Chapter 6 Flashcards
(48 cards)
What are your “FOR” AGI deductions?
- Trade/Business Expenses
- Rental & Royalty Expenses
- Flow-Through Entities
- Capital Losses
- Health Insurance Deduction by Self-Employed Taxpayers
- Penalty for Early Withdrawal of Savings
- Self-Employed Tax Deduction
- Alimony Payments
- QUALIFIED Education Loan Interest
What are Trade/Business Expenses?
- DIRECTLY connected to the business activity
- ORDINARY & NECESSARY for the activity
- REASONABLE in amount
Where are Revenues and Expenses from a sole proprietorship reported on?
Schedule C
What are rental & royalty expenses?
- usually considered INVESTMENT activities
- SCHEDULE E is used to report RENTAL INCOME & deductions related to real property
- schedule E is also used to report ROYALTY INCOME and deductions (e.g. copyrighted books)
What are Flow-through entities?
expenses and losses incurred that pass through to the entity owners who typically report these amounts on Page 2 of Schedule E
What is the max on Capital Losses?
MAX: $3,000/tax year; can be carried-forward indefinitely
- Schedule D
What are the rules to a health insurance deduction for self-employed taxpayers?
deduction on SCHEDULE 1, but ONLY to the extent of the self-employed NET INCOME
- insurance can be provided for taxpayer, spouse, &/or dependents who are NOT eligible for employer-provided health insurance (also children <27 yrs who are not claimed as dependents)
What is the deduction for Penalty for Early withdrawal of savings?
- for any INTEREST INCOME an individual forfeits to a bank as a penalty for withdrawing a COD
What is the deduction for SE Tax?
- self-employed taxpayers are allowed to deduct the EMPLOYER portion of FICA taxes
What are the criteria for Alimony payments to be deducted?
- divorce decrees finalized BEFORE 2019
-cannot include any money related to supporting a child.
What is the max amount of student loan interest that is deductible?
- MAX: $2,500
- it is subject to a phase-out
-MFS are NOT eligible for this deduction
What are the phase-out criteria for Single & HOH taxpayers?
<$80,000 –>amount paid up to $2,500
$80,000 < x <$95,000 –> (amount paid up to $2,500) * percentage allowed
>=$95,000 –> ZERO
What are the phase-out criteria for MFJ taxpayers?
<$165,000 –>amount paid up to $2,500
$165,000 < x <$195,000 –> (amount paid up to $2,500) * percentage allowed
>=$195,000 –> ZERO
How do you calculate the Phase-out percentage for S, HOH, QSS?
(Modified AGI - $80,0000 / $15,000
How do you calculate the Phase-out percentage for MFJ?
(Modified AGI - $165,0000 / $30,000
What are your “FROM” AGI deductions?
- Medical Expenses
- Taxes
- Investment Interest Expense
- Home Mortgage Interest
- Charitable Contributions
- Misc Itemized Deductions
Can taxpayers deduct medical expenses incurred to treat themselves, their spouse, and/or their dependents?
TRUE
What is the AGI floor for Medical Expenses?
7.5%
What are qualifying medical expenses?
- Medical Care
- Dental Care
- Prescription drugs/insulin
- Special Equipment (wheelchairs, glasses, contact lenses)
-Medical and Hospital insurance premiums (if it hasn’t been deducted yet)
Can taxpayers using personal automobiles for medical transportation purposes deduct a standard mileage allowance in lieu of actual costs?
TRUE
When can medical expenses for cosmetic surgery/procedures be deductible?
if its necessary to correct or alleviate a birth defect, personal injury resulting from an accident, or disfiguring disease
What is the MAX deduction for taxes?
MAX: $10,000 ($5,000 MFS)
What taxes may Individuals deduct as itemized deductions?
- State, Local, & Foreign Income taxes
-OR-
-State & Local SALES TAXES - State & Local REAL ESTATE taxes (personal & investment purposes)
- State & Local PERSONAL PROPERTY taxes
What is Investment interest expense?
Interest PAID ON LOANS used to purchase investment assets such as stocks, bonds, or land.
