Income Tax Calculations Flashcards
Filing Status
Single Married Married filing separately Head of Household Qualifying widower(married filing jt in year of death, QW for 2 years after death)
Tax Calculation
Income
-less exclusions from income
=Gross income
-less deductions (adjustments)
=Adjusted Gross Income
-itemized or standard deductions
=taxable income
-less credits or other taxes
=tax liability
-less quarterly payments or withholding
=Net tax due or refund
Exclusions from Income
Gifts Inheritances Child Support Muni Bond Income Workers Comp Compensatory Damages
Inclusions to Income
Dividends - Schedule B Taxable Interest - Schedule B Business Income - Schedule C Capital Gains - Schedule D (net capital gains and losses) Real Estate - Schedule E
Punitive Damages (except wrongful death) Salary, wages, tips IRA distributions pension and annuities Alimony Unemployment Taxable SSI
Employee awards Bargain Purchase Clergy fees Debt forgiveness Embezzled funds Gains from illegal activity Gambling cost of group term life over 50k hobby income jury duty fees season tickets given
Tax Free Fringe Benefits
- health premiums for family
- group life on your life up to 50K
- Company Car
- transit pass $130/mo
- $2500/$5000 employer dependent care
- Education assistance $5250/yr
- adoption assistance $10,000
- parking ($255/mo)
- occasional overtime meal money, and sporting events)
- discounts co products that don’t exceed profit %
- discounts on services 20% of selling price
- Group disability policy (benefits are taxable)
Taxable Fringe
Health Insurance
-partners, self-employed, more 2% owners of S corp
-100% deductible as adjustment to income
includes medical, dental, LTC
Insurance Premiums
-in excess of $50,000 (non discriminatory)
Adjustments for Gross Income (above the line)
-IRA contributions
-Self Employment Tax .07065 (half 14.13)
-100% self employment insurance (partners 2% owners)
-Keogh or SEP
-Alimony Paid
-Student Loan Interest $2500
-Medical Savings Account
-Moving Expenses
-$4000 education expenses (no AOC too)
-HSA
-penalty early withdrawal savings
(taxes incurred in trade or business)
(taxes incurred in connection with property held for rents and royalties)
Deductions from AGI ( below the line)
Standard deductions Itemized deductions Personal and Dependent Miscellaneous Schedule A Home office 2% Entertainment unreimbursed 50%
Standard Deductions
NOT SUBJECT TO PHASEOUT Single $6300 MFJ $12600 MFS $6300 HH $9300 Elderly/blind$1250 (65 or older for elderly) Child unearned $1050
Itemized Deductions
Schedule A Medical, dental, LTC (>10% AGI /7.5% over 65) Sate and Local tax Personal property tax Charitable gifts Mortgage Insurance <100k AGI Home Mortgage Interest Real Estate Taxes Investment Interest 2% Casualty and theft losses 10%AGI Misc deductions
- reduced to 3% of AGI above $259,400 S $311,300Jt
- overall deduction can’t exceed 80% (does not apply to medical, investment interest, wagering losses, casualty or theft- they have their own phaseouts)
Qualified Residence Interest
Interest paid on first $1.0M (separate $500k) deductible
Interest on 100k deductible for:
Refi where loan exceeds original debt
home equity - other than home improvement
home equity can’t exceed difference between FMV and principle owed
Investment Interest Deduction
deduction limited to net investment income
includes margin
Investment Income
interest
dividends (elects not to use qualified rate)
royalties
short term gains (elects not to use qualified rate)
*question will say qualified otherwise assume ordinary)
no long term cap gains unless opted out of long term treatment
Investment Interest Expenses
Fees - UP to 2% AGI = offset
Investment Income - offset Net Investment Income
Casualty and Theft
Schedule A
Not termite damage
Fire, earthquake, auto accident, vandalism
reduced by insurance
$100 floor (out of pocket)
-10% of AGI
Misc Deductions (Schedule A)
no 2% AGI (Tier I)
Impairment- work expenses handicapped employees
Gambling Loses up to Gambling Winnings
2% AGI (Tier II) fees to investment counselors tax advice and prep fees hobby losses home office unreimbursed employee business expense union dues work clothes safe deposit box education costs job agency fees unreimbursed salaried employee entertainment expense 50% the subject to 2%
Home Office Deduction
2% AGI
Area used exclusively for business and on a regular basis
No other fixed location you do business
At convenience of employer
Self employed - schedule C
Can’t create a loss
Entertainment Expense
Corporation - can pay 100% and deduct 50% on 1120
Self-employed - can pay 100% can deduct 50% line 24 schedule C
Salaried employee - deduct 50 % expense 2%agi floor Schedule A
Personal and Dependent Exemption
$4050 exemption (dependent income under this amount if parent)
you
spouse
(more if 65 older/blind additional $1250)
children
-under 24 at end of the year and full time student
-under 19 at end of the year not a student
must provide 50% of support
Phase out 2% per $2500 over $311,300
Medicare Tax Rate
1.45%
Over 250K MFJ 200 S 125K MFS
.9% extra Total 2.35%
Additional Medicare tax on investment income
Over 250K MFJ 200 S 125K MFS
3.8% in addition to cap gains rates
Dividend Tax
10%-15% Bracket = 0%
25%-35%Bracket = 15%
39.6% Bracket = 20%
Kiddie Tax
All unearned income taxed at parents marginal rate
Under 18
$1050 standard deduction
$1050 taxed at 10% ($105.00)
In excess of $2100 is child’s net unearned income
Child 18 or older Tax
18-23
18-23 Full time student - kiddie tax applies
Earned income 1/2 or less of support
One living parent
If child has earned and unearned income
standard deduction is greater of
$1050 unearned income or
earned income + $350
but no more than Personal Standard deduction of $6300
Self Employment Tax
ssi and medicare - employer and employee
based on net earnings from self employment
does not include
- dividends or interest
- gains
- real estate income
- distributive share of income
- loss limited partner
- wages from S corp
- K-1 income
does include Schedule C income (T&E will be accounted for) GP K-1 Income BOD fees Part time earnings 1099
On test will not exceed $118,500, above that Medicare only
.1413
Self Employment Tax calculation
- Total all Self Employment Income
- multiply by .1413
1/2 is subtracted on front of 1040 (above the line deduction
Above $118,500 just 1.45% Medicare due
additional .9% earners over $200k S $250 jt
can deduct medical, dental and up to 3720 LTC (61)
Child Credits
Credit for Child and Dependent Care Expenses - until 13
1 dependent $3000 x20% = $600
2 or more $6000 X20% =$1200
Subtract from taxable Income
Child Tax Credit
$1000 per child under 17
Phase out $ 110,000 MFJ $70,000 S
reduced by $50 per $1000 above phaseout
Be careful: question is asking about Child care credit or Child credit????
Foreign Tax Credit
Taxes paid to a foreign gov
can deduct $ for $ or apply as credit to tax due
Adoption Credit
Max credit $13,460
Can claim entire amount for special needs child even if expenses are less.
Phase out MAGI $201,920-$241,920
Take credit in year adoption is final
Can take credit for expenses in yr after adoption is final for any residual expenses
Tax Schedules
Schedule A - Misc Itemized deductions Schedule B - Interest and Dividends Schedule C- Business Income Schedule D- Capital Gains Schedule E - Real Estate, Royalties Partnerships and Trusts, S Corp (passive income) Schedule F - Farm Schedule H- household employee tax Schedule SE- self employment (deductible tax)
