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September 12th, 2011Best Tax Software
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Registered Tax Return Preparer Jobs Interpreting When Social Security is Taxable
The tax impact of Social Security benefits is never certain until other sources of income are known. The training to become a certified tax preparer covers the detailed formula for determining how much of the Social Security payments received by a taxpayer are taxable, if any.
Another important part of Registered Tax Return Preparer jobs is providing a simplified explanation to tax clients. Many individuals are misinformed that the tax implications of Social Security benefits are based upon age. Although former tax rules relating to Social Security income were age-related, that is no longer the case.
Social Security recipients with no other sources of income are not subject to income tax. However, those with other types of income can incur tax. A part of their Social Security payments is taxable if their total income according to a particular formula exceeds a specified threshold. Understanding the components of the formula is required learning for the IRS Registered Tax Return Preparer exam.
The income calculation requires adding gross income plus tax-exempt interest and 50 percent of Social Security benefits. Part of Social Security benefits are taxed when the results of this formula exceed an initial threshold. The taxable percentage increases if a second threshold is passed.
Tax preparer software automatically adds the correct taxable amount to a return after entry of the total Social Security payments. But an RTRP needs to understand the calculation.
The income threshold is based upon filing status. For 2010 tax returns, the initial threshold is $32,000 for taxpayers filing joint tax returns and $25,000 for others – except individuals married filing separately that lived with their spouses at any time during the year, who face tax on all their Social Security benefits. These figures change each year for cost-of-living adjustments.
An RTRP study course teaches other potential elements relating to taxable Social Security. One of the significant aspects is that a taxpayer's final adjusted gross income figure includes the amount of Social Security subject to tax. Adjusted gross income has an impact on some itemized deductions – such as medical expenses and miscellaneous deductions. In addition, higher adjusted gross income affects whether a taxpayer is entitled to a tax deduction for IRA contributions or qualifies for some types of education tax credits.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
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