Index
A
Above-the-line deductions, 12
ACA. See Affordable Care Act (ACA)
Accelerated depreciation method, 251, 257
Accrual accounting method, 182
Acquisition debt, 296
Adjusted Gross Income (AGI), 11, 57, 64, 81, 94, 137, 142, 150, 173, 186, 237, 282, 299, 340
education expenses, 318
medical-expense limitation, 328
Adoption credit, 309
Affordable Care Act (ACA), 72, 120, 166, 238, 282
AGI. See Adjusted Gross Income (AGI)
Agriculture and livestock development, 108
Alternative Minimum Tax (AMT), 17, 20, 61, 96, 167, 239, 282, 327, 340
standard deduction, 328
strategies to reduce
business-expense deductions, 330
employee expense reimbursement plan, 329
medical expenses, 329
overpayment of state taxes, 330
standard deduction, 329
tax rates, 330
“tax-free” municipal bond, 329
American Opportunity Credit, 320
AMT. See Alternative Minimum Tax (AMT)
Annuity, 68
Automatic contribution, of employer, 155
B
Bartering, 84
Below-the-line deductions, 12, 13
Beneficiary IRA, 72
Bond swap, 124
Bonus depreciation, 252
Buffett, Warren, 25
Build America Bonds, 95
Business
deduction, education expenses, 319
income, 85
tax implications
health exchanges, 348
penalties and limitations, 348
tax credit, 349
wellness programs, 349
Business taxation
income and expense recognition
accrual accounting method, 182
cash accounting method, 182
criteria, 182
legitimate business, 181
losses and hobby rules
deductions, 184
income sources, 183
IRS, 183
profit motive, 184
personal expenses, 181
Business Use of the Home (BUH)
AGI, 186
appurtenant, 188
appurtenant rules, 191
customers, 190
deductible expenses
directly related expenses, 194
indirectly related expenses, 194
unrelated expenses, 196
deductions, claim
business owner/employee, 192
daycare service, 193
storage space, 192
depreciation
first-year depreciation percentage rates, 199
home value, 197
housing market, 197
real-estate tax bill, 198
rules, 196
standard annual depreciation rate, 198
dwelling unit, 188
excess interest, 186
exclusive space, 189
Form 2106, 199
Form 8829, 199
gross business income, 200
Home Office deduction, 185
income-making-activity, 187
IRS, 199
mileage deduction, 186
mortgage interest and real-estate taxes, 200
mortgage interest deduction, 186
multiple places of business, 201
personal deductions, 186
positive net income, 200
principal place of business
administrative and management activities, 190
non-administrative and non-managerial activities, 190
regular use, 189
small-business owners, 187
tax code, 185
unused deductions, 200
warning
audited deductions, 204
business property, 203
double-deduct expenses, 206
floor plan, 205
future tax rates, 204
home ownership tax benefits, 202
IRS statistics, 204
log book, 206
losses, multiple years of, 206
marginal tax bracket, 204
pictures, 205
real estate, 205
recaptured depreciation, 203
tax code, 203
C
Capital gains, 28
Affordable Care Act, 120
capital losses, from sales, 114
collectibles, special rules for, 119
double-dipping, 119
long-term vs. short-term arbitrage, 117
rigged tax code, 122
wash sales, 115
Capital losses, from sales, 114
Cash accounting method, 182
Catch-up contribution, 100, 156
CDs. See Certificates of Deposit (CDs)
Certificates of Deposit (CDs), 135
Charitable contributions
gifts
appreciated assets, 315
of money, 312
of service, 314
tax benefit, 316
non-money gifts, 313
Child care credit, 307
Children
additional child tax credit, 307
adoption credit, 309
child care credit, 307
child tax credit, 305
tax-saving strategy, 241
Child support tax rules, 78
Child tax credit, 305
Collectibles, special rules for, 119
Cost basis, of asset, 112
Coverdell Educational Savings Accounts, 143
Credits
meaning, 19
non-refundable, 18
refundable, 21
D
Debt forgiveness, 79
Declining balance method, 250
Deferred compensation, 174
Defined benefit plan, 174
Dependency exemptions, 36
exemptions, 36
Qualifying Child, 36
Qualifying Non-Relative, 38
Qualifying Relative, 37
asset, selling/disposal of, 256
accelerated depreciation, 257
basis, 256
sales price, 256
straight-line depreciation, 257
bonus, 252
declining balance method, 250
deductions, 196
IRS, 251
non–real estate assets, 257
real estate, 271
Section 179 Deduction, 253
3-, 5-, 7-, and 10-year recovery periods, 252
Disability income, 86
Dividend income, 122
Dividends, 28
Double-dipping, in tax code, 119
Double-taxation, 131
E
Early withdrawals, penalties for, 164
Earned income, 55. See also Employment income
Earned vs. unearned income, 32
Educational assistance programs, 236
Education expenses
American Opportunity Credit, 320
business deduction, 319
lifetime learning credit, 321
student loan debt forgiveness, 323
student loan interest deduction, 322
tuition and fees deduction, 318
Education investment strategy, 141
coordination, 146
Coverdell ESAs, 143
Education Savings Bonds, 145
529 plans, 141
gifting appreciated items, 147
IRAs, 146
QTPs, 141
Roth IRAs, 146
Education IRAs. See Coverdell Educational Savings Accounts
Education Savings Bonds, 145
Effective tax rate, 17
EIF. See Ever Increase Fund (EIF)
Emotional distress, 90
Employee benefits
educational assistance programs, 236
fringe benefits
adoption assistance, 234
athletic facilities, 234
De Minimis Benefits, 235
employee discounts, 235
life insurance, 235
no-additional-cost services, 235
medical expenses and health insurance
health care tax credit, 238
HRAs, 238
self-employed health insurance, 237
tax deductions, 236
personal expenses, 233
Employee business expenses, 56
automatic, 155
matching, 155
profit-sharing, 155
Employment income, 55, 85. See also Earned income
defer/postpone income, 61
employee business expenses, 56
expenses, claiming, 59
insurance premiums, from pre-tax, 60
Entertainment, 229
Ever Increase Fund (EIF), 128
Exemptions, from tax. See Tax exemptions
Expenses, claiming, 59
F
Fair market value (FMV), 87
Federal tax return, 6
Fellowships, tax-free, 88
HofH, 40
MFJ, 40
MFS, 40
QW, with dependent, 41
rules, 41
single (S), 39
Flexible Spending Account (FSA), 347
Fringe benefits
adoption assistance, 234
athletic facilities, 234
De Minimis Benefits, 235
employee discounts, 235
life insurance, 235
no-additional-cost services, 235
G
Gambling winnings and losses, 81
Gifted assets, 86
Gifting appreciated items, 147
Gifts
business, 230
charitable contributions
appreciated assets, 315
of money, 312
non-money gifts, 313
of service, 314
tax benefit, 316
Grants, tax-free, 88
H
Harvesting losses, 115
Head of Household (HofH), 40
Health care reform, tax implications
business, 348
health exchanges, 348
penalties and limitations, 348
tax credit, 349
wellness programs, 349
health insurance plans, 349
individuals, 344
HSA and FSA withdrawals, 347
medical expense deductions, 345
penalty tax, 346
refundable credit, 347
Health insurance plans, 349
Health insurance premium deductions, 60
Health Reimbursement Arrangements (HRAs), 238, 245
Health Savings Accounts (HSAs), 31, 99, 172
AMT, 286
annual contribution limits, 287
benefit of, 286
doctor bills, 287
human resource department, 288
over-the-counter medications, 288
penalty on, 347
tax treatment, 285
unqualified withdrawal from, 337
Home equity debt, 297
Home improvements, for disabled, 301
Home sale exemption, 302
HSAs. See Health Savings Accounts (HSAs)
I, J, K
Income, 10, 25. See also Specific Income
deferred, 29
dividend (see Dividend income)
earned vs. unearned, 32
employment (see Employment income)
from unemployment benefits, 83
interest (see Interest income)
ordinary, 26
passive, 33
penalized, 31
potentially/partially taxed, 30
preferred, 27
taxable, 15
tax-exempt, 27
wealthy taxpayers, great secret of, 34
Income tax, 20
Income tax system, 16
Individual Retirement Accounts (IRAs), 61, 146, 154, 160
Inherited IRA, 72
Insurance premiums, from pre-tax income, 60
Insurance proceeds. See Life insurance proceeds
Interest income, 123
capital gains and bond swaps, 124
OIDs, 125
zero-coupon bonds, 127
Investment income. See also Tax-free investment income
deductions from, 133
foreign tax credit, 135
investment interest, 134
miscellaneous deductions, 136
professional trader status, 137
withdrawal penalties, 135
sources of income, 85
Investment interest, 134
Investment interest expense, 134
IRAs. See Individual Retirement Accounts (IRAs)
IRS Publication 590, 71
L
Law of Unintended Consequences, 43
Lawsuit proceeds, 90
Legal damages, awards for, 83
Life insurance proceeds, 89
Lifetime learning credit, 321
Limited Partnership (LP), 130
Long-term capital gains, 28
Long-term capital gains tax rates, 113
Long-term vs. short-term arbitrage, 117
Long-term vs. short-term sale, 112
LP. See Limited Partnership (LP)
M
MAGI. See Modified Adjusted Gross Income (MAGI)
Marginal vs. effective tax rates, 16
Married Filing Jointly (MFJ), 40
Married Filing Separately (MFS), 40
Matching contribution, of employer, 155
Meals
employees
employer convenience, 228
employer events, 228
goodwill, 229
minimal value, 229
reimbursement, 229
W-2 form, 229
entertainment expense, 225
record-keeping
IRS, 227
marginal tax bracket, 227
receipts, 227
tax benefits, 227
tax deduction, 223
travel expense
actual-expense method, 224
business associate, 225
per diem rates, 224
spending habits, 225
standard daily amount, 224
Medical and dental expenses
health care coverage tax and credit, 289
AGI, 286
AMT, 286
annual contribution limits, 287
benefit of, 286
doctor bills, 287
human resource department, 288
over-the-counter medications, 288
tax treatment, 285
itemized deductions
AGI, 282
AMT, 282
health and dental insurance premiums, 284
home improvements, 284
long-term care insurance, 284
meals, 284
qualified expenses, 282
vehicle’s mileage, 284
qualified medical expenses, 290
Medical expenses and health insurance
health care tax credit, 238
HRAs, 238
self-employed health insurance, 237
tax deductions, 236
Medicare surtax, 120
Miscellaneous Itemized Deductions, 57
Modified Adjusted Gross Income (MAGI), 98, 121, 144, 161, 166, 263
Mortgage interest deduction
acquisition debt, 296
home equity debt, 297
insurance premiums, 299
itemized deductions, 298
“point” payment, 299
Municipal bond interest, 123
Mutual funds, 127
N
Nonbusiness Energy Property Credit, 301
Non-money gifts, 313
Non-refundable credits, 18
Non-refundable tax credit, 300
O
OIDs. See Original Issue Discounts (OIDs)
alimony, 77
bartering, 84
debt forgiveness, 79
gambling winnings and losses, 81
legal awards, 83
royalties, 83
state tax refunds, 75
unemployment income, 83
Original Issue Discounts (OIDs), 125
P
Passive income, 33
Penalized income, 31
Penalties and interest, 335
failure to file, 332
failure to pay, 332
IRS, 334
penalty abatement, 338
retirement accounts
early withdrawal from, 335
employer-sponsored plans, 335
excess contribution, 337
non-employer–sponsored plans, 336
underpayment of tax, 333
unqualified withdrawal, HSA account, 337
withdrawal penalties, 135
Pensions, 68
Phase-outs, 48
absolute cutoff, 49
deduction/credit, smooth transition, 49
tiered/stepped version, 49
Potentially/partially taxed income, 30
Preferred income, 27
Premium deductions. See Health insurance premium deductions
Private activity bonds, 96
Professional traders, 137
Profit-sharing contribution, of employer, 155
Property tax deduction, 300
Q
QTPs. See Qualified Tuition Programs (QTPs)
Qualified acquisition debt, 296
Qualified dividends, 28
Qualified Principal Residence Indebtedness, 303
Qualified Tuition Programs (QTPs), 141
Qualified Widow (QW), with dependent, 41
R
Real estate
active participation rules, 263
income and deductions
allowable expenses, 269
depreciation, 271
rent recognition rules, 268
repairs vs. improvements, 270
self-renting, 272
travel, 272
Real Estate Professional Designation, 264
treatment of passive losses, 262
Real-Estate Investment Trust (REIT), 130
Real Estate Professional Designation, 264
Record keeping, 227
Refundable credits, 21
REIT. See Real-Estate Investment Trust (REIT)
Required Minimum Distributions (RMDs), 69, 70, 152
Residence
credit, energy efficiency, 300
credit for energy efficiency
Nonbusiness Energy Property Credit, 301
Residential Energy Efficient Property Credit, 300
definition of, 297
disabled, home improvements for, 301
foreclosures and short sales, 303
home sale exemption, capital gains, 302
mortgage interest deduction
acquisition debt, 296
home equity debt, 297
itemized deductions, 298
mortgage insurance, 299
“point” payment, 299
tax code, 297
property tax deduction, 300
early withdrawal from, 335
employer-sponsored plans, 335
excess contribution, 337
non-employer–sponsored plans, 336
Retirement income, 63
annuity, 68
pensions, 68
retirement accounts, 69
RMD, 69
social security income, 64
Retirement investment strategy, 149, 169
agriculture, 176
deductible plans, 154
401(k) plans, 155
403(b) plans, 155
457(b) plans, 155
SEP IRA plans, 157
SIMPLE IRA, 159
traditional IRA, 160
deferred compensation, 174
defined benefit plan, 174
early withdrawals, penalties for, 164
HSAs, 172
land, 176
livestock, 176
Retirement Savings Contribution Credit, 166
self-directed IRA accounts, 170
subtle penalty, 166
tax-deductible contributions, 150
tax-deferred growth, 151
Retirement Savings Contribution Credit, 166
Rigged tax code, 122
RMDs. See Required Minimum Distributions (RMDs)
Roth IRAs, 146
Roth retirement accounts, 96
traditional IRA to Roth IRA conversion, 101
working, 98
Royalty income, 83
S
Savings Incentive Match Plan for Employees (SIMPLE), 139
Scholarships, tax-free, 88
Second homes and vacation rentals
home swapping, 273
personal use vs. fair market rents, 274
pro-rated deductions, 276
tax-free income, 273
Self-directed IRA, 170
Self-renting, 272
SEP. See Simplified Employee Pension (SEP)
SEP IRA plans, 157
Short sales, 303
Short-term gains, 28
Short-term vs. long-term arbitrage, 117
Short-term vs. long-term sale, 112
SIMPLE. See Savings Incentive Match Plan for Employees (SIMPLE)
SIMPLE IRA, 159
Simplified Employee Pension (SEP), 139
Social Security income, 64, 95. See also Potentially/partially taxed income
State and municipal bond interest, 94
Build America Bonds, 95
capital gains tax, 95
social security, 95
State tax refunds, 75
Straight-line depreciation, 257
Student loan interest deduction, 322
Surtax, 120
T
children
additional child tax credit, 307
adoption credit, 309
child care credit, 307
child tax credit, 305
Taxable investment income, 111
capital gains income, 111
Affordable Care Act, 120
capital losses, from sales, 114
collectibles, special rules for, 119
double-dipping, 119
long-term vs. short-term arbitrage, 117
rigged tax code, 122
wash sales, 115
dividend income, 122
interest income, 123
capital gains and bond swaps, 124
OIDs, 125
zero-coupon bonds, 127
Limited Partnership, 130
mutual funds, 127
REITs, 130
Taxable Legal awards, 83
Tax benefits
employing children, 241
IRS, 244
employing your parents, 246
employing your spouse, 245
Health Reimbursement Arrangements, 245
retirement account contributions, 246
gifts, 316
Tax bracket, 16
Tax burden, reduction of, 72
Tax code, 3
double-dipping in, 119
factors, 44
purpose of, 11
real secret, 4
phase-outs, 48
simplification, 51
tax formula, key components of, 5
tax insight, 4
unintended tax consequences, 44
Tax-deductible contributions, 150
Tax deductible plans. See Retirement investment strategy
Tax-deferred growth, 151
Tax-exempt income, 27
Tax-exempt investment income, 94
Tax exemptions, 14
Tax-free investment income, 93
Roth retirement accounts, 96
traditional IRA to Roth IRA conversion, 101
working, 98
state and municipal bond interest, 94
Build America Bonds, 95
capital gains tax, 95
social security, 95
Tax implications
business, 348
health exchanges, 348
penalties and limitations, 348
tax credit, 349
wellness programs, 349
health insurance plans, 349
individuals, 344
earned and unearned income, 344
HSA and FSA withdrawals, 347
low-income households, refundable credit for, 347
medical expense deductions, 345
uninsured, penalty tax for, 346
Tax insight, 4
Tax-saving strategy, hiring family members
children, 241
parents, 246
spouse, 245
Travel expenses
business activities schedule, 222
convention agenda, 220
conventions and luxury water travel, 213
cruise ship, 221
IRS, 207
luxury water travel, 219
mileage and vehicle expenses
actual-expense method, 208
after-tax costs, 207
business miles, 211
depreciation, 209
employees, 211
high tax bracket, 208
loan interest, 210
parking fees, 210
personal commuting miles, 211
recordkeeping requirement, 209
standard deduction, 210
straight-line method, 209
temporary assignment, 211
tolls, 210
value-based tax, 210
North America area, 220
record keeping and audit risk
business reason, 212
date, 212
ending odometer reading, 212
starting odometer reading, 212
taxpayer’s records, 213
vehicle mileage, 212
United States
business day, 218
entirely for business, 215
primarily business, 213
primarily personal, 214
tax consequences, 219
transportation days, 216
Walter’s travel schedule and business purpose, 217
weekends and holidays, 216
written statement, 221
U, V
Unearned income
vs. earned income, 32
surtax on, 121
Unemployment income, 83
Unintended consequences, tax code, 44
Unordinary income, 85
fellowships, 88
gifts, 86
grants, 88
insurance proceeds, 89
lawsuit proceeds, 90
scholarships, 88
W, X, Y
Wealthy taxpayers, great secret of, 34
Withdrawal penalties, 135
Workers’ Compensation income, 86
Z
Zero taxable income, 21