Above-The-Line Adjustments for Individual's AGI (Form 1040) Flashcards
“Above The Line” Deductions to arrive at AGI
Student Loan Interest
Sale or exchange of property losses
Deductions related to rents & royalties
Penalties on premature withdrawals on investments, e.g. CD’s
Alimony payments
Discrimination suit awards
Health Savings Account & MSA contributions
IRA contributions
Jury duty remitted TO the employer
Moving expenses
Contributions to self-employed retirement plans (Keough)
Self-employed deduction on health insurance premiums
50% of self-employed tax
What deductions does the AGI impact?
Charitable contributions
Medical expenses
Casualty losses
Misc itemized deductions = Schedule A
What is another way to remember the major adjustments to gross income to arrive at AGI?
“Jamal sew half (50%) of the scar.”
JML SEW H 50% SCAR
Jury duty pay remitted Moving expenses Loss on property sales/exchanges SE health insurance premiums premature Withdrawal penalties HSA/MSA contributions 50% of SE tax Student loan interest Contributions to self-funded traditional IRA and SE retirement plans Alimony payments Rent and royalty deductions
Requirements for deduction student loan interest
Max $2,500/year, must be incurred for qualified educational expenses (tuition, books, fees), can’t be someone else’s dependent
Rent and royalty deductions are…
for expenses incurred in holding and maintaining the renal property or the property that produces royalties.
How is the deduction determined for expenses related to rental property?
Rented for less than 15 days = no deduction and no including the rent income in gross income
Used the property ourselves for less than 14 days or 10% of days rented = full deduction
Used the property ourselves for > 14 days/10%, but still rented out for more than 15 days = limit deduction to rent amount charged
Formula:
(Days Rented / Total Used) x Expenses = deductible amount
What makes moving expenses deductible?
When the move is for a new job @ least 50 miles away and worked at the work for more than 50% of the year
What makes moving expenses NON-deductible?
anything incurred for house-hunting trips, temporary lodging, meals, and breaking the lease or selling old/buying new house
What’s the deduction amount for a rental property that we rented out for $2K for 120 days and we lived in that home for 60 days then had our property stay vacant for the rest of the year? We incurred $5K in expenses.
10% times 120 days rented = 12 days 15 days.
Limit the deduction to $2K since that is the rent we received from our tenants.
(120 / 180) x $5K = $3.3K deductible amt, BUT reduce to $2K only since that’s what we got in rental income.
What deductions does the AGI impact?
Below-The-Line Deductions, specifically:
Charitable contributions
Medical expenses
Casualty losses
Misc itemized deductions = Schedule A
When can the taxpayer deduct alimony payments made to the ex?
When the alimony payments are made in cash or equivalent, established through a divorce decree, terminates at the ex’s death (or remarriage), and solely for alimony purposes. Can’t co-mingle with child support and/or property settlement payments
When does the taxpayer get to deduct his or her IRA contributions made during the year?
When the contributions were made to a traditional IRA that is NOT through a pension plan at work. 100% deductible for those who have to self-fund their traditional IRA’s.
When tax status is MFJ, the other “non-qualified” (b/c plan is thru work) spouse can deduct his/her IRA contributions only if the AGI is BELOW $116K. If at $116K or over, can’t deduct.
Ex - Mike and Jane = MFJ in 2014, under 65 w/ 1 qualified child
M’s wages $65K
J’s wages $55K
Total itemized deductions: $12.5K
M’s IRA contribution into plan on his own: $4K
J’s IRA contributions into plan thru work: $4K
Gross Income $65K + $55K = 120K
(Adjustments) ($4K for M’s IRA contributions)
=AGI = $116K
Can’t deduct J’s IRA contributions b/c AGI is already at $116K threshold. They make too much money to deduct J’s IRA contributions.
Can we deduct our 401(k) contributions?
Nope, because we already deducted the 401(k) contributions from our paycheck, which is on the W-2. 401(k) contributions are pre-tax dollars where we get to put money into the plan out of our paycheck before taxes and we are deferring the tax on these contributions until it is time to withdraw (this is why we include our 401(k) distribution in Gross Income). You are already paying less tax by reducing your take-home pay with the contributions. Therefore, can’t deduct these contributions. You essentially already took the deduction during the year through your paycehcks.
