Adjustments to Gross Income 

FOR AGI

Anyone, anytime, automatically, always, any amount. 

1. Educator Expenses

2. IRA

3. Student Loan Interest Expenses

4. Tuition & Fee Deduction

5. Health Savings Account

6. Moving Expenses

7. 1/2 Self Employment FICA (Social Security)

8. Self-Employed Health Insurance

9. Self-Employed Retirement

10. Interest Withdrawal Penalty

11. Alimony Paid

12. Attorney Fees Paid in Certain Discrimination & Whistleblower Cases

13. Domestic Production Activities Deduction

Eligible Educator- K-12 teacher, instructor, counselor, principal, aide for at least 900 hrs during a school year.

May deduct up to $250 of qualified expenses you paid. 

Ordinary & necessary expenses- books, supplies, equipment used in the classroom. 

1. Earnings accumulate tax free 

2. Withdrawals are taxable as ordinary income 

3. Taxpayer will generally not be permitted to deduct a contribution to an IRA if they have excess AGI (over $56,000/$89-$109,000) AND has active participation in Another Qualified Plan. (maximum phase out $167,000-$177,000) 

4. Maximum of $5,000 or individual's compesation ($10,000 for MFJ) 

Compensation: salary, wages, commissions, bonuses, alimony 

5. Indiv. over 50 years of age are allowed an additional contribution of $1,000 

1. Contributions to a ROTH IRA are not deductible when made. 

2. Earnings accumulate tax free while in a Roth IRA 

3. Tax free distributions (both principal and earings are tax-free) 

4. Contribution Limits (combined with all IRAS)- remain at $5,000 or $10,000 MFJ 

5. Phase Out- S $105-$120,000/ MFJ $167,000-$177,000 

*Generally no tax impact, now or later. 

1. Non-deductible contribution limitations up to the lesser of $5,000 or compensation or amount not contributed to other IRAs 

2. Tax-free accumulation of earnings until withdrawn. 

3. Taxable- earnings 

Non-taxable- principal contributions when contributed 

Set up to pay the qualified education expesnes of a designated beneficiary. 

1. Non-deductible Contributions- max. contribution PER beneficiary is $2,000 annually (not combined with any other IRA limitations)

2. Tax-free accumulation of earnings 

3. Tax free Distribution/withdrawals- if used for qualified education expenses (elementary & secondary school expenses as well) 

-tuition, fees, tutoring, books, room & board, supplies

-must be distributed by time the beneficiary reaches 30 or rolled over to another family member. 

-beneficiary must be 18 or under 

4. Phase out- S $95,000-$110,000/ MFJ $190-$220,000 

Adjustment for education loan interest is limited to $2,500 

Phase out occurs when S $60,000-$75,000/ MFJ $120,000-$150,000

A DEPENDENT MAY NOT claim the adjustment 

Must be legally obligated to pay the loan, must be for educational purposes. 

Qualified Higher Education Expense applies regardless of whether the education is work-related. 

Expenses ABOVE the maximum are only deductible as education expenses (itemized deductions subject to 2% of AGI limitation). 

Max in 2010 - $4,000 

Limit of AGI = or less than $65,000 

2,000 when AGI is between $65,000-$80,000 

Enable workers with high deductible health insurance (deductible of $1200/$2400 for s/fam) at least  to make pre-tax contributions of up to $3,050 in 2010 ($6,150 for families) to cover health care costs. (Over 55 are allowed an additional $1,000). 

Contributions must stop when covered by Medicare A or B. 

Amount paid to cover qualified medical expenses is not included in gross income, distributions NOT used to pay medical expenses are included in gross income & subject to 10% penalty. 

Limited to $5,950/$11,900 for annual out of pocket expenses. 

Must be work related. 

New workplace but be 50 miles further than from old house to old workplace. 

Must stay in new location at least 39 weeks during the following 12 month period.  75% of next year. 

Only direct moving costs are allowable: travel, lodging, transporting of personal effects.

NOT: meals, pre-move house hunting, expense of breaking lease, temporary living expense. 

Not deductible on Schedule C

May deduct all medical insurance premiums paid for the taxpayer, spouse, and dependents 

Not deductible on Schedule C

1. Maximum annual deductible amount is limited to LESSER of: $49,000 or 25% net earnings 

Net Earnings= Business Income-Business Expense-1/2 Self Employment tax- keogh deduction = keogh net earnings 

Do not net against interest income. 

Ex. penalties on earth withdrawal of a CD 

Deductible when paid as long as follow all requirements for Alimony 

(cash, legally obligated, end at death) 

Deductions From Adjusted Gross Income 

1. Standard Deduction

Form 1040 EZ

2011 Amounts

Single  $5,800

HOH $8,600

MFJ/Surviving Spouse $9,750

MFS $4,875

An additional deduction for Elderly and/or Blind 

If 1 Qualifies (OR) S $1,400 MFJ $1,100

1 Qualifies (AND) S $2,800 MFJ $2,200

If BOTH Qualify (OR) $2,200

IF BOTH Qualify (AND) $4,400

Dependent can take at least $950, or $300 plus earned income. 

Remains limited by regular standard decution. 

Deductions From Adjusted Gross Income 

2. Itemized Deduction 

Limitation on Itemized Deductions No Longer Exists 

Reported on Schedule A

Payments on behalf of yourself, spouse, dependent (50% or more of support from you) 

Paid (cash or check) during the year, or charged during the year, payments for deceased spouse (deductible in year paid regardless of time of death)

Deductible to the extend greater than 7.5% of AGI = Qualified Med. Expenses- Insurance Reimbursements 

Deductible Medical Expenses: medicine, drugs, medicare D premium, doctors, medical/accident insurance, required surgery, transportation to medical facility, physically handicap costs

Non-deductible Medical Expenses: Elective surgery, elective cosmetic operations, life insurance, capital expenditures (increase in FMV of property), health club memberships, personal hygiene products 

Deductible Taxes : 

1. Real Estate Taxes (state, local, foreign): must be legally obligated to pay, prorate in year of sales/purchases, paid under protest are deductible (recovery is then included in gross income), not include street/sewer/sidewalk assessment taxes

2. Income Taxes (state, local, foreign): estimated taxes paid during the year/withheld from paycheck are deductible. Assessments paid during the year for prior year's taxes are deductible. 

3. Personal Property Taxes (state and local taxes)

4. Sales Tax (state & local general sales tax)  A taxpayer may elect to dedcut either state & local income tax OR state & local sales tax based on a table or actual general sales taxes paid. 

NON DEDUCTIBLE: 

a. Federal Taxes (including SS)

b. Inheritance taxes for states 

c. Business (Schedule C) and rental property taxes (Schedule E)

Home Mortgage Interest- either acquisition indebtedness ($1,000,000 maximum) incurred in buying, constructing, improving 1st or 2nd home or home equity indebtedness (lesser of $100,000 or FMV of equity in home) which can be used for any purposed, secured by 1st or 2nd home 

Investment Interest - limited to net taxable investment income includes interest & dividends, rents, royalties, net long term & short term CGs if not claimed to redcued cap gains tax rate)- does not include interest expense used to purchase tax free bonds - can be carryforwarded indefinitely

Personal- Consumer interest is NOT deductible ( bank, life insurance loans, credit cards, consumer goods, interest on fed/state/local tax underpayments) 

Prepaid - must allocate to proper period, can not prepay mortgage interest

Eductional - IS AN ADJUSTMENT, not an itemized deduction (subject to max of $2500)

Charities are organizations-churches, hopsitals, universities 

NOT: given to individuals (needy families) or political contributions 

Amount: lesser of basis or FMV of property or Cash amount 

50% of AGI in Cash or

30% of AGI for gifts of long term capitl gain property

May only deduct excess contribution over the consideration received (dinner cost $25, donate $75, only deduct $50) 

May not include services/time donated 

Can deduct exchange students ($50 per month) 

Charity Carryover : FIVE YEARS- FIFO. 

Smaller Loss (Lost Cost/Adjusted Basis, Decreased FMV)

(Insurance Recovery)

=

Taxpayer's Loss

($100)

=Eligible Loss

(10% of AGI)

=Deductible Loss 

Must be sudden, unexpected

Must file an insurance claim or not have insurance coverage

Doesn't cover Lost, misplaced, or broken 

If the following miscellaneous deduction combined exceed 2% of AGI 

a. Unreimbursed Business Expense (employee) 

- overnight business travel 

- transportation expenses (100% deductible)  if out of ordinary communting expenses 

- meals & entertainment (50% deductible) 

b. Educational Expenses- (those not deducted above AGI)  if they are job related to maintain or improve skills or keep job 

c. Uniforms

d. Business Gifts ($25 per recipient per year)

e. Business use of home - regular and exclusively

f. Employment agency fees- job hunting expenses

g. Expense of Investors- Safety deposit box & investment advice

h. Subscription to Professional Journals 

i. tax prep fees (legal & accounting) 

j. debit card convienence fee incurred to pay income tax 

k. hobbies if deduction would have been allowed regardless of whether or not it was engaged for profit

l. gambling losses (to extent of gambling winnings) 

Personal Tax Credits 

(NO REFUND) 

May reduce personal tax liability to zero, but NO REFUND is allowed. 

a. child & dependent care credit

b. elderly & permanently disabled credit

c. education credits 

d. adoption credit 

e. retirement savings contribution credit

f. foreign tax credit 

g. general business credit 

Subtracted from income tax liability. May result in cash refund when credit exceeds tax liability owed even if no tax is withheld. 

a. Child tax credit (refund is limited)

b. Earned Income Credit 

c. Withholding taxes (W-2)

d. Excess Social Security paid 

e. Long-term Unused Minimum Tax Credit  (greater than 3 years old, recoup greater of $5,000 or 20% of unused amount)

f. American Opportunity Credit (40% refundable)

g. Making Work Pay Credit 

h. Adoption Credit 

A tax credit of 20% to 35% of eligible expenditures 

1 dependent $3,000 X percentage

2 or more dependent $6,000 X percentage

general rule: both parents working, paying someone to babysit 

eligible people: qualifying child under 13, disabled dependent, disabled/dependent spouse

eligible expenses: babysitter, nursery school, day care NOT grammar school 

Percentages:

35%- AGI less than $15,000

20-35% decreases 1% by each $2,000 over $15,000

20% AGI of more than $43,000

Creidt of 15% of eligible income is available to individuals who:

1. 65 and older

2. Under 65 but retired due to permanent disability 

Base amount used to figure the credit 

S $5,000, MFJ 1 spouse

$7,500 MFJ, both spouses

$3,750 MFS 

Eligible income is reduced by: any SS payments, 1/2 of AGI over S $7,500, MFJ $10,000, MFS $5,000

Base amount - Social Security payments - (1/2 excess AGI over 5/10/5 amounts) = balance X 15% = CREDIT

1. American Opportunity Credit - available against fed. income taxes for qualified tuition, fees, course materials paid in first four years of college. 

100% of first $2,000 qualified expense

25% of next $2,000 of expenses 

Per Student basis on behalf of taxpayer, spouse, or dependent 

Phase Out begins with MAGI exceeding $80,000,ending at $90,000 (S) 

2. Lifetime Learning Credit- Available for unlimited number of years for qualified tuition and related expenses (Not books)

Up to 20% of qualified espenses up to $10,000 

-only ONE per family per year 

-phase out begins with MAGI exceeding $50,000, full phase out at $60,000 (S) 

Not limited to one type of credit. 

Qualifying Expense of Adopting A Child 

Limited to $13,170 per child 

Phase Out for MAGI between $182,520-$222,520

Eligible Expenses: reasonable and necessary fees, expenses, costs 

Not for adopting a child of a spouse or surrogate parenting arrangement 

Medical expenses DO NOT qualify as eligible expenses

Non-refundable tax credit may offset both regular and alternative minimum tax is available for contributions to either a traditional or ROTH IRA. 

no carryover allowed

Eligible taxpayers: at least 18, not full time student, not a dependent 

Max contribution $2000 times Credit Rate 

50% for under 16,500 S AGI

20% 16,501-$18,000 S AGI

10% 18,001-$27,750 S AGI

0% over $27,750 S AGI

There is no limit on foregin taxes used as a deduction, foreign tax credits are limited to the lesser of: 

Foreign taxes paid 

or 

Taxable Income from all foreign operations / (taxable income + exemptions) X U.S. Tax* = Foreign Tax Credit Limit 

Carryback 1 year/ Carryforward 10 years. 

1. Investment Credit

2. Work Opportunity Credit

3. Alcohol Fuels Credit

4. Increased research credit (generally 20% of the increase in qualified research expenditures over the base amount for the year)

5. Low-income housing credit

6. Qualified childcare expenditures

7. Welfare-to-work credit

8. Employer-provided childcare credit

9. Small employer pension plan start-up costs credit

10. Alternative motor vehicle credit 

11. Work retention credit 

credit may not exceed "net income tax" (regular income tax plus AMT-nonrefundable tax credits) less the greater of 25% regular liability above $25,000 or tentative minimum tax for year. 

carryback 1 year, forward 20 years. 

Refundable Tax Credits 

a. "Child" Tax Credit

Taxpayers may claim a $1,000 tax credit for each "qualifying child" 

CARES except must be under 17, must be a citizen, national, or resident of US 

Phase out starting at $110,000 MFJ, $75,000 Single, or $55,000 for MFS 

Refundable to the extent of the lesser of: Excess child tax credit over tax liability or earned income less $3,000 times 15%. 

Refundable Tax Credits

b. Earned Income Credit

"pathetic credit"

1. Live in U.S. for MORE than half the taxable year 

2. Meet certain earned low-income threshold 

3. Be between ages 25-65

Earned Income- wages, salaries, tips, earnings from self-employment

If have qualifying child, the earned income credit percentage is higher. 

Maximum Basic earned income credit percentage (of earned income): 

Single- 7.65% , max. credit of $457

1 Qualifying Child- 34%, max. credit of $3,050

2 Qualifying Children- 40%, max credit of $5,368

3+ Qualifying Children, 45%, max credit of $5,666 

Cannot claim the credit if the individual has disqualifed income > $3,100. --> taxable and nontaxable interest, dividends, net rental/royalty income, net capital gians income, net passive income

Refundable Tax Credits

Income taxes withheld are treated as a credit against the liability, and may be refunded. 

Excess FICA: If 2 or more employers, the employee may claim the excess as a credit if results from correct withholding. 

IF only one employer, employer must refund the excess to the employee. 

Personal Tax Credits 

(NO REFUND) 

Available to employers who hire employees from a targeted group. 

Qualified groups ("undesireable workers"):

a. handicapped

b. 18-24 from poor families

c. Vietnam Vets from economically disadvantaged areas

d. disconnected youth

e. certain unemployed veterans

f. certain food stamp receipents

Credit:

40% of first $6,000 of first year's wages

40% of first $3,000 to certain summer youth 

Credit of up to 35% of the employer's costs of the plan premiums is allowed for eligible employers, provided the employer contributes at least 50% of the costs of health coverage. 

Credit is allowable as an offset to AMT

NOT refundable

Carryforward 20 years

Costs for family members, sole prorietors, partners, S corps, shareholders of more than 5% are exluded. 

IF used as for a Credit- CAN NOT use as an employee benefit expense deduction. 

A maximum credit of 30% of qualifying nonbusiness energy property or improvements, up to max credit of $1,5000 - heat pumps,, water heaters, air conditioners, windows, doors, certain roofs. 

For qualified solar electric property, samll wind energy, geothermal pumps, no limit on the amount. 

Tax designed to ensure taxpayers who have a lot of deduction pay a minimum amount of taxes. 

Pay greater of regular tax or AMT

Regular Taxable Income

+/- Adjustments

+Prefences 

= Alternative Minimum Taxable Income 

(Exemption)

= Alternative Minimum Tax Base

X Tax Computation

=Tentative AMT 

(Tax Credits)

=Tentative Minimum Tax

(Regular Income Tax)

=Alternative Minimum Tax *pay in addition to reg. tax*

Alternative Minimum Tax

Exemption Amounts

$33,750 less 25% (AMT-$112,500) for Single

$45,000 less 25% (AMT-$150,000) for MFJ

$22,500 less 25% (AMT- 75,000) for MFS

Amount subtracted from AMTI (regular tax +/- adj + pref) to come to Alternative Minmum Tax Base 

Alternative Minimum Tax

Adjustments

(PANICTIME)

* Considered "timing differences", may increase or decrease AMTI 

1. Passive Activity Losses*- added back

2. Accelerated Depreciation*- difference between regular tax depreciation and straight line 

3. Net Operating Loss of indiv. taxpayer*

4. Installment income of a dealer*- may not be used for property sales

5. Contract*- percentage completion vs. completed contract difference 

ITEMIZED DEDUCTIONS-always ADDS to regular income

1. Tax deductions- taxes reduced by taxable refunds are added back. 

2. Interest deductions- mortgage interest not used to buy, build, or imporve home is added back- ie HOME EQUITY interest is added back. 

3. Medical Deductions - must exceed 10% instead of 7.5% of AGI

4.Miscellaneous deductions not allowed- add back the misc. deductions normally subjet to 2% of floor

5. Exemptions (personal) and standard deduction- may not be claimed. 

Alternative Minimum Tax

Preferences

3 P's. 

ALWAYS ADD BACKS

1. Private activity bond interest income

2. Percentage depletion the excess over adjusted basis of property

3. Pre-1987 accelerated depreciation

Alternative Minimum Tax

AMT Credit- Credit for Prior Year Minimum Tax

Offsets Regular Tax 

Certain allowable AMT paid in taxable year may be carried over (INDEFINITELY) as a credit to subsequent taxable years. May only reduce REGULAR TAX, not future alternative minimum tax. 

IF AMT is created from certain permanent differences (ie not the first 5 timing differences) it cannot be carried forward as part of the credit. 

Alternative Minimum Tax

AMT Credits 

FACCE

Permitted as a credit to reduce the AMT 

Subtracted from Tentative AMT Tax to arrive at Tentative Minimum Tax. 

Foreign Tax Credit

Adoption Credit

Child Tax Credit

Contribution to retirement plans Credit

Earned Income Credit

General: 

3 years from LATER of 

a. Due date of Return (Apr 15)

B. Date return is filed (including amended return) 

UNLESS: there was a 25% understatement of gross income

6 years from Later of :

a. Due date of return (Apr. 15)

b. Date return is filed. 

There is NO statute of limitations for fraud or filing false returns

Form 1040x 

Refund Claim: Later of 

3 years from date was filed or original due date 

or 2 years from time tax was paid 

Bad Debts, Worthless Securities

7 years from later of 

a. due date

b. date filed 

Forms for Other Refunds

Form 1139 - refund claim for corporate income taxes 

Form 1045 - request quick refund of indiv. income tax due to carryback of NOL

Form 843 - request a refund of taxes other than income 

A taxpayer is require to make estimated quarterly tax payements IF: 

1. $1,000 or more in tax liability 

2. Taxpayer's withholdings are less then the lsser of 90% current year's taxes or 100% of last year's tax years. 

(If AGI is $150,000 or greater, must withhold 110% of last year) 

Failure to Pay- Penalty unless balance of tax due was under $1,000