R2 Flashcards
Self Employment Items that are Adjustments and not deducted on Schedule C
- 1/2 self-employment FICA
- self-employed retirement
- self-employed health insurance
Adjustments
- Educator expense
- IRA contribution
- Alimony paid
- Interest foregone
- Moving expenses
- Student Loan Interest
- Tuition & Fee deduction
- 1/2 self-employed FICA
- self-employed retirement
- self-employed health insurance
- Health Savings Account (HSA)
Educator Expenses
$250 single or $500 joint
*ordinary and necessary expenses up through grade 12
Individual Retirement Account Types
Traditional IRA Nondeductible IRA Roth IRA Coverdell Education Savings Plan Additional Catch Up Contribution
Traditional IRA
- deduction is not allowed if both of the following are true
1. income exceeds a certain limit (116,000 joint/70,000 single)
2. already in a retirement plan
*if super rich, spouses are tested together (over 191,000)
Traditional IRA Deduction Amount
Lesser of:
- $5,500 ($11,000 joint)
- compensation
Additional Catch-Up Contribution
$1,000 over the age of 50
Roth IRA
no deduction for contribution
no tax when distributed
*limited to $5,500 of all retirement account investment (across all types)
Nondeductible IRA
- limited to $5,500 or compensation
- nondeductible in year of contribution
- accumulates tax free
- distribution is partially taxable and partially tax-free
Coverdell Education Savings Account
- Nondeductible contribution limited to $2,000 per year per beneficiary
- tax-free accumulation
- tax-free distribution if used for qualified education expenses (includes room and board) (up through high school or age 18)
Student Loan Interest Adjustment
$2,500
subject to phase out
Tuition and Fees Deduction
$4,000 on qualified education expenses
subject to phase out
HSA
$3,300 (none once eligible for Medicare Parts A or B
Moving Expenses
- must be work related
- distance between new work and old home and old work and old home increased by 50 miles
- must stay in new location for 75% of the year (39 weeks)
- costs include only: lodging on the way and moving cost for old home furnishings
Tax on Self-Employment
50% can be used as an adjustment
Self-employed health insurance
100% can be used as an adjustment
Keogh (Profit Sharing) Plan
- $52,000
* 20% of (net business income - 1/2 FICA)
Alimony Requirements
- must be made only in cash (or equivalent) (credit cards and tuition)
- must be a part of a formal divorce decree
- must end on the death of the payee spouse
Alimony and Child Support
*payments first apply to child support
Additional Deduction for over 65 and/or Blind
Single: $1,500 per person per condition
Married: $1,200 per person per condition
Itemized Deductions (in general)
- phased out at a certain income level
- not phased out for the following:
- *G ambling Losses
- *I nvestment interest expense
- *M edical expenses
- *C asualty and theft
Medical Expenses
*Filing taxpayer, spouse, individual provided over 50% of support
*can pay to people who did not qualify to be a dependent due to either:
1. Gross income test
or
2. Filed a joint return
Timing = when paid or charged
Medical Expenses that are Not Deductible
- capital improvements up to amount they increase the FMV of the home
- cosmetic surgery only
- life insurance (investment tool)
- health club insurance
Is life insurance a deductible medical expense?
No, an investment tool
Medical Expense Limit
10% or 7.5% AGI if 65 or older
Deductible Taxes
Real Estate Taxes (state, local, and foreign)
Personal Property Taxes (state, local)
Income taxes (state, local, and foreign)
**estimated payments, withheld, assessments paid for prior year’s tax
Sales tax
Nondeductible Taxes
F ederal income tax
I nheritance taxes
B usiness taxes
Interest Expense
H ome mortage (1,000,000) & home equity (100,000) I nvestment interest expense (up to amount of net investment income) P ersonal (not deductible) P repaid (pro rata in correct period) E ducation (adjustement only)
Can you deduct investment interest expense used to acquire tax-exempt interest income?
No
Home Equity Indebtedness
- proceeds can be used for anything
* up to $100,000
Acquisition Indebtedness for Home Mortgage Interest
- up to $1,000,000
* used to purchase, improve, construct PRINCIPLE and SECOND home
Charitable Contributions for Individuals
- limited to 50% AGI
- General property: lesser of basis or FMV
- limited to 30% AGI for LONG-TERM appreciated property
- consideration such as donated time does not count as a deductible amount
- may only deduct the excess contribution over consideration received
Carryover period and method for charitable contributions for individuals
5 years; FIFO basis
Casualty and Theft Losses for Individuals
Amount of Loss is lesser of:
- decrease in FV
- adjusted basis
*MUST BE SUDDEN and UNEXPECTED
- limited to 10% AGI
- $100 automatic decrease in loss
Miscellaneous Itemized Deductions Subject to 2% Floor
unreimbursed business expenses transportation expenses meals/entertainment expenses (50%) educational expenses uniforms business gifts subscriptions to professional journals tax preparation fee hobbies (interest and taxes normally but can be more up to income if it is profitable)
Other Miscellaneous Itemized Deductions NOT Subject to 2% Floor
*gambling losses (to extent of gambling winnings)
Reduced tax rates for individuals are allowed for the following items
- qualified dividends
* long-term capital gains
Personal Tax Credits vs. Refundable Credits
Personal = nondeductible Refundable = refundable
Individual Tax Credits
foreign tax credit credit for child and dependent care education credits retirement savings contributions credit child tax credit earned income credit residential energy credits
Child and Dependent Care Credit
*expenses up to 3,000 / 6,000 Eligible People *child under 13 *any disabled dependent *disabled spouse 20%-35% (20% = minimum)
Limited to lesser of
- income by poorest spouse
- limit of 3,000 or 6,000
* multiplied by 20% for minimum amount
Eligible Expenses for Child and Dependent Care Credit
- daycare
- nursery school
- baby sitter
- NOT grammar school
Credit for Elderly and/or Permanently Disabled
**game show with two questions
15% and for people who are
1. over 65 and/or
2. permanently disabled
5000/7500
balance
x 15%
Adoption Credit
Limit and phase out
Eligible expenses
*reasonable and necessary expenses, costs, and fees
NOT medical expenses
Retirement Savings Contributions Credit Requirements
- at least 18
- not full time student
- not a dependent
Foreign Tax Credit
lesser of:
- foreign taxes paid
- foreign tax/global tax x US tax liability
Carryback: 1
Carryforward: 10
General Business Credit
lesser of:
- 25% of regular tax liability above $25,000
- tentative minimum tax for the year
Tax
0-25000 –> 100% tax
25000+ –> 75% of tax
Carryback: 1
Carryforward: 20
Child Tax Credit
CARES applies except:
17 years of age
US citizen, national, or resident
Earned Income Credit
refundable
Withholding Tax Credit
refundable if in excess
Excess FICA Credit
refundable if in excess of limits
Small Employer Pension Plan Start-Up Costs
- under 100 employees & at least $5,000 income
* 50% of first $1,000
Small Business Health Care Tax Credit
up to 35% of the employer’s costs of the plan premiums
Health Coverage Tax Credit
80% of health care premiums for qualified health insurance
Residential Energy Credits
15% of qualifying property or improvements
$500 limit
Should you pay AMT or regular tax?
pay the greater of the two
Individual AMT Exemption Amounts
Begin with exemption (80,800 for joint)
AMTI
excess
x 25%
subtract that 25% from 80,800 for exclusion amount
Individual AMT Adjustments
P assive activity loss A ccelerated depreciation N et operating loss I nstallement sales C ontracts (% vs complete)
T axes I nterest (home mortgage okay) M edical expenses M iscellaneous expenses subject to 2% floor E xemptions
Individual AMT Preference Items
P rivate activity bond interest
P ercentage depletion
P re-1987 accumulated depreciation
Individual AMT Credit Carryforward
forever and used for REGULAR TAXES ONLY
Individual AMT Credits
F oreign tax credit A doption credit C hild tax credit C ontribution to IRA credit E earned income credit
Statute of Limitations
General
- 3 years from later of
1. due date
2. date return is filed
25% understatement
- 6 years from later of
1. due date
2. date return is filed
Fraud/False Return
*forever
Refund Claim (1040x)
later of
1. three years from date return was filed or due date
2. two years from when the tax was paid
Bad Debts/Worthless Securities
- 7 years from later of
1. due date
2. date return is filed
Estimated Tax Payments for Individuals
Required if both conditions are met
- tax liability of over $1,000
- inadequate tax estimates lesser of
- 90% of current year
- 100% of prior year (110% if rich (over 150,000))
State, Local, and Foreign Taxes
*deductible in the year paid; NOT the year it applies to
American Opportunity Credit
- first four years only
* 2,000 + 25% of next 2,000
Lifetime Learning Credit
- 20% of 10,000
- any point during educational career
- can’t be used for books
Refundable Tax Credits
- child tax credit
- EIC
- withholding taxes (W-2)
- excess Social Security paid
- American Opportunity credit
