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R2_Notes

R2_Notes

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Published by Amar Guli
CPA, REG, Regulation, Notes
CPA, REG, Regulation, Notes

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Published by: Amar Guli on Jul 24, 2009
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07/19/2013

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GRPage 1IRA
State disability = (worker's compensation) benefits are not taxable.Funeral expenses are non-deductible on the Form 1040.
Contributions to regular IRAs may or may not be deductible. When you put money into your IRA the earnings are taxdeferred. The accummulated earnings are not taxed (for some). When will it be taxed? When withdrawals occur. So,withdrawals are taxable transactionsNon Deductible IRA: If you are rich and you are protected by a company pension plan then you don't need an IRA. But,if you both of those conditions aren't present you will be permitted an IRA. Therefore, “No deduction if Rich and HaveRetirement Plan”
MFJ is better than Qualifying widow with dep child because, although both have same tax rates and Std Ded, MFJ  provides for extra personal exemption in the year of death for the deceased Qualifying widow with a dependent child is more advantageous than single and head of household since qualifying widow returns are entitled to a higher standard deduction and lower tax rates at similar income levels.Non Accountable means, you don't need to account for or explain the expenses
Rule:
Under a nonaccountable plan (i.e., expenses are not reported to the employer), any amounts received by anemployee from the employer e.g. 400 pm must be reported by the employer as part of wages on the employee's W-2 for the year (and subject to income tax withholding requirements). The gross amount received is reported as incomeregardless of the expenses
Rule:
Any expenses taken against the gross amount received in a nonaccountable plan (e.g., the car mileageexpenses and the reimbursement to the company) are considered miscellaneous itemized deductions and are subject to the 2% AGI limitation.
Rule:
For 50%-type charities only (which include tax-exempt educational organizations), the taxpayer has the option todeduct long-term (i.e., held longer then 12 months) capital gain appreciated property at the higher fair marker value(higher than cost basis) without paying capital gains tax on the appreciated portion. This deduction is limited to 30% of adjusted gross income (AGI). A 5-year carryforward period applies.
Rule
: Taxpayer's may claim either sales tax or state and local income tax, whichever is greater – but not BothThe Burgs could opt to deduct either their state and local income tax or sales tax. Whichever is greater.Self-employment tax is
not
an itemized deduction, but 50% can be used as adjustment in arriving at AGI.
Rule
: The excess of investment interest paid over the “allowed” investment interest can be carried forward indefinitely
Rule
: Qualified Charitable contributions that could not be deductible due to 50% AGI cap can be carried forward for 5yearsRule: If AGI exceeds the threshold limits, taxpayers must reduce itemized deductions (other than Gambling Losses,Investment Interest, Medical and casualtyor theft -
GIMC
) by 3% of AGI in excess of that threshold. The maximumreduction is 80% of those otherwise allowable itemized deductions.There is no itemized deduction for temporary living expenses, and the direct moving expenses (such as the costs tomove the goods and the costs to move the taxpayer's family from the old to the new location) are deductible beforeadjusted gross income, not as an itemized deduction.Premiums on disabilities policies are not deductible since payments under the policy are made to replace lost income,not to pay for medical expenses.
RULE:
The adjustment for education loan interest (an above-the-line deduction to arrive at AGI) is limited to theamount paid or $2,500 (whichever is lower), and all qualified education loan interest is allowed as part of theadjustment. The adjustment is phased-out for single taxpayers with modified AGI between $55,000 and $70,000.
RULE:
Alimony payments to a former spouse are adjustments to arrive at AGI. Child support payments are NOTalimony and are NOT deductible. Property settlements are NOT alimony and are NOT deductible.For IRAs, the adjustment is allowed for a year ONLY if the contribution is made by the due date of the tax return for individuals (April 15). The due date for filing the tax return under a filing extension is NOT allowed (i.e., filingextensions are NOT considered).
 
GRPage 2Death benefits or proceeds from a life insurance policy on parents are not taxable.Royalty is not business income on Sch C but goes to Sch E (Rentals and Royalties)Dividends received from mutual funds that invest in tax-free obligations are not taxable.Depreciation on a business computer is reported on Form 4562 and is deductible on Schedule C.Inheritance and proceeds from a lawsuit for physical injuries are NOT items of taxable gross income – Take a look atthe list of items under “Non Taxable Fringe” in other incomePremiums paid for insurance that covers the expenses of medical care are deductible as medical expenses, includingMedicare B premium payments and any voluntary premiums for Medicare A. But NOT for “Employment Tax” for basiccoverage under “Medicare A”
Rules:
1.Medical expenses charged to a credit card is expensed in the year the charge is made. It does not matter whenthe amount charged is actually paid.2.Expenses paid for the medical care of a decedent by the decedent's spouse are included as medical expenses inthe year paid, whether they are paid before or after the decedent's death.
Rule:
Interest that is prepaid is deductible in the tax year to which, and to the extent that the interest is allocable - i.e.,as it accrues. This allocation is required even by cash basis taxpayers.
Rule:
Interest received on Series EE US Savings Bonds is Tax Exempt When- it is used to pay for higher education of the tax payer, spouse or dependent- Such amount of higher education expenses must be reduced first by any tax free scholarships received (beforeapplying the edu exps against tax fee interest)
Rule:
Ordinarily, a tax must be assessed within
three
years after a return is filed. The assessment period begins fromthe due date of the return if the return is filed prior to the due date or 
"filing date"
if the return is filed later (e.g., withan extension). The assessment period is extended to
six
years for returns that omit more than 25% of the grossincome that should have been reported. That is not the case here ($20,000
÷
$120,000 = 16.7%).
Rule:
A taxpayer may file a claim for refund within three years from the time the return was filed, or two years from thetime the tax was paid, whichever is later. Since no return has been filed, the refund claim must be filed within twoyears from the time the tax was paid.An employee who has had social security tax withheld in an amount greater than the maximum for a particular year,may claim the excess as a credit against income tax, if that excess resulted from correct withholding by two or moreemployers.The pension distributions from a qualified plan (e.g. 401K plan), paid for exclusively by Mr. Vick's employer, are fullytaxable. Remember: contributions are fully excluded from the Gross Income but when distributed, they will be taxable inthe hands of beneficiaryBusiness casualty losses are fully deductible and are not claimed as itemized deductions subject to the 10% of AGIand $100 threshold (as for personal casualty losses)An individual's losses on transactions entered into for personal purposes are deductible only if the losses qualify ascasualty or theft losses. In addition, the individual must itemize deductions and the loss must exceed 10% of AGI plus$100 per casualty.The accrued vacation pay should be included on the 1994 Federal Income tax return, the year in which it wasdistributed NOT to the year it belongsThe amount of alternative minimum tax that is attributable to "deferral adjustments and preferences" can be used tooffset the regular tax liability in the future years, not the alternative minimum tax.Personal life insurance premiums are not deductible.Subscriptions to journals used for business are fully deductible on Schedule C.Subscriptions to investment publications are reported in Schedule A subject to the 2% AGI threshold.Know the difference in treatmentQualifying contributions to a simplified employee pension (SEP) plan are fully deductible to arrive at AGI. - Slightconfusion on this item is – whether this is KEOGH or Pension Plan fully deductible in W2For a SE Business man – Interest expense on an amount borrowed to finance Green's business is fully deductible onSchedule C. The fact that it is a home-equity loan does not put it on a Schedule A because it is borrowed for thebusiness.
 
GRPage 3Real estate taxes on all residences are deductible in full.Child care credits are allowable for payments made to care for children while both spouses work.Inheritances and proceeds of life insurance are not taxable to the recipient.Union Dues are unreimbursed business expenses deductible on sch AFor a SE Business man – Interest expense on a loan taken to buy a Van which is 75% used for business: 75% of theinterest expense on the auto is deductible on Schedule C; the other 25% is nondeductible personal interest.For a SE Business man –Loss on sale of personal residence is not deductible.Investment interest expense is deductible up to net investment income. Unused expenses can be carried forwardindefinitely.Gambling losses are miscellaneous deductions (on Schedule A) and only deductible to the extent of gambling income.Also, there is no 2% AGI floor on this deduction. The most importantly, there is No carry over allowed. If in an year,there are Gambling losses but no corresponding gambling income, the net loss cannot be deducted on Sch A andcannot be carried forwardPersonal expenses (such as Premium on homeowner's insurance policy) are not deductible.However, Mortgage insurance premiums paid in connection with qualified acquisition debt are deductible as homemortgage interestGuaranteed payments from a partnership are taxable to the recipient (covered in the partnership tax lecture, later in thecourse).Receipts of stock dividends and stock splits are not taxable, unless the recipient has the option to receive cash insteador stock (which is not the case here).

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