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114 Cards in this Set

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  • Back

Adjustments to Gross Income to Arrive at AGI

(Above the line)

*Deduction to arrive at AGI

Adjustments for AGI Include the Following

*Educator Expenses


*Student Loan Interest Expense

*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 whistle-blower cases

*Domestic Production Activities Deduction

Adjustments to AGI for Self-Employment (Not Included on Schedule C)

*One-half self employment FICA

*Self-Employed Health Insurance

*Self-Employed Retirement

Educator Expenses

Eligible educators can deduct up to $250 of qualified expenses paid. If spouses are filing jointly and they are both eligible educators, the max deduction is $500. Applies to kindergarten through 12th grade teacher, instructor, counselor, principal, or aide in a school for at least 900 hours. It applies to ordinary and necessary expenses.

Individual Retirement Accounts (IRAs)

*Deductible (The regular IRA is deductible from gross income to arrive at AGI). Earnings accumulate tax-free. Withdrawals are taxable as ordinary income.

IRA Deductibility Requirements

A taxpayer generally will not be permitted to deduct contributions if the following are present:

1. Excessive AGI (S/HH $61k-$71k) (J- $98k-118k)

2. Active participation in another qualified plan

Spouses' participation is not considered unless MAGI is more than $183k-$193k (super rich)

Amount of IRA Deduction

(General Rule)

For 2015, the lower of $5,500 or the individual's compensation. For married taxpayers $11,000 ($5,500 per spouse).

Compensation (defined)

Salary, Wages, Commissions, Bonuses, and Alimony.

Does not include interest, dividends, annuity income, and pensions.

Additional Catch-Up Contribution

Individuals who are 50+ by December 31 are allowed an additional contribution of $1,000.

Roth IRA

Contributions are non-deductible when made. Earnings accumulate tax free while in a Roth IRA. Distributions of both principal and interest are also tax-free provided they are qualified distributions. Principal and Earnings are tax-free. Same contribution limits as deductible IRA.

MAGI phaseout (S-$116k-131k, J-$183k-193k, MFS $0-10k)

Nondeductible IRA

Final option when not eligible for deductible IRA or Roth IRA. Earnings will accumulate tax free (deferred until withdrawn). The principal contributions are not taxable (because they were already taxed)

Coverdell Education Savings Accounts

They are set up to pay qualifying education expenses of a designated beneficiary. Contributions are nondeductible. Max is $2000 per beneficiary annually. This would be for lots grandchildren. Distributions are tax free if they are used for qualifying education expenses including tuition, fees, tutoring, books, room, board, supplies and equipment. Must be distributed by the time beneficiary reaches 30. When distributed taxable to beneficiary with 10% penalty. A tax-free rollover is permitted.

Coverdell Contribution Requirements

1. Beneficiary child under age 18

2. $2000 maximum contribution

2. Phased out for taxpayers (S- $95K-$110K, J- $190K-220K)

Student Loan Interest Expense

The adjustment for student loan interest is limited to $2500. All interest payments qualify for adjustment. It is phased out for (S- $65K-80K M-130K-160K). A dependent may not claim the adjustment.

Tuition and Fees Deduction

The qualified higher education expenses above the line deduction applies regardless of whether the education is work related. Maximum for 2014 $4k for taxpayer with agi less than $65k. $2k if between $65k and $80k. No adjustment over $80k. Amounts doubled for joint filers.

Restrictions to tuition and fees deduction

Taxpayer is not eligible to claim deduction if the expenses were applied to the American Opportunity Credit or Lifetime Learning Credit or if they were from non-deductible savings account distributions.

Health Savings Account (Pretax Contributions)

For those with high deductible plans, can make pre-tax contributions up to $3,350 for 2015 or $6,650 for families. The amount increases by $1k for those who reach age 55 in the calendar year. No contributions allowed once taxpayer becomes covered my Medicare Parts A or B.

Health Savings Account (Excludable Withdrawals)

Any amounts used to pay qualified medical expenses are not includible in gross income. Distributions for qualified drugs only apply to those prescribed by a physician. Distributions not used to pay qualified medical expenses receive a 10% penalty.

High Deductible Plan

A health insurance plan that has at least a $1300 annual deductible for self-only coverage or $2,600 for family coverage. OOP costs must be limited to $6,450 for individuals and $12,900 for families.

Moving Expenses

*Must be work related.

The new workplace must be 50 miles farther from old house than old workplace.

Must also have 39 week stay or 75% of next year

Only direct moving costs are allowable. Travel and lodging of the taxpayer and family. 0.23 per mile and tolls and parking fees. Transporting household goods to new location.

Non-Deductible Moving Expense


-Pre-move house hunting

-Expense of breaking a lease

-Temporary Living Expenses

Tax on Self-Employment

(Social Security 50%) 50% of the self-employed social security/ medicare tax is deductible.

Self-Employed Health Insurance

May deduct all of the medical insurance premiums paid for the taxpayer, spouse and dependents. Provided that the plan is set up in the name of the self-employed individual.

Keogh Profit Sharing Plans

Self-Employed taxpayer is eligible to set up a Keogh. The maximum annual deductible amount is the lesser of $53k or 25% net earnings for 2015. The maximum annual contribution may exceed the deductible amount if it is the lesser of $53k or 100% of net earnings.

Net earnings from Self-Employment After the Keogh deduction

Equivalent of 20% of self-employment income before the Keogh deduction. Max allowable deduction.

Penalty on Early Withdrawal from Savings

Interest Forfeited. Do not net against interest income.


Alimony payments to a former spouse are deductible to arrive at AGI.

Child Support

Non-taxable to payee, non-deductible to payor.

Deductions from Adjusted Gross Income

Below the line (AGI) deductions

Standard Deduction

Single- $6300

HOH- $9250

MFJ- $12600

MFS- $6300 (both spouses have to take standard deduction or itemize.

Additional Deduction for Elderly and/or blind

The standard deduction is increased by $1550 if single and 65 or blind, $3100 if single and both, $1250 if married and 65 or blind, $2500 if married and both. $2500 if both are married and 65 or blind, $5000 if both are married and blind.

Itemized Deduction Phase Outs

Itemized Deductions are phased out when income exceeds $309900 for MFJ, $284050 for HOH, $258250 for single taxpayers and $154950 for MFS. The itemized deductions are reduced by 3% of the amount by which the taxpayer exceeds those amounts. The itemized deductions may not be reduced below 80% of the amount allowed before the phaseout.

Schedule A

Personal Itemized Deductions

Itemized Deductions that are not phased out

*Gambling Losses

*Investment Interest Expense

*Medical Expenses

*Casualty and Theft

Medical Expenses

Payments on behalf of the filing taxpayer, spouse, and dependents who receive half of his or her support from the taxpayer qualify. The gross income requirement and joint filing requirement do not apply when determining if someone is a dependent for medical expense deduction purposes.

*Cash Basis

Deductible Medical Expense Formula

Qualified Medical Expenses


Qualified Medical Expense Paid

<10% of AGI>


Deductible Medical Expenses

Types of Deductible Medical Expenses

1. Medicine and Drugs (prescription)

2. Doctors

3. Medical and accident insurance

4. Required surgery

5. Transportation to medical facility (actual cost, allowance of 23 cents per mile for 2015)

6. Physically disabled costs

Types of Nondeductible Medical Expenses

1. Elective surgery, drugs that are against the law, travel, vitamins, the part of social security tax paid for basic medicare, funerals, cemetery lots, and insurance against loss of earnings due to sickness.

2. Life insurance

3. Capital Expenditures (can deduct diff between cost of required changes to home less any FMV increase occured as a result of changes)

4. Health club memberships

5. Personal Hygiene.

Real Estate Taxes

Deductible if:

1. The taxpayer is legally obligated to pay them.

2. Prorate taxes in year of purchase of sale

3. Taxes paid under protest are deductible, subsequent recovery should be included in gross income.

4. Does not include street, sewer and sidewalk assessment taxes.

5. Real estate taxes on land held for appreciation can be deducted or capitalized at the option of taxpayer.

Income Taxes

1. Estimated taxes paid during the year are deductible

2. Withheld taxes from paycheck are deductible

3. Assessments paid during the year for prior year tax are deductible

4. Refunds are an item of gross income.

Personal Property Taxes

State and local personal property taxes are deductible

Sales Tax

A taxpayer may elect to deduct either state and local income taxes OR state and local sales tax.If sales tax is chosen the amount is determined by the total of actual sales tax paid or the relevant IRS table plus any amount of sales tax paid for a car, boat, or other IRS approved items.

Non-Deductible Taxes

Federal Taxes (including social security)

Inheritance Taxes for states (also called federal estate pick up tax)

Business and rental property taxes

Home Mortgage Interest

Deductions are allowed for "qualified residence interest" on a first and second home. A home used for personal purposes for at least 14 days of the year is a "second home". Qualified interest includes acquisition indebtedness and home-equity indebtedness.

Acquisition Indebtedness

Interest up to $1mil is deductible. This is interest incurred in buying, constructing, or substantially improving the taxpayer's principal residence or second home. It is secured by the home. Points related to acquisition indebtedness are deductible immediately. Refinancing points must be amortized over the period of the loan.

Home Equity Indebtedness

Debt that is secured by the taxpayer's principal or second residence, but not acquisition indebtedness. The max amt is $100k or FMV of property less the amount of outstanding acquisition indebtedness. Can be used for any purpose but not deductible if proceeds are used to buy securities that produce tax-free income.

Mortgage Insurance Premiums

Mortgage Insurance Premiums deductible as home mortgage interest.

Investment Interest Expense

Limited to offsetting net taxable investment income (like gambling loss rule). No negative amounts allowed. Includes interest and dividends, rents, royalties, net long term and short term cap gains (if taxpayer elects not to have special cap gains rate).

Excludes as taxable investment income

Interest expense used to purchase tax-free bonds.

Include as Investment Expense

Investment expenses (other than interest) are deductible on schedule A as itemized deductions (subject to 2% of AGI)

Exclude as Investment Expense

Any interest expense taken into account in determining income or loss from:

1. A passive activity (can be carried forward indefinitely)

2. Rental real estate when an investor does not actively participate.

Disallowed Interest Expense

Can be carried forward indefinitely

Prepaid Interest

Deducted when incurred AND paid

Educational Loan Interest

Is not a deduction, it is an adjustment to arrive at AGI, max $2500

Charitable Contributions

Amounts given to tax-deductible charities, not gifts to individuals or political contributions.

Gifts of property

Less of FMV or basis.

Maximum allowable deduction (charitable contributions)

(50% of AGI)

Cash= 50% of AGI

FMV of property= 30% of AGI for gifts of LTCG property to public charities.

Appreciated Property (Charitable Contributions)

-Property that has a greater FMV than it's basis. It is deductible at FMV if it was held for more than a year.

Appreciated Property (Charitable Contributions)

30% Limit. A taxpayer may deduct the full value of LTCG property (without paying capital gains tax on the appreciation), but the total value of such property deducted may not exceed 30% of taxpayer's AGI for gifts to a public charity, 20% if to a nonoperating private foundation.

Considerations for Contributions

The taxpayer may only deduct the excess contribution over the consideration received.

Charitable contributions by those not itemizing

Taxpayers who do not itemize may not deduct charitable contributions.

Time for Deduction (charitable contributions)

A deduction is allowed only for the tax year in which the contribution is made. Even if made on a credit card, it is the year the charge is made.

Contribution for Services

A taxpayer may not deduct the value of the time or services donated. They may deduct the cost of driving to and from volunteering and parking and tolls.

Student Living in Taxpayer's Home

(ie exchange student) Can deduct $50 a month for each full month the student is in the home attending school.

Carryover of Excess Charitable Contributions

All charitable contributions are applied on a FIFO basis , after current year contributions are deducted, subject to the percentage of income limitations.

Casualty and Theft Losses

Of non-business property are deductible to the extent that each individual loss exceeds $100 and that the aggregate exceeds 10% of AGI. The $100 floor applies to each separate casualty event. Must be sudden or unexpected. Can not be deducted unless and insurance claim was filed or it is not covered by insurance. Lost, misplaced or broken property does not qualify.

Amount of Loss

May not exceed the adjusted basis of the property. The difference between FMV prior to loss and FMV after loss and is reduced by the amount of any insurance recovery.

Miscellaneous Itemized Deductions

Only deductible to the extent that these deductions exceed 2% of AGI and were not taken as part of an allowable adjustment.

Unreimbursed Business Expenses

Travel, Meals and Lodging for overnight business travel. Only applies if away from home overnight. Does not apply to any travel companions. Transportation expenses are deductible unless part of normal work commute.

Meals and Entertainment Expenses

Must be related to business, only deductible at 50%.

Education Expenses

(Those not deducted above AGI) Must maintain or improve skills needed for job, or meet requirements for retention of job. (must be job related)


The purchase, cleaning and repair of uniforms qualifies as a deductible expense. Must not be streetwear off the job.

Business Gifts

$25 per recipient is deductible


Business Use of Home

May not be deducted unless that part of home is used exclusively for business.

Employment Agency Fees

Deductible for new job in SAME profession, does not apply to a first job.

Safe Deposit Box- Investors

Rental fees for a safe deposit box used to store investments are deductible.

Subscriptions to professional journals


Tax Prep Fees


Debit Card Convenience Fees Incurred to Pay Income Tax


Gambling Losses

Fully deductible, but only to the extent of gambling winnings.

Qualified Dividends and LTCG

A reduced tax rate is allowed. Most taxpayers- 15%, 20% if in the 39.6% tax bracket, 0% if in 15% bracket.

Personal Tax Credits

Reduce tax but no refund. These include:

Child and dependent care credit

Elderly and permanently disabled credit

Education credits (Lifetime Learning)

Retirement savings contribution credit

Foreign Tax Credit

General Business Credit

Adoption Credit

Refundable Credits

Reduce Tax and can create refund. Includes:

Child tax credit

Earned Income Credit

Withholding Taxes

Excess Social Security Paid

American Opportunity Credit

Child and Dependent Care Credit

A tax credit of 20-30% of eligible expenditures. One dependent- max $3k, 2 or more $6k. Both parents working, pay someone to care for child. Would include a qualifying child under 13, any disabled dependent of any age, a spouse who is disabled.

Eligible Child and Dependent Care Expenses

Babysitter, nursery school, day care

NOT grammar school.

Child and Dependent Care Computation

Maximum 35%, in order to obtain the max credit the taxpayer's AGI must be 15k or less. The credit decreases by 1% for every 2k over 15k AGI, but not below 20%.

Credit for Elderly and Permanently Disabled

15% of eligible income, available to individuals for are 65 and older or under 65 and retired due to permanent disability. Base amt 5k for single or MFJ where one spouse qualifies. 7.5k if MFJ and both qualify or 3750 for MFS. Eligible income is reduced by any SS payments and 1/2 of income over 7500 for single, 10k for MFJ or 5k for MFS.

American Opportunity Credit

Qualified tuition, fees and course material at an eligible educational institution. credit max- $2500. 100% of first 2k of qualified expenses and 25% of next 2k of qualified expenses. Multiple kids okay. Taxpayer, taxpayers spouse, and taxpayers dependents. Must be enrolled at least half time for at least one academic period during the year. Phase out begins at 80ks 160MFJ and phased out fully at 90k or 180k joint. 40% of tax credit is refundable.

Lifetime Learning Credit

$2000 per year. Available for an unlimited number of years for qualified tuition and expenses (except books). 20% of qualified expenses up to 10k. Only one credit per year, does not vary based on number of students in family. Phaseout begins at 55k s or 110mfj with full phaseout at 65k s or 130k mfj.

Not limited to one type of educational credit in one year

Taxpayer can claim American Opp Credit for one student(s) and lifetime learning for another in the same tax year.

Adoption Credit

A credit for qualifying expenses of adopting a child. Limits, 13,400 per child. Phase out for MAGI above 201,010-241,010. Eligible expenses include all reasonable and necessary expenses, costs and fees. Not available for adopting a child of a spouse. Medical expenses do not qualify. Credit claimed for years after the payment is made until the adoption is final.

Retirement Savings Contributions Credit

*IRA Credits. Eligible taxpayers are over 18, not a full time student, not a dependent. No carryover allowed.

Foreign Tax Credit

Taxpayer may claim a credit for income taxes paid to foreign country or may find it better to take itemized deduction. The allowable credit is the lesser of foreign taxes paid and the foreign tax credit limit.

Taxable income from foreign ops/(taxable income + exemptions)x US Tax = Foreign Tax Credit Limit.

It can be carried back one year and carried forward up to 10 years.

General Business Credits

May not exceed "net income tax" less the greater of 25% of regular tax liability above 25k or tentative minimum tax for the year. Carried back one year and carried forward 20 years.

Work Opportunity Credit

Credit is available to employers who hire employees from a targeted group. 40% of the first 6k of first year's wages or 40% of first 3k for certain summer youth. Qualified groups include disabled, 18-24 year olds from poor families, vietnam vets from economically disadvantaged areas, certain food stamp recipients.

Child Tax Credit

May claim up to $1k for each qualifying child. CARES rules apply but child must be under 17 and resident of US. Phase out by $50 for each $1k by which MAGI exceeds 110k MFJ, 75K S, 55K MFS.

Earned Income Credit

To be eligible must live in US, meet low income thresholds, not have more than certain amt of unqualified income, over 25 and less than 65. Earned income does not include pension and annuity income.

Small Employer Pension Plan Start Up Costs

Small business with less than 100 employees, a credit is allowed for 50% of the first $1k of qualified start up costs for establishing a new pension plan for 3 years.

Small Business Health Care Tax Credit

A credit of up to 50% of the employer's cost of plan premiums is allowed for eligible employers. Provided the employer contributes at least 50% of the costs of health premium costs and enrolled in qualified SHOP. Allowed to offset AMT but not refundable, carried back 1 year and forward 20. Costs for those with greater than 2% ownership or more than 5% shareholders are excluded. No double benefit can't deduct and use credit.

Residential energy credit

Qualifying expenses 15%. max $500.

Alternative Minimum Tax

Pay greater of regular tax or AMT.

AMT Exemption Amounts

Single- $53600 less 25%

MFJ- 83400 less 25%

MFS- 41700 less 25%

In no case can the exemption be less than 0.

Adjustments that increase or decrease AMT

Passive Activity Losses

Accelerated Depreciation

Net Operating Loss

Installment income of a dealer


Adjustments that only increase AMT

Tax "deductions"

Interest deductions

Medical Deductions

Miscellaneous Deductions not allowed

Exemptions (personal) and standard deduction

Tax Preference Items

(Always add-backs) These items will result in more income or less deductions being recognized for AMT. Includes:

Private activity bond interest income

Percentage depletion the excess over adj basis of property

Pre-1987 accelerated depreciation

Credits for prior year minimum tax

*Offsets regular tax

It may only reduce regular tax not future AMT. The carryforward period is forever.

Itemized Deductions Exceptions for AMT

Home mortgage interest and charitable contributions

AMT Credits

They are permitted to reduce AMT

Foreign Tax Credit

Adoption Credit

Child Tax Credit

Contributions to Retirement

Earned Income Credit

Statute of Limitations

Three years from the later of the due date of the return or the date the return was filed. If 25% understatement of gross income IRS has 6 years.There is no statue of limitations on fraud and filing false returns.

Refunds for Individuals (Form 1040x)

Can claim a refund for the later of 3 years from the date the return was filed or the original due date of the return or two years from the time the tax was paid.

Bad Debts and Worthless Securities

The later of 7 years from the date the return was filed or due date. 7 years bad luck.

Form 1139

Used to claim a refund of corporate income taxes

Form 1045

Quick refund of individual income taxes due to carryback of net operating loss

Form 843

Used to request refund of taxes other than income tax.