Federal Income Tax Outline – Page 5 Individual Deductions

Deductions for Individuals Only

 

Adjusted Gross Income – Section 62

Allowable “above the line” – described in section 62

Deductible “below the line” – outside section 62

Section 67 – 2% floor on miscellaneous itemized deductions

85% is the maximum amount of Social Security benefits that can be taxed

 

Moving Expenses – 62(a)(15), 217

Two requirements to qualify for a deduction:

1. Distance – 217(c)(1)

2. Time – 217(c)(2)

(Meals are not deductible)

Extraordinary Medical Expenses – 213

  • 213(a) allows a deduction for uncompensated expenses for medical care of an individual, the individual’s spouse or a dependent, to the extent the expenses exceed 7.5 percent of AGI (floor)
  • 213(d)(1)(A) – medical care means amounts paid “for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body”
  • They do not include costs to improve the taxpayer’s general health and appearance.
  • 213 – travel to medical facility – 50% of meals, 100% of hotels – reasonable estimate
  • Deductible medical expenses Don mentioned:
    • Birth control pills, vasectomy
    • Excludes: cosmetic surgery


Cases:

Raymond Gerard v. Commissioner

Daughter had cystic fibrosis. Doctor recommended a central A/C unit and they installed one. The $1300 was an expenditure for medical care within the scope of 213. However, 263 states, “No deduction shall be allowed for permanent improvements made to increase the value of any property.”  If a taxpayer can show that the increase in value is less than the expenditure, the difference is deductible. Here, the unit increased the value of the home by $800. $1300 – $800 = $500 medical deduction

Revenue Ruling 2002-19

Expenses for weight-loss program for a specific disease or ailment diagnosed by a physician – cost of participation in the weight-loss program is paid for medical care and is deductible under 213 (fees to join the program and attend periodic meetings); diet food items are not deductible

You would rather have a 162 deduction instead of 213

Where it is questionable whether an expense is a business or medical expense, the Service indicates the expenses may be deduction under Section 163 if the following three elements are present:

1. The nature of the taxpayer’s work clearly requires that he incur a particular expense to satisfactorily perform such work,

2. the goods or services purchased by such expense are clearly not required or used, other than incidentally, in the conduct of the individual’s personal activities, and

3. The Code and Regulations are otherwise silent as to the treatment of such expense

Qualified Tuition and Related Expenses – 25, 62(a)(18), 222

  • Ceiling limitation on deduction – $4,000 for a taxpayer with less than $65,000 AGI

 

Personal and Dependency Exemptions – 151

  • A husband and wife filing a joint tax return constitute two taxpayers and are allowed two personal exemptions

 Qualifying Child – 4 requirements

  1. Child of the taxpayer – son or daughter, stepson, and stepdaughter; adopted or foster children are treated the same as blood children
  2. Same principal place of abode as the taxpayer for more than one-half of the year (exception: special circumstances)
  3. Age requirement – under the age of 19 at the close of the calendar year or is a student who has not attained age 24 at the end of the calendar year
  4. The dependent must not have provided over one-half of such individual’s own support (a scholarship does not qualify as support)

 Qualifying Relative

  1. Must not be a qualifying child
  2. Must bear one of the relationships listed under Section 152(d)(2)
  3. The dependent may not have gross income in excess of the exemption amount for the year involved
  4. The taxpayer must provide over one-half of the support for the dependent

A dependent must be a citizen or national of the United States or a resident of a country contiguous to the United States (exception for adopted children)

Multiple Support Agreement (MSA)

  • Generally, you have to pay over 50% of the support to claim a dependent
  • 152(d)(3) when no one person provides over 50% (if one person is over 50% then no MSA)
  • MSA – Multiple Support Agreement – when you have multiple family members paying for expenses
  • Must be greater than 10%.
  • Must have been able to otherwise claim the dependent. (The friendly neighbor cannot claim unless they could otherwise claim the dependent)

The Standard Deduction – 63

  • You should elect to itemize if it is greater than the standard deduction
  • MFS (Married Filing Separately) If one itemizes, then the other has to itemize

 

Federal Tax Outline – Page 4

Federal Tax Outline – Page 6

 

This Federal Tax Outline is keyed to Fundamentals of Federal Income Taxation, 15 edition, Foundation Press.


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