Chapter 7 Flashcards
My Income Tax Check Comes Monday.
Itemized deductions. Medical, interest, taxes, causality exp, charity, misc expense.
Medical Expense
If the exceed 10% of AGI, the difference can be deducted from AGI.
Which medical expense are deductible?
Prescription drugs, expenses related to diagnosis, cure and treatment, health insurance premiums, capital expenditures, nursing home and special schools, travel and lodging.
Which medical expenses are non deductible?
Elective cosmetic surgery, dance lessons, health club dues, marijuana, over the counter drugs, general health items.
Tax benefit rule medical expenses
If reimbursed in the same year as the expense is paid. Reimbursement offsets medical expense. Amount deductible is excess of expense over reimbursement.
If reimbursed in the year after the medical expenses were paid: reimbursement is income only to extent medical deduction was taken by taxpayer.
What are some deductible taxes (list 3)?
State and local income taxes, state sales tax, foreign income taxes, property taxes.
What are some nondeductible taxes?
Fines or fees, excise taxes, gift taxes, estate taxes.
Is interest expense deductible if it is used to invest?
Yes.
What interest expenses are deductible?
Qualified residence interest (limit 2 houses and 1,000,000 debt) Home Equity Line of Credit, Investment interest expense.
What are some nondeductible interest expenses?
Personal interest, including credit cards, bank loans, and interest used to buy tax free municipal bonds.
Casualty Losses
One of the few tax deductions allowed for personal expenses is the casualty loss deduction. A casualty loss deduction is available for losses or damages to a taxpayers property resulting from sudden and unexpected events, such as fire, storm, shipwreck, or theft. To qualify for the deduction, the event causing the loss must be identifiable.
Casualty loss limitations
For personal casualty and theft losses, the amount of the loss is the lessor of either: 1. the decline in value less insurance proceeds received or, 2. the taxpayer’s adjusted basis in the property, and 3 it must exceed 10 percent of AGI.
Deductions Not Subject to 2% floor
Gambling losses, deductions for estate taxes imposed on IRD, loss on the disposition of an annuity contact, repayments of income.
Deductions subject to the 2% floor
Employee business expenses, hobby expenses, investment expenses and tax advice. Losses on IRA
The Taxpayer Relief Act of 2012
Reinstated the phaseout of itemized deductions for those taxpayers with income above: MFJ/QW 311,300, single 259,400, HOH 285,350, MFS 155,650
