AC256: Federal TaxationTerm 1104A

Seminar: Unit 7December 4, 2011

Emil Koren, CPA, MBA

Welcome

• Introduction• Read Chapter 7• View the PowerPoint Chapter 7• Post to this weeks discussion questions– Original post by Saturday and two follow up posts

– all on three separate days

• Finish the Tax Project (170 points)!

Introduction

• Welcome to Unit 7 of AC256• We will look at a summary of Chapter 7• We will review certain problems• We will discuss the Tax Project

Chapter 7Itemized Deductions

• Medical Expenses• Taxes• Interest• Charitable Contributions• Casualty and Theft Losses• Miscellaneous Itemized Deductions

Chapter 7Itemized Deductions

Medical Expenses• Diagnosis, cure, treatment or prevention• Transportation – 16.5 cents per mile• Medical insurance premiums• Cost of Living in institutions

• Qualified medical expenses only for amounts in excess of 7.5% of AGI

Chapter 7Itemized Deductions

Taxes• State, Local and Foreign real property taxes• State, Local and Foreign personal property

taxes (must be ad valorem)• State, Local and Foreign income taxes or

General Sales Taxes

Chapter 7Itemized Deductions

Interest• Qualified residence and home equity loan

• Other interest such as credit card interest not deductible

Chapter 7Itemized Deductions

Charitable Contributions• Must be Qualified Organization• Cash contribution• Property contribution Form 8283 if over $500

– FMV

• Limitations– 50% of AGI overall limitation– 30% of AGI contributions of capital gain property– 20% of AGI Capital gain property contributed to private non operating

foundations

• Carryover into next five years

Chapter 7Itemized Deductions

Casualty and Theft Losses• Personal use property– Floor of $100 per item

• Subject to 10% of AGI

• More on Casualty looses in Chapter 8

Chapter 7Itemized Deductions

Miscellaneous Itemized Deductions• Certain employee expenses• Expenses to produce income• Cost of tax Advice

• Subject to 2% of AGI floor

– More information in Chapter 9

Problem I:7-31

Wayne and Maria file a joint tax return on which they itemize their deductions and report AGI of $50,000. During the year they incurred $1,500 of medical expenses when Mariam broke her leg. Furthermore, their dentist informed them that their daughter, Alicia, needs $3,000 of orthodontic work to correct her overbite. Wayne also needs a new pair of eyeglasses that will cost $300. What tax issues should Wayne and Maria consider?

Problem I:7-31

• Medical Deduction subject to 7.5% AGI limit• Example: AGI of $50,000 X 7.5% = $3,750

• Bunch medical expenses into one year – if you can

Problem I:7-32

This year, Chuck took out a loan to purchase some raw land for investment. He paid $40,000 for the land, and he expects that within 5 years the land will be worth at least $75,000. Chuck is married, and his AGI for the year is $325,000. Chuck paid $4,300 in interest on the loan this year. Chuck has $2,600 in interest income and $1,300 in dividend income for the year. He plans to itemize his deductions so he can use the interest expense to offset his investment income. What tax issues should Chuck consider?

Problem I:7-32

• Sec. 163(d) limits the current deduction for investment interest expense to the non-corporate taxpayer’s net investment income for the taxable year.

• Deduction against ordinary income

Tax Project

• Use a Tax software package for 2010• Download required forms from www.irs.gov• Fill out and print or scan and send to drop boxForms that might be needed1040Schedule ASchedule B8283Schedule M

Questions

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