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Federal Taxation Outline

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Chapter 3
3.1 Tax Formula Income (Gross receipts, taxable and nontaxable, except return of capital or receipt of borrowed funds) Less: Exclusions Gross Income Less: Deductions for AGI AGI Less: Greater of itemized/standard deduction Less: Personal/dependent exemptions Taxable Income Less: Tax Credits Tax Due/Refund

Deductions for AGI (above the line deductions) * Expenses incurred in a trade or business * One half of self-employment tax paid * Unreimbursed moving expense * Contributions to traditional IRAs and other retirement plans * Fees for college tuition and related expenses * Contributions to health savings accounts * Penalty for savings early withdrawal * Interest on student loans * Excess capital losses * Alimony payments AGI * Basis for computing percentage limitations on certain itemized deductions such as medical expenses, charitable contributions, and certain casualty losses * Medical expenses deductible only to extent they exceed 7.5% of AGI (medical exp – (7.5*AGI)) * Charitable contributions cannot exceed 50% of AGI Personal and Dependency Exemptions * Taxpayer, spouse, and any dependent $3800 Itemized Deductions * Personal expenses such as medical exp, certain taxes and interest, and charitable contributions. * Real estate taxes, state and local taxes, personal property taxes, interest on home mortgage, investment interest, casualty and theft loss, and miscellaneous expenses * Also expenses related to: 1. Production or collection of income 2. Management of property held for production of income (non-business expenses) * Non-Deductible Expenditures 1. Personal living exp, loss on sale of personal property 2. Hobby

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