Chapter 5 Heavily Tested Flashcards
When an employee receives an allowance and does not account to the employer for expenses, the allowance is
Included in gross income and the expenses are deducted as itemized deduction
Which itemized deductions are allowed in calculating AMT
Misc. itemized deductions are not allowed, however, home mortgage interest on a loan to acquired a principal residence is included in the calculation of AMT
Personal Medical expenses in excess of
10% of AGI may be deducted
NOL is defined as
the excess of allowable deductions over gross income.
NOL generally includes only items which represent
Business income or loss which includes
- Personal casualty loss
- Wage or salary income
Investment Interest expense is only deductible to the extent of
Net Investment Income
Installment Charge accounts are
Not deductible as they are personal interest
Exception to passive activity loss limitation rule is completely phased out when MAGI of
$150,000
Passive activity losses after threshold limitation rule of $150,000 can only be deducted
against passive activity income
The items subject to phase-out amount of itemized deductions that may be claimed by high-income individuals is
Charitable contributions
Casualty Losses are deductible up to
10% of AGI after subtracting the $100 floor
A person is entitles to deduct up to $25,000 in losses from passive activity, However, the limit is reduced by 50% when AGI is over
$100,000. So, if AGI is $120,000 the calculation is as follows $120,000 - $100,000 = $20,000 X 50% = $10,000
$25,000 - $10,000 + $15,000 deduction
What entities are disallowed the standard deduction
- Non-resident alien individuals
- Partnerships
- Estates
- Trusts
A Tax Credit lowers
Tax liability not taxable income
Non-Refundable Personal Credits
- Foreign Tax Credit
- Child & Dependent Care Credit
- Lifetime Learning Credit
- Retirement Savings Contribution Credit
- Child Tax Credit
- Credit for the elderly or Disabled
- General Business Credit
- The Adoption Credit
Foreign Tax Credit can be
Carried back 1 year and forward 10 Years
In order for a child to qualify for Earned Income Credit three tests must be met
- Relationship
- Residency
- Age (Under 19) (Student under 24)
Individual Taxpayer may carry forward excess capital losses
Indefinitely
NOL are carried
back for 2 years and forward up to 20 years
Individuals who participate in Rental Activities or trade or business must
- Participate more than 500 hours
- tax payer participation makes up all of the participation in the activity
- Participates more than 100 hours and exceeds the participation of any other person
- Materially participates in the activity for any 5 years of the preceding 10 years
- Materially participated in a personal service activity for any 3 years
- Participates on a regular basis
If a Deduction would reduce basis in a property and part or all of the deduction is disallowed by the at-risk-rule, the basis is
reduced anyway
Unreimbursed Travel Expenses are
Deductible only as misc. Itemized deductions subject to a 2% floor
Medical Insurance premiums paid from after tax income is
deductible
The Three Categories of Misc. Itemized deductions are
- Employee expenses
- Tax determination expenses
- Other expenses
A credit is allowed for qualified adoption expense incurred with a maximum of
$13,400 per child
