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SaveFirst: A Tax Preparation and Financial Literacy Initiative Intermediate Tax Training Itemized Deductions Self-Employment Income Retirement Plans Adjustments to Income Intermediate Credits Intermediate Tax Training Outline Itemized Deductions Self-Employment Income Retirement Plans
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There are certain designated expenses that a taxpayer can choose to list out separately, and if they total more than the standard deduction, the taxpayer will “itemize” his deductions, which reduces his taxable income by a greater amount.Itemized Deductions
On the state level, the standard deduction is much lower, and itemizing may be beneficial at the state even when it is not at the federal.Itemized DeductionsWhen to Itemize
DependentsItemized DeductionsUnreimbursed Medical Expenses
At the Alabama level, taxpayers can deduct the amount of expenses that exceeds 4% of AGI.Itemized DeductionsUnreimbursed Medical Expenses
Health insurance premiums
Long-term care insurance premiums (cap on amount based on age)
Co-pays to doctor, dentist, eye doctor
Cost of glasses, hearing aids
Cost of medical equipment
Cost of surgery, operations
Miles to and from doctorItemized DeductionsUnreimbursed Medical Expenses
Nonqualifying organizations include businesses, civic or political organizations, social clubs, foreign organizations, homeowners’ associations.Itemized DeductionsCharitable Contributions
Uniforms (that cannot be worn in any other circumstance)
Professional books, journals
Employment-related educational expenses
Expenses for looking for a new job
Tax preparation fee from last year
Safe deposit box
Gambling losses up to amount of winningsItemized DeductionsMiscellaneous Deductions
Deductible expenses: advertising, vehicle expenses, insurance, interest, legal and professional services, repairs, 50% of business entertainment, utilities
If deducting car expenses, you will need to provide additional information on the Schedule C-EZ.Self-Employment IncomeSchedule C-EZ
The cost of the pension is the amount that the employee contributed.Pensions & Retirement Plans
If the taxpayer contributed to the plan with “before-tax” dollars, the plan is fully taxable.Pensions & Retirement Plans
Part of the pension income received has already been taxed. Therefore, only part of the pension plan is taxable.
Roth IRAs are not taxable because all contributions were made with after-tax dollars.Pensions & Retirement Plans
RRB-1099-R: treat like 1099-R (e.g., pension)Pensions & Retirement PlansRailroad Retirement
Defined Contributions Plan (e.g., 401(k) or 403(b): Employee chooses to defer part of salary into plan. Employee bears investment risk.Pensions & Retirement PlansAlabama Tax Rules
We have a list that covers most plans that are not taxable, but if your taxpayer’s plan is not listed, you must contact the plan administrator to determine if it is a defined benefits plan.
BE SURE TO CLICK BOX 1 IN TAXWISE IF IT IS A DEFINED BENEFITS PLAN.Pensions & Retirement PlansAlabama Tax Rules
You may need to call the IRS or the company that administers the retirement plan to find out if it is a defined benefits or defined contributions plan.Pensions & Retirement PlansAlabama Tax Rules
Deduct $250 of classroom expenses, including books, supplies, or equipment
Must reduce if reimbursed, had tax-free interest on savings bonds, or non-taxable earnings from QTP, ESAAdjustments to IncomeEducator Expenses
Must have recipient’s SSN
Child support is NOT considered alimonyAdjustments to IncomeAlimony Paid
Earnings and gains on the contributions are not taxed until withdrawn from the IRA account.Adjustments to IncomeIRA Deduction
Contribution limit is the lesser of
$4,000 ($5,000 if >age 50)
Taxable compensationAdjustments to IncomeIRA Deduction
Married taxpayers’ combined contributions cannot exceed combined compensation
Neither spouse can contribute more than $4,000 ($5,000 if > age 50)Adjustments to IncomeIRA Deduction
An excess contribution above these limits and any earnings on it will be taxed.
Nondeductible IRA contributions should still be reported on Form 8606.
If the taxpayer has made excess contributions, refer them to a paid preparer.Adjustments to IncomeIRA Deduction
Taxpayer cannot be claimed as dependent.
Qualified expenses include tuition and fees, room and board, books, supplies, and other necessary expenses.
Must be reduced by scholarships, employer-provided benefits, or tax-free educational assistance.Adjustments to IncomeStudent Loan Interest
Must be accredited.Adjustments to IncomeStudent Loan Interest
Cannot be MFS
Cannot be a dependent
Cannot also claim Hope and Lifetime Learning on same studentAdjustments to IncomeTuition & Fees Deduction
Non-eligible expenses include transportation, room & board, insurance, medical expenses, living expensesAdjustments to IncomeTuition & Fees Deduction
Must reduce if receive tax-free scholarship
Can claim if paid with loanAdjustments to IncomeTuition & Fees Deduction
But, if that pay were given to employer, it can be deducted as an adjustment.
On TW, find the line for “Other” under line 35.Adjustments to IncomeJury duty pay given to employer
We may see some foreign tax reported on a 1099-DIV. See the student training guide for requirements for reporting directly on Form 1040.Intermediate CreditsForeign Tax Credit