Individuals Flashcards
Itemized Deductions
Medical and Dental (Must exceed 10% AGI) Taxes Paid Interest Paid Charitable Contributions Casualty and Theft Losses Other Miscellaneous Deductions Job and Employment Related Expenses
See individual Cards for details
Rent rules
Rent is income
Prepaid rent (last months rent), with no restriction as to its use, is income when received regardless of the accounting method used.
Job expenses unreimbursed (2015 travel expense)
Must exceed 2% of AGI
Any surplus cannot be carried forward to a succeeding year
Includes: Unreimbursed employee expenses, Tax prep fees, Other expenses, Education expenses
Deductible only if incurred to maintain or improve skills required for employment
Not deductible of incurred to enter trade /profession even if required by state law and not deductible if insured to meet minimum education requirements of present job.
Interest
Interest Excluded from Gross Income: US EE savings bonds. Most obligations of a state or political subdivision (municipal interest)
Included: Refund on federal tax, interest from US treasury bonds, state income tax refunds.v
Employee Benefits - Group Term Life Insurance
Up to 50K excluded
Exclusion only applies to employee
Death benefits to beneficiaries
If a person is killed (not on the job) and employer pays death benefits included in gross income of the recipient.
All death benefits received by the beneficiaries or the estate of an employee from, or on behalf of, an employer are included in gross income.
Key word is to beneficiaries.
DIVIDENDS RECEIVED on LIFE INSURANCE POLICIES
Dividends are ordinary gross income but dividends on insurance policies are excluded from gross income if CUMULATIVE DIVIDENDS HAVE NOT YET EXCEEDED ACCUMULATED PREMIUMS PAID.
At risk rule
At risk amounts and activities: In general it is the amount of a loss allowable as a deduction is limited to the amount a person has at risk in the activity.
Applies to individuals, partners, members in LLCs
Any losses in excess of the at risk amount are suspended and carried forward without expiration and are deductible against income in future years from that activity.
Claim for refund (statute of limitations)
Must be filed within 3 years from the filing date (April 16) 2 years from the payment of tax, whichever is longer.
Medical and Dental Expenses
Must exceed 10% of AGI (7.5% if 65 or older)
Foreign Tax Credit
Lesser of
Foreign taxes paid/accrued or Portion of US tax liability attributed to all foreign income
A taxpayer may elect either a credit or an itemized deduction for taxes paid to other countries or U.S. possessions.
Unused FTCs may be carried back for 1 year, carried forward 10 years.
Payments to graduate students
Payments made to graduate students in return for services performed, including teaching and research, must be included in gross income.
Only payments that are used for required tuition, fees, books, supplies, or equipment are excluded from gross income.
GRANTS are included in gross income.
Distributions
o A pro rata distribution of common stock to common stock shareholders is excluded from gross income, while all other stock dividends are included in gross income.
Passive Activities
Taxpayer does not materially participate May avoid if 2 requirements are met
50% rule or 750hrs rule
All rental activity is passive.
Entitled to deduct up to 25K in losses from the passive activity
The $25,000 is reduced by 50% of the amount by which AGI (determined without regard to Social Security, IRA contributions, and passive losses) exceeds $100,000.
When a person disposes of passive activity, can deduct in full in the year of disposal
Disallowed passive activities are carried forward indefinitely.
Compensation
Compensation for services is gross income. If services are paid for with property, the FMZ of the property on the date it was received is included in gross income.
Includes non-qualifies stoick options (FMV - Exercise Price)
American Opportunity Credit
100% credit for first $2000, then 25% credit for the second $2,000
Phase-out begins when AGI exceeds 60K for MFJ
Child and Dependent Care Credit
Tax payer must provide > ½ cost of maintaining household for dependent under age 13/incapacitated spouse/dependent
Expenses limited to 3K or 6K for 2+ individuals
Credit = 35% of expenses
Reduced by 1% for each 2K by which AGI > 15K
Cannot be reduced below 20%
The credit amount is not eliminated when AGI exceeds $15,000, only phased down from 35% to 20% in increments of 1% for each $2,000 AGI exceeds $15,000.
Employee Achievement Awards
The IRC allows an employee to exclude from gross income the value of an employee achievement award to the extent the employer may deduct it under Sec. 274
NOL
= TI + NOL Carried Forward/Backward + Personal exemptions + (nonbusiness deductions – nonbus. Income.) – See calculation in ch 5
Non-business income = interest, dividends, treasure trove
Occurs when business expenses are greater than business income
First carried back 2 years, any remaining NOL carried forward up to 20 years.
Casualty and Theft Losses
Casualty: Complete or partial destruction of property arising from a sudden, unexpected, or unusual event caused by external force. Not by taxpayers negligence, accidental breakage, or grading away of property.
The amount of a personal casualty loss is the lesser of the decrease in the fair market value or the taxpayer’s adjusted basis in the property.
Only amount of each loss over $100, aggregate amount of all loses in excess of 10% of AGI.
Life Insurance
Proceeds are excluded from gross income if paid by reason of death
Miscellaneous Deductions
Premium on binds
Casualty and theft loss from income producing property
Estate tax in respect of decendent
Gambling losses
Impariment related work expenses
Repayments greater than 3K of claim of right
Unrecovered investment in pension
Management Fees on Investments
Social Security
If the sum of the “modified” adjusted gross income plus one-half of Social Security benefits exceeds $25,000 but does not exceed $34,000, part of the Social Security benefits will be included in gross income.
(Modified AGI + 1/2 SS)
Less: 25,000
50% excess or above or 50 Social security
Whichever is greater.
Adoption Credit
A credit is allowed for qualified adoption expenses incurred after 1996. The maximum credit is $13,460 per child.
Business Income and Deductions
Travel and Lodging = 100% deductible
Meals and entertainment = 50% deductible
Lifetime Learning Credit
Max amount $2,000 or (20% of qualified tuition)
Phases out between AGI of 55K – 65K or (110-130K MFJ)
Interest Paid
Qualified Residence Interest deductible
Investment Interest: Investment interest may be deducted only to the extent of NET INVESTMENT INCOME. (Net investment income = Invest income – invest expense)
Net investment income= Interst Dividends Rents Royalties Net LTCG
Taxable investment income does not include tax-exempt municipal bond interest or rental income (which is accounted for separately).
Disability / workers comp
Gross income does not include benefits specified that might be received in the form of disability pay, health or accident insurance proceeds, workers’ compensation awards, or other “damages” for personal physical injury or physical sickness or accident insurance proceeds (even if the benefits are a substitute for lost income),
Above the Line deductions (miscellaneous)
Taxpayer may deduct up to $2,500 of interest paid on qualified educational loans. Phase-out when AGI exceeds 65K is single and ends at 80K
Self-employed individuals can deduct 50% of FICA taxes paid
A penalty charged for early withdrawal from a time savings account is a deduction for AGI.
The allowable deduction for contributions to an IRA is limited to the lesser of $5,500 or compensation. Interest income is not compensation.
DGPR
Sec. 199 states that gross receipts from the sale or lease of personal property that is manufactured in the U.S. are considered DPGR.
However, gross receipts from the lease, rental, or license of property to a related party does not qualify as DPGR.
Charitable Contributions
May be carried forward and potentially deductible in next 5 years.
Two types : 50% and non 50% AGI
50% - Churches, educational orgs, hospitals, USA, private foundations
CG property donated to private charities limited to lesser of:
20% of AGI – Very specific but applies to contributions of long-term capital gain property to private non-operating foundations.
30% of AGI – Contributions of CG property to public charities.
Filing Status- Qualifying Widower
Available to tax payer for 2 years following the death of husband/wife if taxpayer did not re-marry:
Must qualify fro MFJ status the tax year the spouse dies
Most advantageous status if qualify.
Roth IRA Distributions
Qualified distributions from a Roth IRA are not included in the taxpayer’s gross income and are not subject to the 10% early withdrawal tax.
The distribution must satisfy a 5-year holding period and must be (1) made on or after the date an individual attains age 59 1/2; (2) made to a beneficiary (or the individual’s estate) on or after the individual’s death; (3) attributed to the individual being disabled; or (4) used to pay qualified first-time homebuyer expenses. Since Mark has held the funds over 5 years and is over age 59 1/2, he may withdraw the funds tax-free
Dividends
Dividends are gross income. A shareholder who, under a dividend reinvestment plan, elects to receive shares of greater value than his or her cash dividend would otherwise be receives a taxable distribution to the extent of the value of the shares. The distribution is generally a taxable dividend to the extent of the corporation’s earnings and profits
If dividend reinvestment plan include the FMV of the shares on the dividend payment date
AMT
The alternative minimum tax is the excess of the minimum tax over the regular tax. The AMT is payable in addition to the regular tax.
Keogh profit-sharing plan
The deduction for contributions on behalf of a self-employed individual is the same as for corporate contributions to an employee plan. The contribution limit is 25% of the earned income derived by the self-employed individual from the trade or business or $53,000, whichever is less. The earned income must be reduced by the amount of the contribution and the employer’s portion of self-employment tax.
Unique Personal and Dependency Exemption Rule
If a taxpayer’s adjusted gross income exceeded a specific threshold amount (based on filing status), the deduction allowed for personal and dependency exemptions is reduced by 2% for each $2,500, or fraction thereof, by which the adjusted gross income exceeds the threshold amount
Net earnings from self employment
Net earnings from self-employment is net income from self-employment reduced by the employer’s portion of FICA taxes (.0765) times the taxpayer’s net income from self-employment. Thus, the $15,100 should be reduced by an additional $1,155 ($15,100 × .0765), resulting in net earnings from self-employment of $13,945.
AMT
Taxablie Income \+Preference \+/- Adjustment =AMTI - Exemption =AMT Base * Tax Rate Tentative AMT -Tax Credit =Tentative Minimum Tax Less: Regular Tax = AMT
AMT Preference Items
PPP
Private Activity Bond Interest Income
Percentage Depletion over AB
Pre 1987 Depre
AMT Adjustments
Passive Avtivity Losses Accelerate Deprec NOL Installment income of dealer Contracts- POC vs Completed COntract Tax deduction Investment deductions on some home equity Medical deductions over 10% AGI Exemptions (personal) and standard deductions
NO miscellaneous itemized deductions
Wash Sales
Occurs when substantially the same securities are purchased within 30 days of each other.
Loss on wash sale is not recognized and the disallowed loss is added to the cost basis to calculate the gain or loss on the subsequent sale.
Qualified Residence Interest
Qualified residence interest is deductible in full, subject to limitations. There are two categories of qualified residence interest.
Acquisition indebtedness is debt used to purchase, build, or substantially improve the residence. The limit on acquisition indebtedness is $1,000,000.
Home equity indebtedness is any debt secured by the residence other than acquisition indebtedness. Home equity indebtedness is limited to the lesser of $100,000 or the excess FMV of the residence over any acquisition indebtedness.
Earned Income Credit
Live in US over half year
Must be 25 and no older than 64
Cant be claimed as a dependent at anytime during tax year
Refundable credit
Work Opportunity Tax Credit
Employers are allowed a credit in the amount of 50% of the first $10,000 of qualified second-year wages paid to employees who are long-term family assistance recipients. Therefore, Jones Corporation is allowed a credit of $5,000 for 2016. Note that the combined credit for the 2 years may not exceed $9,000 per qualified employee.
Direct Moving Expenses
Unreimbursed, direct moving expenses are eligible for an above-the-line deduction. Direct expenses include the actual moving costs and certain expenses incurred while moving, such as lodging and traveling (but not meals). Indirect expenses, such as house-hunting costs, are not deductible.
Annuities
The nontaxable portion of an annuity is calculated by dividing the investment in the contract, as of the annuity starting date, by the number of anticipated monthly payments.
Qualified Loan Interest
Individuals are allowed to deduct interest paid during the tax year on any qualified education loan. The maximum amount that may be deducted is $2,500.
IRA and Roth IRA Contributions
Traditional IRA - Deductible when made
Roth IRA - Not deductible (after-tax)
