Above-the-line deductions Flashcards
1
Q
What are the above the line deductions available?
A
- Educator expenses
- HSA contributions
- Moving Expenses
- Half of self-employment tax
- Self-employment retirement plan contributions
- Self-employed health insurance premiums
- Alimony
- IRA contributions
- “Backdoor” Roth IRA contributions
- Student Loan Interest
- Charitable Contribution
2
Q
Who is eligible for educator expense deduction?
A
- Taxpayers working as:
- K-12 teachers
- Classroom aides
- Couselors
- Administrators
- Have to incur classroom and direct student-related out-of-pocket expenses
- Expenses include COVID 19 related supplies to disinfect areas and mitigate spread of virus
- Up to $250 of qualifying expenses
3
Q
HSA Contributions
A
- Contributions made DIRECTLY by an individual does NOT reduce FICA tax base
- HSA contributions made through a cafeteria plan are (elective employee and employer contributions) are EXCLUDED from taxable income and FICA and Medicare taxes
4
Q
Moving Expenses
A
- Only for active military and their families
5
Q
Half of SE Tax
A
6
Q
SE Retirement Plan Contributions
A
- Contributions made by SE individuals to SEP, SIMPLE, and qualified retirement plan
7
Q
SE Retirement Plan Contributions - SEP IRA
A
- Determine SE income eligible for SEP contribution by taking SE income - deduction for 1/2 SE taxes (or times .9235)
- Calculate SE individual’s contribution rate to SEP
- overall SEP contribution rate / 1 + SEP contribution rate
- Multiply step 1 by step 2 = deductible amount fo SEP IRA contribtion (up to SEP IRA limitations)
- SEP IRA contributions and deductions to the SE individual’s account are limited to the lesser of:
- 20% of net SE earnings OR
- Defined contribution limit
- Note that max contribution to SEP IRA for an employee is 25%
8
Q
Self-Employed Health Insurance Premiums
A
- Can take deduction unless they are also employed at another employer that has a cafeteria plan (can’t double dip)
- If some are subsidized in part or in full by premium tax credit, subsidized portion of the premium is NOT eligible for deduction.
- Qualified LTC and Medicare insurance premiums are also deductible as health care expenses
9
Q
Alimony
A
- For divorce agreements FINALIZED BEFORE 1/1/2019
- Alimony payments must be in CASH
- Third year of alimony payments:
- Payor must determine whether any alimony should be recpatured.
- Which only applies if alimony payments DECREASE during the first THREE years of payment.
- Alimony recapture in year 3 = 1st PMT + 2nd PMT - 2 x 3rd PMT - $37,500
- Which only applies if alimony payments DECREASE during the first THREE years of payment.
- Payor must determine whether any alimony should be recpatured.
10
Q
IRA Contributions
A
11
Q
Backdoor Roth IRA Contributions
A
- Can make nondeductible contributions to traditional IRA
- Results in a tax basis equal to the nondeductible amount
- Can then immediately convert to Roth IRA, which then carries that tax basis equal to the contribution amount
- Taxpayer with mulitple traditional IRAs must do a pro-rata basis on the amount in each account if doing a backdoor Roth
- Tax will be owed on any amounts deemed to come from a traditional IRA account
12
Q
Student Loan Interest
A
- On qualified student loans, interest paid is deductible up to $2,500 PER TAX RETURN.
- Has phase-outs
- Employees may exclude $5,250 per year of employer payments made on the employees student loans
- This is NOT subject to income phase-outs
13
Q
Charitable Contribution
A
- Deduct up to $300 if they DO NOT claim itemized deductions
14
Q
How are business meals deducted?
A
- Meals provided by a restaraunt are 100% deductible from 2021-2022
- prior to and after that period, it is 50% deductible
15
Q
How is business related to entertainment deducted?
A
- Not eligible anymore.
