Federal Income Tax Personal (Itemized) Deductions.
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Transcript of Federal Income Tax Personal (Itemized) Deductions.
![Page 1: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/1.jpg)
Federal Income Tax
Personal (Itemized) Deductions
![Page 2: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/2.jpg)
© Copyright 2001-2013 by M. Ray Gregg. All rights reserved.
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Gross Income- FOR= AGI- FROM= Taxable Income
Business
Personal
![Page 3: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/3.jpg)
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3
Gross Income- FOR= AGI- FROM= Taxable Income
Personal
![Page 4: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/4.jpg)
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Itemized Deductions
See text page 7-36• Medical• Taxes• Interest• Charitable
Contributions• Casualty Losses• Other
![Page 5: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/5.jpg)
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Itemized Deductions
• Medical
• Taxes• Interest• Charitable
Contributions• Casualty Losses• Other
![Page 6: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/6.jpg)
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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
![Page 7: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/7.jpg)
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Medical Expenses
• Problem 7-4
![Page 8: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/8.jpg)
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Problem 7-4Which enroute costs are deductible?
Any limits?Auto/Travel $.?? per mile
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Automobile Expenses
Business
$.565 pg 9 – 11
Moving $.24 pg 9 – 20
Medical $.??
CharitableContribution
![Page 10: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/10.jpg)
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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
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Problem 7-4Which enroute costs are deductible?
Any limits?Auto/Travel $.24 per mile
Meals
![Page 12: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/12.jpg)
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12
Problem 7-4Which enroute costs are deductible?
Any limits?Auto/Travel $.24 per mile
Meals 50%
Hotel
![Page 13: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/13.jpg)
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Problem 7-4Which enroute costs are deductible?
Any limits?Auto/Travel $.24 per mile
Meals 50%
Hotel $50 per night
![Page 14: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/14.jpg)
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Medical Expenses
• Problem 7-4• Problem 7-5
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Problem 7-5
• Meals?– Not deductible
• See also Pub 17, p. 145
Meals and lodging as outpatient?
![Page 16: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/16.jpg)
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Problem 7-5
• Meals?– Not deductible
• See also Pub 17, p. 145
Meals and lodging as outpatient?
• Lodging?
– $50 per night
![Page 17: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/17.jpg)
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17
Medical Expenses
• Problem 7-4• Problem 7-5• Problem 7-38
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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
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Medical Expenses
• Problem 7-4• Problem 7-5• Problem 7-38• Problem 7-35
![Page 20: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/20.jpg)
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Problem 7-35
GI- FOR
= AGI- FROM
= TI
![Page 21: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/21.jpg)
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Problem 7-35
GI 58,000- FOR
= AGI 58,000- FROM
= TI
![Page 22: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/22.jpg)
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Problem 7-35
Doctor 11,700Hospital 9,400Med Ins 600Total 21,700
![Page 23: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/23.jpg)
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Problem 7-35Reimb
Doctor 11,700 10,000 1,700Hospital 9,400 9,400Med Ins 600 600Total 21,700 10,000 11,700
![Page 24: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/24.jpg)
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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
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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
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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
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Problem 7-35
GI 58,000- FOR= AGI 58,000- FROM 8,650
= TI
![Page 28: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/28.jpg)
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Problem 7-35
GI 58,000FORAGI 58,000FROM 8,650
3,900TI
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Problem 7-35
GI 58,000FORAGI 58,000FROM 8,650
3,900 12,550TI 45,450
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Medical Expenses
• Problem 7-4• Problem 7-5• Problem 7-38• Problem 7-35• Problem 7-36
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Problem 7-36Medical 4,000Legal Fees 3,000Total Reimbursement 7,000
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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
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Problem 7-36
GI 58,000- FOR
= AGI 58,000- FROM 6,100
= TI
![Page 34: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/34.jpg)
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Problem 7-36
GI 58,000FORAGI 58,000FROM 6,100
3,900TI
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Problem 7-36
GI 58,000FORAGI 58,000FROM 6,100
3,900 10,000TI 48,000
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Problem 7-36Taxable Income Revised 48,000Taxable Income Reported 45,450Difference 2,550
Must include “tax benefit.”
![Page 37: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/37.jpg)
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Medical Expenses
• Problem 7-4• Problem 7-5• Problem 7-38• Problem 7-35• Problem 7-36• Another Illustration
![Page 38: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/38.jpg)
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Medical Expenses
• Problem 7-4• Problem 7-5• Problem 7-38• Problem 7-35• Problem 7-36• Problem 7-39
![Page 39: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/39.jpg)
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
![Page 40: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/40.jpg)
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000
![Page 41: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/41.jpg)
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool ???
![Page 42: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/42.jpg)
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000
![Page 43: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/43.jpg)
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060
![Page 44: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/44.jpg)
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair ??? ???
![Page 45: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/45.jpg)
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair 2,300
![Page 46: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/46.jpg)
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed ??? ???
![Page 47: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/47.jpg)
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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
![Page 48: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/48.jpg)
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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 ??? ???
![Page 49: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/49.jpg)
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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
![Page 50: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/50.jpg)
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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
![Page 51: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/51.jpg)
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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
![Page 52: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/52.jpg)
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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
![Page 53: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/53.jpg)
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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
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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”
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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
![Page 56: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/56.jpg)
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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
![Page 57: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/57.jpg)
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Itemized Deductions
• Medical
• Taxes• Interest• Charitable
Contributions• Casualty Losses• Other
![Page 58: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/58.jpg)
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74
Taxes
• Deductible– Property taxes– State income tax– Local income tax
• Not Deductible– Federal taxes– Sales tax– Excise taxes
![Page 59: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/59.jpg)
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75
Taxes
• Deductible– Property taxes– State income tax– Local income tax
• Not Deductible– Federal taxes– Sales tax *– Excise taxes
![Page 60: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/60.jpg)
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© Copyright 2001-2005 by M. Ray Gregg. All rights reserved.
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
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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
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79
Taxes
• Problem 7-40
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Problem 7-40
1/1 12/31
2012
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Problem 7-40
1/1 4/11 12/31
Pd $120
2012
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82
Problem 7-40
1/1 12/31
Employer w/h $1,600
2012
4/11
Pd $120
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83
Problem 7-40
1/1 4/11 4/1312/31
Employer w/h $1,600
Pd $120
$200
2012
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84
Problem 7-40
1/1 4/11 4/1512/31
Employer w/h $1,600
Pd $120
$200
Amount deductible?
2012
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85
Problem 7-40
1/1 4/11 12/31
Employer w/h $1,600
Pd $120
Did she itemize?
2012
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86
Problem 7-40
1/1 4/11 12/31
Employer w/h $1,600
Pd $120
$1,600 + $120 < SD
2012
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87
Problem 7-40 (b)
1/1 12/31
2013
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88
Problem 7-40 (b)
1/1 12/31
Employer w/h $2,100
2013
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Problem 7-40 (b)
1/1 4/13 12/31
Employer w/h $2,100
Pd $200
2013
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90
Problem 7-40 (b)
1/1 4/13 4/1512/31
Employer w/h $2,100
Pd $200
Rfd $450
2013
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91
Problem 7-40 (b)
1/1 4/13 4/1512/31
Employer w/h $2,100
Pd $200
Rfd $450
Amount deductible?
2013
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92
Problem 7-40 (b)
1/1 4/13 12/31
Employer w/h $2,100
Pd $200
$2,100 + $200 = $2,300
2013
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Problem 7-40 (b)
1/1 4/13 12/31
Employer w/h $2,100
Pd $200
Did she itemize?
2013
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Problem 7-40 (b)
1/1 4/13 12/31
Employer w/h $2,100
Pd $200
$2,300 + $5,500 > SD
2013
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Problem 7-40 (c)
AGI $51,000
From: Item Ded $7,800
Exemption 3,900 11,700
Taxable Income $39,300
2013
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Problem 7-40 (c)
AGI $51,000
From: Item Ded $7,350
Exemption 3,900 11,250
Taxable Income $39,750
2013 - revised
![Page 80: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/80.jpg)
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Problem 7-40 (d)
AGI $53,500
Add: State Tax Rfd From ’12 450
New AGI $53,950
2014
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Problem 7-412013
State Income Tax $2,300Mortgage Interest 3,000Total Item Ded $5,300
101
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Problem 7-412013
Gross Income $51,000
Total Item Ded $5,300Exemption 3,200 9,500
Taxable Income $41,500
102
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Problem 7-412013
Gross Income $51,000
Std Ded $6,100Exemption 3,200 9,500
Taxable Income $41,500
103
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Problem 7-412013
Gross Income $51,000
Std Ded $6,100Exemption 3,900 10,000
Taxable Income $41,000
104
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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.
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Taxes
• Problem 7-40• Problem 7-41• Problem 7-42
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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%
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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% 400Prop Tax on Car $10/100#
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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% 400Prop Tax on Car $10/100#Prop Tax on House 1,850 ???
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Problem 7-42
1/1 4/15 12/31
Taxes $1,850 for year
31
28
31
14
104
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Problem 7-42
1/1 4/15 12/31
$527
31
28
31
14
104
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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% 400Prop Tax on Car $10/100#Prop Tax on House 1,850 527Total $2,927
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Taxes
• Problem 7-40• Problem 7-41• Problem 7-42• Problem 7-43
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Problem 7-43
6/30
$6,000
5/1
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Problem 7-43 (a)
6/30
$6,000
5/1
Janet (buyer): $6,000 x 61/365 = $1,003
???
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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
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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
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Itemized Deductions
• Medical
• Taxes• Interest• Charitable
Contributions• Casualty Losses• Other
![Page 99: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/99.jpg)
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Interest
Page 1, line 33
ForStudent Loan
Schedule AFromHome Mortgage
NotNotPersonal
Schedule AFromInvestment
NotNotPassive
Schedule CForBusiness
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Interest
Page 1, line 33
ForStudent Loan
Schedule AFromHome Mortgage
NotNotPersonal
Schedule AFromInvestment
NotNotPassive
Schedule CForBusiness
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Interest
• Problem 7-14• How is the classification
determined?– Collateral?– Use?
• Use
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Interest
• Problem 7-14 • Investment Interest
Illustration
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Investment InterestInvestment interest deductible to the extent of “net investment income.”
“Net Investment Income” determined as follows:
II- IE= NII
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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?
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Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 7,000Total Income 31,000
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Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 7,000Total Income 31,000
![Page 107: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/107.jpg)
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Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 0Total Income 24,000
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Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 0Total Income 24,000INVESTMENT EXPENSES 5,000
![Page 109: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/109.jpg)
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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
![Page 110: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/110.jpg)
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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
![Page 111: Federal Income Tax Personal (Itemized) Deductions.](https://reader036.fdocuments.net/reader036/viewer/2022062516/56649de35503460f94ad9e55/html5/thumbnails/111.jpg)
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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?
b. What is the treatment of any disallowed investment interest expense?
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Illustration (b)
Investment Interest 55,000Deductible Amount 21,400Carryover 33,600
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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?
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?
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Illustration (c)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 7,000Total Income 31,000
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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
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Illustration (c)
Investment Interest 55,000Deductible Amount 28,400Carryover 26,600
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Interest
• Problem 7-14• Investment Interest
Illustration• Problem 7-49
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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
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Itemized Deductions
• Medical
• Taxes• Interest• Charitable
Contributions• Casualty Losses• Other
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