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List the deductions for AGI.
- Educator Expenses
- Student Loan Interest Expenses
- Tuition and Fee Deduction
- Health Savings Account
- Moving Expenses
- One-half Self-Employment FICA
- Self-Employed Health Insurance
- Self-Employed Retirement
- Interest Withdrawal Penalty
- Alimony Paid
- Attorney fees paid in certain discrimination and whistleblower cases
- Domestic Production Activities Deduction
Which is a deduction for AGI: Child support or alimony?
Deduction for (to arrive at) AGI = Alimony Paid
Child support is not alimony and is not deductible by the payor or taxable to the recipient.
What are the limits on IRA deductions?
For IRA's, the lesser of $5,000 or individual's compensation; with a nonworking spouse, limit is $10,000 provided the combined earnings of both spouses total at least that much.
Where a spouse is an active participant in an employer retirement plan, the allowable deduction to arrive at AGI is phased out proportionally for modified AGI between $56,000 (base) and $66,000 ($89,000 and $109,000 for MFJ).
Phase out percentage is 20% of the maximum IRA deduction (AGI less base)
What are the limits on nondeductible IRA's?
- The lesser of:
- a). $5,000 for 2010
- b). Individual's compensation; or
- c). Limit not contributed to other regular and Roth IRA's.
Earnings on such contributions will accumulate tax-free (deferred) until withdrawn.
What is the time limit on Coverdell Education Savings Accounts (Education IRA's)?
Any amounts remaining when the beneficiary reaches the age of 30 must be distributed.
- "Left over funds""
- - Must be distributed to beneficiary, taxable and a 10% penalty is assessed, or
- - Rollover to another family member is permitted with no 10% penalty.
What are the limits on deductions to keogh plans?
Keogh plans are for self-employed taxpayers and their employees.
Deductible amount is lesser of 25% of net earnings from self-employment (after Keogh deduction) and 1/2 of self-employment tax or $49,000(2010).
The maximum annual addition (contribution) may exceed the deductible amount for the year. It is limited to the lesser of $40,000 (2010) or 100% net earnings if compensation is less than $49,000.
Describe the self-employed deductions ("adjustments") for AGI.
- Self-employment tax:
- 50% of self-employment tax
- Self-employed health insurance:
- 100% may be deducted
What are the requirements for moving expenses to be deductible?
Must change jobs
50 miles move (Distance from former residence to new job site must be 50 miles or more of the distance from former residence to former job site.)
Must work in new location for 39 weeks during the 12 months following the arrival. (If self-employed, 78 weeks during the 24 month period after arrival.)
Note that here is a per mile car allowance or actual out-of-pocket amounts. Meal costs are not deductible.
What is the additional deduction for elderly and/or blind?
For 2010, if 65 or older, add $1,400 (single or HOH), or $1,100 (MFJ, MFS, or Qualifying Widow(er).)
If blind, add same amounts as above.
If both over 65 and blind, amounts are $2,800 and $2,200, respectively.
What taxpayers are not eligible to use the standard deduction?
- One spouse itemizes deductions on a separate return.
- Taxpayer is a dual-status or nonresident alien.
- Taxpayer has a short tax-year.
The standard deduction is limited if taxpayer can be claimed on another person's return (greater of $950 or earned income of dependent plus $300 up to basic standard deduction amount).
Identify the major classes of itemized deductions.
- Medical and dental expenses
- Taxes paid
- Interest paid
- Gifts of charity
- Casualty and theft losses
- Miscellaneous deductions subject to the 2% floor (job expenses, investment expenses, tax preparation)
- Other miscellaneous deductions not subject to the 2% floor (gambling losses to extent of winnings)
What are the limitations on medical expenses?
Medical expenses are deductible to the extent they exceed 7.5% of AGI.
Cost of surgery for elective cosmetic reasons is not deductible.
Self-employed individuals may deduct 100% of medical insurance premiums from gross income.
A dependent for medical expenses must meet only the support, relationship, and citizenship or residency test.
Identify the taxes that are deductible as itemized deductions.
Taxpayers have a choice of deducting either the local sales tax or state and local income tax.
- Other deductible taxes include:
- Real estate taxes
- Personal property taxes
- Foreign taxes (either deductible or may be taken as a credit)
Identify the types of interest that are deductible and nondeductible.
- Qualified residence interest on principal and second residence in subdivided into:
- - Acquisition indebtedness ($1,000,000 limitation)
- - Home equity indebtedness ($100,000 limitation)
- - Points paid on a principal residence mortgage loan are fully deductible.
- - Points paid to refinance a home (or for a home equity loan) must be capitalized and deduction spread out over the life of loan.
- - Certain mortgage insurance premiums.
Interest on loans for investment purposes, limited to net investment income, can be carried forward.
Prepaid interest (use accrual basis for determining deductible amount)
Educational loan interest is an adjustment and not an itemized deduction.
Consumer interest is NOT deductible.
What are the limitations on charitable contribution deductions?
- Overall limit = 50% of AGI
- Cash may be all 50%
- Long-term capital gain property (deduct FMV) is limited to the lesser of:
- - 30% of AGI
- - The remaining amount to reach 50% after cash contributions
Excess contributions can be carried forward five years.
Cash contributions must be substantiated by a bank record or a written communication by the charitable organization
What is the limit on nonbusiness casualty and theft losses?
- If partial loss:
- - Deduction is based on decrease in FMV, not to exceed adjusted basis.
- If total loss:
- - Deduction is adjusted basis.
- Aggregate losses are reduced by:
- - Insurance recovery
- - $100 per casualty/theft event
- - 10% of AGI
Identify some miscellaneous deductions subject to the 2% of AGI floor.
- Unreimbursed busines expenses
- Educational expenses not deducted above AGI
- Business gifts ($25 limit per recipient per year)
- Business use of income
- Employment agency fees
- Expenses of investors
- Subscriptions to professional journals
- Tax preparation fee
Identify some miscellaneous expenses NOT subject to the 2% of AGI floor.
- Gambling losses
- Federal estate tax paid on income in respect of a decedent
Identify some tax credits.
- Nonrefundable tax credits:
- Foreign tax credit
- Child and dependent care credit
- Elderly or disabled credit
- Education credits
- Adoption credit
- Retirement plan contribution credit
- General business credit
- Refundable credits:
- Child tax credit
- Earned income credit
- Withholding taxes
- Excess social security paid
- Long-term unused minimum tax credits
What are child/dependent care credit limitations?
Up to 30% of eligible expenditures or $3,000 maximum ($6,000 for two or more dependents). Maximum of $15,000 AGI, reduced by 1% for each $2,000 increment over $15,000, to a minimum of $20,000.
A qualifying child is one under age 13 for whom an exemption may be claimed; any disabled dependent who is unable to care for self; or a spouse who is disabled and unable to care for self.
Describe the tax credit for the elderly or disabled.
Either at least 65 or totall and permanently disabled and have disability income.
If single or married and only 1 over 65, 15% of $5,000 reduced by nontaxable social security benefits received and 1/2 of AGI over $7,500 (single) or $10,000 (married).
If married and both over 65, 15% of $7,500 reduced by nontaxable social security benefits received and 1/2 of AGI over $10,000
Claim the credit to the extent of tax liability.
State the limitations of the American Opportunity.
For 2012, the credit for first four years of post-secondary education is limited to $2,500 as follows: 100% of first $2,000 in tuition costs and 25% of second $2,000.
What are the eligibilty requirements for the retirement plan contribution credit?
- At least 18 by close of the tax year
- Not a full-time student
- Not a dependent
- Income limits apply
State the formula to determine the amount of the foreign tax credit.
- Can claim either deduction or credit
- There is no limitation to the amount of foreign taxes paid that are claimed as deductions
- Overall limitation for the credit:
Net Foreign income / Worldwide taxable income
US tax liability before credit on worldwide taxable income
Credit is lesser of foreign taxes paid or overall limit. Any unused credit can be carried back 1 year and forward 10 years.
State the limitations on the work opportunity credit.
- 40% of first $6,000 of wages per employee paid during first year of employment
- 40% of first $3,000 to certain summer youth
Describe the child tax credit
$1,000 tax credit for each qualifying child
- Qualifying child:
- "CARES" rule apply, except that a child must be under the age of 17
- Higher income taxpayers must reduce credit by $50 for each $1,000 by which modified AGI exceeds
- - $110,000 for a joint return
- - $75,000 for an unmarried individual
- - $55,000 for married filing separately
What are the eligibility requirements for EIC?
- To be eligible for the Earned Income Credit, a taxpayer must:
- - Live in the U.S (main home) for more than half of the taxable year,
- - Meet certain low earned income thresholds,
- - Not have more than a specified amount of disqualified income,
- - If there are no qualifying children,
- - Be between 25 and less than 65, and
- - File a joint return with spouse (if married)
State the alternative minimum tax formula and the tax rate.
- Taxable Income
- +/- Certain adjustments
- + Tax preferences
- - Exemption allowance (2010) $45,000 (MFJ), $33,750 (Single), $22,500 (MFS)
- = AMTI
- Tax rate 26% and 28% for individuals
- = AMT, the greater of AMT or regular tax is total tax liability.
The exemption amount is phased out by 25 cents per dollar of AMTI above $150,000 ($112,500 for single, $75,000 MFJ)
For AMTI in excess of $175,000, tax rate on excess is 28%
Name some adjustments for AMTI calculations.
- Passive activity losses
- Accelerated depreciation
- Net operating loss
- Installment income of a dealer
- Contracts, percentage completion vs. completed contract
- Tax deductions
- Interest deductions on some home equity loans
- Medical deductions (limited to excess over 10% AGI)
- Miscellaneous deductions not allowed
- Exemptions (personal) and standard deduction
Name some tax preference items for AMTI calculations.
- Private activity bond interest income (exceptions apply)
- Percentage depletion
- Pre-1987 accelerated depreciation
What credits are allowed against the AMT?
- Foreign tax credit
- Adoption credit
- Child tax credit
- Contributions to retirement plans credit
- Earned income credit
- Small Business Healthcare Tax Credit
What is the statute of limitations for an assessment?
- Three years from the later of:
- Due date of return
- Date return is filed
What is the statute of limitations for a refund?
- Later of:
- 3 years from the time the return was filed
- 3 years from the due date of the original return
- 2 years from the time the tax was paid (if not when the return was filed)
Who must make estimated tax payments?
- Taxpayers with:
- 1). $1,000 or more tax liability and the taxpayer's withholding is less than the lesser of 90% of current year's tax, or
- 2). 100% of last year's tax [110% if AGI is > $150,000 ($75,000 for MFS)]