Federal Taxation of Individuals Flashcards
How is the interest on series EE bonds treated when calculating taxable income?
Interest is excluded if used for higher education
The owner of the bonds but be at least 24 years old
Interest is excluded in proportion to education expense (expense/total bond * interest)
The exclusion is phased out when modified AGI exceeds $79,700 (single), $119,550 (MFJ). Phaseout is $15,000 ($30,000)
How is municipal interest treated when calculating taxable income?
excluded
What items are included in gross income?
Wages Alimony Tip Income Attorney fees and cost covered Jury duty pay unemployment compensation
What are the requirements in order for payments to be considered alimony?
1) required by decree
2) made in cash
3) paid to or on behalf of former spouse
4) terminate upon death of recipient
What items are excluded from gross income?
Child support Property transfers in divorce Personal injuries Prize and awards Scholarships Life Insurance proceeds Gifts and inheritances Forgiveness of Debt Social Security benefits Foster child payments Welfare payments Worker's compensation Fringe benefits
What are the requirements for prizes and awards to be excluded?
1) selected without action
2) not required to perform a service
3) amount is paid directly to a tax exempt or governmental organization
What are the accounting methods used for individuals?
1) Taxpayer whose annual gross income < $1,000,000 = cash method
2) Taxpayer whose annual gross income > $1,000,000 can use cash method if primary business is service
What is the limitations on the exclusion of Life Insurance Premiums?
Limited to $50,000
How much can be deducted for health insurance premiums?
100% for self coverage
When is retirement savings subject to tax?
When withdrawn
What are the contributions limit (deductible) for IRA’s?
$5,500 ($11,000)
and additional $1,000 catch-up contribution for taxpayers over 50
What are the two types of deductions?
Deductions for AGI - subtracting deductions from Gross Income
Deductions from AGI
What items are deducted for AGI?
1) Business expense associated with trade
2) Alimony payments
3) 1/2 self employment tax
4) medical insurance premium
5) Moving expenses
6) IRA contributions
7) Interest on student loans
8) Contributions to health and saving account
9) Repayment for jury duty
10) forfeited interest
What are the requirements for moving expense to be deductible?
The new job location 50 miles or greater
Taxpayer must work at new job for 39 weeks
How much is deductible for student loan interest?
$2,500 per year
What is the limit on contributions for Health and Savings Account?
$3,450 ($6,900)
What are the types of personal itemized deductions?
1) Medical expense
2) Interest
3) Taxes
4) Charitable contributions
5) Casualty losses
6) Miscellaneous deductions
What are the standard deductions that may be claimed?
Single & Married Filing Separate - $6,500
Head of Household - $9,550
MFJ - $13,000
When can medical expenses be deducted?
When expenses exceed 10% of AGI
What are the deduction requirements for LTCG property donated?
FMV is deductible
Limited to 30% of AGI
What is the maximum amount that can be deducted for charitable contributions?
50% of AGI
Charitable contributions in excess of limit can be carried forward how many years?
5 years
How to calculate the amount of casualty loss?
Lower of decline in FMV or AB of property - insurance reimbursements - $100 per casualty - 10% of AGI
What are the types of miscellaneous deductions subject to 2% floor?
1) Employee business expenses not reimbursed under an accountable plan
2) Investment expenses
3) Tax return preparation expense
4) Home office expenses
5) Hobby expenses
