R2Pt1- AGI/Itemized Ded. Flashcards
How are capital losses applied in individual taxes?
$3,000 net capital loss can be taken in each year, the rest is carried forward indefinitely.
The loss retains its character (STCL or LTCL).
On an individual return, regular mortgage interest on what loan amount is deductible?
$1,000,000
Interest on home equity loans up to what amount are deductible on an individual tax return?
$100,000
What amount of business start-up costs can be deducted? How is it expensed?
Up to $5,000
Amortized over 180 months
Reduced dollar-for-dollar by amount over $50,000
How are medical expenses deducted on a 1040 for Taxpayers under 65?
On Schedule A:
Amounts in excess of 10% of AGI may be deducted
Under what circumstances can medical expenses paid on behalf of another be deducted on someone’s Schedule A?
Must be a citizen of North America
Must live with you, or if they do not, must be mother/father or a relative closer than a cousin.
Benefactor must provide more than 50% support to the beneficiary.
Which foreign taxes are deductible?
- Foreign INCOME
& - REAL ESTATE taxes are deductible.
How is net investment income calculated, for the purpose of deducting excess investment interest expense?
Gross investment income
(Investment Exp. in excess of 2% of AGI)
= Net Investment income
Investment interest expense in excess of net investment income is deductible.
What investment interest is never deductible?
Investment interest expense on tax-free securities is not deductible.
When are mortgage points deductible and how are they deducted?
They are deductible if they represent prepaid interest on purchase of a new home or improving a home.
Refinance points are amortized over the life of the mortgage.
How are charitable contributions of Long-Term property and property related to a charity’s function deducted?
Deducted at fair market value (FMV), up to 30% of AGI
How are charitable donations for Short-Term property and property not related to the charity’s function deducted on Schedule A?
Deduction is taken for adjusted basis in the property, up to 50% of AGI.
Does a casualty loss affect the basis of property?
No. It decreases the fair market value (FMV) of the property.
What is the first step to find “Gross Loss” for the Calc. of Causality Loss?
Take the Lower of either:
- Decrease in FMV
OR
-Basis in property
At what rate is self-employment tax assessed?
15.3% of net earnings from self-employment
Note: executor of an estate is NOT self-employment income
How is the deductible portion of a casualty loss calculated?
GROSS LOSS (Insurance Proceeds Received) ($100) (10% of AGI) = Deductible casualty loss
How much can Eligible Educators Deduct of qualified expenses?
- Up to $250
- For Spouses: Max. deduction- $500
What Grade levels & Hours is considered a Eligible Educator?
- Kindergarten through 12th Grade
& - For at least 900 hours
For Individual Retirement Accounts; How are Earnings & Withdrawals Taxed?
- Earnings= Tax Deferred
(accumulation- tax free) - Withdrawals= Taxable as Ordinary Income
(subject to penalties)
A taxpayer will not be permitted to deduct a contribution to an IRA when both are met?
- Excessive AGI
- Active Participation in another Qualified Plan
What is the Exception for Deduction to Active Participation in another Qualified Plan?
- Not considered an Active participant when Spouse is the Active participant.
What is the Phase-Out for Deduction to Active Participation in another Qualified Plan when Spouse is?
- When taxpayer’s with Modified AGI is between $178k-$188k.
- Each spouse tested separately unless hits threshold- ‘Super Rich’
The Maximum Deduction for IRAs a Single Taxpayer can deduct from Income is the LESSOR of:
- $5,500
OR - Individual Compensation
The Maximum Deduction for IRAs Married Taxpayers can Deduct from Combined Income is the LESSOR of:
- Combined Income
OR - $11,000
Are Contributions to a ROTH IRA deductible?
- NO, not deductible when made
Are the Accumulation of Earnings while in a ROTH IRA Tax-Free?
- YES
Are Withdrawals of Principal & Earnings from ROTH IRAs Tax-Free?
- YES to both
What is the Contribution limit for Roth IRAs?
- Includes Combined contributions from all types of IRAs
- Single- $5,500
- Married- $11,000
For Nondeductible IRAs; The Contribution limits are the Lessor of:
- $5,500 OR - Individual's Compensation OR - Limit not contributed to other IRAs
Are the Accumulation of Earnings for Nondeductible IRAs Tax- Free?
- Yes, until withdrawn
Are the Principal & Earnings from a Nondeductible IRAs Taxed?
- Acc. untaxed Earnings - TAXED
- Principal Contributions- TAX FREE
not deducted when contributed
For Coverdell Education Savings Account; What items are Tax-Free?
- Accumulation of Earnings
- Distributions for educ. expenses & time limitation
What is the Maximum Coverdell Education Savings Account Contributions per Beneficiary?
- Nondeductible $2,000 annually
What is the limit for adjustment for Education loan interest?
- $2,500
& - Any excess or disallowed is ‘Personal Interest’ & Not Deducted
Qualified Higher Education expenses ‘above the line’ deduction applies?
- Regardless of whether the educ. is Work-Related.
When Qualified Higher Education expenses are above the maximum are only deductible as?
- Education Expenses
- Itemized Deductions subject to 2% of AGI limitation
Health Savings Accounts allow people with high-deductible health insurance to make?
- Pre-Tax Contributions to cover costs
- Not allowed when covered by Medicare Parts A&B
A Taxpayer can deduct Moving Expenses when?
- Work-Related
- New Workplace more the 50miles
- 39wks/75% stay at new location
- Only Direct Moving Costs are allowed.
What items are NOT Deductible for Moving Expenses?
- Meals
- Pre-Move house hunting
- Expense of Breaking a Lease
- Temporary Living Expense
What is a Keogh Plan?
- Self-employed taxpayer subject to S/E Tax,
- Profit Sharing
The Maximum Annual Deductible amount for a Keogh Plan is the Lessor of?
- 51,000 (indexed for inflation
OR - 25% Net (keogh/S/E) Earning
In addition to the Standard Deduction, who else qualifies for additional Deductions
- The Blind OR Elderly, over 65
Single= $1,500
Married= $1,200 each - The Blind AND Elderly, over 65
Single= $3,000
Married= 2,400 Each
What 4 items are NOT reduced by Phase-out?
- Gambling Losses
- Medical Expenses
- Casualty/ Theft Loss
- Investment Interest Expense
What are the Types of Deductible Medical Expenses?
- Transportation to Medical Facility
- Physically handicapped costs: Lodging in institution, meals, care.
- Medicines
- Doctors
- Med/Accident Insurance
- Required Surgery
What are the Types of NON-Deductible Medical Expenses?
- Elective Surgery
- Life Insurance
- Capital Expenditures
(less of improvement of FMV of property)
What are the 4 Deductible Taxes?
State & Local & Foreign:
- Real Estate Taxes & Income Taxes
State & Local Taxes:
- Personal Property Taxes
(Ad Valorem Car included)
- Sales Taxes ( if Income tax hasn’t been deducted)
What are the Characteristics of Real Estate Taxes?
- Taxpayer must be Legally obligated to pay
- Prorate taxes in year of Sale/Purchase
- Taxes paid under protest are deductible (Recovery included in Gross Income)
- Do Not Include: street, sewer, etc
When are Income Taxes Deductible?
- Estimated Taxes paid during the year
- Withheld taxes from paychecks during the year
- Assessments paid during the year for prior year’s tax
What are the Nondeductible Taxes?
- Federal Taxes (including Social Security)
- Inheritance Taxes for States
- Business (Sch. C)
- Rental Property (Sch. E)
Prepaid Interest is Deducted when?
- Incurred
& - Paid
Educational Expenses that were not deducted above AGI are Qualified for Misc. Itemized Deduction IF?
- Maintain or Improve the Skills for Trade or business
- Meet the express requirements of the individual’s employer for Retention of the job.
Which foreign taxes are NOT Deductible?
- Foreign personal property taxes
- Foreign tax assessments
~ they are added to the basis.
Describe alimony recapture.
2nd Year: (3rd year - 2nd year - $15,000)
1st Year: 1st Year Alimony Paid - Avg alimony paid in 2nd & 3rd years - $15,000 - Recapture from 2nd year =1st Year Alimony Recapture
Total Recapture = 1st Year Recapture + 2nd Year
Recapture
What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?
- MSA/HSA contributions
- Investment penalties for early withdrawal
- Self-employed medical insurance premiums
- Self-Employment Tax (approx. 50%)
- IRA Contributions
- Student loan interest (can’t be another taxpayer’s dependent)
- Moving expenses
- Alimony
- Tuition - can’t take AOC/Lifetime Learning Credit for same expense
- Teacher expenses
- Attorney fees in discrimination lawsuit
What are the miscellaneous deductions on Schedule A, and how are they deducted?
Deductible in excess of 2% of AGI
Continuing Education (if required to keep your job)
Business travel
50% Meals and entertainment
Union Dues
Tax prep fees
Legal fees to collect alimony
Appraisal fees to value casualty loss of charitable contributions
Under a non-accountable plan, any amounts received by an employee from the employer must be reported by the Employer as?
- Part of wages on the employee’s W-2 for the year &
- Subject to income tax withholding.
Any Expenses taken against the Gross amount received in a non-accountable plan are considered?
- Misc. deductions
& - Subject to the 2% AGI Limitation
The Deduction by an individual taxpayer for interest on investment indebtedness is:
- Limited to the Taxpayer’s Net Investment income for the year
Employee’s Unreimbursed Business Car Expense, both incurred & Paid in the same year can be claimed as?
- An Itemized Deduction to the 2% of Adjust Gross Income Floor
In a Keogh Profit Sharing Plan, ‘Earned Income” is defined as Net Self-Employment Earnings Reduced by the:
- Deductible Keogh contribution
& - One-Half of the Self-Employment Tax
What is the latest date that an IRA contribution can be made in order to qualify as a deduction on the prior yr’s return?
- April 15th
When the Deductible investment interest expense is less than the amount paid by the taxpayer, what is the reason?
- The investment interest expense Exceeds Net Investment Income
Gross Income Excludes?
- Inheritance
- Proceeds of a lawsuit for physical Injuries
An Individual’s Losses on Transactions entered into for personal purposes are deductible only if:
- The Losses qualify as Casualty or Theft Losses
Is a Medical Expense deduction for payments made in the current year for medical services received in earlier years allowed?
YES
How are medical expenses deducted on a 1040 for Taxpayers OVER 65?
On Schedule A:
Amounts in excess of 7.5% of AGI may be deducted
