CH 7 no vocab

Alton is the principal of Your City Middle School. In 2018, he spent $200 on gifts for each of his sixth-, seventh-, and eighth-grade teachers on the last day of the school year. He had no other unreimbursed expenses and was not reimbursed for any of the gifts. He worked more than 1,500 hours during the year. How much can Alton deduct?

$0

Madeline homeschools her daughter, Pamela. Madeline spent $380 on homeschool supplies and books for Pamela. Pamela is in the second grade, and Madeline spent 1,200 hours teaching Pamela in 2018. How much can Madeline deduct?

$0

Katie works part-time as an art instructor at Your City Junior High School. In 2018, she spent $240 on paint supplies for her students. She was not reimbursed for the paint. She worked 720 hours in 2018. How much can Katie deduct?

$0, <900 hours worked

Lenard works as an administrator at Your City Middle School. In 2018, he spent $80 on supplies for his office. He was not reimbursed for the office supplies. He worked 1,000 hours for the year.

$0. (Qualified expenses for the educator expense deduction do not include expenses for supplies not used in the classroom.)

Ronald works as a counselor at Your City High School. In 2018, he purchased college testing software for use by his senior college-bound students. The software cost him $195. He was not reimbursed by the school. He works over 1,400 hours each year. How much can Ronald deduct?

$195

James works as a fifth-grade science teacher at Your City Elementary School. In 2018, he spent $870 on science supplies for his students. The school reimbursed him $550 for the science supplies he purchased. The reimbursements were not reported on his Form W-2, box 1. He worked 1,600 hours during the year. How much can James deduct?

$250 ([$870 expenses - $550 reimbursed = $320 remaining expenses], of which he is only allowed to deduct a maximum of $250.])

Antoine Rimbald is a degree candidate. For 2018, his tuition was $8,300, his required equipment fees and books cost $1,850, and his room and board were $4,200. Antoine received a $15,000 scholarship that does not specify the expenses to which it must be applied. Is Antoine's scholarship taxable?

$4,850 of Antoine's scholarship is taxable. (Antoine's tuition, fees, and book costs total $10,150. The portion of his scholarship money in excess of this is taxable [$15,000 - $10,150 = $4,850 taxable scholarship]. The cost of his room and board is not a qualified educational expense, and the portion of scholarship funds used to pay these expenses is generally taxable.)

Helen is a teacher's aide to a kindergarten teacher at Your City Elementary School. In 2018, she spent $40 for crayons for use by her students. She was not reimbursed by the school. She worked 1,200 hours during the year. How much can Helen deduct?

$40

Kendra and Bruce Jackson are married, and both work as teachers at Your City High School. Kendra is a tenth-grade English teacher, and Bruce is a physical education (PE) instructor for the school. In 2018, Kendra spent $230 on classroom supplies and books for her students. She was not reimbursed for the supplies. She worked 1,400 hours in 2018. Bruce spent $635 on athletic supplies for his students. The school reimbursed him $400 for the athletic supplies he purchased. The reimbursements were not reported on his Form W-2, box 1. He worked 1,600 hours during the year.

$465. (Kendra and Bruce both qualify for the educator expense deduction because they both worked at least 900 hours as qualified educators)

Taxpayers who take an early withdrawal from certain deposit accounts from a financial institution are charged a penalty for the withdrawal. They may be entitled to deduct the penalties as an adjustment to income. These early withdrawal penalties may be reported in box 2 of Form

1099-INT

SCHEDULE 1 (Form 1040) Adjustments to Income 33

33 Student loan interest deduction

If the taxpayer meets all of the following requirements: Uses any filing status except married filing separately. Cannot be claimed as a dependent on another taxpayer's return. Must be legally obligated to pay interest on a qualified student loan. Paid interest on a qualified student loan.

A taxpayer can claim the student loan interest deduction

SCHEDULE 1 (Form 1040) Adjustments to Income 31a

Alimony paid b Recipient's SSN ▶

What 3 groups of taxpayers are still allowed to deduct work related expenses due to the TCJA?

Armed Forces reservists, Employees of state or local governments, Certain performing artists

SCHEDULE 1 (Form 1040) Additional Income 11

Alimony received

Barbara Bui is a part-time student and is not working toward a degree. For 2018, her tuition was $1,500, and her books cost $145. Barbara lives at home with her parents and does not have room and board expenses. Barbara received a tuition scholarship of $1,000. Is Barbara's scholarship taxable?

All of Barbara's scholarship is taxable, because she is not a degree candidate.

SCHEDULE 1 (Form 1040) Additional Income 12

Business income or (loss). Attach Schedule C or C-EZ

SCHEDULE 1 (Form 1040) Additional Income 13

Capital gain or (loss). Attach Schedule D if required.

SCHEDULE 1 (Form 1040) Adjustments to Income 24

Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106

Below the line income

Credit below the taxable liablility (reference to taxable alimony pre-2019)

SCHEDULE 1 (Form 1040) Adjustments to Income 27

Deductible part of self-employment tax. Attach Schedule SE

SCHEDULE 1 (Form 1040) Adjustments to Income 23

Educator expenses ($250/1, $500/2 qualified educator expenses)

SCHEDULE 1 (Form 1040) Additional Income 18

Farm income or (loss). Attach Schedule F

A taxpayer who made after-tax contributions to their HSA, not through their employer, may be entitled to deduct these contributions as an adjustment to income on

Form 1040 (see IRS Publication 969, HSAs and other tax favored health plans.)

Some types of income have their own line number on the Form 1040. For example, wages are entered on line 1, and taxable interest is entered on line 2b. Some types of income are entered on Schedule 1, totaled, and carried to

Form 1040.

Generally, lending institutions that issue student loans will report the student loan interest paid during the year on

Form 1098-E student loan interest statement

In 2018, Fran earned $23,874 in wages from working at her local grocery store. She received a Form W-2 from her employer, reporting $23,874 of wages in boxes 1, 3, 5, and 16. Are Fran's wages taxable, and where are they reported?

Fran's wages from her job at the local grocery store are taxable and reported on Form 1040, line 1.

In 2018, Gwyn lost her job and received $8,239 in unemployment compensation from her state division of unemployment. She received a Form 1099-G from the state showing $8,239 in box 1. Is this compensation taxable and where is it reported?

Gwyn's unemployment compensation is taxable and reported on Schedule 1, line 19.

SCHEDULE 1 (Form 1040) Adjustments to Income 25

Health savings account deduction. Attach Form 8889

SCHEDULE 1 (Form 1040) Adjustments to Income 32

IRA deduction . . . . . . . . . . . . . . 32

SCHEDULE 1 (Form 1040) Adjustments to Income 26

Moving expenses for members of the Armed Forces. Attach Form 3903

In 2018, DuJuan received $14,000 in cash from his uncle. His uncle gave him the money as a gift to help him buy a new car. Is this money taxable?

No. (DuJuan's gift from his uncle is nontaxable to DuJuan and is not reported on his income tax return. Generally, property (including cash) an individual receives as a gift, bequest, or inheritance is not included in income.)

In 2018, Tony received a $580 federal income tax refund from his 2017 income tax return. The IRS deposited his refund directly into his checking account. Is this refund taxable?

No. (Tony's 2017 federal income tax refund, which he received in 2018, is nontaxable and not reported on his income tax return.)

Alberto Jimenez is a degree candidate. For 2018, his tuition was $5,000, his other required course fees were $1,200, and his room and board were $2,700. Alberto received a $2,500 scholarship that does not specify the expenses to which it must be applied. Is Alberto's scholarship taxable?

None of Alberto's scholarship is taxable. (He is a degree candidate where his $5,000 tuition expense and his other required course fees of $1,200 exceeded his $2,500 scholarship received.)

SCHEDULE 1 (Form 1040) Additional Income 14

Other gains or (losses). Attach Form 4797

SCHEDULE 1 (Form 1040) Additional Income 21 Prizes and awards, jury duty, canceled debts, rental of personal property, taxable distributions from HSA or Archer MSA, credit card insurance, hobby income, medical trial income, gambling winnings see IRS PUB 525

Other income. List type and amount

SCHEDULE 1 (Form 1040) Adjustments to Income 30

Penalty on early withdrawal of savings

The following types of income are reported on Schedule 1 (Form 1040), line 21 designated in Publication 525:

Prizes and awards, canceled debts, Rental of personal property, Taxable distributions from a health savings account (HSA) or an Archer MSA, Credit card insurance, Hobby income, Medical trial income.

The total cost of attending an eligible educational institution, including graduate school. Amounts paid for any of the following are included: Tuition and fees. Room and board. Books, supplies, and equipment. Other necessary expenses (such as transportation).

Qualified education expenses for the student loan interest deduction

For purposes of deducting student loan interest, a loan taken out by the taxpayer solely to pay qualified education expenses that were: For the taxpayer, the taxpayer's spouse, or a person who was the taxpayer's dependent when the taxpayer took out the loan. Paid or incurred within a reasonable period of time before or after the taxpayer took out the loan. For education provided during an academic period for an eligible student.

Qualified student loan

SCHEDULE 1 (Form 1040) Additional Income 17

Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E

Unemployment compensation is fully taxable, reported on

Schedule 1, line 19

SCHEDULE 1 (Form 1040) Adjustments to Income 28

Self-employed SEP, SIMPLE, and qualified plans

SCHEDULE 1 (Form 1040) Adjustments to Income 29

Self-employed health insurance deduction

MFJs with modified AGIs greater than $135,000, but less than $165,000, must reduce the deduction by the following fraction: (Interest Paid X (MAGI-$135K))/30K For all other taxpayers (except MFS) with modified AGIs exceeding $65,000, but less than $80,000, reduce the deduction by the following fraction: (Interest Paid X (MAGI-$65K))/15K * Limited to the maximum allowable deduction ($2,500).

Student loan interest deduction

Alimony payments executed under orders after December 31, 2018, will no longer be taxable income for the recipient or deductible by the payer as part of the

Tax Cuts and Jobs Act.

How to accurately report long-term disability income.

Taxable as income, then taxable as retirement

SCHEDULE 1 (Form 1040), Additional Income 10

Taxable refunds, credits, or offsets of state and local income taxes

SCHEDULE 1 (Form 1040) Additional Income 19

Unemployment compensation

Where the taxable disability benefit is reported on the tax return depends upon the taxpayer's age when the benefit is received:

Until the taxpayer reaches minimum retirement age, the disability pension payments are reported as wage income (and are considered earned income) on Form 1040, line 1. Beginning on the day after the taxpayer reaches minimum retirement age, the disability pension payments are reported as pension income on Form 1040, lines 4a and 4b.

Payments received from a disability insurance policy is through their employer, their Form W-2 may show the amount in box 12 with code "J." Are these payments earned income for EITC purposes?

YES. (these payments are earned income for EITC purposes)

The following items are all adjustments to income reported on Form 2106, Unreimbursed Employee Expenses, with the exception of: a. Moving expenses. b. Officials (state and local) paid on a fee basis. c. Performing artists. d. Armed forces reservists.

a. Moving expenses. (active-duty members of the Armed Forces who have a permanent change of station due to a military order (filed on Form 3903 first, then are deducted on Schedule 1 (Form 1040), line 26.)

The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the moving expense adjustment to income for all taxpayers, with the exception of

active-duty members of the Armed Forces who have a permanent change of station due to a military order (on Form 3903 first, then are deducted on Schedule 1 (Form 1040), line 26.)

Taxpayers who make taxable alimony payments during the year may be eligible to deduct these payments as an

adjustment to income on Schedule 1 (Form 1040), line 31a. (Written prior to Dec. 31, 2018)

A payment made to a person as part of an agreement or a court decree of divorce or separation

alimony

Payments received from a disability insurance policy for which the taxpayer paid the premiums

are not earned income for EITC purposes

Employees of state or local governments who are paid in whole or in part on a fee basis may be able to deduct their business expenses

as an adjustment to income.

Above the line deduction to the payer spouse

before taxed (reference to taxable alimony pre-2019)

Which of the following items is exempt from taxation? a. Wages earned by a dependent. b. Unemployment income c. Workers' compensation d. Interest from a savings account.

c. Workers' compensation

Regarding alimony or child support, a contingency relates to a child (child support) if it depends on any event relating to that child (such as becoming employed, dying, leaving the household, leaving school, marrying, or reaching a specified age or income level). It does not matter whether the event is

certain or likely to occur.

Taxpayers who are Armed Forces reservists and must travel more than 100 miles from their home for services related to the reserves may be able to deduct

certain travel expenses.

The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance for a particular academic period and living arrangement of the student. The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

cost of room and board qualifies only to the extent that it is not more than the greater

"Other income" reported on Schedule 1 (Form 1040), line 21, includes all but the following: a. Prizes and awards. b. Hobby income. c. Jury duty pay. d. Unemployment compensation.

d. Unemployment compensation.

Certain performing artists may qualify to deduct some of their employee business expenses as an adjustment to income. There are specific requirements that must be met for the taxpayer to be able to

deduct the expenses.

Employer-provided educational assistance. Tax-free distribution of earnings from a Coverdell Education Savings Account (ESA). Tax-free distribution of earnings from a qualified tuition program (QTP). U.S. Savings Bond interest excluded from income because it is used to pay qualified education expenses. Tax-free part of scholarships and fellowships. Veterans' educational assistance. Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.

education tax-free funds

A taxpayer who is an eligible educator in 2018 may deduct up to $250 (or 2 married eligible educators, MFJ $500) of qualified educator expenses paid in 2018; this is done on Schedule 1 (Form 1040), line 23. An eligible educator is someone who worked at least 900 hours during the school year as a teacher, instructor, teacher's aide, counselor, principal, or administrator in an

elementary or secondary school (kindergarten through 12th grade).

A student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential.

eligible student

An individual may be considered the taxpayer's dependent for this purpose if the individual could have been claimed as a dependent except the: -Taxpayer could be claimed as a dependent of another taxpayer. For example, the taxpayer's parent could claim the dependent. -Individual files a joint return with a spouse. -Individual had gross income equal to or more than their inflation-adjusted exemption amount for the year ($4,150 for 2018).

exceptions to general rules for the student loan interest deduction

A taxpayer who is self-employed, a partner in a partnership, or a shareholder in an S corporation may be eligible to deduct the cost of

health insurance for themselves, their spouse, or their dependents.

Qualified expenses do not include expenses for homeschooling or for nonathletic supplies for courses in

health or physical education.

If a taxpayer is receiving taxable alimony, it is included in the additional

income section of Schedule 1 (Form 1040), line 11. (Written prior to Dec. 31, 2018)

Only income that is specifically exempted by law

is nontaxable

If a taxpayer's scholarship or fellowship is fully or partially taxable, but the taxpayer is not required to file a return, then the taxpayer is not required to report their taxable scholarship or fellowship. However, if the taxpayer is required to file, then the taxpayer would report their taxable scholarship or fellowship on

line 1 of Form 1040 and enter the code "SCH" to the left of the line.

If, during 2018, a taxpayer received an overpayment of unemployment compensation and repaid all or part of it in 2018, the taxpayer is allowed to reduce, dollar for dollar, the amount shown on Form 1099-G, box 1, by the amount repaid. The taxpayer would then enter the net amount on

line 19 left of the box with "repaid" left of the amount repaid.

Unemployment compensation is fully taxable and is entered on Schedule 1 (Form 1040),

line 19.

A taxpayer who is self-employed or a partner in a partnership and made SEP, SIMPLE, or other qualified retirement plan contributions for themselves during the year

may be able to deduct these contributions.

Many states also tax unemployment income. It may be beneficial to let taxpayers know that requesting both federal and state withholding from their unemployment income

may reduce their tax liability when their tax returns are filed.

Social security disability income, regardless of the age of the recipient, is recorded on is never reported as wage income, nor is it ever considered earned income. Social security disability income is reported to the recipient on Form SSA-1099,

not Form 1099-R

A taxpayer who makes payments during the year on a qualified student loan may deduct up to $2,500 (per return) of qualified student loan interest paid as an adjustment to income on Schedule 1 (Form 1040), line 33, if the taxpayer is legally obligated to pay the loan and is

not a dependent of another taxpayer.

If the taxpayer is self-employed and owes self-employment tax, the taxpayer is allowed to deduct

one-half of their self-employment tax calculated on Schedule SE.

The taxpayer's dependent (student loan interest) may either be a

qualifying child or a qualifying relative.

A taxpayer may qualify for other adjustments to income. These adjustments include: certain business expenses of reservists, performing artists, and fee-basis government officials; health savings account (HSA) deduction; moving expenses; deductible part of self-employment tax; self-employed SEP, SIMPLE, and qualified plans; self-employed health insurance deduction; penalty on early withdrawal of savings; alimony paid; and other "write-in" adjustments to income.

reported on Schedule 1, lines 23-25, then subtracted from 1040 line 6, entered on 1040 line 7

Starting on January 1, 2019, divorce or separation agreements executed or modified after December 31, 2018, will result in the alimony payments being excluded from gross income of the recipient spouse and will not be

taxable income.

When determining the student loan interest deduction, the taxpayer is required to reduce their total qualified education expenses by the amount of tax-free funds that were used to pay qualified education expenses during the time the

taxpayer was in school.

Qualified educator expenses are ordinary and necessary expenses for books, equipment, computer software, classroom supplies, and other supplemental instructional materials and services used in the classroom. Ordinary and necessary means common, accepted, helpful, and appropriate in the

taxpayer's educational field. (Expenses for professional development courses, related to what the educator teaches, and expenses for their students are included in qualified expenses)

Because William's employer paid the disability premiums and William has not reached the minimum retirement age as of December 31, 2018,

the entire amount of disability benefits is taxable and reported as wages on his Form 1040, line 1.

Generally, scholarships and fellowships are exempt from tax to the extent they are used by a degree candidate to pay for

tuition, course fees, and required books and equipment.

When calculating a dependent taxpayer's standard deduction, taxable scholarships and fellowships not reported on Form W-2 are considered earned income. For example, Janine's only income is her taxable scholarship, her standard deduction would be $1,850 [$1,500 earned income + $350 = $1,850 standard deduction]

which zeroes out her tax income ([$1,500 taxable scholarship - $1,850 standard deduction = $0 taxable income].)