R2 Flashcards
Common adjustments to arrive at AGI
Educator expenses
Traditional IRA contribution deduction
Student loan interest deduction
Moving expenses (only for members of the US Armed Forces moving pursuant to military order)
Deductive part of self employment tax
Self employed health insurance deduction
Deduction for contributions to certain self employed retirement plans
Penalty on early withdrawal of savings
Alimony paid (on or before 12/31/18)
Attorney fees paid in certain discrimination and whistleblower cases
Educators can deduct up to what amount of qualified expenses paid?
$300, if joint return and both educators $600 maximum deduction
Three types of individual retirement accounts
Deductible traditional IRA
Roth IRA
Nondeductible traditional IRA
What is the maximum annual contribution to IRAs:
lesser of $6000 or earned income (if married 12,000)
if 50 and over, lesser of 7,000 or earned income (if married 14,000)
note: for married couples combine their earned income
Limitations on deduction of traditional IRA contributions
Participation in employer sponsored retirement plans: AGI phase out when “rich”
single: 68,000 - 78,000
MFJ: 109,000 - 129,000
Special Rule: OK if spouse not working unless super rich
MFJ: 204,000-214,000
What is a qualified distribution (nontaxable)
Made at least 5 years after the first day of the year of the taxpayers first contribution
meets one of the following requirements:
age 59.5 or older
disabled
first time homebuyer (10k limit)
made to beneficiary after the taxpayers death
Traditional IRA tax on
Distributions of both principal and earnings are taxable as ordinary income because got to take a deduction on the contributions (principal)
Nondeductible Traditional IRA tax on
earnings only because did not get to take a deduction for contributions (principal)
Note: no phase out based on high income for nondeductible traditional IRA
Early distribution penalty is
regular tax + 10% penalty
Which early distributions are EXEMPT from penalty (CHIME)
Child (within one year of birth/adoption)
Home (first home - 10k limit)
Insurance premiums
Medical expenses (qualified ones)
Education (higher ed expenses)
Adjustment for education loan interest is limited to
$2,500 per year
What amount of self employment tax is deducted to arrive at AGI?
50% because you pay both employer and employee
What amount of self employed health insurance is deducted to arrive at AGI?
ALL premiums paid for the taxpayer, spouse and dependents
What is the maximum contribution to a SEP IRA
lesser of:
20% of self employment net income reduced by one half of self employment tax deduction
$61,000 ($67,500 for taxpayers age 50 or older)
What is the maximum contribution to a SIMPLE IRA
lesser of:
100% of self employment net income reduced by one half of self employment tax deduction or
$14,000 ($17,000 for taxpayers 50+)
What is the maximum contribution to a Solo 401k
lesser of:
20% of self employment net income reduced by one half of self employment tax deduction or
$61,000 ($67,500 for taxpayers age 50 or older)
The following conditions must exist for alimony to be deductible (2018 & before)
Payments must be legally required under a written divorce (or separation) decree or agreement
Payments must be in cash (or it’s equivalent)
Payments cannot extend beyond the death of the payee-spouse
Payments cannot be made to members of the same household
Payments must not be designated as anything other than alimony
If payment includes both child support and alimony, payments goes to what first
child support first and then alimony
Standard deduction amount for different taxpayers
Single - 12,950
Head of household - 19,400
MFJ/Surviving Spouse - 25,900
MFS - 12,950
Note: MFS standard deduction is available only if both taxpayer and spouse do not itemize
Additional Standard Deduction for age 65+ and/ blindness
1 qualified taxpayer:
65 or blind - 1,750 (1,400 married)
65 AND blind - 3,500 ( 2,800 married)
2 qualified taxpayers:
each 65 or blind - 2,800 married
both 65 AND blind - 5,600 married
Standard deduction amount for a taxpayer who is a dependent of another
greater of:
1,150 or
earned income + 400
Schedules to report
Personal Items - Schedule A
Business Items - Schedule C
Rental Items - Schedule E
Individuals are typically “cash basis” and therefore to be tax deductible the item must ah e been
incurred as an expense
paid or charged to credit card before year end
Calculation of deductible medical expenses
Qualified medical expenses
- Insurance reimbursement
= Qualified medical expenses “paid”
- 7.5% of AGI
= Deductible medical expenses
Types of deductible medical expenses
medicine and prescription drugs (incl. medicare part d premiums)
doctors
medical and accident insurance premiums
medically necessary surgery
transportation to medical facility (actual costs or 18 cents per mile)
physically disabled costs
Note: cosmetic surgery required due to an accident or deformity can qualify
Deductible Taxes (limited to 10k in aggregate)
Real Estate Taxes (state and local, prorate, does NOT include street, sewer and sidewalk assessment taxes)
Personal Property Taxes (must be based on the value of the personal property & paid during the tax year)
Income Taxes (state, local and foreign) - refunds are included in gross income if itemized deduction taken in PY
Sales Tax (can deduct instead of state and local income taxes)
Nondeductible Taxes
Federal taxes (including social security)
Inheritance taxes for states
Business (Sch C) rental property taxes (Sch E)
Deductible Interest Expense
Home mortgage interest up to 750,000 (375,000 MFS) - interest above these ants are treated as personal and not deductible
Investment Interest Expense (limited to net investment income)
Prepaid Interest - allocate to proper period
Investment income includes
interest
dividends (other than qualified dividends)
short term capital gains
royalties (in excess of expenses)
net long term capital gains and qualified dividends (only if the taxpayer elects not to claim the reduced capital gains tax rate)
Charitable Contributions Deduction based on type of property
ordinary income property:
amount of the deduction is the lesser of adjusted basis of FMV at the the time of contribution
long term capital gain property
amount of deduction is FMV at time of contribution
AGI limitation on individual charitable contribution deductions to public charities
Cash - 60% of AGI
Ordinary income property - 50% of AGI
Long term capital gain property - 30% of AGI
AGI limitation on individual charitable contribution deductions to private operating foundations (distributes funds to its own charitable programs)
Cash - 60% of AGI
Ordinary income property - 50% of AGI
Long term capital gain property - 30% of AGI
AGI limitation on individual charitable contribution deductions to private non-operating foundations (distributed funds to other charitable organizations)
Cash - 30% of AGI
Ordinary income property - 30% of AGI
Long term capital gain property - 20% of AGI
Individual charitable contribution carryover period
five years
Deduction for Casualty Losses
Only deducible is sustained in a presidentially declared disaster area
Smaller of lost cost/adjusted basis or decreased FMV
-Insurance recovery
= Taxpayers loss
-100
=Eligible loss
-10% of AGI
=Deductible Loss
Nonrefundable personal tax credits
child and dependent care credit
elderly and permanently disabled credit
educational credits
 hello
Under an employee stock purchase plan
the option exercise price may not be less than the lesser of 85% of the FMV of the stock when granted or exercised
the option cannot be exercised more than 27 months after the grant date
the gain on incentive stock options is
not recognized until the sale occurs
employee stock purchase plans are
a type of qualified stock option plan
in regards to stock options, the employer may recognize a deductible expense for a non qualified stock option
in the same year that the employee will recognize ordinary income
for an incentive stock option, once exercised, the stock must be held for
at least two years after the grant date and at least on year after the exercise date
the employee receiving a non qualified stock option must recognize
ordinary income in the amount of the value of the option if traded on an established market
Note: bargain element in non qualified stock options must be included in form W-2
