REG - Deductions "for" AGI Flashcards
What are “above the line” deductions?
Deductions taken from GI to determine AGI (aka “for AGI”).
- AGI important in determining allowable
1) charitable contributions,
2) medical expenses
3) casualty losses, and
4) misc. itemized deductions.
How are reimbursed employee business expenses treated?
If the EE makes an accounting to the employer (and returns excess of amounts substantiated), then:
1) if per diem not in excess of federal per diem rate ($91 lodging and $51 meals/incidentals for 2017) and mileage rate ($0.535/mile 2017; $0.54 2016) satisfy the substantiation requirement if EE time, place and purpose)
2) if adequate accounting is given to employer and reimbursements equal expenses or EE substantiates expenses and gives excess back to employer, then excluded from GI and expenses not deductible.
3) if EE does not make adequate accounting to employer (or doesn’t return the excess) the total reimbursement is included in GI and related EE expenses are deductible as misc. itemized subject to 50% limitation for business M&E and the 2% AGI floor (i.e., same as for unreimbursed EE business expenses).
How are expenses related to property held for production of rents or royalties treated for tax purposes?
Deducted for AGI.
Are self-employment taxes deductible?
Yes, a self-employed TP can deduct 50% of self-employment taxes to arrive at AGI.
Are medical insurance premiums deductible?
Yes for AGI; a self-employed TP can deduct 100% of premiums for self, spouse, dependents or child of TP under 27 as of close of tax year.
- deduction cannot exceed TP’s net earnings from biz the plan was set up for.
- no deduction allowed if TP or spouse is eligible in employer’s plan (eligibility determination made on a calendar month basis).
- Medical insurance premiums not deductible per above rules, are deductible as itemized medical expense from AGI.
- deduction for medical insurance premiums can also be subtracted in computing TP’s self-employment tax.
Which contributions to retirement plans are deductible in determining AGI?
1) Contributions to an IRA (subject to rules) - Roth IRA contributions are not deductible.
2) Contributions to a Coverdell Education Savings Account (subject to rules)
3) Self-employed TP’s contributions to a qualified retirement plan (H.R.-10 or Keogh Plan) subject to rules
4) Employer’s contributions to an EE’s Simplified Employee Pension (SEP) plan (subject to certain rules)
5) A savings incentive match plan for employees (SIMPLE) - subject to certain rules.
What is the maximum deduction for a TP’s contributions to an IRA?
Generally, the lesser of
1) $5,500, or
2) 100% of compensation (including alimony).
- married TP’s filing jointly can deduct up to $5,500 per spouse so long as the combined earned income of both spouses is at least equal to the IRAs.
- if neither the TP or spouse is actively participating in employer-sponsored retirement plan or Keogh plan there is no phase-out of IRA deductions.
Is there a phase-out rule for IRAs?
Yes, for 2017 the deduction for individuals who are active in an employer retirement plan or a Keogh plan is proportionately phased out for married TP’s filing jointly with AGI between $99K and $119K and for single TP’s with AGI between $62K and $72K. (for 2016 & 2015 amounts are $61-$71 single and $98-$118 married joint).
-for TP who isn’t in a plan, but spouse is, the maximum deduction is phased out for combined AGI between $186K and $196K. (for 2016 AGI of $184-$194; 2015 is AGI of $183-$193)
How is the IRA phase-out rule implemented?
The $5,500 maximum deduction is reduced by a % equal to AGI in excess of the lower AGI amount divided by $10K ($20K for married filing jointly). Deduction limit is rounded to the next lowest multiple of $10.
- TP with AGI not above the applicable phase-out range is allowed $200 deductible contribution regardless. $200 minimum allowed for spouse also.
- TP partially or totally prevented from making deductible IRA contributions can make nondeductible IRA contributions.
- total IRA contributions are (deductible plus nondeductible) limited to $5,500 or 100% of compensation limit.
What is the “catch-up” contribution to an IRA?
Individual at least age 50 before close of tax year can contribute an additional $1K to an IRA.
Is there a penalty for early withdrawals from an IRA?
Yes; there is a 10% penalty tax on early withdrawals (prior to 59.5 years old).
- does not apply to amounts withdrawn for:
1) qualified higher education expenses (for TP, spouse, child or grandchild of TP or spouse)
2) first time homebuyer expenses ($10K lifetime cap) - qualified 1st time homebuyer distributions must be used within 120 days to buy, build, or rebuild a 1st home that is principal residence for TP or spouse.
3) distributions to unemployed for health insurance premiums, and
4) distributions to the extent that deductible medical expenses exceed 7.5% of AGI.
Are contributions to a Roth IRA deductible?
No, but qualified distributions of earnings are tax-free.
-TP can also make contributions to a deductible or nondeductible IRA, but total contributions to all IRAs is limited to $5,500 ($6,500 if 50 or older).
Is there a phase-out for Roth IRA eligibility?
Yes, eligibility for a Roth IRA is phase out for single TPs with AGI between $118K and $133K and joint filers with AGI between $186K and $196K. (2016 is $117-$132 single & $184-$194 joint; 2015 is $116-$131 single & $183-$193 joint)
-no age limit on contribution eligibility
Are qualified distributions from a Roth IRA included in GI?
No, qualified distributions are not included in GI and are not subject to the 10% early withdrawal penalty.
- qualified distributions is one made after the 5-yr period beginning with the first tax year that a contribution was made and the distribution is made (1) after TP reaches 59.5 y/o, (2) to a beneficiary/estate after TP’s death, (3) after the TP becomes disable, or (4) for the first-time homebuyer expenses of TP, spouse, children, grandchildren, or ancestors ($10K cap).
- nonqualified distributions included in income to extent attributable to earnings and generally subject to the 10% early withdrawal penalty. Distributions deemed to be made from contributed amounts 1st.
- TP can convert traditional IRA to Roth IRA w/o paying 10% penalty, although deemed distributions of IRA assets is included in income. For Tax years before 2010 only for TP with AGI of less than $100K (except those filing separately).
What are the requirements of the Coverdell Education Savings Account for withdrawals to be tax-free?
Contributions are limited to $2K per beneficiary (until reaches 18y/o) and must be used to pay for beneficiary’s education expenses.
- earnings distributed but not used for education are included in distributee’s GI and subject to 10% penalty tax.
- special rollover provision allows amount left in education IRA before beneficiary is 30y/o to be rolled over to another family member’s education IRA w/o triggering taxes or penalties.
- allowable expenses include enrollment (including room & board, uniforms, transportation, computers, internet access) for elementary or secondary schools regardless of public, private or religious.
- TP may take advantage of the exclusion for distributions from education IRAs, the Hope and lifetime learning credits, and the qualified tuition program in the same year.
