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REG > R2 - Individual Taxation: Part 2 > Flashcards

R2 - Individual Taxation: Part 2 Flashcards

1
Q

IRA: Deductions

A

Can Deduct:
- Up to 5,500 per spouse

Can’t Deduct:

  • Excessive AGI
    • Single/HOH = 61-71,000
    • Joint = 98-118,000
- Active Participant in 
   Another Qualified Plan
    -Exception: just because 
     one spouse is active 
     doesn't mean the other is 
     too
    -Max deduction for 
     spouse who has spouse 
     as active participant in 
     another plan is phased 
     out at Modified AGI 
      >184,000 but <194,000
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2
Q

Direct Moving Expenses:

A
  • Travel and along-the-way lodging
  • Transportation

Note: Deduction must be reduced by employer reimbursement

Note: These are itemized deductions

Not deductible:

  • Meals
  • Pre-move house hunting
  • Breaking a lease
  • Tempo living expenses
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3
Q

Deductions to arrive to AGI: “Above the line” (not itemized deductions)

A

-Educator Expenses
-IRA
-Student Loan Interest
-Max 2,500
-Tuition and fees deductions
-Max 4,000
-Health Savings Account
-Moving deductions
-Deduction of self-employment tax
-50% of social security
-Self employed health insurance
-100% deductible
-Contributions to self employed retirement plans
-Max 2,000
-Penalty on early withdrawal of savings
-Alimony paid
-Attorney fees
-Domestic production activities deduction
-Profit sharing self employed
-Keogh Plan - Max: 53,000
or 25% of earnings

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4
Q

Keogh Plans:

A

Earned Income is:

Net Self Employment earnings reduce by:

  • Keogh contributions
  • 1/2 SE Tax
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5
Q

IRA Deductions: RULE

A

Adjustment/deduction is allowed for year only if the contribution is made by April 15. Extensions don’t count

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6
Q

Standard Deductions: Over 65

A

Each spouse is allowed an additional $1,250 on top of standard deduction

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7
Q

Mortgage Interest: Deductions

A

-Deductible:
-Interest on loans up to
$1,000,000 to buy, build or
substantially improve a
home is 100% deductible.
If loan is secured by home
proceeds can be used
for anything

-Home Equity loans up to
$100,000 are fully
deductible. Equity lines of
credits.

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8
Q

Casualty Losses: 10% Test (CALCULATION)

A

“Non-controllable losses only”

Lesser of Adjusted Basis or Decrease in FMV

-Insurance recovery

=Taxpayer’s Loss

-$100

=Eligible Loss

-10% AGI

= Deductible loss

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9
Q

Donations to charity:

A
  • Deduct the FMV of property contributed to charity.
  • Limit is 30% of AGI
  • Calculation is:

Payment to charity
-Fair Value of item given
=Charitable Contribution deduction

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10
Q

Miscellaneous Itemized Deductions:

A
  • Accumulation of all of these must be at least 2% AGI

- Subtract 2% of AGI from Misc Deductions, remainder is the amount they can deduct

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11
Q

Gambling Losses: Deductions

A

Itemized Deductions not subject to 2% AGI but is limited to gambling winnings

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12
Q

Casualty/Theft Losses:

A

Only “personal” loss transactions that can be deducted

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13
Q

Medical Expenses: What can be claimed?

A
  • Charged to a credit card (doesn’t matter if its paid yet)
  • Expenses paid for the medical care of a decedent are included in the year paid (whether before/after decedent’s death)
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14
Q

Itemized Deductions: Include what tax?

A

Real Estate Taxes (state, local, foreign)

Personal Property (state, local)

Income Taxes (state, local, foreign)

Sales tax

Note:

Sales or Income Taxes can be chosen but if Sales is chosen it is permanently extended by the “Protecting Americans From Tax Hikes Act of 2015”

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15
Q

Charitable Contributions: NOTE

A 
Long-term property: 
- FMV deductible 
Short-term property:
 - Lesser of cost/FMV 
   deductible

Cash gifts to “needy” families doesn’t count, contributions must be to qualified charity organizations

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16
Q

“Taxable Investment Income”

A

Includes:

  • Interest and dividends
  • Dividends
  • Rents
  • Royalties (in excess of expenses)
  • Net LT/ST capital gains (if taxpayer decides to ignore lower CG tax)

Excludes:
- interest expense used to purchase tax-free bonds (interest earned isn’t taxable)

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17
Q

Investment Interest Deduction:

A
  • Limited to Net Investment Income
  • Expenses like advice, safe deposit box rentals are deductible on Schedule A (itemized deductions that is subject to 2% AGI) only those exceeding the 2% AGI is used when calculating net investment income.
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18
Q

Net Investment Income: CALCULATION

A

Investment Income

-Non-interest Investment Expenses

=Net Investment Income

NOTE:
-Investment interest deduction is limited to this

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19
Q

When activity engaged in is not for a profit: Deductions?

A

Itemized deductions are limited to the amount of income made.

Expenses are subject to 2% AGI limitation also. (Deduct whatever is over the 2%)

Deductions include:

State and local income taxes and property taxes (deductible whether the activity was “for profit” or not)

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20
Q

Charitable Contributions: Appreciate Property

A

Taxpayer can deduct full value of property contributed without paying “CG Tax” but this deduction is limited to 30% of AGI,
this is for public charities (20% for non-operating private foundation)

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21
Q

Charitable Contributions: Max Deductions

A

Cash: 50% of AGI

LT Capital Gain property: 30% of AGI

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22
Q

Residences not used for rental: Deductions

A
  • Mortgage Interest

- Property Taxes

23
Q

Contribution Limit for a church:

A

50% of adjusted contribution (gross income)

24
Q

State and local income taxes withheld from cash taxpayer:

A

Can be deducted in the year withheld. Estimated tax liability paid in the current year can be deducted as well.

25
Q

Mortgages: Deductible Interest

A

Mortgages up to $1,000,000 to buy, build, improve a home allow for full deduction of interest

26
Q

Medical Expenses: Deduction CALCULATION

A

Qualified Medical Expenses
-Insurance Reimbursement
=Qualified Medical Expense Paid

-10% AGI

=Deductible Medical Expense

27
Q

Charitable Contributions: Not Fully Deductible in year made may be?

A

Carried Forward up to 5 years

28
Q

Personal Automobile Tax:

A

Ad-Valor em Taxes are deductible

29
Q

Misc Itemized Deductions:

A

Un-reimbursed business expenses

30
Q

Itemized Deductions: Items and their Limitations

A

MFJ: 311,300
HOH: 285,350
Single: 259,400
MFS: 155,650

Limited Items:
-Taxes paid, Interest paid, gifts to charity, job expenses, misc deductions

Not Limited Items:
- Medical/dental expenses, investment interest expense,
casualty/theft losses, gambling losses

31
Q

Estimated Taxes: Required Minimum (Safe Harbor)

A

Taxpayer is required to make estimated quarterly tax payments if both are met:

-1,000 or more tax liability

-Inadequate tax estimates
-Met if taxpayer’s
withholding are less than
the lesser of:
-90% of current year
taxes
-100% of last year taxes
Exception:
-AGI >150,000 in prior
year, 110% of prior year
tax liability is used to
compute safe harbour

32
Q

Tax Payments: Include

A
  • Taxes Withheld
  • Estimated Taxes paid
  • Excess SS tax withheld

These reduce total tax liability on Form 1040

33
Q

Computing Estimated Payments:

A

Taxpayer can choose:

Annualized Method:
- 90% of current year taxes

PY Method:
- 100% of last year’s taxes

Unless AGI is >150,000 then:

Taxpayer has to use 110% of PY taxes

34
Q

Underpayment Penalty:

A

In order for there to be a penalty, the tax liability after withholding has to exceed $1000

35
Q

Foreign Taxes: Treatment

A

Can be used as a credit to federal taxes due.

36
Q

Adoption Credit: Limited to

A

$13,460 per child

PO: AGI 201,920-241,920

-Medical expenses don’t qualify

37
Q

Refundable Credits:

A

Subtracted from Income Tax Liability

Includes:
 -child tax credit
 -earned income credit
 -withholding taxes
 -excess SS paid
 -american opportunity 
  credit
38
Q

Child and Dependent care Credit:

A

Tax Credit of 20-30% of expenditures:

  • 1 dependent = $3000
  • 2 or more = $6,000

Eligible:

  • Child under 13
  • Disabled
Computation:
-Max 35% (<15,000 AGI)
-Phase out 20-30%. 
 Credit decreases by 1% for 
 every 2000 in AGI over 
 $15,000. but not lower than 
 20%
39
Q

Child and Dependent Care: Earned Income Requirement

A

Both spouse must earn income.

-Computed by using the lowest of:
- Earned income between
spouses
- Actual child care
expenditures
- Max amount (3,000 or
6,000)

  • the lowest by the applicable percentage to get the credit
40
Q

What would disqualify an “Earned Income Credit”

A

Married filling separately

41
Q

Excess SS Credit:

A

Credit can be used if correct withholdings from 2 or more employers.

42
Q

Itemized Deductions: NOTE on how to get itemized deductions total

A

Subtract 10% of AGI from itemized deductions then subtract that from AGI.

43
Q

Kiddie Tax:

A

Kids Unearned Income (interest, dividends, rents, royalties) and subtract $2,100 (1050 of childs deductions + 1050 that is taxed at childs rate)

Any excess is taxed at the parents tax rate.

So: 0-1050 = 0% tax
1050-2100 = Child
>2100 = Parents

44
Q

AMT: CALCULATION

A 
Regular TI
\+/- Adjustments
\+Preferences
=AMTI
-Exemption
=AMTB
*AMT rate
=Tent AMT tax
-Foreign AMT credit
=Tentative Min Tax
-Regular Income Tax
=AMT
45
Q

AMT: Exemption Formula

A

Singe:
$53,900
- 25% (AMTI - $119,700)

Joint:
$83,800
- 25% (AMTI - $159,700)

Filling Sep:
$41,900
- 25% (AMTI - $79,850)

46
Q

AMT: Adjustments “Timing Differences”

A

May Increase or decrease AMTI:

  • Passive Activity losses
  • Accelerated depreciation
  • NOL of individual
  • Installment income
  • Contracts
47
Q

AMT: Adjustments “Deductions for regular tax purposes but not AMT”

A

Only increase AMTI:

  • Tax “deductions”
  • Interest deductions (equity loans)
  • Misc deductions
    • Medical expenses
  • Exemptions (personal) and SD
48
Q

AMT: Tax Preference Items

A

Always add-backs: will result in more income/fewer deductions being recognized for AMT vs Regular Tax

  • Private activity bond interest
  • Percentage depletion deduction (excess over adjusted basis of property)
  • Pre-1987 accelerated deprecaition
49
Q

AMT: Credit for Prior Year Minimum Tax (Credit)

A

You can carry-forward forever and can only reduce normal tax not AMT

50
Q

AMT: Credits

A 
Child/dependent care
Adoption Credit
Child Tax Credit
Retirement Contributions
Residential Energy Credit
51
Q

AMT: Medical Expenses

A

Can deduct expenses exceeding 10% of AGI

52
Q

AMTI: Increases

A
  • State and Local Taxes

- Misc Deductions that exceed 2% of AGI

53
Q

AMT: NOTE

A

Adjustments are “not” allowed as deductions for AMT.

These include Misc Itemized Deductions

54
Q

AMT: Another NOTE

A

If an item isn’t added back than it can be deducted. “Not an adjustment or preference”

REG (8 decks)

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