Chapter 2 - Itemized Deductions

Question 1

What are the four itemized items NOT phased out?

Answer 1

1) Gambling loss
2) Investment interest expense
3) Medical expense
4) Casualty and theft

Question 2

Medical Expense - Itemized Deduction?

Answer 2

• Can be on behalf of filing taxpayer, spouse, or dependent who receives over half support from taxpayer
• Timing of deduction is either when paid for expense in cash or check during the year or even when charged credit card

Question 3

Medical Expense calculation for itemized deduction?

Answer 3

Qualified Medical Expenses
- (any Insurance Reimbursements)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Qualified Medical Expense "Paid"
- (10% of AGI)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Deductible Medical Expense

Question 4

What are examples of (itemized) DEDUCTIBLE medical expenses?

Answer 4

• Medicine and drugs (prescription
• Doctors
• Medical and accident insurance
• Medical accident insurance (including qualified long term care premiums)
• Required surgery
• Transportation to medical facility
• Physically disabled costs

Question 5

What are examples of (not itemized) NONdeductible medical expenses?

Answer 5

• Elective surgery (dem big boobies) UNLESS for a deformity
• Vitamins
• Life insurance
• Capital expenditures (up to increase in FMV of property meaning the cost that DIDNT improve your home)
• Health club memberships
• Personal hygiene (exp. toothpaste, tamponz)

Question 6

The itemized deduction phase out may not?

Answer 6

Be reduced below 80% of the amount allowed before phase out

Question 7

What taxes ARE itemized deductions?

Answer 7

State, Local, and Foreign Taxes ONLY (remember, Federal = Fuck no)

Question 8

Real Estate taxes?

Answer 8

• Usually state, local, and foreign tax
• Taxpayer must be legally obligated to pay it
• prorate taxes in year of sale/purchase
• taxes paid under protest are deductible, if you get any money back though you have to then include it as income
• Real estate taxes DO NOT include street, sewer, or sidewalk

Question 9

Income Taxes?

Answer 9

• Usually state, local, and foreign tax
• estimated taxes paid during year are deductible
• withheld taxes from paychecks during year deductible
• assessments paid during year for prior year’s tax are deductible

Question 10

Personal Property Tax?

Answer 10

This is state and local, itemized

Question 11

Sales tax?

Answer 11

Taxpayer may elect to deduct either state and local income tax OR state and local general sales taxes.

Question 12

What are the Nondeductible (cant use as itemized) taxes then?

Answer 12

1) Federal taxes (including social security, remember fuck no)
2) Inheritance taxes (also called federal estate pick up tax)
3) Business (on schedule C) and rental property tax (on Schedule E)

Question 13

Home Mortgage Interest itemized deduction?

Answer 13

Only on 1st and 2nd home
acquisition indebtedness - this can be for reconstruction, interest up to 1,000,000
home equity indebtedness - not used to improve home, debt secured against home and up to 100,000 equity in home

Question 14

Investment interest expense?

Answer 14

Can only be netted against interest income, meaning just like gambling win/loss you cannot have an investment loss, ALSO note that any interest expense used to purchase a TAX FREE bond like municipal bond cannot be included

Question 15

For charitable contributions (itemized deduction) what is included?

Answer 15

Cash or FMV of Property given
Overall limit = 50% AGI
Cash - may be all 50%
General property - lesser of basis or FMV
Long-term appreciated property - is limited to the lesser
30% AGI or the remaining amount to reach 50% AGI

Note that any extra charitable contributions can be carried forward for 5 years

Question 16

Casualty theft losses?

Answer 16

Smaller loss (lost cost/adjusted basis vs decrease FMV)
- (Insurance recovery)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Taxpayers loss
- ($100) from IRS
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Eligible Loss
- (10% AGI)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Deductible Loss

Question 17

Miscellaneous Itemized Deductions (SUBJECT TO 2% AGI)?

Answer 17

Unreimbursed business expenses must be an employEE

exp. union dues, travel and meals and lodging

Question 18

Transportation expenses are?

Answer 18

100% deductible, if you are going to a 2nd job from 1st job that is okay

Question 19

Meals and entertainment expenses?

Answer 19

50% deductible

Question 20

Educational expenses (itemized)?

Answer 20

maintain or improve skills needed for job or MEET THE EXPRESS REQUIREMENTS OF THE INDIVIDUAL’S employer

Question 21

The deduction for interest expense on investment indebtedness is ?

Answer 21

limited to net investment income (investment income less investment expenses).

Question 22

Davis, a sole proprietor with no employees, has a Keogh profit-sharing plan to which he may contribute and deduct 25% of his annual earned income. For this purpose, “earned income” is defined as net self-employment earnings reduced by the:

Answer 22

For Keogh plans, earned income is defined as net self-employment earnings reduced by the amount of the allowable Keogh deduction and ½ the self-employment tax.

Question 23

Which of the following statements is correct regarding the deductibility of an individual’s medical expenses?

Answer 23

A medical expense deduction is allowed for payments made in the current year for medical services received in earlier years.