REG 2 Flashcards
What is typically included in “above the line” deductions for AGI? (M1)
Adjustments for AGI include:
- Educator exp
- IRA deduction
- Student loan interest deduction
- Tuition and fees deduction
- HSA deduction
- Moving expenses (not an itemized deduction)
- Deductible part of self-employment tax (half deductible)
- Self-employed health insurance
- Penalty on early withdrawal of savings
- Alimony paid
- Attorney fees paid
- Capital losses in excess of capital gains
- Trade or business expenses
What are included in “Personal tax credits”? (M3)
Personal tax credits include: (these reduce tax, but no refund)
- Child and dependent care credit
- Elderly and perm disabled credit
- Education credits (Lifetime learning credit)
- Retirement savings contribution credit
- Foreign tax credit
- General business credit
- Adoption credit
What are the rules in regards to charitable contribution limitation? (M2)
The overall limit = 50% of AGI
- Cash: may be all 50%
- General prop: lesser of basis or FMV
- LT appreciated prop - limited to the lesser of
- 30% of AGI
- the remaining amount to reach 50% after cash contributions
What is the formula for Casualty and it’s deductible loss? (M2)
The formula for Deductible loss is: AGI = $100K
Smaller loss (lesser of adj basis or decr in FMV) $250K (Insurance Recovery) $200K --------------------------------------- Taxpayer's loss $50K less ($100) -------------------------------------- Eligible loss $49,900 (10% of AGI) $10,000 ----------------------------------- Deductible loss $39,900 ----------------------------------- --------------------------------------
What are some Taxes that are deductible? (M2)
- Real estate taxes (that do not include street, sewer)
- Foreign real estate taxes
- Real estate taxes on land held for appreciation
- Estimated taxes paid during the year
- Withheld taxes from paychecks during year
- Assessments paid during the year for prior yr taxes
- Personal property taxes such as vehicle and boats
Nondeductible taxes:
- Federal taxes (including Social Security)
- Inheritance taxes for states (also called “federal estate”)
- Business (on Sch. C) and rental prop taxes (on Sch. E)
What is the acronym “HIPPE” for Interest Expenses? (M2)
H - Home mortgage interest (qualified residence interest) on a 1st or 2nd home. If used for 14 days in tax yr, qualifies as a 2nd home.
I - Investment interest expense (limited to the net taxable investment income) Items such as “interest and dividends”, dividends, rent, royalties.
P - Personal (consumer) interest is Not Deductible. Items such as a personal note to a bank or person for borrowed funds, life insurance loans, bank credit cards, interest on federal, state, or local tax underpayments
P - Prepaid interest (allocate to proper period). Must be allocated over the period of the loan. Remember prepaid interest received is taxable as income in yr received and not allocated.
E - Educational loan interest (adjustment, Not itemized). This is a deduction to arrived at AGI and not itemized.
What are the rules for Estimated taxes and Inadequate Withholding? (M3)
A taxpayer typically makes prepayments of tax during the yr. Payments include:
- Taxes withheld from paychecks (W-2 or 1099)
- Estimated taxes paid (qrtly, with extension, or applied from a prior yr)
- Excess Social security tax withheld (from tow or more employers)
A taxpayer is required to make estimated qrtly payments if both of the following conditions are met:
- $1,000 or More in Tax Liability
- Inadequate Tax Estimates
- if taxpayer’s withholding is less than lesser of 1. 90% of the current yr’s tax…OR 2. 100% of last year’s tax.
**Exception: If taxpayer had AGI in excess of $150K in the prior year, 110% of the prior year’s tax liability is sued to compute the safe harbor for estimate payments.
What are “Refundable Credits”? (M3)
Refundable credits are subtracted from income tax liability. They result in a cash refund when the credit exceeds tax liability owed. The following are refundable credits:
- Child Tax credit (refund is limited)
- Earned income credit
- Withholding taxes (W-2)
- Excess Social security paid
- American opportunity credit (40% refundable)
A tax credit of 20% or 35% of eligible expenditures:
1 dependent - $3,000 2 or more - $6,000
A qualifying child is under the age of 13, any disabled dependent of any age who is unable to care for himself, a spouse who is disabled and not able to take care of himself or herself.
The credit is computed using the LOWEST earned income of the spouse with the lesser amount.
What is the rule with “Excess FICA” (social security tax withheld? (M3)
Excess Social Security tax withheld is treated as additional tax payments withheld.
2 or more employers: an employee who has had social security tax withheld in an amount greater than the maximum for a particular year may claim the excess as a credit against income tax if that excess resulted from correct withholding by two or more employers.
1 employer: if the excess was withheld by only one employer, the employer must refund the excess to the employee. No credit is allowed.
What are the Exemption amounts for AMT? (M4)
The exemption amounts are:
Single - $54,300 less [25% * (AMTI - $120,700)]
Joint - $84,500 less [25% * (AMTI - $160,900)]
Married filing sep - $42,250 - [25% * (AMTI - $80,450)]
What are the mnemonics for “Adjustments” and “Preferences”? (M4)
Adjustments - “PANIC (incr. or decr.) TIME (only incr.)”
P - Passive activity losses
A - Accelerated depreciation
N - Net operating loss of the individual taxpayer
I - Installment income of a dealer
C - Contracts - percentage completion versus complete
T - Tax “deductions”
I - Interest deductions on some home equity loans
M - Miscellaneous deductions not allowed
E - Exemptions (personal) and std. deduction
Preference items: “PPE” Always “add-backs” (Increase)
P - Private activity bond interest income
P - “Percentage depletion” deduction
E - Pre-1987 accelerated depreciation
What items are not allowed as a deduction to AMT? (M4)
These items are not allowed as a deduction:
- State income taxes
- Real estate taxes
- Personal and dependency exemptions
- Misc. itemized deductions in excess of 2% of AGI
- Home equity mortgage interest (not used to buy, build, or improve the home)
