Federal Income Tax Personal (Itemized) Deductions.

Federal Income Tax

Personal (Itemized) Deductions

© Copyright 2001-2013 by M. Ray Gregg. All rights reserved.

2

Gross Income- FOR= AGI- FROM= Taxable Income

Business

Personal


3

Gross Income- FOR= AGI- FROM= Taxable Income

Personal


4

Itemized Deductions

See text page 7-36• Medical• Taxes• Interest• Charitable

Contributions• Casualty Losses• Other


5

Itemized Deductions

• Medical

• Taxes• Interest• Charitable



6

Medical Expenses

• Define “medical” costs– See text pg 7-3

• Name as many examples as possible

• Name some that are NOT deductible

• Limits:– “out-of-pocket” costs– Reduced by 10% of AGI

mitigation

http://dictionary.reference.com/browse/mitigation


7

Medical Expenses

• Problem 7-4


8

Problem 7-4Which enroute costs are deductible?

Any limits?Auto/Travel $.?? per mile


9

Automobile Expenses

Business

$.565 pg 9 – 11

Moving $.24 pg 9 – 20

Medical $.??

CharitableContribution


10

Automobile Expenses

Business

$.565 pg 9 – 11

Moving $.24 pg 9 – 20

Medical $.24 pg 7 – 4

CharitableContribution

Note: $.12 in 2001$.13 in 2002$.12 in 2003$.14 in 2004$.15$.22 in 2005$.18 in 2006$.20 in 2007$.19 in 2008$.27$.20 in 2009$.165 in 2010$.19 in 2011$.23 in 2012


11


Any limits?Auto/Travel $.24 per mile

Meals


12



Meals 50%

Hotel


13



Meals 50%

Hotel $50 per night


14

Medical Expenses

• Problem 7-4• Problem 7-5


15

Problem 7-5

• Meals?– Not deductible

• See also Pub 17, p. 145

Meals and lodging as outpatient?


16

Problem 7-5

• Meals?– Not deductible

• See also Pub 17, p. 145

Meals and lodging as outpatient?

• Lodging?

– $50 per night


17

Medical Expenses

• Problem 7-4• Problem 7-5• Problem 7-38


18

Problem 7-38

• Issue?• Define “medical dependent”

– Regular dependent = 5 tests– Medical dependent = 3 tests

• All except GI and joint return• Page 7-2, 7-8

• $6,400 less 10% = $4,000


19

Medical Expenses

• Problem 7-4• Problem 7-5• Problem 7-38• Problem 7-35


20

Problem 7-35

GI- FOR

= AGI- FROM

= TI


21

Problem 7-35

GI 58,000- FOR

= AGI 58,000- FROM

= TI


22

Problem 7-35

Doctor 11,700Hospital 9,400Med Ins 600Total 21,700


23

Problem 7-35Reimb

Doctor 11,700 10,000 1,700Hospital 9,400 9,400Med Ins 600 600Total 21,700 10,000 11,700


24

Problem 7-35Reimb

Doctor 11,700 10,000 1,700Hospital 9,400 9,400Med Ins 600 600Total 21,700 10,000 11,700Less: 10% of AGI 5,800Deductible Medical 5,900


25

Problem 7-35Reimb

Doctor 11,700 10,000 1,700Hospital 9,400 9,400Med Ins 600 600Total 21,700 10,000 11,700Less: 10% of AGI 5,800Deductible Medical 5,900Other Itemized 2,750Total Itemized 8,650


26

ReimbDoctor 11,700 10,000 1,700Hospital 9,400 9,400Med Ins 600 600Total 21,700 10,000 11,700Less: 10% of AGI 5,800Deductible Medical 5,900Other Itemized 2,750Total Itemized 8,650

(compared to standard?)

Problem 7-35


27

Problem 7-35

GI 58,000- FOR= AGI 58,000- FROM 8,650

= TI


28

Problem 7-35

GI 58,000FORAGI 58,000FROM 8,650

3,900TI


29

Problem 7-35

GI 58,000FORAGI 58,000FROM 8,650

3,900 12,550TI 45,450


30

Medical Expenses

• Problem 7-4• Problem 7-5• Problem 7-38• Problem 7-35• Problem 7-36


31

Problem 7-36Medical 4,000Legal Fees 3,000Total Reimbursement 7,000


32

ReimbDoctor 11,700 10,000 1,700Hospital 9,400 4,000 5,400Med Ins 600 600Total 21,700 14,000 7,700Less: 10% of AGI 5,800Deductible Medical 1,900Other Itemized 2,750Total Itemized 4,650

(compared to standard?)

Problem 7-36


33

Problem 7-36

GI 58,000- FOR

= AGI 58,000- FROM 6,100

= TI


34

Problem 7-36

GI 58,000FORAGI 58,000FROM 6,100

3,900TI


35

Problem 7-36

GI 58,000FORAGI 58,000FROM 6,100

3,900 10,000TI 48,000


36

Problem 7-36Taxable Income Revised 48,000Taxable Income Reported 45,450Difference 2,550

Must include “tax benefit.”


37

Medical Expenses

• Problem 7-4• Problem 7-5• Problem 7-38• Problem 7-35• Problem 7-36• Another Illustration


54

Medical Expenses

• Problem 7-4• Problem 7-5• Problem 7-38• Problem 7-35• Problem 7-36• Problem 7-39


55

Problem 7-39Y 1 Y 2

AGI 38,000 43,000


56

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000


57

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool ???


58

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool 3,000


59

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool 3,000Maintenance 930 1,060


60

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair ??? ???


61

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair 2,300


62

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed ??? ???


63

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800


64

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist ??? ???


65

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000


66

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200


67

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200Sub-Total 21,430


68

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200Sub-Total 21,430Less: 10% of AGI 3,800


69

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200Sub-Total 21,430Less: 10% of AGI 3,800Med Exp Deduction 17,630

-$9,000


70

Problem 7-39Y 1 Y 2

AGI 38,000 43,000

Medical Costs 5,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200Sub-Total 12,430Less: 10% of AGI 3,800Med Exp Deduction 8,630

+$9,000 “tax benefit”


71

Problem 7-39Y 1 Y 2

AGI 38,000 52,000

Medical Costs 5,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200Sub-Total 12,430 10,060Less: 10% of AGI 3,800Med Exp Deduction 8,630


72

Problem 7-39Y 1 Y 2

AGI 38,000 52,000

Medical Costs 5,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200Sub-Total 12,430 10,060Less: 10% of AGI 3,800 5,200Med Exp Deduction 8,630 4,860


73

Itemized Deductions

• Medical




74

Taxes

• Deductible– Property taxes– State income tax– Local income tax

• Not Deductible– Federal taxes– Sales tax– Excise taxes


75

Taxes

• Deductible– Property taxes– State income tax– Local income tax

• Not Deductible– Federal taxes– Sales tax *– Excise taxes



77

Sales Tax Update• Most of the 633 pages of the American

Jobs Creation Bill of 2004 dealt with taxes on and tax breaks for businesses. But sandwiched in the tax tome [A book,

especially a large or scholarly one], approved by Congress and signed into law by the president, is the OK for consumers to deduct sales taxes from their federal filings. The deduction will be available on 2004 and 2005 tax returns.

http://www.bankrate.com/brm/itax/20041012b1.asp



78

Sales Tax Update• “This tax break isn't an add-on; it

will require you to choose. You must decide whether you want to deduct the sales taxes you paid or your state income tax amounts.”

• “The choice is obvious for residents of the seven states that do not collect state income taxes but do levy state sales taxes: Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.” http://www.bankrate.com/brm/itax/20041012b1.asp


79

Taxes

• Problem 7-40


80

Problem 7-40

1/1 12/31

2012


81

Problem 7-40

1/1 4/11 12/31

Pd $120

2012


82

Problem 7-40

1/1 12/31

Employer w/h $1,600

2012

4/11

Pd $120


83

Problem 7-40

1/1 4/11 4/1312/31

Employer w/h $1,600

Pd $120

$200

2012


84

Problem 7-40

1/1 4/11 4/1512/31

Employer w/h $1,600

Pd $120

$200

Amount deductible?

2012


85

Problem 7-40

1/1 4/11 12/31

Employer w/h $1,600

Pd $120

Did she itemize?

2012


86

Problem 7-40

1/1 4/11 12/31

Employer w/h $1,600

Pd $120

$1,600 + $120 < SD

2012


87

Problem 7-40 (b)

1/1 12/31

2013


88

Problem 7-40 (b)

1/1 12/31

Employer w/h $2,100

2013


89

Problem 7-40 (b)

1/1 4/13 12/31

Employer w/h $2,100

Pd $200

2013


90

Problem 7-40 (b)

1/1 4/13 4/1512/31

Employer w/h $2,100

Pd $200

Rfd $450

2013


91

Problem 7-40 (b)

1/1 4/13 4/1512/31

Employer w/h $2,100

Pd $200

Rfd $450

Amount deductible?

2013


92

Problem 7-40 (b)

1/1 4/13 12/31

Employer w/h $2,100

Pd $200

$2,100 + $200 = $2,300

2013


93

Problem 7-40 (b)

1/1 4/13 12/31

Employer w/h $2,100

Pd $200

Did she itemize?

2013


94

Problem 7-40 (b)

1/1 4/13 12/31

Employer w/h $2,100

Pd $200

$2,300 + $5,500 > SD

2013


95

Problem 7-40 (c)

AGI $51,000

From: Item Ded $7,800

Exemption 3,900 11,700

Taxable Income $39,300

2013


96

Problem 7-40 (c)

AGI $51,000

From: Item Ded $7,350

Exemption 3,900 11,250


2013 - revised


97

Problem 7-40 (d)

AGI $53,500

Add: State Tax Rfd From ’12 450

New AGI $53,950

2014


101

Problem 7-412013

State Income Tax $2,300Mortgage Interest 3,000Total Item Ded $5,300

101


102

Problem 7-412013

Gross Income $51,000

Total Item Ded $5,300Exemption 3,200 9,500


102


103

Problem 7-412013


Std Ded $6,100Exemption 3,200 9,500


103


104

Problem 7-412013


Std Ded $6,100Exemption 3,900 10,000


104


105

Problem 7-41 (b)

AGI $53,500

Add: State Tax Rfd From ’13* 0

New AGI $53,500

2014

105

* No effect since she used standard deduction.


106

Taxes

• Problem 7-40• Problem 7-41• Problem 7-42


107

Problem 7-42 Total Deductible

Fed Taxes W/H $5,400State Tax W/H 2,000 $2,000FICA Tax W/H 3,800Sales Tax on Car 600License 70Prop Tax on Car 2%


108


Fed Taxes W/H $5,400State Tax W/H 2,000 $2,000FICA Tax W/H 3,800Sales Tax on Car 600License 70Prop Tax on Car 2% 400Prop Tax on Car $10/100#


109


Fed Taxes W/H $5,400State Tax W/H 2,000 $2,000FICA Tax W/H 3,800Sales Tax on Car 600License 70Prop Tax on Car 2% 400Prop Tax on Car $10/100#Prop Tax on House 1,850 ???


110

Problem 7-42

1/1 4/15 12/31

Taxes $1,850 for year

31

28

31

14

104


111

Problem 7-42

1/1 4/15 12/31

$527

31

28

31

14

104


112


Fed Taxes W/H $5,400State Tax W/H 2,000 $2,000FICA Tax W/H 3,800Sales Tax on Car 600License 70Prop Tax on Car 2% 400Prop Tax on Car $10/100#Prop Tax on House 1,850 527Total $2,927


113

Taxes

• Problem 7-40• Problem 7-41• Problem 7-42• Problem 7-43


114

Problem 7-43

6/30

$6,000

5/1


115

Problem 7-43 (a)

6/30

$6,000

5/1

Janet (buyer): $6,000 x 61/365 = $1,003

???


116

Problem 7-43 (b)

6/30

$6,000

5/1

Janet (buyer): $6,000 x 61/365 = $1,003Tara (seller): $6,000 x 304/365 = $4,997


117

Problem 7-43 (c)Janet (buyer): $6,000 x 61/365 = $1,003Tara (seller): $6,000 x 304/365 = $4,997Tara’s sales price = $500,000 + $4,997

Janet’s purchase price = $500,000 + $4,997


118

Itemized Deductions

• Medical




119

Interest

Page 1, line 33

ForStudent Loan

Schedule AFromHome Mortgage

NotNotPersonal

Schedule AFromInvestment

NotNotPassive

Schedule CForBusiness


120

Interest

Page 1, line 33

ForStudent Loan

Schedule AFromHome Mortgage

NotNotPersonal

Schedule AFromInvestment

NotNotPassive

Schedule CForBusiness


121

Interest

• Problem 7-14• How is the classification

determined?– Collateral?– Use?

• Use


122

Interest

• Problem 7-14 • Investment Interest

Illustration


123

Investment InterestInvestment interest deductible to the extent of “net investment income.”

“Net Investment Income” determined as follows:

II- IE= NII


124

Investment Interest Illustration

During the current year, David reports interest and dividend income of $18,000, net short-term capital gains of $6,000, and net long-term capital gains of $7,000. His AGI is $120,000. His investment expenses, exclusive of interest, are $5,000. During the year David also pays a total of $55,000 interest on debt incurred on his investment activities. David is married and files a joint return.a. What is the total amount of deduction Dave may

take with respect to his investment interest expense if he does not make a special election?


125

Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 7,000Total Income 31,000


126

Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 7,000Total Income 31,000


127

Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 0Total Income 24,000


128

Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 0Total Income 24,000INVESTMENT EXPENSES 5,000


129

Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 0Total Income 24,000INVESTMENT EXPENSES 5,000Less: 2% of AGI 2,400


130

Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 0Total Income 24,000INVESTMENT EXPENSES 5,000Less: 2% of AGI 2,400 2,600NET INVESTMENT INCOME 21,400


131




b. What is the treatment of any disallowed investment interest expense?


132

Illustration (b)

Investment Interest 55,000Deductible Amount 21,400Carryover 33,600


133




b. What is the treatment of any disallowed investment interest expense?

c. What is the total amount of deduction David may take with respect to his investment interest expense if he elects to have his net capital gain taxed at the regular marginal tax rates?


134

Illustration (c)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 7,000Total Income 31,000


135

Illustration (c)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 7,000Total Income 31,000INVESTMENT EXPENSES 5,000Less: 2% of AGI 2,400 2,600NET INVESTMENT INCOME 28,400


136

Illustration (c)

Investment Interest 55,000Deductible Amount 28,400Carryover 26,600


137

Interest

• Problem 7-14• Investment Interest

Illustration• Problem 7-49


138

Problem 7-49

a. ($12,000 - $10,200) = $1,800

$1,800 4 = $450

$450 x 2 = $900

b. None – no payments made

c. $1,800 x 9/12 = $1,350


139

Itemized Deductions

• Medical




140

Federal Income Tax Personal (Itemized) Deductions.

Documents

ray gregg

medical expenses problem

mile slide

hotel slide

night slide

medical costs

charitable contribution

business personal slide