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REG > R2 - Individual Taxation: Part 2 > Flashcards

R2 - Individual Taxation: Part 2 Flashcards

1
Q

IRA: Deductions

A

Can Deduct:
- Up to 5,500 per spouse

Can’t Deduct:

  • Excessive AGI
    • Single/HOH = 61-71,000
    • Joint = 98-118,000
- Active Participant in 
   Another Qualified Plan
    -Exception: just because 
     one spouse is active 
     doesn't mean the other is 
     too
    -Max deduction for 
     spouse who has spouse 
     as active participant in 
     another plan is phased 
     out at Modified AGI 
      >184,000 but <194,000
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2
Q

Direct Moving Expenses:

A
  • Travel and along-the-way lodging
  • Transportation

Note: Deduction must be reduced by employer reimbursement

Note: These are itemized deductions

Not deductible:

  • Meals
  • Pre-move house hunting
  • Breaking a lease
  • Tempo living expenses
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3
Q

Deductions to arrive to AGI: “Above the line” (not itemized deductions)

A

-Educator Expenses
-IRA
-Student Loan Interest
-Max 2,500
-Tuition and fees deductions
-Max 4,000
-Health Savings Account
-Moving deductions
-Deduction of self-employment tax
-50% of social security
-Self employed health insurance
-100% deductible
-Contributions to self employed retirement plans
-Max 2,000
-Penalty on early withdrawal of savings
-Alimony paid
-Attorney fees
-Domestic production activities deduction
-Profit sharing self employed
-Keogh Plan - Max: 53,000
or 25% of earnings

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4
Q

Keogh Plans:

A

Earned Income is:

Net Self Employment earnings reduce by:

  • Keogh contributions
  • 1/2 SE Tax
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5
Q

IRA Deductions: RULE

A

Adjustment/deduction is allowed for year only if the contribution is made by April 15. Extensions don’t count

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6
Q

Standard Deductions: Over 65

A

Each spouse is allowed an additional $1,250 on top of standard deduction

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7
Q

Mortgage Interest: Deductions

A

-Deductible:
-Interest on loans up to
$1,000,000 to buy, build or
substantially improve a
home is 100% deductible.
If loan is secured by home
proceeds can be used
for anything

-Home Equity loans up to
$100,000 are fully
deductible. Equity lines of
credits.

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8
Q

Casualty Losses: 10% Test (CALCULATION)

A

“Non-controllable losses only”

Lesser of Adjusted Basis or Decrease in FMV

-Insurance recovery

=Taxpayer’s Loss

-$100

=Eligible Loss

-10% AGI

= Deductible loss

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9
Q

Donations to charity:

A
  • Deduct the FMV of property contributed to charity.
  • Limit is 30% of AGI
  • Calculation is:

Payment to charity
-Fair Value of item given
=Charitable Contribution deduction

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10
Q

Miscellaneous Itemized Deductions:

A
  • Accumulation of all of these must be at least 2% AGI

- Subtract 2% of AGI from Misc Deductions, remainder is the amount they can deduct

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11
Q

Gambling Losses: Deductions

A

Itemized Deductions not subject to 2% AGI but is limited to gambling winnings

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12
Q

Casualty/Theft Losses:

A

Only “personal” loss transactions that can be deducted

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13
Q

Medical Expenses: What can be claimed?

A
  • Charged to a credit card (doesn’t matter if its paid yet)
  • Expenses paid for the medical care of a decedent are included in the year paid (whether before/after decedent’s death)
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14
Q

Itemized Deductions: Include what tax?

A

Real Estate Taxes (state, local, foreign)

Personal Property (state, local)

Income Taxes (state, local, foreign)

Sales tax

Note:

Sales or Income Taxes can be chosen but if Sales is chosen it is permanently extended by the “Protecting Americans From Tax Hikes Act of 2015”

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15
Q

Charitable Contributions: NOTE

A 
Long-term property: 
- FMV deductible 
Short-term property:
 - Lesser of cost/FMV 
   deductible

Cash gifts to “needy” families doesn’t count, contributions must be to qualified charity organizations

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16
Q

“Taxable Investment Income”

A

Includes:

  • Interest and dividends
  • Dividends
  • Rents
  • Royalties (in excess of expenses)
  • Net LT/ST capital gains (if taxpayer decides to ignore lower CG tax)

Excludes:
- interest expense used to purchase tax-free bonds (interest earned isn’t taxable)

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17
Q

Investment Interest Deduction:

A
  • Limited to Net Investment Income
  • Expenses like advice, safe deposit box rentals are deductible on Schedule A (itemized deductions that is subject to 2% AGI) only those exceeding the 2% AGI is used when calculating net investment income.
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18
Q

Net Investment Income: CALCULATION

A

Investment Income

-Non-interest Investment Expenses

=Net Investment Income

NOTE:
-Investment interest deduction is limited to this

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19
Q

When activity engaged in is not for a profit: Deductions?

A

Itemized deductions are limited to the amount of income made.

Expenses are subject to 2% AGI limitation also. (Deduct whatever is over the 2%)

Deductions include:

State and local income taxes and property taxes (deductible whether the activity was “for profit” or not)

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20
Q

Charitable Contributions: Appreciate Property

A

Taxpayer can deduct full value of property contributed without paying “CG Tax” but this deduction is limited to 30% of AGI,
this is for public charities (20% for non-operating private foundation)

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21
Q

Charitable Contributions: Max Deductions

A

Cash: 50% of AGI

LT Capital Gain property: 30% of AGI

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22
Q

Residences not used for rental: Deductions

A
  • Mortgage Interest

- Property Taxes

23
Q

Contribution Limit for a church:

A

50% of adjusted contribution (gross income)

24
Q

State and local income taxes withheld from cash taxpayer:

A

Can be deducted in the year withheld. Estimated tax liability paid in the current year can be deducted as well.

25
Mortgages: Deductible Interest
Mortgages up to $1,000,000 to buy, build, improve a home allow for full deduction of interest
26
Medical Expenses: Deduction CALCULATION
Qualified Medical Expenses -Insurance Reimbursement =Qualified Medical Expense Paid -10% AGI =Deductible Medical Expense
27
Charitable Contributions: Not Fully Deductible in year made may be?
Carried Forward up to 5 years
28
Personal Automobile Tax:
Ad-Valor em Taxes are deductible
29
Misc Itemized Deductions:
Un-reimbursed business expenses
30
Itemized Deductions: Items and their Limitations
MFJ: 311,300 HOH: 285,350 Single: 259,400 MFS: 155,650 Limited Items: -Taxes paid, Interest paid, gifts to charity, job expenses, misc deductions Not Limited Items: - Medical/dental expenses, investment interest expense, casualty/theft losses, gambling losses
31
Estimated Taxes: Required Minimum (Safe Harbor)
Taxpayer is required to make estimated quarterly tax payments if both are met: -1,000 or more tax liability -Inadequate tax estimates -Met if taxpayer's withholding are less than the lesser of: -90% of current year taxes -100% of last year taxes Exception: -AGI >150,000 in prior year, 110% of prior year tax liability is used to compute safe harbour
32
Tax Payments: Include
- Taxes Withheld - Estimated Taxes paid - Excess SS tax withheld These reduce total tax liability on Form 1040
33
Computing Estimated Payments:
Taxpayer can choose: Annualized Method: - 90% of current year taxes PY Method: - 100% of last year's taxes Unless AGI is >150,000 then: Taxpayer has to use 110% of PY taxes
34
Underpayment Penalty:
In order for there to be a penalty, the tax liability after withholding has to exceed $1000
35
Foreign Taxes: Treatment
Can be used as a credit to federal taxes due.
36
Adoption Credit: Limited to
$13,460 per child PO: AGI 201,920-241,920 -Medical expenses don't qualify
37
Refundable Credits:
Subtracted from Income Tax Liability ``` Includes: -child tax credit -earned income credit -withholding taxes -excess SS paid -american opportunity credit ```
38
Child and Dependent care Credit:
Tax Credit of 20-30% of expenditures: - 1 dependent = $3000 - 2 or more = $6,000 Eligible: - Child under 13 - Disabled ``` Computation: -Max 35% (<15,000 AGI) -Phase out 20-30%. Credit decreases by 1% for every 2000 in AGI over $15,000. but not lower than 20% ```
39
Child and Dependent Care: Earned Income Requirement
Both spouse must earn income. -Computed by using the lowest of: - Earned income between spouses - Actual child care expenditures - Max amount (3,000 or 6,000) * the lowest by the applicable percentage to get the credit
40
What would disqualify an "Earned Income Credit"
Married filling separately
41
Excess SS Credit:
Credit can be used if correct withholdings from 2 or more employers.
42
Itemized Deductions: NOTE on how to get itemized deductions total
Subtract 10% of AGI from itemized deductions then subtract that from AGI.
43
Kiddie Tax:
Kids Unearned Income (interest, dividends, rents, royalties) and subtract $2,100 (1050 of childs deductions + 1050 that is taxed at childs rate) Any excess is taxed at the parents tax rate. So: 0-1050 = 0% tax 1050-2100 = Child >2100 = Parents
44
AMT: CALCULATION
``` Regular TI +/- Adjustments +Preferences =AMTI -Exemption =AMTB *AMT rate =Tent AMT tax -Foreign AMT credit =Tentative Min Tax -Regular Income Tax =AMT ```
45
AMT: Exemption Formula
Singe: $53,900 - 25% (AMTI - $119,700) Joint: $83,800 - 25% (AMTI - $159,700) Filling Sep: $41,900 - 25% (AMTI - $79,850)
46
AMT: Adjustments "Timing Differences"
May Increase or decrease AMTI: - Passive Activity losses - Accelerated depreciation - NOL of individual - Installment income - Contracts
47
AMT: Adjustments "Deductions for regular tax purposes but not AMT"
Only increase AMTI: - Tax "deductions" - Interest deductions (equity loans) - Misc deductions - Medical expenses - Exemptions (personal) and SD
48
AMT: Tax Preference Items
Always add-backs: will result in more income/fewer deductions being recognized for AMT vs Regular Tax - Private activity bond interest - Percentage depletion deduction (excess over adjusted basis of property) - Pre-1987 accelerated deprecaition
49
AMT: Credit for Prior Year Minimum Tax (Credit)
You can carry-forward forever and can only reduce normal tax not AMT
50
AMT: Credits
``` Child/dependent care Adoption Credit Child Tax Credit Retirement Contributions Residential Energy Credit ```
51
AMT: Medical Expenses
Can deduct expenses exceeding 10% of AGI
52
AMTI: Increases
- State and Local Taxes | - Misc Deductions that exceed 2% of AGI
53
AMT: NOTE
Adjustments are "not" allowed as deductions for AMT. These include Misc Itemized Deductions
54
AMT: Another NOTE
If an item isn't added back than it can be deducted. "Not an adjustment or preference"

REG (8 decks)

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