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129 Cards in this Set

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if you are an eligible educator, you can deduct ____________________ as an adjustment to income.
$250 qualified expenses you paid. ($500 for married teachers)
who is considered an eligible educator for the adjustment?
k-12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year
what are qualified expenses for educator expenses?
ordinary and necessary expenses paid in connection with books, supplies, equipment (including comp equip, software, and services) and other materials used in the classroom.
what are qualified educator expenses reduced by?
1. excludable U.S. series EE and I savings bond interest from Form 8815
2. nontaxable qualified state tuition program earnings
3. nontaxable earnings from Coverdell Education Savings accounts
4. any reimbursements you received for these expenses that were not reported to you in box 1 of your form W-2
what are the four types of individual retirement accounts?
1. deductible IRA
2. nondeductible IRA
3. Roth IRA
4. coverdell education savings accounts (IRA)
when must the contribution be made for the adjustment for a deductible IRA to be allowed?
by the due date of the tax return for individuals: april 15
when will a taxpayer not be permitted to deduct a contribution to an IRA?
1. excessive AGI ($56+, 89+) and active participation in another qualified plan
what is the phase-out for the deductible IRA contribution for an individual who is not an active participant, but whose spouse is?
MAGI between $167,000 and $177,000
a taxpayer generally may deduct from income the amount of a regular IRA contribution. the max deduction is limited to:
the lesser of $5,000 or the individual's compensation
what is included in compensation?
salary, wages, commissions, bonuses, and alimony
what is not included in compensation?
interest, dividends, annuity income, and pensions
what is the additional catch-up contribution?
if over 50 yrs old by december 31st, allowed an additional contribution ("adjustment") of $1000
which phaseout limits are higher, deductible IRAs or roth iRas?
roth iras
qualified nontaxable distributions of roth iras are those made at least five years after the taxpayer's first contribution to a roth ira and made:
1. after the taxpayer reaches age 59.5
2. to a beneficiary after the taxpayer's death
3. because the taxpayer is disabled
4. for use by a "first time" homebuyer to acquire a principal residence. there is a lifetime $10,000 limit on qualified distributions for this purpose.
what are the tax effects of a coverdell education savings account?
non-deductible contributions, but tax-free accumulation of earnings and tax-free distributions
what are the tie limits associated with coverdell education savings accounts?
contribute up to 18 years, and the beneficiary must use it by age 30
ay amounts remaining when the beneficiary reaches 30 years of age must be distributed (except in the case of a special needs beneficiary). distribution may take one of two forms:
1. distributed to beneficiary, taxable and assessed a 10% penalty
2. rollover to another family member of the taxpayer
what is the maximum contribution per year for a coverdell education savings account?
$2000
what is the adjustment for education loan interest?
limited to $2500. any excess or disallowed is personal interest and not deductible. phaseout at $60k-$75k
what are the tuition and fees above the line deduction?
applies regardless of whether the education was work-related. expenses above the maximum of $4,000 are only deducible as education expenses (itemized deductions subject to 2% of AGI limitation). [$4,000 if <$65k, $2.000 if 65k-80k, nothing if >80k]
what is a health savings account and how does it work?
HSAs enable workers with high-deductible health insurance to make pre-tax contributions of up to $3,050 to cover health care costs. these amounts are increased by $1,000 for those who reach age 55 within the year. excludable withdrawals if used for qualified medical expense of any account beneficiary.

no contributions allowed once a taxpayer becomes covered by medicare parts A or B.
what is an archer medical savings account?
similar to IRAs, but they are used for health care. typically used only if HSA is unavailable.
when are moving expenses deductible to arrive at agi?
work related. new workplace is 50 miles further. 39 weeks (75%) of the next year. only direct moving costs are allowable. employer reimbursements are excludable from income to the extent the amounts qualify as deductions.
which moving costs are deductible to arrive at agi?
travel and lodging of the taxpayer and his family. transportation expenses are deductible at actual out-of-pocket amounts of 16.5% per mile. tolls and parking fees, but not other amounts, can be added to the milage rate if it is used. transporting household goods and personal effect to the new location.
which moving expenses are non-deductibe?
meals, pre-move house hunting, expense of breaking a lease, temporary living expenses.
what is a keogh (profit sharing) plan?
self employed taxpayer subject to the self-employment tax is generally allowed to set up.
what is the max annual deductible amount of a keogh plan?
49,000, or 25% net (keogh/self-employed) earnings
how much of self-employment tax can be an adjustment?
50% of social security/medicare tax
how much of self-employed health insurance can be an adjustment?
all of it, provided the plan is set up in the name of the self-employed individual or the individual's business
how is the penalty on early withdrawal of savings (interest income) treated?
adjustment to income. do not net against interest ncome
what tax break is there for attorney fees paid in discrimination cases?
in certain cases, an adjustment is allowed for attorney fees paid in connection w/ age, sex, or racial discrimination and whistleblower fees cases. limited to the amount claimed as income from the judgment.
what tax break is given for domestic production activities?
taxpayers will receive an adjustment for a percentage (9%) of qualified production activities income or the taxpayer's taxable income without considering the deduction (whichever is less). form 8903 will be filed.
when can married filing separately use the standard deduction?
available only if both taxpayer and spouse do not itemize.
what is the standard deduction for dependent of another?
amount is the greater of 950 or his earned income plus 300. may claim the same additional standard deduction as other taxpayers for blindness and/or age 65 or over status.
what is the limitation on itemized deductions?
none. there used to be one with agi exceeding certain thresholds, not anymore though.
payments on behalf of these individuals qualify for the itemized deduction for medical expenses:
1. yourself
2. spouse
3. dependent who received over half his or her support from you (under $ taxable income and precludes joint return do not matter)
what is the formula to calculate how much medical expenses are deductible?
qualified med expenses - insurance reimbursement = qualified medical expense "paid".

subtract 7.5% agi = deductible medical expenses
types of deductible medical expenses
medicine and drugs, doctors, medical and accident insurance, required surgery, transportation to medical facility, physically handicapped costs
types of non-deductible medical expenses
elective surgery, the part of social security tax paid for basic medicare, funerals, life insurance, capital expenditures up to the increase in fmv of the property because of the expenditure, health club memberships, personal hygiene
what happens to reimbursement of expenses by an employer that exceed the total of medical or dental expenses paid by a taxpayer?
included in gross income
what happens to reimbursement of medical expenses received in the current year that was deducted in a year prior?
included as part of gross income in year received
are federal income taxes taken as an itemized deduction?
no
when are foreign real estate taxes paid deductible?
only for real estate held as an investment
how are real estate taxes on land held for appreciation treated?
may be capitalized or deducted at the option of the taxpayer
what are the types of taxes that can be used in itemized deductions?
1. real estate tax
2. state and local foreign income tax
3. personal property tax
4. sales tax
when can you deduct sales tax?
taxpayer may elect to deduct either state and local income taxes or state and local general sales taxes
how is sales tax deducted?
the amount is either
1. the total of actual general sales tax paid
2. irs table, plus any amount of sales tax paid for a motor vehicle, boat, or other IRS approved items
what are taxes that are not deductible?
federal taxes (including social security), inheritance taxes for states, business and rental property
what are the two categories of qualified residence interest for home mortgages?
acquisition indebtedness and home equity indebtedness
acquisition indebtedness is debt that is:
1. incurred in buying, constructing, or substantially improving the taxpayer's principal and second home, and
2. secured by home
3. points related to acquisition indebtedness are deductible immediately
4. refinancing points must be amortized over the period of the loan
what is the limit on acquisition indebtedness?
interest on up to 1,000,000 of principal of acquisition indebtedness is deductible as qualified residence interest. excess is treated as personal interest, and not deductible.
what is home equity indebtedness?
debt that is secured by the taxpayer's principal or second residence, but is not "acquisition indebtedness" (i.e. not used to acquire, build, or improve the home) used for anything
the maximum that can be treated as home equity indebtedness is the lesser of:
1) $100,000
2) FMV of the property reduced by the amount of outstanding acquisition indebtedness (aka the equity in home)
is personal (consumer) interest deductible?
no
how is education loan interest treated?
adjustment, not an itemized deduction. up to $2500
are gifts given to organizations tax deductible?
yes
are gifts given to needy families tax deductible?
no
are political contributions tax deductible?
no
what is the maximum allowable deduction for charitable contributions?
overall limit = 50% of agi
what are the limitation rules for charitable contributions?
overall limit = 50% agi

1. cash may be all 50 %.
2. general property - lesser of basis of FMV
3. long-term appreciated property is limited to the lesser of
- 30% of agi
- the remaining amount to reach 50% after cash contributions
how much of agi can be deducted for gifts to a non-operating private foundation?
20%
what is the deduction for contribution of services?
none for value and time, but can deduct out-of-pocket expenses incurred. 14 cents per mile, or cost of gas and oil. parking and tolls.
what is the deduction for hosting a foreign exchange student?
$50 for each full month
for contributions of more than $___ of noncash property, the taxpayer must file form _____
$500. form 8283
when is a written appraisal needed for charitable contributions?
if more than $5,000 for any one item or group of similar items, except that no appraisal is needed for publicly traded securities
what is the calculation for casualty and theft losses?
loss (smaller of basis and decreased fmv)
- insurance recovery
= taxpayers loss
- $100
= eligible loss
- 10% of agi
= deductible loss
when are miscellaneous itemized deductions allowed?
only to the extent that the miscellaneous deductions combined exceed 2% of agi and were not taken as part of an allowable adjustment
what are the types of miscellaneous itemized deductions?
1. unreimbursed business expenses
2. educational expenses
3. uniforms
4. business gifts
5. business use of home
6. employment agency fees
7. expenses of investors - safe deposit box and investment advice
8. subscriptions of professional journals
9. tax preparation fee
10. debit card convenience fees incurred to pay income tax
what are the types of unreimbursed business expenses that can be used as itemized deductions?
travel, meals and lodging (overnight), transportation expenses, meals and entertainment expenses (50%)
what are examples of refundable credits?
1. child tax credit (refund is limited)
2. earned income credit
3. withholding taxes
4. excess social security paid
5. long-term unused minimum tax credit
6. american opportunity credit (40% refundable)
7. making work pay credit
8. adoption credit
what is the child and dependent care credit?
a tax credit of 20% to 35% of eligible expenditures. one dependent = 3,000 max expenditures, 2 or more dependents = $6000 max expenditures
who is eligible for the child and dependent care credit?
qualifying child, under age 13, who can be claimed as a dependent; disabled dependent who meets support test; spouse who is disabled and not able to take care of himself
for the child and dependent care credit, how is the amount that is multiplied by the applicable percentage computed?
using the lowest of:
1. the earned income of the spouse with the lesser amount
2. the actual childcare expenditure
3. the maximum amount (3000 or 6000)
what are eligible expenditures for the child and dependent care credit?
babysitter, nursery school, day care. NOT grammar school.
how do you determine the credit computation for the child and dependent care credit?
under $15k agi = 35%
phaseout = 35-20%
over 43k = 20%
what is the credit for the elderly and/or permanently disabled?
credit of 15% of eligible income to individuals who are 65 years of age or older or under 65 and retired due to permanent disability
what are the base amounts for each filling status for the credit for elderly/permanently disabled?
$5000 for a single person
$7500 if MFJ and BOTH are qualifying individuals
$3750 for married filing separately
what are the agi limits for each filling status for the credit for elderly/permanently disabled
single 7,500
mfj 10,000
mfs 5,000
what is the calculation for the credit for the elderly/disabled?
base amount - all social security - 1/2 excess agi = balance.

balance x .15 = credit
what is the american opportunity credit for?
education expenses for a student's first four years of college education. can have multiple students.
how is the american opportunity credit calculated
100% of the first $2000 expenses, 25% of the next $2000 expenses. (max = $2500)
what are the qualifications of the student to receive the american opportunity credit?
- half time in one academic period during the year
- not convicted of federal or state felony drug offense in calendar year for which expenses are incurred
is there a phaseout for the american opportunity credit?
yes
what part of the american opportunity credit can be refunded?
40% of it is refundable, and the nonrefundable portion may offset both regular and amt
what is the lifetime learning credit?
20% of qualified expenses up to $10k. available for unlimited number of years for qualified tuition and related expenses (EXCEPT BOOKS). only one kid per year
is there a phaseout for the lifetime learning credit?
yes
how can you use coverdell education savings account distributions in conjunction with education credits?
distribution canot be used for the same educational expenses for which either the american opportunity credit or lifetime learning credit was claimed
what is the limit for the adoption credit?
$13,170 per child
what is the timing for the adoption credit?
credit is claimed for years after the payment is made until the adoption is final, at which point expenses paid in the year it becomes final are claimed in that year. for foreign children adopted, no credit can be claimed until the year it becomes final. in either case, expenses paid in later years can be claimed in the year paid
what is the purpose of the retirement savings contributions credit?
be nice to people with low income who contribute to a traditional IRA or Roth IRA.
what is the limitation of the retirement savings contributions credit?
limited to the excess of the regular income tax liability and AMT liability over the taxpayer's nonrefundable personal credits. no carryover allowed.
who is eligible for the retirement savings contributions credit?
over 18, not a dependent, not a full-time student
is a foreign tax credit an itemized deduction or a credit?
it could be either. there is a limit on the credit, so an individual might find it better to deduct the taxes as an itemized deduction instead.
what is the allowable amount of foreign tax credit?
limited to the lesser of
1. foreign taxes paid or
2. foreign taxable income/(taxable income + exceptions) x u.s. tax = foreign tax credit limit
what is the carryover of disallowed foreign tax credit?
cary back one year, carry forward ten years
what is the limit for the general business credit?
can't exceed "net income tax" (regular income tax + amt - nonrefundable tax credits), less the greater of:

1. 25% of regular tax liability above 25,000, or
2. tentative minimum tax for the year
what is the carryover for unused general business credits?
generally carried back one year and forward 20 years
what is the work opportunity credit
available to employers who hire employees from a targeted group. part of the gen business credit.

a. 40% of first $6,000 of first year's wages
b. 40% of firs $3,000 to certain summer youth
what is the child tax credit?
taxpayers ma claim a $1,000 tax credit for each "qualifying child"
what is the age limit for the child tax credit?
must be under the age of 17
is there a phase-out for the child tax credit?
yes
what is the refundable limit for the child tax credit?
lesser of:
a. excess child tax credit (over tax liability)
b. earned income less 3,000 times 15%
what is the eligibility of the earned income credit?
1. live in the u.s. for more than half the taxable year,
2. meet low-income thresholds
3. not have more than a specified amount of disqualified income
4. between the ages of 25 and 65 if there are no qualifying children
5. file a joint return with spouse with certain exceptions
what is defined as earned income
wages, salaries, tips, other employee compensation, and earnings from self employment. does not include pension and annuity income. AMT liability will not affect the credit
an individual cannot claim the credit if the individual has "disqualified income" exceeding $____. disqualified income includes:
$3,100. disqualified income includes taxable and nontaxable interest, dividends, net rental and royalty income, net cap gains income, and net passive income other than self-employment income
if there is excess FICA with two or more employers:
taxpayer may claim the excess as a credit against income tax
if there is excess FICA with one employer:
employer must refund the excess to the employee
what is the small employer pension plan start-up costs credit?
small businesses (those with 100 or less employees who earned at least $5,000 in the preceding tax year), a credit is allowed for 50% of the first $1,000 (up to $500 per year) of qualified start-up costs for establishing a new qualified pension plan for three years
what is the small business healthcare tax credit?
a credit of up to 35% of the employer's costs of the plan premiums, provided the employer contributes at least 50% of the costs of health coverage. allowed as an offset to AMT. not refundable.
how long can the small business healthcare tax credit be carried forward?
20 years
which costs are excluded from the small business healthcare tax credit?
the costs for family members, sole-proprietors, partners, S corp owners with greater than 2% ownership, and shareholders owning more than 5% of corps are excluded
what is the health coverage tax credit?
for eligible individual taxpayers, a credit of 80% of healthcare premiums for qualified health insurance paid by certain taxpayers for the taxpayer and qualifying fam is allowed
what is the residential energy credit?
max credit of 30% of qualifying nonbusiness energy property or improvements, up to a max credit of $1500 (solar electric property, water heaters, small wind energy prop and geothermal pumps have no limit)
what are the exemption amounts for AMT?
single - $33,750 - .25 ( amti - $112,500)

MFJ - $45,000 - .25 (amti - $150,000)

MFS - $22,500 - .25 (amti - $75,000)
what are the adjustments to amt?
P - passive activity losses
A - accelerated dep (post 1986)
N - net operating loss
I - Installment income of a dealer
C - Contracts - % completion vs. completed contract

T - tax "deductions"
I - interest deductions on some home equity loans
M - medical deductions (limited to excess over 10% agi)
M - miscellaneous deductions not allowed
E - exemptions (personal) and standard deduction
what are the tax preference items?
1 - Private activity bond interest income (on certain bonds)
2 - percentage depletion the excess over adjusted basis of property
3 - pre-1987 acc dep
what is the credit for prior year minimum tax?
certain allowable AMT paid in a taxable year may be carried over as a credit to subsequent taxable years. it may only reduce regular tax, not future amt.
what is the carry-forward for the credit for prior year minimum tax?
forever
what is the limitation on the credit for prior year minimum tax?
AMT created from certain permanent differences cannot be carried forward as part of the credit.
what is the general statute of limitations for when the gov't can assess an additional tax?
three years from the later of the due date of the return or the date the return is filed (including amended returns)
what is the statute of limitations if there is a 25% understatement of gross income?
6 years from the later of the due date of return or date return is filed
what is the statute of limitations for fraudulent and false returns?
no statue. forever!
what is the form for a refund?
form 1040x
when can you file a refund claim?
three years after you filed it, or two years after the time the tax was paid if you didn't pay when filling.
when can you file for a refund for bad debts and worthless securities?
seven years later of: due date of return or when it is filed
what is form 1139 for?
to claim a refund of corporate income taxes.
what is form 1045 for?
to request a quick refund of individual income taxes due to the carry back of a net operating loss
what is form 843 for?
to request a refund of taxes other than income tax
a taxpayer is required to make estimated quarterly tax payments if both of the following conditions are met:
1. $1000 or more tax liability
2. Inadequate Tax estimates (less than 90% of current year's tax or 100% of last years tax)