CPA REG Review Individual Note R1

1 Filling Requirements and Filling Status

2 Gross Income:Part I

3 Gross Income: Part II

4 Adjustments 

4.1 Educator Expenses  (Qualified expenses paid up $300, MFJ both are educator Max $600).

 K-12 teacher ,instructor, counselor, principal, or aside working in a school for at least 900 hours during a school year.

4.2 Traditinal IRA contribution deduction  

4.3 Student Loan Interest dedutction (Limited $2,500).

AGI Phase Out : [2025]  Unmarried $85,000 ~ $95,000 , Married $170,000 ~ $200,000

A dependent may not claim the adjustment ,The taxpayer must be legally obligated to pay the loan. Only deduction qualified education expenses. 

4.4 Health savings accounts

a) Pretax contribution : 2025 year up to $4,300/$8,550 ,and if taxpayers age 55 or older the amount are increased by $1,000 .

b) Excludable Distributions : Distributions made prior to age 65 that are not used to pay qualified medical expenses are includable in gross income and subject to an additional 20% tax.

c) High-Dedctible plan Difined : at least $1,650/$3,300 annual deductible for self/family coverage plans.

Out-of-pocket Limitation:  $8,300 / $16,600

d) Archer Medical Saving Account (MSA) Contributions : No new Archer MSAs could be established after the year 2007. Before established are allowed to continue. 

Qualified paritcipants are self-employed individuals or employees of small businesses (<50 employees)

These accounts were designed to be and must be used in conjunction with a high-deductible health insurance plan( $2,850~$4,300 / $5,700 ~ $8,550). Out-of-Pocket expenses limit is $5,700/$10,500

4.5 Moving Expenses

Only allowed for members of the Armed Forces (or spouses and dependents)on active duty who move pursuant to a mailitary order and incident to a permanent change of station.

4.6 Penalty on Early withdrawal of Savings

4.7 Alimony ( Time 12.31.2018 )

Before December 31,2018 payment for the support of a former spouse are income to the spouse receiving the payments and are deductible to arrive at adjusted gross imcome by the contributing spouse.

Child Support : Nontaxalbe to Payee / Nondeductible to Payor

Payment Applies first to Child Support

Property Settlement (Nontaxable / Nondeductible).

4.8 Attorney Fees paid in discrimination Cases :

Allowed for attorney fee paid in connection with age,sex,racial discrimination,and whistle-blowers cases. Limited to the amount of claimed as income form the judgment.

4.9 IRA Contributions[Deductible tradaitional IRA, Roth IRA & Nonductible traditional IRA]

a) General  2025  The annual Max contribution to IRA limited to the lesser of :

Unmarried | under Age 50 | $7,000 or Earned income  Age 50+  |  $8,000 or Earned income

Married    |  under age 50 | $14,000 or Earned income Age 50+  |  16,000 or Earned income

* Earned Income Includes : (Postive income) Salary and Wages,Commoissions, Bounuses, Alimony (before 12.31.2018 divorce),Net earnings form self-employment, Non-tuition fellowship and stipend payments treated as taxble comensation.

b) Dedcatible Tradional IRA Contributions

Contribution can be deductable - NonTaxable

Distributions of both Principal (contributions) and Earnings at qualified age all as general income taxable

Distributions if unqualified age early withdrawl penalties.  

Minumum distributions are required to be taken by April 1 of the year following the year in which the taxpayer reachers age 73.

Limitation on Dedcatible Tradional IRA Contributions 

Particpation in employer-sponsored retirement Plans 

AGI Limitations and Phase out : Unmarried  : $79,000 ~$89,000. Married  $126,000 ~ $146,000 

[Speical Rule ]: If a married taxpayers is not an active participant in an employment 's retirement plan, but the spouse is , the deduction for the spouse who is not an active participant  is phase out based on the following AGI Limitations.

    Married filling Jointly : $236,000~$246,000 , MFS 0-$10,000 

2025 IRA Deduction Summary

c)  Roth IRA Contributions 

Allowable Roth contributions limited MAGI :

Unmarried :  $150,000~ $165,000 . Married $236,000 ~ 246,000 . MFS 0 ~ 10,000

d) Nonductible Traditonal IRA

If a taxpayer's dedction for a contribution to a tranditional IRA is limited ,a non dedctible traditional IRA contribution can be made instead.The overall limitation still applies to the combined deductions and nondeductible contributions (2025 : $7,000 or earned income).

4.10 Adjustments for self-employed Taxpayers

a) Self-Employment tax (50%) can deducted to arrive at adjusted gross income.

b) Self-Employed Health Insurance : may deduct all of the premiums paid for taxpayer ,spouse ,and dependents.

c) Self-Employed Retirement Plan Contributions

Simplified employment pension (SEP)IRAs

Max. Contribution to SEP IRAs Lesser of : 1)  25% of employee's compensation  2) $70,000 

Self-Employment Contribution to SEP IRAs Lesser of : 1) 20% self employment net income reduced by  50% self-employnet tax deduction. 2) $70,000

Saving incentive match plan for employees(SIMPLE)IRAs

Limited lesser of :

SOLO 401(k)s.

Limited lesser of : 

5 Itemized Deductions

5.1 Standard Deduction : $15,000, $22,500, $30,000

Older 65+ and Blindness : Unmarried $2,000/$4,000. Married $1,600 X EA (Older/Blindness ) $1,600 , $3,200, $4,800 , $6,400.

Dependent of Another: Greater of $1,350 or Earned income plus $450. 

5.2 Itemized Deductions

1) Medical Expenses.   Excess 7.5% AGI  

Deductible:

• Medicine and prescription drugs,include Medicare part D premiums

• Doctors 

• Medical, Health and Accidental insurance premiums (include long-term care premiums )

• Transportation to medical facilities: Actual cost or Allowance 24cents per mile.

• Physically disabled costs

• Expenses incurred by the physically disabled for the removal of structural barriers in the residences to accommodate a disability are treated as medical expenses.

Nonductible:

• Elective surgery,elective costmetic operations,drugs that are illegal,travel,vitamins,the part of Social Security Tax paid for basic Medicare,funerals,Cemetery lots,and insurance against loss of earnings due to sickness or accident( note that cosmetic surgery requires due to an accident or deformity  qualify.)

• Life insurance.

• Capital expenditures( up to the increase in the FMV of the property because of the expenditure.)

• Health club memberships recommended by a doctor for general health care( It would have to be more specific to make it deductible)

• Personal hygiene and other ordinary personal expenses(e.g. toothpaste,toiletries,over-the-counter medicines,bottle water,diaper service,maternity clothes,etc.)

2) State,Local and Foreign TAXes. ( limted $10,000) 

    Real estate taxes(state and local taxes) , Person property taxes (state and local taxes), Income taxes(State,local and Foreign Taxes), sales Tax.

    Nondeductible taxes : Federal Taxes (including Social Security),Inheritance taxes for states, Business (on Schedule C) and Rental property taxes (on Schedule E).

3) Casualty Losses (10% AGI and $100 floor) : Presidentially declared disaster area.

4) Gambing Losses fully deductible limited gambling winnings.

5) Miscellaneous Itemized Deductions 2%  (2018-2025)

6) Interest Expense :Home Mortgage Interest and Investment Interest Expense

     Home Mortgage Interest  : $375,000 / $750,000

     Investment Interest Expense : dedctution limited investment income

7) Charitable contributions (60%, 50%,30%,20%AGI )

Ordinary income property (less one year and depreciated in value)

Long-term capital gains property (More than one year and appreciation)

Cash | Public and Private Operating Foundations: 60%AGI.  | Private Nonoperating Foundations : 30%AGI

Ordinary income Property | Public and Private Operating Foundations: 50%AGI.  | Private Nonoperating Foundations : 30%AGI

Long-term capital gain property | Public and Private Operating Foundations: 30%AGI. | Private Nonoperating Foundations : 20%AGI

* Carryforward 5 years , First In First Out Basis

* More than $75 donor need written statement ,bank record. More than $500(Form 8283) need a write appraisal or publicy traded securities.

6 Section 199A QBI Deduction up to 20%

Qualified Business Income (QBI) Ordinary business income less ordinary business deduction earned from a sole proprietorship ,s corpation,limited liability company,or parntership connected to business conducted within the U.S QBI does not include any wages earned as an employee or guaranteed payment to partners.Dividends,interest,and long-term and short-term capital gains and losses are not included.QBI for a business must be reduced by any adjustments taken to arrive at AGI that relate to that business . This includes the deductible part of the slef-employment(SE) tax,deductions for qualified contributions to SE retirement plans,and SE health insurance deductions.

Qualified Trade or Business (QTB):  

Specified Service Trade or Business (SSTB):is a classification given to certain service businesses. If your business provides a service rather than a product, the business likely classifies as a SSTB. Engineering and architectural services are specifically excluded from the definition of SSTB).

Limitation based on taxble income level

Single and all Other | $197,300 ~$247,300  Married filling jointly | $394,600~$494,600

Category I | Full 20%QBI deduction | If taxble income at or below $197,300/$394,600 | QTB and SSTB 

Category II  | phase out 20% QBI

Category III | If taxble income above $247,300/$494,600 | SSTB  No QBI Dedcution 0 , QTB  full W-2 wage and Porperty limitation

QBI deduction is limited to the Greater of :

7 Tax computations and credits

7.1 Individual Ordinary 

Tax rate : Progressive structure 10,12,22,24,35 and 37%  

Preferential Rate for LTCG:  0%,15%,20% (Base on Tax Income)

7.2 Tax Cridits 

R1) Child Tax Credit (Limited Refundable) $2,000 tax credit for each "Qualifying Child"

 "CARES" dependent except age of 17 

Phase-Out: MAGI exceeds: MFJ $400,000, Other $200,000 . Reduce per $50 for each $1000 (When $440,000/$220,000 Will "0") 

Refundalbe Amount:

Lesser of : 

R2) Earned Income Credit (Refundable) 2025

Earned income is wages,salaries,tips,other employee compensation,and earnings from self-employnent, it does not include pension and annuity income.

Qualifying Child : 

1) Son,daughter adopted child,grandchild,stepchild,foster child,brother,sister,stepbrother,stepsister,descendant etc.

2) age 19 or under 24 full-time student ,or any age permanently and totally disabled. 

3) lived more than half of the taxable year U.S home .

4) is the taxpayer's dependent (if the child is married).

Investment Income exceeding $11,950 can not claim the Earned Income Credit. Includes taxable and nontaxable interest,dividends,net rental and roralty income,net capital gains income,and net passive income.

R3) Tax Withheld (W-2) (Refundable)

   All income taxes withheld from a taxpayer's paycheck are treated as a "credit" against the taxpayer's tax liability.

R4) Excess FICA (Social Security Tax )Withheld(Refundable)

One Employer : the employer must refund the exces to the employee, no credit is allowed.

Two or More employer : Excess as a credit against income tax ( in the payment section)

R5) Premiun Tax Credit (PTC) (Refundable)

 The premium tax credit is a refundable credit that helps eligible individuals and families with low or moderate income afford health insurance purchased through a health insurance marketplace. The"credit"are available immediately when the insurance is purchased to help eligible individuals pay for their monthly health insurance premiums.

N1) Child and Dependent Care Credit (Nonrefundable)

Maximum allowable expenses are : One dependent $3,000 | Two or More $6,000 

Qulifying person : Under age 13 or disabled dependent 

Eligible expenditures must be for : Babysitter,nursery school,Day care,not elementary school.

Calculation The amount that is eligible for the credit is the lesser of : 

Maximum 35% x Credit value : Taxpayer's AGI lesser $15,000

Phase out From 35%-20% Over $15,000, 1% for each $2,000 [$21,000 AGI , 21,000-15,000=6,000/2000=3, calulation perscent 32%]

Minimun 20% x Credit Value : Taxpayer's AGI more than $43,000

N2) Education Tax Incentives : AGI limits $80,000~$90,000 | $160,000~$180,000 

American opportunity Tax Credit Max $2,500: first 4 years of postsecondary (College)education 

First $2,000 , 100% Plus next $2,000 x 25% = Max $2,500

Refundable portion : up to 40% AOTC is refundable , equal $1,000  

Life Learning Credit : Max $2,000 Qualified expenses up to $10,000 x 20% for "per taxpayer" rather than "per student"

Not limited to one type of credit per Tax Return : One child - American Opportunity Credit and another child lifetime leaning credit.

Coverdell Education Saving Accounts : Max. $2,000 Nondeductible 

Section 529 Plan qualified tuition program (QTP): Nodeduction vary by state.

    2025 Education Tax Incentives Summary Table Becker REG Book P R1-74 

N3) Credit for the Elder and/or Permanently Disabled : 15% (Nonrefundable)

 Qualified:age 65+ or under age 65, retired due to total and permanent disability,and received taxable disability imcome for the year.

* Base Amount : $5,000 for single person or qualifying suviving spouse, or if married filling jointly and only one spuse is a qualified individual. $7,500 if married filling jointly and both are qualified individuals (if MFS $3,750 for a qualified individual ).  Under age 65 and has disability  income of less than $5,000 ,the base amonut is limited to $5,000.

* Adjustment Gross Income Limit :

 (1) any Social Security Payment and other excludable pensions or annities received by the taxpayer

 (2) 50% taxpayer's adjusted gross income that exceeds  the following levels : Single $7,500 MFJ $10,000, MFS $5,000.

N4) Adoption Credit : 2025 Up to $17,280 (Nonrefundable)

   Phase out : MAGI $259,190~$299,190,excess of your tax liability may be carried forward up to 5 years

   Time: The credit is claimed for years after the payment is made until the adoption is final.

N5) Retirement savings contributions credit (Saver's Credit) (Nonrefundable) Max.$2,000 for per taxpayer (MFJ $4,000)

   Eligible Taxpayers : 18+ ,not a full-time student, not a dependent of another taxpayer

   Allowable Credit: 10%, 20%, 50%, No Carryover is allowed.

N6) Foreign Tax Credit (Nonrefundable) 

Disallowed may be carry back 1 year and carry forward 10 years.

Limited to the lesser of : 

N7) General Business Credit(Nonrefundable) Carry back 1year or Carry forward 20 years

• Investment credit

• Work opportunity tax credit[($2,400) 40% first $6,000 of first year's wages, ($1,200) 40% first $3,000 to certain summer youth]

• Alternative fuels credit.

• Increase research credit ( General 20% of the increase in qualified research expenditures over the base amount for the year)

• Low-income housing credit.

• Qualified child care expenditures.

• Welfare-to-work credit.

• Employer-provided child care credit

• Small employer retirement plan star-up cost credit [First three years of the plan effective,less than 100 employees who received at least $5,000 compensation in the preceding year.  At least one plan participants is a non-highly compensated employee. ]

• Small Business Health care Tax Credit : carry back 1 or carry forward 20 years
  

• Alternative motor vehicle credit

• Other infrequent (on exam) Credits.

Calculation of General Business Credit

 The credit is limited to regular tax liabilities  after other tax credits, minus 25% of regular tax liability(after other tax credits) Over $25,000.

 Max. credit permitted : (0 - $25,000) x 100% , Excess x 75% 

Small employer retirement plan star-up cost credit Amonut of the credit:

The Greater of  : 

N8 a) Residential Energy Credits

Credit 30% installation costs for qualifying solar ,wind and geothermal energy-generating systems in 2022-2032, 2033(26%), 2034(22%).

Credit 30% costs of qualified energy efficiency improvements placed in service Dec 31,2022. Max. Anuual $1,200.

N8 b) Vehicle and Fuel-Related Credits:  

Up to $7,500 for new electric vehicle ( $4,000 for previously owned electric vehicle) plased in December.31, 2022 [December.31, 2025 not available ]

30% of the installation costs of "qualified alternative fuel vehicle refueling property" install in the home, Max. Credit $1,000

7.3 Estimated Tax and inadequate withholding

Taxes withheld from paychecks(W-2 or 1099)

Estimated taxes paid (Quarterly ,with extension ,or applied from a prior year)

Excess Social Security tax withheld (From 2 or 2+ employers) ,One employer must refund by employer.

Tax owed : $1,000+ (Penalty)

Inadequate tax Estimates:  90% current year's or 100% last year (if prior year AGI excess $150,000 must 110%)

7.4 Other Taxes

1) Self-Employment Tax : (Self-employment income) x 92.35% x 15.3%

2) Additional Medicare Tax : 0.9% | MFJ $250,000 | MFS $125,000 | HOH $200,000

3) Net Investment Income Tax : 3.8% |MFJ $250,000/$200,000 others |Passive activities to Taxpayer

     3.8% x [Lesser of : 1) Net investment income or 2) the excess AGI over the threshold amount.]

     U.S resident individual 

4) Kiddie tax : 0 ~$1,350 0% | $1,351~ 2,700  Child's Rate | $2,701+ Parent's Rate

    Age 18 or a child age 18-24 full-time student not provide over half of his own support.

Earned income :

Standard Deduction as Greater of: $1,350  or Earned income plus $450 

Net unearned income is calculated by taking the child's total unearned income (from dividends,interest, rents,royalties,) and substracting $2700. Pay child's Maginal tax rate . excess $2,700 parent's Maginal tax rate.