Formulas Flashcards
What is the Alimony Recapture Formula?
Amt of Alimony to include Formula:
R2: P2 - (P3+15k)
R1: P1 - [(P2 - R2 + P3)/2 +15k]
R3: R2 + R1
Annuity Proceeds excluded from Gross Income
(Taxpayer’s Investment contract / Total Expected Return on Contract) x Amount Received.
This represents a recovery of the taxpayer’s previously taxed investment
What constitutes Gross Income?
- All income from whatever source derived minus certain exclusions.
How is AGI determined?
This is determined by subtracting deductions allowed by the IRS from the Gross Income
What deductions are allowed from Gross Income to arrive to AGI?
1) Bus Exp (Sch C)
2) Net Capital Losses (Sch D)
3) Contributions to HSA (Form 8889)
4) Job-related moving expenses (Form 3903)
5) 50% of Self-Employment Tax (Sch SE)
6) Contributions to Retirement Plans, including IRAs
7) 100% of Self-Employed Health Ins Premiums
8) Penalty on early withdrawal of Savings
9) Alimony Payments
10) Qualified Student loan interest up to $2,500
Taxable Income formula for Individuals
Total Income
=Gross Income
= Adj Gross Income - Itemized Deductions (or Standard Deduction, if greater) - Exemptions @$4,000 in 2015 = Taxable Income X Tax Rate = Tax liability before additions and credits \+ Additions - Credits = Final Tax Due (Refund)
What constitute Itemized Deductions?
1) Medical an dentel (> 10% AGI)
2) Mortgage Int Exp
3) Charitable Contributions
4) Casualty losses (>10% AGI)
5) Investment expenses, including investment interest
6) Unreimbursed employee expenses (>2% AGI)
7) Tax preparation fees
8) Other misc deductions
What constitute Exemptions?
1) Taxpayer
2) Taxpayer spouse if filing jointly or separate (but spouse has no income and is not dependent of another person)
3) Qualified Relative
4) Qualifying Non-Relative
5) Qualifying Child
Foreign Tax Credit Formula
total Foreign taxable income / total worldwide taxable income = US Income Tax
How is the 150% declining balance calculated?
= Adj Basis x (150% / useful life)
- AB = Basis (not reduced by SV) minus previously allowable deductions.
- this rate is constant. It is applied to declining basis. It is generally applicable to used property with a useful life of at least 3 years and used depreciable real property.
How is the 200% declining balance calculated?
= Adj Basis x (200% / useful life)
- AB = Basis (not reduced by SV) minus previously allowable deductions.
- this rate is constant. It is applied to declining basis. It is generally applicable to new property with a useful life of at least 3 years and new real rental property.
How is the Unit of Production depreciation method calculated?
= (Basis - SV) x (# units produced / Est Total unit production)
How is the Operating Days depreciation method calculated?
= (Basis - SV) x (# Days used / Est Total Days)
How is the Income Forecast depreciation method calculated?
= (Basis - SV) x (Income generated by property during yr / Est Total Income property during its useful life)
- this method is limited to film, videotapes, sound recordings, copyrights, books and patents.
- The est total income to be produced from the asset must include all income forecasted to be earned before the close of the 10th yr following the tax yr in which the property was placed in service.
What is the Accelerated Cost Recovery (ACR)?
These are tax accounting methods of depreciation that allow a deduction in excess of a current year’s decline in economic value. The property subject to the allowance for depreciation is tangible property used in trade, in business, or for production of income and has a determinable, limited useful life.
» Salvage Value is taken into consideration
These methods are:
- SL= (Basis-SV) / useful life
- 150% = AB / (150%useful life)
- 200% = (AB) / (200%useful life)
- # of production = (Basis-SV) / (#units produced/#est total units to be produced)
- operating days= (Basis-SV) / (# of days used/#total est. days asset can be used)
- income forecast = (basis-SV) / (Actual Income / est total income)
What is the Modified Accelerated Cost Recovery System (MACRS)?
- This system applies to property placed in service after 1987.
- Salvage value is ignored
SL= used for Real property
150%= 15&20yrs property and farm property (mid-yr)
200%= 3,5,7,&10yrs (except farm property)
What is Mid-year convention for MACRS?
It is used for personal property (150% method, 15&20yrs and farm property) placed into service at midpoint of that year.
What is Mid-month convention for MACRS?
It is used for real property (200%method, 3,5,7&10) placed into service at midpoint of that month
What is Mid-quarter convention for MACRS?
Applies when asset acquisition is bunched at the end of the year, placed into service at midpoint of the quarter.
* Apply to all property acquired during the tax yr when sum of basis placed into service >40% of all year.
The first year depr is calculated by multiplying the full year amount by the following % based on the quarter placed in service: Q1 = 87.5% Q2 = 62.5% Q3 = 37.5% Q4 = 12.5%
Residential Rental Property Depreciation
- SL@27.5 yrs
* Mid-Month convention apply
NonResidential Rental Property Depreciation
- SL@39 yrs
* Mid-Month convention apply
Qualified Leasehold improvement, restaurant & retail improvement
*SL@15 yrs
What is Sec. 179 Expense?
A person may elect to deduct all or part of the cost under Sec 179 property acquired during the year as an exp rather than a capital expenditure.
- It is treated as depreciation
- must be elected by the taxpayer
- reduces basis of the property(but not below zero) prior to computation of any other depreciation allowable for the first yr.
- subject to recapture under Sec 1245 as depr.
