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Flashcards in Adjustments and Itemized Deductions Deck (24):

Adjustments for AGI

Educator Expenses
Student Loan Interest Expenses
Health Savings Account
Moving Expenses
One Half Self Employment FICA
Self Employed Health Insurance
Self Employed Retirement
Interest Withdrawal Penalty
Alimony Paid
Attorney Fees Paid in Certain Discrimination and Whistle-blower Cases
Domestic Production Activities Deduction



1) Earnings accumulate tax-free
2) Withdrawals from deductible IRAs are taxable as ordinary income an may be subject to applicable penalties.
3) Deductibility Requirements
Phase Out 92K-112K Joint, Single 58K-68K
4) Can Deduct the lesser of $5,000 or the individuals compensation


Roth IRA

1) Non-deductible when made
2) Earnings accumulate tax-free while in a Roth IRA account.
3) Distributions of both principal and interest, are also tax-free provided they are qualified distributions
4) Contribution Limits- 5K for single, 10K for married

Phase Out Limits
Single with MAGI between 110K to 125K
Joint Filers with MAGI between $173K to 183K
Married filing separate with MAGI 0 to 10K


Coverdell Education Savings Accounts

1) Contributions are non-deductible, maximum contribution per beneficiary is $2,000.
2) Tax-Free Earnings
3) Tax Free Distributions for qualified Education Expenses with a limit of 30 years
4) $2,000 per year


Investment Interest Expense

Limited to Net Taxable investment income.


Charitable Contributions

Maximum allowable deduction:
Cash-50% of adjusted gross income
FMV Property= 30% of AGI for gifts of long term capital gain property to public charities.


Causualty and Theft Losses

Causualty and theft losses of nonbusiness property are deductible to the extent that each individual loss exceeds $100 and that the aggregate of these excess losses (excess over $100) exceeds 10% of AGI. The $100 applies to each separate causualty event.


Personal Tax Credits

Personal Tax Credits may reduce personal tax liability to zero, but they may not result in cash refund. Personal tax credits include:

1) Child and dependent care credit
2) Elderly and permanantly disabled credit
3) Education credits
a) Lifttime Learning credit
4) Retirement savings contribution credit
5) Foreign tax credit
6) General business credit


Refundable Credits

Refundable credits are substracted from income tax liability. They may result in a cash refund when the credit exceeds tax liability owed if no tax is withheld from wages. The following are refundable credits:

1) Child tax credit
2) Earned Income credit
3) Withholding taxes (W-2)
4) Excess Social Security paid
5) Long Term Unsed Minimium Tax Credit
6) American Opportunity Credit (40% refundable)
7) Adoption Credit


Child and Dependent Care Credit

Tax Credit 20% to 35% of eligible expenditures

One dependent-$3K
Two Dependents or more-6K

Eligible People- qualified child under age 13 fo whom an exemption be claimed, any disabled dependent of any age who is unable to care for himself, or a disabled spouse

Married taxpayers must both produce income from wages, salary or net self employment income to be eligible for the child and dependent care credit.

Eligible expentitures- babysitter, nursery school, day care, not grammar school

Credit Computation- Maximium child care credit is 35% must be $15,000 or less, Credit decreases by 1% for each $2,000 of AGI over $15,000 but not below 20%. If more than


Credit for the Elderly and DIsabled

Credit of 15% of eligible income is available to individuals who are 65 years of age or older or Under 65 and retired due to permanant disability.

Base amounts- $5K for a single person, $5K married filing jointly and only one spouse qualifies, $7,500 married filing jointly and both are qualified individuals, $3,750 for a qualified individual who is married filing separately.

AGI Limits- Single taxpayers for $7,500, Married persons filing jointly 10,000, married persons filing separately $5,000.


American Opportunity Credit

Available against federal income taxes for qualified tuition, fees, and course materials (paid for a student's first four years of post secondary college.

Maximium credit of $2,500. 100% of the first 2,000 plus 25% of the next 2,000. Phase out begins with Modified AGI exceeding $80,000


Lifetime Learning Credit

Equal to 20% of qualified expenses up to $10,000.
Qualified expenses include payments for undergraduate courses, graduate level courses certain professional degree courses and courses to acquire or improve job skills.


Adoption Credit

Per child-$13,400

Phase out begins at approximately $201K.


Foreign Tax Credit

May claim credit for foreign income taxes paid, limited on foreign

Can be carried back one year and carry forward ten years.

Lesser of foreign taxes paid or

Taxable income from all foreign operations/(taxable income+exemptions)* US Tax=Foreign tax credit limit


Work Opportumity Credit

Credit 40% of first $6,000 of first years wages
Credit 40% of first $3,000 to certain summer youth


Child Tax Credit

May claim $1,000 tax credit for each qualifying child

Reduce $1,000 for each $50 for joint return with $110K, $75,000 unmarried individual, $55,000 for married individuals filing a separate return.

Refundable to the extent of the lesser of:

1) Excess child tax credit
2) Earned income less $3,000 times 15%


Earned Income Credit

1) Live in the US for more than half the taxable year
2) Meet certain earned low-income thresholds
3) Not have more than a specified amount of disqualified income.
4) Be over the age of 25 and less than 65 if there are no qualifying children
5) File a joint return with spouse with certain exceptions

Earned Income is wages, salaries, tips , other employee compensation and earnings from self employment.

Qualifying child is not required, but allows for a higher percentage credit.

Earned Income Credit
1) $503, with no single taxpayer
2) $3,359 with one qualifying child
3) $5,548 with two qualifying children

Cannot claim credit if individual has disqualified income.


Alternative Minimium Tax

Tax designed to ensure that taxpayers who take a large number of tax preferenced deductions pay a minimium amount of tax on their income. Alternative minimum tax is the excess of the tentative AMT over the regular tax.


Calculation of AMT

Regular Tax Income
Alternative Miinimum Taxable Income
for single and MFS
Alternative Minimum Tax Base
* Tax Computation
Tenative AMT Tax

Tentative Minimum Tax

Alternative Minimum Tax


Exemption Amounts

33,750 less 25% (AMTI-$112,500) for single taxpayers, $45,000 less 25% for joint filers and 22,500 less 25% (AMT) for married filing separately



Accelerated Depreciation
Net Operating Loss
Installment Income of A Dealer
Contracts- percentage completion vs completed contract
Tax "deductions"
Interest deductions on some home equity loans
Medical deductions
Miscellaneous deductions now allowed
Exemptions and standard deduction


AMT Credits

Foreign Tax Credit
Adoption Credit
Child Tax Credit
Contributions to retirement plans credit
Earned Income Credit


Statute of Limitations

Three years from later of:

Due date of return or
Date return is filed

25% understatement of gross income
Six years from later of due date of return, or
date return is failed