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Federal Inc. Taxation > Ch 7 > Flashcards

Ch 7 Flashcards

0
Q

Qualified individuals for medical expenses

A

Taxpayers must pay expenses on behalf of themselves,
Their spouses

or their dependents (even if fail gross income Or joint return
Tests)

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1
Q

Medical expenses deduction

A

Deducted for anything over 10% AGI

7.5% for those over 65

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2
Q

Medical expenses divorce

A

Whichever divorced parent pays the medical expenses
Takes deduction

Whoever claims the Dependency exemption doesn’t matter

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3
Q

5 items classified as medical care expenses

A 
1 diagnosis, cure, mitigation, treatment/prevention of disease
2 affecting the body
3 transportation
4 qualified long term care services
5 insurance
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4
Q

Diagnosis, cure, mitigation, treatment or prevention: taxpayers may not deduct treatment for…

A

Illegal substances

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5
Q

Taxpayers may deduct for medical services from…

A

Licensed or certified medical professionals including dentists

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6
Q

Are nonprescription medicines, vitamins and health foods deductible?

A

No

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7
Q

How can a tax payer deduct costs for schools and camps?

A

Taxpayer must show facility has appropriate medical

equipment and regularly engages in medical services

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8
Q

Deduction for transportation of medical care? Lodging

A

Allowed if it is done in the case of medical emergency
Or ailing health

Deduction for cost of lodging is limited to $50/night per
person

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9
Q

Long term care

A

Medical services provided to a chronically Ill individual

Person can’t perform 2 of the following tasks for 90 days:
Bathing, dressing, eating, toilet ting

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10
Q

Timing of medical expense deductions

A

Only in year pays expenses

Unless prepaid, then deduct in year prepaid

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11
Q

Treatment of insurance reimbursements

A

Medical deduction reduced

Reimbursement is include in gross income of year received

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12
Q

Deduction of taxes: cash-method tax payers

A

Deduct taxes when they pay them

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13
Q

Tax deductions: accrual mood tax payers

A

Deduct taxes in year taxes accrue

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14
Q

Tax

A

Mandatory assessment levied under the authority of

Political entity for the purpose of raising revenue

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15
Q

6 Services not deductible as taxes

A 
1 vehicle registration + inspection fees
2 registration tags for pets
3 toll charges for highways and bridges
4 parking meter charges
5 utilities
6 special assessments of real estate, sidewalks, streets, lighting
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16
Q

Deductible taxes 6 items

A

1 state, local and foreign real property taxes
2 state, local property taxes based on value
3 state, local, war profits
4 state and local taxes if tax payer makes election to deduct
Taxes
5 environmental tax
6 state, local taxes incurred in trade or business

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17
Q

For individuals: state and local taxes are normally…

A

An itemized from AGI deduction

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18
Q

Deduction of federal taxes

A

Usually not deductible

Employer’s portion of social security tax is
Federal customer’s and excise tax in taxpayer’s business is

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19
Q

State and local sales tax

A

Tax payers can deduct state and local sales tax instead

Of state and local income tax

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20
Q

What kind of deduction is for personal property taxes? What’s the exception?

A

From AGI

For AGI when for business purposes

21
Q

Apportionment of real estate taxes

A

Allocated between seller and purchaser based on amount of

time of Year each taxpayer owns the property

22
Q

Self employment taxes

A

50% deducted as For AGI deduction

23
Q

Affordable care act taxes deductions

A

Not deductible by individuals

24
Q

Interest

A

Compensation for use or forbearance of money

25
Q

Charge for services, bank service and finance charges

A

Fees for appraisals, title searches, bank service charges,
Credit card service charges, credit card interest

Not deductible unless for business

26
Q

When may tax payer’s deduct interest expenses allocated for personal use?

A

Certain student loan interest, certain interest on personal

Residence

27
Q

Passive activity rules for individuals, estates, trusts and certain corporations that incur losses

A

Prevent taxpayers from offsetting passive activity losses
With salary, interest and dividends

May prevent deduction of interest

28
Q

Investment interest deduction

A

Limits current deduction for investment interest expense
To noncorporate taxpayer’s net investment income for year

Investment interest can be carried over and deducted in
Later years

29
Q

Investment interest

A

Interest expense on indebtedness properly allocated to

Property held for investment

30
Q

Interest expense incurred to hold tax exempt properties

A

Not deductible

31
Q

Net investment income

A

Excess of taxpayer’s investment income over investment

Expenses

32
Q

Investment expenses

A

Include all deductions (except interest) that are directly
Connected with production of investment income

Expenses include rental fees for safe deposit boxes,
Fees for investment counsel, subscriptions to investment
Journals

33
Q

Investment expenses, when are they deductible

A

Under miscellaneous expenses when they exceed 2%

Of tax payer’s AGI

34
Q

2 types of qualified residence interest

A

1 acquisition of indebtedness

2 home equity indebtedness with respect to qualified
Residence

35
Q

Point on a loan

A

1% of loan

36
Q

Qualified residence

A

Taxpayer’s residence

1 other residence secured by taxpayer that was used 14 days
Or 10% of rental days

37
Q

Student loan interest limits on deduction

A

$2,500 per year

Modified AGI must be under $60,000 and $155,000 for
Individuals filing joint returns before phase out occurs

38
Q

Interest paid with loan proceeds

A

Deductible if borrowed from 3rd party lender

Not deductible if borrowed from same lender you are
Paying interest to

39
Q

Discounted note deductions: cash tax payer vs. accrual tax payer

A

Cash method taxpayer can deduct interest in time of
repayment

Accrual method taxpayer must deduct interest as it
Accrues over term of the loan

40
Q

What is the limit on deductible interest in a home acquisition of a qualified residence?

2) interest on home equity debt deduction limit?

A

$1,000,000

2) $100,000

41
Q

Ordinary income property

A

Any property that results in recognition of ordinary income

Ex. Inventory, art, manuscripts, capital assets held for
Less than 1 year

42
Q

Charitable deduction limitations, 2) special limitation?

A

50% of AGI for the year, can carry forward anything in
excess for 5 year after

2) 30% of AGI for contributions of capital gains (of tangible
Personal property) and taxpayer elects to reduce charitable
Contribution deduction by capital gain recognized if property
Sold

43
Q

Limitation on corporate charitable deductions

A

Corporate charitable deductions may not exceed 10% of

Their taxable income

44
Q

Miscellaneous itemized deductions: Employee expenses

A

Unreimbursed travel expenditures, Job hunting costs,

Items of protective clothing, uniforms, union dues

45
Q

3 common miscellaneous itemized deductions?

A

1 certain employee expenses
2 expenses to produce investment income
3 cost of tax advice

46
Q

Miscellaneous itemized deductions: expenses to produce investment income

A

Rental and royalty income expenses = for AGI

other investment income expenses (int., dividends, capital
gains) is from AGI deduction (2% AGI)

47
Q

Miscellaneous itemized deductions: cost of tax advice

A

Relating to business, farm income or producing rents/royalty
Income = for AGI deduction

Everything else is 2% from AGI deduction

48
Q

Thresholds for reductions in deductions

A

AGI $300,000 for married filing joint
AGI $275,000 for head of household
AGI $250,000 for single
AGI $150,000 married filing separate

49
Q

Donating an appreciated capital gain

A

If Tax payer donates directly to charity they can take

a deduction and don’t recognize a taxable gain

50
Q

What should the tax payer do when they want to donate stock that they are down on?

A

Sell the stock to take the tax loss and donate the proceeds

51
Q

Proper substantiation of charitable contribution made in cash

A

Must keep back record or receipt to charitable organization

Federal Inc. Taxation (11 decks)

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