Posted Saturday, August 26, 2023

WCG recently brought back the FasTrac 1040 tax return preparation designed specifically for those taxpayers who have a straightforward tax footprint yet want the expertise of a CPA firm to prepare the tax returns. Let us take a chore off your list of things to do… and let us be that team of tax experts that you can always count on should you need it.

What qualifies as FasTrac and why is it missing a t and a k? We’ll answer the former first. Here are the guardrails-

• Only 5-6 formal tax documents such as W-2s, 1098 mortgage interest statements, 1098 student loan interest, 1099-SSA, 1099-INT, 1099-G and similar forms. If you have 7 documents, are we going to kick you to the curb or kerb as they say in Formula 1? No, but let’s not push it, okay?
• Schedule A deductions are okay such a medical, taxes, mortgage interest and charity (church, Goodwill and the like). Please be super organized on your medical expenses and charitable donations.
• Dependent / child care credits. Yes, we need the SSN or the EIN of the provider plus the full address pretty please.
• IRA / 529 contribution are included.
• One state.

Here is a short and incomplete list of tax documents that precludes a FasTrac 1040 situation- 1099 brokerage accounts, K-1s, rentals, small businesses, personal sale of your primary residence, 1099-Rs (for whatever reason including rollovers and conversions), etc.

Our fee for FasTrac 1040 tax returns will be a flat $525.

Next, why does FasTrac 1040 not have the requisite t and k? No idea. Sorry. We could make something up like Terra and Karlee stole the letters when playing Scrabble, or that Tina is better at numbers than spelling, but none of that is quite true.

A lot of children and students work, and at times they need a tax return prepared. Mom and Dad usually ask us to take care of the whole family, and we can certainly help. Our 1040 tax return fee range for children and students 24 and under is usually $250 to $400 depending on the complexity. WCG has several children or students with several brokerage and investment statements including K-1s and other madness. In those situations, these tax returns leap from children/student and over FasTrac and into the traditional 1040 tax return world.

Some random thoughts about the child and student tax situations-

Support and Claiming Child as a Dependent
A child can still be your dependent and have a significant amount of earned income. The rule from the IRS is-

To meet this test, the child cannot have provided more than half of his or her own support during the tax year. This test is different from the support test for qualifying relative. A person’s own funds are not support unless they are actually spent for support.

Read that last sentence again. Here is an IRS example to drive home this nuance-

Doris, a U.S. citizen, is 8 years old and had a small role in a television series. She made $60,000 during the tax year, but her parents put all the money in a trust fund to pay for college. She lived with her parents all year. Doris meets the relationship, age, and residency tests. Doris also meets the support test since the $60,000 in earnings were not used for her own support. She meets the tests for a qualifying child.

Don’t get hung up on the use of a trust. The mere fact that Doris did not use the $60,000 for her own support is the hinge point. We have plenty of students who earn $20,000 to $30,000 but sock all the money away into savings. A problem occurs when a student graduates in May, earns $50,000 for the year and is basically “launched.” Each situation is unique.

The silver lining is that the value of a student being considered a dependent on Mom and Dad’s tax return is not as valuable as it used to be (ie, let’s chill out Mom and Dad when Doris is no longer a dependent).

Withholdings
If possible, your child or student should consider themselves exempt from federal income tax (and likely state income tax) if they earn less than the federal standard deduction. As such, when completing the W-4 withholding form, follow the instructions to claim the exemption (writing “Exempt” in the space below Step 4(c)). You would think a simple checkbox would be used in this situation but nope.

Education Credits
At times Mom and Dad earn too much income to benefit from education credits such as the American Opportunity Tax Credit (AOTC). If the student has taxable income (let’s say they earned $20,000 in a tax year), it might be better for the student to claim the education credit. We can check both situations and ensure the “family unit” is money-ahead. Of course, if Mom and Dad are paying the bills and the student gets the education credit then they must also buy dinner and decent bottle.

Engagement Particulars
In a case where the student is in college and adulting, we would prefer to have a client portal set up for them using their email address and phone number. Sure, Mom and Dad can help but technically as an adult we need to ensure our engagement is clear.

WCG is a full service consultation and tax preparation firm, and we look forward to working with you!