Ch 2: Adjs and Itemized Deductions Flashcards
List the deductions for AGI
In Spring, Students Move Into Herget Dorms And Once Again School Begins
1) IRA (In)
2) *Self Employed Health Insurance (Spring)
3) Student Loan Interest Expenses (Students)
4) Moving Expenses (Move)
5) Interest Withdrawal Penalty (Into)
6) Health Savings Account (Herget)
7) Domestic Production Activities Deduction (Dorms)
8) Alimony Paid (And)
9) *One-Half Self Employment FICA (Once)
10) Attorney fees paid in certain discrimination and whistleblower cases (Again)
11) *Self Employed Retirement (School)
Begins
*Note: Those denoted above are not deducted on Schedule C
What are the 4 types of IRAs?
- Deductible IRA
- Nondeductible IRA
- Roth IRA
- Coverdell Education Savings Accounts (IRA)
What are the limits on deductible IRA deductions?
Taxpayers may not have an IRA deduction if BOTH conditions are met:
- rich, and
- active participant in retirement plan
For IRAs, the lesser of $5,500 or individuals compensation; with a nonworking spouse, limit is $11,000 provided the combined earnings of both spouses total at least that much.
Retirement plan: The maximum deductible IRA contribution for an individual who is not an active participant, but whose spouse is, is phased out for taxpayers with modified AGI between $181,000 and $191,000.
Note: Persons who are age 50 or over, are allowed an additional contribution adjustment of $1,000.
What are the limits on Roth IRAs?
- Contributions are not deductible when made (i.e. they are taxed when you put them in)
- Earnings accumulate tax-free
- Distributions are also tax-free provided they are qualified distributions
- principal withdraw
- earnings accumulated
- earnings can be withdrawn income-tax-free if you’re at least 59½ and
- have had the Roth at least five years, or
- a beneficiary after taxpayer’s death, or
- taxpayer is disabled, or
- first time homebuyer, $10k limit
Phase-out Income Limits:
- Single with modified AGI from $114k to $129k
- MFJ with modified AGI from $181k to $191k
- MFS with modified AGI from $0 to $10k
Note: Roth IRAs are not subject to the minimum distribution rules of deductible IRAs, which apply once the individual reaches 701/2.
What are the limits on nondeductible IRAs?
The lesser of:
a) $5,500
b) Individual’s compensation
c) Limit not contributed to other regular and Roth IRAs.
- Earnings on such contributions will accumulate tax free (deferred) until withdrawn.
- Distributions (withdrawls)
- taxable - previously accumulated untaxed earnings
- nontaxable - principal contributions (not deducted when contributed)
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”:
1) Must be distributed to a beneficiary, are taxable, and a 10% penalty is assessed, or
2) Rollover to another family member is permitted with no 10% penalty.
What are the limits on Coverdell Educations Savings Account (education IRA)?
- contributions are not deductible, maximum contribution is $2k per beneficiary
- contributions are not limited by any amounts contributed to other types of IRAs
- earnings accumulate tax free
- distributions are tax free to the extent they are used for qualified education expense of the designated beneficary
- includes room and board
What are the limits on deductions to Keogh plans?
Keogh plans are for self employed taxpayers and their employees. A self-employed taxpayer subject to the self-employment tax is generally allowed to set up a Keogh plan.
Deductible amount is lesser of:
- 25% of net earnings from self employment (after Keogh deduction) or
- $52,000 (2014).
The maximum annual addition (contribution) may exceed the deductible amount for the year. It is limited to the lesser of:
- $52,000 (2014) or
- 100% net earnings if compensation is less than $52,000.
*Note: NOT Deductible on Schedule C
What is the adjustment limit for Student Loan Interest Expense?
- The adjustment for student loan interest expense is limited to $2,500
- a dependent may not claim the adjustment
What are the adjustment limits for Heath Savings Accounts (HSAs)?
- enable works with high deductible health insurance to make pretax contributions of up to $3,300 ($6,550 for families) to cover health care costs
- the amounts are increased by $1,000 for persons who reach age 55 during the tax year
- no contributions are allowed once a taxpayer becomes covered by Medicare Parts A or B
What are the requirements for moving expenses to be deductible?
1) Must change job sites.
2) 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).
3) 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: Transportation expenses are deductible at: there is a per mile car allowance (23.5 cents) or actual out of pocket amounts. Tolls and parking fees can be added to mileage rate.
Nondeductible:
- Meal costs are not deductible.
- pre-move house hunting
- expense of breaking a lease
- temporary living expenses
Describe the self employed deductions (“adjustments”) for AGI
Self employment tax: 50% of self employment Social Security/Medicare tax.
Self employed health insurance: 100% may be deducted for medical insurance premiums paid for the taxpayer, spouse, and dependents, provided that the plan is set up in the name of the self-employed individual or the individual’s buiness.
Which is a deduction for AGI: Child support or alimony?
Deduction for (to arrive at) AGI = Alimony Paid.
- payments must be legally required under a written divorce (or separation) decree or agreement
- payments must be in cash (or its equivalent)
- payments cannot extend beyond the death of the payee (wife)
- spouses may not file MFJ
Child support is not alimony and is not deductible by the payor or taxable to the recipient.
If payments fall short and the divorce settlement is for alimony and child support, then the payments first apply to child support, then alimony.
Property settlement: if the divorce settlement provides for a lump sum payment or property settlement by a spouse, that spouse gets no deduction for payments made, and the payments are not includible in gross income of the spouse receiving the payment.
What are the standard deductions for different filing statuses?
- Single $6,200
- Head of Household $9,100
- MFJ or Surviving Spouse $12,400
- MFS* $6,200
*Available only if both taxpayer and spouse do not itemize.
What is the additional deduction for elderly and or blind?
If 65 or older OR blind, add $1,550 (single or HOH), or $1,200 (MFJ or MFS or QW).
If blind add same amounts as above.
If both are over 65 and blind, amounts are $3,100 and $2,400 respectively.
If MFJ, and both are over 65 and/or blind, then double amounts.
