Deductions FOR AGI (3) Flashcards
What are the 9 General Deductions FOR AJE?
NOT including the Self-Employes nor Passive deductions
- IRA Deductions
- Moving Expenses
- Forfeiture Penalties
- Alimony
- Jury Duty Pay (if paid to employer–incl in income and here as a deduction)
- Student Loan Interest
- Health Savings Account
- Tuition and Fees
- Educator’s Expenses
IRA DEDUCTION
What is the Maximum ALLOWABLE Deduction for Contributions to an IRA?
The LESSER of $5,500 or taxpayer’s earned income
(for 50 and Over - increase to $6,500)
(EARNED INCOME Includes Alimony for this test)
IRA DEDUCTION
When must an IRA Contribution be made to be deducted?
Until What age can an Individual Contribute to an IRA?
–By the DUE DATE of the return
–UP TO the age of 70.
IRA DEDUCTION
ACTIVE PARTICIPATION IN EMPLOYER PROVIDED PLAN
If Taxpayer (or spouse) is an active participant in an employer provided retirement plan (incl. Keogh or SEP), What is the maximum AGI for the IRA Deduction to be fully allowed?
$59,000 Single
$95,000 Married
IRA DEDUCTION
ACTIVE PARTICIPATION IN EMPLOYER PROVIDED PLAN
If Taxpayer (or spouse) is an active participant in an employer provided retirement plan (incl. Keogh or SEP), What is the phaseout range for the IRA deduction?
SINGLE - $59,000 - $69,000
MARRIED - $95,000 - $115,000
IRA DEDUCTION
ACTIVE PARTICIPATION IN EMPLOYER PROVIDED PLAN
When an individual’s spouse is an active participant in an employer-sponsered retirement plan, the IRA deduction for the Non-Participant, what is the AGI phase out?
$178,000 - $188,000
IRA DISTRIBUTIONS
At what age MUST IRA distributions begin?
What is the penalty for failure to begin the distribution at the mandatory age?
–The year the Taxpayer Turns 70-1/2 (MUST be Distributed by April 1st of the following year)
–50% Penalty of the amount that should have been distributed
IRA DISTRIBUTION
What is the penalty for early withdrawal?
10% Penalty for early withdrawal (prior to age 59-1/2)
IRA DISTRIBUTION
What items would the Early Withdrawal Penalty NOT apply?
- Quilified education expenses
- First Time Homebuyer Expenses (up to $10,000)
- Unreimb. Med Exp.
- IRS Levy
- Disabled
- Due to Death
- Roll_Over
- Seperation of service (Lost Job)
IRA
INHERITED IRA
What when an IRA is Inherited?
Treat IRA the same as the person inherited from
Must maintain as seperate IRA
Get any Basis in IRA (carries over with the IRA)
If distributions were being made prior to inheriting, MUST continue Pmts.
CANNOT make contributions - CLOSED
ROTH IRA
What are the Limits on Phase outs of AGI?
MFJ = $178,000 - $188,000
SINGLE = $112,000 - $127,000
(Can Make Contributions past 70-1/2
COVERDELL EDUCATION SAVINGS ACCOUNT (CESA)
- Non-Ded. Contributions up to $2,000 for ea. beneficiary UNDER 18
- Phase-Out AGI - SINGLE $95,000 - $110,000
MFJ $190,000 - $220,000 - Dist MUST be used for Tuition, Fees, Room & Board of beneficiary (Primary AND Secondary school as well as Computers, Ed Software & Internet acess.
MOVING EXPENSES
What are the two tests of Moving Expenses?
- TIME - must be at new location for at least 39 weeks
2. DISTANCE - distance from OLD residence to NEW Job must be AT LEAST 50 miles farther than OLD residence to OLD job.
ROTH IRA
What is the minimum Holding Period for the distributions from a Roth IRA to be Tax Free?
5 Years
MOVING EXPENSES
What are Qualified moving expenses?
The “REASONABLE COST” of:
- Moving household goods and personal belongings
- Traveling enroute (from old residence to new residence)
* *Meals are NOT Allowed**
STUDENT LOAN INTEREST
What is the Maximum deduction allowed for student loan interest?
What is the Phase-out Range for MFJ and SINGLE?
–Maximum deduction of $2,500
–For MFJ = $120,000 - $150,000
For SINGLE = $60,000 - $75,000
TUITION AND FEES DEDUCTION
What is included as qualified expenses under the Tuition and Fees Deduction?
Includes Tuition, books, supplies, and equipment
The Education Credits do NOT include the Books, Supplies and Equipment
TUITION AND FEES DEDUCTION
What is the AGI Range and associated maximum Deduction allowable for SINGLE and MFJ?
SINGLE: $65,000 or LESS = $4,000 deduction
$65,000 - $80,000 = $2,000 deduction
MFJ: $130,000 or LESS = $4,000 deduction
$130,000 - $160,000 = $2,000 deduction
What are the 10 Self-Employed Deductions FOR AGI?
- Trade or Bus. Expenses
- Hobby Losses
- Casualty Losses
- Depn & Amort
- Sec. 179
- Self-Employment Tax
- Self-Employed Health Ins.
- Retirement Accounts
- Health Savings Accounts
- DPAD (Domestic Production Activities Deduction)
According to Code Section 162, What expenses can a cash basis taxpayer deduct in “CARRYING ON” their trade or business?
ALL “ORDINARY AND NECESSARY” Expenses paid in Carrying On their trade or business.
(On exam when told what business a taxpayer is in, Think about what may be ordinary and necessary expenses of that business would be)
BUSINESS GIFTS
What is the maximum allowed deduction for business gifts?
$25 Per Person, Per Year.
(if a gift is given to a spouse of a client (of which there is NO Business relationship) it is deemed to be a gift to the client)
CLUB DUES AND MEMBERSHIP FEES
What is the allowed deduction for these?
NONE!!
No deduction is allowed for dues or membership fees in any club organized for Business, Pleasure, Recreation or other social pupose) (Some exceptions have been “Carved Out” for Chamber of Commerce dues, etc.)
SUBSTANTIATION
When is a taxpayer REQUIRED to provide Substantiation for a business expense?
For Expenditures of $75 or MORE
What are some Typical Expenditures that are NOT deductible by a self-employed business?
- Estimated Federal/State tax payments
- Salary to the OWNER (Personal draw, NOT a deductible Exp)
- Charitable Contributions (Personal deduction - NOT bus. deduction)
PENALTY ON EARLY W/DRAWAL OF SAVINGS
When a taxpayer invests in a L-T Savings or CD, if withdraw money early will have a penalty. How/When is this Penalty accounted for?
The Penalty is deducted in the year assessed
(The interest income is reported when earned, which may be in a prior year than the penalty (reduction of interest) - income acct for in year earned and deduction (penalty) acct for in year assessed)
What are the two types of Business Expense Reimbursement plans and how are they treated?
- ACCOUNTABLE PLAN: (when costs occurred submit exp report) - NOT Included in income
- NON-ACCOUNTABLE PLAN: (Receive set amount per month regardless of expense) - ALL of this is INCLUDED in INCOME - any actual expenses would be deducted as ITEMIZED DEDUCTIONS (under MISC)
BUSINESS MEALS AND ENTERTAINMENT
In addition to being Ordinary and Necessary expenses, to be deductible these need to be…(2 items)
- DIRECTLY RELATED OR
2. ASSOCIATED WITH your trade or business
BUSINESS MEALS AND ENTERTAINMENT
What 5 items should receipts contain to determine if allowable?
- AMOUNT
- PURPOSE
- TIME AND DATE
- PLACE
- RELATIONSHIP
HOBBY LOSS RULES
When is the burden of Proof on the IRS to show that the taxpayer is NOT in a trade or business vs. when the Taxpayer has the buden of proof?
If the activity shows a PROFIT in at LEAST 3 of the past 5 years then the burden of proof is on the IRS. (IF NOT the burden of proof would be on the taxpayer)
HOBBY LOSS RULES
IF an activity is a HOBBY, How is the related Income and Expenses treated on the Tax Return?
The Hobby income is reported as Other Income and the deductions are reported on Sch A as MISC itemized deductions (Expenses can NOT exceed the income)
NOL
How far can the NOL be Carried back/carried forward?
Can be carried back 2 Years
Can be carried fwd 20 Years
CASUALTY LOSS DEDUCTION
(Business)
What is allowed as a Casualty Loss Deduction?
How is it different for a Personal Casualty Loss?
- -Deduction allowed for Decrease in Value OR the Adj Basis, whichever is LESS, minus any Ins Reimbursements.
- -Unlike Personal Casualty Loss, a business is NOT Subject to the $100 floor Nor the 10% of AGI Test
MACRS - CONVENTIONS Explain Differences in: 1. MID-YEAR CONVENTION 2. MID-QTR CONVENTION 3. MID-MONTH CONVENTION
- MID-YEAR: Pers Prop (Under 40% purch in last Qtr) Recognized 1/2 of first year depn and 1/2 of a year in the last year.
- MID-QTR: >40% Purch in last Qtr. rates adj to reflect Mid Qtr start point
- MID-MONTH: for Residential and Commercial Real Estate (depn starts in Middle of Month the Prop placed in service)
SEC. 179
What is the Maximum Sec. 179 amount?
At what amount of Property purchased does the Sec 179 begin fading out?
- -$500,000
- -$2,000,000 - Sec. 179 reduces $1 for every $1 that the puchases exceed this amount.
In addition to Sec 179, how much is Bonus Depn?
50% of the cost of the qualifying asset
AMORTIZATION
How long are Sec 197 Intangibles Amortized?
15 Years (180 months)
HSA
What is the limitation on the deduction contributed to the HSA?
The Lessor of 1/12th of the Annual Deductible of a High Deductible Ins plan OR $3,100 (for SINGLE Individual) or $6,250 (for MARRIED)
Increases $1,000 at age 55 and above
[10% Penalty for withdrawals NOT used for Medical Expenses - as well as being included in income]
RENTAL ACTIVITY
What does the tax code define ALL Rental activities as?
What is the Exception?
- Defines rental activites as PASSIVE ACTIVITIES
- UNLESS this it the taxpayer’s business
RENTAL ACTIVITY
What is the Exception to the “No loss is allowed” rule?
How does a taxpayer qualify?
- Exception exitst for rental activity losses UP TO $25,000 [This is REDUCED by 50% of the EXCESS of AGI OVER $100,000]
- To qualify a Taxpayer MUST:
a. ACTIVELY participate in the activity AND
b. own 10% of more of the activity
AT RISK LIMITATIONS
What does the ‘AT RISK LIMITATIONS’ mean?
–IF a taxpyer is NOT at Risk for the loss, then NO Deduction is allowed [TAKES PRECEDENT OVER ALL OTHER RULES!!!! - OVERRIDES ALL THE PREVIOUS TESTS FOR DEDUCTIBILITY!!]
