Professional Documents
Culture Documents
McGraw-Hill/Irwin
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In general, qualified taxpayers can take a for AGI deduction for contributions to the HSA.
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$1,200 $2,400
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Taxpayers who contribute to or withdraw from an HSA during the year must file a Form 8889 and attach it to their Form 1040. Contributions made by a qualified individual are a for AGI deduction, assuming the limitations are met. Distributions from an HSA are tax free as long as they are used to pay for qualified medical expenses.
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LO #3 Moving Expenses
If a taxpayer moves due to a change in job location or to obtain a job, certain expenses related to moving may be deducted as a for AGI deduction. Moving expenses are reasonable expenses for:
Moving household goods and personal effects from the old residence to the new residence. Traveling from the old residence to the new residence (including lodging, but excluding meals). Moving expenses of persons other than the taxpayer are permitted if the other persons are members of the taxpayers household.
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LO #3 Moving Expenses
Additional moving expenses include:
storage of household goods within a consecutive 30-day period after items are moved from the former home; actual expenses or mileage at the rate of 16.5 cents per mile for 2010 for driving a personal auto; moving expenses of persons other than the taxpayer if members of the taxpayers household.
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LO #3 Moving Expenses
To qualify for a moving expense deduction, taxpayers must meet two additional tests in addition to the change in employment location test. Distance test - the new job location must be at least 50 miles farther from the taxpayers old residence than was the old job location.
If the taxpayer had no old job (i.e., the taxpayer was unemployed), then the new job must be more than 50 miles away from his or her old residence.
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LO #3 Moving Expenses
Time test - a taxpayer must meet either of the following:
Be a full-time employee for a period of 39 weeks during the 12 months immediately following arrival in the new area, or Be a full-time employee (or work as a selfemployed individual on a full-time basis) for at least 78 weeks during the 24 months immediately following arrival in the new area. At least 39 of the 78 weeks must be during the first 12-month period.
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LO #3 Moving Expenses
Moving expenses are only deductible in the year incurred. If the taxpayer elects to deduct the moving expenses prior to satisfying the time test and later does not meet the test, the moving expenses are disallowed. Must file amended return. Employers may reimburse employees for some or all of their moving expenses.
Only net amount is deductible
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2. A taxpayer who meets the time test does not have to be concerned about the distance test. True or False? False
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1. Self-employment tax is calculated on the ____ earnings of the business. Net 2. For W-2 employees, the FICA tax is calculated at a rate of ______ of their gross earnings. 7.65%
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LO #6 - Penalty on Early Withdrawal of Savings If a taxpayer withdraws funds early from a time deposit account, like a CD, he or she may be subject to an early withdrawal penalty. The taxpayer is entitled to report the penalty as a for AGI deduction on line 30 of Form 1040. The amount of the penalty is reported on a Form 1099-INT, issued by the financial institution.
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2. The amount of the penalty is reported to the taxpayer by the financial institution on a Form___________. 1099-INT
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LO #7 Alimony Paid
Alimony is one of three potential payments that can exist in a divorce or legal separation.
Alimony, child support, property settlement
Only alimony has a tax consequence. If payments properly qualify as alimony, the payments are deductible by the payer as a for AGI, or an abovethe-line, deduction.
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LO #7 Alimony Paid
Alimony is a legal consequence requiring one spouse to make payments to support the other spouse. In order to qualify as alimony:
a payment must be cash and, must be required under the provisions of a decree of divorce or separate maintenance agreement. All payments must end at the payee spouses death.
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LO #7 Alimony Paid
The recipient of the payments must include these payments as income on his or her tax return. If alimony payments decrease sharply in the second or third year of payment, the payments may be subject to a recapture provision.
This relates to the concept of substance over form. The recapture rules effectively reclassify payments from alimony to a property settlement.
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LO #8 Educator Expenses
Eligible educators can deduct up to $250 of qualified education expenses as a for AGI deduction.
If the taxpayers filing status is married filing jointly and both individuals are eligible educators, the maximum deduction is $500. but neither spouse can deduct more than $250 of his or her expenses.
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LO #8 Educator Expenses
An eligible educator is a teacher, instructor, counselor, principal, or aide in a kindergarten through 12th grade school who devotes at least 900 hours in the school year to that job
Qualification under the 900-hour test is measured within the academic year. The $250 deduction is measured in terms of the expenses paid during the calendar year.
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LO #8 Educator Expenses
Qualified education expenses for the deduction are those for books, supplies, equipment (including computers and software), and other materials used in the classroom.
The expense must also be ordinary (common and accepted in the educational field) and necessary (helpful and appropriate).
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