REG 2 > Module 2: Itemized Deductions > Flashcards

Module 2: Itemized Deductions Flashcards

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1
Q 
What is the standard deduction for:
Single
Head of household
MFJ/Surviving Spouse
MFS
A 
S = 6,350
HH = 9,350
MFJ/SS = 12,700
MFS = 6,350
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2
Q 
How much is the standard deduction increased by if a taxpayer is:
Single and 65 or blind
Single and both 65 and blind
Married and 65 or blind
Married and both 65 and blind
Couple are both 65 or blind
Couple are both 65 and blind
A 
Single and 65 or blind = 1,550
Single and both 65 and blind = 3,100
Married and 65 or blind = 1,250
Married and both 65 and blind = 2,500
Couple are both 65 or blind = 2,500
Couple are both 65 and blind = 5,000
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3
Q

How much is the standard deduction for a dependent of another?

A

The greater of:
$1,050 OR
Earned income + $350
(Limited by the regular standard deduction)

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4
Q

Itemized Deductions

A

“From AGI” deduction

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5
Q

What are itemized deductions reported on?

A

Schedule A

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6
Q

When would a taxpayer itemize deductions?

A

When “from AGI” deductions are greater than the standard deduction

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7
Q

What is the rule regarding itemized deductions for taxpayers who are MFS?

A

Both must take the standard deduction or itemize

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8
Q 
When does the itemized deduction phase-out start for:
MFJ/SS
HH
S
MFS
A 
MFJ/SS = 313,800
HH = 287,650
S = 261,500
MFS = 156,900
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9
Q

Which itemized deductions are subject to the overall limit on itemized deductions?

A 
Taxes paid
Interest paid
Gifts to charity
Job expenses/Certain miscellaneous deductions
Other miscellaneous deductions
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10
Q

Which itemized deductions are not limited?

GIMC (gimmick)

A
  1. Gambling losses
  2. Investment interest expense
  3. Medical and dental expenses
  4. Casualty and theft losses
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11
Q

MEDICAL EXPENSES

Payments on the behalf of which individuals qualify as an itemized deduction?

A
  1. filing tax[payer
  2. spouse
  3. dependent who received >1/2 of his/her support from filing taxpayer
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12
Q

MEDICAL EXPENSES
Which dependency tests apply for medical and dental expenses?
(SUPORT)

A
  1. Support >50%
  2. Only citizens
  3. Relative OR
  4. Taxpayer lives with
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13
Q

In order items to be tax deductible, the items must have been:

A
  1. incurred as an expense

2. paid/charged before year-end

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14
Q

MEDICAL EXPENSES

To what extent are qualified medical expenses deductible? Formula?

A

To the extent they exceed medical insurance reimbursement and 10% of taxpayer’s AGI (7.5% if >65 years old through 2016)

Qualified medical expenses
(Insurance reimbursement)
=Qualified medical expense "paid"
(10% of AGI)
=Deductible medical expenses
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15
Q

MEDICAL EXPENSES

Types of deductible medical expenses

A
  1. Medicine/drugs (prescription)
  2. Doctors
  3. Medical/accident insurance
  4. Required surgery
  5. Transportation to medical facility (actual cost or allowance = 17 cents per mile)
  6. Physically disabled costs
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16
Q

MEDICAL EXPENSES

Types of nondeductible medical expenses

A
  1. Elective surgery/cosmetic operations, drugs that are illegal, travel, vitamins, part of SS tax paid for basic Medicare, funerals, cemetery lots
  2. Life insurance (b/c financial insurance)
  3. Capital expenditures (up to the increase in FMV of property b/c of expenditure)
  4. Health club memberships recommended by doctor for general health care
  5. Personal hygiene and other ordinary personal expenses
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17
Q

STATE, LOCAL, AND FOREIGN TAXES
Which taxes are deductible?
RIP(S)

A
  1. Real Estate
  2. Income
  3. Property
  4. Sales
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18
Q

STATE, LOCAL, AND FOREIGN TAXES

What condition must be present for a taxpayer to deduct the real estate taxes?

A

Must be legally obligated

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19
Q

STATE, LOCAL, AND FOREIGN TAXES

Are special assessment taxes (street, sewer, sidewalk) deductible?

A

No

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20
Q

STATE, LOCAL, AND FOREIGN TAXES

When are real estate taxes paid through an escrow impound account deductible?

A

When paid to the taxing authority

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21
Q

STATE, LOCAL, AND FOREIGN TAXES

What income taxes are deductible?

A
  1. Estimated taxes paid during the year
  2. Withheld taxes from paychecks during the year
  3. Assessments paid during the year for prior year’s tax
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22
Q

STATE, LOCAL, AND FOREIGN TAXES

When are personal property taxes deductible?

A

If the tax is based on the value of the personal property and paid during the tax year

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23
Q

STATE, LOCAL, AND FOREIGN TAXES

What act permanently extended the sales tax deduction?

A

Protecting Americans from Tax Hikes Act of 2015

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24
Q

STATE, LOCAL, AND FOREIGN TAXES

Regarding sales tax, a taxpayer has the option of electing to deduct which kind of taxes?

A
  1. State/local income taxes
    OR
  2. State/local general sales taxes
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25
STATE, LOCAL, AND FOREIGN TAXES Nondeductible taxes (FIB)
1. Federal taxes (including SS) 2. Inheritance taxes for states 3. Business (on Schedule C) & rental property taxes (on Schedule E)
26
When are cash basis taxpayers entitled to a deduction?
In the year an item is paid/charged, NOT in the year it is applied to
27
INTEREST EXPENSE | HIPPE
``` Home mortgage interest (deductible) Investment interest expense (deductible) Personal Interest (nondeductible) Prepaid interest (deductible in proper period) Education loan interest (adjustment/not itemized deduction) ```
28
INTEREST EXPENSE | Home mortgage interest related to which homes is deductible?
On a first or a second home (taxpayer's principal residence and one other residence)
29
INTEREST EXPENSE - Home Mortgage | What qualifies as a second home?
A home that is used for personal purposes for at least 14 days in a tax year
30
INTEREST EXPENSE - Home Mortgage | What portion of interest on acquisition indebtedness is deductible?
Interest on up to $1M ($500K MFS) of acquisition indebtedness is deductible Interest on excess principal (over $1M or $500 MFS) = personal interest = not deductible
31
INTEREST EXPENSE - Home Mortgage | What is acquisitions indebtedness?
Debt that is - incurred in buying, constructing, or substantially improving taxpayer's principal and second home; and - secured by the home - point related to acquisition indebtedness are deductible imediately refinancing points must be amortized over the period of loan
32
INTEREST EXPENSE - Home Mortgage | What is home equity indebtedness?
Debt that is secured by the taxpayer's principal/second residence, but is not "acquisition indebtedness"
33
INTEREST EXPENSE - Home Mortgage | What is the max amount that can be treated as home equity indebtedness?
The lesser of: - $100K ($50K MFS) - FMV of the property reduced by the amount of outstanding acquisition indebtedness
34
INTEREST EXPENSE - Home Mortgage | When would interest on home equity indebtedness not be deductible?
If the proceeds were used to buy securities or certificates that produce tax-free income
35
INTEREST EXPENSE - Investment Interest Expense | What is investment interest deduction for indivs. limited to?
Net (taxable) investment income
36
INTEREST EXPENSE - Investment Interest Expense | What is included as investment (taxable) income?
1. Interest and dividends 2. Dividends 3. Rents 4. Royalties (in excess of expenses) 5. Net long-term and short-term capital gains (only if taxpayer elects not to claim the reduced cap. gains tax rate)
37
INTEREST EXPENSE - Investment Interest Expense | What is excluded as investment (taxable) income?
Interest expense used to purchase tax-free bonds (not deductible b/c interest earned on bonds is not taxable)
38
INTEREST EXPENSE - Investment Interest Expense | What is excluded as an investment expense?
Any interest expense taken into account in determining income/loss from: - passive activity - rental real estate in which taxpayer does not actively participate
39
INTEREST EXPENSE - Personal (Consumer) Interest includes:
NOT DEDUCTIBLE Includes: 1. personal note to a bank or person for borrowed funds 2. life insurance loans 3. bank credit cards or other revolving charge accts. 4. purchase of personal property 5. interest on federal, state, or local tax underpayments
40
INTEREST EXPENSE - Prepaid Interest
Must be allocated over the period of the loan
41
INTEREST EXPENSE - Educational Loan Interest
Deduction to arrive at AGI NOT itemized deduction
42
``` CHARITABLE CONTRIBUTIONS What are the definitions for: 1. Charity 2. Gifts 3. Political contributions ```
1. Charity - Items given to organizations (tax deductible) 2. Gifts - Items given to individuals (needy family) (nondeductible) Political contributions - Items given to candidates (nondeductible)
43
CHARITABLE CONTRIBUTIONS | What forms must gifts be in?
Cash or property (FMV)
44
CHARITABLE CONTRIBUTIONS | How is the deduction of contributed property measured?
The lesser of: - Property's basis - Property's FMV at time of contribution
45
CHARITABLE CONTRIBUTIONS | What is the ma allowable deduction for an indiv.?
1. Cash = 50% of AGI | 2. FMV property = 30% of AGI for gifts of LT capital gain property to public charities
46
CHARITABLE CONTRIBUTIONS | What value is appreciated property (property having value greater than its basis) deductible?
At its FMV if held >1 year
47
CHARITABLE CONTRIBUTIONS What is the special rule for deducting the full value of LT capital gain property (without paying cap. gain tax on appreciation)?
The total value of such property deducted may not exceed 30% of taxpayer's AGI for gifts to public charity No more than 20% may be deducted for gifts to nonoperating private foundation
48
CHARITABLE CONTRIBUTIONS | What is the limit for the total deduction for all gifts?
Not to exceed 50% of AGI
49
Charitable contribution limitation:
Overall limit = 50% of AGI - Cash - may be all 50% - General property - lesser of basis or FMV - LT appreciated property - limited to lesser of (1) 30% AGI or (2) remaining amount to reach 50% after cash contributions
50
CHARITABLE CONTRIBUTIONS | How much can a taxpayer deduct for a contribution?
The excess contribution over the consideration received
51
CHARITABLE CONTRIBUTIONS | When would a deduction be allowed?
Only for the tax year in which the contribution is made: 1. Cash or check: actually paid 2. Credit card: when charged
52
CHARITABLE CONTRIBUTIONS | What can a taxpayer deduct in relation to services contributed?
Out-of-pocket expenses incurred as a result of giving services (driving to/from volunteer work) CANNOT deduct value of free services
53
CHARITABLE CONTRIBUTIONS | For contributions of more than $500 of noncash property, what are the substantiation requirements?
1. Must file Form 8283 | 2. Taxpayers claiming > $5K for any one item or group of similar items need written appraisal
54
CHARITABLE CONTRIBUTIONS | How long can excess charitable contributions be carried over?
Five year carry forward
55
CASUALTY AND THEFT LOSSES | To what extent are casualty and theft losses of nonbusiness property deductible?
To the extent that each indiv. loss exceeds $100 and that the aggregate of these excess losses exceeds 10% AGI
56
CASUALTY AND THEFT LOSSES | What amount is regarded as casualty loss?
The difference b/w the market value of the property immediately before the casualty and its market value immediately afterward, but may not exceed adjusted basis
57
CASUALTY AND THEFT LOSSES | What is the calculation of deductible loss?
``` Smaller loss (1. Lost cost/adjusted basis or 2. Decreased FMV) (Insurance recover) =Taxpayer's loss ($100) =Eligible loss (10%AGI) =Deductible loss ```
58
CASUALTY AND THEFT LOSSES | What is the general rule with CPA questions and the calculated loss?
Generally, the smallest loss is the correct answer
59
CASUALTY AND THEFT LOSSES | What must happen for a casualty loss for nonbusiness property to be deducted?
1. An insurance claim was filed; or | 2. The losses are not covered by insurance
60
MISCELLANEOUS ITEMIZED DEDUCTION (2% AGI TEST) | To what extent is a deduction for miscellaneous itemized deductions subject to the 2 percent AGI test allowed?
To the extent that certain miscellaneous deductions combined exceed 2% AGI and were not taken as part of an allowable adjustment
61
MISCELLANEOUS ITEMIZED DEDUCTION (2% AGI TEST) | What expenses are allowed as a miscellaneous itemized deduction subject to the 2% AGI test?
1. Unreimbursed business expenses (employee) 2. Education expenses (not deducted above AGI) 3. Uniforms 4. Business gifts 5. Employment agency fees (Job hunting) 6. Expenses of investors (safe deposit box and investment advice) 7. Subscriptions to professional journals 8. Tax preparation fee 9. Debit card convenience fees incurred to pay income tax 10. Activities not engaged in for profit (hobbies)
62
MISCELLANEOUS ITEMIZED DEDUCTION (2% AGI TEST) | What unreimbursed business expense items may be deducted?
1, Travel, meals, and lodging (overnight business travel) 2. Transportation expenses (100% deductible) 3. Meals/entertainment expenses (50% deductible)
63
MISCELLANEOUS ITEMIZED DEDUCTION (2% AGI TEST) - Business Expense What is the overnight rule?
"Away from home" means away from home overnight
64
MISCELLANEOUS ITEMIZED DEDUCTION (2% AGI TEST) | What education expenses are not allowable in miscellaneous itemized deductions?
1. Education interest -- adjustment ($2.5K) | 2. Tuition and fees -- adjustment ($4K)
65
MISCELLANEOUS ITEMIZED DEDUCTION (2% AGI TEST) | An individual may deduct education expenses if they either:
- maintain/improve skills needed by the indiv. in his/her trade/business; or - meet the express requirements of the individual's employer for retention of his job
66
MISCELLANEOUS ITEMIZED DEDUCTION (2% AGI TEST) | What is the limit on business gifts for a miscellaneous itemized deduction?
$25 per recipient per year
67
MISCELLANEOUS ITEMIZED DEDUCTION (2% AGI TEST) - Hobbies | What is the statutory presumption for an activity to be for profit?
An activity is engaged in for profit if it shows a profit for three or more taxable years during a period of five consecutive years ending with the year in questions
68
MISCELLANEOUS ITEMIZED DEDUCTION (2% AGI TEST) - Hobbies | To what expense can expenses from a hobby be deducted?
To the extent of gross income from the hobby
69
MISCELLANEOUS ITEMIZED DEDUCTION (2% AGI TEST) - Hobbies | In what order are expenses from a hobby taken as itemized deductions?
1. Expenses attributable to mortgage interest and property taxes 2. All other hobby expenses w/the exception of depreciation expense as miscellaneous itemized deductions 3. Depreciation expense as miscellaneous itemized decuction
70
OTHER MISCELLANEOUS DEDUCTIONS (NO 2% AGI TEST) | What itemized deductions are fully deductible as miscellaneous deductions?
1. Gambling losses (up to gambling winnings( | 2. Federal estate tax paid on income in respect of a decedent
71
EXAM HINT: Itemized Deduction vs. "Adjustment"
CPA exam will test on items and ask is it an "adjustment" or itemized deduction
72
For FMV of charitable contributions, what is the limit?
30% of AGI
73
What is the principal limit on deducting interest on home equity loans?
Interest on home equity loans of up to $100K in principal are fully deductible
74
When determining whether to deduct interest from a loan, does it matter what the proceeds are used for?
If the loan is secured by a home, it does not matter what the proceeds are used for
75
Is interest on auto loans deductible?
No
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