R1 - Federal Taxation of Ind Flashcards
M1
QC Qualifying Child
CARES
Close Relative - son, daughter, stepson, stepdaughter, brother sister, step of these or descendent of any of these
Age Limit - Child must be younger than the taxpayer, and under age 19 ( or 24 for a full-time student ) permanently disabled at anytime during the year.
Residency and Filing Requirements - child must live in same place as taxpayer for than half a yr, Citizen or resident of US, Canada, or Mex
Eliminate Gross Income Test - gross income test does NOT apply to a qualifying child
Support Test - must not have contributed more than half of his or her own support. Social Security and state welfare payments are included in the dependent’s total support.
QR Qualifying Relative
SUPORT
Support Test - taxpayer supplied more than 50% support, for QR and QC
Under Gross Income Limitation - QR must have gross income less than $5,050 OF TAXABLE INC
Non-Taxable Income:
-Social Security (at low income levels)
-Tax-Exempt int income (state & municipal int income)
-Tax-exempt scholarships
Precludes Dependent Filing a Joint Return
Only Citizens of the US or Residents of US, Mexico or Canada - QR must be citizen of the US or resident of US, Mexico or Canada
Relative - Children, grandchildren, parents, g-parents, bro, sis, aunts & uncles, nieces & nephews (step - children, parents, brothers or sisters, in-laws)
Foster parents & COUSINS are not considered to be relatives.
Taxpayer Lives w/the individual the entire year - Foster parents & cousins must live with the taxpayer the entire year in order to be considered a QR
Multiple Support Agreement
Taxpayers who provide more than 10% of support to another individual may or are eligible to claim that individual as a dependent
Damages for personal injury are excluded from gross income
Workers’ Compensation for a job-related injury
Traditional IRA
Earnings from a Traditional IRA are taxable when withdrawn from IRA
at 59 1/2 distributions become penalty free
Early withdrawal are penalized
Penalized 10%
Disability Pay & Punitive Damages
If Disability pay was paid by employer and taxpayer gets reimbursed for the disability pay then it is considered taxable
BUT
If Taxpayer paid the disability insurance premiums after tax, then the benefits (reimbursement) received would NOT be taxable
Punitive damages monies are fully taxable
2nd Residence
Treated as a personal/rental residence and exp must be prorated between and rental use.
If it is rented for more than 14 days
AND
Is used for personal purposes for the greater of
1. more than 14 days
2. more than 10% of the rental days
Charitable Contribution
When an object or item is contributed
ONLY
The excess paid over the FMV is deductible.
Deductible Charitable Contributions
Artwork is ordinary income property only if held short term
ONLY BC
it was held for one year or less
Ordinary income property is the lesser of
Property ADJ basis OR FMV at the time is was contributed
Must be a qualifying charitable organization
If Artwork was held longer then its LTCG and if appreciated can be deducted at FMV at time of contribution, deduction 30% of AGI
To meet the SUPORT test QR
Statement must state that the taxpayers must provide more than 1/2 of the support of QR
Investment Interest Expense Deduction
Is an itemized deduction
LIMITED TO
Net investment income
Taxable interest is included in net investment income
Rental income and tax exempt interest are not
Interests that are Deductible
Interest on mortgages of up to $750,000 to buy, build, or substantially improve a home (the first loan) are fully deductible.
Interest on home equity loans is only deductible if the proceeds are used to substantially improve the home
Interest for personal exp such as auto loans and cc is not deductible
Adjustments for AGI: AKA above the line
Educator exp
Traditional IRA Contribution Deduction
Student loan int deduction
Health Savings account deduction
Moving exp (only in military and have a military order)
Deductible part of self-employment tax
Self employed health ins deduction
Deduction for contributions to certain self-employed retirement plans
Penalty on early withdrawal of savings
Alimony paid (on or before Dec 31 2018
Attorney fees paid in certain discrimination and whistle-blower cases
Exam will refer to adjustments as deductions to arrive at AGI
Taxpayers w/Taxable income above $241,950 (single or HOH)
OR
$483,900 (MFJ)
Then this applies
when using QBI
If QTB (Qualified Trade or Business) the Full W-2 wage & property limitations applies
If SSTB (Select Services Trade or Business) then No QBI deduction is allowed.
LTCGs - Long Term Capital Gains Preferential tax rate
Qualified Dividend Income
LTCGs preferential tax rate is 15%
and
Qualified Dividend Income 20% for High Income taxpayers,
0% for low income taxpayers
Kiddie Tax
Net unearned income of a dependent child under 18 years of age (or child 18 to 24 who does not provide over half of his/her own support and is a full time student)
is taxed at the parents rate.
Child’s Unearned Income Tax Rate
$0-$1,300 0%
$1,301-$2,600 Child’s Rate
Over $2,600 Parent’s Rate
Taxes are generally deductible in the year they are paid:
Real estate taxes
Income taxes
Personal Property Taxes
These taxes are allowable itemized deductions
Casualty and theft losses are limited to
Nationally declared disaster areas
They can be deductible if they qualify as a Casualty
AND
Must not exceed 10% of AGI plus $100 per casualty
Deductible Medical Expenses
Limited to the amount that exceeds 7.5 % of AGI
If it doesn’t exceed cannot deduct in itemized expenses
Limitations on Charitable Contributions
First in First Out and must in order:
CASH
Ordinary Income Property
LTCG property
PUBLIC CHARITIES & PRIVATE OPERATING FOUNDATIONS
Cash 60% AGI
Ordinary Income Property 50% AGI
Long-Term Capital gain Property 30% AGI
Publicly Traded Stocks are based on Cost Basis NOT FMV
Stock was held for 1 yr or less so it is ordinary income property
For the stock it is the lesser of the adjusted basis or of FMV at the time it was contributed
Limitations on Charitable Contributions
First in First Out and must in order:
CASH
Ordinary Income Property
LTCG property
PRIVATE NON-OPERATING FOUNDATIONS
Cash 30% AGI
Ordinary Income Property 30% AGI
Long-Term Capital gain Property 20% AGI
Publicly Traded Stocks are based on Cost Basis NOT FMV
Stock was held for 1 yr or less so it is ordinary income property
For the stock it is the lesser of the adjusted basis or of FMV at the time it was contributed
Charitable Contributions
Can by carried forward for 5 years
If under limitations of AGI can use the whole amount
To avoid underpayment penalty
Make the minimum of
90% of current tax on the return for CY
100% of the prior year’s tax liability paid in 4 equal installments
If taxpayer has AGI of more than $150,000 the prior year then rule is
110% of the prior year’s tax liability is used to compute Safe Harbor for estimated payments
Interest paid on debt not used to acquire or substantially improve a home
is not deductible. This is true even if the debt is secured by a home.
Calculate Casualty Loss Deductible
Lesser of FMV or Adjusted Basis
- $100
- (X 10% of AGI)
= Casualty Loss Deduction
ALSO CONSIDER
Decrease in FMV
OR
Adjusted Basis
Medical expenses charged on a CC
is expensed in the year the charge is made
Expenses paid for the medical care of a decedent by the decedents’ spouse are included as medical expenses in the year paid, whether they are paid before or after the decedent’s death
Contributions (Long Term)
Taxpayer can deduct long-term capital gain property at the higher FMV without paying capital gains tax on the appreciated portion
This deduction is limited to 30% of AGI and the 5 yr carryforward of excess can apply
Investment interest Expense
Will be limited to the net investment income of the taxpayer
Any excess amount will be carry forward INDEFINITELY
Itemized Deduction for Investment Interest Expense
Limited to net taxable Investment interest
AND
Investment Income
Even Municipal Bond Income
Gambling losses
Are deductible as a misc itemized deduction (from AGI) limited to gambling winnings
QBI DEDUCTION
is taken from AGI (below the line)
It is NOT part of the itemized deductions
An employee who has had Social Security tax withheld greater than the max for a particular year may claim
the excess as a credit against income tax, it that excess resulted from correct withholding by 2 or more employers
A Charitable Contribution is
NOT allowed for the value of services rendered to a charity
ROTH IRA CONTRIBUTIONS
Only $2k of Roth IRA contribution is eligible for credit
Its considered a non-refundable credit
Up to $2k
To either a traditional or Roth IRA
AGI Phase out for IRA Contributions
In Employer-Sponsored Retirement Plans
Unmarried $77k-$87k
Married $123k-$143k
AGI Phase out for IRA Contributions
If the spouse is not active participant
Married Filing Jointly $230k-$240k
Married Filing Separately $0-$10k ea spouse is subject to this limitation both the participant and the nonparticipant
Subject to the Net Investment Income Tax
An ind who is a US resident may be subject to the 3.8% net investment income above AGI threshold amounts
Self-Employed Health Insurance
AND
50% Tax on Self-Employment
Both business related items
Cannot deduct directly on Sch C
They are both considered adjustments and are deductible on Form 1040
AGI above the CY Student Loan Interest Expense
AGI limitation for a single taxpayer is $110,000
Real Estate Taxes
Are deductible whether the property is rented or not
Can either be deducted on rental Schedule E or as Itemized deduction (subject to limitations)
Only the amount that exceeded the standard deduction (if itemized)
is included in taxable income for the CY
Noninterest Investment Expenses
ARE NOT deductible
SEP is an adjustment
Max deductible amount for self-employed individuals is the lesser of $69,000 or 20% of NET earnings
That means that you must take away the Self-employment income MINUS 50% of self-employment taxes
The retirement savings contribution credit
Is a non-refundable credit
What is considered Medical Expenses
Professional Medical Services (Physical Therapy)
Insurance Premiums providing reimbursement for medical care
Prescription Drugs
Insurance against loss of income is NOT payment for medical care and is NOT deductible
Charitable Contribution
Artwork is short term is lesser of the property’s adjusted basis or the FMV at the time it was contributed
The taxpayer can deduct long-term (i.e., held longer than 12 months) capital gain property at the higher fair market value (higher than cost basis) without paying capital gains tax on the appreciated portion. This deduction is limited to 30 percent of adjusted gross income (AGI). A five-year carryforward period applies. BUT deduction will be limited to AGI rules
Interest for personal expenses
Such as auto loan & credit cards
NOT DEDUCTIBLE
ADOPTION CREDIT
Legal Fees
Agency Fee
DEPENDENT CARE CREDIT
Under 13 years of age
Max for 1 dependent is $3k
Limited to lowest earned income of either spouse
20% to 35% applies to wages earned
QUALIFIED DIVIDENDS
Includable in gross income as ordinary dividends
Subject to a special tax rate, which depends on taxpayer’s income
IRA DEDUCTION
Dependent on income
but can deduct entire amount according to thresholds
199A QBI DEDUCTION
Limited to 20% of TAXABLE INCOME
QBI deduction rate is 20%
Employer reimbursement for EDUCATIONAL EXPENSES
Limited to OR Exclude $5,250
whatever exceeds is taxable
Scholarships for degree-seeking students are excludable
Monies spent on:
Tuition
Fees
Books
Supplies
Room & Board are excluded and WILL BE taxable
Unemployment Compensation Benefits
Are FULLY TAXABLE
LTCG Preferential Income Tax
Is applied to LTCG and Qualified Dividends
According to Taxable income ( for MFJ & Single )
Its an additional tax aside from being added to Taxable Income
So its added to get to taxable income
then separated to get the Preferential Income tax
To get total to Ordinary Income must subtract from total taxable Income to calculate the tax
NII - Net Investment Income Tax
3.8% of the lesser
1. Taxpayer’s net investment income
2. Excess of Modified AGI over a threshold ($250,000)
Contains:
Interest Income
Dividend Income
Capital Gains
Rental
Royalty
Nonqualified Annuities
Passive Income from business (ex: limited partner)
AGI
Less: NII tax MFJ AGI Threshold
Excess $250k over threshold
apply NII Tax Rate (X)
= NII Tax
Those taxpayers who (MFJ with investment income equal or greater to $250k - Pay NII for anything over $250k
Federally Declared Disaster
Lower of the Items cost or the decline in FMV
ROTH IRA Contribution
If they are over the Phase-out (2024)
It is irrelevant that neither spouse nor TP is covered by Employer-Sponsored Retirement Plan
Phase-Out (Participation in Employer-Sponsored Retirement Plan)
Unmarried $77k-$87k
Married Filing Jointly $123k-$143k
If not active participant of Employer-Sponsored Retirement Plan)
Phase out is
MFJ $230k - $240k
MFS $0-$10k each spouse is subject to this limitation each spouse is subject to this limitation
