Individual Issues Chapter 8 pp. 305-343 2019 National Income Tax Workbook™

Summary Charitable Contributions Gambling Winnings and Losses Tax Credits Taxation of Children’s Income

Issue 1: Charitable Contributions p. 306 Std. deduction is $24,400 (2019 MFJ) Charitable contribution deduction only if itemize or qualified charitable distribution from IRA

Qualified Organizations pp. 306-307 Government Nonprofits War veterans Fraternal societies Cemetery company

Not Qualified Organizations p. 307 Generally not qualified: Political candidates/parties Bar association Chamber of commerce/civic league Country/social club HOA Labor unions

Contribution to Individuals p. 307 Not deductible if earmarked Ex. 8.1 contribution to Red Cross for disaster relief is OK Ex. 8.2 contribution to hospital for specific individual is not OK

Donor Advised Funds pp. 307-308 Contribution to DAF is deductible: Fund controlled by sponsor org. Fund identified by ref. to donor Donor has advisory privileges over distributions

Qualifying Contributions p. 308 Cash or property – not services Can deduct amount contributed – less value of goods and services received Charity benefit – reduce donation by FMV of admission

Insubstantial Benefit p. 309 Benefit disregarded if FMV of benefit not more than lesser of 2% of payment or $111 or Payment is $55.50 or more and receive only token items ($11.10 or less)

Disregard if for annual payment of $75 or less: Membership Benefits p. 309 Disregard if for annual payment of $75 or less: Admission (but not athletic event) Parking Discounts Admission to member-only events

Athletic Tickets p. 309 After 12/31/17 no deduction for payment to higher education institution if receive right to purchase tickets or seating at an athletic event

Contribution of Property pp. 310-311 Limited deduction for contribution of partial interest Clothing/household – good or better condition Limit on vehicle donations Limit on inventory donations

Rental Property p. 311 Donation of use of property is not deductible Ex. 8.9 donate vacation home to auction at fundraiser. FRV is $300/night. Bidder pays $1,500. No deduction.

Contribution of Services pp. 311-312 Can’t deduct services but can deduct unreimbursed expenses incurred Meals and lodging away from home Directly connected Incurred only b/c services provided Not personal

Contribution of Services, Cont. p. 312 Deduct auto expenses (gas not depreciation) Can use std. mileage rate Deduct travel expenses Not vacation or recreation

Examples p. 312 Ex. 8.11 John can deduct meals and travel to charity work site Ex. 8.12 Mary cannot deduct meals and travel b/c personal Ex. 8.13 Ruby can deduct travel to volunteer – but not child care

Determining FMV p. 313 Price at which willing seller sells to willing buyer – no compulsion and reasonable knowledge Used clothes – thrift shop value Cars and boats – “Blue Book” value

Substantiation pp. 313-315 Records of cash contribution Cash $250 or more – CWA Receipt for noncash less than $250 Noncash $250-$500 CWA Over $500-$5,000 – add’l subs. Over $5,000 – qualified appraisal

Out-of-Pocket Expenses p. 315 Substantiate w/records $250 or more need CWA

Contribution Limits pp. 317-318 50% limit orgs deduct up to 50% AGI (60% cash) 30% limit orgs deduct up to 30% AGI 30% limit for capital gain property – elect FMV then 50% (see Ex. 8.16) 50% for QCC (100% farmer/rancher)

Calculating Limits pp. 318-320 Ordering rules Ex. 8.15 illustrates Figure 8.1 deduction worksheet

Carryovers pp. 320-321 5 yr carryover (15 for QCC) Same % limits in carryover yr Deduct current-yr first (except 50% carryovers deducted before 30% current yr) Use carryover from earliest yr

Qualified Charitable Distribution p. 321 RMD from IRA to qualified charity At least age 70.5 Up to $100,000 Excluded to the extent would have been included in tax. inc.

Reporting p. 322 Form 8283- Noncash Charitable contributions (over $500) Form 8282- Donee Information Return

Issue 2: Gambling Winnings and Losses p. 323 1986 S.Ct. opinion & 1988 Indian Gaming Reg. set out framework for gaming on Indian lands. Now all states except Utah & Hawaii have gaming activity.

Wagering Gains & Losses p.323 Gains = amount won less amount bet (basis) Loss = amount bet less amount won

Sec. 165(d) Limitations p.323 Loss limited to extent of gain TCJA changes prior law – now no deductions in excess of wagers for professional gamblers

Professional Gamblers – QBI Deduction pp. 323-324 Under Groetzinger & Sec. 183 profit primary purpose T or B not hobby Could qualify for QBI deduction

Slots p. 324 AM 2008-011sessions rule Notice 2015-21 safe harbor for electronically tracked play

Sessions Rule p. 324 Wagering gain or loss recognized for casual gambler when tokens redeemed Ex. 8.19 Wagering gains Ex. 8.20 Wagering losses No carryover of excess losses

Session Record Keeping p. 325 Shollenberger W/drew $500, won $2,000, each took $200 winnings to continue to play, $1,600 at the end of the day Court netted winnings and losses

Applies to electronic tracking for wagers only Notice 2015-21 p. 325 Applies to electronic tracking for wagers only At same gaming establishment Same calendar day – same definition of session for all electronically tracked play at same establishment for yr.

Ex. 8.21 p. 325 Slot play-8:00 a.m. to 10:00 a.m. – left casino Returned to same casino 6:00 p.m. – left casino @ 11:59 p.m. = 1 SESSION

Same facts as 8.21-but not electronically tracked Ex. 8.22 p. 325 Same facts as 8.21-but not electronically tracked Safe harbor not applicable. 1 session if cashed in at 10:00 a.m. before leaving casino

Using Safe Harbor Method pp. 325-326 Casual Gambler Write “Revenue Procedure 2015-X” on Line 21 of Sch. 1, 1040 Nonresident aliens report the same on 1040NR

Reporting Gambling Income p. 326 Professional Gamblers- Report Gross Inc/Losses - Sch C, Form 1040 Casual Gamblers, Report Gross Inc. Line 21, Schedule 1, Losses on Sch. A, not subject to 2% AGI

I.R.C. 6001 requires record keeping Record Keeping pp. 326-327 I.R.C. 6001 requires record keeping Even if electronic tracking Verifiable information Diary recommended- see Fig. 8.3

Threshold based on type of gambling Payer Reporting pp. 327-328 Payer issues W-2G Threshold based on type of gambling Slots, keno, bingo, etc. Final Regs - net by session for keno, slots

Issue 3: Tax Credits p. 329 Child tax credit (CTC) Additional child tax credit (ACTC) Credit for other dependents (ODC) Earned income credit (EIC) Education credits

Child Tax Credit p. 329 $2,000 for qualifying child Relationship – child, etc. Age – under 17 Residence – more than 1/2 yr. Support – child not more than 1/2

Qualifying Child p. 330 Qualifying child more than 1 person: Tiebreaker rules Use Form 8332 to release

CTC Phaseout p. 331 2018-2025 begins phaseout at $400,000 MFJ Fully phased out $480,000 MFJ w/ 2 kids

ACTC p. 331 Refundable portion Max $1,400 for qualifying child Percentage of earned income Alt calculation for 3 or more kids

ODC pp. 331-332 $500 for dependent – not eligible for CTC E.g. child 17 or 18 (or 19-23 and student), or child w/ no SSN

EIC p. 332 Refundable credit AGI below phaseout Valid SSN Not MFS Citizen or resident alien No Form 2555 Investment income $3,600 or less Earned income

Earned Income pp. 332-333 Wages, salaries, etc. SE income Not: Pensions, annuities Interest dividends Child support, etc.

EIC Rules to Qualify pp. 333-334 Relationship, age, residency, joint return tests Only 1 person can claim TP is not qualifying child of another TP Add’l rules if no qualifying child

Education Credits p. 334 Qualified education expenses at eligible educational institution (college, university, trade school, etc.)

Qualified Education Expenses p. 335 Tuition and fees Nonacademic fees paid to institution as condition of enroll. Books, supplies, equipment AOTC don’t have to be condition of enroll. But do for lifetime learning

Not Qualified Expenses p. 335 Don’t include Personal expenses, e.g. room and board Sports, games, etc. unless part of degree or (for lifetime learning) for job skills

Two Credit Choices p. 336 AOTC – up to $2,500 per student, part refundable Lifetime learning – up to $2,000 per return Figure 8.5 (p. 337) compares

Issue 4: Taxation of Children’s Income p. 338 Filing requirements Ex. 8.23 $200 interest and $2,750 from job is less than $3,100 limit – Figure 8.6 filing requirements worksheet

Children’s Income p. 339 EARNED INCOME – wages, tips, payment for services – included in child’s income UNEARNED INCOME – interest, dividends, cap gains, etc. – T & E rates apply

Filing requirements for Form 8615: Form 8615 p. 339 Filing requirements for Form 8615: Unearned income over threshold Age requirements One parent alive Required to file a return Does not file a joint return

Parent’s Election p. 340 Elect to include interest, dividends, cap gains on parent’s return File from 8814

Calculating Tax pp. 340-342 Tax on unearned income Rates in Figure 8.7 Examples 8.24 and 8.25 Form 8615 (Figure 8.8) Computation worksheet (Figure 8.9)

Kiddie Tax Planning p. 343 To reduce kiddie tax: Ordinary income to cap gains Defer recognition of unearned income 529 plan instead of gifts Growth instead of income producing Increase child’s earned income Child claims educ. credits (Ex. 8.26)

QUESTIONS?