Presentation is loading. Please wait.

Presentation is loading. Please wait.

Chapter 4 Business Income & Expenses Part II

Similar presentations

Presentation on theme: "Chapter 4 Business Income & Expenses Part II"— Presentation transcript:

1 Chapter 4 Business Income & Expenses Part II
Income Tax Fundamentals 2014 Student Slides Gerald E. Whittenburg Martha Altus-Buller Steven Gill 2014 Cengage Learning

2 Rental Income/Expenses
Net Rental Income/Loss is part of taxpayer’s gross income Report on Schedule E - Part I Vacation Homes If both personal and rental use of residence, must allocate expenses Deductions limited based on period of time residence used for personal vs. rental 2014 Cengage Learning

3 Homes With Dual Use – Rental and Personal
Three Categories – different tax treatments Category I: Primarily personal use (if rented for less than 15 days) Category II: Primarily rental use, if Rented more than or equal to 15 days and Personal use does not exceed greater of 14 days or 10% of rental days Category III: Rental/personal (dual use) of property, if Personal use exceeds greater of 14 days or 10% of rental days See following screens for tax treatment for each scenario 2014 Cengage Learning

4 Categories of Income Three classifications of income
Active – This is from wages, salaries and self- employment income Portfolio – This is generated from dividend and interest income Passive – This is from items such as limited partnerships and rental real estate 2014 Cengage Learning

5 Self Employed Health Insurance Deduction
Deduction for AGI allowed for: Medical/dental insurance premiums paid to cover the taxpayer, spouse and dependent children Medical/dental insurance paid for children under age of 27 who are not dependents Medicare premiums Long-term care insurance premiums - within limits Limited by the following Not allowed in months where taxpayer is eligible to participate in employer-sponsored health care plan Only allowed to extent of taxpayer’s net earned income Deductible long-term care premiums based upon taxpayer’s age before close of the taxable year 2014 Cengage Learning

6 Health Savings Accounts (HSA)
Deduction for AGI allowed for: Amounts put into an HSA that is used to pay unreimbursed medical expenses Earnings and unused balance accumulate tax free Only available if taxpayer has high-deductible insurance High deductible health insurance defined as $2,500 (family) or $1,250 (self only) Maximum out of pocket requirements for insurance policy must be $12,500 (family) or $6,250 (self only) Contribution limited, based upon whether it is for family or self only HSA contribution must be made by April 15 of following year Additional contributions allowed for taxpayer age 55 or older Can’t contribute once 65 and qualify for Medicare 2014 Cengage Learning

7 Moving Expenses Deduction for AGI – can deduct costs of moving personal items and travel (except meals) to new locality 2013 mileage rate is $.24/mile Moving expenses must be reasonable Qualified moving expenses reimbursed by an employer are not reported as part of gross income 2014 Cengage Learning

8 Types of Individual Retirement Accounts (IRAs)
Traditional IRA Deduction for AGI if certain conditions met Distributions in retirement are taxable Roth IRA No current deduction Distributions in retirement are nontaxable 2014 Cengage Learning

9 Contributing and Deducting to a Roth IRA
Roth IRA contribution maximum is reduced for all taxpayers over certain income levels Phase-out for contribution is reflected in table on page 4-19 Does not matter whether one spouse is an active plan participant or not If taxpayer contributes to both a traditional and Roth IRA, combined amount cannot exceed $5,500 ($6,500 if 50 or over) 2014 Cengage Learning

10 Contributing/Deducting Traditional IRA
Traditional IRA deduction is dependent on AGI and active participation in another qualified retirement plan Single taxpayers – see table on top of page 4-20 MFJ taxpayers – see table, phase-outs based on if one, both or neither spouse is an active participant Note: if only one spouse is in a qualified plan, phase-out for the non-active participant spouse begins when married filing joint couple’s AGI > $178,000 2014 Cengage Learning

11 Qualified Retirement Plan
Contributions by an employer to qualified retirement plans are tax deductible, employee contributions are pre-tax and tax on earnings is deferred To achieve qualified plan status, an employer- sponsored retirement plan must Be for exclusive benefit of employees Be nondiscriminatory Have certain participation and coverage requirements Comply with minimum vesting requirements Meet uniform distribution rules Limitations on contributions to/benefits from qualified plans Defined contribution – annual addition to employee’s account can’t exceed lesser of 25% of compensation or $51,000 Defined benefit – annual benefit can’t exceed lesser of $200,000 or average compensation for the highest three consecutive years 2014 Cengage Learning

Download ppt "Chapter 4 Business Income & Expenses Part II"

Similar presentations

Ads by Google