INCOME TAX PLANNING Flashcards
WHAT ITEMS ARE INCLUDED IN GROSS INCOME
Compensation, Gross Income from Business, Interest, Dividends, Rents, Royalties, Income from Life Ins, Pensions, Debt Relief, Partnership Distributions, Unemployment, Income from an estate or decedent, Alimony prior to 2019, Below Market Rate Loans, Social Security
What is the Exclusion Ratio of an Annuity
The amount of the payment you don’t pay tax on.
Investment in contract / Expected Total Return = Exclusion Ratio
What amount of Social Security payments are taxable?
Up to 35% under $25,000 MAGI (or $32,000 MFJ)
Up to 50% above the previous but below $34,000 MAGI (or $44,000 MFJ)
Up to 85% above those amounts
*MFS is always at 85%
What is Imputed Interest?
The amount of income claimed on a below market rate loan as income.
<$10,000 = $0 imputed interest
$10,001 but <$100,000 = Lesser of Borrower’s net investment income or Interest calculated using AFR less interest calculated using stated rate of the loan
*$0 if less than $1,000
>$100,001 = Interest calculated using AFR less interest calculated using stated rate of the loan
What is the AFR?
Applicable Federal Rate
What Items are Specifically Excluded from Gross Income?
Gifts and Inheritances
Life Insurance Proceeds
Scholarships
Gain on Sale of Personal Residence
Qualifying Distributions from Roth IRAs and 401k’s
Compensation for Injuries/Sickness
Employee Benefits: Exclusions from Gross Income
Meals/Lodging for convenience of employer
Employer Sponsored Health/Accident Plans (Medical/Group Term Life First $50,000)
Athletic Facilities on Premesis
FSA’s up to $3200
Dependent Care Accts up to $5000
Employee Discounts
Working Condition Fringe Benefits
De Minimis Fringe Benefits
What Type of Bond Interest is not included in Gross Income
Most Municipal Bonds (not Revenue Bonds)
T/F - Discharge of Indebtedness is included in gross income?
FALSE
What is an “above the line” deduction?
Deductions that come out FOR AGI to determine that number.
Losses on sale or exchange of property
1/2 of SE tax paid
100% of health ins premiums paid by a self SE individual
Contributions to qualified retirement plan
Penalty on premature withdrawals from CD’s
Student Loan interest up to $2500
HSA contributions
Trade or Business Expenses
Alimony Payments prior to 2019
What are the requirements for a Trade or Business Expense to be deductible?
Ordinary - normal, usal or customary for others in similar business.
Necessary - prudent businessperson would incur same expense
Reasonable - question of fact
How much of entertainment expense can be deductible for AGI?
None! Tax Cuts and jobs act eliminated them
Exception: 50% limit on meals and 100% of transportation costs
How much of a business gift deductible for AGI?
$25 each plus shipping.
T/F Moving Expenses are deductible for AGI?
False.
TCJA eliminated moving expense deductions
Exception: Armed forces relocating to a permanent duty station.
Can you take the standard deduction AND itemized deduction in the same year?
NO, you have to do one or the other.
