Cash Method: Prepaid expenses are prorated for cash basis taxpayers if recognition of the total expense in the current year would distort taxable income. Hybrid Method: required for taxpayers where sales of inventory constitute a substantial source of income taxable bonds: amortize and deduct tax exempt bonds: amortize, but no deduction Interest is accrued on bonds purchased between interest dates, and the portion earned prior to the purchase is treated as a return of capital. Bond Discounts: Cash basis taxpayers can defer the original issue discount on US savings bonds (series EE bonds — not series H) until maturity Individuals can elect to amortize discounts on bonds purchased in the secondary market (straight-line method is allowed). the owner of the bond is at least 24 years old The interest is excluded in proportion to the educational expenses of the taxpayer, spouse, or dependent phased-out for 2008 when modified AGI exceeds ,100 (0,650) for single (filing joint) status VI.
Definition of liquidating dividend
Qualified higher education expenses Tuition and academic fees required for enrollment or attendance at post-secondary educational institution for the taxpayer, spouse, and/or dependents Cannot be claimed together with Hope or Lifetime credit VI.
Educator Expenses Teacher in grades kindergarten through grade 12 Limit: 250, related to books, equipment, and supplies that are used in the classroom.
“Roth” or “Coverdell Savings Account” Withdrawals are assumed to be from contributions first, nontaxable – Nontaxable if the distribution occurred five years or more from the date of the initial contribution, and made after 59.5, nontaxable if death or disability, or first-time homebuyer expenses, or certain education expenses – Coverdell: nontaxable if payment is for higher education expenses, or rolled into a Coverdell Savings account for a member of the beneficiary’s family May waive the exclusion for withdrawals if claim the Hope/Lifetime credits If not used for education expenses, prorated between total contributions and accumulated income, income part taxable plus 10% penalty (unless the taxpayer is disabled or the withdrawal is limited to the amount above any tax-free scholarship) C.
Special Retirement Plans: for Self-employed taxpayers – “Keogh” plans, maximum percentage limit is based upon self-employment earnings – 401(k) allows voluntary employee contributions to reduce taxable salary up to $15,500, plus $5000 catchup for those 50 and over IX.
B will be taxed on $400 of income ($100 is return of capital). No consideration is expected in return: non taxable B.
If TP had not sold the policy, then TP would have received 0 tax free. Income on gift: taxable, to donor if before time of gift, to donee if after C.Conversion of a Traditional IRA to a Roth IRA: can convert in years that their AGI is 0,000 or less, recognize gain at the time of the conversion to the extent that the conversion amount exceeds the tax basis in the IRA D.Roth 401(k) Plans: Beginning in 2007, after-tax dollars are contributed, all distributions are tax-exempt E.Coverdell Savings Account: ayment for higher education costs (tuition, fees, books, and room and board reduced by tax-free scholarships and similar payments, including elementary and secondary school expenses) for a beneficiary who is under age 18 (unless a special needs student) – Limit: 2000 per beneficiary per year, phased-out proportionately if AGI is over 0,000 for married-joint (a ,000 range) or ,000 for single taxpayers (a ,000 range) – Corporations or tax-exempt entities may make contributions regardless of the income of the entity VIII. “traditional” IRA – If made nondeductible contributions, prorated between the total nondeductible contributions and the remaining balance in the account, nondeductible not taxable – Penalty tax of 10%, exceptions: * Disabled or age 59 ½ * Made in the from of certain periodic payments.* Used to pay medical expenses in excess of 7.5% of AGI * Used to purchase health insurance of an individual who is unemployed for at least 12 weeks * For first-time home buyer expenses * Distributed for the qualified higher education expenses * Amounts are levied by the IRS – Must withdrawal from 70.5 – In 20, up to 0,000 of distributions is tax-free if contributed to a charitable organization by an individual age 70 1/2 or over B.* Nursing home expenses qualify if the primary reason is for medical reasons.