Wisconsin Sch I adjustments

[Bill (Wisconsin)]

Wisconsin Sch I (eye) adjustments

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Ran into a couple scenarios that I want to see how other Wisconsin-filers are handling. They're somewhat similar in how much does Federal income need to be recalc'ed for WI purposes:

1) Difference in depreciation between Fed & WI on a Sch C -- stems from taking the 50% bonus depreciation in 04. Last year's return from a new client -- the preparer not only calculated the difference in depreciation and properly recorded that on Sch I, but then also calculated how much different the deduction for 1/2 of Self-Employment Tax would have been and included that difference on Sch I. I was not aware of any need to recalculate the 1/2 Self-Employment Tax deduction -- is that supposed to be done / does anyone else do that?

2) Tuition for out-of-state school. Entered this on the Tuition/Fees Deduction for Federal; this deduction resulted in client now qualifying for Earned Income Credit. Backed out T/F Deduction on Sch I, and did not do a Form 1 line 11 subtraction since it was out-of-state. But this resulted in client qualifying for EIC on WI (4% of the Federal EIC - 1 child). Are we supposed to recalculate what the Federal EIC would have been without the T/F Deduction (which WI does not recognize and therefore is a Sch I adjustment), or do we just blindly take the Fed EIC and multiply by 4%?

Any insights or cites would be welcome!

Bill

[D Eckerman]

TOO good of questions Bill!

How did you do WI out of state?

thx D

[Bill (Wisconsin)]

TOO good of questions Bill!

How did you do WI out of state?

thx D

D,

Not sure what you mean. I did several out-of-state returns (ND, HI, GA, MI, MO, PA, AR) this year. I used the PRS in ATX. Though 2 weeks ago I had used up the first 10, and not wanting to buy 5 more ($85?), I did a easy HI by downloading their fillable PDF.

Don't know if I'll continue with ATX though for next year. Last summer I meant to test-drive a couple other softwares, but this summer definitely need to!

Bill

[RoseK]

Hi Bill (Wisconsin)

You are getting my first reply since I joined about 20 minutes ago. I am also in WI and glad to know there others on board. WOW you really do have two amazingly intense questions

About the tuition deduction on Line 11 I REALLY had my mind jogged because when I first read the question, I was thinking it was just the stupid way WI treats the Fed tuition adjustment because they considered it a subtraction. But When you said "out of state" I remembered there was some difference and just pulled the WI-X to read the line 11 instructions. I hope I haven't had too many students attending out of state schools because I am screwed.

I would think that Wisconsin would expect the EIC to be based on the Fed income without the tuition adj. Just removing the deduction on Sch I without the line 11 entry would probably flag the return for a closer look. So I am thinking they would expect us to refigure the fed eic. Personally I think we should ignore both adjustments, but the education adj is a biggy and would cause the client a big problem.

Regarding the difference in WI depreciation and the 1/2 SE, I never heard that we had to adjust that amount. There isn't anything in the Sch I instructions regarding the 1/2 SE, and it is not one of the 45 listed items subject to an adjustment on Sch I.

RoseK

Wisconsin Sch I (eye) adjustments

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Ran into a couple scenarios that I want to see how other Wisconsin-filers are handling. They're somewhat similar in how much does Federal income need to be recalc'ed for WI purposes:

1) Difference in depreciation between Fed & WI on a Sch C -- stems from taking the 50% bonus depreciation in 04. Last year's return from a new client -- the preparer not only calculated the difference in depreciation and properly recorded that on Sch I, but then also calculated how much different the deduction for 1/2 of Self-Employment Tax would have been and included that difference on Sch I. I was not aware of any need to recalculate the 1/2 Self-Employment Tax deduction -- is that supposed to be done / does anyone else do that?

2) Tuition for out-of-state school. Entered this on the Tuition/Fees Deduction for Federal; this deduction resulted in client now qualifying for Earned Income Credit. Backed out T/F Deduction on Sch I, and did not do a Form 1 line 11 subtraction since it was out-of-state. But this resulted in client qualifying for EIC on WI (4% of the Federal EIC - 1 child). Are we supposed to recalculate what the Federal EIC would have been without the T/F Deduction (which WI does not recognize and therefore is a Sch I adjustment), or do we just blindly take the Fed EIC and multiply by 4%?

Any insights or cites would be welcome!

Bill

[mcb39]

Wisconsinites, also, don't forget about the adjustment on Sch I for HSA deductions that are taken on Fed returns. They are not allowed in WI. I didn't know this until about halfway through the season and, fortunately, did not have to amend any. I did, however, see that a few of the clients who came in with 2005 WI Tax Refunds on a 1099G had adjustments made by the state to their refunds for the HSA and MSA deductions. IMO, HSA's are one of the biggest tax prep headaches that I have ever encountered. Even have other preparers calling to ask how I reported them. Truthfully, I am never sure if it is totally correct. Must always remember to ask client what their high deductible is and a lot of them don't even know. :(

[D Eckerman]

HSA = I think I finally figured them out this year - I know last yeat people got credits!

First Marilyn, like you said... - what is their deductible But it only comes into play IF they put more into their HSA than their employer OR after tax dollars. Many places here, people are adding but it is pre-tax and then it is supposed to show up in box 12 as code W.

The federal credit is only for their taxable dollars put in up to their deductible!

IF they get a credit, on WI I, then you have 0 for fed wages and say 2800 for the additional or difference between box 1 and 16 on the W-2.

Then is they received a credit on the federal pg 1, I usually show -1200 for federal and it adds it to WI.

The out-of-state I was talking about was the credit to WI tax if a taxpayer paid tax to another state and it was eligible to deduct against the WI tax due. The WI 1 book says see the OS owrksheet - of which I cannot find and on ATX, you cannot bunny hop to a worksheet either, you must override the line.

[RJM]

Hi Bill ! Are you Bill Tubbs who did not post on the ATX board this year? If yes, I missed your often insightful WI tax comments this season, but did see you a bit on TTB's board. If you are a different Bill, welcome.

For your issue 1), the Sch I instructions imply to me that we should be using 2004 federal tax rules, with the further adjustments specified in the instructions, and that we are to Re-Calculate the federal tax return with All these changes and reflect All the AGI and itemized dedux changes on Sch I. While the rules IMO incorporate ALL WI differences between federal 2004 law and the specific "Items Affecting" in the Sch I instructions, as a general rule I only adjust for the "first round" of direct differences such as depreciation, HSA's, itemized deductions, etc. These are items Specifically Addressed in the instructions. The only time I go the further step is when there are obviously large $ differences which may affect other items on the tax return. It just isn't worth the time and effort to go through all these machinations for a more ordinary return, and it is obvious the state does not check these items, cuz my clients never get audited on these things.

For 2), I believe that the EIC adjustment should be made, as per 1) above. However, if the return has small dollars associated with it, I probably would never have bothered with investigating this difference.

That's my 2 cents.

[Bill (Wisconsin)]

The out-of-state I was talking about was the credit to WI tax if a taxpayer paid tax to another state and it was eligible to deduct against the WI tax due. The WI 1 book says see the OS owrksheet - of which I cannot find and on ATX, you cannot bunny hop to a worksheet either, you must override the line.

Correct, you cannot bunny-hop to Sch OS. But, "WI Sch OS" is in the list when you click "Add Forms". I filled in lines 1-4 of Sch OS and the computer took care of the rest.

Hi Bill ! Are you Bill Tubbs who did not post on the ATX board this year? If yes, I missed your often insightful WI tax comments this season, but did see you a bit on TTB's board. If you are a different Bill, welcome.

One in the same. Got annoyed with the layout of the ATX forum, and the TTB worked well for me. Besides, barely had time to keep up with just the TTB forum as it was.

For 2), I believe that the EIC adjustment should be made, as per 1) above. However, if the return has small dollars associated with it, I probably would never have bothered with investigating this difference.

In this case it was obvious -- when I amended the federal return to change from Lifetime Learning Credit to T/F deduction, then the client qualified for EIC (albeit only $20 for WI in this case). But it was enough for me to question what correct procedure is. Seems like the few of us answering the question are split. Perhaps I'll call the friendly Green Bay office this coming week and see what they say.

Bill

[Bill (Wisconsin)]

FWIW:

This morning I talked with an agent with WI DOR and asked her about these scenarios. She is not aware of these adjustments (1/2 SE tax adjustment, Fed EIC being recalculated because of T/F deduction) needing to be made -- hasn't run across it in any of the audits she's performed. She said she'd run it past some others in the office and call me back if these changes do actually need to be made. If they would need to be made, then perhaps the amount of Social Security that's taxable would also need to be recomputed too (if there is a change in depreciation for WI purposes).

Bill