Ch 6 Flashcards
(18 cards)
Describe Business Expense which would be deductible
Appropriate, Helpful, Necessary, Ordinary, Incurred by Taxpayer
Home office deduction Tiers
Tier 1 = expenses to obtain tenants, Mtg Interest & Real Property Tax
Tier 2 = Expenses allocated to the business use of home
Tier 3 = Depreciation
Home is a residence if?
lived in more than the greater of 14 days or 10% of # of rental days during the year.
Rooms may be deducted as a business expense
if exclusive to the business use, as a place to meet clients or do normal daily business work
How is suspended passive loss deducted?
when a taxpayer generates passive income from that activity or another passive activity
Explain IRA Tax implications
Traditional IRA is deductible and qualified distributions are taxable.
Roth IRA is NOT deductible and qualified distributions are nontaxable
Home Office deduction using actual expense method
Tier 1 expenses are fully deductible even if they exceed the schedule C net income; but tier 2 & 3 are only deductible if sched. C net income exceeds the prior tier expenses. The expenses may be carried forward to future years.
Rental property & taxpayer stays less than 15 days
nonrental % of property tax is deductible as an itemized deduction, but mtg interest is NOT deductible
owner includes rental income & deducts allocated expenses, if a loss results, it offsets ordinary income subject to passive activity limitations
passive activity income or loss
income or loss from activity the taxpayer is not a material particant
portfolio income
income from an investment
Active business income
income from sources in which taxpayer is material participant
tax-advantage retirement svgs available to self-employment individuals
SEP IRA & Individual 401k
Rollover Traditional IRA to Roth IRA - tax implications
entire amount taxed as ordinary income
For AGI
Rental income Schedule E & Business Income Schedule C
From AGI
Itemized Deductions - medical, charitable, state income & property tax, employee business expenses, interest on personal residence & investments, personal property tax on vehicle
Personal & Dependency exemptions
Medical Expenses
prescriptions, pymts to medical care, transportation, long-term care, Health insurance premiums (if not for self-employment which is For AGI)
Miscellaneous itemized deductions subject to 2% AGI Floor
tax return preparation fees, investment expenses, hobby expenses, unreimbursed employee expenses
Miscellaneous itemized deductions not subject to 2% AGI Floor
Gambling Losses, casualty & theft losses, unrecovered loss on a life annuity
