J.K. Lasser's Your Income Tax 2017, Professional Edition -  - ebook

J.K. Lasser's Your Income Tax 2017, Professional Edition ebook

0,0
279,99 zł

Opis

Deftly navigate income taxes and tax preparation J.K. Lasser's Your Income Tax: Professional Edition, 2017 offers individual taxpayers and tax professionals the latest, most up to date tax information. Completely annotated, this authoritative text guides you toward the case law, IRS code sections, and regulations that support the content, which is presented in an approachable yet comprehensive manner. Additionally, this best-selling resource delivers tax-saving advice for maximizing deductions and sheltering income. Through hundreds of examples, you explore how to apply tax laws to individual tax payers, allowing you to create effective tax strategies that align with regulations. Finally, special features throughout the content call your attention to important concepts, such as icons that highlight new tax laws, IRS rulings, court decisions, filing pointers, and planning strategies. Taxes are extremely complicated. Whether you are a professional or an individual taxpayer, it is critical that you understand how to get the highest return possible when filing either your taxes or those of your client. * Leverage revised content that features the most updated tax code information * Easily find the information you are looking for with special features that call your attention to key concepts * Protect your assets with tax-saving advice on deduction, income sheltering, and more * Dive into extended guidance that offers annotated insight into IRS code sections, regulations, and case law J.K. Lasser's Your Income Tax: Professional Edition, 2017 is an updated, annotated version of a classic reference that has guided tax payers through the complexities of the income tax landscape for over 65 years.

Ebooka przeczytasz w aplikacjach Legimi na:

Androidzie
iOS
czytnikach certyfikowanych
przez Legimi
Windows
10
Windows
Phone

Liczba stron: 3235




Prepared by theJ.K. LASSER INSTITUTE™

Staff for This Book

J.K. Lasser Editorial

Elliott Eiss, Member of the New York Bar, Contributing EditorBarbara Weltman, Member of the New York Bar, Contributing EditorAngelo C. Jack, Production ManagerWilliam Hamill, Copyediting and ProofreadingIndex by WordCo Indexing Services

John Wiley & Sons, Inc.

John Wiley & Sons, Inc.111 River StreetHoboken, NJ 07030

Copyright © 2017 by John Wiley & Sons, Inc.All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New JerseyPublished simultaneously in Canada

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993, or fax (317) 572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com.

ISBN 978-1-119-24823-1

Eightieth Edition

How To Use the Professional Edition of Your Income Tax 2017

Tax alert symbols. Throughout the text of Your Income Tax, these special symbols alert you to advisory tips about filing your federal tax return and tax planning opportunities:

A Filing Tip or Filing Instruction helps you prepare your 2016 return.

A Planning Reminder highlights year-end tax strategies for 2016 or planning opportunities for 2017 and later years.

A Caution points out potential pitfalls to avoid and areas where IRS opposition may be expected.

A Law Alert indicates recent changes in the tax law and pending legislation before Congress.

A Court Decision highlights key rulings from the Tax Court and other federal courts.

An IRS Alert highlights key rulings and announcements from the IRS.

Visit www.jklasser.com for FREE download of e-Supplement

You can download a free e-Supplement to Your Income Tax 2017 at www.jklasser.com. The e-Supplement will provide an update on tax developments from the IRS and Congress, including a look ahead to 2017.

On the homepage at jklasser.com, you will find free tax news, tax tips and tax planning articles, and you can sign up for a free e-newsletter.

The PROFESSIONAL EDITION of Your Income Tax is divided into two volumes.

Volume I includes the complete 2017 edition of Your Income Tax, which for 80 years has helped subscribers solve their tax problems and has proven to be a solid reference work for tax professionals.

Volume II expands the usefulness of Your Income Tax for tax professionals by providing citations of tax authorities and sections devoted to practice before the IRS.

VOLUME I: YOUR INCOME TAX (Parts 1–8)

This volume includes the 2017 edition of Your Income Tax. The contents start on page v, and the index begins on page 975.

VOLUME II: PROFESSIONAL TAX PRACTICE (Parts 9–11)

This volume includes the following technical tax information:

TAX LAW AUTHORITIES (Part 9). Here is an explanation of tax authorities—legislative, administrative, and judicial—and their relative importance in the practice of tax law. Part 9 begins on page 805.

CITATIONS OF AUTHORITY (Part 10). Here are key authorities for the text of Your Income Tax that can save you time and effort in researching income tax problems. The authorities cited are the Internal Revenue Code, IRS regulations and rulings, and court decisions. Part 10 begins on page 811.

PRACTICE BEFORE THE IRS (Part 11). This section discusses how to handle tax audits and obtain a ruling from the IRS. Also discussed are the Circular 230 practice requirements and tax preparer penalties. Part 11 begins on page 933.

CONTENTS

What's New for 2015

Key Tax Numbers for 2016

Part 1 Filing Basics

Do You Have to File a 2016 Tax Return?

Filing Tests for Dependents: 2016 Returns

Where to File Your 2016 Return

Filing Deadlines

(on or before)

Which Tax Form Should You File?

Chapter 1 Filing Status

1.1 Which Filing Status Should You Use?

1.2 Tax Rates Based on Filing Status

1.3 Filing Separately Instead of Jointly

1.4 Filing a Joint Return

1.5 Nonresident Alien Spouse

1.6 Community Property Rules

1.7 Innocent Spouse Rules

1.8 Separate Liability Relief for Former Spouses

1.9 Equitable Relief

1.10 Death of Your Spouse in 2016

1.11 Qualifying Widow/Widower Status for 2016 If Your Spouse Died in 2015 or 2014

1.12 Qualifying as Head of Household

1.13 Filing for Your Child

1.14 Return for Deceased

1.15 Return for an Incompetent Person

1.16 How a Nonresident Alien Is Taxed

1.17 How a Resident Alien Is Taxed

1.18 Who Is a Resident Alien?

1.19 Certificate of Tax Compliance for Alien Leaving the United States

1.20 Expatriation Tax

Part 2 Reporting Your Income

Chapter 2 Wages, Salary, and Other Compensation

2.1 Salary and Wage Income

2.2 Constructive Receipt of Year-End Paychecks

2.3 Pay Received in Property Is Taxed

2.4 Commissions Taxable When Credited

2.5 Unemployment Benefits

2.6 Strike Pay Benefits and Penalties

2.7 Nonqualified Deferred Compensation

2.8 Did You Return Wages Received in a Prior Year?

2.9 Waiver of Executor’s and Trustee’s Commissions

2.10 Life Insurance Benefits

2.11 Educational Benefits for Employees’ Children

2.12 Sick Pay Is Taxable

2.13 Workers’ Compensation Is Tax Free

2.14 Disability Pay and Pensions

2.15 Stock Appreciation Rights (SARs)

2.16 Stock Options

2.17 Restricted Stock

Chapter 3 Fringe Benefits

3.1 Tax-Free Health and Accident Coverage Under Employer Plans

3.2 Health Savings Accounts (HSAs) and Archer MSAs

3.3 Reimbursements and Other Tax-Free Payments From Employer Health and Accident Plans

3.4 Group-Term Life Insurance Premiums

3.5 Dependent Care Assistance

3.6 Adoption Benefits

3.7 Education Assistance Plans

3.8 Company Cars, Parking, and Transit Passes

3.9 Working Condition Fringe Benefits

3.10

De Minimis

Fringe Benefits

3.11 Employer-Provided Retirement Advice

3.12 Employee Achievement Awards

3.13 Employer-Furnished Meals or Lodging

3.14 Minister’s Housing or Housing Allowance

3.15 Cafeteria Plans Provide Choice of Benefits

3.16 Flexible Spending Arrangements

3.17 Company Services Provided at No Additional Cost

3.18 Discounts on Company Products or Services

Chapter 4 Dividend and Interest Income

4.1 Reporting Dividends and Mutual Fund Distributions

4.2 Qualified Corporate Dividends Taxed at Favorable Capital Gain Rates

4.3 Dividends From a Partnership, S Corporation, Estate, or Trust

4.4 Real Estate Investment Trust (REIT) Dividends

4.5 Taxable Dividends of Earnings and Profits

4.6 Stock Dividends on Common Stock

4.7 Dividends Paid in Property

4.8 Taxable Stock Dividends

4.9 Who Reports the Dividends

4.10 Year Dividends Are Reported

4.11 Distribution Not Out of Earnings: Return of Capital

4.12 Reporting Interest on Your Tax Return

4.13 Interest on Frozen Accounts Not Taxed

4.14 Interest Income on Debts Owed to You

4.15 Reporting Interest on Bonds Bought or Sold

4.16 Forfeiture of Interest on Premature Withdrawals

4.17 Amortization of Bond Premium

4.18 Discount on Bonds

4.19 Reporting Original Issue Discount on Your Return

4.20 Reporting Income on Market Discount Bonds

4.21 Discount on Short-Term Obligations

4.22 Stripped Coupon Bonds and Stock

4.23 Sale or Retirement of Bonds and Notes

4.24 State and City Interest Generally Tax Exempt

4.25 Taxable State and City Interest

4.26 Tax-Exempt Bonds Bought at a Discount

4.27 Treasury Bills, Notes, and Bonds

4.28 Interest on United States Savings Bonds

4.29 Deferring United States Savings Bond Interest

4.30 Minimum Interest Rules

4.31 Interest-Free or Below-Market-Interest Loans

4.32 Minimum Interest on Seller-Financed Sales

Chapter 5 Reporting Property Sales

5.1 General Tax Rules for Property Sales

5.2 How Property Sales Are Classified and Taxed

5.3 Capital Gains Rates and Holding Periods

5.4 Capital Losses and Carryovers

5.5 Capital Losses of Married Couples

5.6 Losses May Be Disallowed on Sales to Related Persons

5.7 Deferring or Excluding Gain on Small Business Stock Investment

5.8 Reporting Capital Asset Sales on Form 8949 and on Schedule D

5.9 Counting the Months in Your Holding Period

5.10 Holding Period for Securities

5.11 Holding Period for Real Estate

5.12 Holding Period: Gifts, Inheritances, and Other Property

5.13 Calculating Gain or Loss

5.14 Amount Realized Is the Total Selling Price

5.15 Finding Your Cost

5.16 Unadjusted Basis of Your Property

5.17 Basis of Property You Inherited or Received as a Gift

5.18 Joint Tenancy Basis Rules for Surviving Tenants

5.19 Allocating Cost Among Several Assets

5.20 How To Find Adjusted Basis

5.21 Tax Advantage of Installment Sales

5.22 Figuring the Taxable Part of Installment Payments

5.23 Electing Not To Report on the Installment Method

5.24 Restriction on Installment Sales to Relatives

5.25 Contingent Payment Sales

5.26 Using Escrow and Other Security Arrangements

5.27 Minimum Interest on Deferred Payment Sales

5.28 Dispositions of Installment Notes

5.29 Repossession of Personal Property Sold on Installment

5.30 Boot in Like-Kind Exchange Payable in Installments

5.31 “Interest” Tax if Sales Price Exceeds $150,000 With Over $5 Million Debt

5.32 Worthless Securities

5.33 Tax Consequences of Bad Debts

5.34 Four Rules To Prove a Bad Debt Deduction

5.35 Family Bad Debts

Chapter 6 Tax-Free Exchanges of Property

6.1 Trades of Like-Kind Property

6.2 Personal Property Held for Business or Investment

6.3 Receipt of Cash and Other Property—“Boot”

6.4 Time Limits and Security Arrangements for Deferred Exchanges

6.5 Qualified Exchange Accommodation Arrangements (QEAAs) for Reverse Exchanges

6.6 Exchanges Between Related Parties

6.7 Property Transfers Between Spouses and Ex-Spouses

6.8 Tax-Free Exchanges of Stock in Same Corporation

6.9 Joint Ownership Interests

6.10 Setting up Closely Held Corporations

6.11 Exchanges of Coins and Bullion

6.12 Tax-Free Exchanges of Insurance Policies

Chapter 7 Retirement and Annuity Income

7.1 Retirement Distributions on Form 1099-R

7.2 Lump-Sum Distributions

7.3 Lump-Sum Options If You Were Born Before January 2, 1936

7.4 Lump-Sum Payments Received by Beneficiary

7.5 Tax-Free Rollovers From Qualified Plans

7.6 Direct Rollover or Personal Rollover

7.7 Rollover of Proceeds From Sale of Property

7.8 Distribution of Employer Stock or Other Securities

7.9 Survivor Annuity for Spouse

7.10 Court Distributions to Former Spouse Under a QDRO

7.11 When Retirement Benefits Must Begin

7.12 Payouts to Beneficiaries

7.13 Penalty for Distributions Before Age 59½

7.14 Restrictions on Loans From Company Plans

7.15 Tax Benefits of 401(k) Plans

7.16 Limit on Salary-Reduction Deferrals

7.17 Withdrawals From 401(k) Plans Restricted

7.18 Designated Roth Contributions to 401(k) Plans

7.19 Annuities for Employees of Tax-Exempts and Schools (403(b) Plans)

7.20 Government and Exempt Organization Deferred Pay Plans

7.21 Figuring the Taxable Part of Commercial Annuities

7.22 Life Expectancy Tables

7.23 When You Convert Your Endowment Policy

7.24 Reporting Employee Annuities

7.25 Simplified Method for Calculating Taxable Employee Annuity

7.26 Employee’s Cost in Annuity

7.27 Withdrawals From Employer’s Qualified Retirement Plan Before Annuity Starting Date

Chapter 8 IRAS

8.1 Starting a Traditional IRA

8.2 Traditional IRA Contributions Must Be Based on Earnings

8.3 Contributions to a Traditional IRA If You Are Married

8.4 IRA Deduction Restrictions for Active Participants in Employer Plan

8.5 Active Participation in Employer Plan

8.6 Nondeductible Contributions to Traditional IRAs

8.7 Penalty for Excess Contributions to Traditional IRAs

8.8 Taxable Distributions From Traditional IRAs

8.9 Partially Tax-Free Traditional IRA Distributions Allocable to Nondeductible Contributions

8.10 Tax-Free Direct Transfer or Rollover From One Traditional IRA to Another

8.11 Transfer of Traditional IRA to Spouse at Divorce

8.12 Penalty for Traditional IRA Withdrawals Before Age 59½

8.13 Mandatory Distributions From a Traditional IRA After Age 70½

8.14 Inherited Traditional IRAs

8.15 SEP Basics

8.16 Salary-Reduction SEP Set Up Before 1997

8.17 Who Is Eligible for a SIMPLE IRA?

8.18 SIMPLE IRA Contributions and Distributions

8.19 Roth IRA Advantages

8.20 Annual Contributions to a Roth IRA

8.21 Recharacterizing a Traditional IRA Contribution to a Roth IRA and Vice Versa

8.22 Converting a Traditional IRA to a Roth IRA

8.23 Recharacterizing a Conversion and Reconversions

8.24 Distributions From a Roth IRA

8.25 Distributions to Roth IRA Beneficiaries

8.26

my

RA Is a New Type of Starter Roth IRA

Chapter 9 Income From Real Estate Rentals and Royalties

9.1 Reporting Rental Real Estate Income and Expenses

9.2 Checklist of Rental Deductions

9.3 Distinguishing Between a Repair and an Improvement

9.4 Reporting Rents From a Multi-Unit Residence

9.5 Depreciation on Converting a Home to Rental Property

9.6 Renting a Residence to a Relative

9.7 Personal Use and Rental of a Residence During the Year

9.8 Counting Personal-Use Days and Rental Days for a Residence

9.9 Allocating Expenses of a Residence to Rental Days

9.10 IRS May Challenge Loss Claimed on Temporary Rental Before Sale

9.11 Reporting Royalty Income

9.12 Production Costs of Books and Creative Properties

9.13 Deducting the Cost of Patents or Copyrights

9.14 Intangible Drilling Costs

9.15 Depletion Deduction

9.16 Oil and Gas Percentage Depletion

Chapter 10 Loss Restrictions: Passive Activities and At-Risk Limits

10.1 Rental Activities Generally Treated as Passive

10.2 Rental Real Estate Loss Allowance of up to $25,000

10.3 Real Estate Professionals

10.4 Participation May Avoid Passive Loss Restrictions

10.5 Classifying Business Activities as One or Several

10.6 Material Participation Tests for Business

10.7 Tax Credits of Passive Activities Limited

10.8 Determining Passive or Nonpassive Income and Loss

10.9 Passive Income Recharacterized as Nonpassive Income

10.10 Working Interests in Oil and Gas Wells

10.11 Partners and Members of LLCs and LLPs

10.12 Form 8582 and Other Tax Forms

10.13 Suspended Losses Allowed on Disposition of Your Interest

10.14 Suspended Tax Credits

10.15 Personal Service and Closely Held Corporations

10.16 Sales of Property and of Passive Activity Interests

10.17 At-Risk Limits

10.18 What Is At Risk?

10.19 Amounts Not At Risk

10.20 At-Risk Investment in Several Activities

10.21 Carryover of Disallowed Losses

10.22 Recapture of Losses Where At Risk Is Less Than Zero

Chapter 11 Other Income

11.1 Prizes and Awards

11.2 Lottery and Sweepstake Winnings

11.3 Gambling Winnings and Losses

11.4 Gifts and Inheritances

11.5 Refunds of State and Local Income Tax Deductions

11.6 Other Recovered Deductions

11.7 How Legal Damages Are Taxed

11.8 Cancellation of Debts You Owe

11.9 Schedule K-1

11.10 How Partners Report Partnership Profit and Loss

11.11 When a Partner Reports Income or Loss

11.12 Partnership Loss Limitations

11.13 Tax Audits of Partnerships

11.14 Stockholder Reporting of S Corp Income and Loss

11.15 How Beneficiaries Report Estate or Trust Income

11.16 Reporting Income in Respect of a Decedent (IRD)

11.17 Deduction for Estate Tax Attributable to IRD

11.18 How Life Insurance Proceeds Are Taxed to a Beneficiary

11.19 A Policy With a Family Income Rider

11.20 Selling or Surrendering Life Insurance Policy

11.21 Jury Duty Fees

11.22 Foster Care Payments

Part 3 Claiming Deductions

Chapter 12 Deductions Allowed in Figuring Adjusted Gross Income

12.1 Figuring Adjusted Gross Income (AGI)

12.2 Claiming Deductions From Gross Income

12.3 What Moving Costs Are Deductible?

12.4 The Distance Test

12.5 The 39-Week Test for Employees

12.6 The 78-Week Test for the Self-Employed and Partners

12.7 Claiming Deductible Moving Expenses

12.8 Reimbursements of Moving Expenses

Chapter 13 Claiming the Standard Deduction or Itemized Deductions

13.1 Claiming the Standard Deduction

13.2 When To Itemize

13.3 Spouses Filing Separate Returns

13.4 Standard Deduction If 65 or Older or Blind

13.5 Standard Deduction for Dependents

13.6 Prepaying or Postponing Itemized Expenses

13.7 Itemized Deductions Reduced for Higher-Income Taxpayers

Chapter 14 Charitable Contribution Deductions

14.1 Deductible Contributions

14.2 Nondeductible Contributions

14.3 Contributions That Provide You With Benefits

14.4 Unreimbursed Expenses of Volunteer Workers

14.5 Support of a Student in Your Home

14.6 What Kind of Property Are You Donating?

14.7 Cars, Clothing, and Other Property Valued Below Cost

14.8 Bargain Sales of Appreciated Property

14.9 Art Objects

14.10 Interests in Real Estate

14.11 Life Insurance

14.12 Business Inventory

14.13 Donations Through Trusts

14.14 Records Needed To Substantiate Your Contributions

14.15 Form 8283 and Written Appraisal Requirements for Property Donations

14.16 Penalty for Substantial Overvaluation of Property

14.17 Ceiling on Charitable Contributions

14.18 Carryover for Excess Donations

14.19 Election To Reduce Fair Market Value by Appreciation

Chapter 15 Itemized Deduction for Interest Expenses

15.1 Home Mortgage Interest

15.2 Home Acquisition Loans

15.3 Home Equity Loans

15.4 Home Construction Loans

15.5 Home Improvement Loans

15.6 Mortgage Insurance Premiums and Other Payment Rules

15.7 Interest on Refinanced Loans

15.8 “Points”

15.9 Cooperative and Condominium Apartments

15.10 Investment Interest Limitations

15.11 Debts To Carry Tax-Exempt Obligations

15.12 Earmarking Use of Loan Proceeds For Investment or Business

15.13 Year To Claim an Interest Deduction

15.14 Prepaid Interest

Chapter 16 Deductions for Taxes

16.1 Deductible Taxes

16.2 Nondeductible Taxes

16.3 State and Local Income Taxes or General Sales Taxes

16.4 Deducting Real Estate Taxes

16.5 Assessments

16.6 Tenants’ Payment of Taxes

16.7 Allocating Taxes When You Sell or Buy Realty

16.8 Automobile License Fees

16.9 Taxes Deductible as Business Expenses

16.10 Foreign Taxes

Chapter 17 Medical and Dental Expense Deductions

17.1 Medical and Dental Expenses Must Exceed AGI Threshold

17.2 Allowable Medical and Dental Care Costs

17.3 Nondeductible Medical Expenses

17.4 Reimbursements Reduce Deductible Expenses

17.5 Expenses of Your Spouse

17.6 Expenses of Your Dependents

17.7 Decedent’s Medical Expenses

17.8 Premiums for Health Insurance

17.9 Travel Costs May Be Medical Deductions

17.10 Schooling for the Mentally or Physically Disabled

17.11 Nursing Homes

17.12 Nurses’ Wages

17.13 Home Improvements as Medical Expenses

17.14 Costs Deductible as Business Expenses

17.15 Long-Term Care Premiums and Services

17.16 Life Insurance Used by Chronically ill or Terminally ill Persons

Chapter 18 Casualty and Theft Losses and Involuntary Conversions

18.1 Sudden Event Test for Casualty Losses

18.2 When To Deduct a Casualty Loss

18.3 Disaster Losses

18.4 Who May Deduct a Casualty Loss

18.5 Bank Deposit Losses

18.6 Damage to Trees and Shrubs

18.7 Deducting Damage to Your Car

18.8 Proving a Casualty Loss

18.9 Theft Losses

18.10 Proving a Theft Loss

18.11 Nondeductible Casualty and Theft Losses

18.12 Floors for Personal-Use Property Losses

18.13 Figuring Your Loss on Form 4684

18.14 Personal and Business Use of Property

18.15 Repairs May Be a “Measure of Loss”

18.16 Insurance Reimbursements

18.17 Excess Living Costs Paid by Insurance Are Not Taxable

18.18 Do Your Casualty or Theft Losses Exceed Your Income?

18.19 Defer Gain by Replacing Property

18.20 Involuntary Conversions Qualifying for Tax Deferral

18.21 How To Elect To Defer Tax

18.22 Time Period for Buying Replacement Property

18.23 Types of Qualifying Replacement Property

18.24 Cost of Replacement Property Determines Postponed Gain

18.25 Special Assessments and Severance Damages

18.26 Reporting Gains From Casualties

Chapter 19 Deducting Job Costs and Other Miscellaneous Expenses

19.1 2% of AGI Floor Reduces Most Miscellaneous Expenses

19.2 Effect of 2% of AGI Floor on Miscellaneous Deductions

19.3 Checklist of Job Expenses Subject to the 2% of AGI Floor

19.4 Job Expenses Not Subject to the 2% of AGI Floor

19.5 Dues and Subscriptions

19.6 Uniforms and Work Clothes

19.7 Expenses of Looking for a New Job

19.8 Local Transportation Costs

19.9 Unusual Job Expenses

19.10 Computer Bought for Job

19.11 Cell Phones, Calculators, Copiers and Fax Machines

19.12 Small Tools

19.13 Employee Home Office Deductions

19.14 Telephone Costs

19.15 Checklist of Deductible Investment Expenses

19.16 Costs of Tax Return Preparation and Audits

19.17 Deducting Legal Costs

19.18 Contingent Fees Paid Out of Taxable Awards

Chapter 20 Travel and Entertainment Expense Deductions

20.1 Deduction Guide for Travel and Transportation Expenses

20.2 Commuting Expenses

20.3 Overnight-Sleep Test Limits Deduction of Meal Costs

20.4 IRS Meal Allowance

20.5 Business Trip Deductions

20.6 Local Lodging Costs

20.7 When Are You Away From Home?

20.8 Fixing a Tax Home If You Work in Different Locations

20.9 Tax Home of Married Couple Working in Different Cities

20.10 Deducting Living Costs on Temporary Assignment

20.11 Business-Vacation Trips Within the United States

20.12 Business-Vacation Trips Outside the United States

20.13 Deducting Expenses of Business Conventions

20.14 Travel Expenses of a Spouse, Dependent, or Business Associate

20.15 Restrictions on Foreign Conventions and Cruises

20.16 50% Deduction Limit

20.17 The Restrictive Tests for Meals and Entertainment

20.18 Directly Related Dining and Entertainment

20.19 Goodwill Entertainment

20.20 Home Entertaining

20.21 Your Personal Share of Entertainment Costs

20.22 Entertainment Costs of Spouses

20.23 Entertainment Facilities and Club Dues

20.24 Restrictive Test Exception for Reimbursements

20.25 50% Cost Limitation on Meals and Entertainment

20.26 Business Gift Deductions Are Limited

20.27 Recordkeeping Requirements

20.28 Proving Travel and Entertainment Expenses

20.29 Reporting T&E Expenses If You Are Self-Employed

20.30 Employee Reporting of Unreimbursed T&E Expenses

20.31 Tax Treatment of Reimbursements

20.32 What Is an Accountable Plan?

20.33

Per Diem

Travel Allowance Under Accountable Plans

20.34 Automobile Mileage Allowance

20.35 Reimbursements Under Non-Accountable Plans

Chapter 21 Personal Exemptions

21.1 How Many Exemptions May You Claim?

21.2 Your Spouse as an Exemption

21.3 Qualifying Children

21.4 Qualifying Relatives

21.5 Meeting the Support Test for a Qualifying Relative

21.6 Multiple Support Agreements

21.7 Special Rule for Divorced or Separated Parents

21.8 The Dependent Must Meet a Citizen or Resident Test

21.9 The Dependent Does Not File a Joint Return

21.10 Spouses’ Names and Social Security Numbers on Joint Return

21.11 Reporting Social Security Numbers of Dependents

21.12 Phaseout of Personal Exemptions

Part 4 Personal Tax Computations

Chapter 22 Figuring Your Regular Income Tax Liability

22.1 Taxable Income and Regular Income Tax Liability

22.2 Using the Tax Table

22.3 Tax Computation Worksheet

22.4 Tax Calculation If You Have Net Capital Gain or Qualified Dividends

22.5 Foreign Earned Income Tax Worksheet

22.6 Income Averaging for Farmers and Fishermen

22.7 Tax Credits

22.8 Additional Medicare Tax and Net Investment Income Tax

Chapter 23 Alternative Minimum Tax (AMT)

23.1 Computing Alternative Minimum Tax on Form 6251

23.2 Adjustments and Preferences for AMT

23.3 Tax Credits Allowed Against AMT

23.4 AMT Tax Credit From Regular Tax

23.5 Avoiding AMT

Chapter 24 Computing the “Kiddie Tax” on Your Child’s Investment Income

24.1 Filing Your Child’s Return

24.2 Children Subject to “Kiddie Tax” for 2016

24.3 Computing “Kiddie Tax” on Child’s Return

24.4 Parent’s Election To Report Child’s Dividends and Interest

Chapter 25 Personal Tax Credits Reduce Your Tax Liability

25.1 Overview of Personal Tax Credits

25.2 Child Tax Credit for Children Under Age 17

25.3 Figuring the Child Tax Credit

25.4 Qualifying for the Child and Dependent Care Credit

25.5 Figuring the Dependent Care Credit

25.6 Qualifying Tests for EIC

25.7 Income Tests for Earned Income Credit (EIC)

25.8 Qualifying for the Adoption Credit

25.9 Claiming the Adoption Credit on Form 8839

25.10 Eligibility for the Saver’s Credit

25.11 Figuring the Saver’s Credit

25.12 Premium Tax Credit

25.13 Health Coverage Credit

25.14 Mortgage Interest Credit

25.15 Residential Energy Credits

25.16 Credits for Plug-in Electric Vehicles and Fuel Cell Vehicles

25.17 Repayment of the First-Time Homebuyer Credit

Chapter 26 Tax Withholdings

26.1 Withholdings Should Cover Estimated Tax

26.2 Income Taxes Withheld on Wages

26.3 Low Earners May Be Exempt From Withholding

26.4 Are You Withholding the Right Amount?

26.5 Voluntary Withholding on Government Payments

26.6 When Tips Are Subject to Withholding

26.7 Withholding on Gambling Winnings

26.8 FICA Withholdings

26.9 Withholding on Distributions from Retirement Plans and Commercial Annuities

26.10 Backup Withholding

Chapter 27 Estimated Tax Payments

27.1 Do You Owe an Estimated Tax Penalty for 2016?

27.2 Planning Estimated Tax Payments for 2017

27.3 Dates for Paying Estimated Tax Installments for 2017

27.4 Estimates by Married Taxpayers

27.5 Adjusting Your Payments During the Year

Chapter 28 Additional Medicare Tax and Net Investment Income Tax

28.1 Higher-Income Taxpayers May be Subject to Additional Taxes

28.2 Additional 0.9% Medicare Tax on Earnings

28.3 Additional 3.8% Tax on Net Investment Income

Part 5 Tax Planning

Chapter 29 Tax Savings for Residence Sales

29.1 Avoiding Tax on Sale of Principal Residence

29.2 Meeting the Ownership and Use Tests for Exclusion

29.3 Home Sales by Married Persons

29.4 Reduced Maximum Exclusion

29.5 Figuring Gain or Loss

29.6 Figuring Adjusted Basis

29.7 Personal and Business Use of a Home

29.8 No Loss Allowed on Personal Residence

29.9 Loss on Residence Converted to Rental Property

29.10 Loss on Residence Acquired by Gift or Inheritance

Chapter 30 Tax Rules for Investors in Securities

30.1 Planning Year-End Securities Transactions

30.2 Earmarking Stock Lots

30.3 Sale of Stock Dividends

30.4 Stock Rights

30.5 Short Sales of Stock

30.6 Wash Sales

30.7 Convertible Stocks and Bonds

30.8 Stock Options

30.9 Sophisticated Financial Transactions

30.10 Investing in Tax-Exempts

30.11 Ordinary Loss for Small Business Stock (Section 1244)

30.12 Series EE Bonds

30.13 I Bonds

30.14 Trader, Dealer, or Investor?

30.15 Mark-to-Market Election for Traders

Chapter 31 Tax Savings for Investors in Real Estate

31.1 Real Estate Ventures

31.2 Sales of Subdivided Land—Dealer or Investor?

31.3 Exchanging Real Estate Without Tax

31.4 Timing Your Real Property Sales

31.5 Cancellation of a Lease

31.6 Sale of an Option

31.7 Granting of an Easement

31.8 Special Tax Credits for Real Estate Investments

31.9 Foreclosures, Repossessions, Short Sales, and Voluntary Conveyances to Creditors

31.10 Restructuring Mortgage Debt

31.11 Abandonments

31.12 Seller’s Repossession After Buyer’s Default on Mortgage

31.13 Foreclosure on Mortgages Other Than Purchase Money

31.14 Foreclosure Sale to Third Party

31.15 Transferring Mortgaged Realty

Chapter 32 Tax Rules for Investors in Mutual Funds

32.1 Timing of Your Investment Can Affect Your Taxes

32.2 Reinvestment Plans

32.3 Mutual Fund Distributions Reported on Form 1099-DIV

32.4 Tax-Exempt Bond Funds

32.5 Fund Expenses

32.6 Tax Credits From Mutual Funds

32.7 How To Report Mutual Fund Distributions

32.8 Redemptions and Exchanges of Fund Shares

32.9 Basis of Redeemed Shares

32.10 Comparison of Basis Methods

32.11 Mutual Funds Compared to Exchange-Traded Funds

Chapter 33 Educational Tax Benefits

33.1 Scholarships and Grants

33.2 Tuition Reductions for College Employees

33.3 How Fulbright Awards Are Taxed

33.4 United States Savings Bond Tuition Plans

33.5 Contributing to a Qualified Tuition Program (Section 529 Plan)

33.6 Distributions From Qualified Tuition Programs (Section 529 Plans)

33.7 Education Tax Credits

33.8 American Opportunity Credit

33.9 Lifetime Learning Credit

33.10 Contributing to a Coverdell Education Savings Account (ESA)

33.11 Distributions From Coverdell ESAs

33.12 Tuition and Fees Deduction

33.13 Student Loan Interest Deduction

33.14 Types of Deductible Work-Related Costs

33.15 Work-Related Tests for Education Costs

33.16 Local Transportation and Travel Away From Home To Take Courses

Chapter 34 Special Tax Rules for Senior Citizens and the Disabled

34.1 Senior Citizens Get Certain Filing Breaks

34.2 Social Security Benefits Subject to Tax

34.3 Computing Taxable Social Security Benefits

34.4 Election for Lump-Sum Social Security Benefit Payment

34.5 Retiring on Social Security Benefits

34.6 How Tax on Social Security Reduces Your Earnings

34.7 Eligibility for the Credit for the Elderly or the Disabled

34.8 Figuring the Credit for the Elderly or Disabled

34.9 Tax Effects of Moving to a Continuing Care Facility

34.10 Medicare Part B and Part D Premiums for 2017

34.11 Special Tax Rules for the Disabled

34.12 ABLE Accounts

Chapter 35 Members of the Armed Forces

35.1 Taxable Armed Forces Pay and Benefits

35.2 Tax Breaks for Armed Forces Members

35.3 Deductions for Armed Forces Personnel

35.4 Tax-Free Pay for Service in Combat Zone

35.5 Tax Deadlines Extended for Combat Zone or Contingency Operation Service

35.6 Tax Forgiveness for Combat Zone or Terrorist or Military Action Deaths

35.7 Extension To Pay Your Tax When Entering the Service

35.8 Tax Information for Reservists

Chapter 36 How To Treat Foreign Earned Income

36.1 Claiming the Foreign Earned Income Exclusion

36.2 What Is Foreign Earned Income?

36.3 Qualifying for the Foreign Earned Income Exclusion

36.4 How To Treat Housing Costs

36.5 Meeting the Foreign Residence or Physical Presence Test

36.6 Claiming Deductions

36.7 Exclusion Not Established When Your Return Is Due

36.8 Tax-Free Meals and Lodging for Workers in Camps

36.9 U. S. Virgin Islands, Samoa, Guam, and Northern Marianas

36.10 Earnings in Puerto Rico

36.11 Tax Treaties With Foreign Countries

36.12 Exchange Rates and Blocked Currency

36.13 Foreign Tax Credit or Deduction

Chapter 37 Planning Alimony and Marital Settlements

37.1 Planning Alimony Agreements

37.2 Decree or Agreement Required

37.3 Cash Payments Required

37.4 Payments Must Stop at Death

37.5 Child Support Payments Are Not Alimony

37.6 No Minimum Payment Period for Alimony

37.7 3rd Year Recapture If Alimony Drops by More Than $15,000

37.8 Legal Fees of Marital Settlements

Chapter 38 Other Taxes

38.1 Overview of Household Employment Taxes

38.2 Social Security and Medicare (FICA) Taxes for Household Employees

38.3 Filing Schedule H To Report Household Employment Taxes

38.4 Federal Unemployment Taxes (FUTA) for Household Employees

38.5 Individual Responsibility Penalty

38.6 Exemption from Individual Responsibility Payment

Chapter 39 Gift and Estate Tax Planning Basics

39.1 Gifts of Appreciated Property

39.2 Gift Tax Basics

39.3 Filing a Gift Tax Return

39.4 Gift Tax Credit

39.5 Custodial Accounts for Minors

39.6 Trusts in Family Planning

39.7 What is the Estate Tax?

39.8 Take Inventory and Estimate the Value of Your Potential Estate

39.9 Estate Tax for 2016

39.10 Planning for a Potential Estate Tax

Part 6 Business Tax Planning

Chapter 40 Income or Loss From Your Business or Profession

40.1 Forms of Doing Business

40.2 Reporting Self-Employed Income

40.3 Accounting Methods for Reporting Business Income

40.4 Tax Reporting Year for Self-Employed

40.5 Reporting Certain Payments and Receipts to the IRS

40.6 Filing Schedule C

40.7 Deductions for Professionals

40.8 Nondeductible Expense Items

40.9 How Authors and Artists May Write Off Expenses

40.10 Deducting Expenses of a Sideline Business or Hobby

40.11 Deducting Expenses of Looking for a New Business

40.12 Home Office Deduction

40.13 Write-Off Methods for Home Office Expenses

40.14 Allocating Expenses to Business Use

40.15 Business Income May Limit Home Office Deductions

40.16 Home Office for Sideline Business

40.17 Depreciation of Office in Cooperative Apartment

40.18 Net Operating Losses (NOLs)

40.19 Your Net Operating Loss

40.20 How To Report a Net Operating Loss

40.21 How To Carry Back Your Net Operating Loss

40.22 Election to Carry Forward Losses

40.23 Domestic Production Activities Deduction

40.24 Qualified Production Activities

40.25 Figuring the Deduction on Form 8903

40.26 Business Credits

40.27 Filing Schedule F

40.28 Farming Expenses

Chapter 41 Retirement and Medical Plans for Self-Employed

41.1 Overview of Retirement and Medical Plans

41.2 Choosing a Qualified Retirement Plan

41.3 Choosing a SEP

41.4 Deductible Contributions

41.5 How To Claim the Deduction for Contributions

41.6 How To Qualify a Retirement Plan or SEP Plan

41.7 Annual Qualified Retirement Plan Reporting

41.8 How Qualified Retirement Plan Distributions Are Taxed

41.9 SIMPLE IRA Plans

41.10 Health Savings Account (HSA) Basics

41.11 Limits on Deductible HSA Contributions

41.12 Distributions From HSAs

41.13 Archer MSAs

41.14 Small Employer Health Insurance Credit

Chapter 42 Claiming Depreciation Deductions

42.1 What Property May Be Depreciated?

42.2 Claiming Depreciation on Your Tax Return

42.3 First-Year Expensing Deduction

42.4 MACRS Recovery Periods

42.5 MACRS Rates

42.6 Half-Year Convention for MACRS

42.7 Last Quarter Placements—Mid-Quarter Convention

42.8 150% Rate Election

42.9 Straight-Line Depreciation

42.10 Computers and Other Listed Property

42.11 Assets in Service Before 1987

42.12 MACRS for Real Estate Placed in Service After 1986

42.13 Demolishing a Building

42.14 Qualified Leasehold and Retail Improvements and Restaurant Property

42.15 Depreciating Real Estate Placed in Service After 1980 and Before 1987

42.16 When MACRS Is Not Allowed

42.17 Amortizing Goodwill and Other Intangibles (Section 197)

42.18 Deducting the Cost of Computer Software

42.19 Amortizing Research and Experimentation Costs

42.20 Bonus Depreciation

Chapter 43 Deducting Car and Truck Expenses

43.1 Standard Mileage Rate

43.2 Expense Allocations

43.3 Depreciation Restrictions on Cars, Trucks, and Vans

43.4 Annual Ceilings on Depreciation

43.5 MACRS Rates for Cars, Trucks, and Vans

43.6 Straight-Line Method

43.7 Depreciation for Year Vehicle Is Disposed of

43.8 Depreciation After Recovery Period Ends

43.9 Trade-in of Business Vehicle

43.10 Recapture of Deductions on Business Car, Truck, or Van

43.11 Keeping Records of Business Use

43.12 Leased Business Vehicles: Deductions and Income

Chapter 44 Sales of Business Property

44.1 Depreciation Recaptured as Ordinary Income on Sale of Personal Property

44.2 Depreciation Recaptured as Ordinary Income on Sale of Real Estate

44.3 Recapture of First-Year Expensing

44.4 Gifts and Inheritances of Depreciable Property

44.5 Involuntary Conversions and Tax-Free Exchanges

44.6 Installment Sale of Depreciable Property

44.7 Sale of a Proprietorship

44.8 Property Used in a Business (Section 1231 Assets)

44.9 Sale of Property Used for Business and Personal Purposes

44.10 Should You Trade in Business Equipment?

44.11 Corporate Liquidation

44.12 Additional Taxes on Higher-Income Taxpayers

Chapter 45 Figuring Self-Employment Tax

45.1 What Is Self-Employment Income?

45.2 Partners Pay Self-Employment Tax

45.3 Schedule SE

45.4 How Wages Affect Self-Employment Tax

45.5 Optional Method If 2016 Was a Low-Income or Loss Year

45.6 Self-Employment Tax Rules for Certain Positions

Part 7 Filing Your Return and What Happens After You File

Chapter 46 Filing Your Return

46.1 Keeping Tax Records

46.2 Getting Ready To File Your Return

46.3 Applying for an Extension

46.4 Getting Your Refund

46.5 Paying Taxes Due

46.6 Handling Identity Theft

46.7 Notify the IRS of Address Changes

46.8 Interest on Tax Underpayments

46.9 Tax Penalties for Late Filing and Late Payment

Chapter 47 Filing Refund Claims, and Amended Returns

47.1 Filing An Amended Return

47.2 When To File a Refund Claim

47.3 Stating the Reasons for Refund Claim

47.4 Quick Refund Claims

47.5 Interest Paid on Refund Claims

47.6 Refunds Withheld To Cover Debts

47.7 Amended Returns Showing Additional Tax

47.8 Penalty for Filing Excessive Refund Claim

Chapter 48 If the IRS Examines Your Return

48.1 Odds of Being Audited

48.2 When the IRS Can Assess Additional Taxes

48.3 Audit Overview

48.4 Preparing for the Audit

48.5 Handling the Audit

48.6 Tax Penalties for Inaccurate Returns

48.7 Penalties for Not Reporting Foreign Financial Accounts

48.8 Agreeing to the Audit Changes

48.9 Disputing the Audit Changes

48.10 Offer in Compromise

48.11 Recovering Costs of a Tax Dispute

48.12 Suing the IRS for Unauthorized Collection

Part 8: 2016 Sample Tax forms

2016 Form 1040

Schedule A

Schedule B

Schedule C

Schedule D

Schedule E

Schedule SE

Part 9: Tax Law Authorities

Legislative Authorities

Administrative Authorities

Judicial Authorities

Part 10: Citations of Authority

Part 11: Practice Before the IRS

How Returns Are Examined

Audit Rules for Partnerships

The Time Limits Within Which the IRS Must Act for Additional Taxes

Filing Refund Claims

How to Arrange Closing Agreements and Compromises

How to Get the IRS' Opinion on a Tax Problem

Circular 230: Practice Before the IRS

Tax Return Preparer Penalties

Glossary

Index

EULA

List of Tables

Chapter 1

Table 1-1

Chapter 2

Table 2-1

Chapter 3

Table 3-1

Table 3-2

Table 3-3

Chapter 4

Table 4-1

Chapter 5

Table 5-1

Table 5-2

Chapter 7

Table 7-1

Table 7-2

Table 7-3

Table I

Table II

Chapter 8

Table 8-1

Table 8-2

Table 8-3

Table 8-4

Table 8-5

Chapter 9

Table 9-1

Chapter 11

Table 11-1

Chapter 13

Table 13-1

Chapter 14

Table 14-1

Chapter 16

Table 16-1

Table 16-2

Chapter 17

Table 17-1

Table 17-2

Chapter 18

Table 18-1

Chapter 20

Table 20-1

Chapter 22

Table 22-1

Chapter 23

Table 23-1

Chapter 25

Table 25-1

Table 25-2

Table 25-3

Chapter 30

Table 30-1

Table 30-2

Table 30-3

Chapter 32

Table 32-1

Chapter 37

Table 37-1

Chapter 38

Table 38-1

Chapter 39

Table 39-1

Chapter 40

Table 40-1

Table 40-2

Chapter 41

Table 41-1

Chapter 42

Table 42-1

Table 42-2

Table 42-3

Table 42-4

Chapter 43

Table 43-1

Table 43-2

Table 43-3

Table 43-4

Table 43-5

Table 43-6

Table 43-7

Chapter 45

Table 45-1

Chapter 48

Table 48-1

List of Illustrations

Chapter 8

WORKSHEET 8-1 Reduced Roth IRA Contribution Limit for 2016

Chapter 13

Worksheet 13-1 Standard Deduction if 65 or Older or Blind

Worksheet 13-2 Standard Deduction if a Dependent for 2016

Worksheet 13-3 Reduction of 2016 Itemized Deductions

Chapter 21

Worksheet 21-1:Exemption Phaseout For 2016

Chapter 34

Worksheet 34-1 Figuring Your Taxable Benefits

(Form IRS Publication 915;

see

Example 2 above)

Chapter 41

Worksheet 41-1 Deduction for Self-Employed

Worksheet 41-2 Fractional Rate Worksheet for Self-Employed

Guide

Cover

Contents

Part

Pages

ii

iii

iv

xxv

xxvi

xxvii

xxix

xxx

xxxi

xxxii

1

2

3

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

125

126

127

128

129

130

131

132

133

134

135

136

137

138

139

140

141

142

143

144

145

146

147

148

149

150

151

152

153

154

155

156

157

158

159

160

161

162

163

164

165

166

167

168

169

170

171

172

173

174

175

176

177

178

179

180

181

182

183

184

185

186

187

188

189

190

191

192

193

194

195

196

197

198

199

200

201

202

203

204

205

206

207

208

209

210

211

212

213

214

215

216

217

218

219

220

221

222

223

224

225

226

227

228

229

230

231

232

233

324

235

236

237

238

239

240

241

242

243

244

245

246

247

248

249

250

251

252

253

254

255

256

257

258

259

260

261

262

263

264

265

266

267

268

269

270

271

272

273

274

275

276

277

278

279

280

281

282

283

284

285

286

287

288

289

290

291

292

293

294

295

296

297

298

299

300

301

302

303

304

305

306

307

308

309

309

310

311

312

313

314

315

316

317

320

321

322

323

324

325

326

327

328

329

330

331

332

333

334

335

336

337

338

339

340

341

342

343

344

345

346

347

348

349

350

351

352

353

354

355

356

357

358

359

360

361

362

363

364

365

366

367

368

369

370

371

372

373

374

375

376

377

378

379

380

381

382

383

384

385

386

387

388

389

390

391

392

393

394

395

396

397

398

399

400

401

402

403

404

405

406

407

408

409

410

411

412

413

414

415

416

417

418

419

420

421

422

423

424

425

426

427

428

429

430

431

432

433

434

435

436

437

438

439

440

441

442

443

444

445

446

447

448

449

450

451

452

453

454

455

456

457

458

459

460

461

462

463

464

465

466

467

468

469

470

471

472

473

475

476

477

478

479

480

481

482

483

484

485

486

488

489

490

491

492

493

493

494

495

496

497

498

499

500

501

502

503

504

505

506

507

508

509

510

511

512

513

514

515

516

517

518

519

520

521

522

523

524

525

526

527

528

529

530

531

532

533

535

536

537

538

539

540

541

542

543

544

545

546

547

548

549

550

551

552

553

554

555

556

557

558

559

560

561

562

563

564

565

566

567

568

569

570

571

572

573

574

575

576

577

578

579

580

581

582

583

584

585

586

587

558

588

589

590

591

592

593

594

595

596

597

598

599

600

601

602

603

604

606

607

608

609

610

611

612

613

614

615

616

617

618

619

620

621

622

623

624

625

626

627

628

629

630

631

632

633

634

635

636

637

638

639

640

641

642

643

644

645

646

647

648

649

650

651

652

653

654

655

656

657

659

661

662

663

664

665

666

667

668

669

670

671

672

673

674

675

676

677

678

679

680

681

682

683

684

685

686

687

688

689

690

691

692

693

694

695

696

697

698

699

700

701

702

703

704

705

706

707

708

709

710

711

712

713

714

715

716

717

718

719

720

721

722

723

724

725

726

727

728

729

730

731

732

733

734

735

736

737

738

739

740

741

742

743

744

745

747

748

749

750

751

752

753

754

755

756

757

758

755

785

786

787

788

789

790

791

792

793

794

795

796

797

798

799

800

801

802

803

804

805

806

807

808

809

810

811

812

813

814

815

816

What's New for 2016

For an update on tax developments and a free download of the e-Supplement to this book, visit us online at www.jklasser.com.

Tax News for 2016

Item–
Highlight–

Tax rate brackets and preferential rates for capital gains/qualified dividends

The 10%, 15%, 25%, 28%, 33%, 35% and 39.6% brackets for 2016 ordinary income reflect an inflation adjustment. The top bracket of 39.6% applies if taxable income exceeds $415,050 for single taxpayers, $441,000 for heads of households, $466,950 for married persons filing jointly and qualifying widows/widowers, and $233,475 for married taxpayers filing separate returns (1.2).

Qualified dividends (4.2) and long-term capital gains (5.3) may escape tax entirely under the 0% rate, or be subject to capital gain rates of 15% or 20% depending on filing status, taxable income, and how much of the taxable income consists of qualified dividends and eligible long-term gains. The 20% capital gain rate has the same taxable income thresholds as the 39.6% ordinary income rate shown above, that is, either $415,050, $441,000, $466,950, or $233,475, depending on filing status. The 0%, 15%, and 20% rates do not apply to long-term gains subject to the 28% rate (collectibles and taxed portion of small business stock) or the 25% rate for unrecaptured real estate depreciation (5.3).

Individual health care mandate and premium tax credit

You are required to have minimum essential health coverage through an employer plan, a government program, or other plan, or pay a penalty (38.5), unless you are exempt from this requirement (38.6). The penalty amount for 2016 is the higher of (1) 2.5% of household income above your filing threshold, or (2) $695 per person in your household ($347.50 per dependent child under age 18), up to a maximum of $2,085.

To help those of modest means pay premiums for coverage obtained from a government exchange (Marketplace), there's a premium tax credit (25.12). Eligibility for this advanceable, refundable tax credit depends on your household income and other factors.

If you claimed the credit in advance when you obtained coverage, you have to reconcile what you already applied toward your premiums with what you are actually entitled to; the difference is reported on your tax return (25.12). If you did not receive the credit in advance but are eligible for a credit, you can claim it on your return.

If you do not claim the premium tax credit and qualify for Trade Adjustment Assistance (TAA), you may qualify for the health coverage tax credit of 72.5% of premiums (25.13).

Phaseout of personal exemptions and itemized deductions

Personal exemptions and itemized deductions are subject to a phaseout. Each $4,050 personal exemption for 2016 is subject to a phaseout if adjusted gross income (AGI) exceeds $311,300 if married filing jointly or qualifying widow/widower, $285,350 if head of household, $259,400 if single, and $155,650 if married filing separately. Phaseout details are at 21.12.

The above AGI phaseout thresholds for exemptions also apply to the phaseout of itemized deductions claimed on Schedule A (Form 1040), but there is no phaseout of deductions for medical expenses, investment interest, casualty/theft losses, and gambling losses. Other itemized deductions are reduced by 3% of AGI exceeding the applicable threshold, but the total reduction cannot exceed 80% of the deductions (13.7).

Standard deductions

The standard deduction for 2016

(13.1)

is $12,600 for married persons filing jointly and qualifying widows/widowers, $9,300 for heads of households, or $6,300 for single taxpayers or married persons filing separately. The additional standard deduction

(13.4)

for being 65 or older or blind is $1,550 if single or head of household ($3,100 if 65 and blind). If married filing jointly, the additional standard deduction is $1,250 if one spouse is 65 or older or blind, $2,500 if both spouses are at least 65 (or one is 65 and blind, or both are blind and under age 65).

Mortgage interest limit for unmarried co-owners

An appeals court held that if unmarried individuals co-own a residence, each co-owner can deduct interest on acquisition debt of up to $1 million and home equity debt up to $100,000. This decision disagreed with the Tax Court view that the $1.1 million debt limit must be divided among the co-owners; the IRS has agreed to follow the appeals court decision

(15.2)

.

Basis of property reported on estate tax return

Executors filing estate tax returns after July 31, 2015, must report the date-of-death value of property included in the gross estate to the IRS and to the heirs. The heirs may be subject to a penalty if on a later sale of the property, they claim a basis for the property that exceeds the amount that had been reported to the IRS by the executor

(5.17)

.

Self-employment tax and deduction for portion of self-employment tax; Social Security wage base

For 2016, the tax rate on the employee portion of Social Security is 6.2% on wages up to $118,500, so Social Security tax withholdings should not exceed $7,347. Medicare tax of 1.45% is withheld from all wages regardless of amount.

On Schedule SE for 2016, self-employment tax of 15.3% applies to earnings of up to $118,500 after the earnings are reduced by 7.65%. The 15.3% rate equals 12.4% for Social Security (6.2% employee share and 6.2% employer share) plus 2.9% for Medicare. If net earnings exceed $118,500, the 2.9% Medicare rate applies to the entire amount (45.3–45.4). One half of the self-employment tax may be claimed as an above-the-line deduction on Form 1040 (45.3–45.4).

IRA and Roth IRA contribution phaseout; rollover limits

For 2016, the contribution limit for traditional IRAs (8.2) and Roth IRAs (8.20) is unchanged at $5,500, or $6,500 for those age 50 or older.

The deduction limit for 2016 contributions to a traditional IRA is phased out (8.4) for active plan participants with modified AGI (MAGI) between $61,000 and $71,000 for a single person or head of household, or between $98,000 and $118,000 for married persons filing jointly and qualifying widows/widowers. The phaseout range is $184,000 — $194,000 for a spouse who is not an active plan participant and who files jointly with a spouse who is an active plan participant.

The 2016 Roth IRA contribution limit is phased out (8.20) for a single person or head of household with MAGI between $117,000 and $132,000, and for married persons filing jointly and qualifying widows/widowers with MAGI between $184,000 and $194,000.

You can make only one IRA rollover (60-day rollover) every 12 months (8.10). There is no restriction on the number of direct transfers you can make each year. If you miss the 60-day deadline because of an event specified in Revenue Procedure 2016-47, you can complete the rollover by self-certifying your eligibility for this relief (8.10).

First-year expensing

For qualifying property placed in service in 2016, first-year expensing

(42.3)

is allowed up to a limit of $500,000, and the limit begins to phase out if the total cost of qualifying property exceeds $2,010,000

(42.3)

.

IRS mileage allowance

The IRS standard business mileage rate for 2016 is 54 cents a mile (43.1).

The rate for medical expense (17.9) and moving expense (12.3) deductions is 19 cents a mile .

For charitable volunteers (14.4), the mileage rate is unchanged at 14 cents a mile.

Vehicle depreciation limit

For a car placed in service in 2016, the first-year depreciation limit is $3,160

(43.5)

. For a light truck or van, the first-year depreciation limit is $3,560

(43.5)

. These first-year limits are increased by $8,000 for vehicles purchased new and used over 50% for business in 2016.

Health savings accounts (HSAs)

The definition of a high-deductible health plan, which is a prerequisite to funding an HSA, means a policy with a minimum deductible for 2016 of $1,300 for self-only coverage and a maximum out-of-pocket cap on co-payments and other amounts of $6,550. These limits are doubled for family coverage ($2,600/$13,100) (41.10).

The contribution for 2016 is capped at $3,350 for self-only coverage and $6,750 for family coverage (41.11).

Adoption expenses

For 2016, the limit on the adoption credit as well as the exclusion for employer-paid adoption assistance is $13,460. The benefit phaseout range is modified adjusted gross income between $201,920 to $241,920

(25.8)

.

Earned income tax credit

For 2016, the maximum credit amount is $3,373 for one qualifying child, $5,572 for two qualifying children, $6,269 for three or more qualifying children, and $506 for taxpayers who have no qualifying child

(25.6)

. The phaseout ranges for the credit have been adjusted for inflation

(25.7)

.

Alternative minimum tax (AMT) exemption and tax brackets