14.1 ADJUSTMENTS AND DEDUCTIONS TO ARRIVE AT ADJUSTED GROSS INCOME AND TAXABLE INCOME Flashcards
HOW DO YOU ARRIVE FROM GROSS INCOME TO YOUR TAXES DUE OR REFUND?
SEE SCREENSHOT
WHAT ARE THE DEUCTIONS FOR AGI?
SEE SCREENSHOT
FYI, UNREIMBURSED BUSINESS EXPENSES ARE NOT DEDUCTIBLE
HOW MUCH INTERST FROM STUDENT LOAN IS DEDUCTIBLE?
THE LESSER OF STUDENT LOAN INTEREST PAID OR 2.5K, HOWEVER THE DEDUCTION IS SUBJECT TO A PHASE OUT BASED ON MAGI.
SINGLE, HOH, AND QSS IS 15K (STARTING AT 75K MAGI)
FILLING JOINTLY IS 30K (STARTING AT 155K MAGI)
*NO DEDUCTION IS ALLOWED IF MFS OR BEING CLAIMED AS ADEPENDENT ON ANOTHER PERSONS TAX RETURN
FURTHERMORE, YOU ARE ALLOWED TO DEDUCT STUDENT LOAN INTEREST AS AN ADJUSTMENT FOR AGI. THE INTEREST YOU CAN DEDUCT IS TUITION, FEES, BOOKS AND ROOM AND BOARD.
WHAT IS THE REAL ESTATE PROFESSIONAL EXCEPTION AND THE ACTIVE PARTICIPATION EXCEPTION?
*RENT RECEIVED IN ADVANCE “EVEN AN ACCRUAL BASIS TAXPAYER” WILL INCLUDE THE THE RENTAL INCOME IN THE PERIOD RECEIVED”
* PASSIVE ACTIVITY IS ANY BUSINESS VENTURE IN WHICH THE TAXPAYER DOES NOT MATERIALLY PARTICIPATE. (MATERIAL PARTICIPATION MOST COMMON TEST IS THE > 500 HOURS IN A YEAR)
* PAL ARE GENRALLY DEDUCTIBLE ONLY TO THE EXTENT OF PASSIVE GAINS
* THE REAL ESTATE EXCEPTION ALLOWS LOSSES TO BE TREATED AS ORDINARY BUSINESS LOSSES AND THUS ALLOWED TO BE DEDUCTED AGAINST ORDINARY INCOME.
* IF A TAXPAYER ONLY ACTIVELY PARTICIPATES IN THE RENTAL ACTIVITY AND OWNS AT LEAST 10% INTEREST IN THE ACTIVITY, THEY MAY DEDUCT UP TO 25K OF LOSSES AGAINST ORDINARY INCOME EACH YEAR.
DEDUCTION IS REDUCED BY 50% OF MAGI OVER 100K
((25K - (MAGI - 100K) x 50%))
WHAT IS THE TREATMENT OF RENTAL INCOME AND EXPENSES FOR A VACATION HOME?
[RESIDENCE WITH MINIMAL USE] RENTAL USAGE LESS THAN 14 DAYS: INCOME IS EXCLUDED FROM GROSS INCOME, RENTAL EXPENSES ARE NOT DEDUCTIBLE
[RESIDENCE WITH SIGNIFICANT USE] RENTAL USAGE GREATER THAN 14 DAYS AND PERSONALLY USED FOR MORE THAN 14 DAYS OR 10% OF THE NUMBER OF DAYS RENTED: RENTAL INCOME IS INCLUDED IN GROSSINCOME AND DEDUCTIONS ARE PRO RATED
[NON RESIDENCE] RENTAL USAGE GREATER THAN 14 DAYS OR 10% AND PERSONALLY USED NOT MORE THAN 14 DAYS OR 10% OF THE NUMBER OF DAYS RENTED: RENTAL INCOME IS INCLUDED DEDUCTIONS ARE PRO RATED, AND RENTAL LOSS IS SUBJECT TO PASSIVE ACTIVE LOSS LIMITATIONS.
WHAT IS THE PHASE OUT CALCULATION
USUALLY THE PHASE OUT INDICATES HOW MUCH WILL BE DEDUCTED ON A CERTAIN ITEM DUE TO THRESHOLDS.
(EXCESS FO THRESHOLD - THRESHOLD) / RANGE x ALLOWED DEDUCTION = REDUCTION/PHASEOUT AMOUNT
WHAT IS THE TRADITIONAL IRA PHASE OUT FOR DETERMINING DEDUCTIBILITY FOR AGI?
KEOGH CONTRIBUTIONS DEDUCTIBILIY IS LIMITED TO THE LESSER OF 25% OF NET SEL EMPLOYMENT INCOME AFTER THE DEDUCTION OR 66K IN 2023
WHAT ARE THE DIFFERENT TYPES OF EDUCATIONAL SAVINGS ACCOUNTS?
CONTRIBUTIONS OF UP TO 2K PER YEAR CAN BE MADE ON BEHALF OF ANY BENEFICIARY UNDER THE AGE OF 18 TO COVERDELL ESA. CONTRIBUTIONS ARE NOT DEDUCTIBLE BUT AMOUNTS MAY BE WITHDRAWN FREE OF TAXATION.
529 - MAY CONTRIBUTE UP TO 17K, 10% PENALTY IF NOT USED FOR QUALIFIED HIGHER EDUCATION.
WHAT IS A HEALTH SAVINGS ACCOUNT?
HSA CONTRIBUTIONS MAY BE DEDUCTED BY A SELF-EMPLOYED TAXPAYER OR EMPLOYEE IF THE TAXPAYER HAS A HIGH-DEDUCTIBEL HEALTH PLAN (HDHP)
CONTRIBUTIONS ARE LIMITED TO THE LESSER OF DEDUCTIBLE OR LIMIT 3,850 FOR SINGLE AND 7,750 FOR FAMILY PLANS
DISTRIBUTIONS FROM HSA ARE TAX FREE IF USED FOR QUALIFIED MEDICAL EXPENSES.
WHAT ARE ITEMIZED DEDUCTION?
SEE SCREENSHOT
FYI - MISC ITEMIZED DEDUCTION SUBJECT TO 2% OF AGI LIMITATIONS HAVE BEEN SUSPENDED FOR 2018 - 2025
DEDUCTION FOR NONWAGERING EXPENSES ASSOCIATED WTIH GAMBLING ALOS IS ALLOWED.
WHAT IS THE STANDARD DEDUCTION?
SEE SCREENSHOT
WHAT IS THE TREATMENT OF CHARITABLE CONTRIBUTIONS?
GENERALLY DEDUCTIBLE TO THE EXTENT THE TAXPAYER HAS PROVIDED CASH OR PROPERTY THAT EXCEEDS ANY VALUE RECEIVED FROM THE CHARITY.
> $250 WRITTEN FORM IS REQUIRED
DEDUCTIBLE IN THE YEAR RECEIVED, CONTRIBUTIONS MADE BY CC ARE DEDUCTIBLE WHEN CHARGED
CASH CONTRIBUTIONS ARE GENERALLY LIMITED TO TO 60% AGI
DEDUCTIONS ARE ONLY ALLOWED FOR QUALIFIED ORGANIZATIONS, USE OF A TAXPAYER’S PROPERTY, RAFFLE TICKETS, GIFTS TO INDIVIDUALS, BLOOD DONATIONS, TUITION TO RELIGIOUS INSTITUTIONS, AND CONTRIBUTIONS TO POLITICIANS OR POLITACAL GROUPS, VALUE OF VOLUNTEER WORK, ORGANIZATIONS OUTSIDE THE US ARE NONDEDUCTIBLE.
WHAT IS THE TREATMENT OF CONTRIBUTIONS OF PROPERTY?
1) PROPERTY IS ORDINARY INCOME PROPERTY IF ITS SALE AT FMV ON THE DATE IT WAS CONTRIBUTED WOULD HAVE RESULTED IN ORDINARY INCOME OR ST CAPITAL GAIN. (E.G., INVENTORY, SELF-CREATED WORKS OF ART, AND CAPITAL ASSETS)
DEDUCTION IS THE LOWER OF THE TAX BASIS OR THE FMV AT CONTRIBUTION DATE
- LIMITED TO 50% AGI
- MOST LIKELY THIS IS THE TAX BASIS!
2) PROPERTY IS CAPITAL GAIN PROPERTY IF ITS SALE AT FMV ON THE DATE IT WAS CONTRIBUTED WOULD HAVE RESULTED IN A LONG TERM CAPITAL GAIN
DEDUCTION IS THE HIGHER FMV OF THE LT CAPITAL GAIN
- LIMITED TO 30% AGI
- MOST LIKELY FMV
WHAT IS THE TREATMENT OF UNREIMBURSED MEDICAL EXPENSES?
IF THE TAXPAYER DOES NOT ITEMIZE THEIR DEDUCTIONS, THEN NO DEDUCTION FOR MEDICAL EXPENSES IS PERMITTED.
THE COST OF DIAGNOSIS, CURE MITIGATION, TREATMENT, OR PREVENTION OF DISEASE AND THE COST FOR TREATMENT AFFECTING ANY PART OF THE BODY.
MEDICAL COST ARE DEDUCTIBLE ONLY AFTER THEY EXCEED 7.5% OF YOUR AGI.
MEDICAL COSTS MAY BE ON BEHALF OF THE TAXPAYER, SPOUSE, A DEPENDENT, OR OTHER PEOPLE FOR WHOM > 50% OF SUPPORT IS PROVIDED. INCOME AND THE JOINT RETURN TEST ARE NOT APPLICABLE IN THIS DEDUCTION.
MEDICAL EXPENSES ARE REDUCED IF SUCH EXPENSE INCREASES THE VALUE OF AN ASSET. (E.G., HOUSE INCREASED VALUE DUE TO THE INSTALLATION OF A QUALIFIED SWIMMING POOL FOR PHYSICAL THERAPY)
CERTAIN MEDICAL EXPENSES ARE NOT DEDUCITBLE,
- NONPRESCRIPTION MEDICINE
- GENERAL HEALTH IMPROVEMENT (GYM)
- DISABILITY INSURANCE “INSURANCE PREMIUMS ON AN INSURANCE POLICY AGAINST LOSS OF EARNINGS DUE TO SICKNESS OR ACCIDENT”
THE MEDICAL EXPENSES INCURRED BY A TAXPAYER FOR HIMSELF, SPOUSE, OR A DEPENDENT ARE DEDUCTIBLE WHEN CHARGED TO.A CREDIT CARD.
WHAT ARE THE TWO TYPES OF INTEREST THAT TAXPAYERS CAN DEDUCT AS AN ITEMIZED DEDUCTION?
- INVESTMENT INTEREST (EXCLUDES INTEREST FROM PASSIVE ACTIVITIES AND NONEXEMPT INCOME) - INTEREST PAID ON BORROWINGS USED TO MAKE PERSONAL INVESTMENTS, - LIMITED TO THE LESSER OF NET INVESTMENT INCOME OR THE INVESTMENT INTEREST PAID (I.E., INVESMTNET INCOME - INVESTMENT EXPENSE OTHER THAN INTEREST) UNUSED AMOUNT IS CARRIED FORWARD INDEFINETELY.
- HOME MORTGAGE INTEREST (ACQUISTION DEBT) “DEBT USED TO BUY, BUILD, OR SUBSTANTIALLY IMPROVE THE HOME THAT SECURES THE LOAN” - LIMITED TO 750K INDEBTEDNESS (AFTER 12/15/2017) - PENALTY PAYMENT FOR PREPAYMENT OF HOME MORTGAGE IS ALSO INCLUDED
- POINTS PAID FOR THE PURCHASE OR IMPROVEMENT OF A PRINCIPAL RESIDENCE QUALIFY FOR THE DEDUCTION IN THE YEAR OF PAYMENT. POINTS ARE CONSIDERED PREPAID INTEREST AND MUST BE AMORTIZED OVER THE LIFE OF THE LOAN.
FOR PURPOSES OF DETERMINING NIIT, THE LESSES OR NII OR MAGI OVER THRESHOLD IS MULTIPLIED BY 3.8%
NII = INVESTMENT INCOME - INVESTMENT EXPENSE
FOR PURPOSES OF DEDUCTING IN SCH A THE LESSER OF NII OR INVESTMENT INTEREST PAID IS DEDUCTIBLE
NII - INVESTMENT INCOME - EXPENSES OTHER THAN INTEREST
WHAT TAXES IF ITEMIZED ARE DEDUCTIBLE?
THE TOTAL DEDUCTION FOR STATE AND LOCAL TAXES IS LIMITED TO 10,000 FOR SINGLE AND MFJ TAXPAYERS, AND 5,000 FOR MFS
A CAVEAT ON REAL ESTATE TAXES IS THAT IF A TAXPAYER SELLS A HOME PRIOR TO PAYING THEIR PROPERTY TAX THEY CAN DEDUCT THE AMOUNT THE RESIDED AT THE HOME PRORATED IN DAYS.
A MONTH IS 30 DAYS AND A YEAR IS 365
ANOTHER CAVEAT IS THE AMOUNT OF STATE INCOME TAX PAID IS THE AMOUNT FOR 4/15, 6/15, AND 9/15 THE AMOUNT FOR 1/15 WOULD BE INCLUDED IN THE FOLLOWING YEAR - EVEN IF THE PMT OF TAX IS FOR A TAX OBLIGATION
AN INDIVIDUAL’S PAYMENT OF STATE, LOCAL, OR FOREIGN REAL ESTATE TAXES IS DEDUCTIBLE AS AN ITEMIZED DEDUCTION REGARDLESS IF THE PROPERTY IS JOINTLY OWNED.
WHAT ARE THE RULES FOR THEFT AND CAUSALTY LOSSES?
LIMITED TO FEDERALLY DECLARED DISASTER
CASUALTY LOSS EXCEEDING 10% OF AGI
SEE SCREENSHOT
WHAT IS THE DEDUCTION OF QBI?
IS YOUR TAXABLE INCOME BELOW, IN THE MIDDLE OR ABOVE THE THRESHOLD?
BELOW: DEDUCTION IS 20% OF QBI, INCLUDING SSTB
*PHASE OUT AMOUNT FOR MFJ OF 100K AND 50K FOR OTHERS
MIDDLE: LIMITATION APPLIES TO THE GREATER OF 50% OF WAGES OR 25% OF WAGES + 2.5% OF UNADJUSTED BASIS OF QUALIFIED PROPERTY IS PRORATED AND REDUCES THE 20% QBI
- TAXABLE INCOME FOR SSTB IS PHASED OUT DOLLAR FOR DOLLAR OVER THE THRESHOLD.
- 100% - (T/I - THRESHOLD) / RANGE
GREATER: THE GREATER OF 50% OF WAGES OR 25% OF WAGES + 2.5% OF UNADJUSTED BASIS OF QUALIFIED PROPERTY IS DEDUCTED INSTEAD OF THE 20% QBI
*N/A FOR SSTB
WHAT ARE THE CARRYOVER RULES FOR INDIVIDUALS?
