R2 Flashcards
What is the calculation of SEP IRA Deduction?
Net self employment income
- 50% SE tax
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SE earnings before SEP IRA
*20%
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SEP IRA Deduction
What is the calc of Medical and Dental exp for itemized deduction?
What is the impact of medical insurance reimbursement on amt reported?
Qualified medical expenses
LESS: Reimbursements
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Qualified medical expenses paid
LESS: 7.5% of AGI
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Any excess is included in itemized deduction
What costs are NOT deductible as Medical expenses? (6)
- Cosmetic/elective surgery
- non prescription medications/vitamins, herbs
- Health club dues - gym membership
- Life insurance premiums
- Funeral expenses
- Disability policy that provides income if become disabled / loss of earnings
If a Credit card is used to pay medical expenses in Yr1 but the CC bill is not paid till yr2 - when is the expense taken?
In Yr1 - when expense occured
What is the impact of changes to tax payers house (wheelchair ramp, elevator, etc) on the medical deduction?
(i.e install elevator for medical purpose of cost of $75k and adds $50k in value, what is the impact on the deduction?)
What if their was no increase in value to the house?
The difference b/n cost of renovation and amt added in value to house is deduction
$75k costs - $50k value added = $25k deduction
The amount of expense can be added to the deduction (i.e $80k cost - 0 value added = $80k deduction)
What is the maximum amount of State and local taxes that can be claimed as an itemized deduction?
$10K (MFJ)/$5k(MFS)
How are State And Local Taxes (SALT) paid as an W2 employee compared to Self employed individual?
Employee has SALT withheld from paycheck (still deductible on taxes)
SE individual has to pay through Estimated Taxes (not deductible until paid)
When calculating state and local taxes itemized deduction - how do you calc the state income vs state sales tax?
Higher of : State income tax OR state sales tax
is taken , not both
What are the 6 categories of itemized deductions? (TMI CCM)
Medical
Taxes
Interest
Charity
Casualty
Misc.
What is the limit on deducting interest on home?
Can treat no more than $750k of acquisition indebtness (home mortgage principal) for interest deduction
So if mortgage is > $750k –> can deduct up to first $750k
What is the Home Equity Loan interest (deductible acquisition indebtness) itemized deduction?
When you own a home and decide to take a loan out on the equity of the house
You can deduct loan int ONLY IF you use the loan proceeds to fix up the home
What are Mortgage points and how are they included to itemized deduction?
Mortgage points are paid when acquiring/refi loan on house to pay down the interest.
1 point = 1% of loan
If paying for points on acquisition = deduct in year
IF paying for points on refi = deducted over life of the new mortgage
What is investment interest and how is the amount calculated for itemized deduction?
Borrowing money to invest - the interest paid on loan is deductible ONLY IF the income from investment is taxable @ ord income tax rates
can only deduct UP TO the amount of investment income
What is Personal interest and what amount is included in itemized deduction?
Person int = life int loan, bank CC, Auto loan
NOT DEDUCTIBLE
What is prepaid interest and what amount is included in itemized deduction?
Prepaid int is amount paid in adv - must be allocated over the pd of the loan
What is education loan int and what amount is included in itemized deduction?`
int on educational loans –> Adjustment NOT DEDUCTION
What are NONdeductible Charitable contributions (3)?
- CC to Foreign Charities
- Gifts to political campaigns
- gift to needy families
How much of items other than cash eligible for a Charitable Contribution? (ST cap prop and LT cap prop)
Deductible at the LOWER OF: Tax basis OR FMV @ date of donation
LTCG deductible @ FMV of donation
What are the Charitable contribution limit for cash and and LTCG property for deduction?
Cash = 60% of AGI
LTCG prop = 30% of AGI
What are the CFWD rules for Charitable contributions?
If over CC limits (60% cash) –> CFWD 5 years, no BCK
When is it needed for substantion of prop for Charitable contribution?
MUST be obtained for deduction of prop (clothing, furniture) to Charitable org. Deduction would be lower of FMV or cost basis
What is the rule of services for Charitable contribution?
Services itself donated to org is NOT deductible
Cash paid OOP while donating time = deductible
When are casualty losses deductible?
ONLY in presidential declared disaster
What are the 5 refundable tax credits?
Child Tax credit
Earned Income Credit
Fed Income Tax Withheld
Excess SS tax Paid
American Opportunity Credit (40%)
Define the following for the Child Tax Credit:
- How much is the General credit?
- Requirements
- Phase out
- Refundable amount
- MFJ, AGI of $407,368, 2 children (QC) - what is the credit
- $2k per Qualifying child (under 17) AND $500 for each dependent for nonqualifying child
- Must be qualifying child
- $50 p/o on the $2K overall credit every $1k over $200K(S/MFS)/$400k(MFJ)
- LESSOR OF:
A. Excess Child tax credit over tax liab
B. Earned Income in excess of $2.5k *15% (375)
C. $1.6K per child
- $407,368 - 400,000(P/O) = 7,368
7,368/1,000 = 7.37 –> round to 8
8 x $50 = 400
$4,000 (2 kids) - 400 = $3,600 Credit
What is the calculation of Foreign Tax Credit?
LESSOR OF:
- Foreign Taxes Paid
OR
2. TI from all foreign operations * U.S tax
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TI WW
How are legal expenses deducted in the tax formula?
Trade or biz expenses deductible on Schedule C to be deducted FOR AGI
Not deductible for individual
When can an employee claim a credit for excess SS tax withheld?
Can claim credit when excess SS was withheld over the max amt IF that excess was correctly withheld by 2+ employers
In a incentive stock option –> when is the income/gain realized?
In the year the stock was sold
How do you calc the deductible amount of SE tax?
SE income
* 92.35% SE tax on income
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SE income subject to SE Tax
15.3% (7.652) SE Tax rate
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SE tax liability
*50% is deductible
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deductible amount
What types of taxes are allowed to be deducted as an Itemized deduction?
RE Tax, Property tax, SALT
How much can a K-12 teacher deduct up to in OOP costs for supplies?
$300
How much of student loan interest can be deducted per year? Are there any limitations?
Where is this included in the tax formula?
$2,500 per year –> excess is not deductible
P/O begins $70k/140k
Deduction to arrive at AGI
Can a dependent of another take the std deduction and in what amount?
Yes
GREATOR OF:
$1,250 OR EI + 400
What types of interest are included in the calculation of interest of itemized deduction? (HIPPE)
Home mortgage interest (first and second home) up to 750k up mortgage OR home equity loan (IF loan is to rennovate home)
Investment interest - only up to the investment income, cannot be negative,
Personal - NOT deductible
Prepaid - included only when incurred AND paid
Educational interest - NOT deduction (it is adjustment)
What are the 4 taxes included for itemized deductions?
Property tax
income tax
RE tax
LESSOR OF: State and local OR sales tax
In an nonqualified stock option plan - when does a stockholder recognize income?
Stockholder recognizes ORD income @ FMV * # shares purchase
At date granted (received the option)
How are unreimbursed business meals as employee classified in TI?
NOT included/not deductible
If an individual files a tax return with 0 liability in the prior tax year - what is the min amount of payment due in the current year to avoid tax payments?
Lessor of:
- 90% of CY tax or 100% of PY tax
What is the max qualified expenses for the lifetime learning credit and what is the max credit? How is the credit calculated?
$10K expenses
$2K credit
Credit = Expenses * 20%
How is the American Opportunity Credit Calculated?
1st 2K of expenses * 100%
2nd up to 2K * 25%
Max is 2,400
When calculating Medical expense for deduction - what is the exception in dependency qualifications?
If providing over 50% of another individual AND paying for medical expenses –> can include amount paid REGARDLESS of the amount of gross income the supported individual has
Do you pay tax in a coverdell interest income?
No, no interest is taxable - coverdell is tax free
What is the latest date that an IRA contribution can be made in order to qualify as a deduction on prior year return?
April 15
When calc taxes allowed for itemized deductions - how are special assessments treated?
Not deductible
Under a Section 529 education savings plan - what is the max withdrawal per year?
$10k
