Professional Documents
Culture Documents
All Income
Less: Exclusions
Equals: Gross Income
Less: Above-the-line deductions (deductions for AGI better than FROM AGI)
Equals: Adjusted Gross Income (AGI) The Line
Less: Below-the-line deductions (deductions from AGI)
Based on marital status on 12/31 (unless spouse died - still MFJ that year)
If file joint return, then joint and several liability
Head of Household (HH) 2nd lowest
Unmarried as of the last day of taxable year & dont qualify for HH/SS
Married Filing Separately (MFS) highest (rarely any tax benefits)
Typically used for nontax reasons (eg. no joint & several liability)
Abandoned Spouse (AS) (HH instead of MFS)
Do not remarry
Pay > costs of home where dependent child lives for entire year
Personal and Dependency Exemptions
Deduction allowed for each exemption claimed on tax return
Amount adjusted annually for inflation (2015: $ 4K - one per each person)
For whom can a TP claim an exemption?
No Joint Return filed by dependent w/ spouse (unless filed only for refund
claim, no taxes owed)
Residence - Same principal residence for > year (away @ school counts; if
divorced then where child lives most of the time)
unrelated must live w/ for whole year (& doesnt qualify TP for HH)
Taxable Gross Income: <$4k (excl N/T income, eg. scholarship/muny bonds)
Gross Income and Exclusions
Income taxable unless specifically excluded by tax law (opposite of deductions)
Exclusions from Gross Income
Municipal (everything but Federal) Bond Interest Income
Qualifying Employee Fringe Benefits (examples)
Whole Life Policy if cash in early, amt of CSV > premiums paid is taxable
Whole Life - pay premium X, get Y if you die, get Z (<Y) if you $ in early
Term Life pay premium each year for coverage if you die that year
Gain on Sale of Personal Residence
Exclude up to $250K of gain from taxable income if owned and used as
principal residence for 2 out of 5 years b4 sale (but only 1 sale/2 yrs)
Married couples get 500K if either meets ownership AND both meet use
If one spouse used exclusion on another sale within 2 yrs, only up to $250K
If live in home >15d and rent for <15d a year, no tax! (if >15 all is taxed)
If no meet own/use rules b/c change in job/health/other unforeseen, then
excludable amt = days owned & used / 24 months * max amt (250 or 500)
Deductions FOR AGI (above-the-line deductions)
Trade/Business Expenses
Only includes cost of moving crap & traveling from old to new place
New job must be 50 miles further from home than old (or >50mi if 1st job)
Student can deduct if claims own exemption & someone else pays expenses
Subtract 10% of AGI from total (7.5% if 65+ or MFJ w/ at least 1 person 65+)
Taxes: property (real-estate, cars/boats, etc.) & either state/local income or sales tax
Home Mortgage Interest: <=$1mil on 2 residences & <=$100K on Home Equity Debt
Charitable Contributions: public charities, private operating, private nonoperating
Property: total cash & prop limited to 50% of AGI (excess carry fwd 5yrs)
Limit: $100 floor per casualty/theft & 10% AGI floor for total
Defined Contrib: both pay in/bear risk (private: 401k, Gov/noprof: 403b/457)
Minimum Distrib (by 4/1 of year after turning 70.5or retiring if later)
o
Amt based on IRS tables, penalty = 50%*(min distrib actual distrib)
Qualified Employer-Provided Roth Defined Contribution Plans
Only Employee can contribute & contribs taxed when made (income & FICA)
Earnings not taxed (if qualified distribif not pay income tax+10% penalty)
Partially w/drawn: tax = taxable amt/total *amt w/drawn * (tax rate + penalty)
Individual Retirement Accounts (IRAs)
Contributions (max 5500/6500 if 50+, <=100% of earned incomeincl. alimony)
Can use spouses earned inc. for spousal IRA (total <11-13K or 100% of both)
o
Limit = (1-Excess AGI/total zone)*contrib limit (can still put in trad)
Max age to contribute = 70.5 (only traditional Roth has no age limit)
Deductions for Contributions (Trad Only above-the-Line deduction FOR AGI)
No penalty: <=10k for 1st home, qualified Higher Ed, health insurance prems
Roth: (if open for >=5 yrs & owner>=59.5, everything tax-free)
If partial distrib, only taxed/come from earnings when more than contribs
Must roll over all $ w/in 60 days (no AGI limits lets rich put $ in Roth)
Tax Computation & Credits
Regular Individual Tax Rates: progressive (10-39.6%), see attached chart
LTCG Rates: on qualified domestic corporations dividends & LT capital gains
Calc: split into ordinary & LTCG pools, apply appropriate rates, add up
Net Investment Income Tax: 3.8% of lesser of NII/AGI over 200/250K S&HH/MFJ
Additional tax on NII (unlike LTCG, NII taxed @ regular rate as well)
Net unearned income (ex. Interest/div) >$ 2,100 taxed @ parents rate
1,050 standard deduct, next 1,050 taxed @ childs rate (10%, or 0% if LTCG)
Individual Tax Credits