Unit 5 Flashcards
Above the Line Deductions Defined
Deducted from gross income to arrive at AGI
Educator Expenses Deduction
Above the line: up to 250$ in 2020/ Must have >900 hours per school year
Health Saving Account Deduction
Tax Exempt Trust with high deductible health plan
Health Saving Account Deduction LIMIT
Self: 3,550$ (+1k age 55-64)
Family <7.1k
Not Dependent
Need not have insurance whole year
Self Employment Tax Deduction
Allowed deduction for employer portion of FICA tax paid.
Self Employment Tax Deduction AMOUNT
50% of tax or 6.2% of first 127.7k of net SE income + 1.45% Se income no cap.
Net Self Employment Income Deduction =
Net Self Empolyment Profit x 92.35% (.09 is employers portion medicare so not deductible.
SE SEP, SIMPLE< Qualified Plans Deduction AMOUNT
MOST USED SEP
Max is lesser or 25% of SE earnings or 57k.
SE Earnings are reduced by deductible park of SE taxes.
Contributions are subtracted from NE to equal SE Earnings.
SIMPLE: limited to 13.5k, employer can match 3% be deducted as above the line.
Self Employed Health Insurance Deduction AMOUNT
Can deduct 100% of payments for coverage.
Limited to EI from business.
No deductions when eligible for employer sponsored plan/spouse
Alimony Deduction
Before 2019: gross income to recipient and deductible from payor. After 2019: NOTHING . Before 2019: If pay mortgage 50% deduction as alimony. 50% if itemize of . taxes. No Insurance
Child Support Deduction
NOT Deductible
Alimony Recapture purpose
To prevent large settlements from being treated as alimony. Happens if payments significantly decrease in 2 or 3rd year oafter divorce.
Alimony Recaputure Formula
2nd year recapture = 2nd Alimony - (15k+3rd Alimony)
1st year recapture = 1st alimony - [(2nd alimony - 2nd recaputre) + 3rd alimony /2+15k]
IRA Contributions
If not active in employer retirement plan can make contribution to IRA = deductible to lesser of 6k or 100% of includable compensation
IRA Contributions: Compensation includes..
Earned Income, NOT pensions, annuities, deferred compensation. IF MFJ+6k
IRA Contribution Phaseout If active in employer plane and SINGLE/HoH
AGI <65k FULL
AGI >65<75k PARTIAL
AGI >75k NONE
IRA Contribution Phaseout If active in employer plane and MFJ
<104k FULL
>104k<124 PARITAL
>124k NONE
IRA Contribution Phaseout If NOT active in employer plane SINGLE/HoH
Any Amount = FULL
IRA Contribution Phaseout If NOT active in employer plane MFJ
Includes 1 spouse not covered
FULL AMY AMOUNT
MFJ both covered <196k FULL
>206 NONE
IRA Distribution penalty
If made before 59.5 age. for reason other than death/disability. 10% penalty tax. BUT EXECPTIONS
IRA Distribution Penalty Exceptions
Pay medical expeneses excess 7.5 AGI 1st Homeowner exp. <10k Higher Education Adoption or 1st birth <5k COVID <100k
Student Loan Interest Deduction AMOUNT/Limitation
2500$ of interest paid in 2020. MFJ phaseout 140k-170k
SINGLE/HoH Phaseout 70-85k
Student Loan Interest Deduction Phaseout Calculation
Single:
2,500 x (AGI -70k)/15k
Tuition and Fees Deduction LIMIT
4$ and AGI <65k
2k for AGI between 65k-80k
MFS cannot take
Performing artist above line deduction
Deduct employee business expenses as adj to gross income performed for at least 2 employees, at least 200$ each. expenses are moe than 10% gross income. AGI is less than 16k before expenses.
Job related deduction for relocating allowed?
removed untill 2026 except military
Other Deductions (above line)
Penalty of early withdrawl
Archer MSA
300$ charity for people who do not itemize
Taxpayers deductible loss is limited to smallest amount of following limitations
- Amount taxpayers basis in activity
- At Risk Rules
- Passive Activity Rules
At Risk Rules
Amount of loss allowable is limited to amount person has at risk in activity which loss arose.
Persons initial at risk amount in activity includes
Money contributed, AB property contributed, borrowed amounts.
At Risk Debt does not include debt if ..
Property pledged as security is used in activity, insurance provides protection form personal liability, person interest in activity extended the credit.
Nonrecourse debt is excluded from amount at risk.
Disallowed losses are carried forward ..
if amount at risk is below zero , previously allowed losses must be recaptured as income
Passive Activity Loss Limitation rules:
Extent of gross income/tax attributable to those passive activities.
Business considered Passive if..
Do not participate more than 500 hours, more than 100 and exceeds participation of other, materially participated for any 5 years of 10 before years. (no theft losses)
Passive Activity Loss Amounts
up to 25k from rental real estate in excess of passive GI.
Reduced 50% of persons MAGI >100k (without SS, IRA)
Wash Sales
Not deductible. Occur when taxpayer sells aset at a loss within 20 days purchases identical asset
