Davenport-Married Retired Civil Servant�Tax Year 2025

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FOR USE BY AARP FOUNDATION TAX-AIDE VOLUNTEERS ONLY

Click here for the latest version of this document.

FOR USE BY AARP FOUNDATION TAX-AIDE VOLUNTEERS ONLY

Learning Objectives

• Demonstrate a tax return for a retired married couple with multiple tax documents and discuss what to look for in these documents
• Discuss Personal Identification number (PIN) issued by the IRS and why it is important
• Learn how to calculate taxable income for a Civil Servant Pension
• Discuss brokerage statements and where to find information
• How to handle a capital loss carry forward
• How to determine the cost basis for an inherited stock

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Learning Objectives

• Learn about Itemized Deductions and how to determine what can and cannot be included
• Learn where to find resource tools and how to use them
• Additional navigation within the NTTC 4012 and TaxSlayer

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Married Retired Civil Servant Tax Topics

• Basic Information
• Blind Taxpayer
• Identity Protection Personal Identification Number (IP PIN)

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• Income
• Social Security
• IRA Distribution
• Civil Servant Pension
• Dividends and Interests
• Capital Gains and Losses and Capital Loss Carry Forward
• Sale of an Inherited Stock

• Deductions
• Itemized Deductions
• Deductions for Seniors (Must be 65 years old)

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Exercise Overview

• Michael and Sophia are retired seniors. Sophia is legally blind and had a Personal Identification Number (PIN) issued by the IRS
• They have multiple sources of income
• Social Security, IRA, Pensions, Dividends, Interest, Short & Long-Term Capital Gains, Inherited Stock
• They have a short-term capital loss carry forward from last year
• The Davenports will itemize based on their expenses
• Medical and Dental, Charity, Property Tax & Mortgage interest

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Davenport-Married Retired Civil Servant Tax Year 2025

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Five Choices for Filing Status

• Single (S)
• Married filing jointly (MFJ)
• Married filing separately (MFS)
• Head of household (HoH)
• Qualifying Surviving Spouse (QSS)

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Personal Information

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What is an IP PIN?

• Identity Protection Personal Identification Number (IP PIN)
• A six-digit number that prevents someone else from filing a tax return using the taxpayer’s Social Security number (SSN) or individual taxpayer identification number (ITIN)

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Obtaining an IP PIN

• In the case of identity theft, the IRS will mail the taxpayer a CP01A Notice with a new IP PIN each year
• Any taxpayer with an SSN or an ITIN may request an IP PIN
• Protects against tax-related identity theft
• Taxpayer must go online to obtain annual IP PIN

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Sample PIN Documents

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IRS Sample CPO1A Letter

Sample PIN Obtain from IRS Online Account

Counselor’s Concerns about IP PIN

• Taxpayer must bring PIN(s) in order to e-file tax return
• Taxpayer’s return will reject due to a missing PIN number
• If taxpayer does not bring their PIN then the taxpayer must file a paper return
• Make a note in TaxSlayer to indicate a person has a PIN
• Use current year PIN on all returns filed this year including prior year tax returns or amendments

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Where is IP PIN located on Form 1040?

• On prior year’s tax return in Signature section

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Basic Information

• Open TaxSlayer Practice Lab and select “Start New 2025 Tax Return” 
• Enter information and notice fields with “*” that are required
• Check to see who was the first person listed on last year's return. You want to be consistent from year to year.
• Enter all basic information
• Be sure to include that Sophia is legally blind and enter her PIN.

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• Record AGI and Refund/Amount Due

Social Security Income

• Social Security income can be reported on SSA-1099 or RRB-1099, the Railroad Retirement “blue form”
• Benefits are entered in TaxSlayer on the same screen as from an SSA-1099

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Social Security – Form RRB-1099

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Social Security SSA-1099

• Under Income select:
• Form 1099-R, RRB,SSA then
• ADD/EDIT and
• Social Security Benefits/RRB-1099
• Enter the two SSA-1099’s

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• Record AGI and Refund/Amount Due

Individual Retirement Account (IRA) Distribution: 1099-R

• Under Income select
• Form 1099-R, RRB, SSA then
• ADD/EDIT and
• Add or Edit a 1099-R
• Enter IRA information

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• Record AGI and Refund/Amount Due

Pension Distributions

• Pension:
• Series of determinable payments made to employee (or survivor) after retiring from work
• Annuity:
• Payments under contract from insurance company, trust company or individual
• Reported on Forms
• 1099-R – company plans/annuities
• RRB-1099-R – (green) Railroad Benefit
• CSA-1099-R – civil service, government

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Municipal Govt Pension

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Civil Service CSA 1099-R

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Health Insurance premium or basis recovered in tax year or both

Less Common 1099-R

Public Safety Officer Health Insurance Exclusion

Railroad Retirement

Disability payment

Simplified Method to calculate taxable amount

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Public Safety Officer Health Insurance 4012 Tab D

• Public Safety Officer’s (PSO) health insurance premium may be excluded from taxation, regardless of how the premium is paid
• Exclude up to $3,000 PSO’s insurance premium from taxable amount
• Reduce Form 1099-R box 2a by PSO insurance premium amount
• Insurance premium over $3,000 might be deductible:
• Medical expenses on Schedule A or
• Self-employed health insurance (SEHI) adjustment to gross income

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Railroad Retirement RRB-1099-R

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Disability Pension Distribution - Box 7 Code 3

• Before taxpayer reaches employer’s minimum retirement age
• Disability payments taxed as wages
• Reported on 1040 line 1, eligible for Earned Income Credit
• Once retirement age is reached
• Disability payment taxed as pension
• Reported on Form 1040, line 5a
• Does not start to recover their contributions until taxed as a pension

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Entering Disability in TaxSlayer for a Taxpayer who has not reached minimum retirement age

• Input on TaxSlayer Input Form 1099-R
• Check the box near the bottom of the 1099-R screen
• Treated as earned income on Form 1040, line 1a

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Taxable Pension Distributions

• Retirement plans are funded by:
• Before-tax contributions – distribution is fully taxable
• After-tax contributions – distributions partially taxable �(Form 1099-R, Box 9b)
• Taxable amount is on Form 1099-R in Box 2a

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Most Common

Calculating Taxable Pension Distributions �NTTC 4012 Tab D

• If Form 1099-R, Box 2a is blank,

and

• There are taxpayer total employee contributions reported in Box 9b

🡪 Use Simplified Method/Simplified General Rule to calculate taxable amount

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Taxable Pension Distribution - Simplified Method

• Inputs required
• Gross distribution amount (from 1099-R Box 1)
• Employee Contribution
• Box 9b Form 1099-R and CSA 1099-R
• Box 3 RRB-1099-R
• Annuity Start Date – Relies on good interview especially if spouse receives the annuity and does not remember the start date
• Taxpayer’s birth date and date annuity began

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Simplified Method (cont.)

• Spouse’s birth date if joint/survivor annuity is selected
• Single Life if annuitant died before first pension payment
• Taxpayer’s prior year tax return can be helpful
• Amounts previously recovered
• Number of months paid in previous tax years

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Colorado Resource Toolbox Pension Calculator

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http://tools.cotaxaide.org/Annuity%20Calculator.html

• Go to:
• NTTC Useful Tax Prep Links
• Select the link to Colorado Resource Toolbox.
• Select Annuity/Pension Exclusion Calculator

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TaxSlayer

• Enter results in 1099-R and calculated amounts in TaxSlayer
• Best practice
• Print a copy of the table from the Toolbox calculator and put in taxpayer’s envelope
• Make a note in TaxSlayer that this table is in the tax return folder
• Make a note on the tax return envelope

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Michael’s Civil Servant Pension 1099-R

• Open the Colorado Resource Toolbox Pension Calculator
• Enter the information for the Simplified Method
• Record the taxable amount

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• Under Income select
• Form 1099-R, RRB, SSA then select
• ADD/EDIT and select
• Add or Edit a 1099-R
• Enter Pension Amount with Taxable amount from above

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• Record AGI and Refund/Amount Due

Dividends: Exempt Interest

• 1099-DIV can contain exempt interest dividends
• These will show up on the tax return in
• Box 2a Tax-exempt interest
• Is it taxable on the Federal return?
• Is it taxable on your State return? (if applicable)

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Dividends included in a Brokerage Statement

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Box Number

Interest: 1099-INT

• Interest documents can look very different
• A single or multiple pages
• Part of a Brokerage Statement
• Make sure there are no duplicates
• Check the year and account numbers
• Be sure to enter information in the correct Box.
• Amounts less than $10, financial institution is not required to issue a 1099-INT; but it is taxable

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Interest

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Box Number

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* For states with state income tax

Dividends and Interest

• Under Income select
• Schedule B- Forms 1099-INT, DIV and OID then select
• ADD/EDIT and select
• Interest or Dividend Income
• Enter both the Dividends and Interest

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• Record AGI and Refund/Amount Due

Capital Gain or Loss Income

Name some investment assets where you would report gains and losses

• Stock
• Mutual Funds
• Bonds

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Capital Assets Terminology

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Investments must be reported on brokerage statement to be in scope. Some investments are not in scope; for example, collectibles.

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Capital Asset Basis and/or Adjusted Basis

• Original cost of the asset
• Adjusted basis:
• Includes purchase costs

and

• Any increases or decreases in cost

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Reporting a capital gain or loss

• Proceeds from a sale
• Security reported on Form 1099-B
• Real estate transaction
• Reported on Form 1099-S
• Some are out-of-scope

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IRS reporting requirement

What information is needed for data entry?

• Brokers must report on Form 1099-B
• Securities sold
• Sales price
• Sale date
• If basis is not provided, default is zero; therefore all gain is taxable
• Not desirable outcome!

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Consolidated Brokerage Statements

• May include the following forms
• 1099-B
• 1099-DIV
• 1099-INT
• 1099-OID
• & others
• No two broker statements look the same

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Capital Asset Losses and Carryover

• Deduct capital losses up to the amount of their capital gains plus $3,000
• MFS filing status:
• Deduct capital losses up to the amount of their capital gains plus $1,500
• Capital loss carryover
• Unused net capital loss carries over to subsequent years
• Does not expire

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Inherited Stocks

• Inherited property:
• A special rule apples and the capital gain or loss is treated as long-term regardless of how long it was actually held
• The basis of the inherited property is generally the Fair Market Value on the date of decedent’s death
• The tax document will frequently show a blank in the cost basis field
• Taxpayer may know the stock price at date of decedent’s death
• If required, the stock price at date of death can be found using the Historical Stock Price tools

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Capital Gains and Short Term Capital Loss

• Under Income select:
• Schedule D/Form 8949, then
• ADD/EDIT, and
• Stock, Mutual Funds, Cryptocurrency, Collectables, etc.
• Enter short term and long term capital gains/losses and the inherited stock sale
• Select “Capital Loss Carryover” and enter the Short Term capital loss carry forward from 2025

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• Record AGI and Refund/Amount Due

Less Common Topics

Itemized Deductions

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Standard or Itemized Deduction

• Claim larger of
• Standard deduction
• Increased if at least 65 and/or blind

-OR-

• Itemized deductions
• If itemized deductions are entered, TaxSlayer will select better option

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Who benefits from Itemizing

• People who:
• Paid large out of pocket medical and dental expenses that exceed 7.5% of their AGI
• Paid state and local income taxes, sales tax or property taxes
• Paid mortgage interest
• Made large charitable contributions

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Common Itemized Deductions NTTC 4012 Tab F

• Medical and dental expenses
• Charitable contributions
• State and Local Taxes (SALT)
• Mortgage Interest
• Gambling Losses up to amount of winnings

Worksheet: https://ta-nttc.tiny.us/Itemized-Deductions-WS

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Medical Expenses NTTC 4012 Tab F

• Diagnosis, cure, mitigation, treatment, or prevention of disease
• Treatments affecting any part or function of body
• Equipment, supplies, and diagnostic devices
• Premiums for insurance that covers medical care
• Long-term care insurance premiums (limited)
• Transportation/travel to get medical care

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Gifts to Charity

• Qualified charity
• Churches, governments, schools, etc.
• Approved by IRS
• U.S. charity
• irs.gov/charities-and-nonprofits for list
• Limited to % of AGI

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Gifts to Charity (Cash)

• Monetary contribution less than $250
• Bank record (check, credit card or bank statement) or receipt or written acknowledgement from charity
• Monetary contribution $250 or more
• Written acknowledgement from charity
• Must state value of goods or services provided in exchange for contribution, if any
• i.e., fundraising dinner – value of dinner must be deducted from ticket price paid; only net amount deductible

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Gifts to Charity (Non-cash)

• Donations of clothing or household items
• Deduct fair market value
• Usually thrift store value
• Good used condition or better
• Capital gain or business property donations – out of scope
• Any motor vehicle, boat, or plane donations – out of scope
• EXCEPTION: Not out-of-scope
• Vehicle $500 or less
• No Form 1098-C is required (unless submitted by recipient)

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Gifts to Charity (Out-of-pocket)

• Out-of-pocket expenses are also deductible
• Mileage
• Tolls and parking
• Out of pocket expenses when serving as volunteer for qualified charity (e.g., hospital volunteer uniform)

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Non-Deductible Items

• Political organizations and candidates
• Country club/fraternal lodge
• Business organizations such as Chamber of Commerce
• Raffle, Bingo or Lottery Tickets

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• Civic Leagues
• Social clubs
• Labor Unions
• Homeowners’ associations dues

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State and Local Taxes (SALT)

• Taxes Include
• State and local taxes (income tax or general sales tax)
• Real estate tax (U.S.)
• Personal property tax based on value
• Foreign income tax (if not claiming a credit)
• Requirement
• Imposed on taxpayer
• Paid in current tax year

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Home Mortgage Interest NTTC 4012, Tab F-14

• Interest on loan secured by main home or second home
• Mortgage to buy, build, or improve main home or second home (both limited)
• Home equity loan or line of credit (only if used to buy, build, or improve home)
• Both taxpayer and lender must intend that loan be repaid

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Home Mortgage Interest

• Mortgages taken out before October 13, 1987
• Fully deductible, no limit
• Mortgages after October 13, 1987
• Limited to $1,000,000 total debt ($500,000 MFS)
• Mortgages after December 15, 2017
• Limited to $750,000 total debt ($375,000 MFS)
• Note: Lender late charges are deductible as interest
• If interest on underlying loan is qualified

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Home Mortgage Interest Points

• Paid at loan origination
• Used to buy or build main home, deductible in full
• Used to refinance qualified debt, spread over life of loan
• When underlying loan is not qualified, points are not deductible

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Non-Deductible Items

• Personal interest
• Service charges
• Annual fees for credit cards
• Loan fees

• Credit investigation fees
• Interest to purchase or carry tax-exempt securities
• Fines and penalties paid to a government for violations of law

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Deductible but Out of Scope

• Casualty and theft losses
• Investment interest
• May be called margin interest on brokerage statements
• Interest on other debt if funds are traced to investments

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Miscellaneous Deductions

Allowed deductions

• Gambling losses up to the amount of winnings
• Unrecovered investment in annuity (at termination)

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Not allowed deductions

• Tax return preparation fees
• Safe deposit box rental fees
• Investment fees and expenses

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Itemized Deductions – Special Rule

• Married filing separately
• If one spouse itemizes deductions, the other spouse MUST itemize
• Does not matter who files first
• Does not apply if eligible for Head of Household status

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Itemize Deductions

• Use the 2025 Itemized Deductions (SchA) Worksheet to gather all the relevant information

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• Record AGI and Refund/Amount Due

• Under Deductions select:
• Itemized Deductions then select
• ADD/EDIT and select
• Enter the items and amounts to be itemized
• Medical, Dental and Expenses
• Qualified Mortgage Interest
• Taxes You Paid
• Gifts to Charity

Review Return: 1040 Tax Return

• Select Print Preview and Open up the Tax return
• Go to Form 1040

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Review Income Section

• Line 2a and 2b?
• Line 3a and 3b?
• Line 4b?
• Line 5a and 5b?

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• Line 6a and 6b?
• Line 7a?
• Line 9?
• Line 11a?

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Review Taxes and Credits

• Line 12e?
• Line 13b?
• Line 15?
• Line 16?

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Review Payments and Refunds

• Line 25d?
• Line 34?
• What is the number next to the spouse signature line and why is it important?

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Review of Today’s Class

• Learned about more tools and navigation
• NTTC Useful Tax Prep Links is a great resource
• Saw a variety of tax documents and learned what to look for
• Discussed the importance of checking for duplicates and account numbers
• Discussed why Personal Identification number (PIN) is important
• Used the Colorado Resource Tool to calculate taxable income for a Civil Servant Pension

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Review of Today’s Class

• Discovered how much fun brokerage statements are:
• Observed where information from Dividends and Interest end up on the Tax Document and the importance of entering information in the correct field (Box No.)
• Entered both long & short term capital gains
• Learned that inherited stock is always a long term gain and can determine cost basis if date of death is known
• Entered capital loss carry forward

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Review of Today’s Class

• Entered Itemized Deductions
• Observed how itemizing was a benefit for these taxpayers
• Noted the new Enhanced Deduction for Seniors

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