Individual Taxation - Deductions Flashcards
Flow of the 1040
General Income - Adjustments = AGI - Deductions = Taxable Income - credits + SE Tax (if applicable) = Total Tax Due - Fed Income Tax Paid = Total Tax Payment/Return
Deductions
Larger of the standard or itemized
Standard is approx $25000 - MFJ and surviving spouse
#12,500 for single or MFS (must be consistent - whatever one does the other must do)
$19,000 - Head of Household
Deductions to get to Taxable Income
Medical Deductions
State and Local Taxes
Interest Paid
Charitable Contributions
Casualty and Gambling Losses
Medical and Dental Deductions
Must exceed 7.5% of AGI to be deductible
- Only cost over insurance reimbursement is viewed as expense.
- Medical Insurance is also included - if paid on your own (not employer)
- Prescription Meds and insulin included
- travel to required medical care
- medical expense exceeding the increase in value of home (pool, widening hallways, etc)
NOT DEDUCTIBLE
- Cosmetic Surgery, nonprescription meds, health club dues, life insurance premiums, funeral expenses, disability policy
Year of Swipe Rule: Deduction can be taken on the year of swipe (when it was put on your cc)
State and Local Taxes
Smaller of total State and Local Tax or $10,000 ($5000 MFS)
*Property must belong to you for deduction
- includes property taxes, state and local income taxes & sales tax paid
- foreign property is no longer itemized (rental can be deducted on Schedule E)
Estimated Taxes: State and Local Taxes Estimated and withheld will be added together for Schedule A
Home Mortgage Interest
Schedule A
- primary and second
- residence is where a person lives and includes house, condo, boat, motor home, mobile home or the like.
- Acquisition indebtedness: You took a mortgage to acquire the home and mortgage is principal $750,000 or less 2018 and after ($375 MFS)
Home Equity Loan Interest
- can deduct only if you use loan proceeds to fix up the home
Mortgage Points
- paid when a loan is acquired or refinanced
- represents interest as part of acquisition debt - can be deducted immediately
- refinance - deducted over the life of new mortgage
Investment Expenses
- Deductible against investment income (dividends and capital gains don’t qualify for investment income unless taxed as ordinary income)
Charitable Contributions
Qualified Organizations
- if something is received the amount to deduct is in excess of the amount you receive
Other than cash: lower of basis or FV (LT capital gain deductible at FMV and gain is not taxable)
- Less an 1 year, basis is what you paid not on FV
- LIMITATION 30% of AGI (rest will carry over)
Non deductible
- gifts to foreign charities, political campaigns and needy families
Year of Swipe Rule: Deduction can be taken on the year of swipe (when it was put on your cc)
Casualty and Theft Loss
Presidential Declared Disaster ONLY
- lower of the drop in asset value or the tax basis of property
- reduced by a) any insurance reimbursement and b) $100
- deduction is amount of total loss in excess of 10% of AGI
Casualty losses can offset casualty gain
Gambling Losses
can be deducted up to the amount of winnings reported as income
- includes transportation to and from casino
ELIMINATED LOSSES
- 2% of AGI Misc itemized deductions
- Union Dues
- Tax Prep Fees
- Safety Deposit Box
- Unreimbursed Job Expenses
Qualified Business Income - QBI Deduction
20% of lower of taxable income or Schedule C profit - for taxpayers income deduction from pass through entities (partner, S Corp, LLC, Sole Prop) and rental real estate activities
- not a deduction to arrive at AGI (from AGI to taxable income)
- not an itemized deduction
- last deduction before taxable income
- certain businesses over $165/300 has unfavorable rules (principal asset is the reputation of owner): Lawyer, CPA, Doctor, Athletic Training, Actuarial, Stockbroker, Real Estate
Exempt: engineers, architect - if multiple QBI activities - QBI is calculated separately, then netted
- if negative, it is carried forward to be used in future tax years (no calculation of the income)
