en auditorías Audit Representation Representación en auditoría Audit Representation Representación en auditorías Audit Support Asistencia de auditoría Auto Pay Auto Pay (Pago automático) [first occurrence]; Auto Pay [thereafter]. Automatic payment Pago automático Availability Disponibilidad Average Promedio Away From Home Overnight Ausente de la vivienda familiar por una noche

B Background check Verificación de antecedentes Bad Debts Deudas incobrables Balance Saldo Balance Due Saldo adeudado Balance Due Loan Préstamo de saldo adeudado Bank Account Cuenta bancaria

Bank Privacy Commitment Compromiso de privacidad del banco Bank products Productos bancarios Bankruptcy Bancarrota Based on Sobre la base de Basic Building Blocks (B³) Course Basic Building Blocks (B³) Course Basis Base Basis of Stock Base de acciones Be up-to-date Estar actualizado / Estar al día Benchmark Plan Plan de referencia Beneficiary Beneficiario Benefits Beneficios Benefits for retirees Beneficios para jubilados Bequest Legado Bond Título Bottom line Ganancias netas Bronze plan Plan de categoría Bronce Build Your Client/Customer Base Desarrollar tu base de clientes Business Assets Activos comerciales Business Cards Tarjetas profesionales Business Day Día hábil Business Expenses Gastos de negocio Business Income Ingresos de negocios Business Interruption Interrupción de la actividad de negocios Business Related Relacionados con el trabajo Business Related Expenses Gastos relacionados con el trabajo Business-Use Property Bienes de uso de negocios Page 3

English to Spanish Glossary of Terms: US

C Cafeteria Plan Plan de beneficios tipo cafetería Calendar Year Año calendario Cancellation of Health Plan Cancelación de plan de salud Capital Asset Bienes de capital Capital Expenditure Gastos de capital Capital Gain Ganancias de capital Capital Gain Distributions Distribuciones de ganancias de capital Capital Gain Tax Tax sobre ganancias de capital Capital Improvement Mejora de capital Capital Investment Inversión de capital Capital Loss Pérdida de capital Capital Stock Acciones de capital Capitalize Capitalizar Car and Truck Expenses Gastos de automóvil y camión Career Carrera Carryback - net operating loss carryback (forward) Pérdida neta de operación aplicada a años anteriores (posteriores) Carryover Traslado Carryover Loss Pérdida trasladada al año siguiente Cash Method of Accounting Método contable a base de efectivo Cash on Delivery (COD) Cobro a la entrega (Cash on Delivery, COD) Casualty Loss Pérdida fortuita CBT CBT (Capacitación basada en computadora) [first occurrence]; CBT [thereafter]. Certificate Certificado Page 4

Certificate of Deposit (CD) Certificado de depósito Certification Certificación Charged by Cobrado por Charitable Contribution Donación a la caridad Charitable Contributions Donaciones a la caridad Charitable donation Donación a la caridad Check Revisar Check charge Cargo por cheque Check processing fee Cargo por procesamiento de cheque Checking (review) Revisión Checklist Lista de verificación Child and Dependent Care Credit Crédito por cuidado de hijos y dependientes Child Care Credit Crédito por cuidado de hijos Child Support Payments Pagos de pensión para hijos menores Child Tax Credit Crédito de taxes por hijo Claim of Right Reclamación de derecho Classic Refund Anticipation Loan Préstamo de Reembolso Anticipado Clásico (Classic Refund Anticipation Loan, RAL) Client Cliente Client Income Information Worksheet Hoja de cómputos para información sobre ingresos del cliente Client Service Agreement Acuerdo de servicio al cliente Client support Asistencia al cliente Client-take-away Material para cliente Collect on Delivery (COD) Cobro a la entrega (Collect on Delivery, COD) Collectibles Objetos coleccionables

Combine Combinar Commission Comisión Commodity Futures Bienes comercializados en el mercado de futuros Common Stock Acciones ordinarias Common-Law Marriage Matrimonio de hecho Community Income Ingresos de la comunidad conyugal Community Property Comunidad de bienes matrimoniales Commuting Traslado/s interurbano/s al trabajo Company-Owned Offices Oficinas propias de la compañía Compensation Compensación/remuneración Complex Return Declaración compleja de taxes Compliance Conformidad Condemnation Expropiación Connected, Confident, and Championed Conectados, Confiados y Representados Consent to disclose Consentimiento para divulgación Consent to Disclose Information, 7216 Consentimiento para divulgación de información,7216 Consent to Disclose Return Tax Information Consentimiento para divulgación de información de declaración de taxes Consent to Use Consentimiento de uso Consent to use Tax Return Information Consentimiento para usar la información de la declaración de taxes (Consent to use Tax Return Information) Constructive Receipt Recibo implícito Consumer Price Index (CPI) Índice de precios al consumidor Continue Continue (Continuar) (software)

English to Spanish Glossary of Terms: US Continuing Education Credit (CEC) Crédito para la educación continua (CEC) Continuous support Asistencia continua Contract for Deed Contrato para título Contract Holder Poseedor del contrato Contract Price Precio contractual Contribution Donación (a la caridad) / contribución /aportación Convertible Convertible (bond, currency, debenture, debt, etc.) Copyright Derechos de autor Cost Costo Cost Depletion Agotamiento del activo Cost Method of Inventory Valuation Método de valuación de inventario al costo Cost of Goods Sold Costo de mercancías vendidas Cost of Maintaining a Home Costo de mantenimiento del hogar Cost Recovery Recuperación del costo Coupon Cupón Course(s) Curso(s) Coverdell Education Savings Account (ESA) Cuentas de ahorros para la educación Coverdell (ESA) Credit for Child Care Expenses Crédito por gastos de cuidado de niños Credit Worthiness Solvencia crediticia Credits Créditos Custodial Parent Padre o madre con custodia Customer Service Servicio al cliente Customer Service Agreement Acuerdo de servicio al cliente

D Data Base Administrator (DBA) Administrador de base de datos Date of birth Fecha de nacimiento Dealer (commercial) Distribuidor/a Dealer (commercial) Concesionario/a Dealer (securities) Revendedor/a (de valores) Death of Close Family Member Muerte de un familiar cercano Debit MasterCard Tarjeta de débito Debit MasterCard Declaration Control Number (DCN) Número de control de declaración (Declaration Control Number, DCN) Declining Balance Method of Depreciation Método de depreciación por saldos decrecientes Deduction Deducción Deductions Deducciones Default Opción por omisión Deferred Compensation Plan Plan de compensación diferida Deferred Income Ingresos diferidos Defined Benefit Plan Plan de beneficios definidos Defined Contribution Plan Planes de contribución definida Delete Delete (Eliminar) (software) Delivery Envelope Sobre de entrega Department ID (DID) Identificación del departamento Dependency Exemption Exención de dependencia Dependent Dependiente Dependent Care Credit Crédito por cuidado de dependiente Dependent Children without Insurance Hijos dependientes sin seguro

Depletion Agotamiento Depletion Allowance Descuento por agotamiento Depreciable Asset Activo depreciable Depreciation Depreciación Direct Deposit (DD) Depósito directo Dirty dozen Docena de Estafas Mayores (Dirty Dozen) Disability Pension Pensión por discapacidad Disabled Discapacitado Disaster Loss Pérdida por un desastre Disaster Victims Víctimas de desastres Disclose Divulgar Disclosure Statement For Classic RAL Declaración de divulgación para RAL clásico Discount Descuento Discount offer Oferta de descuentos Disposition (of property) Disposición (de bienes) Distribution Distribución Distribution from pensions, annuities, retirements or profit-sharing plans, IRAs, insurance contracts, etc. Distribuciones de pensiones, anualidades, jubilaciónes o planes de participación en las ganancias, cuentas IRA, contratos de seguros, etc. District Distrito District Manager (DM) Gerente de distrito District Office Supervisor (DOS) Supervisor de oficina de distrito District Support Center (DSC) Centro de asistencia de distrito District Technical Support Specialist (DTSS) Especialista en asistencia técnica de distrito Dividend Dividendo Page 5

English to Spanish Glossary of Terms: US Dividend Income Ingresos de dividendos Division División Divorce Decree (Final) Sentencia de divorcio (definitiva) Divorce Decree (Interlocutory) Sentencia de divorcio (interlocutoria) Do you plan to file Married Filing Jointly? Do you plan to file Married Filing Jointly? (¿Piensa presentar la declaración como casado que presenta una declaración conjunta?) Domestic Production Activities Deduction Deducción de actividades de producción doméstica Domestic Violence Victims Víctimas de violencia doméstica Double check (not product name) Revisar/Verificar Drop-off services Servicios de entrega drop-off

E Earn extra income preparing taxes Gana dinero extra preparando taxes Earned Income Ingresos de trabajo Earned Income Credit (EIC) Crédito por ingresos de trabajo Earned Income Tax Credit (EITC) Crédito de taxes por ingresos de trabajo Earnings Statement – E & D “Earnings Statement – E & D” (Comprobante de ingresos, E & D) Easy IRA Easy IRA Easy Products Productos Easy Easy Savings Easy Savings EasyPay EasyPay (internal use) E-commerce Comercio electrónico Edit Edit (Modificar) (software)

Page 6

Education credits Créditos tributarios por enseñanza superior (universitaria) Education Expense Deduction Deducción de gastos de educación Education Savings Account (ESA) Cuenta de ahorros para la educación Education tax benefits Beneficios de taxes por educación Educator Expenses Deduction Deducción de gastos de educador Effective Date Fecha de vigencia Electronic Data Processing (EDP) Procesamiento de datos electrónicos Electronic Federal Tax Payment System (EFTPS) Sistema federal de pago electrónico de impuestos ["impuestos" since IRS terminology] Electronic Filing (E-file) Declaración electrónica / Presentación electrónica de la declaración Electronic Funds Transfer (EFT) Transferencia electrónica de fondos Electronic news (eNews) Noticias electrónicas Eligible Educator Educador elegible Eligible Foster Child Hijo de crianza elegible E-mail Correo electrónico Emerald Advance Application and Terms and Conditions Solicitud y Términos y Condiciones de la línea de crédito Emerald Advance Emerald Advance™ Línea de crédito Emerald Advance™ Emerald Card Payroll Direct Deposit Form Formulario de depósito directo de nómina en la tarjeta prepagada Emerald Card Emerald Card™ Tarjeta prepagada Emerald Card [(La) targeta] Emerald Cash Rewards Recompensas de dinero en efectivo Emerald Cash Rewards Emerald Product Suite Serie de productos Emerald

Emerald Savings Application Solicitud de apertura de cuenta de ahorros Emerald Savings Eminent Domain Derecho de expropiación. Dominio eminente. Employee Empleado Employer Identification Number (EIN) Número de identificación del empleador Employer-Maintained Retirement Plan Plan de jubilación mantenido por el empleador Employment Expenses Gastos de empleo Enroll Now Inscríbete ahora Entertainment Expenses Gastos de entretenimiento Estate Patrimonio Estimate Estimación Estimated (Useful) Life Vida útil estimada Estimated Income Estimated Income (Ingresos estimados) (software) Estimated Tax Tax/taxes estimado/estimados Estimator Calculadora Every cent counts Cada centavo cuenta Every opportunity that might benefit you Todas las oportunidades que te puedan beneficiar Eviction/Foreclosure Desalojo/Ejecución hipotecaria Excess Social Security Tax Withheld Retención de taxes de Seguro Social excedentes Exchange Cambio Exchange Rate Tasa de cambio Excise Taxes Impuestos sobre artículos de uso y consumo Excluded Gain Ganancia excluida Exclusion Exclusión

English to Spanish Glossary of Terms: US Exclusion of income for bona fide residents of American Samoa Exclusión de ingresos para residentes auténticos (bona fide) de la Samoa Estadounidense Exemption Exención Exemption Certificate Number Número de certificado de exención Exemption From Withholding Exención de la retención Expenses Gastos Experience Experiencia Experienced Tax Professional Experto en preparación de taxes Expertise Experiencia Expires Vence / Vencimiento Express IRA Express IRA Extension Extensión

F Facts About Lines of Credit Información sobre las líneas de crédito Facts About Refund Anticipation Loans Información sobre los préstamos de reembolso anticipado Fair Market Value (FMV) Valor normal en el mercado Fair Rental Value Valor justo de alquiler Farm Business Negocio(s) agropecuario(s) Farm Operation Trabajos agropecuarios Farm Proprietor Empresario agropecuario Farmer Trabajador agropecuario Farming Actividad(es) agropecuaria(s) Farming Income Ingresos provenientes de actividades agropecuarias Fast Money Options Opciones de dinero rápido

Federal and State Forms Formularios federales y estatales Federal Income Tax Return Declaración de taxes federal Federal Income Tax Withheld Retención de taxes federal Federal Income Tax Withholding (FIT) Retención de taxes federal Federal Insurance Contributions Act (FICA) Ley Federal de Contribuciones al Seguro (FICA) Federal Marketplace Mercado federal Federal Poverty Level Nivel de pobreza federal (Federal Poverty Level) Federal Refund Anticipation Check Cheque de reembolso anticipado federal (Cheque Federal RAC) Federal Return Declaración de taxes federales Federal taxes paid Federal taxes paid (Taxes federales pagados) (software) Fee/Fees Tarifa/Tarifas; Cargo/Cargos Feel, Felt, Found Siento, Sintieron, Descubrieron Fellowship Pensión (beca) para realizar pesquisas o investigaciones FICA (Federal Insurance Contributions Act) Ley Federal de Contribuciones al Seguro (FICA) Fiduciary Fiduciario File a tax return Presentar una declaración de taxes Filing Presentación de la declaración Filing deadline Fecha límite de presentación Filing requirements Requisitos para la presentación de la declaración Filing status Estado civil para la presentación de la declaración Finance charge Cargo de financiamiento Finance Charges Cargos de financiamiento Financial Advisor (FA) Consejero financiero

Financial Centers Centros financieros Financial Information Network (FIN) Red de información financiera Financial Services Servicios financieros First In, First Out (FIFO) Primeras entradas, primeras salidas (First In, First Out, FIFO) Fiscal Planning Planificación fiscal Fiscal Year Año fiscal Five-Step Disclosure Process Proceso de divulgación en cinco pasos Fixed-Rate Mortgage Hipoteca de tasa fija Flexible Spending Accounts Cuentas de gastos flexibles For an office near you Para una oficina cerca de ti Foreign earned income exclusion Exclusión de ingresos ganados en el extranjero Foreign income Ingresos ganados en el extranjero Foreign Tax Credit or Deduction Deducción o crédito por taxes extranjeros Form Formulario Forms Selection Selección de formularios Foster Child Hijo de crianza Franchise Franquicia Franchise Director (FD) Director de franquicia Franchise District Manager Gerente de distrito de franquicia Free Notary Services Servicios de notario gratuitos Friends and Family Returns Declaraciones de amigos y familiares Fringe Benefits Prestaciones suplementarias Front office associates Recepcionista Full Retirement Age Edad de jubilación completa Full-Time Student Estudiante de tiempo completo Page 7

English to Spanish Glossary of Terms: US Fully Taxable Pensions Pensiones totalmente imponibles

H G Gain Ganancia Gambling Ganancias de juegos de azar General Depreciation System Sistema general de depreciación General Rule Regla general General Sales Tax Tax general sobre ventas General Straight-Line Depreciation System Sistema general de depreciación uniforme Get every penny you’re entitled to Recibe cada centavo que te corresponde Gift Donación Gift Tax Taxes sobre donaciones Golden Parachute Contrato blindado Good Neighbor Good Neighbor Goodwill Fondo de comercio/plusvalía/buen nombre Government Bonds Issued at a Discount Títulos del gobierno emitidos con descuento Gross Income Ingresos brutos Gross Profit Utilidad bruta Gross Rent Renta bruta Group Term Life Insurance Seguro de vida grupal a término Guaranteed Issue Emisión garantizada Guaranteed Loan Offer (GLO) Oferta de préstamo garantizado Guaranteed maximum refund Reembolso máximo garantizado

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H&R Block Advantage Report Informe H&R Block Advantage Report [first occurrence]; H&R Block Advantage Report [thereafter]. H&R Block Advantage® H&R Block Advantage® H&R Block Advantage® Statement Estado de cuenta de H&R Block Advantage® H&R Block At Home™ software (not available in Spanish) Software H&R Block At Home™ H&R Block Easy IRA® Cuenta H&R Block Easy IRA® H&R Block Easy Products Productos H&R Block Easy H&R Block Easy Savings Cuenta de ahorros H&R Block Easy Savings H&R Block Emerald Advance ® Line of Credit Línea de crédito H&R Block Amerald Advance® H&R Block Emerald Card® Tarjeta prepagada H&R Block Emerald Prepaid MasterCard® H&R Block Emerald Prepaid MasterCard® Tarjeta prepagada H&R Block Emerald Prepaid MasterCard® H&R Block Emerald Prepaid MasterCard® Tarjeta prepagada H&R Block Emerald Prepaid MasterCard® H&R Block Emerald Prepaid MasterCard® Table Topper Folleto informativo rígido de 4 caras (table topper) de tarjeta prepagada H&R Block Emerald Prepaid MasterCard® H&R Block Emerald Product Suite Serie de productos H&R Block Emerald H&R Block Emerald Savings® Cuenta de ahorros H&R Block Emerald Savings® H&R Block Emerald Savings® Cuenta de ahorros H&R Block Emerald Savings® H&R Block Emerald Savings® account Cuenta de ahorros H&R Block Emerald Savings®

H&R Block Emerald Savings® account Cuenta de ahorros H&R Block Emerald Savings® H&R Block Emerald Savings® Disclosures Divulgaciones de la cuenta de ahorros H&R Block Emerald Savings® H&R Block Franchise Franquicia de H&R Block H&R Block Guarantee Garantía de H&R Block H&R Block Income Tax Course Curso de Preparación de Taxes de H&R Block H&R Block offers you many options H&R Block te ofrece muchas opciones H&R Block Premium Office Oficina Premium de H&R Block H&R Block Tax Professional Los profesionales de taxes de H&R Block Hardship Dificultades Hardship Case Caso de dificultades Hardship exemption Exención por dificultades Hardship Withdrawal Retiro por dificultades HDHP Plan HDHP Head of Household Jefe de familia Head of Household Filing Status (HH) Estado civil de jefe de familia Health and Human Services (HHS) Servicios Humanos y de Salud (HHS, por sus siglas en inglés) Health coverage Cobertura de salud Health Insurance Seguro de salud Health Savings Account (HSA) Cuenta de ahorros para la salud (Health Savings Account, HSA) Healthcare reform law Ley de reforma de salud High Deductible Health Plan Plan médico de deducible alto (High Deductible Health Plan, HDHP) Hobby Loss Pérdidas por pasatiempos

English to Spanish Glossary of Terms: US Hold Hold (Posponer) (software) Holding Period Período de posesión Holiday Día festivo Home-Office Expenses Gastos de oficina en la casa Homelessness Falta de vivienda Homeowner Dueño de casa Hope Credit Crédito tributario "Hope" Household Employee Empleado doméstico Household Expenses Gastos domésticos hrblock.com hrblock.com/espanol HSA Cuenta HSA Human Resources (HR) Recursos Humanos Husband and Wife Esposo y esposa Hybrid Method of Accounting Método contable híbrido

I I Am Worth It I Am Worth It (Yo lo valgo) [First occurrence (when necessary)]; I Am Worth It [thereafter] Identifying Numbers Números de identificación If you are not satisfied Si no estás satisfecho Ill, Disabled, or Aging Family Member Familiar enfermo, discapacitado o de edad avanzada Important tax information Información importante sobre taxes Imputed Interest Intereses imputados In good standing Estar al corriente Income Ingresos Income averaging Ingresos promediables

Income Entry Income Entry (Registro de ingresos) (software) Income tax Taxes sobre los ingresos Income Tax Course (ITC) Curso de Preparación de Taxes (use "Taxes" also on the website) Independent Contractor Contratista independiente Individual Performance Plan Plan de desempeño individual (Individual Performance Plan, IPP) [first occurrence]; IPP [thereafter]. Individual Retirement Account (IRA) Cuenta de Jubilación Individual (Individual Retirement Account, IRA) [An/your/the] Individual Taxpayer Identification Number (ITIN) [Un/tu/el] Número Individual de Identificación para el Contribuyente (ITIN) Individual taxpayer identification number (ITIN) Número de identificación personal del contribuyente (Individual taxpayer identification number, ITIN) Individual Taxpayer Identification Number (ITIN) Services Servicios de ITIN (Número Individual de Identificación para el Contribuyente) Information Document Documento informativo Inheritance Herencia Initial Inicial Installment Method (Annualized Income) Método de ingreso anual a plazos Instant Money Dinero al Instante (Instant Money) Instant Money Anticipation Loan (IMAL) Préstamo Anticipado Dinero al Instante Instant Money RAL Préstamo RAL Instant Money Instant Money RAL Proceeds Ingresos provenientes del Préstamo RAL Instant Money

Instant Money Refund Anticipation Loan (Instant Money RAL) Préstamo Instantáneo de Reembolso Anticipado (Préstamo RAL Instant Money) Instant RAL Préstamo instantáneo de anticipo de reembolso Instant Refund Anticipation Loan Préstamo de Reembolso Anticipado Instantáneo Insurance Dividends Dividendos de seguros Insurance Policy Póliza de seguro Intangible Personal Property Bienes personales intangibles Interest income Ingresos de intereses Interest rate Tasa de interés Interest Received Intereses recibidos Interlocutory Decree Sentencia interlocutoria Internal Revenue Service (IRS) Servicio de Impuestos Internos (Internal Revenue Service, IRS). Internet Service Provider (ISP) Proveedor de Servicio de Internet Internet, the Net Internet Interview (infinitive verb) Entrevistar Interview (noun) Entrevista Inventory Existencias / inventario Investment Inversión Investment Income Ingresos por inversiones/inversión Investment Interest Intereses de inversión Investment Property Bienes de inversión Involuntary Conversion Canjes involuntarios IPP Plan de desempeño individual (Individual Performance Plan, IPP) [first occurrence]; IPP [thereafter]. IRA Cuenta IRA IRS IRS Page 9

English to Spanish Glossary of Terms: US IRS Check Cheque del IRS Itemize Detallar Itemized Deductions Deducciones detalladas ITIN (El) Número de ITIN ITIN Services Servicios de ITIN

J Job Trabajo Joint Return Declaración conjunta Joint Tenancy Tenencia conjunta Joint Venture Negocio en participación Jointly Owned Property Bienes mancomunados

L Labor Code Código de trabajo Land Value Valor del terreno Last In, First Out (LIFO) Últimas entradas, primeras salidas (Last In, First Out, LIFO) Late fee cargo por pago atrasado Learn to prepare taxes Aprende a preparar taxes Leave and Earnings Statement, LES Comprobante de licencias y salarios acumulados (Leave and Earnings Statement, LES) Legally Blind Legalmente ciego Legally Separated Separados legalmente Lender Prestamista Lessee Arrendatario, inquilino Lessor Arrendador

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Lifetime Learning Credit Crédito vitalicio por aprendizaje Limited Limitado/a Link Enlace Liquidation Liquidación Liquidation Distributions Distribuciones de liquidación Listed Property Bienes enumerados Load (as in Emerald Card) Ponerle dinero Load the loan money Poner el dinero del préstamo Loan Préstamo Loan Agreement Acuerdo de préstamo Loan Application Solicitud de préstamo Location near you Oficina cerca de ti Lodging Alojamiento Long-Term Capital Gains Ganancias de capital a largo plazo Lower of Cost or Market Method of Inventory Valuation Método de valuación de inventario al menor costo o de mercado Loyalty Lealtad Loyalty Client Rebate Program Programa de reembolso para clientes leales Lump-Sum Distribution Distribuciones de una suma global

M Mail a payment Pago por correo Main Home Vivienda principal Major Franchise (MF) Franquicia principal Malpractice Negligencia profesional Manager, Regional Operations Support (MROS) Gerente, asistencia regional de operaciones

Managing Skills Seminars (MSS) Seminarios de Habilidades Gerenciales Margin Margen Marketing Marketing Marketplace Mercado Marketplace Eligibility Appeals Decisions Decisiones sobre apelaciones de elegibilidad del mercado Marketplace Exemption Application Aplicación de exención de mercado Marriage Matrimonio Married Filing Jointly Casado/s que presenta/n una declaración conjunta Married Filing Separately Casado/s que presenta/n una declaración por separado MasterCard Zero Liability MasterCard Cero Responsabilidad mastercard.com/zeroliability mastercardenespanol.com/ceroresp onsabilidad Material Participation Participación significativa Maximum Refund Máximo reembolso Maximum Refund Guarantee Garantía de máximo reembolso Maximum refund you are entitled to Máximo reembolso que te corresponde Maximum Refund, Guaranteed Máximo reembolso, garantizado MBTO MBTO Medicaid Ineligibility – NonExpanded Medicaid States No elegibilidad para Medicaid – Estados sin expansión de Medicaid Medical Expenses Gastos médicos Medical Insurance Seguro médico Medicare Part A Parte A de Medicare Medicare Part B Parte B de Medicare Medicare Tax Withheld Retención de taxes de Medicare

English to Spanish Glossary of Terms: US Mileage Allowance Descuento por millas Mileage Rate (Optional Method) Tasa por milla (Método opcional) Military Return Declaración de taxes militar Minimum essential coverage Cobertura esencial mínima Miscellaneous (MISC) Misceláneo Miscellaneous deductions Deducciones misceláneas Mission Values Participant (MVP) Program Programa Mission Values Participant (MVP) Modified Accelerated Cost Recovery System (MACRS) Sistema acelerado de recuperación de costos modificado (Modified Accelerated Cost Recovery System, MACRS) Modified AGI (MAGI) AGI modificados Money Transfer Transferencia de dinero Money with no out-of-pocket costs Dinero sin gastos de bolsillo Money you’re entitled to Dinero que te corresponde Mortgage Hipoteca Mortgage Credit Certificate Certificado de crédito hipotecario Mortgage Interest Intereses hipotecarios Mortgage Services Servicios hipotecarios Moving Expenses Gastos de mudanza Multiple Support Agreement Acuerdo de manutención múltiple Mutual Fund Fondo mutualista My tax money El dinero de mis taxes My tax refund El reembolso de mis taxes myBlockSM for the Tax Office (MBTO) myBlockSM for the Tax Office (MBTO) myStarting Block myStarting Block

N Nearly Casi Necessary Expenses Gastos Necesarios Net Operating Losses Pérdidas netas de operación Never settle for lessSM No te conformes con menosSM New Client Cliente nuevo New clients protocols Protocolos para clientes nuevos Nonbusiness Bad Debts Deudas incobrables no relacionadas con el negocio Noncustodial Parent Padre o madre sin custodia Non-Profit Referral Program Programa de recomendaciones para organizaciones sin fines de lucro Nonrefundable Credit Crédito no reembolsable Nonresident Alien Extranjero no residente Nontaxable Distributions Distribuciones no imponibles Nontaxable Exchange Intercambio no imponible Nontaxable Income Ingresos no imponibles Not valid No válido, Nulo Notary Public Notary Public Notary Services Servicios de notario

O Offer Oferta Office Leader (OL) Líder de oficina Office Level Satisfaction (OLS) Satisfacción de nivel de oficina (OLS) Office Level Survey, OLS Encuesta de nivel de oficina (Office Level Survey, OLS)

Office Manager (OM) Gerente de oficina Offline Fuera de línea / Sin conexión Online En línea o conectado Online services Servicios en línea Online Tax Preparation (OTP) Preparación de taxes en línea (Currently not available in Spanish) Option Opción Ordinary Dividends Dividendos ordinarios Ordinary Expenses Gastos Ordinarios Ordinary Income (Loss) Ingresos (pérdidas) ordinarios/as Origination fees Comisiones de apertura Out-of-pocket expenses Gastos de bolsillo Out-of-state return Declaración en otro estado Overpay Pago en exceso Overpayment Pago en exceso

P Participating Participantes Partly Taxable Pensions Pensiones parcialmente imponibles Partnership Sociedad colectiva Passive Income Ingresos pasivos Passive income and losses Ingresos y pérdidas pasivas Passive loss Pérdida pasiva Past returns Declaraciones pasadas Past tax returns Declaraciones de taxes pasadas Patent Patente Pay Pagar

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English to Spanish Glossary of Terms: US Pay down date Fecha de liquidación Pay stub Recibo de sueldo Paycheck Cheque de pago Payroll taxes Taxes sobre la nómina Peace of Mind® Peace of Mind® Peace of Mind® Extended Service Plan Plan de servicio prolongado Peace of Mind® Penalty and Interest (P&I) Multa e interés Pension Pensión Pension Fund Fondo de pensión Pension Plan Plan de pensión Pension/Annuity Starting Date Fecha de inicio de la anualidad/pensión Period Período Permanent and Total Disability Discapacidad permanente y total Personal and Dependency Exemptions Exenciones personales y de dependencia Personal Expenses Gastos personales Personal Property Bienes muebles Personal Property Tax Tax sobre bienes personales Personal Residence Residencia personal Personal-Use Property Bienes de uso personal Phaseout Eliminación por fases Physical Custody Custodia física Point of Sale (POS) Punto de venta Points Puntos Policies and Procedures (P&P) Normas y procedimientos Portfolio Income and Losses Ingresos y pérdidas de cartera

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Potential ACA Tax Penalty Posible penalidad de impuestos de la Ley ACA Premium Guarantee Garantía Premium Premium Tax Credit (PTC) Crédito Tributario por la Prima (PTC, por sus siglas en inglés) Prepaid Expenses Gastos prepagados Prepaid Interest Intereses prepagados Prepare Taxes (to prepare taxes) Preparar taxes Pre-tax / Pretax Antes de taxes Principal Capital Principal Place of Abode (Principal Residence) lugar de residencia principal (residencia principal) Principal Place of Business Lugar principal de negocios Principal Residence Vivienda principal Printed (name) En letra de imprenta Prior Client Cliente previo (anterior) Prior Client Calling Program, PCCP Programa de llamada a clientes anteriores (Prior Client Calling Program, PCCP) Prizes and Awards Premios y recompensas Pro forma Pro forma Problem Resolution Office (PRO) Oficina de resolución de problemas Professional Tax Service (PTS) Servicio profesional de preparación de taxes Prohibited Prohibido Promote Your Taxpertise Promueve tu conocimiento especializado en taxes Property Tax Impuestos sobre la propiedad Proprietorship Empresa por cuenta propia Put to the test Poner a prueba Puts and Calls Opciones de compra y venta

Q Qualified Charitable Organization Organización de caridad que reúne los requisitos Qualified Dividends Dividendos que reúnen los requisitos Qualified Health Insurance Seguro de salud que califica Qualified Pension or Profit-Sharing Plan Plan calificado de pensión o de participación en las ganancias Qualified Tuition Plan Plan de matrícula que reúne los requisitos Qualifying Child Hijo que reúne los requisitos Qualifying Relative Pariente que reúne los requisitos Qualifying Widower Viudo(a) que reúne los requisitos Quality Performance Review (QPR) Revisión de desempeño de calidad (QPR) Quote (Bid/Ask) Cotizar

R RAC (Second use of term) Cheque RAC Railroad Retirement Tax Act (RRTA) Ley de taxes de jubilación ferroviaria (Railroad Retirement Tax Act, RRTA) RAL (Second use of term) Préstamo RAL Real Estate Bienes raíces Real estate taxes Taxes sobre bienes raíces Real Property Bienes raíces Realized Gain or Loss Ganancia o pérdida realizada Reasonable Allowance Descuento razonable Reasonable Expenses Gastos razonables

English to Spanish Glossary of Terms: US Recapture Recuperación Recent Tax Changes Cambios recientes referentes a los taxes Recognized Gain or Loss Ganancia o pérdida reconocida Recognized religious sect Secta religiosa reconocida Reconciliation Conciliación Recovery Recuperación Recovery of Cost Recuperación de costo Recovery Period Período de recuperación Refer a Friend Recomienda a un amigo Referral Recomendación Referral fee Recompensa por recomendación Referral form Formulario de recomendación Referral program Programa de recomendaciones Refile Volver a presentar tu declaración de taxes Refiling fees apply Se aplican cargos para la nueva presentación Refinancing Refinanciamiento Refund Reembolso Refund account fee Cargo por cuenta de reembolso Refund Anticipation Check Cheque de Reembolso Anticipado Refund Anticipation Check (RAC) Cheque de Reembolso Anticipado (Cheque RAC) Refund Anticipation Loan Préstamo de Reembolso Anticipado Refund Anticipation Loan (RAL) Préstamo de Reembolso Anticipado (Préstamo RAL) Refund Deposit Account Cuenta de depósito de reembolso Refund Options Opciones de reembolso Refund Planning Planificación de reembolsos

Refund Transfer, RT Transferencia de reembolso (Refund Transfer, RT) Refundable Credit Crédito reembolsable Regional Accounts Manager (RAM) Gerente de cuentas regional Regional Director (RD) Director regional Regional Financial Analyst (RFA) Analista financiero regional Regional Financial Support Specialist (RFSS) Especialista regional en asistencia financiera Regional Franchise Director (RFD) Director regional de franquicia Regular Method Método regular Regulated Investment Company (Mutual Fund) Sociedad inversionista reglamentada (fondo mutualista) Regulations Reglamentos Reinvested Dividends Dividendos reinvertidos Reliable Accuracy Exactitud confiable Reload (as in money on your Emerald Card) Ponerle más dinero Rent Alquiler Rental Income Ingresos por alquiler/es Repairs Reparaciones Repayment limitation Limitación de reembolso Replacement Period Período de reemplazo Reported income Ingresos declarados Repossession Recuperación de un bien Reschedule Volver a programar Resident Alien Extranjero residente Rest assured Quedarte totalmente tranquilo Results Results (Resultados) (software)

Retail Sales Ventas minoristas Retirement Jubilación Return (noun) Declaración Return on Investment (ROI) Rendimiento de la inversión Right Derecho Rollover Reinversión / transferencia Roth IRA Cuenta de jubilación individual Roth / IRA Roth / Cuenta IRA Roth Royalty Regalías RRTA RRTA

S S Corporation Corporación S SAF form Formulario de SAF (if the name of the program was mentioned before [Envía-a-un-amigo]) SAF program Programa SAF (if the name of the program was mentioned before [Envía-a-un-amigo]) SAF rebate Reembolso de SAF (if the name of the program was mentioned before [Envía-a-un-amigo]) Safe Harbor Puerto seguro Salary Sueldo Salvage Value Valor residual, valor de salvamento o valor recuperable Satisfaction Guarantee Satisfacción garantizada Schedules Anexos Scholarships and Fellowships Becas (in general terms) Becas de estudio y de investigación. Becas de estudio. Becas de investigación. Scrap Sales Ventas de desechos

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English to Spanish Glossary of Terms: US Second Look at your taxes Segunda revisión de tus taxes Second Look® Review Revisión Second Look® Second lowest cost silver plan Plan de categoría Plata de segundo costo más bajo Section (followed by a number) Sección Secured Deposit Account Cuenta de depósito de garantía Self-Employed Individuals Trabajador por cuenta propia Self-Employment Income Ingresos de trabajo por cuenta propia Self-Employment Tax Taxes sobre el trabajo por cuenta propia Send a Friend Envía a un amigo SEP Plan SEP Separate Maintenance Payments Pagos de manutención por separación judicial Service Servicio Settlement Options Opciones para liquidar pagos Settlement Products Productos para liquidar pagos Settlement Products Productos de pago Shared Responsibility Payment Pago por responsabilidad compartida Shareholder Accionista Shine in ‘09 Brillar en el 2009 Short term Corto plazo, a corto plazo Short-term consumer loan Préstamo a corto plazo para el consumidor SIMPLE Plan SIMPLE SIMPLE Retirement Plan Plan de incentivo de ahorros con contribuciones equivalentes del empleador para empleados (Savings Incentive Match Plan for Employees, SIMPLE)

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Simplified Employee Pension (SEP) Pensión simplificada para empleados (Simplified Employee Pension, SEP) Simplified Method Método simplificado Single Soltero/no casado/único Skills Learning Center Skills Learning Center Social Security and Medicare taxes Taxes de Seguro Social y de Medicare Social Security Number (SSN) Número de Seguro Social Social Security Tax Withheld Retención de taxes de Seguro Social Social Security Tips Propinas para efectos del Seguro Social Social Security Wages Salarios para efectos del Seguro Social Sole proprietor Empresario por cuenta propia Sole proprietorship Empresa por cuenta propia Solid Sólido Special Averaging Promedio especial Special Depreciation Allowance Descuentos especial para depreciación Specialized Especializado Speed of refund Velocidad de reembolso Spend some. Save some. Borrow some. Gasta un poco. Ahorra un poco. Toma prestado un poco. Spousal IRA IRA a nombre del cónyuge Stability Estabilidad Standard Deduction Deducción estándar Standard Mileage Rate Tasa estándar por milla Standard or Standard Deduction (STD) Deducción estándar State or Local Income Tax Withheld Retención de taxes estatales o locales sobre los ingresos

State Refund Anticipation Check (RAC) Cheque de Reembolso Anticipado Estatal (Cheque Estatal RAC) State Refund Anticipation Check (RAC) Cheque de reembolso anticipado estatal (RAC estatal) State Marketplaces Mercados estatales State Return Declaración estatal Statement Estado de cuenta Statements Estados de cuenta Status Estatus Statutory Employee Empleado estatutario Stock Dividend Dividendos en acciones Stock Option Plan Plan de opciones de compra de acciones Straight-Line Depreciation Method Método de depreciación uniforme Student Loan Interest Deduction Deducción por intereses de préstamo estudiantil Student(s) Estudiante(s) Subject to Sujeto a Success Éxito Supplement Application Solicitud suplementaria Supplement Application for Refund Anticipation Loan Solicitud suplementaria de Préstamo de reembolso anticipado (include English when necessary) Supplement To Information, Identification And Instructions In Connection With Application For Refund Anticipation Check(s) And A Refund Deposit Account Suplemento de información, identificación e instrucciones relacionadas con la Solicitud de Cheque(s) de reembolso anticipado y Cuenta de depósito de reembolso Support Asistencia [alt: apoyo, respaldo] Supporting forms Formularios suplementarios

English to Spanish Glossary of Terms: US

T Table topper Folleto informativo rígido de 4 caras (Table Topper) [first occurrence]; folleto informativo rígido de 4 caras [thereafter]. Take the course Toma el curso Take the H&R Block Income Tax Course. Toma el Curso de Preparación de Taxes de H&R Block. Talk to our bilingual tax professionals Consulta con nuestros profesionales de taxes bilingües Talk to your tax professional Consulta con tu profesional de taxes Tangible Personal Property Bienes personales tangibles Tax (taken out of your check) Tax (Un tax) Tax and financial needs Necesidades fiscales y financieras Tax authority Autoridad de taxes Tax Benefit Beneficio de taxes Tax bill Factura de taxes Tax Bracket Categoría impositiva Tax Consulting Consultoría en taxes Tax Credit Crédito de taxes Tax Deductions and Benefits Deducciones y beneficios de taxes Tax estimator Calculadora de taxes Tax Estimator Tax Estimator (Calculadora de taxes ) (software) Tax Experience Experiencia en taxes Tax fraud Fraude fiscal Tax Home Domicilio de taxes Tax Household Unidad familiar a efectos fiscales Tax interview Entrevista sobre taxes

Tax Knowledge Assessment test Prueba de valoración del conocimiento sobre taxes Tax Knowledge Assessment Tax Laws Leyes fiscales Tax Liability Responsabilidad fiscal Tax Money Dinero de taxes Tax Planning Planificación de taxes Tax Preparation (process) Preparación de taxes Tax Preparation Checklist Lista de documentación necesaria para la preparación de taxes Tax Preparation Software Software para la preparación de taxes Tax Pro Finder Tax Pro Finder Tax Professional Profesional de taxes Tax Professional Business Builder Desarrollador de negocios para el Profesional de taxes Tax Professional Development Discussion Conversación sobre desarrollo del Profesional de taxes Tax professional passport Pasaporte del Profesional de taxes Tax Rate Tasa de taxes Tax Rate Schedules Tarifas de taxes Tax Refund Reembolso de taxes Tax Return (The actual document, 1040, 1040E) Declaración de taxes Tax returns from the past three years Declaraciones de taxes de los últimos tres años Tax Season Temporada de taxes Tax Table Tabla de taxes Tax talks Charlas sobre taxes Tax Terms Vocabulario fiscal Tax Time Tiempo de hacer los taxes

Tax Training School (TTS) Cursos de preparación de taxes Tax Underpayment Reimbursement Reembolso de pagos incompletos de taxes Tax Year Año fiscal Taxable Income Ingresos imponibles Taxable Year Año imponible TaxCut® software (not available in Spanish) Software TaxCut® Taxes (taken out of your check) Taxes Tax-Exempt Income Ingresos exentos de taxes TaxNet TaxNet Taxpayer Contribuyente Television and Radio Promotions Promociones por radio y televisión Temporary Assignment Lugar temporal de trabajo (context) Tenancy in Common Tenencia en común Term of the loan Plazo del préstamo Thank you for trusting H&R Block Gracias por tu confianza en H&R Block The EXPRESSTAX® Emerald Prepaid MasterCard® is issued by H&R Block Bank, a Federal Savings Bank, member FDIC, pursuant to a license from MasterCard International. H&R Block Bank, una Entidad Bancaria Federal de Ahorros (Federal Savings Bank), Miembro de la Asociación de Seguros de Depósito Federal (Federal Deposit Insurance Corporation, FDIC) emite la tarjeta prepagada EXPRESSTAX® Emerald Prepaid MasterCard® en conformidad con una licencia de MasterCard International. The H&R Block Emerald Prepaid MasterCard® is issued by H&R Block Bank, a Federal Savings Bank, Member FDIC. H&R Block Bank, una Entidad Bancaria Federal de Ahorros (Federal Savings Bank), Miembro Page 15

English to Spanish Glossary of Terms: US de la Asociación de Seguros de Depósito Federal (Federal Deposit Insurance Corporation, FDIC) emite la tarjeta prepagada H&R Block Emerald Prepaid MasterCard®. The H&R Block Guarantee La Garantía de H&R Block Tip Income Ingresos por propinas Toss Out Your Bills Instant Win Game: Juego gana al instante Di adiós a tus cuentas Total federal estimated taxes Total federal estimated taxes (total de taxes federales estimados) [software]. Trade Date Fecha de comercialización Traditional IRA Cuenta IRA tradicional Transfer by phone Transferencia telefónica Transportation Expenses Gastos de transporte Travel Allowance Asignación para gastos de viaje Travel Expenses Gastos de viaje Trust Fideicomiso Trust Experience Confía en la experiencia / Experiencia en fideicomisos Trust Us (to trust us) Confiar en nosotros Trustee Administrador (de cuenta) fideicomisario Truth in Savings Disclosure Divulgación de veracidad en los ahorros Tuition and Fees Deduction Deducción por matrícula y gastos de educación

U Unaffordable coverage Cobertura inasequible Underpayment Penalty Multas por pago incompleto Undocumented Immigrant Inmigrante indocumentado Page 16

Unearned Income Ingresos no derivados del trabajo Unemployment Compensation Compensación por desempleo Uninsured No asegurado Unpaid Medical Expenses Gastos médicos impagos Unrecaptured Gain Ganancia no recuperada Up-to-date Actualizado / Al día Up-to-date (to be) Estar actualizado / Estar al día Utility Shut-Off Corte de servicio público

V Vacation Home Casa de vacaciones View report onscreen Ver informe en pantalla Void Nulo

Work Opportunity Credit Crédito por oportunidad laboral (Work Opportunity Credit) Workers' Compensation Compensación del seguro obrero Working Families Credit Crédito para familias trabajadoras Worksheet Hoja de cómputos www.hrblock.com www.hrblock.com/espanol

Y Year-Round Assistance Asistencia todo el año Your Rights As a Taxpayer Tus derechos como contribuyente Your Satisfaction is Guaranteed Tu satisfacción está garantizada Your Tax Preparation Fee Cargos por la preparación de tus taxes Your Tax Preparation is Free La preparación de tus taxes es gratis Your Taxes, Your Way Tus taxes, a tu manera

W W-2 Formulario W-2 (Comprobante de sueldo) Warranty Products Productos de garantía We Are With You Estamos contigo We will assure you Te aseguraremos Web Page Página web Web Site Sitio web Welfare to Work Credit Crédito de bienestar social por trabajo (Welfare-to-Work Credit) Where is my money? ¿Dónde está mi dinero? Widow (Widower) Viudo (viuda) Withholding Allowance Descuentos en la retención

Z Zero Liability Cero Responsabilidad Zip Code Código postal

Index SYMBOLS 401(k) 14.5, 17.2, 17.3, 17.4, 17.5, 17.29, 17.39 403(b) 13.13, 17.2, 17.4, 17.5, 17.29 457 17.2, 17.5, 17.26

A Adjusted gross income 3.15, 4.8, 3.14, 3.15, 3.16, 4.9, 6.2, 6.23, 13.7, 13.1, 13.2, 13.6, 14.7, 1.32, 1.27 Adjustments 13.1, 13.11, 13.12, 13.13, 1.27, 1.27 Advance Premium Tax Credit 14.1 Age 2.2, 3.4, 2.5, 2.12, 3.2, 3.3, 6.2, 10.8, 16.11, 10.7, 16.10, 2.7, 17.21 Alimony 11.2, 11.1, 11.19, 11.20, 13.11, 13.12, 13.13, 1.3 American Opportunity Credit 2.13, 16.1, 16.2, 16.24 Annuities 17.3, 17.26, 17.31, 17.38 AOC 2.13, 16.1, 16.2, 16.3, 16.5, 16.6, 16.7, 16.9, 16.10, 16.11, 16.16, 16.20, 16.21, 16.24 Attorney-client privilege 18.6 Awards 11.2, 11.19, 11.20

B Back pay 1.15 Blindness 2.8, 2.9, 2.12 Bonds 5.1, 1.2, 5.2, 5.3, 5.6, 5.8, 5.9, 5.10

C Cafeteria Plans 6.5, 6.10 Cancellation of Debt 11.20 Capital gains 5.10, 5.11, 5.12, 5.13, 1.26 Charitable contributions 6.1, 6.3, 6.18, 1.21, 6.21 Circular 230 18.1, 18.4, 18.5, 18.9, 18.11, 18.19 Citizenship 3.8 Client Confidentiality 18.6 Combat pay 10.3, 10.12, 10.23, 14.6, 14.7 Commissions 1.3, 1.15, 1.2 Compensation 11.2, 11.3, 11.5, 11.22, 11.2, 11.3, 11.4, 13.14, 11.20, 11.21, 11.22, 13.13, 14.5, 1.3, 17.3, 17.4, 17.5, 14.15, 1.15, 1.19, 1.21, 1.23, 1.29 Compliance 18.9, 18.10

Conflict of interest 18.1, 18.5, 18.19 Conflicts of interest 18.4 Contemporaneous records 18.3, 18.4 Coverdell Education Savings Account 13.6, 16.6, 16.25

D Deductible contributions 13.13 Deductions 2.7, 2.10, 2.12, 2.15, 4.7, 2.9, 2.11, 2.14, 3.2, 4.8, 5.12, 6.1, 6.2, 6.3, 6.13, 6.14, 6.18, 6.21, 6.22, 6.23, 10.2, 1.27, 1.32, 1.21, 1.26, 1.3, 1.14, 6.1 Dependent 2.5, 2.9, 2.10, 2.8, 2.9, 2.10, 2.12, 2.16, 2.17, 2.18, 3.1, 3.5, 3.6, 3.7, 3.8, 3.9, 3.11, 3.13, 3.15, 3.20, 3.21, 3.22, 4.2, 4.6, 4.7, 4.9, 4.11, 4.12, 4.13, 4.14, 6.5, 6.8, 6.9, 6.13, 8.1, 9.1, 10.2, 13.5, 11.6, 11.9, 10.12, 13.5, 11.5, 14.2, 13.2, 13.4, 13.5, 13.12, 13.13, 13.14, 16.3, 14.3, 14.4, 16.5, 14.7, 16.10, 14.14, 14.20, 14.24, 14.25, 14.29, 16.3, 16.9, 16.11, 16.16, 1.20, 1.27, 4.12, 1.20, 10.25 Dependent exemptions 6.13, 8.1, 9.1 Dependent’s income 3.11 Dependent’s support 3.9 Disability 11.2, 11.8, 11.8, 11.8, 11.8, 11.7, 11.8, 11.9, 11.10, 11.19, 11.20, 11.21, 11.22, 10.1, 4.1, 3.1, 1.3, 14.5, 11.8, 11.8, 11.9, 14.15 Disaster relief payments 1.2 Disclosure 18.1, 18.7, 18.16 Disreputable conduct 18.11, 18.12 Distributions 2.13, 2.12, 5.1, 5.10, 5.11, 5.12, 5.13, 5.15, 11.22, 11.20, 13.3, 16.6, 5.1, 17.1, 1.3, 17.3, 17.5, 17.11, 5.12, 17.16, 17.18, 1.20 Dividends 2.12, 2.13, 2.11, 2.13, 5.1, 11.2, 5.3, 5.10, 5.11, 5.12, 5.13, 5.15, 1.26, 1.3, 5.1 Due diligence 5.4, 10.1, 10.7, 10.17, 10.18, 10.23, 18.1, 18.2, 18.10

I.1

I.2 H&R Block [Course Name] (2016)

E Early withdrawal penalty 5.6, 17.35, 17.39 Earned income 2.10, 2.12, 2.11, 2.12, 3.15, 2.16, 3.16, 2.17, 3.14, 6.2, 10.3, 11.6, 10.7, 11.8, 11.9, 10.10, 10.17, 10.23, 14.2, 11.9, 11.10, 11.19, 14.3, 14.4, 14.5, 14.6, 14.7, 16.11, 16.3, 16.10, 1.26, 1.3, 11.9 Earned Income Tax Credit 2.13, 10.1, 10.3, 10.23, 10.24, 14.1 Education 3.9, 4.6, 3.10, 4.7, 5.3, 11.5, 13.3, 13.4, 13.5, 13.6, 14.3, 14.14, 16.1, 16.2, 16.3, 16.5, 16.6, 16.7, 16.9, 16.10, 16.16, 16.24, 16.25, 17.4, 17.24, 1.26, 17.35, 17.36 Educational assistance payments 1.21 Education benefits 3.10, 16.2 Education Credits 11.5, 13.2, 16.1, 16.2, 16.3, 16.5, 16.7, 16.9, 16.11, 16.13, 16.15, 16.17, 16.19, 16.21, 16.23, 16.25 Education expenses 3.9, 5.3, 11.5, 13.4, 13.5, 13.6, 14.14, 16.3, 16.5, 16.7, 16.9, 16.10, 16.16, 16.25, 17.35, 17.36 Educator expenses 13.2 Electronic Return Originator (ERO) 18.16 Eligible educator 13.1, 13.2, 13.3, 13.13 Eligible student 13.4, 13.5, 16.2, 16.3, 16.7, 16.16 Employer identification number 1.29 Enrolled Agent 18.8 Estimated tax 2.13, 2.13, 2.15, 2.16, 6.12, 1.28 Exemptions 2.9, 2.10, 2.8, 2.10, 2.15, 3.2, 6.13, 14.25, 14.26, 14.20, 14.21, 14.26, 1.27, 1.27

F Failure to file penalty 2.14 Failure-to-pay penalty 2.14 Fellowship 11.1, 11.4, 11.5, 11.6, 14.5 Filing requirements 2.1, 2.2, 2.10, 2.12, 2.13, 11.5, 17.36 Form Form 1040 5.5, 4.13, 2.15, 2.14, , 5.1, 11.2, 5.2, 5.4, 5.6, 5.7, 5.8, 5.13, 5.15, 11.19, 11.22, 6.1, 6.2, 13.10, 13.11, 13.11, 13.12, 1.3, 13.9, 13.10, 13.11, 13.12, 13.13, 1.16, 1.21, 14.25, 1.26, 14.29, 1.32, 1.3, 13.3, 5.12, 1.32 Form 1040A 5.5, 2.8, 5.11, 3.15, 2.15, 3.16, 2.7, 2.14, 10.10, 3.14, 3.15, 5.1, 11.2, 11.3, 5.4, 5.6, 5.7, 11.8, 5.8, 11.9, 5.12, 5.13, 6.2, 13.1, 10.2, 10.3, 13.7, 10.9, 10.11, 11.5, 11.7, 13.7, 11.8, 11.10, 13.11, 13.13, 13.1, 13.2, 13.3, 13.4, 13.6, 13.10, 13.12, 16.16, 14.29, 14.1, 14.6, 14.7, 14.14, 1.28, 1.32, 1.28, 13.2, 1.3, 1.16, 1.19, 1.23, 1.27, 1.28

Form 1040EZ 11.2, 11.3, 11.6, 2.15, 1.27, 1.28, 1.32, 1.27, 1.23, 1.24, 1.19, 1.19, 1.1, 1.3, 1.16 Form 1098-T 11.4, 11.5, 11.6, 13.2, 16.9, 16.10 Form 1099-DIV 5.10, 5.11, 5.13, 5.15, 5.12 Form 2120 3.13 Form 8606 17.16, 17.33 Form 8815 13.3, 17.10 Form W-2 11.5, 11.6, 14.7, 13.11, 4.13, 1.17, 1.23, 1.32, 1.19, 1.21, 1.23, 1.16, 1.15, 1.16, 1.15, 1.1, 1.14, 1.23, 11.9, 1.32 Form 8275, Disclosure Statement 18.16 Foster care 1.2, 11.2 fraud 18.2 Fringe benefits 1.2 frivolous 18.2, 18.12 Frivolous 18.12

G Gambling 6.22, 11.2, 11.19 Gifts 5.4, 5.5, 1.2, 6.3 Gross income 2.6, 2.7, 3.6, 2.6, 2.7, 2.9, 2.10, 2.12, 2.13, 3.15, 2.17, 4.8, 3.14, 3.15, 3.16, 3.21, 10.9, 5.9, 6.2, 6.5, 6.23, 10.3, 10.8, 11.2, 11.4, 11.5, 13.2, 13.4, 13.5, 13.6, 13.7, 13.10, 13.11, 1.32, 1.27, 1.2, 1.3, 1.27 Gross income filing requirements 2.12, 2.13, 17.36

H Head of household 2.3, 2.14, 2.17, 3.15, 3.16, 3.22, 3.23, 4.2, 4.3, 4.4, 4.6, 4.7, 4.12, 4.13, 4.14, 10.3, 10.9, 10.10, 11.9, 14.7, 14.10, 14.14, 14.25, 17.19 Health insurance 3.9, 3.10, 3.11, 6.3, 6.5, 13.11, 13.12, 13.13, 14.13, 14.14, 14.15, 14.16, 14.21, 14.27, 1.21 History 17.3 Hobby 6.22, 11.19, 11.22 Hope credit 16.7 HSA 2.13, 2.17, 6.10, 11.22, 13.11, 13.13

Index I.3

I Income 2.3, 2.6, 2.7, 2.9, 2.10, 2.12, 2.13, 2.15, 2.16, 5.1, 5.4, 4.4, 2.5, 3.5, 2.5, 3.6, 4.7, 3.7, 4.8, 5.11, 2.11, 3.11, 2.12, 4.13, 2.14, 2.15, 3.15, 2.16, 3.16, 2.16, 2.17, 2.18, 3.21, 3.22, 3.23, 3.2, 3.4, 3.5, 3.7, 3.10, 3.11, 6.12, 3.14, 3.15, 3.20, 3.21, 4.6, 4.8, 4.9, , 5.1, 11.2, 5.2, 10.2, 5.3, 5.5, 5.7, 5.8, 5.9, 10.9, 10.10, 10.12, 5.13, 5.15, 10.17, 10.23, 11.2, 6.2, 11.3, 11.5, 11.6, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.22, 6.23, 11.6, 10.2, 10.3, 11.6, 11.8, 10.9, 11.9, 10.11, 11.19, 11.22, 10.24, 11.1, 14.2, 11.5, 13.5, 13.6, 14.7, 11.7, 13.7, 11.8, 14.10, 11.10, 13.11, 13.12, 13.13, 11.19, 11.20, 14.21, 14.22, 14.26, 14.27, 14.29, 14.29, 13.1, 13.2, 13.3, 13.4, 13.5, 16.5, 13.6, 13.10, 13.11, 16.11, 13.12, 16.16, 16.21, 14.2, 14.3, 14.4, 14.5, 14.6, 1.14, 1.15, 1.19, 1.21, 1.24, 1.26, 1.27, 1.28, 1.32, 1.14, 1.3, 1.14, 13.1, 11.1, 10.1, 5.1, 2.1, 1.1, 1.2, 1.3, 11.8, 11.9, 10.25, 1.32 Individual taxpayer identification number 1.24 Inheritances 13.6, 13.5, 1.2 Insurance proceeds 3.6, 3.11, 11.2 Interest 2.12, 2.13, 3.6, 3.11, 2.13, 2.17, 3.10, 3.11, 4.3, 5.1, 5.2, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 5.13, 5.15, 5.16, 6.1, 6.3, 13.5, 10.10, 6.13, 6.15, 6.16, 6.17, 6.23, 13.5, 13.6, 13.2, 1.3, 13.4, 13.5, 13.6, 13.7, 13.9, 13.10, 13.12, 13.13, 13.14, 6.1, 1.2, 5.5, 17.10 Investment income 10.1, 10.10 IRA 13.2, 13.7, 13.13, 16.25, 16.24, 13.1, 17.1, 17.2, 17.7, 17.8, 17.9, 17.10, 17.11, 17.14, 17.16, 17.17, 17.18, 17.19, 1.21, 17.27, 17.28, 17.29, 17.30, 17.33, 17.35, 17.36, 17.38 IRA distributions 17.1, 17.38 I.R.C. §7525 privilege 18.6

J Jury duty 11.19, 13.13

L Life insurance 3.11, 3.10, 4.3, 1.2 Limited Disclosure 18.7

M Marital status 2.3, 2.4, 2.10, 2.12, 2.14, 2.17 Married filing jointly 2.1, 2.3, 3.15, 4.7, 10.6, 10.12 Married filing separately 2.3, 2.7, 2.9, 2.15, 2.16, 3.15, 4.7, 4.10, 6.2, 10.9, 10.10, 13.6, 14.14, 17.9, 17.23

Medical and dental expenses 3.9, 6.1, 6.5, 6.11, 6.23 Medicare tax 1.21, 1.20 Medicare wages and tips 1.20 Mortgage interest 4.3 Multiple support agreement 3.1, 4.1

N Noncompliance 18.1, 18.9, 18.10 Nondeductible contributions 17.33 Nondependent taxpayers 2.17 Nonqualified plan 17.3, 1.20 Nonresident aliens 10.9, 10.10, 14.25, 1.3 Nonsigning preparer 18.13, 18.14, 18.15 Nonstandard form code 18.18 Nontaxable income 11.1, 11.2

O One Preparer Per Position Rule 18.14 Ownership of income 2.6

P Partially taxable 11.4, 11.5, 17.21, 17.28, 17.29, 17.30 Penalties 2.14, 2.15, 2.17, 13.12 Pensions 3.6, 3.5, 10.12, 14.5, 14.10, 1.3, 17.26, 17.30 Personal exemption 2.6, 2.6, 2.7, 2.9, 2.10, 2.17, 1.27, 10.25 Premium tax credit 2.13, 2.17, 14.1, 14.13, 14.29 Privileged Communications 18.6 Prizes 11.19

Q Qualified education expenses 11.5, 13.4, 13.5, 13.6, 16.3, 16.5, 16.7, 16.9, 16.10, 16.16 Qualified plan 13.11, 13.13, 17.2, 17.3, 17.4, 17.5, 17.8, 17.28, 17.35 Qualified student loan interest 13.4, 13.7, 13.13 Qualified tuition 13.3, 13.6, 16.3, 16.6, 16.16, 16.25 Qualified tuition plan 16.6 Qualifying child 2.10, 2.18, 3.1, 3.2, 3.4, 3.5, 3.6, 3.7, 3.8, 3.13, 3.16, 3.21, 4.1, 4.2, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 10.2, 10.3, 13.5, 10.6, 10.8, 11.9, 10.9, 10.10, 10.12, 14.29, 10.25, 10.25 Qualifying child of more than one taxpayer 4.10, 10.8, 10.25 Qualifying relative 2.10, 2.18, 3.1, 3.2, 3.5, 3.6, 3.7, 3.8, 3.11, 3.13, 3.21, 4.6, 4.7, 4.13, 13.5

I.4 H&R Block [Course Name] (2016)

Qualifying widow(er) 2.3, 4.2, 6.2

R Railroad retirement 14.5, 17.1, 17.9, 17.19, 17.26, 17.38 Real estate taxes 4.3, 6.13 Reasonability check 18.2, 18.3 Refund 3.5, 2.13, 2.16, 2.18, 3.4, 3.8, 3.20, 3.22, 5.10, 6.12, 6.16, 6.22, 10.6, 10.8, 10.18, 14.21, 10.23, 14.17, 16.6, 1.28 Registered Tax Return Preparer 18.8 Registered Tax Return Preparers 18.8 Reimbursement 6.5, 6.10 Related party exception 18.7 Research 2.16, 6.18, 6.20, 11.4, 11.5, 11.22, 17.16, 17.28, 17.31 Residency 3.4, 3.5, 3.7, 3.21, 4.12, 10.6, 10.8, 10.10, 10.12, 10.25 Resident alien 2.16, 10.7, 10.9, 10.10, 16.3 Retirement savings contribution credit 17.1, 17.38 Roth IRA 16.25, 17.1, 17.2, 17.7, 17.11, 17.14, 17.16, 17.17, 17.18, 17.19, 17.28, 17.36, 17.38 Rounding 1.14

S Salary reduction 14.6, 1.21 Saver’s Credit 14.1, 17.17, 17.18 Scholarship 3.11, 11.1, 11.4, 11.5, 11.6, 16.6 Self-employment tax 11.22, 13.11, 13.12, 13.13 Separate property states 2.6 Severance pay 4.13, 1.15, 1.32 Sick pay 1.21 Signing the Return Single filing status 2.9, 2.12, 2.14 Social security 2.5, 3.6, 10.9, 4.10, 3.11, 3.13, 2.13, 2.15, 13.12, 11.19, 3.5, 3.10, 3.11, 4.12, 5.6, 5.7, 6.5, 14.10, 10.3, 10.8, 14.25, 11.10, 13.11, 14.4, 14.5, 14.6, 14.10, 1.26, 1.3, 1.16, 1.19, 1.20, 1.21, 1.24 Social security benefits 2.5, 3.6, 3.6, 3.5, 3.6, 3.11, 11.19, 11.19, 11.10, 11.19, 14.6, 1.3, 17.21, 1.24, 17.24, 17.26

Social security wages 1.19 Standard deduction 2.6, 2.7, 2.8, 2.9, 11.6, 2.7, 4.7, 2.8, 2.9, 2.11, 2.12, 2.14, 2.15, 2.16, 2.17, 4.8, 6.2, 1.27, 1.32, 1.27, 1.27, 1.27, 1.27, 1.27 State and local bonds 1.2 Statements 1.14, 1.15 Statutory employee 1.21 Student Loan Interest Deduction Worksheet 13.7, 13.10 Substantial Authority 18.15 Substantial portion 18.13, 18.14

T Taxable income 2.10, 3.21, 2.9, 3.2, 3.15, 5.7, 5.9, 5.13, 14.7, 6.14, 10.2, 11.1, 11.5, 16.5, 11.20, 1.32, 1.27, 1.28, 1.3, 1.26, 1.27, 1.1, 1.3 Tax Computation Worksheet 1.26, 1.28 Tax-deferred 5.9, 17.2, 17.4, 17.5 Tax liability 2.13, 2.14, 2.15, 2.16, 3.1, 3.2, 4.1, 5.9, 8.1, 10.1, 10.2, 11.3, 10.3, 10.23, 11.2, 11.3, 14.2, 14.6, 14.24, 14.29, 1.1 Taxpayer identification number 1.24 Third-party sick pay 1.21 Thorough interview 18.3 Traditional IRA 13.1, 17.2 Tuition and fees 13.2, 13.5, 16.1, 17.10 Tuition and fees deduction 13.2, 16.1, 17.10

U Unearned income 1.3 Union dues 1.16, 1.21

V Vacation pay 1.15

W Wages 3.8, 11.9, 3.11, 4.13, 2.13, 1.21, 1.23, 14.27, 1.32, 1.20, 1.20, 1.20, 1.19, 1.19, 1.19, 1.15, 1.16, 1.2, 1.3, 1.14, 1.15, 1.32, 11.8, 3.16, 1.32 Worksheets 3.15, 10.10, 10.10, 1.14, 1.26 Written consent exception 18.7

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