R2: Individual Tax--Adjustments, Deductions, and Credits Flashcards
Deductible Medical Expenses Formula
Qualified Medical Expenses
=Qualified Medical Expenses “Paid”
=Deductible Medical Expenses
Types of Deductible Medical Expenses
- Medicine and drugs
- Doctors
- Medical and accident insurance
- Required surgery
- Transportation to medical facility
- Physically disabled costs
Types of Nondeductible Medical Expenses
- Elective Surgery, elective cosmetic operations, drugs that are against the law, travel, vitamins
- Life Insurance
- Capital Expenditures
- Health club memberships
- Personal hygiene
Charitable Contributions Limitation
Overall Limit = 50% AGI
- Cash–may be all 50%
- General Property–lesser of basis or FMV
- Long-term appreciated property is limited to the lesser of:
a) 30% of AGI (Compare to FMV)
b) The remaining amount to reach 50% after cash contributions.
Miscellaneous itemized Deductions (2% AGI Test)
- Unreimbursed Business Expenses
1. Travel, Meals and Lodging (overnight business travel)
2. Transportation expenses (100% deductible)
3. Meals/Entertainment Expenses (50% deductible) - Educational Expenses (those not deducted above AGI)
- Uniforms
- Business Gifts ($25/recipient per year)
- Business use of Home (used for convenience of employer)
- Expenses of Investors–Safe Deposit Box and Investment Advice
- Subscriptions to Proffessional Journals
- Tax preparation fee
- Debit card convenience fees incurred to pay income tax
- Activities not engaged in for profit (hobbies)
Other Misc Deductions (no 2% AGI test)
- Gambling Losses- fully deductible to the extent of gambling winnings
- Federal Estate tax paid on income in respect of a decedent
Regular (deductible) IRA
- Generally deductible
- It is not deductible when 2 conditions are present:
1) Excessive AGI: Single/HH $61k - 71k; Joint $98k - 118k
2) Active participation in another Qualified plan
a) Exception- individual not considered active participant in an employer-sponsored retirement plan merely because spouse is considered active participant.
b) Phase out- Max deductible IRA for individual who is not an active participant but spouse is, is phased out for modified AGI of $184k-194k.
Amount of IRA deduction
The max is the lesser of: $5,500 or Individual's compensation Married ($11k)
Nondeductible IRA contributions
- Roth IRA
- Tax-free accumulation of earnings
- Tax-free distributions
Contribution limits to all IRAs
-Single $5,500 Married $11,000 -Phase-out Income Limits 1) Single $117k-132k 2) Joint filers $184k-194k 3) Married filing Separate $0-10k
Coverdell Education Savings Account
- Maximum contribution per beneficiary is $2k annually.
- Accumulation of earnings are tax free
- Withdrawals are tax free if:
1) Qualified education expense
2) Time limitation (beneficiary age 30)
3) American Opportunity or Lifetime Learning credits can be combined with tax free withdrawals.
Moving Expenses
- New workplace is 50 miles further from old house than old work was.
- 39 week stay (must work full time in new location at least 39 weeks during the 12 months following arrival.
- Only direct moving costs are allowable:
a) travel and lodging of the taxpayer and family
b) Transporting household goods and personal effects to new location. - Employer reimbursements
Keough (Profit Sharing) Plans
- Maximum annual deduction: $53k or 25% net
- Maximum annual addition: $53k or 100% net earnings (if compensation is less than $53k)
Keough Net Earnings (from self-employment) calculation
Business Income (Business Expenses) =Net Business Income (1/2 Self emplyment tax) (Keough Deduction) =Keough Net Earnings
Casualty and theft Losses
-10% AGI test Amount of loss calculation: Smaller Loss* (Insurance Recovery) =Taxpayer's Loss ($100) =Eligible Loss (10% AGI) =Deductible Loss
*Difference b/w the market value before the casualty and market value afterwards.