Ch 6 - Questions (Itemized Deductions) Flashcards
What are common itemized deductions?
Medical and dental expenses, taxes, interest expenses, charitable contributions, and prior-year tax prep fees.
What does a taxpayer use when itemizing deductions?
Schedule A and form 1040
What is debt incurred to acquire, construct, or improve a taxpayer’s principal or secondary residence?
Acquisition Debt
Are charitable contributions deductible?
Generally yes, if qualified charitable org, and taxpayer uses Schedule A and qualifies to itemize.
What does Medicare Part A cover?
Hospital expenses, care in skilled nursing facility, hospice care, and some health care.
Do people have to pay Medicare Part A premiums?
Not usually, if they or their spouse paid medicare taxes while working.
What does Medicare Part B cover?
Doctors’ services, outpatient care, medical supplies, and preventive services.
Do people have to pay a premium for Medicare Part B?
Yes, most participants have to pay a monthly premium, which is usually withheld from Social Security benefits.
What does Medicare Part D cover?
Prescriptions.
Do people have to pay a premium for Medicare Part D?
Yes, and it is withheld from social security benefits.
How much is the standard deduction for 2017
$6350 Single, and MFS
$9350 for HoH
$12700 for MFJ, QW
What things increase a taxpayer’s standard deduction?
Being age 65 or older, blindness
Which will a taxpayer choose, itemized deductions, or the standard deduction?
Whichever is larger. Also, requires 1040.
If a couple is MFS, and one spouse wishes to itemize, that happens?
The other spouse should itemize as well, otherwise their standard deduction is reduced to $0.
Why might a taxpayer itemize deductions on their federal return, even if their deduction total less than the standard deduction?
Itemizing on their Federal return allows itemizing on state returns, which can save tax dollars.
If a person chooses to itemize when the standard deduction is higher (e.g. so they can itemize on their state return) what should they do?
Mark the box on Schedule A, line 30.
What sections are on the Schedule A?
Medical and Dental expenses Taxes you paid Interest you paid Gifts to charity Casualty and Theft Losses Job expenses and certain misc deductions Other misc deductions
What is included in deductible medical expenses?
Payments made for the diagnosis, cure, treatment, or prevention of disease, and the costs of treatments affecting any part or function of the body. May also include equipment, supplies, transportation related to medical care, and certain health insurance coverage for the taxpayer, spouse, and dependents.
Are medical expenses paid with pre-tax dollars deductible on Schedule A?
No. Only after-tax dollars.
What may be used to determine what medical or dental expenses are deductible on Schedule A?
IRS Publication 502; Medical and Dental Expenses
Are medical expenses paid by a taxpayer for his spouse deductible?
If they were married at the time the expenses were incurred or at the time the expenses were paid.
Can a taxpayer deduct medical expenses paid for a dependent claimed under a multiple-support agreement?
Yes. The persons who waive the exemption may not deduct medical expenses paid for the dependent.
If divorced or separated parents who lived apart during the last 6 months of the year supported a child together, who is able to deduct the medical expenses.
Each parent, whether custodial or non-custodial, is allowed to deduct the medical expenses actually paid for the child during the year. The deduction may be taken even if the other parent is allowed to claim the exemption for the child.
Are prescriptions deductible?
Yes, if the expense has not been reimbursed by insurance, and is not purchased or imported from another country (unless it is legal in the US and the FDA allows importing the drug by individuals)
Are Medical Insurance Premiums deductible?
Yes, if they paid for policies that cover medical care if the insurance provides reimbursement for hospitalization, surgical fees, other medical and dental expenses, prescription drugs, or lost or damaged contact lenses as medical expenses.
If medical insurance is employer-sponsored, are premiums and expenses deductible?
No, unless the premium or other expense amounts are included in Box 1 of the taxpayer’s Form W-2 or paid with after-tax dollars.
Is the payroll tax for Medicare Part A deductible?
No. Although a taxpayer who is not covered under the social security program and who is not a govt employee paying medicare tax may deduct the premiums voluntarily paid for Part A coverage.
Are Medicare Part B premiums deductible?
Yes, as a medical expense.
Are Medicare Part D premiums deductible?
Yes, as a medical expense.
Are payments for qualified long-term care services deductible?
Yes, based on age, they may be able to deduct all or part of premiums.
What are qualified long-term care services?
Services prescribed by licensed health care practitioners for chronically ill individuals. Services must be necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, or rehab services. Or Maintenance or personal care services.
What elements must a qualified long-term care insurance contract have?
It must be guaranteed renewable
It must not provide a cash surrender value
It must not pay or reimburse expenses that would be covered under Medicare.
Refunds and dividends must be used only to reduce future premiums or increase future benefits
Must not apply to refunds on the death of the insured or upon surrender or cancellation of the contract.
Premiums of what types of insurance policies are not deductible?
Policies covering loss of earnings while injured
Policies covering loss of life, limb, or sight.
Policies paying a guaranteed amount for each day (or week) for a given period of time while the taxpayer is hospitalized for sickness or injury. However, if the policy also provides for medical care, and the amounts for each are stated separately, the portion of premium allocated to medical care is deductible.
Policies paying for medical care from a portion of automobile insurance premiums.
What medical expenses are deductible
Deductible medical expenses include most fees paid to medical doctors, dentists, psychologists, psychiatrists, chiropractors, and Christian Science practitioners. Most fees for hospital services, therapy, nursing services, lab tests, and payments for acupuncture treatment are deductible.
Is the cost of a smoking cessation deductible
Yes, as a medical expense. The deduction may include the cost of treatment and prescription drugs designed to alleviate the effects of nicotine withdrawal. Costs for nicotine gum and patches not requiring prescriptions are NOT deductible.
When is a weight loss program or surgery deductible?
If diagnosed as obese, when the weight loss program or surgery is used to treat other diagnosed diseases such as arthritis, diabetes, high cholesterol, or hypertension., Not deductible if no dx of diabetes. The cost of diet food is not deductible.
Is the cost of cosmetic surgery deductible?
No, unless it is necessary to correct or improve a deformity arising from a congenital abnormality, an accident or other trauma, or a disfiguring disease.
Is the cost of medical aid items and equipment deductible?
Yes
Is the cost of purchasing and maintaining a service animal deductible?
Yes
Is the cost of purchasing and maintaining TTY/TDD equipment deductible?
Yes
How are medical capital expenditures handled in terms of deductions?
Cost of equipment and structural improvements in a residence for medical purposes is deductible if there is a medical purpose for its use. If a rented residence, costs deductible in full. If the taxpayer owns the residence, the part of the cost that exceeds any increase in the value of the property.
Does the capital expenditures to remove structural barriers for handicapped individuals deductible?
Yes, fully. Examples, exit or entrance ramps, widening hallways and doorways, installing lifts (not elevators), installing railings, support bars, and other modifications in bathrooms, lowering counters and cabinets, modifying fire alarms, smoke detectors, and other waning systems, modifying stairs, adding handrails or grab bars, modifying hardware on doors, modifying areas in front of entrance and exit doorways, grading of ground to ease access to the residence.
What expenses for medical transportation are deductible?
Expenses in connection with medical care - fares for buses, taxis, planes, trains, and ambulance hire. Mileage for car using standard mileage rate. Parking fees and tolls.
Are meals and lodging deductible as a medical expense?
Yes - If a person is in a hospital, nursing home, or similar institution primary for medical care.
Are lodging expenses for a patient companion deductible?
Yes, if the patient’s expenses are deductible and the patient is unable to travel alone, and if the accommodations are not lavish and there is not a significant amount of pleasure involved.
Are payments for special care deductible?
Yes, if necessitated by a physical or mental handicap or disorder.
If payments are made pre-tax, for medical expenses, are they deductible?
No, no deduction may be taken for medical expenses paid with pre-tax money.
What is the threshold for a taxpayer to deduct qualified medical and dental expenses?
Expenses must exceed 7.5% of the taxpayer AGI. Only the amount that exceeds 7.5% can be deducted on Schedule A.
What types of taxes can be reported on Schedule A
State and local taxes (income or general sales)
Real property taxes (state, local, and foreign)
Personal property taxes (state and local)
Foreign income taxes.
When are tax payments deductible?
The year they are paid. However, taxes for operation of a business or farm or rental or royalty income must be deducted from income.
What income taxes are deductible
State and local income taxes withheld from income (normally shown on W2)
Mandatory employee contributions to some unemployment funds, some nonoccupational disability benefit funds, or the Washington State Supplemental Workmen’s Compensation fund.
Payment of state and local estimated taxes, including any portion of a prior-year refund the taxpayer chose to have credited to their 2017 state or local returns.
Any balances paid on prior years’ state and local returns.
What may taxpayers choose to deduct instead of state and local income taxes paid?
State and local general sales taxes.
What is a general sales tax?
Sales tax imposed on retail sales of a broad range of items at a single rate.
Are sales taxes imposed at different rates deductible?
They may be. If sales tax was imposed at a rate less than the general sales tax rate, the amount of tax paid is deductible.
How are sales taxes on items that are imposed at rates higher than the general sales tax rate handled in terms of deduction?
Sales taxes on items (generally motor vehicles) that are imposed at rates higher than general sales tax rate are deductible only up to the amount of tax that would have been imposed on an item of the same cost at the general rate.
What must a taxpayer do to deduct sales tax paid?
Keep receipts supporting their deduction amount. Or calculate the amount by completing the State and Local General Sales Tax Deduction Worksheet - Line 5b.
If MFS, what is needed for deduction of sales taxes instead of income taxes.
If MFS, and both spouses choose to deduct sales taxes instead of income taxes, both spouses must use the same method to computer their sales tax deductions.
When are real estate taxes deductible?
In the year the tax is paid.
What happens with real estate taxes when a property is sold?
The taxes must be apportioned between the buyer and seller based on date of sale. Each may deduct their share of the taxes for the year.
What is a personal property tax?
Similar to real estate tax, but imposed on personal property like cars, and jewelry.
Are personal property taxes deductible?
If based on the value of the property and imposed on an annual basis.
How are foreign taxes handled?
May be included on Schedule A line 8. Taxes may be claimed as either an itemized deduction or a credit.
What taxes are not deductible?
Federal taxes, including income tax, social security and medicare taxes, excise taxes, customs duties, and gift taxes. State and local taxes of inheritance, gift, utilities, gasoline, tobacco, alcohol, and fines and fees for services.
Is interest paid on personal loans deductible?
No
Is interest from business loans deductible?
Yes, on the appropriate schedule.
Is home mortgage interest deductible?
Yes, if qualified
Is interest on acquisition debt deductible?
Yes, as long as the amount does not exceed $1`M (500000 MFS) at any time during the tax year.
What is home equity debt?
Debt incurred for any purpose other than buying, building, or improving the home. A way of borrowing by securing the loan with the home.
Is interest on home equity debt deductible?
Yes, as long as the debt does not exceed $100000 ($50000 MFS) at any time during the tax year, or the difference between the fair market value of the home and the remaining acquisition debt, whichever is less.
If a taxpayer uses funds from a home equity loan to buy, build, or improve their residence, how is the loan classified?
It is classified as acquisition debt, not home equity debt, and follows those limits.
Is prepaid interest deductible?
Yes. Generally deductible in the tax years to which the payments apply.
Are points deductible?
Points paid solely for the use of money are deductible. Fees paid to cover services (appraisal fee, notary fee, etc) are not deductible.
Are seller-paid points deductible by the buyer?
Yes, they are usually considered for tax purposes to be paid by the buyer and are deductible by the buyer. The taxpayer must reduce the basis of the home by the amount of points paid by the seller.
What form is received, to report home mortgage interest?
Form 1098 - Mortgage Interest Statement
What does box 1 show on the 1098?
The interest on a mortgage, a home equity loan, line of credit, or credit card loan secured by real property, received from the payer, but does not include deductible points?
Does box 1 of the 1098 include deductible points?
No
What does Box 2 show on the 1098
The outstanding mortgage principal as of Jan 1 of the new year.
What does Box 3 show on the 1098?
The mortgage origination date.
What does Box 4 show on the 1098?
Any refund of interest to the taxpayer because they overpaid the actual amount owed.
What does Box 5 show on the 1098?
Mortgage insurance premiums paid of $600 or more,
What does Box 6 show on the 1098?
Points paid for the purchase of the taxpayer’s main home, only on the year acquired.
What does Box 7 show on the 1098?
Checked if the property address is the same as the payer’s mailing address.
What does Box 8 show on the 1098?
The address of the property securing the mortgage, if it is different than the payer’s mailing address.
What does Box 9 show on the 1098?
A description of the property if the property securing the mortgage does not have an address.
What does Box 10 show on the 1098?
The number of properties securing the mortgage if there is more than one.
What does Box 11 show on the 1098?
Other entries, such as to show amounts paid out of escrow for real estate taxes or insurance premiums.
What is entered on Schedule A, line 10
Deductible interest and points reported on Form 1098
Are charitable contributions deductible?
Yes, generally
What is needed for a charitable contribution to be deductible?
Must be made to a qualified organization and paid in cash or property during the tax year. Donations must be made voluntarily and without receiving or expecting to receive anything of equal or greater value in return.
How does an organization become a qualified organization?
Most, aside from religious organizations and governments, must apply to the IRS to become qualified organizations.
What types of cash contributions to qualified charitable organizations do not qualify as deductions?
Amounts paid primarily for personal benefit, such as educational or club activities for taxpayer or child.
Amounts paid to a charitable organization for raffle tickets or to play games of chance, such as bingo.
Contributions made for the benefit of an individual; to chambers of commerce and other business, civic, political, and social clubs or organizations; foreign international organizations (except certain ones) are not deductible.
If amounts paid to qualified organization for merchandise, goods, or service is less than the fair market value.
For cash contribution deductions what is very important?
To keep a record of it.
If contributions of $250 or more in cash or property are made at one time, is it deductible?
Only if the taxpayer obtains written substantiation from the donee organization.
A charitable contribution to a qualified organization in which goods or services are received by the donor are only deductible when what 2 requirements are met?
The contribution exceeds the FMV of the goods or services received.
The donor intended to make a charitable contribution.
What must a donee organization do for contributions over $75 for which the taxpayer receives goods or services?
Must specify that the contribution is only partly deductible and must furnish the taxpayer with a good faith estimate of the value of the goods or services.
What document details info on charitable contributions?
IRS Publication 526 Charitable Contributions
If property is donated, how is the value of the property determined?
FMV, in cases where the FMV is less than the cost of the property.
What criteria is there for deductibility for clothing or household items?
Must be in good, used condition or better to be able to deduct.
Can you take a deduction for use of property?
No.
If donated property has appreciated in value such that the FMV is higher than the cost, what is the allowable deduction?
FMV minus the amount that would have been ordinary income when the property was sold.
If the taxpayer owned the property 1 year or less, the deduction is the cost of the property.
If the taxpayer owned the property for more than 1 year, the deduction is the FMV of the property (with some exceptions)
What must be filed when total property contributions of more than $500 are deducted?
Form 8283 Noncash Charitable Contributions
What is required when a single item of donated property (or aggregate of similar items) has a value more than $5000?
Must have the recipient organization sign Form 8283 page 2. Taxpayer must also obtain a written appraisal, which does not need to be attached to the return
For donated art with a value of $20000 or more, what must happen?
The donor must attache a copy of the qualified appraisal to his return, and provide an 8x10 color photo or transparency upon IRS request.
What constitutes art for charitable donations?
paintings, sculptures, watercolors, prints, drawings, ceramics, antique furniture, decorative arts, textiles, carpets, silver, rare manuscripts, historical memorabilia, and similar objects.
What is the limitation on deductions for charitable contributions?
Deductible up to 50% of AGI for most qualified charitable organizations. For the value of gifts to veteran’s organizations, fraternal societies, and nonprofit cemeteries may not exceed 30% of AGI.
Is the value of time for volunteer work deductible?
No, the value of time is not deductible.
Are expenses in volunteer services deductible?
yes, out-of-pocket expenses incurred in rendering volunteer services are deductible. Mileage rate or public transportation, cost of uniforms, equipment, and supplies. Food, lodging and other unreimbursed expenses if volunteer work takes them away from home.
Is the cost of transportation to attend meetings of a charitable organization deductible?
No. Only when performing volunteer services.
What do miscellaneous itemized deductions generally include
Expenses necessary for the production of income.
What are some examples of miscellaneous deductions?
Unreimbursed ordinary and necessary employment expenses, gambling losses to the extent of gambling winnings, hobby losses to the extent of hobby income, tax advice and preparation fees, investment expenses.
Is there a threshold for miscellaneous deductions?
Yes, the total of most, but not all miscellaneous itemized deductions deductible on Schedule A is subject to a similar 2% AGI threshold or 2% AGI floor. The total amount of expenses that exceeds 2% of the taxpayer’s AGI are deductible on Schedule A.
Are tax preparation fees deductible?
Yes. Cost to have someone prepare and file, cost of tax prep software and publications. Deductible in the year paid, so for a 2017 return, would be the amt for prep of 2016.
How are tax prep fees dealt with if the taxpayer is self-employed or owns rental property?
The portion directly associated with their business or rental property should be deducted on the appropriate form and the remainder on Schedule A.
