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Liberty Tax Service Online Basic Income Tax Course. Lesson 8. Homework Chapter 7. HOMEWORK ONE: What is the amount of the earned income credit in the following situations? They have no investment income over $2,950.
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Homework Chapter 7 HOMEWORK ONE: What is the amount of the earned income credit in the following situations? They have no investment income over $2,950. 1. Married filing jointly, two qualifying children, Earned Income - $16,528,AGI - $16,693 $4,824 2. Head of Household, one qualifying child, Earned Income - $26,000, AGI -$25,849 $1,274 3. Single, age 24, no qualifying child, Earned Income - $8,925, AGI - $9,000 $0 4. Married Filing Separately, age 27, Earned Income - $6,700, AGI - $6,723 $0
Homework Chapter 7 HOMEWORK TWO: Gerald T. (born 6/8/1967) and Belle M. Harrison (born 12/12/1971) are married and live at 1220 Torrence Ave. Boulder, CO, 80302. Mrs. Harrison’s niece Greta S. Borg (242-44-2224, born 7/7/2000) has lived with them all year and they provided all of her support. The Harrisons pay for after school care for Greta so Gerald can work as an optician and Belle can go to her job as a desk clerk in a motel. In 2008, they paid $300 to Tot World (EIN 22-7744333), 4349 Brunswick Blvd., Boulder, CO 80312 for Greta. Gerald and Belle did not itemize their deductions for 2008. Prepare a 2008 tax return for Gerald and Belle.
Homework Chapter 7 Homework 2
Chapter 8: Itemized Deductions Chapter Content Itemized Deductions Medical and Dental Expenses Taxes You Paid Interest You Paid Gifts To Charity Other Miscellaneous Deductions Key Ideas Objectives Compare Standard Deduction to Itemized Deductions Learn About Deductible and Nondeductible Medical and Dental Expenses Learn About Which Taxes Paid Which Are Deductible Determine What Interest Paid is Deductible Recognize Deductible Charitable Contributions Identify Other Miscellaneous Deductions
Itemized Deductions Itemized deductions • If the total amount of your itemized deductions is higher than your standard deduction, you will probably want to itemize. • Reduces your AGI and lowers tax liability. • You are subject to a limit on certain itemized deductions if your adjusted gross income (AGI) is more than $156,400 (or $78,200 if MFS). • Report itemized deductions on Schedule A; the amount from line 29 of Schedule A is entered on line 40 of Form 1040.
Itemized Deductions Deductions you may be able to claim include: • Medical and dental expenses • Taxes you paid • Interest you paid • Gifts to charity • Casualty and theft losses • Job expenses and most other miscellaneous deductions • Other miscellaneous deductions
Itemized Deductions Schedule A
Itemized Deductions Schedule A
Medical and Dental Expenses You can include medical expenses you pay for YOURSELF and for: • Your spouse. • Dependents claimed on your return. • Others who could have been claimed as dependents except they had gross income of$3,500 or more, or they filed a joint return.
Medical and Dental Expenses Medical and dental expenses that exceed 7.5% of your AGI are deductible. Note: You may want to determine 7.5% of your AGI before adding all of the expenses up to see if your medical expenses are likely to exceed this amount. Schedule A
Medical and Dental Expenses – Problem 1 Chico’s adjusted gross income is $25,000 and 7.5% of that amount is $1,875. He paid medical and dental expenses of $2,000 which he reports on Schedule A. He has $125 ($2,000 - $1,875) as deductible medical and dental expenses on Schedule A. If his medical and dental expenses had been $1,500 would he have medical deductions on Schedule A? Yes or No?
Medical and Dental Expenses – Problem 1 Chico’s adjusted gross income is $25,000 and 7.5% of that amount is $1,875. He paid medical and dental expenses of $2,000 which he reports on Schedule A. He has $125 ($2,000 - $1,875) as deductible medical and dental expenses on Schedule A. If his medical and dental expenses had been $1,500 would he have medical deductions on Schedule A? No Because medical and dental expenses must exceed 7.5% of AGI.
Medical and Dental Expenses Below are medical and dental expenses you can and cannot deduct:
Transportation • Transportation expenses incurred primarily for, and essential to, medical care are deductible. • Standard rate is 19 cents a mile for miles driven Jan 1 through Jun 30 and 27 cents a mile for miles driven Jul 1 through Dec 31 or can deduct actual out-of-pocket expenses. • Do not deduct depreciation, insurance, general repair, and maintenance expenses. • Deduct tolls and parking fees in either case
Transportation – Problem 1 Chris drove 1,000 miles for medical reasons from 1/1/2008 to 6/30/2008 and 800 miles from 7/1/2008 to 12/31/2008. He used his car and his actual expenses were: • $370 for gas • $10 for oil • $20 for tolls and parking. Should Chris use actual expenses or standard mileage for deducting his transportation expenses? a. Actual Expenses b. Standard Mileage
Transportation – Problem 1 Chris drove 1,000 miles for medical reasons from 1/1/2008 to 6/30/2008 and 800 miles from 7/1/2008 to 12/31/2008. He used his car and his actual expenses were • $370 for gas • $10 for oil • $20 for tolls and parking. Should Chris use actual expenses or standard mileage for deducting his transportation expenses? b. Standard Mileage His actual expenses total $380 ($370 gas + $10 oil). If he uses the standard mileage amount, his total expense is $406 (1,000 x 19 cents/mile = $190 plus 800 x 27 cents/mile = $216).He will use $426 ($406 plus $20 for tolls and parking) for his car expense along with his other medical expenses because it is more than the $400 ($380 plus $20 for tolls and parking) he figured for his actual expenses.
Transportation • Other transportation expenses you can deduct are bus, taxi, train, plane fares, or ambulance services. • The transportation expenses of a parent to accompany a child who requires medical care are deductible.
Lodging The cost of lodging and meals at a hospital or similar institution can be deducted if the main reason for being there is for medical care. You can include as part of your medical expenses the cost of lodging not provided by the medical facility if all of the following requirements are met: • Lodging primarily essential to medical care • Medical care provided by doctor in a medical care facility • Lodging is not extravagant • No significant element of personal pleasure, recreation, or vacation in the travel away from home The amount you include in medical expenses for lodging cannot be more than $50 for each night for each person. The cost of lodging for the person accompanying the patient is deductible. Meals under these circumstances are not deductible.
Lodging – Problem 1 Claudia took her 8-year-old son, Ramos, to a medical center to undergo tests. They stayed at a motel for three nights while the medical tests were run. The motel cost $70 per night and their meals totaled $120. How much, if any, can Claudia deduct for medical expense? a. $120 b. $0 c. $330 d. $210
Lodging – Problem 1 Claudia took her 8-year-old son, Ramos, to a medical center to undergo tests. They stayed at a motel for three nights while the medical tests were run. The motel cost $70 per night and their meals totaled $120. How much, if any, can Claudia deduct for medical expenses? d. $210 Claudia can deduct $210 ($70 x 3 nights) for lodging. She and Ramos each have a $50 per night limit. The $120 for meals cannot be deducted.
Lodging • Cost of living in a retirement or nursing home is deductible for yourself, spouse, or dependent if there because of availability of medical care. • Home improvements not increasing the value of your home but required for medical conditions are deductible.
Lodging – Problem 2 Raymond has severe asthma. His doctor recommended he add central air conditioning to his house. The equipment and installation cost $3,200. An appraiser assessed a $1,500 increase in the value of his house as a result of the air conditioning. How much, if any, can Raymond deduct for home improvements due to a medical condition? a. $3,200 b. $1,700 c. $1,500
Lodging – Problem 2 Raymond has severe asthma. His doctor recommended he add central air conditioning to his house. The equipment and installation cost $3,200. An appraiser assessed a $1,500 increase in the value of his house as a result of the air conditioning. How much, if any, can Raymond deduct for home improvements due to a medical condition? b. $1,700 Raymond can deduct $1,700 ($3,200-$1,500) as a medical expense this year along with any cost for operating and maintaining the central air conditioning every year for as long as it is needed medically.
Insurance Premiums Insurance premiums you pay for policies that cover medical care are deductible. Policies can provide payment for medical and dental expenses, prescription drugs, eyeglasses, and replacement of contact lenses. If you have long-term care insurance, the part of the premium that can be deducted on Schedule A depends on the age of the insured.
Weight Loss Programs Uncompensated amounts you pay for participation in a weight-loss program as a treatment for a specific disease (including obesity) diagnosed by a physician are deductible. The cost of purchasing diet food items is not deductible. Weight-loss programs to improve your general health or appearance do not qualify and are regarded as nondeductible personal expenses.
TAXES YOU PAID In order for a tax to be deductible by you, the tax must be imposed on you and must be paid by you during your tax year. You report deductible taxes on lines 5 through 9 of Schedule A. Schedule A
TAXES YOU PAID Deductible taxes include: • State and local income taxes • General sales taxes • Real estate taxes • Personal property taxes • Foreign Income Taxes
TAXES YOU PAID State and Local Income Taxes These taxes include tax withheld from your salary, estimated payments, and the tax paid for an earlier year.
TAXES YOU PAID General sales taxes. You can elect to deduct state and local general sales taxes instead of state and local income taxes. You cannot deduct both. To figure your deduction you can use either of the following methods: • Actual state and local general sales tax and sales tax on motor vehicles or the optional sales tax table (You must keep your actual receipts showing general sales taxes paid if you use this method. • IRS has website for calculating sales tax http://apps.irs.gov/app/stdc/
TAXES YOU PAID Real estate taxes. These are taxes on real property, such as your house or other land that you own that was not used for business. The taxes must be based on the assessed value of the property. Generally, real estate taxes are deductible when paid. With an escrow account, you can deduct the real estate tax the year the lending institution pays it.
TAXES YOU PAID Personal property taxes. Taxes that state and local governments charge on the value of personal property are deductible. An example is personal property taxes based on the value of your car or boat. In some states, a portion of the cost of personal vehicle registration may be deductible if part of the fee is based on the value of your car.
TAXES YOU PAID Foreign Income Taxes Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U.S. possession.
TAXES YOU PAID Taxes and fees that are generally NOT deductible include: • Federal taxes such as income tax, social security (FICA), and Medicare • Driver’s, marriage, hunting, or pet licenses • Water and sewer taxes • Taxes on alcoholic beverages, cigarettes, and tobacco • Taxes on gasoline, diesel, and other motor fuels used in a non-business vehicle • Utility taxes - telephone, gas, electricity, etc. • Fines or penalties
