Chapter 14 The Individual Tax Model

Deductions for Adjusted Gross Income and AGI  Deductions for Adjusted Gross Income  Trade/Business Expenses from a Sole Proprietorship are reported on Schedule C / or for a rental property are recorded on schedule E  Student Loan interest up to $2500 (Income limits apply)  Self Employed Expenses: 50% of SE tax, percentage of health insurance premiums, Keogh and Simple retirement plans  IRAs, Moving Expenses, Contributions to MSAs  Penalty for early withdrawal of savings  Total Income less deductions for AGI equals Adjusted Gross Income (very key concept)—also called “above the line” deductions  Itemized deductions are deducted “from” AGI (below the line):  Medical expenses in excess of 7.5% of AGI  State and local taxes  Mortgage interest expense  Miscellaneous itemized deductions in excess of 2% of AGI

Deductions from AGI: Standard Deduction or Itemized Deductions  Standard Deduction Depends on filing status. For 2015:  MFJ = $12,600  MFS = $6,300  HOH = $9,250  Single = $6,300  Blind or aged (>=age 65)  MJF, MFS = additional $1,250  HOH or Single = additional $1,550  Taxpayer takes the larger of Standard Deduction or Itemized Deductions in computing Taxable Income