AICPA's 2009 Individual Tax Review Series: Beyond the Basics

TOC from previous edition. Please check back for updates.

• Chapter 1 - Summary of Major Individual Tax Developments
  • Learning Objectives
  • Introduction
  • 2008's Key Inflation-Indexed Figures and New Law Changes
    • Standard Mileage Rates per Mile
    • High-Low Per Diem Rates for Business Travel
    • Depreciation Dollar Caps for Business Vehicles
    • Qualified Plans
    • Other Indexed Amounts
    • Changes Scheduled by Statute
    • Individual Income Tax Rates for 2008 (Rev. Proc. 2007-66)
  • Summary of Major Developments
    • Chapter 2 – Travel and Entertainment
    • Chapter 2 – Depreciation
    • Chapter 3 – Capital Gains and Losses
    • Chapter 3 – Installment Sales
    • Chapter 3 – Capital versus Ordinary Income
    • Chapter 3 – Nonrecognition Provisions
    • Chapter 3 – Abandonment of Stock or Other Securities
    • Chapter 4 – Educator Expenses
    • Chapter 4 – Self-Employed Retirement Plans
    • Chapter 4 – Higher Education Tuition Deduction
    • Chapter 4 – Health Savings Account (HSA) Contributions
    • Chapter 4 – Self-Employed Health Insurance Deduction
    • Chapter 4 – Alimony Paid
    • Chapter 4 – Deduction for Domestic Production Activities
    • Chapter 5 – Self-Employment Tax
    • Chapter 5 – Alternative Minimum Tax
    • Chapter 5 – Kiddie Tax
    • Chapter 5 – Estimated Tax and Penalties
• Chapter 2 - Business and Rental Transactions
  • Learning Objectives
  • Introduction
  • Limitation on Losses and Deductions
    • Hobby Losses
    • Limitation on Passive Losses
    • Economic Performance Rule
    • Home Office Expenses
    • Vacation Homes
  • Business Deductions
    • Bad Debts
    • Ordinary Business Expenses
    • Travel and Entertainment
    • Depreciation
    • Issues under Proposed De Minimis Rule for Expensing Tangible Property
    • Section 179 Election to Expense Depreciable Property
    • Temporary Bonus Depreciation
    • Energy Efficient Commercial Building Expensing
    • Amortization
    • Net Operating Loss
• Chapter 3 - Property Transactions: Gain and Loss Issues
  • Learning Objectives
  • Introduction
  • Gain and Loss Recognition and Basis Rules
    • Gain or Loss Realized and Recognized
    • Capital Gains and Losses
    • Definition of Capital Asset
    • Capital Loss Limits
    • Basis of Property Acquired by Gift
    • Basis of Inherited Property
    • Installment Sales
    • Abandonment of Stock or Other Securities
  • Capital vs. Ordinary Income
    • Section 1231 and Depreciation Recapture
    • Ordinary Loss on Section 1244 Stock
    • Subdividing Real Estate
    • Section 1256 Futures Contracts
    • Definition of a §1256 Contract
    • Stock Trader’s Gains and Losses
  • Nonrecognition Provisions
    • Overview
    • Like-Kind Exchanges
    • Involuntary Conversions
    • Rollover of Gain on Nonpublic C Corporation Stock Sold to ESOP
    • Transfers of Property between Spouses or Incident to Divorce
    • Sale of a Principal Residence
    • Loss on Demolition
• Chapter 4 - Adjustments to Income
  • Learning Objectives
  • Introduction
  • Adjustments to Income
    • Summary of Adjustments
  • Educator Expenses
    • Overview
  • Self-Employed Retirement Plans
    • Keogh Plans
    • SIMPLE Plans for the Self-Employed
    • Simplified Employee Pension (SEP) Plans
    • Individual Retirement Accounts (IRAs)
  • Student Loan Interest Deduction
    • Overview
    • IRS Guidance
    • Information Reporting
    • Income Phase-Out Range
  • Qualified Higher Education Tuition Deduction
    • Overview
    • Deduction and Income Limits
    • Coordination with Other Higher Education Incentives
    • Definition of Eligible Education Costs
  • Health Savings Account (HSA) Contributions
    • How HSAs Work in a Nutshell
    • Determining Eligibility for HSA Contributions
    • HSA Contributions for Married Individuals
    • HSA Contribution Eligibility Can Be Determined at Yearend (but Watch Out for Recapture Provisions)
    • New HSA Rollover Deal for FSA and HRA Balances (but Watch Out for Recapture Provisions).. 4-51 New IRA-to-HSA Rollover Deal (but Watch Out for Recapture Provision)
    • Pay Attention to Important HSA Timing Considerations
    • Summary Client Advice on HSAs and HDHPs
  • Moving Expenses
    • Overview
    • Who May Deduct Moving Expenses
    • Direct Moving Expenses
    • Mileage Limitations
    • Time Requirements
    • Connection with Start of Work
    • IRS Reporting
  • Self-Employed Health Insurance Deduction
    • Overview
    • General Rules
  • Alimony Paid
  • Overview
  • Reporting Alimony
  • Recapture of Alimony Payments
  • Deduction for Domestic Production Activities
    • Overview
    • Eligible Production Income
    • The Wage Limitation
    • Eligibility Issues
    • Claiming the Deduction
  • Selected Other Pre-AGI Deductions
  • Travel Expenses of Reservists, Performing Artists, and Fee Basis Officials
  • Jury Duty Pay Paid to an Employer
• Chapter 5 - Tax Computations
  • Learning Objectives
  • Introduction
  • Self-Employment Tax
    • General Rules
    • Active Business Requirement
  • Alternative Minimum Tax
    • General Rules
    • AMT Adjustment Items
    • AMT Preference Items
    • AMT Reduction Strategies
    • AMT Exemption
    • AMT Rates
    • Minimum Tax Credit
    • Tax Credits as an AMT Offset
  • Kiddie Tax
    • Child’s Age Is the Key Factor
    • Kiddie Tax Rules for 2008 and Beyond
    • Kiddie Tax Avoidance Strategies for 2008 and Beyond
    • Calculation of the Kiddie Tax
    • Other Kiddie Tax Factors
    • Election to Claim Child's Unearned Income on Parents' Return
  • Estimated Tax and Penalties
    • Estimated Tax Payments
    • Penalty for Underpayment of Estimated Tax
    • Penalty for Underpayment of Tax Due
    • Accuracy-Related Penalties
    • Negligence and Disregard of the Rules
    • Substantial Understatement of Income Tax
    • Fraud
    • Fraudulent Failure to File
    • New Penalty on Erroneous Claims for Refunds or Credits
    • New Proposed Regulations on Tax Return Preparer Penalties
    • Extensions
• Chapter 6 - Comfort Letters
  • Practice Aid 6-1: Example Wording for a CPA Comfort Letter
• Chapter 7 - Ethics Focus: Taxation
  • Ethics Overview
  • Recent Developments
  • Spotlight on Independence in Tax Services
  • Key Ethical Dilemmas and Judgment Calls
  • Addressing Ethical Dilemmas
  • Available Resources
• Chapter 8 - Latest Developments

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Excerpt from previous edition. Please check back for updates.

Chapter 4

Adjustments to Income

Learning Objectives

After completing this chapter, you should be

• Able to calculate the most common deductions that are allowed in computing AGI.
• Able to calculate selected other deductions that are allowed in computing AGI.

Introduction

This chapter covers the adjustments to total income that are deductible "above-the-line" on page one of Form 1040.

Adjustments to Income

Summary of Adjustments

A number of adjustments to total income are deductible "above-the-line" on page one of Form 1040. Several of these adjustments are discussed in this chapter.

1. Educator Expenses (Caution: Scheduled to expire after 2007; renewal uncertain)
2. Self-Employed Retirement Plans (Keogh plans) and Individual Retirement Accounts (IRAs)
3. Student Loan Interest Deduction
4. Qualified Higher Education Tuition Deduction (Caution: Scheduled to expire after 2007; renewal uncertain)
5. Health Savings Account (HSA) Deductions
6. Moving Expenses
7. Self-Employed Health Insurance Deduction
8. Alimony Paid
9. Domestic Production Activities Deduction
10. Travel Expenses of Reservists, Performing Artists, and Fee-Basis Officials
11. Jury Duty Pay Paid to an Employer

Educator Expenses

Overview

An eligible educator is allowed an above-the-line deduction in arriving at AGI of up to $250 for classroom expenses [~§~62(a)(2)(D)]. The Tax Relief and Health Care Act of 2006 (TRHCA) retroactively reinstated this deduction for tax years beginning in 2006 and 2007. This deduction is set to expire as of December 31, 2007. However, it has been reinstated several times in the past.

Eligible Educator

An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in a K-12 school for at least 900 hours during a school year.

Eligible Expenses

Eligible expenses for the deduction include books, supplies (other than non-athletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services), and other equipment and supplementary materials used by the educator in the classroom. These expenses must meet the definition of ~§~162 ordinary and necessary employee business expenses.

The statute also provides that expenses are allowed only to the extent they are not otherwise reimbursed through a tax-free withdrawal from a ~§~529 plan, a ~§~530 Coverdell Education Savings account, or a ~§~135 tax-free savings bond redemption. However, an educator's personal continuing education expenses that might be reimbursed under one of these three arrangements would be unlikely to overlap with the definition of eligible K-12 classroom supplies.

In addition, qualified expenses must be reduced by any employer reimbursements not reported in Box 1 of Form W-2.

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