Income Tax Flashcards
What are the eligibility requirments for a
Subchapter S Corporation?
- Number of shareholders is limited to 100
- The Corporation can only have a single class of outstanding Common Stock (no preferred), but the Common can be voting or non-voting.
- Must be a Domestic Corporation Only individuals, estates and certain Trusts may be shareholders.
NOTE: Non-resident aliens (persons who are neither citizens nor permanent residents of the US) cannot be shareholders.
Tax Basis for Partnership / LLC
- Cash invested
- Direct loans made to the partnership
- Partnership Debt: Loans made to the partnership - not the partner (bank loans)
NOTE: S-Corp basis does NOT include bank loans even if the S-Corp owner personally guarantees the debt.
Property Classes
1245 Property (non real estate)
- 5 year:Computers,Autos,Trucks
- 7 year:Office Equipment except computers,
1250 Property (real estate)
- 27.5 year: Residential rental property
- 39 year: Non-residential real property
Remember: CATCORN
Boot / Gain Recognized / Basis
No Boot Received: Recognized Gain is zero
When Boot is Received, just answer the recognized gain is the boot received
- Boot paid is added to Basis
- Basis carries over from the prior property
Netting Capital Gains and Losses
Step 1:
- ST Capital Gains and ST Losses are Netted
- LT Capital Gains and LT Losses are Netted
Step 2:
- If a Gain and Loss remain, they are again Netted
Step 3:
- If a Loss remains after Netting Capital Gains and Losses, only $3,000 of the Net Losses can be used to offset ordinary income
Sale of a Personal Residence (Section 121)
$250K (single) and $500k (MFJ) of Gain from the sale is tax-free if lived in for 2 out of the last 5 years.
- Exception available if taxpayer lives in the residence less than two years and moves because of a new job, for health reasons, etc. Receives a pro-rated amount.
Recapture (1245 Property)
When the sole proprietor purchases equipment and takes Depreciation (Cost Recovery Deduction - CRD), the CRDs offset the sole proprietor’s ordinary income.
When the sole proprietor sells the equipment for a gain, the sole proprietor must:
- 1st: Look back and recapture the lesser of the CRDs taken or the Gain realized as 1245 Gain (ordinary income)
- 2nd: Recover any excess gain as 1231 (capital gain)
Section 179
Qualifying vs. Non-Qualifying Property
Qualifying:
- Tangible Personal Property
- 1245 Property
Non-Qualifying:
- Real Estate
- 1250 Property
- Intangible (owning a franchise)
AMT Preference Items
- Excess Intangible Drilling Costs (IDC)
- Private Activity Municipal Bond
- Oil and Gas Percentage Depletion / Excess intangible drilling costs (IDC)
- Depreciation (ACRS/MACRS) but not straight line
Remember: I.P.O.D.
AMT Add-Back Items
AMT Not-Deductible Items
Add Back:
- Incentive Stock Option Bargain Element
- Property and Income Taxes
Postponing AMT
- Accelerating receipt of taxable income or deferring the payment of property taxes, state income taxes, deductible medical expenses or charitable giving, the regular tax (1040) may exceed the AMT payable (more taxable income)
- Deferring exercise of incentive stock options (preference item) to a later date or disqualifying the ISO so that it becomes NQSO (subject to ordinary income tax).
- Purchase public purpose muni bonds instead of private activity bonds.
Historic Rehabilitation Programs
Historic Rehabilitation programs that are held as passive activity may generate a Deduction:
- Equivalent Tax Credit of up to $25,000.
The benefit of this Deduction:
- Equivalent Tax Credit phases out between $200- 250k of AGI.
How does the Deduction Equivalent tax credit work?
- Calculate tax to determine the maximum marginal tax bracket. If it is 25%, for example, then you multiply $25,000 by 25% to get $6250.
Low Income Housing Credit
Low-Income Housing programs that are held as passive activity may generate a Deduction:
- Equivalent Tax Credit up to $25,000. There is NO phase out.
- The Low Income Housing Credit is allowed annually over a 10 year “credit period.”
- The Depreciation is straight-line over 27.5 years.
How does the credit work?
- For example, multiply 35% by $25,000 to get a credit of $8750.
NOTE: Because there is no phaseout, it produces a higher credit.
Types of Phantom Income
Insurance:
- Lapse of Policy Loan
- Section 162 Life/Disability
Investments:
- Zero/Strip Income
- TIPS
- Declared but not paid Dividends
Tax/Retirement:
- K-1 Income from LP/FLP
- Recapture
- NUA
- 20% withholding plan distributions, Secular Trust
Charitable Giving
Calculate the Maximum Deductible - 60% of AGI
- Calculate the eligible amounts given to 50% organizations (public charities) such as all churches, schools, hospitals and organizations such as United Way, Red Cross, Humane Society, etc.
- Calculate the eligible amounts given to 30% organizations (private charities) such as private non-operating foundations, war veteran groups, and fraternal orders.
Charitable Giving (Types of Property - 60% Charities)
- Long-Term Appreciated Property, using FMV deduct up to 30% of AGI
- Use-unrelated Property, ST Capital Gain Property using basis deduct up to 50% of AGI
Sources of Federal Tax Law/Authority
- Internal Revenue Code: Primary Source of all tax law.
- Treasury Regulations: Great authority, but not law.
- Revenue Rulings and Revenue Procedures: Administrative interpretation. May be cited.
- Congressional Committee Reports: Indicate the intent of Congress. May not be cited.
- Private Letter Rulings: Apply to a specific taxpayer .
- Judicial Sources: Court decisions interpret
Step Transaction
Ignore the individual transaction and instead tax the ultimate transaction
- Example: The XYZ Corporation sells property to an unrelated purchaser who subsequently resells the property to a wholly owned subsidiary of XYZ.
Sham Transaction
A transaction that lacks a business purpose and economic substance will be ignored for tax purposes.
- Example: A sale by XYZ to ABC, but both XYZ and ABC are owned by the same persons.
Substance Over Form
The substance of a transaction, and not merely its form, governs its tax consequences.
- Example: The president of XYZ has the company loan him the money he needs. He never intends to repay the loan or take a salary.
Assignment of Income
Income is taxed to the tree that grows the fruit, even though it may be assigned to another prior receipt.
- Example: Mr. T owns XYZ, an S Corp. He directs that all income be paid to his son. Mr. T reports no income.
Dates for Paying Estimated Taxes
- April 15
- June 15
- September 15
- January 15
IRS Penalties
- Frivolous Return: $5000
- Negligence: Penalty is 20% of the portion of the underpayment attributed to negligence.
- Civil Fraud: Penalty is 75% of the portion of the tax underpayment attributable.
- Failure to File: Penalty is 5% of the tax due per month, with a maximum of 25%.
- Failure to PAY: Penalty is 0.5% per month the tax is unpaid, with a maximum of 25% (Pay-Point)
Federal Withholding Tax Underpayment Penalty
To avoid, pay the lesser of:
- 90% of the current year’s tax liability
- 100% of the prior year’s tax liability (or 110% if the last year’s adjusted gross income exceeded $150,000)
Adjustments for Adjusted Gross Income (AGI)
The second step in the 1040 calculation is adjusted gross income. It is Total Income (or Gross Income) less adjustments to income.
The main Adjustments or Deductions to Income are:
- IRA Contributions
- Self-employment Tax
- Self-employment Health Insurance (100%)
- Keogh or SEP Alimony paid
Schedule A Itemized Deductions
- Medical, Dental, and LTC (7.5% of AGI)
- Casualty and Theft Losses
- Real Estate Taxes**
- Investment Interest Expense
- Home Mortgage Interest
- State and Local Taxes**
- Personal Property Tax**
- Charitable Gifts
**Limited to $10,000/yr.
Casualty Losses (Calculation of the Deductible Loss)
First: Use the lesser of basis or FMV
Second: Subtract any insurance coverage
Third: Subtract $100 (floor)
Fourth: Subtract 10% of AGI. Must be a presidentially declared “natural disaster”
Kiddie Tax
All net UNEARNED income of a child who has:
- NOT attained the age 18
- Is 19-23 and a full-time student
- Has at least one parent alive
…is taxed at Parent’s Rates regardless of the source of the assets.
Children under 18 are entitled (2020) to a Standard Deduction amount ($1,100) and an additional $1,100 of unearned income will be taxed at the child’s rate (10%).
Self-Employment Income
- Net Schedule C Income
- General Partnership Income (K-1 income)
- Board of Directors fees
- Part-time earnings (1099) NOT wages or K-1 distributions from an S Corp
Self-Employment Tax Calculation
The Taxable Wage Base will not exceed $142,800 (2021).
- If you added up the self-employed income, and you exceeded $142,800, you did something wrong. Why? Social Security tax stops at $142,800 (2021).
Shortcut: Multiply Self-employment Income by 0.1413
Tax Credits
- Credit for child and dependent care expenses
- Child Tax Credit (up to $1,400 could be refundable)
- Adoption Credit
- Elderly and Disabled Credit
- Foreign Tax Credit
- Earned Income Credit (refundable)
Accounting Methods
- Cash: Mandatory where taxpayer’s records reflect only cash transactions, and there are no inventories.
- Accrual: Mandatory for purchases and sales over $25M where there are inventories.
- Hybrid: Combines accrual for inventory portion of business and cash for cash portion of business.
- Percentage of Completion: For long-term contracts where the contract will not be completed within the taxable year started.
Personal Service businesses that are also regular Corporations (C-Corp)
- Health
- Accounting / Architectural
- Law
- Engineering
Remember: H.A.L.E.
Realized Gain vs Recognized Gain
What’s the difference?
- Realized Gain is Economic or Inherent Gain at the time of the transaction.
- Recognized Gain is the part of Realized that is immediately taxable.
An individual is required to file a tax return if earnings from self employment (1099) are more than ______?
$400
Constructive receipt doctrine for transactions
- Income can be used despite the money not yet received
- occurs in cash accounting situations
- does not apply with the use of accrual accounting.
- Taxpayers must include any income on their taxes based on the year that income was constructively received, even if they don’t have possession of the funds.
Hobby Loss Rules
NO PROFIT REQUIRED
INCOME is the factor and must be claimed
Income generated 3 of 5 consecutive years = NOT a hobby
Income Generated 2 of 7 consecutive years for HORSES = NOT a hobby
Losses allowed only to the extent of profit
** Income reported as Miscellaneous taxable
Tax RESEARCH sources
does not influence LAW
Federal Tax Coordinator from the RIA (Research Institute of America, publisher)
Federal Tax Service from the CCH (Commerce Clearing House Inc.)
MAY NOT BE CITED IN TAX COURT
Step Transaction
IRS recognizes a transaction as a STEP to the ultimate transaction
Substance Over Form
IRS recognizes that the FILING is in order but the ultimate econimic outcome is obfuscated
Who has to file? Filing Requirements
- individuals (net earnings >$400)
- Dependendents
- Children under 24 (KIDDIE TAX)
- Self Employed
- Aliens
Filing Dates for Estimated Taxes
- 4/15; wait 2 mos
- 6/15; wait 3 mos
- 9/15; wait 4 mos
- 1/15;
NOT QUARTERLY
Late installments can amend earlier ones
6mo extension until 10/15
** IRS Checks: Math Errors and sends demand of balance due (no court privelege)
IRS forms for filing
1041 for estates and trusts
1040X to Amend math errors
1040A WAS used <2018 to report simple income (no itemizations)
Audit Representation can be made for a tax payer by the following people:
Any attorney
Enrolled Agent
Enrolled Actuary
CPA
Any other persion legally permitted to represent the tax payer
Penalties and reasons for them
Frivolous return $5,000
Negligence: 20% of underpayment (No intent to fraud)
Fraud: 75% of underpayment
Failure to pay: .5% / mth (max 25%) => 6%/yr
Failure to File: 5% / mth (max 25%) => 60%/yr
BEST PRACTICE IS ALWAYS TO FILE
Estimated Taxes to AVOID PENALTIES
Pay the LESSER of:
- 90% of current year’s tax
-
100% of prior year’s TAX OR
- 110% of prior year AGI IF the AGI > $150,000)
Filing Statuses
- Single
- MFS
- avoids spouse fraud under innocent spouse rules
- MFJ
- HOH
- residents who have maintain 50% of support for dependents
- Qualifying Widower
- Has a child and not remarried
- Last 2 years after death
Inclusions to Gross Income By Schdule
- Schedule B
- Ordinary Dividends
- Taxable Interest
- Schedule C
- Business Income & Losses
- Schedule D
- Capital Gains and Losses
- Schedule E
- Real Estate and PASSIVE Income
Inclusions 1040
- Punitive Damanges (NOT wrongful Death)
- Wages, Salaries, Tips
- IRA distributions
- Pensions & Annuities
- Alimony (div. < 2019)
- Unemployment Income
- Taxable Social Security
Exclusions from Gross Income
- Gifts
- Inheritance
- Child Support
- Muni Bond Interest (may be subject to AMT)
- Workers Comp
- Compensatory Damages
Tax Calculation
for INCOME
-
GROSS INCOME
- less adjustments above the line for AGI makes
-
AGI (Adjusted Gross Income)
- less deductions below the line from AGI makes
-
TAXABLE INCOME
- multiplied by tax rate makes
-
TAXABLE CALCULATION
- less credits plus other taxes
-
TAX LIABILITY
- less quarterly payments and withholding
- NET TAX DUE or REFUND
Are scholarships taxable income?
If the scholarship exceeds tution and books.
Scholarship used for room and board are taxable.
Student loan interest deduction is capped at $2,500
Fringe Benefits – Tax FREE
- Dependent care ≤ $5,000 (MFJ); $2,500 (MFS)
- Health Plan Premiums
- Disability PREMIUMS (benefit from employer)
- Insurance group life (≤ $50,000)
- Car for business
- Transit Pass ≤ $270/mo ($3,240/yr)
- Discounts on company products *
- Education assistance ≤ $5,250 *
- Adoption Assistance ≤ $10,000 *
- Overtime meals, cab, theater, sports tix (NOT seasonal)
- Discounts on SERVICES (≤ 20% of retail)
* Exclusion for Employer gross income
Fringe Benefits – TAXABLE
HEAVILY TESTED
- S - Corp
- Premiums for Health Insurance
- Partners, self-employed, > 2% owners
- 100% Deductible BUT as an Adjustment to Income
- DOES NOT INCLUDE DISABILITY INSURANCE
- Premiums for Health Insurance
- EMPLOYER PAID lIFE INSURANCE PREMIUMS > $50,000 Death Benefit
- If the plan is nondiscriminatory
Annuity Contributions owned by employee that are not deferred comp.
ADJUSTMENTS
step 2 in tax calc
- IRA
- Be careful of phaseouts
- Student Loan Interest (50%)
- ≤ $2,500
- SEP/KEOGH (self-employed)
- Self-Employment Tax
- 0.07065 factor to adjust gross income (50% of 14.13%)
- Alimony paid for divorces settled < 2019
- Self-employement insurance 100%
- Military Moving (active)
- Penalty for early savings w/d
- HSA
- Education Expense ($4,000)
- AGI Limits
- alternative to AOC (American Opportunity Credit)
Standard Deductions
- Single: $12,550
- MFJ: $25.100
- MFS: $12,550
- HOH: $18,800
- Elderly (additional): $1,350 (>65 y.o. MFJ; $1,700 for Single)
- Blind (additional): $1,350
- Child unearned: $1,100
Schedule A
Itemized Deductions
Form 1040
- Medical, dental, & qualified LTC expenses >7.5%
- SALT ≤ $10,000
- Property taxes (personal) ≤ $10,000
- Real Estate Taxes ≤ $10,000
- Mortgage INSURANCE (qualified) < $100,000 AGI
- Mortgage INTEREST
- Charitable Gifts
- Investment Interest paid on margin (up to investment income)
- Casualty Losses from FEDERAL DISASTER
TCJA REPEALS ITEMIZED DEDUCTION THROUGH 2025
Qualified residence Rules
Deduction for Mortgage loan for home/home improvement
MFJ Interest on ≤ $750,000
Single/MFS Interest ≤ $375,000
On Schedule A
Includes both primary and heloc loans
** Note: if Cash out REFI exceeds prior debt
CASH OUT not deductible **
Investment Income
- Interest
- NonQual Dividends
- Royalties
- STCG
- Qual DIV IF taxpayer elects to use ordinary income
- LTCG IF taxpayer elects STCG rate
NO MISCELLANEOUS DEDUCTIONS SINCE TCJA
NO DEDUCTIONS FOR INTEREST PAID ON DEBT INCURRED TO PURCHASE TAX EXEMPT BONDS
Casualty Losses Deduction
FEDERAL DISASTER ONLY
Schedule A
- Unreimbursed losses (not covered by insurance: casualty and theft)
- MUST BE Federally DECLAIRED disaster
- Act of Nature (sudden, unexpected)
- Partial OR complete destruction
- Fire, Earthquake, Hurricane
- Loss reduced by $100 FLOOR
- Aggregate loss >10% of AGI is deductible
CALUCLATION of a Deductible Casualty Loss
- LESSER OF:
- Basis OR FMV
- LESS insurance coverage makes
- Uncovered losses
- LESS $100 Floor
- LESS 10% of AGI
- Makes a Deductible Loss
Always ask value of home and collections to make suree they are insured enough
HOME OFFICE Deduction
Schedule C
Screaming Audit Item
- IF self-employed OK BUT
- MUST be EXCLUSIVE AND
- NO OTHER available location where business is conducted
- Cannot create a LOSS
- Limited to Gross Income Limit after deductions
NO MISCELLANEOUS DEDCUTIONS
EVER
Meals and Entertainment Expenses
What’s Deductible
-
Deductible IF
- Client/Prospect entertainment AND Business is actually conducted
- Taxpayer is present
- Meals are NOT “Lavish or Extravagant”
-
EXCEPTIONS
- For the benefit of NHC employees (office parties still deductible)
-
Taxpayer Certainty and Disaster Tax Relief
- 100% deduction for business meals FROM A RESTAURANT 2021-2
- NO tickets; NO Personal and dependency exemptions
- Meals while traveling still deductible at 50% (100% this year and next yr if for business)
- Salaried employee NOT REIMBURSED for travel meals
Kiddie Tax Calculation
-
UNEARNED INCOME
- STEP 1: ≤ $1,100 (Standard deduction, no tax)
- STEP 2: $1,100 taxed at 10% ($110 max)
- STEP 3: ≥ $2,200 taxed at parent’s marginal tax rate
-
If kiddie has EARNED income Take the GREATER of the standard deduction of $1,100 or DO EARNED deduction
- DO EARNED income + $350 to get EARNED deduction
- IF EARNED deduction > $1,100 then use that
- If a child has BOTH add them together for kiddie gross income
**Child can be paid on 1099 (consultant, no fica) or be self employed AND owe .1413 on earnings
Self Employment Tax Bullets
- does NOT include soc sec and medicare tax
- as employee and employer you pay both
- It is based on NET earnings (not salary or taxable income)
What is and is NOT self employment income?
- DOES NOT include
- Dividends/Interest on investments
- Gains/Losses on property securities or commodities
- Real estate income OR rents paid
- Distrib. income share OR loss of L.P.
- Wages from S corp
- K-1 Income from S Corp (distributions
- DOES include
- NET Schedule C Income
- K-1 Income for G.P.
- Board of Director fees
- Part time 1099 earnings
What is the Max Tax Wage Base?
$142,800
above that is for MEDICARE TAX only
Self Employment Tax Calculation
Multiply the total self-employment income by .1413 and round up
Schedule 1 deductions
Insurance Premiums
Medical
Dental
LTC (Max LTC deduction has phaseouts; e.g. at 61 >$4,000)
Tax Credits
Dependent Care
allows parents to work and pay for childcare
Dependent care for kids < 13 y.o.
No phase out for Dependent Care
-
DEPENDENT care limits:
- $3,000 for 1 dependent
- $6,000 for 2 dependents
- Multiply by 35% or 20% (use 20% for exam)
- Allowable % by AGI
- < $15,000 = 35% credit
- >$43,000 = 20% credit
CHILD TAX Credit
$2,000 fore cach child < 17 y.o.
- Phaseouts: Tax Credit is reduced by $50 for for every $1,000 earned
- >$400,000 MFJ MAGI
- > $200,000 SINGL MAGI
- ≤ $1,400 / child is a refundable credit even if you don’t pay taxes
FAMILY Tax Crdit
$500 for dependents NOT chidren where you grant > 50% of support
Elderly and disabled
same phaseout as Child Tax Credit
NonRefundable for 17 or older
What is a Refundable Tax Credit
- Refundable tax credits are refunded to the taxpayer regardless of the taxpayer’s liability.
- These tax credits are called refundable because
- they can involve cash payments from the IRS if they put the taxpayer’s lability below zero.
Foreign Tax Credit …
what is it
other than NonRefundable
US Taxpayers can DEDUCT taxes paid to OTHER countries (must be allies)
OR
receive a credit $ for $ against tax liability
Adoption Credit
How to Qualify
Max Credit $14,440/child
Credit for related OOP expenses related to adoption
Special Needs child can claim full amount anytime
Qualifying Adoption Credit Expenses
- INCLUDED:
- Adoption fees
- court costs
- attorney fees
- Domestic Adoption costs
- available in the year PAID
- Foreigh adoption costs (including Travel)
- available in the year the adoption is FINAL
- Special Needs
- credit available the year adoption final
- 100% of all expenses
- NOT included:
- Surrogate parent costs
- adoption of spouse’s child
- Non special needs adoptions have a prorata phaseout
- MAGI $216,660-$256,660
Special Needs Adoption Cre
Elderly and permanently and totally diasabled nonrefundable credit
Age 65+ OR < 65 (retired w/permanent and total disability
AND
Receives disability income
Earned Income Credit
REFUNDABLE
Basically to get folks on the books to pay taxes
Tax Deduction vs Tax Credit
Deduction: better for HIGH BRACKET payors
Credit: better for LOW BRACKET payors
CALCULATION for Tax Deduction vs Tax Credit
simple
Deduction x tax bracket = equivalent Tax CREDIT
Tax Credit / tax bracket = equivalent Deduction
Taxes paid by employers for wages
7.65% for FICA
.141d if Self Employed
Tax Accounting Methods
- Cash: EASIEST ≤ $25mm avg revenue
- Revenue realzed in the year pmt received (constructive receipt)
- Expenses/Liabilities realized in year paid
- Accrual Method: MANDATORY for ≥ $25mm plus INVENTORY
- ≥ $25mm for prior 3 years
- Revenue realized when sale is complete
- Realized expenses with liability of revenue (paid or not)
- HYBRID
- Used if income is clearly reflected
What to change accounting method?
Need to get permission from the IRS in ADVANCE!
% of Completion method
Long term contracts such as construction
Installment Sales
Seller Realizes cap gains over the lifetime of the note
- EXCEPTIONS:
- Payment all in the sale year
- Property is publicly traded
- Property sold at a loss
- Property sold to a RELATIVE who sellse within 2 years
- EVEN if payments are stll being made.
Calcution for GAIN for Installment Sales
PROFIT / Contract Price = Gross Profit Margin %
Installment Paid $ x Gross Profit Percentage = GAIN
Gain can be short or long term, but usually Long
Inventory Valuation and FLOW Methods
FIFO vs LIFO
-
LIFO best for
- RISING prices
- Diminishes/Defers taes
- reduces earnings
- MUST UNDERSTAND INVENTORY
-
FIFO best for
- Falling prices
- Increases earnings
- Increases tax liability
- uses CURRENT cost of inventory
- Sells the lowest cost basis generally
also there is specific identification method – good for stocks and MF and salting the mine
NOL
Net Operating Loss
Used to offset CY income
- Gross Income - Deductible Losses = NOL
- NOL losses reported on Schedule C for sole proprietor; claimed on 1040 to reduce AGI
- NOL NOT allowed in Partnerships or S Corps – they use other methods
- NOL Deductions may be used in future years and carried forward indefinitely
- Can offset 80% of taxable income
- No Carry Backs
Business Entities
-
Risk Free Business
- Sole Proprietorship
- Partnership
-
Risky Business
- S Corp
- LLC
- L.P. (only limited partners)
- LLP (limited liability in a partnership)
-
Profitable Business (21% Flat Tax)
- C Corp
- PSC (note: no dividend exclusion)
- Personal Service Corp
- Closely Held C Corp
- Health Professional
- Accounting, Architects, Actors, Athletes
- Law
- Engineering
- Personal Service Corp
Sole Proprietorships
-
Advantages
- Availablity of retirement plans : KEOGH, SEP
- 100% medical premiums owner deductible
- Easy to set up
- Conduit for income and losses (Sched C)
-
Disadvantages
- UNLIMITED PERSONAL AND LEGAL LIABILITY
- No succssion – business dies with owner
- Capital Structure = Personal Resources
Partnerships (≥ 2 Owners)
-
Advantages
- Availablity of retirement plans : KEOGH, SEP
- 100% medical premiums owner deductible
- Partnership agreement can be oral, but written is better
- Conduit for income and losses (Sched C)
- Losses up to basis
-
Disadvantages
- UNLIMITED JOINT and PERSONAL AND LEGAL LIABILITY
- No succssion – business dies with owners due to death, bankruptcy or incapacity
- Capital Structure = Personal Resources
Pass Through Conduit Entities
S Corp
LLC
Sole Proprietorships
Partnerships
LLC
Can be a partnership OR a corporation
- Partnership IF ≤ 2 of the following exist it’s a Corporation
- Central management
- Contiuity of life
- limited liability
- free transferability of interest
- Like a corp in that it as limited Liability
- Like a partnership in that it has losses up to basis including contributions of partners and LOANS
- LLC Governed by state law
- Ownership interest
- fund disbursement
- capital structure
- contract and finace items
QBI (Qualified Business Income)
- Can be utilized by Pass Through Entities (S Corp, Sole Prioretor, Partnerships) NO C Corps
- Rental income
- REITS (Publicly Traded)
- Partnerships (Publicly Traded)
- Losses from one business can be used to offset gains from another QBI
- If QBI ≤ 0 THEN
- No deductions are allowable
- BUT Losses can be carried forward
TCJA Pass Throughs
- Type 1:
- PSC
- Type 2 Business Owners
- Tier 1: Single: >164,900 MFJ > 329,800 20% Pass through deduction
- Tier 2: Single: > $214,900 MFJ > $429, 800 0% for PSC; limit for others
- Tier 3: Single between Teir 1 and 2
- 164 to 214 and 329 to 429 Partial Tax benefit; phases out for deductions on PSC
LLP
Limited Liability Partnership
- GPs NOT personally liable for another GP
- Good conversion option from LLC or Partnerships
- Somestates allow easy conversion
- Must have at least one GP
- Conduit Taxation
C Corp
-
Advantages
- Separate Tax entity
- Sale of stock to unlimited investors
- 50% Dividend received deduction
- 50% Div excluded if recvr owns <20% of corp
- 65% Div excluded if recvr owns >70%
- 100% Div excluded if recvr owns >80%
- Limited Liability
- Continuity
- 50% Dividend received deduction
-
Disadvantages
- Corporate formalities
- Dividends paid after tax
- Double Taxation
Section 1244
Qualified Small Business Stock
for S or C corp
S1244 = “a corporation”using” 1244
Subchapter S Corp
1120(S)
- Special Tax Treatment 21% Flat Tax
- ≤ 100 share holders; issues common stock ONLY
- MUST BE COMPLETELY DOMESTIC
- US citizens and permanent resident aliens
- Limited Liability
- Conduit Income/Loss to OWNER (limited to basis)
- BANK DEBT DOES NOT INCREASE BASIS LIKE AN LLC DOES
- Owner can take excessive comp not classified as dividends
- 100% Medical is deductible to ≥ 2% owners
- All shares are voting for board
-
Disadvantages
- Corporate formatlities
- No Preferred Stock
- Sale of stock limited by eligiblity standards
Which interest is deductible without limit on a business owner’s persona tax return?
Business Investment Interest Paid or expensed
The deduction for necessary business interest is unlimited.
Deductions for mortgage interest and margin interest are limited.
Personal loan interest isn’t deductible
Special Taxes
Corporate Accumulated Earnings
- CAE tax
- Accumulated earnings to avoid tax to shareholders
- If earnings are not accumulated, penalty is 20% of accum taxable income
- additive to regulary corp tax
- Allowable up to $250k for Reg C; $150k for PSC
- Tax used to encourage Dividends
Calculating Accumulated earnings
- Accumulated earnings
- less tax and dividends paid
- plus this years earnings less allowable credit ($150k for PSC or $250k for Reg C)
- makes Accumulated taxable income
- multiplied by 20% (CAE Tax)
- creates tax due
Distribution bullets
Dividnds paid are NOT deductible
Taxed at Corp AND sharholder levels (double tax)
Corps generate 1099
Partnerships and S Corps generate K-1
Tax Forms for Distributions
- K-1 of the 1120S for S Corp
- K-1 of the 1041 for trusts and estates
- 1099 for self employed
- K-1 of the 1065 is for Partnerships
- Schedule E for K-1 from real estate
Summary of tax forms used by different business entities
-
Corporation
- Filing 1120
- Employee W-2
- Distributions 1099 Dividends
-
Self Employed
- Filing Schedule C
- Employee Schedule C
-
Partnership
- Filing 1065
- Employee W-2
- Distributions K-1
-
S Corp
- Filing 1120S
- Employee W-2
- Distributions unearned K-1
Is there an advantage to taking excessive income as a stockholder from a corporation or an S
corporation if the company is very profitable?
Compensation from a regular corporation is subject to unlimited Medicare taxes
Taking limited salary from an S corporation will reduce FICA and FUTA taxes because the remainder of income will be unearned income. Unearned not subject to Medicare Tax
Estate Tax Filing Requirements
- 1041: Finduciary Income Tax Return
- 706: Estate Deductions
- Admin Costs
- Attorney fees
- Expenses related to preparing the returns
Similarities btwen Estates and Trusts
- Have benes
- must be created by someone
- transfer of property
- both have fiduciaries (trustee and executor)
- Both are distinct tax entities
Tax filing deadlines for Trusts and Estates
15th day of the 4th month after the entity’s year end**
- MUST FILE IF:
- there is taxable income
- gross income ≤ $600
- Beneficiary is a nonresident alien
** Choice of tax year: accting period of decedent OR calendar tax year, OR any fiscal year
** TRUST MUST USE CALENDAR YEAR (not Charitable trust of 501 (a))
Grantor Trust
Defective or Tainted Trust
When Grantor is taxed (not the trust itself) for using the trust income for the Grantor or Spouse.
- Tainted if:
- Administrative Power exists
- Right to enjoyment exists
In an ILIT, a yearly gift to the trust (not the trust itself) pays the prmium.
If the trust pays the premium on the LIns for the grantor, the grantor is taxed.
Reversionary Interest taints the trust
When Reversionary interest > 5% at the time of creation is retained by the grantor.
Grantor Trust will not be part of estate when …
Grantor no longer has administrative power OR
rights of enjoyment (no income, no right to w/d) AND
it is left to a designated beneficiary
Simple vs Complex Trusts
- Simple
- Income is:
- Distributed
- Taxed to beneficary
- Corpus is:
- NOT distributed (normally)
- No Charitable Gifts
- Income is:
- Complex
- Income is:
- Accumulated OR Distributed (maybe)
- Taxed to the trust
- Distributions taxed to beneficiary
- Corpus is:
- Distributed
- Yes to Charitable Gifts
- Income is:
DNI (Distributed Net Income)
- If not distributed, trust pays income (generally higher rates)
- If distributed, taxed at bene rate
- Limits amt benes must repoert as gross income
- DNI RULES ALLOW:
- claim of deduction for distributions
- limit the amt of distribution taxable to benes
- ensure the character of the distr remains the same to bene
- NO DOUBLE TAX bc trust gets a deduction
- Deduction = lesser of amt distr to bene or DNI
Revocable Living trusts
inter vivos or grantor trusts
Becomes Irrevocable (non grantor) at death
Trust Terminates when all corpus is distributed
Trust available deductions
- COMPLEX only:
- Charitable deduction and Exemptions ($300 if required distributed, $100 if not required)
All Trusts:
- Net Operating carry forward
- Admin Expenses
- Required distributions (whether or not distributed
What goes into Cost Recovery Basis
- Improvements (NOT REPAIRS which are deductible as expenses)
- Legal fees
- commissions
- sales tax
- freight
- real estate taxes
- normal business expenses
Amortization
Section 197 intangible rules
Straign line depreciation
periodiclly lower book value of a loan or INTANGIBLE asset
Accretion
you know this: Creates phanton income
Bonds are accreted when discounted bond interest gets added to the basis
Gift and Basis WHEN TO USE WHAT
IF the FMV > donor’s adj basis THEN use donor’s adj basis
IF the FMV < donor’s adj basis THEN
LOSS = FMV - value on date of gift
GAIN = value on date of gift - BASIS
Depreciation and cost recovery
- Depreciation and cost recovery are
- an allowance for wear and tear of property
- USED IN BUSINESS for PRODUCTION OF INCOME
MACRS
Modifed Acclerated Cost Recovery system
- Straight line is an OPTION under MACRS
- Half Year convention MUST BE USED
- NOT used for
- LAND
- TANGIBLES (aka FIXED ASSETS)
- Requires MID QUARTER CONVENTION IF:
- 40% of property put into Q4
Property Classes
CAT-ORN
- 5yr 1245 = Computers Autos, Trucks
- 7yr 1245 = Office equip, Furniture, and Fixtures
- 27.5 yr 1250 = Residential Rental Property
- 39yr 1250 = Nonresidential real property - commercial
MACRS Tables
Section 179 deduction
- Tax law allowance to Expense Tangible Property (rather than capitalize)
- Limit: $1,050,000 of qualifying property (1245 for trade use) In the year of acquisition
- Limitation: maximum deduction is reduced $ for $ by cost of property > $2,620,000
- Further Limit to the Taxable income of taxpayer (NOT PASSIVE INCOME)
- If due to limitations THIS year, it can be carried over.
- Tax Payer cannot create a loss
- Section 179 Elections allow small businesses to more easily deduct the cost of new assets and MACRS deprecation
Amortization
Recovery of certain CAPEX costs NOT ordinary deductible as straight line or simlar
e.g. Trade Association memberships
Like Kind Exchanges
Section 1031
Reporting Requirements
No gain or loss recognized if held for investment OR
PRODUCTIVE USE in TRADE OR BUSINESS
1031 Exchange timeline to defer gains
identify a property in 45 Days
Close on new property in 180 Days
Qualifying Property
1031 xchange
Real Estate Only
Like Kind Property
- Same Nature
- same country
- same purpose (rental to rental)
- must be used for trade or business
- does NOT have to be same business
Liabilities and BOOT
- BOOT = debt relief
- lower valued property to add “consideration” to match the value of the higher value property
- cash
- other property (not necessarily like kind)
- does NOT disqualify the exchange
- lower valued property to add “consideration” to match the value of the higher value property
KEYS to BOOT
- BOOT RECEIVED = RECOGNIZED GAIN (taxes paid on this)
- BOOT PAID = ADD to BASIS
- Basis CARRIES OVER FROM LAST Property
OR more complicated:
The recognized gain is the lesser of the boot received or the realized gain.
Like Kind exchange info to be concerned about
- FMV of property received
- Adjusted basis of property given up
- BOOT (anything that’s NOT qualified, OR like-kind rec’d in the transaction)
Three 1031 Calculations
(but know the keys to boot)
REALIZED Gain = FMV of acquired property + BOOT - Adj Basis of the other property
RECOGNIZED Gain = BOOT (If it’s zero, the gain is zero)
Time Limit on Like Kind Exchanges
≤ 45 Days to identify property (after transfer)
≤ 180 Days to receive title (after transfer)
Must have been used ≥ 2 years
Related Party Transactions (relatives)
- IF Exchange is sold/disposed ≤ 2 years
- GAIN NOT RECOGNIZED on the date of sale
- like kind xchange collapses s
- ALSO applies to installment sales
Tax consequences of disposition fo securities
Cap Gains/Losses are unearned income/still included in AGI
Same rules apply to netting STCG and STCL/LTCG and LTCL
$3000 carry forward
LTCGs and Qualified Dividends
No longer tied to tax payer’s ord marginal income bracket
They have their very own brackets
STCG Rates
- Ordinary Income (usually 28%)
- OR 3.8% net investment for high earners
- Collectibles taxed at 28%
- Real 1250 property LTG (25% depreciation recapture rate applies on sale)
Investment Interest tax dedution
Investment interest is paid or accrued on property held for investment (e.g home mortgage but NOT a residence).
Investment interest does not include interest on funds borrowed in connection with a trade or business.
NO MUNI BOND INTEREST
Tax implications of MF Shares
- FIFO
- Specific Identification (most flexible for max gain or loss)
- Average Cost
Sale of residence
Code section 121
- EXCLUDES income from cap gains on a home
- Single 250k
- MFJ 500k
- Must OWN & RESIDE in home as principal residence for
- 2 of 5 years IMMEDIATELY preceding sale
- Gains reported on Schedule D if excluded in entirety
- Exceptions (but allow for PARTIAL exclusion on a pro rata basis => 50% of 2yrs = 50% exclusion)
- Divorce (FULL EXCLUSION if part of divorce agreement), separation or
death of spouse (if sold within ≤2 yrs of death get FULL exclusion) - Eligible for unemployment
- Change in employement lowers income
- Multiple births (need a bigger house)
- Involuntary seizure, conversion , condemned property
- Job moves >50miles away
- Divorce (FULL EXCLUSION if part of divorce agreement), separation or
CANNOT TAKE A LOSS ON A PERSONAL RESIDENCE
NJ HAS A 1% MANSION TAX IF HOME > $1MM
Can you apply both 121 exclusion AND 1031 exchange?
YES
IF the 2 of 5 AND 2 yr rules apply
Depreciation Recapture for 1245 Recapture Property
and Cost Recovery Deduction
IF CRD < (Sale - (Orig - CRD)), then CRD = 1245 Gain
May apply to all MACRS property
- CRD (Cost recovery deduction) creates Ordinary Income Offset Taken EVERY year after purchase
- When SOLD, business MUST do the following 2 things:
-
Look Back and recapture the LESSER of:
- Total CRD OR
- 1245 GAIN (ordinary income)
-
Recover excess gain (Cap Gain)
- If total CRD < Gain, THEN
- Excess = GAIN - CRDs —-1245 Gain
- IF CRD > Gain, THEN
- NO RECOVERY —– 1231 Gain
- OR Ordinary Loss
- If total CRD < Gain, THEN
-
Look Back and recapture the LESSER of:
Related Party Rules apply to:
Like Kind Exchanges and Installment Sales
If relatives dispose of property w/in 2 years unrecognized gains are recognized as of date of sale.
Wash Sale Rules – Stocks
30 days before / 30 days after
Loss disallowed
Basis carried forward
Charitable Bargain Sales
Property sold to a charity at < FMV, given vs “SOLD”,
Must be allocated to each portion based on FMV (what was given vs what was sold)
(Realized$ / FMV ) x basis = adjusted basis
Sale - adjusted basis = taxable gain
Tax Excempt Income is advantageous for …
Higher tax brackets
AMT is
- A separate method of caluclating tax liability
- Results in a hgher tax
- Purpose: to prevent wealthy folks from reducing tax too much
- certain benefits under regular tax are lost
Is there Corporate AMG
No, no and NO
AMT eliminates …
Credits and deductions not allowed under AMT
Personal exemptions
AMT Add Back Preference Items
- Property and SALT (10k limit)
- ISO (Inscentive Stock Option “Bargain element”
- Bargain element : excess of FMV over market price on Option
- Personal Exemption is NOT available
AMT Calculation
AMT is Based on AGI
Reducing taxes with deductions can trigger AMT tax
- Start with regular post-deduction 1040 income (if itemizing) OR AGI (if electing the standard deduction)
- Add back any item that was deductible for the 1040 but not for AMT (see AMT deduction)
- Add preference items
- Result equals AMT base
- Subtract exemptions
- Result equals AMTI (Alternative minimum taxable income)
- Then calculate AMT (26% and 28% tax rates)
AMT payable = AMT - Regular Tax
AMT Preference items
IPOD
- Intangible Drilling Costs (IDC) Percentage Depletion**
- Private activity Muni Bonds
- Oil and Gas % depletion**
- Depreciation (ACRS or MACRS – no straight line)
(**excess depletion over the property’s adj basis)
Cost depletion is NOT AMT preference item
DEPLETION (for AMT)
- Natural resource deduction
- similar to depreciation over the life of a natural resource
- % depletion triggers AMT becaust it is accellerated
Cost depletion is NOT AMT preference item
AMT Exemption
No Standard Deduction
- Has a phaseout
- IF (reg tax - credits ) ≥ tentative AMT
- THEN NO AMT payment
- AMT Payable = AMT - Reg Tax
If you do not itemize, you should not have AMT exposure.
(AMT maximum tax is 28%. If you are in the 37% bracket IRS is happy.)
Planning Strategies for AMT (to postpone/avoid)
- Increasing Income helps avoid AMT (commissions and wages)
- Acclerate receipt of taxable income
- Defer payments of property taxes and other deductibles
- Defer exercise of ISO or DISQUALIFY the ISO so that it becomes income taxable (nonqualified)
- Purchase public purpos muni bonds
What is a Passive Activity
- Trade/Business where owner does NOT “materially” participate
- Gans and Losses of Passive activities may offset each other
- Cannot be used to offset
- portfolio income
- compensation OR
- business income
1986 Tax Act
Separated earned and investment income
Passive income
active income
portfolio (dividends, interest, cap gains and passive income)
Passive income sources
- Non-Publicly traded partnership (RELPS)
- Non Public Limited Partnerships
can offset each other
Netting done on SCHEDULE E
Investment in Passive Activities …
- Own equity interest
- Not materially participating
- Share of operating income and losses (LP)
- Passive income and losses
- losses deductible to the extent of passive income
2 kinds of Passive activites
- Rentals
-
Equity Interest with no material participation
- LP
- Partnership, S Corp, LLC
- S corps can produce passive income to investors
who do not materially participate
- S corps can produce passive income to investors
PIGs NEED Income
Passive Income Generators
Schedule E
PTP (Publicly Traded Partnerships) rules
aka MLP
traded on an established market
- Income:
- Not sheltered by passive losses from ANYWHERE
- Income like dividends (Schedule B)
- Losses:
- may be used to offset income from ANYWHERE
- Losses may only be carried FORWARD
BUT ONLY against losses in the SAME PTP or until the PTP is sold. - DISALLAOWED LOSSES (Suspended Losses)
- Carried forward until sold; no 3k allowable loss
What can you do if you are carrying forward a passive loss in a Non Publicly traded partnership
You can sell the interest to deduct the loss OR
you would have to offset it against another non PTP gains.
LPs may create Phantom Income
Other forms of Phantom Income: ee bonds, imputed interest, zero bonds, S corp K1s etc.
DEBT RELIEF IS TREATED AS INCOME TO THE PASSIVE INVESTOR AND CAN CREATE PHANTOM INCOME
Passive Loss Exceptions for Real Estate
- Material Participation (it’s a job)
- Generally not LPs
- regular, continuous, substantial
- Active Participation (decider)
- Different from material
- Bona fide involvment in management
- MUST OWN 10% interest
- Profit and Loss shown on Schedule E
- Different from material
$25,000 loss from Real Estate Activity
- Deduction phaseout
- Can offset Active OR Portfolio income with $25,000
per yr of net losses from real estate activity - AGI 100k - 150k (2 for 1 basis)
Rental of Principal Residence
Income is excludible from Gross Income
IF
Rental ≤ 15 days
Rental of a VACATION hom
No expenses deductible
of days important
IF Owner’s use < 14 days OR 10% of the period
Whichever is LONGER
MAY NOT BE DEDUCTED AS A BUSINESS EXPENSE
What is the Low Income Housing Credit
If held as a passive activity
Tax Credit = $25,000
CALC for Housing Credit = Tax Bracket x $25,000
Oil & Gase Working Interests
NOT PASSIVE IF GENERAL PARTNER (Unlimited Liability)
Historical Rehabilitation Credit
Still Available
Phases out at $200,000
Often not a productive deduction because the credit is at the tax payers bracket
$25,000 * tax rate (@25% credit woul be $6250)
Equipment Leasing
If C Corp and NOT a PSC, mayuse passive losses to offset active income (NOT portfolio.
EXCEPTION for CLOSELY HELD C Corps only. (No S Corps)
Married/Widowed Filing Status
Benefits for Surviving Spouse
- Year of spouses death : Joint return (executor signs for decident.
- Able to net gains and looses of both
- able to leverage the benefits of MFJ
- IF there is a Minor child
- Qualifies as surviving spouse 2 TWO Years after death (MFJ)
Dependency Exemptions
(New law Eliminates personal and dependent expemption deductions)
- Exceptions:
- HOH
- Child and Dependent care
- education tax credit
- non-custodial tax breaks
- dependent exemption = 0$
Community / Non Community Property
50% income must be reported by each spouse in a community property if MFS.
Divorce Alimony requirements:
- Alimony is deductible by payor and taxable to payee if the following requirements are met:
- The divorce was finalized before December 31, 2018
- The taxpayers cannot file a joint tax return or live together at the time of payment
- Payments must be made in cash
- Payments must be received by or for the benefit of the payee spouse (i.e., not child support)
- The payments cannot extend beyond the death of the recipient spouse
Front Loading of Alimony
Recapture Rules
First 3 years post separation for deductible alimony
IRC labels as a settlement if too fast, and recaptures as ordinary income
Look at what’s paid in the FIRST 2 YEARS then
Subtract $37,500 plus 2x whatever paid in the 3rd year
The result is recapture
CHILD SUPPORT
Non Taxable to payee and Non Deductible to payor
Charitiable contributions and deductions
Qualified Entities
HEAVILY TESTED
- Public Charities - 50% org
- All schools churches hospitals
- organizations related to education religion health and welfare of animals and children
- Private Charities - 30% org
- Private nonoperating foundations
- fraternal orders
- war veterans org
Deduction Limitations for Charitable Gifts
- 60% of AGI max deduction
- Excess carried forwar 5 years or til death (6 years with contributory year)
- NOTE: 2021 itemizers may get 100% AGI deduction if CASH and PUBLIC
can also deduct $600 for not itemizing
- 60% AGI Max Cash to Public Charity
- 30% AGI Max Cash to Private Charity
Appreciated property deduction limitations
BASIS (50%) or FMV (30%)
LTCG: can be BASIS (50%) or FMV (30%)
STCG: Limited to BASIS AND 50% of AGI
Donating Ordinary income property
- Examples:
- inventory/art
- copyright
- Use-Unrelated property (Stock and Real estate are always presumed to be USE related.)
- Work of art created by taxpayer
- STCG property
DEDUCTION IS LIMITED TO BASIS
Calculating Charitable Deductions
- Calc Max Deductible (60% of AGI)
- Calc amt to public charities (50% of AGI Org)
- Up to 60% of AGI for cash
- Up to 30% of AGI for LTCG
- Up to 50% of AGI but using (BASIS)
- Basis for inventory/works of art
- Basis for STCG
- Basis for Use-UNrelated
- Calc amt to private charities (30% of AGI Org)
- Up to 30% of AGI for Cash
Losses on stocks are limited to the FMV as a donation
Itemize or Not to Itemize …
Taxpayers should claim the GREATER of
ITEMIZED OR
Standard deduction
Charitable Gifts may not impact an itemized tax return enough to make itemization an option
Charitable Donation Substantiation
Must have validation from Donee (not just a cancleled check) for
≥ $250.00
Must be a letter.
VEHICLE DONATIONS ≥ $500 MUST BE VALIDATED
IF sold by donee, max deduction = Gross Proceeds
Charitable Donation by Business Entity
- Limted to ≤ 10% of taxable income
- file form 1120
- Contributions of Inventory
- Limited to basis PLUS 50% unrealized appreciation
- NO S CORPs
- Sole Proprietorship donations are PERSONAL
- *Inventory must be for ill, needy or care of infants**
- *May not exceed 2x basis**
2022 Gross Income
What is included in Gross Income?
Income :
-
Pre Retirement Income
- Wages/Salaries/Tips
- Unemployment Income
- Business / Schedule C Income
-
Retirement Income
- Taxable Social Security
- Pension/Annuity
- IRA Distributions
-
Investment Income
- Ordinary Dividends (Sch B)
- Taxable Interest (Sch B)
- Cap Gains/Losses (Sch D)
- Real Estate Income (Sch E)
-
Special Income
- Alimony <2019
- Punitive Damages (not wrongful death)
- Scholarship money used for Room and Board (not tuition)
2022 Gross Income
What is EXCLUDED from Gross Income?
Exclusions:
-
Income
- Workers Comp
-
Investments
- Muni Bond Interest (private or public)
-
Surprises
- Gifts
- Inheritance
-
Special Income
- Child Support
- Compensatory Damages
2022 AGI
What is deducted from Gross Income to get AGI?
(Above the line to get to AGI)
Adjustments FOR AGI:
-
Self Employment
- 100% Health Insurance
- 50% Self Employment Tax (.1413/2)
-
Retirement & Savings
- IRA Contrib
- KEOGH/SEP Contrib
- HSA Contrib
- Penalties or early w/d of Savings
-
Education
- Student Loan Interest
- $4000 education expense (AGI limits/Alternative to Amer. Opp. Credit)
-
Special Situations
- Moving Expenses for Military
- Alimony paid for Divorce settled 12-31-2018
- Moving Expenses for Military
2022 AGI
What is deducted FROM AGI (below the line) to get to Taxable Income (before credits and plus other taxes)?
Shown on Schedule A
Below the line/Schedule A deductions:
- Medical/Dental >7.5% of AGI
-
TAXES ($10,000 limit each)
- SALT
- Sales Tax
- Real Estate Tax
- Personal Property
-
INTEREST
- Home Mortgage ($750,000)
- Mortgage Insurance for qualified residence (VA, FHA, Private (< $100,000 AGI)
- Investment Margin Interest (limited to investment income and stcg)
- Qualified Residence for Home Improvement (HELOC $750,000)
- CHARITABLE GIFTS
-
CASUALTY LOSSES
* *(Federally Declared disaster)**
