R2 Flashcards
Adjustments
Educator Expenses IRA Student Loan Interest Expenses Tuition and Fee Deduction Health Savings Account Moving Expenses 1/2 Self Employment FICA Self Employed Health Insurance Self Employed Retirement Interest Withdrawal Penalty Alimony Paid Attorney Fees Paid in Discrimination and Whistle Blower Cases Domestic Production Activities Deduction
Educator Expenses
- eligible educators can deduct up to 250
- if both spouses are eligible, max is 500
- K-12 teacher instructor counselor principal or aide in school for >900 hours/year
Deductible IRAs
- contribution deductible (lesser of 5,500 or compensation)
- withdrawals taxable
- contribution NOT TAX FREE IF
a) Rich: AGI for single/HoH 61,000 - 71,000 and
b) taxpayer or spouse in another qualified plan
exception: not considered active just bc spouse is
phase out: if you aren’t but spouse is and AGI b/w 184,000-194,000
+ additional catch up contribution: 50+ allowed additional $1,000
Roth IRA
- contribution nondeductible
- withdrawals nontaxable (both principal and earnings)
- contribution limits (total with other IRAs)
single: 5,500
married: 11,000 - phase out:
single: 117,000 - 132,000
joint: 184,000 - 194,000
MFS: 0 - 10,000 - no AGI limitations for transfer from regular IRA to roth & it eliminates penalty tax but withdrawal still taxable
Retirement Savings Contributions Credit
eligible taxpayers may be entitled to tax credit (max 1000) for contributing to traditional or roth IRA
Nondeductible IRA
- contribution nondeductible
- withdrawals partially taxable (principal nontaxable, earnings taxable)
- contribution limits: 5,500
- no phase out
- fall back when not eligible for deductible IRA or Roth
Coverdell Education Savings Accounts (education IRA)
- contribution nondeductible (max 2000 annually per beneficiary)
- withdrawals nontaxable (both principal and earnings) as long as used for education expense through high school
- any amount when beneficiary reaches 30 must be distributed:
taxable to beneficiary and assessed 10% penalty
rolled over to family: nontaxable and no penalty - can be used w other education credits
- contribution requirements:
beneficiary under 18 - phase out: single 95,000-110,000 & married: 190,000-220,000
Tuition and Fees Deduction
- higher education expenses applies whether education is work-related
- expenses above max are only deductible as education expense (itemized deduction)
- max 4,000
- max income limit: AGI must be less than or equal to 65,000
2,000 allowed for AGI b/w 65,000-80,000
no adjustments for taxpayers w excess of 80,000
Health Savings Account
- pretax contributions up to 3,350 (6,750 for families) to over health care costs
- increased by 1,000 for those who reach 55
- no contributions allowed when taxpayer becomes covered by medicare A or B
Moving Expenses (must be work related)
- new workplace 50 miles further from old house than old workplace was
- 39 week stay (75% of year)
- only direct moving costs allowed:
a. travel and lodging of taxpayer and family
b. transporting household goods and personal effects to new location
Tax on Self Employment
50% of self employed SS/Medicare tax is a deductible adjustment
Self Employed Health Insurance
100% deductible adjustment
Keogh Plans
self employed taxpayer can set up Keogh plan
- max annual deductible amount is limited to lesser of 53,000 or 20% of self employment net income after 1/2 self employment tax deduction
Alimony
Alimony - taxable income to spouse receiving - deductible adjustment for spouse paying Child Support - nontaxable to spouse receiving - nondeductible to spouse paying Property Settlement - nontaxable to spouse receiving - nondeductible to spouse paying
Standard Deduction
Standard Deduction (1040EZ)
Additional Deduction for Elderly and/or Blind
- single, 65 or blind: 1,550 single, 65 & blind: 3,100
- married, 65 or blind: 1,250 married, 65 & blind: 2,500
- married, both 65 & blind: 5,000
single: 6,300
Itemized Deductions
Medical Expenses State, Local, and Foreign Taxes Interest Expense Charitable Contributions Casualty and Theft Losses Misc. Itemized Deductions (2% AGI) Other Misc. Deductions (no 2%)
phase out when AGI exceeds
311,300 for MFJ &surviving spouses
285,350 for HoH
259,400 for single
155,650 for MFS
itemized deductions reduced by 3% of the excess but may not be reduced below 80% of amount allowed before phase out
4 items not phased out: GIMC: gambling losses, investment interest, medical expenses, casualty & theft
Medical Expenses
- payments for taxpayer, spouse, and SUPORT (w/o U) count
- paid or charged on CC during the year
- qualified medical expenses - insurance reimbursements - 10% AGI = deductible medical expenses (7.5% for 65+***)
prescription medicine and drugs
doctors
medical and accident insurance (but not disability insurance)
required surgery
transportation to medical facility
physically disabled costs (building a ramp for wheelchair)
State, Local, and Foreign Taxes
- cash vs accrual method
Deductible Taxes - Real Estate Taxes (on personal residence not rental)
- Income Taxes
- Personal Property Taxes
- Sales Tax
may deduct EITHER state and local income taxes or state and local general sales taxes
Nondeductible Taxes FIB - Federal Taxes (including SS)
- Inheritance taxes for states/ federal estate pick up tax
- Business and rental property taxes
Interest Expense
HIPPE
Home Mortgage Interest
Investment Interest Expense
Personal Interest is NOT DEDUCTIBLE
Prepaid interest (deduct when incurred & paid)
Educational Loan Interest (adjustment, not itemized deduction)
Home Mortgage Interest
acquisition indebtedness (1,000,000/500,000 MFS max)
- used for home-related, secured by home
home equity indebtedness (100,000/50,000 MFS max)
-used for any purpose even not home, but not tax free securities or certificates
- interest on excess is personal interest
mortgage insurance premiums paid are deductible as home mortgage interest
- “points” are deductible
Investment Interest Expense
- limited to net taxable investment income
- included: interest and dividends, royalties, capital gains
- interest expense used to purchase tax free shit is not deductible
- excess carryforward indefinitely
Charitable Contributions
- not gifts or political contributions
- cash or FMV of property
- max allowed deduction:
cash: 50% of AGI
property: 30% of AGI - only excess contribution over consideration received (more than 75 makes charity require written statement of estimate)
- can not deduct value of time or services
- carryforward excess 5 years
- use basis for short-term property and FMV for long term property
Casualty and Theft Losses
smaller loss (adjusted basis or decreased FMV) - insurance recovery - $100 - 10% AGI = deductible loss - must be sudden or unexpected
Misc. Itemized Deductions (2% AGI)
Unreimbursed Business Expenses - travel, meals and lodging overnight - transportation expenses - 50% meals/entertainment expenses Educational expenses for work-related Uniforms Business gifts (25/recipient/year) Employee agency fees Expenses of Investors Subscription to Professional Journals Tax Prep Fee Debit Card Convenience Fees incurred to Pay Income Tax Activities Not Engaged in for Profit (hobbies) - for profit if 3/5 years are profitable
Other Misc. Deductions (not 2%)
Gambling Losses
- deductible to extent of gambling winnings
Federal Estate Tax Paid on Income in Respect of Decedent
Tax Credits
Personal Tax Credits - child and dependent care - elderly and permanently disabled - lifetime learning - retirement savings contributions - foreign tax - general business - adoption Refundable Credits - child tax credit (refund limited) - earned income credit - withholding taxes (w-2) - excess social security paid - american opportunity credit (40% refundable)
Child and Dependent Care Credit
20-35% of eligible expenditures
- max: 1 dependent: 3,000 2+: 6,000
- eligibility: under 13, disabled any age, disabled spouse
- both parents working
- credit is lower of: max ^, income of spouse making less, actual childcare expenditure
- eligible expenses: babysitter, nursery school, daycare for spouse to be employed
- phase out: max 35 if AGI <15,000
decreases 1% for each 2,000 over 15,000 but not below 20
20% for AGI >43,600
Credit for Elderly and/or Permanently Disabled
IRC: tax credit & elderly and disabled
- 65+ or disabled and under
- 15% of eligible income
- base amount:
single, widow(er): 5,000
MFJ & 1 spouse qualifies: 5,000
MFJ & both qualified: 7,500
MFS: 3,750 - eligible income reduced by
any social security received and
1/2 AGI that exceeds: 7,500 for single, 10,000 for MFJ, and 5,000 for MFS - after subtracting SS & 1/2 AGI excess from base amount, multiply by 15% = credit
American Opportunity Credit
for first 4 years of college
- must be enrolled at least half year
- max of 2,500 on per student basis (100% of first 2000, 25% of second 2000)
- not for students convicted of federal state felony
- phase-out: AGI exceeding 80,000 (160 joint) w full phase out at 90,000 (180 joint)
- 40% of credit is refundable
Lifetime Learning Credit
available for unlimited number of years for qualified tuition and related expenses
- credit is 20% of qualified expenses up to $10,000
- one payment per year so not for multiple ppl like american
- phase out: AGI > 55,000 w full phase out at 65,000 (double for joint)
Adoption Credit
- Limit 13,460 per child
- phase out: 201,920 - 241,920
- medical expenses don’t qualify just expenses for adoption
Retirement Savings Contributions Credit
- may offset both regular and alternative minimum tax
- for contributions to traditional or roth IRA
- eligibility: 18+, not student, not dependent
- robin hood*
Retirement Savings Contributions Credit
- may offset both regular and alternative minimum tax
- for contributions to traditional or roth IRA
- eligibility: 18+, not student, not dependent
- robin hood*
Foreign Tax Credit
lesser of foreign taxes paid or foreign tax credit limit
- foreign tax credit limit = taxable income from foreign operations / (taxable income + exemptions) * US tax
- carryback 1 year carryforward 10 years
General Business Credit
includes a bunch of credits
- may not exceed net income tax less the greater of:
a) 25% of regular tax liability above 25,000 or
b) tentative minimum tax - carryback 1 year and carryforward 20 years
only first 25,000 can be eliminated completely, remaining income can only be 75% eliminated
Work Opportunity Credit
part of General Business Credit
for employers who hire employees from targeted group
- 40% of first 6,000 of first year’s wages
- 40% of first 3,000 to certain summer youth
qualified groups
- disabled
- 18 to 24 y/o from poor families
- vietnam veterans
- food stamp recipients
Child Tax Credit
$1,000 tax credit for each qualifying child
-qualifying child: CARES + under 17 + citizen of US
- phase out: reduce $50 for each $1,000 AGI exceeds
joint: 110,000
single: 75,000
MFS: 55,000
- refundable limit*
Earned Income Credit
-refundable
- eligibility:
meet certain low income threshholds
be over 25 and less than 65 if no qualifying children
- qualifying child makes earned income credit higher
computation*
Excess FICA
excess SS is a credit if it resulted from correct withholding by 2+ EMPLOYERS
- if 1 employer, no credit allowed just a refund
Small Employer Pension Plan Start Up Cost Credit
credit for 50% of first $1,000 of qualified start-up costs for new pension plan for 3 years
Small Business Health Care Tax Credit
- up to 50% of employer’s costs of plan premiums
- allowable as an offset to alternative minimum tax
- costs for family, sole proprietors, partners, s corp owners w >2% ownership, and shareholdres w >5% of corps are excluded
- if expenses used to qualify for credit not allowable as tax deductions for employee benefit expense
Residential Energy Credit
max credit of 15% of qualifying nonbusiness energy stuff up to a max of $500 credit
4 tested areas of Alternative Minimum Tax
- exemption formula
- adjustments and preferences
- AMT credit carryforward period
- credits available to reduce AMT
*AMT tax is 26% for first 186,300 of AMTI and 28% on excess AMTI
AMT Exemption Amounts
single: exemption 53,900 less 25% of excess over AMTI 119,700
joint: exemption 83,800 less 25% of excess over AMTI 159,700
MFS: exemption 41,900 less 25% of excess over AMTI 79,850
AMT Adjustments
PANIC TIMME
Passive activity losses
Accelerated depreciation
Net operation loss
Installment income of a dealer
Contracts– long term
Tax “deductions”
Interest on home equity loans
- home mortgage is okay (not added back)
Medical deductions (limit to excess > 10%) 65+ 7.5 so then you need to find diff.
Misc. deductions subject to 2% added back
Exemptions and standard deduction added back
PANIC inc or dec AMTI
TIMME only inc AMTI
AMT Preferences
PPP
Private activity bond interest income
Percentage depletion the excess over adjusted basis of property
Pre-1987 accelerated depreciation
only inc AMTI
Credit for Prior Year Minimum Tax (AMT credit)
may only reduce regular tax not future AMT
- carryforward forever
AMT Credits
permitted as credit to reduce AMT FACCE Foreign tax credit Adption credit Child tax credit Contributions to retirement plans credit Earned Income Credit
Statute of Limitations
GR: 3 years from later of due date of return or date the return is filed
25% understatement: 6 years from later of ^
fraud or false returns: no statute of limitation
- IRS can reopen tax year that was erraneously in a closed tax year
Refund for Individuals 1040x
later of
- 3 years from later of when filed or original due date of the return or
- 2 years from time tax was paid
Bad debts, Worthless Securities: 7 years from later of due date or when filed
Estimated Tax Payments
required to make estimated quarterly tax payments if both conditions are met
1) 1000+ tax liability and
2) if withholding is less than the lesser of:
a) 90% of current year tax or
b) 100% of last year’s tax (110% if AGI > 150,000 MFJ/75,000 single)
Student Loan Interest Expense
- adjustment limited to 2,500
- excess is personal interest and not deductible
- phase out
single: 65,000 - 80,000
married: 130,000 - 160,000 - dependent cannot claim
Hierarchy of Authority in Tax Law
- Internal Revenue Code (IRC)
- IRS Regulations
- Tax Court Decisions
- IRS Agents’ Reports
AICPA Statements on Standards for Tax Services (SSTS)
read more haha
