R2 - Individual Taxation Part 2

Question 1

Individual Retirement account (IRAs)

Answer 1

<50: Annual max contr limited to lesser of: 1) 6000 or 2) earned income
>50: Annual max contr limited to lesser of: 1) 7000 or 2) earned income
>70.5: Annual max contr is O! Must start taking out min pmts
-You are not all ow ed to take IRA ded if 1) in retirement plan or 2) rich
-Exception: spouse can take ded if they are not also in plan

Question 2

Keogh (Profit-sharing plans)

Answer 2

Max deductible amt: lesser of 56,000 or 25% of Keogh net earnings Max cont: lesser of 56,000 or 100% of net earnings
Keogh net earnings = Bus inc • Bus exp • 1/ 2 SE ta x • Keogh deduction 25% x Keigh net earnings is equivalent to 20% x SE inc before Keogh ded

Question 3

Itemized Deductions Schedule A

Answer 3

1. Medical • in excess of 10% AGI
2. Taxes • state, local, & foreign taxes (not federal) -10,000 max
3. Interest • home mortgage & investment (CF forever)
4. Charity - CF 5 years
5. Casulty & theft losses • 10% AGI test
6. Misc - gambling losses deductible up to gambling winnings

Question 4

Charity - Itemized deductions

Answer 4

-Max allowable deduction for individual is: Cash •·> 60% AGI &
FMV property -·> 30% of AGI for gifts of LT capital gain property
-Ded for property is lesser of: property’s basis or its FMV at day of contr
-Special rules for LT capital gain property: deduct at FMV (still 30%)
-More than $500 of noncash property: must file Form 8283
-M ore than $5,000: net written appraisal for items donated
-CF of 5 vears if vou have more than 60% of vour AGI

Question 5

Taxes Itemized deductinos

Answer 5

1. Real Estate (state & local): prorate taxes in year of sale/purchase
2. Personal Property (state & local): vehicles & boats
3. Income taxes (state , local, foreign)
4. Sales tax: TP can deduct either #3 or #4.
   - Nondeductible taxes: fed income t ax, state inheritance tax, Sch C tax

Question 6

Capital Gains

Answer 6

• LT capital gains & qualified divs are taxed at preferential rates (O, 15, 20)
  1. LT: HP is more than one year, t ax rate depends on TP’s taxable income 2. ST: HP is less than one year. Taxed at ordinary rates, is ordinarv income

Question 7

Casualty & Theft losses

Answer 7

-limited to losses incurred in federally declared disaster areas Smaller of 1) lost cost/ adj basis or 2) decreased FMV

Taxypayer’s loss

=Eligible loss
<10%AGI>
=Deductible loss

Question 8

Credits: Dollar for Dollar Reduction

Answer 8

• Two basic types of tax credits: 1) personal & 2) refundable
  1. Personal credit s reduce tax, but no refund.
  2. Refundable: reduce tax & create refund. WE CE A refund!

1. Child Care: max $3,000/ child, both parents work, <13, low. El limit!
2. Elderly/Disabled: base 5,000 • SS • 1/ 2 over 7,500 x .15
3. AOC: includes books, m ax $2,500, per-student basis, 40% ref max 1000
4. LLC: m ax $2,000, excludes books, per-taxpayer basis
5. Adoption: max $14,080, CF 5 yrs
6. Gen Bus: greater of 25% of tax liability over 25,000 or ten min tax
7. Work Opp: 40% of first 6,000 of first year wages
8. Child: $2,000/ child. CARES except under 17 (know limit)
9. El: lower the income, bigger the credit. If no child, TP must be >25, <65
10. Residential Energy: 30% of solar electric or solar heating

Question 9

Estimated Payments (Req. TP minimum)

Answer 9

TP required to make est pmts if both of following are met:
1. $1,000 or more tax liability expected
2. Witholding is less than the lesser of:
A. 90% of current year taxes (annualized method), or
B. 100% of PY tax (safe harbor, PY method)
Exceptions: AGI in excess of $150,000 must use 110% of PY tax

Question 10

SD: Dependent of another

Answer 10

SD amount is the greater of:

1. 1,100, or 2. earned income + 350

Question 11

More AMT Rules

Answer 11

-Pay greater of regular tax or tentative minimum t ax
-AMT adjustments include PANIC TS
- AMT preferences are PPP
- AMT credit can be CF forever, but it may only
reduce regular tax, NOT AMT tax!

Question 12

Kiddie Tax

Answer 12

Net unearned income of dep under 18 is taxed at rates that apply to trusts & estates
Child's interest income
<950> child's SD
<950> taxed at child's rate 
=Balance taxed at estate/trust rate

Question 13

Medical Exp Formula

Answer 13

Qualified Medical Exp

=Qualified Medical Exp Paid
<10% AGI>
Deductible med exp

Question 14

AMT Formula

Answer 14

Regular Taxable Income
+/- Adjustments
+ Preferences
=Alternative minimum taxable income

=Alternative minimum taxable base
x AMT rate
=Tentative AMT tax

Tentative minimum tax*
*
=Alternative minim um tax