Reg - Individual Tax 3 Flashcards
How much loss in active participation in real estate rental activity can be deducted?
Up to $25,000, reduced by 50% of the taxpayers AGI in excess of $100,000.
In order for a payment to be considered as alimony, the payment must:
(1) be made pursuant to a decree of divorce or written separation instrument
(2) be made in cash and received by or on behalf of the payee’s spouse
(3) terminate upon death of the recipient
(4) not be made to a member of the same household at the time the payments are made
(5) not be made to a person with whom the taxpayer is filing a joint return
(6) not be characterized in the decree or written instrument as other than alimony
In determining AMTI, taxable income must be computed with various adjustments. Example of adjustments include
a. For real property placed in service after 1986 and before 1999, the difference between regular tax depreciation and straight-line depreciation over forty years.
b. For personal property placed in service after 1986, the difference between regular tax depreciation using the 200% declining balance method and depreciation using the 150% declining balance method (switching to straight-line when necessary to maximize the deduction).
c. Excess of stock’s FMV over amount paid upon exercise of incentive stock options.
d. The medical expense deduction is computed using a 10% floor (instead of the 7.5% floor that may have been used for regular tax).
e. No deduction is allowed for home mortgage interest if the loan proceeds were not used to buy, build, or improve the home.
f. No deduction is allowed for personal, state, and local taxes, and for miscellaneous itemized deductions subject to the 2% floor for regular tax purposes.
g. No deduction is allowed for personal exemptions and the standard deduction.
h. For long-term contracts, the excess of income under the percentage-of-completion method over the amount reported using the completed-contract method.
i. The installment method cannot be used for sales of dealer property.
3 tests for moving expenses to be deductible:
(1) closely related to the start of work at a new location
(2) distance at least 50 miles further than distance from old job to former residence
(3) time at least 39 wks out of 12 months following move
the following miscellaneous expenses are only deductible to the extent they (in aggregate) exceed 2% of AGI
a. Outside salesman expenses include all business expenses of an employee who principally solicits business for his/her employer while away from the employer’s place of business.
b. All unreimbursed employee expenses including
(1) Employee education expenses if
(a) Incurred to maintain or improve skills required in employee’s present job, or to meet requirements to keep job
(b) Deductible expenses include unreimbursed transportation, travel, tuition, books, supplies, etc.
(c) Education expenses are not deductible if required to meet minimum educational requirements in employee’s job, or the education qualifies the employee for a new job (e.g., CPA review course) even if a new job is not sought
(d) Travel as a form of education is not deductible
(2) Other deductible unreimbursed employee expenses include
(a) Transportation and travel (including 50% of meals and entertainment)
(b) Uniforms not adaptable to general use
(c) Employment agency fees to secure employment in same occupation
(d) Subscription to professional journals
(e) Dues to professional societies, union dues, and initiation fees
(f) Physical examinations required by employer
(g) A college professor’s research, lecturing, and writing expenses
(h) Amounts teacher pays to a substitute
(i) Surety bond premiums
(j) Malpractice insurance premiums
(k) A research chemist’s laboratory breakage fees
(l) Small tools and supplies
c. Tax counsel, assistance, and tax return preparation fees
d. Expenses for the production of income other than those incurred in a trade or business or for production of rents and royalties (e.g., investment counsel fees, clerical help, safe-deposit box rent, legal fees to collect alimony, etc.)
AMT Adjustments
In determining AMTI, taxable income must be computed with various adjustments. Example of adjustments include
a. For real property placed in service after 1986 and before 1999, the difference between regular tax depreciation and straight-line depreciation over forty years.
b. For personal property placed in service after 1986, the difference between regular tax depreciation using the 200% declining balance method and depreciation using the 150% declining balance method (switching to straight-line when necessary to maximize the deduction).
c. Excess of stock’s FMV over amount paid upon exercise of incentive stock options.
d. The medical expense deduction is computed using a 10% floor (instead of the 7.5% floor that may have been used for regular tax).
e. No deduction is allowed for home mortgage interest if the loan proceeds were not used to buy, build, or improve the home.
f. No deduction is allowed for personal, state, and local taxes, and for miscellaneous itemized deductions subject to the 2% floor for regular tax purposes.
g. No deduction is allowed for personal exemptions and the standard deduction.
h. For long-term contracts, the excess of income under the percentage-of-completion method over the amount reported using the completed-contract method.
i. The installment method cannot be used for sales of dealer property.
suretyship and guaranty
third party promises to pay debt owed by debtor if debtor does not pay.
phase out rule (IRA)
c. Under the phase-out rule, the $5,500 maximum deduction is reduced by a percentage equal to adjusted gross income in excess of the lower AGI amount (above) divided by $10,000 ($20,000 for married filing jointly). The deduction limit is rounded to the next lowest multiple of $10.
(1) A taxpayer whose AGI is not above the applicable phase-out range can make a $200 deductible contribution regardless of the proportional phase out rule. This $200 minimum applies separately to taxpayer and taxpayer’s spouse.
(2) A taxpayer who is partially or totally prevented from making deductible IRA contributions can make nondeductible IRA contributions.
(3) Total IRA contributions (whether deductible or not) are subject to the $5,500 or 100% of compensation limit.
C&F
cost and freight means that the purchase price includes both the cost of the goods and the cost of delivering the goods to the shipper
power of attorney
written authority conferred to an agent. It is conferred in a formal writing. A power of attorney can be general or it can grant the agent only restricted authority.
adoption credit
he credit for adoption expenses is a nonrefundable credit of up to $13,400 (for 2015) for qualified adoption expenses incurred for each eligible child, taken into account in the year the adoption becomes final and include all reasonable and necessary adoption fees, court costs, attorney fees, and other expenses that are directly related to the legal adoption by the taxpayer of an eligible child.
charitable contributions subject to the 50% limit that are not fully deductible in the year made may be ___________
carried forward 5 years, deductible in a carry forward year to the extent that the contributions of a carry forward year are below any applicable percentage limitations.
How are losses from passive activities deducted?
only against income from passive activities
(1) if there is insufficient passive activity income to absorb passive activity losses, the excess losses are carried forward indefinitely to future years
(2) if there is insufficient passive activity income in subsequent years to fully absorb the loss carry forwards, the unused losses from a passive activity may be deducted when the taxpayer’s entire interest in the activity that gave rise to the unused losses is finally deposed of in a fully taxable transaction
Are unreimbursed employee business expenses deductible?
Yes, FROM AGI as miscellaneous itemized deductions subject to a 2% of AGI limitation
How long is “Qualifying widow(er) with dependent child” available?
2 taxable years following the year of a spouse’s death if:
(1) the surviving spouse was eligible to file a joint return in the year of the spouse’s death
(2) does not remarry before the end of the current tax year
(3) the surviving spouse pays over 50% of the cost of maintaining a household that is the principle home for the entire year of the surviving spouse’s dependent child
