Individual Taxation - Schedule A

Question 1

If TP is claimed as a dependent of another, standard deduction is the GREATER of:

Answer 1

 $1,000; OR
 $350 + Earned Income
*Never to exceed standard deduction

Question 2

Standard deduction may increase over the “regular” standard deduction if:

Answer 2

(additional $1,550)
o 65 or older AND/OR
o Blind

Question 3

Highest standard deduction that would be available to a TP

Answer 3

o MFJ; AND
o TP and Spouse are 65; AND
o TP and Spouse are Blind

Question 4

General Characteristics of Itemized deductions:

Answer 4

o Subtracted from AGI in computing Taxable income
o Unique to each TP (not based on filing status)
o Reported on Schedule A page 2 of 1040

Question 5

Itemized deduction is usually chosen if:

Answer 5

Itemized deduction > standard deduction

Question 6

Itemized deductions = the Sum of COMMITT

Answer 6

\+Charitable Contributions
\+Other Misc.
\+Misc. Expense (2%)
\+Medical Expenses
\+Interest (certain types)
\+Taxes
\+Theft or Casualty

= Itemized deduction

Question 7

Threshold defined

Answer 7

o “FLOOR”
o Expenses are deductible to extent they GO OVER
 A stated % of AGI
 A stated amount

Question 8

Ceiling defined

Answer 8

o Expenses are deductible UP TO
 A state % of AGI
 A stated amount

Question 9

Charitable contribution requirements

Answer 9

Qualified organization

Cash or Property donated exceeds
value received from the charity

Donations > $250 = written substantiation from Charity

Deductible in the year charity receives Cash or Property (in the year paid)

Question 10

Not considered a Charitable contribution

not deductible

Answer 10

Ordinary payments to Qualified organizations for services rendered (tuition to a parochial school)

Voluntary services
(Except for “out of pocket” costs incurred in the performance of the volunteer work)
(e.g. transportation expenses between home and the site of the work – mileage and parking)

Question 11

Qualified Charitable Organizations

Answer 11

Public (defined in Code section 501(c)(3)
•	Educational Institution
•	Religious Organizations
•	Hospitals
•	Government

Private
• Veteran Organization
• Fraternal Order

Question 12

Non-Qualified Organizations

Answer 12

• Foreign charities
• Political Party Contributions
• Needy Individuals
• Civic Leagues
• Clubs
• Unions
• Chambers of Commerce

Question 13

Deductible in the year charity receives property (in the year paid)
 Deemed Paid when:

 Not Deemed Paid when:

Answer 13

Deemed Paid:
Charged to CC (because Charity received the money; not when you pay CC)
Check is in the mail

Not Deemed Paid:
Pledge is made (must be payment in some form)

Question 14

Allowable deduction (AGI ceiling) for a charitable contribution depends on:

Answer 14

Type of donation
• Cash
• Ordinary income (STCG) Property
• LTCG Property

Question 15

AGI Ceilings for:

Cash
STCG
LTCG

Answer 15

Prop. Contr. Amount Pub. Priv.

Cash FMV 50% 30%
STCG Lower of AB or FMV 50% 30%
LTCG FMV *30% 20%

Question 16

Other Misc. Expenses

Answer 16

Not subject to 2% floor

 - Gambling Losses
 - Estate taxes on income "IRD"

*Only two items not subject to 2% floor - virtually all others are.

Question 17

Gambling Losses

Answer 17

Deductible to the extent of winnings (no carryover)
Can’t offset Winnings with Losses
Must report full amount of Winnings as Taxable Income
Losses are Not subject to the 2% limit of AGI
Gambling Winnings – on face of 1040

Professional Gamblers can now deduct non-wagering business expenses on Schedule C

Question 18

Misc. Expenses

Answer 18

Subject to 2% floor “BIT”

Question 19

The following expenses are deductible as miscellaneous itemized deductions if and to the extent they all together exceed 2% of your adjusted gross income (AGI) (threshold) BIT

Answer 19

Business expense of an employee

Investment Costs

Tax Prep./Legal Advice relating to taxable income

Question 20

Business Expense of Employee

Answer 20

Business mileage
Job Travel
AICPA and Union Dues
Uniforms (Pizza Boy) – Not a tux for waiter
Laptop
CPE/Job education (keep or maintain profession; not entering new profession)
Business Use of Home (Sch. C if SE; if home is more convenient)
Appraisal Fees for Charitable contribution
Unreimbursed employee business expense (if entitled to reimbursement, must not deduct)

Question 21

Investment Costs

Answer 21

Safety Deposit Box

Advisory Fees (investment counsel) and Newsletters (investment Publications)

IRA custodial fees (Doesn’t include fees to buy stock)

Question 22

Tax Preparation/Legal Advice relating to Taxable Income

Tax preparation advice and costs incurred to collect $ owed by others

Answer 22

• Hiring lawyer to collect alimony or
• Hiring appraiser to collect insurance claim
• NOT fees for Wills and Testaments, etc..

Question 23

Subject to 2% threshold meaning:

Answer 23

o First 2%  Not Deductible

o Anything Above 2%  Deductible

Question 24

Medical Expenses

Answer 24

Deductible once 10% AGI threshold is reached
(Example: If AGI is $100,000, your first $10,000 of medical expenses are not deductible)

o 65 and older 7.5% (soon to be 10% for everyone, however)
o Under 65, 10%
o AMT Medical Expenses are 10% for everyone
o Accident/Disability insurance is not deductible

Question 25

Qualified Medical Expenses

Answer 25

o Insurance Premiums for Medical or dental care o In-patient care (in hospital or nursing home) o Prescription drugs and insulin (minus insurance reimbursement) o Medical aids (glasses and hearing aids) o Travel costs and lodging (costs of going to clinic) o Modification to accommodate handicap  Capital costs deductible to extent of excess of increase in value of home o Automobile adaptive devices

Question 26

Non-Qualified Medical Expenses

Answer 26

o Premiums on Life Insurance Policies to cover loss of earnings from injuries and illnesses o Items for general nutrition and health (vitamins, health club, etc..) o Nonprescription drugs o Most cosmetic surgery (except illness, injury, birth defect surgery) o Medicare portion of SS and SE taxes

Question 27

Medical Expenses paid on behalf of another:

Answer 27

Dependent Rules + QR Rules JGRorRS

Question 28

Medical Expense deduction must be taken when:

Answer 28

In year paid, regardless of when medical services are rendered *Exception- CC expenses are deducted in year charged to the card (not in year TP pays CC balance)

Question 29

Insurance Reimbursement for Medical Expenses

Answer 29

reduce the deductible amount

Question 30

Medical Expenses Paid for deceased spouse or dependent are deductible when:

Answer 30

Are deductible in year paid, regardless if they were paid before or after death. (CC exception) (Must be for Qualified expenses for a spouse or qualified dependent at time of expenses was incurred or payment was made)

Question 31

Two Types of Deductible Interest on Schedule A:

Answer 31

Mortgage Loan Interest - Acquisition Debt - Home Equity Debt - Mortgage Points Investment Interest

Question 32

Interest that is deductible, but NOT on Sch. A

Answer 32

``` Business Activity interest (Sch. C) Rental Activity Interest (Sch. E) Educational Interest (page 1 of 1040 - I EMBRACED HEF ```

Question 33

Mortgage Loan Interest "Acquisition Debt"

Answer 33

Acquisition Debt – o Periodic interest payments for acquisition debt o Up to $1,000,000 o Secured by Primary or Secondary Residence o Used to Buy, Build, or Remodel/Improve a home Must use proceeds to: Buy, Build, or Remodel/Improve (not to pay consumer debt; e.g. pay of CC)

Question 34

Mortgage Loan Interest "Home Equity Debt"

Answer 34

o Periodic interest payments on Home Equity Loans o Up to $100k o Secured by Primary or Secondary Residence o Not necessarily used to Buy or Remodel a home Can use proceeds for ANY PURPOSE:  Personal use  Business use (must deduct on Schedule C, NOT Schedule A o Only up to 100% of Net Equity (FMV less acquisition debt)

Question 35

Mortgage Loan Interest "Points"

Answer 35

Prepaid Interest on Buying new home = Deductible Prepaid Interest on Improving home = Deductible Refinancing Points are amortized over the life of the mortgage "Interest paid in Advance  Not Deductible in the period paid… Even by cash basis TP (allocation over tax year is required)"

Question 36

Investment Interest

Answer 36

Refers to borrowings for personal investments • Marketable Securities; Margin loans purchasing stock; paying taxable income Deductible to the extent of reported “Net Investment Income” on tax return

Question 37

Investment Interest Expense Formula

Answer 37

Gross Investment Income (-) Investment Expense in excess of 2% of AGI = Net Investment Income

Question 38

If Investment Produces Non-taxable income (e.g., state and local bonds), Interest is

Answer 38

Not Deductible | interest must be related to taxable investment income

Question 39

Interest on Consumer related debt

Answer 39

Not Deductible o Interest on personal property for personal use o Interest on tax deficiencies

Question 40

Taxes that can be deducted

Answer 40

Personal Property RE tax State and Local Income or Sales tax (choose one) Certain Foreign taxes paid

Question 41

Foreign Taxes Paid

Answer 41

Foreign Taxes Paid - Foreign Income Tax – Deductible - Foreign Real Estate Tax – Deductible - Foreign Personal Property Taxes – Not Deductible - Foreign Tax Assessments – Not Deductible - Add to Basis “Foreign taxes may be claimed as credit instead (can’t have both)”

Question 42

Taxes that can't be deducted

Answer 42

Fees, Fines, Federal, FICA, FORGET IT!!!! Taxes paid to Federal Government Taxes for Gas or Excise Fees charged by State or Local Governments Generally Not deducted UNLESS: • Taxes are based on Income; OR • Taxes are based on Property Values

Question 43

Casualty Loss defined

Answer 43

Casualty Loss defined – o Sudden unexpected unusual in nature event o Causing TP to lose an Asset; OR o Causing TP’s Asset value to decline over a time period (not exceeding 30 days) (Expense incurred for repairs are not deductible. Must be permanent.)

Question 44

What is not a Casualty event:

Answer 44

Accidental breakage of items in the home by family Progressive deterioration (termite, moth, drought)

Question 45

Deductible amount for Casualty Loss formula:

Answer 45

Lower of Decrease in FMV of Prop. “OR” Tax Basis (-)Insurance proceeds (-)$100 *note this was $500 in 2009 tax year… (10% of AGI) =Deductible amount

Question 46

Theft is not “mere misplacement”

Answer 46

(it is a criminal act)

Question 47

Deduction timing o Casualty o Theft

Answer 47

o Casualty  1 year casualty occurred | o Theft  1 year theft is discovered

Question 48

Deductions not Subject to AGI Phase-out COMMITT

Answer 48

o Medical o Casualty o Gambling o Investment Interest Expense Story line You get sick (medical); you die (casualty); children get inheritance. One gambles, the other invests.