Adjustments and Deductions Flashcards
List the deductions FOR Adjusted Gross Income (AGI)
- Educator Expenses
- IRA Contribution
- Student Loan Interest Expenses
- Tuition and Fee Deduction
- Health Savings Account
- Moving Expenses
- 1/2 Self-Employment (FICA)
- Self-Employed Health Insurance
- Self-Employed Retirement
- Interest Withdrawal Penalty
- Alimony Paid
- Attorney feeds paid in certain discrimination and whistleblower cases.
- Domestic Production Activities Deduction
Which is a deduction for AGI. Child Support or alimony?
- Deduction for (to arrive at) AGI = Alimony Paid
- Child support is not alimony and is not deductible by the Payor or taxable to the recipient.
What are the limits on IRA deductions?
For IRAs, the lesser of $5,500 ($6,500 if 50 or over years old) or individual’s compensation; with a nonworking spouse, limit is $11,000 provided the combined earnings of both spouses total at least that much.
Where a spouse is an active participant in an employer retirement plan, the allowable deduction to arrive at AGI is phased out proportionally for modified AGI between $60,000 (base) and $70,000 (96,000 and 116,000 for MFJ) (2014)
What are the limits of nondeductible IRAs?
The lesser of:
A) $5,500 for 2014
B) Individuals compensation
C) Limit not contributed to other regular and Roth IRAs
Earnings on such contributions will accumulate tax-free (deferred) until withdrawn.
What is the time limit on Coverdell Education Savings Accounts (Education IRAs)?
Any amounts remaining when the beneficiary reaches the age of 30 must be distributed.
“Left over funds”
- Must be distributed to a beneficiary, are taxable, and a 10% penalty is assessed, or
- Rollover to another family member is permitted with no 10% penalty.
What are the limits on deductions to Keogh Plans?
Keogh plans are for self-employed taxpayers and their employees.
Deductible amount is lesser of 25% of net earnings from self-employment (after Keogh deduction) and one-half of self-employment tax or $52,000 for 2014.
The maximum annual addition (contribution) may exceed the deduction amount for the year. It is limited to the lesser of 50,000 (2012) or 100% net earnings if compensation is less than $50,000.
Describe the self-employed deductions (“adjustments”) for AGI.
Self-employment tax:
- 50% of self-employment tax
Self-employed health insurance:
- 100% may be deducted
What are the requirements for moving expenses to be deductible?
Must change Job sites.
50-mile move (distance from former residence to new job site must be 50 miles or more of the distance from former residence to former job site.)
Must work in new location for 39 weeks during the 12 months following arrival (If self-employed, 78 weeks during the 24 month period after arrival)
Note: There is a per-mile car allowance or actual out-of-pocket amounts. Meal costs are not deductible.
What is the additional deduction for elderly and/or blind?
For 2014 if 65 or older, add $1,550 (single or HOH) or $1,250 (MFJ or MFS or QW)
What taxpayers are not eligible to use the standard deduction?
- One spouse itemizes deductions on a separate return.
- Taxpayer is a dual-status or nonresident alien.
- Taxpayer has a short tax year.
The standard deduction is limited if taxpayer can be claimed on another person’s return (greater of $950 or earned income of dependent plus $300 up to basic standard deduction amount)
Identify the major classes of itemized deductions.
- Medical and dental expenses
- Taxes paid (SWH if itemized previous year, Real Estate, and Personal Property i.e. Licenses etc.)
- Interest paid (Home mortgage interest)
- Gifts to charity
- Casualty and theft losses
- Misc. deductions subject to the 2% floor (job expenses, investment expenses, tax preparation.)
- Other Misc. deductions not subject to 2% floor (gambling losses to extent of winnings)
What are the limitations on medical expenses?
- Medical expenses are deductible to the extent they exceed 7.5% of AGI (10% if under age 65 until December 2016 then everyone is 10%)
- Cost of surgery for elective cosmetic reasons is not deductible
- Self-employed individuals may deduct 100% of medical insurance premiems from gross income. (Adjustment)
- A dependent for medical expenses must meet only the support, relationship, and citizenship or residency tests.
Identify the taxes that are deductible as itemized deductions.
Taxpayers have a choice of deducting either the local sales tax or state and local income tax (SWH).
Other deductible taxes include:
- Real Estate taxes
- Personal Property Taxes
- Foreign taxes (either deductible or may be taken as a credit)
Identify the types of interest that are deductible and nondeductible.
Qualified residence interest on principle and second residence.
- Acquisiton indebtedness ($1,000,000 limitation)
- Home Equity Indebtedness ($100,000 limitation)
- Points paid on a principal residence mortgage loan are fully deductible.
- Points paid to refinance a home (or for a home equity loan) must be capitalized and deduction spread out over life of loan.
- Certain mortgage insurance premiums
Interest on loans for investment purposes, limited to net investment income, can be carried forward.
Prepaid interest (use accrual basis for determing deductible amount)
Educational loan interest is an adjustment and not an itemized deduction.
Consumer interest is NOT deductible (Credit Cards)
What are the limitations on charitable contribution deductions?
Overall limit = 50% of AGI
Cash, may be all 50%
Long-term capital gain property (deduct FMV) is limited to the lesser of:
- 30% of AGI
- Remaining amount to reach 50% after cash contributions
Excess contributions can be carried forward five years.
Cash contributions must be substantiated by a bank record or a written communication by the charitable organization.
