Good Regulation

7/31/2019 Good Regulation

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Educator Expenses

Student Loan Interest

Deduction

Tuition & Fee

Deduction

Health Savings

Account Deduction

Description? An eligible educator isa K-12 teacher, etc. ina school for at least900 hrs per school

year

All interest paymentsqualify for theadjustment. Loans topay for qualified

education expenses.

Applies even if theeducation is work-related

What is the benefit? Can deduct qualifiedexpenses

Can deduct interestpaid

Can deduct expenses

What is the annual

limit?

$250 deduction/each $2,500 deduction $4,000 -- $2,000 --N/A deduction (phasedout)

What are the

requirements for

deductibility?

ordinary andnecessary expensespaid in connection withbooks, supplies,

equipment, and othermaterials used in theclassroom

Undergraduate &graduate;Must have been at leasthalf-time student in

degree program

Undergraduate &graduate

Must be combined withhigh-deductible healthinsurance

Any other conditions

that apply?

Taxpayer must belegally obligated to paythe loan to get thededuction.

Cannot claim bothdeduction & educationcredit for same studentin same year

Exceptions Must file jointly to claimthe adjustment; adependent may NOTclaim the adjustment

Can make pre-taxcontributions up to:$3,100 single$6,250 familyadd'l $1,000 over age55

ADJUSTMENTS FOR AGI - "ABOVE THE LINE" DEDUCTIONS - DEDUCTIONS TO ARRIVE AT AGI


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MAGI phase-out? N/A

Single, H.H., etc. 60,000 - 75,000 65,000 - 80,000

Joint returns 125,000 - 155,000 130,000 - 160,000

A health savingsaccount enablesworkers with high-deductible healthinsurance to make pre-tax contributions of upto $3,oso to cover

costs. No contributionsare allowed once ataxpayer becomes

Any amount paid ordistributed used to paythe qualified medicalexpense of an accountholder is excluded fromincome. If not used forqualified expenses: it isincludible in incomeand subject to a 1o%penalty.


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Moving Expenses Alimony Paid


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1/2 SE Taxes SE Health Insurance

SE Retirement

Keogh Plan

Interest Withdrawal

Penalty

Description? SE taxpayers with netbusiness income aresubject to two taxes:Income tax &

S.S./Medicare tax

SE taxpayers maydeduct all of themedical insurancepremiums paid for the

taxpayer, spouse, anddependents

A SE taxpayer subjectto the SE tax isgenerally allowed toset up a Keogh (Profit

Sharing) Plan.

What is the benefit? Can deduct 1/2 of SES.S./Medicare tax

Can deduct SE healthinsurance

Can deduct the lesserof: $50,000 (adj forinflation)

What is the annual

limit?

50% deduction 100% deduction OR25% net earnings

What are the

requirements for

deductibility?


that apply?

The plan must be setup in the name of theSE individual or theindividual's business.

Exceptions Not deducted onSchedule C

Not deducted onSchedule C

Business Income(Business Expenses)Net Business Income(1/2 SE Tax)

(Keogh Deduction)Keogh Net Earningsx 25%_________25% of SE after theKeogh deduction is thesame as 20% (25% /125%) of SE incomebefore the Keoghdeduction.



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MAGI phase-out? N/A N/A

Single, H.H., etc.

Joint returns

The maximum annual

"additions(contributions)" thatare non-deductible arelimited to the lesser of$49,000 or

100% net earnings.HINT just use 20% of

self employment netincome


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Alimony Paid Moving Expenses

Attorney Fees Paid in

Certain

Discrimination &

Whistleblower Cases

Domestic Production

Activities Deduction

(DPAD)

Description?

What is the benefit? there is a per mile carallowance or actual out-of-pocket amounts

What is the annual

limit?

What qualifies? Must change job sites,50 miles move,Must work in newlocation for 39 weeks

during the 12 monthsafter arrival.

Other conditions that

apply?

Exceptions

Meal costs, pre-movehouse hunting,expense of breaking alease, and temporaryliving expenses are notdeductible.



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MAGI phase-out?

Single, H.H., etc.

Joint returns

Must be work related

Must be so miles ormore (Distance mustbe so miles fartherfrom OLD house thanOLD workplace was)

Must work in newlocation for 39 weeks

during the 12 montheriod after the move

Travel and lodging forthe taxpayer and family

Transportinghousehold goods andpersonal effects to new


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Deductible IRA Non-Deductible IRA Roth IRA

Coverdell Education

Savings Accounts

(IRA)

Description? Know rules regardingdeductibility

Earnings oncontributions will

accumulated tax-freeuntil withdrawn.

know contributionrequirements

What is the benefit?

What is the annual

limit?

$5,000 or indivcompensation

$5,000 or individualscompensation

What are the

requirements for

deductibility?


that apply?

Exceptions



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MAGI phase-out?

Single, H.H., etc.

Joint returns


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Keogh plans

Description?

What is the benefit?

What is the annual

limit?

Lesser of: 25% netearnings from SE (afterKeogh deduction) and

What are the

requirements for

deductibility?


that apply?

Exceptions



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MAGI phase-out?

Single, H.H., etc.

Joint returns


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Medical and Dental

expenses Taxes paid Interest paid

Charitable

Contributions

in excess of 7.5% of

AGIhome & investment up to 50% of AGI

dependents must meet

only the support,relationship, andresidency tests

Deductible RE taxes, PersonalProperty taxes,Foreign taxes

Not Deductible

DEDUCTIONS FROM AGI


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Casualty/Theft Miscellaneous Other Miscellaneous

in excess of 10% of

AGIin excess of 2% of AGI

DEDUCTIONS FROM AGI


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Foreign tax credit

Child and dependent

care credit

Elderly or disabled

credit Adoption credit

Description?

A credit for foreignincome taxes paid to a

foreign county or US

possession.

individuals, corp, etc?

Credit is limited to thelesser of: Foreigntaxes paid

Limitations?

or

Taxable income fromall foreign operations

Taxable income +Exemptions

re can e carreback one year orcarried forward tenyears.

NONREFUNDABLE TAX CREDITS


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Retirement plan

contribution credit

- Education credit -

American

Opportunity


Lifetime Learning


Qualified Tuition

Programs

Atleast 18 by end ofyear; Not a full-time

student; Not adependent; Incomelimits apply

available againstfederal taxes for

qualified tuition, fees,and course materialspaid for the student s

first four years of postsecondary education.

The credit is availablefor an unlimited

number of years forqualified tuition and

related expenses.

Equal to 2o% ofqualified expenses upto $1o,ooo.

of the regular taxliability over thealternative minimumtax liability of thetaxpayer, minus thetaxpayer snonrefundablepersonal credits. No



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General business

credit

Prior Year Alternative

Minimum Tax

(AMT) Credit Business tax credits

Work Opportunity

credit



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Child tax credit Earned income credit Withholding taxes Excess S.S. paid

Refundable to theextent of the lesser of:

Excess child tax credit(over tax liability);Earned income less

$3,ooo times 1s%.

Taxpayers may claim a$1,ooo tax credit for

each "QualifyingChild."

REFUNDABLE CREDITS


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MAGI phase-out


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LT unused minimum

tax credits

partial Hope

Scholarship credit

Making Work Pay

credit

REFUNDABLE CREDITS


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U.S. savings bond

income

MAGI phase-out?

Single, H.H., etc. 72,850 - 87,850

Joint returns 109,250 - 139,250

GROSS INCOME


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MAGI phase-out?

Single, H.H., etc.

Joint returns


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Deductible IRA Non-Deductible IRA Roth IRA

Coverdell Education

Savings Accounts

(IRA)

MAGI phase-out?

Single, H.H., etc. 110,000 - 125,000 95,000 - 110,000

Joint returns 173,000 - 183,000 190,000 - 220,000

Separate returns 0 - 10,000


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Keogh Plan

Max AnnualContribution

may exceed thedeductible amount for

the year

Net Earnings (from SE)

x 25%

MAGI phase-out?

Single, H.H., etc.

Joint returns

Business Income

(Business Expenses)Net Business Income

(1/2 SE Tax)(Keogh Deduction)

Keogh Net Earnings

it is limited to the

lesser of: $50,000 or100% net earnings(only if compensationis les than $50,000)


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GeneralPartnership

LimitedPartnership Corporation S-Corporation LLC LLP

Formation

Liability ofOwners

Management

Transferability

Taxation


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CorporationFormation Formalities:

File Articles of

Incorporation orCorporate Charter withstate

Liability of Owners Shareholders generally

not personally liablebeyond theirinvestment

Management Managed by Board ofDirectors, who appointofficers to run day-to-day operations

Transferability Shareholders are freeto transfer ownership

interest unless theyagree otherwise

Taxation Income taxed atcorporate level andtaxed again toshareholders whendividends aredistributed


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Business InterestExpense

CharitableContributions

Business Losses orCasualty LossesRelated to Business

OrganizationalExpenditures and Start-up Costs

Amortization,Depreciation, andDepletion


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Life InsurancePremiums Business Gifts

Business Meals andEntertainment

Penalties and IllegalActivities NotDeductible Taxes


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Lobbying and PoliticalExpenditure

Capital Gains andLosses Net Operating Losses

Inventory ValuationMethods

General BusinessCredit


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GAAP

FINANCIAL STATEMENTS

IRC

TAX RETURN

GROSS INCOME:

Gross sales Income Income

Installment sales Income Income when received

Rents and royalties in advance Income when earned Income when received

State tax refund Income Income

Dividends

Equity method Income is subsid's earni Income is dividends received

100/80/70% exclusion No exclusion Excluded forever

ITEMS NOT INCLUDIBLE IN "TAXABLE INCOME":

State and municipal bond interest Income Not taxable income

Life insurance proceeds Income Not taxable income

Gain/loss on treasury stock Not reported Not reported

ORDINARY EXPENSES:

Cost of goods sold Uniform capitalization rulUniform capitalization rules

Officers' compensation Expense $1,000,000 limit

Bad debt Allowance (estimated) Direct write-off

Estimated liability for contingency Expense (accrue estimat No deduction until paidInterest expense

Business loan Expense Deduct

Tax-free investment Expense Not deductible

Taxable investment Expense Deduct up to taxable income

Contributions All expensed Limited to 10% of adj. taxable inco

Loss on abandonment / casualty Expense Deduct

Loss on worthless subsidiary Expense Deduct

Depreciation

MACRS vs. straight line Slow depreciation Fast depreciation

Section 179 depreciation Not allowed (must depre 2008-2010 = $250,000

Different basis of asset Use GAAP basis Use tax basisAmortization

Start up/organizational expense Expense $5,000 exp max/18 mo amort exce

Franchise Amortize Amortize over 15 years

Goodwill Impairment Test Amortize over 15 years

Depletion

Percentage vs. straight line least Cost over years Percentage of sales

Percentage in excess of cost Not allowed Percentage of sales

Profit and pension expense Expense accrued No deduction until paid

Accrued expense (500h owner I fa Expense accrued No deduction until paid

State taxes (paid) Expense Deduct

Meals and entertainment Expense Generally 50% deductible

GAAP EXPENSE ITEMS THAT ARE NOT TAX DEDUCTiONS:

Life insurance expense lcorporatio Expense Not deductible

Penalties Expense Not deductible

Lobbying/political expense Expense No deduction

Federal income taxes Expense Not deductible

SPECIAL ITEMS:

Net capital gain Income Income

Net capital loss Report as loss Not deductible


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Carryback / carryover 3/5 Not applicable Unused loss allowed as a STCL

Related shareholder Report as a loss Not deductible

Net operating loss Report as a loss 2/20

Research and development Expense Expense/ Amortize /Capitalize


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TEMP PERM NONE

GROSS INCOME:

Gross sales P

Installment sales P

Rents and royalties in advance P

State tax refund P

Dividends

Equity method P

100/80/70% exclusion P

ITEMS NOT INCLUDIBLE IN "TAXABLE INCOME":

State and municipal bond interest P

Life insurance proceeds P

Gain/loss on treasury stock P

ORDINARY EXPENSES:

Cost of goods sold P

Officers' compensation P

Bad debt P

Estimated liability for contingency (e.g., warranty]P

Interest expense

Business loan P

Tax-free investment P

Taxable investment P

Contributions P P P

Loss on abandonment / casualty P

Loss on worthless subsidiary P

Depreciation

MACRS vs. straight line P

Section 179 depreciation P

Different basis of asset PAmortization

Start up/organizational expenses P

Franchise P

Goodwill P

Depletion

Percentage vs. straight line least) P

Percentage in excess of cost P

Profit and pension expense P

Accrued expense (500h owner I family) P

State taxes (paid) P

Meals and entertainment P

GAAP EXPENSE ITEMS THAT ARE NOT TAX DEDUCTiONS:

Life insurance expense lcorporation) P

Penalties P

Lobbying/political expense P

Federal income taxes P

SPECIAL ITEMS:

Net capital gain P

Net capital loss P


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Carryback / carryover 3/5 P

Related shareholder P

Net operating loss P

Research and development P P P


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Personal - Individual Business - Corporation


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financial statementsGAAP

Book Income

tax returnIRC

Taxable Income

Purchased Goodwill Not amortized; test forimpairment.

Amortized on a straight-linebasis over 15 years.


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Documents

Good Regulation