Unit 2 - Deductions and Credits Flashcards
(18 cards)
Standard deduction - 2015
AGI is reduced by the greater of standard deduction or allowable itemized deductions. Single = $6300 MFJ = $12,600 MFS = $6300 HOH = $9250 QW = $12600
Additional standard deductions - 2015
65 or older or blind
two deduction if over 65 AND blind Single = $1550 MFJ = $1250 MFS = $1250 HOH = $1550 QW = $1250
Overall limitation on itemized deductions
For higher income levels allowable itemized deductions are reduced by the lesser of 3% of the amount that AGI exceeds the threshold or 80% of total deductions after exclusions
2015 AGI limit MFJ = $309,900 HOH = $284,050 MFS = $154,950 Single = $258,250
Deductions excluded from total itemized deductions when calculating the deduction
Medical
Investment interest
Casualty and theft losses
gambling losses
Qualified residence
Primary + 1 is limited to $1 million - $500k MFS
Home equity debt is $100k - may be reduced by FMV of homes.
ex - FMV 425 - first mortgage debt 330 = 95 anything over that on HELOC is not deductible
Personal casualty losses
Sudden , unusual and unexpected Take lesser of adjusted tax basis or FMV subtract insurance subtract $100 - per tax law subtract 10% AGI
Miscellaneous itemized deductions
subject to 2% AGI limitation unreimbursed business expenses including T&E Investment expenses - advisory fees tax return prep professional dues and subscriptions job hunting expenses unreimbursed job relation education home office expenses
T&E
100 % travel expense
50% meals
To a temp location is deductible as long as it is less than one year
Foreign travel
must allocate between personal and business unless one the following exceptions is met
7 days or less
less than 25% was spent on personal
employee has no control over schedule
the desire for vacation did not drive the reason for trip
Margin account interest
Investment Interest Expense
deductible up to net investment income and is NOT subject to 2% floor. However, qualifying dividends and LTCG are not included in investment income unless taxpayer elects out of those rates
Home office deduction
cannot exceed gross income or create a loss
simple deduction is $5/per square foot - max is 300 sq feet or $1500 per year
Marginal income tax rate
10 15 25 28 33 35 39.6
Tax credit
dollar for dollar reduction Vs. income tax liability and is not affected by marginal tax rate
Refundable credits can create a refund
Nonrefundable cannot create refund but can reduce tax liability to zero
American Opportunity Tax Credit
covers first four years - reduce family’s tax in an amount equal to 100% of first $2,000 and 25% of next $2,000 Max = $2,500 per year
Up to $1,000 can be a refund.
Phase out 80-90k singles and 160-180k MFJ
Child and dependent care credit
Cap is $3k for single and $6k multiple. Sliding scale from 20-35% of expenses. 35% if AGI is less than $15k to 20% if greater than $43k
Child tax credit
$1,000 per each dependent qualifying child under 17. Credits reduced by $50 per every thousand over AGI threshold. single = $75k and MFJ = $110k
Taxpayer penalties
Failure to File
Failure to Pay
failure-to-file = 5% of the unpaid tax balance per month up to 25% (5 months). filed more than 60 days after due date min penalty smaller of $135 or 100% unpaid tax. No penalty for reasonable cause , but penalty increases for fraudulent reason to 15% up to 75% of unpaid tax
failure-to- pay 0.5% per month on unpaid up to 25% (50 months)
If both apply failure to file is reduced by failure to pay, but is still assessed
Avoiding an underpayment penalty
to avoid an underpayment penalty, taxpayers must make estimated or total payments that are the lesser of:
90% of tax liability on current year’s return OR
100% of tax liability from preceding year - if greater than $150k (or$75k MFS) then %110 of preceding year
