Income Tax Planning

Question 1

What exclusions from Gross Income are characterized as Love, Affection, or Assistance?

Answer 1

1. Gifts, bequests, and inheritances.
2. Scholarships for tuition and books.
3. Life insurance proceeds paid by reason of death.
4. Accelerated death benefits, including gain on sale of policy to a viatical settlement provider.

Question 2

What exclusions from Gross Income are considered Personal and Welfare items?

Answer 2

1. Injury or sickness payments.
2. Amounts received under insurance contracts for certain living expenses.
3. Reimbursement for the costs of caring for a foster child.

Question 3

What exclusions from Gross Income are considered Employer-Provided Benefits?

Answer 3

1. Fringe benefits.
2. Military benefits (Combat pay; housing; uniforms)
3. Foreign earned income. (Choice between foreign earned income exclusion and foreign income credit.)

Question 4

What investments are exclusions from Gross Income?

Answer 4

1. Interest on certain state and local government obligations.
2. Educational savings bonds.
3. Section 1202 qualified small business stock (QSBS)

Question 5

What are deductions are subtracted from a taxpayer’s gross income to arrive at Adjusted Gross Income?

Answer 5

1. Ordinary and necessary expenses incurred in a trade or business.
2. Deductible portion of self-employment tax paid.
3. Alimony paid to an ex-spouse.
4. Payments to self-employed (KEOGH), Qualified, SEPs, SIMPLE Plans.
5. Traditional deductible IRA contributions.
6. Moving expenses.
7. Forfeited interest penalty for premature withdrawal of time deposits.
8. Capital Losses
9. Self-employed health insurance premiums.
10. Contributions to Archer Medical Savings Account
11. Contributions to health savings accounts
12. Interest on educational loans.

Question 6

What are the two major categories of Itemized Deductions?

Answer 6

1. Major itemized deductions.

2. Miscellaneous itemized deductions.

Question 7

What are the major itemized deductions?

Answer 7

1. Medical expenses
2. Taxes
3. Interest
4. Charitable contributions
5. Casualty losses

Question 8

What are the miscellaneous itemized deductions that are not subject to the 2% AGI floor?

Answer 8

1. Impairment related work expenses.
2. Gambling losses
3. Annuity contract basis recovery
4. Pro rata portion of estate taxes paid with respect to income in respect to decedent.

Question 9

What are the miscellaneous itemized deductions that are subject to the 2% AGI floor?

Answer 9

1. Employee business expense.
2. Home office expenses, for employees
3. Investment expenses
4. Tax return preparation fees
5. All other miscellaneous itemized deductions

Question 10

What is the tax formula?

Answer 10

Income
-   Exclusions from gross income
=  Gross income
-   Deductions for adjusted gross income (AGI)
=   AGI

Less the greater of:

Total itemized deductions OR standard deduction
- Personal and dependency exemptions
= Taxable Income