Chapter 1 Qualifying Child: child, stepchild, adopted, sibling, half/step-sibling, descendant, foster child, must be younger or permanently disabled

Domicile Test: lived with taxpayer for more than the year Age Test: under 19, full-time student under 24 (enrolled at least 5 months) Joint Return Test: child doesnt file joint return with spouse, unless its to claim refund Citizenship Test: US citizen, resident of US, Mexico, or Canada, alien child adopted/living with US citizen Self-Support Test- child cannot provide more than of their own support Qualifying Relatives: relative to taxpayer or member of household Gross Income Test: Gross income not greater than $3900 Support Test: support must come from taxpayer Joint Return Test: doesnt file joint return with spouse, unless its to claim refund Citizenship Test: US citizen, resident of US, Mexico, or Canada, alien child adopted/living with US citizen Basic Gain & Loss: Amount Realized (Sales PriceSales Expense)- Adjusted Basis (Cost-Acc. Depreciation)= Realized Gain/Loss Capital Gains/Losses: Short term- held for <12 months- tax ordinary Long Term- held for > 12 month. If the Tax bracket: (10% &15% is 0%) (25% & 35% is 15%) (39.6% is 20%) Long Term Capital Loss- Only $3000 per year; carryforward the unused balance Chapter 2 Excluded From Gross Income: accident, casualty, health and life insurance proceeds, bequests, child support, damages for physical personal injury/sickness, disability benefits, gifts, inheritances, meals and lodging, military allowances, ministers dwelling rental allowance, municipal bond interest, relocation payments, tuition/book scholarships, social security & veterans benefits, welfare payments, workers compensation Alimony: deductible-payer; taxable-payee

Prizes & Awards: Winning from: tv, radio, door prizes, lotteries are income (Line 21) Exception: Employee awards of tangible personal property (up to $400) received for recognition of length of service or safety achievement. Up to $1,600 under qualified plan award Life Insurance: Interest is taxable Unemployment Comp: Line 19 Chapter 3 Net Operating Losses: from business and casualty items only, carry back two years then forward twenty, must elect this in year of a loss Hobby Losses: activities not engaged in for profit motive, only deduct expenses up to amount of hobby income, hobby income must always be included Chapter 4 Active Income: wages, salaries, self-employed Portfolio Income: dividends and interest Passive Income: rental real estate Moving Expenses: $0.24 per mile, must change job sites, at least 50 miles away, must work 39 weeks out of the year after move. Form 3903 Traditional IRA: deduction for AGI, distributions in retirement are taxable (line 32) MAX: $5,500 Roth IRA: no deduction for AGI, distribution in retirement is not taxable MAX: $5,500 **** if 50 and older $1,000 more can be added ** phase out: (high of range-AGI)/ (high of range-low of range) x (5500 or 6500) Chapter 5 Schedule A: Medical Expenses: prescription drugs/medicines, fees for doctors/dentist/nurse/hospital, hearing aids/ eyeglasses/dentures/contact lenses, medical transportation/lodging/crutches/wheelchairs, birth control prescription, acupuncture, psychiatric care, insurance/medicare premiums, nursing home care for chronically ill ($0.24 per mile, $50 per night/person overnight; no meal) Interest: deductible- mortgage, mortgage penalties, investment (only deduct up to income, rest carriedforward). Education: $2,500 per year, deduction for AGI. Contributions: Up to 50% of AGI Casualty & Theft Losses: deductible in year of loss. Unless President declares disaster area losses, rule A- decrease of fair market value, not exceed adjusted

basis of property (partial/complete destruction of personal, business, investment), (Gross loss- $100= Net Loss- 10% of AGI= casualty loss deduction) rule B- deduction for adjusted basis (complete destruction of business/ investment property) Schedule B: Interest- Everything Dividends- Tax bracket: (10% &15% is 0%) (25% & 35% is 15%) (39.6% is 20%) IF DIVIDENDS ARE IN 10% OR MORE, SUBTRACT FROM INCOME BEFORE CALCULTING TAX!!!!! Schedule C: Gambling Winning: only if professional; losses on Schedule A under miscellaneous Transportation: $0.565 per mile (Line 9) Standard mileage method: Business miles x .565 Actual cost method: Actual costs x percentage Travel Expenses: airfare, lodging, taxis, laundry, tips, meals Primarily Business in US: all travel deductible, business and personal expenses split in Primarily Business outside US: travel cost split between business and personal based on days Primarily Pleasure: travel non-deductible, meals, lodging, transportation split between personal and business Entertainment: 50% deduction directly related to business Educational: cost of course, lodging, 50% of meals/entertainment (if primarily to obtain qualifying education), Paid to meet requirements of employer, law, regulation or maintain/improve existing skills. Educators can deduct $250 (have to work at least 900 hours) Dues & Subscriptions: must be related to profession Special Clothing & Uniforms: required & cannot be worn outside Business Gifts: deduct $25 per done per year, plus the cost of wrapping & shipping. Husband & wife are considered one done, unless both are clients. No limitation on small business gifts up to $4 each, if company name is on them. Gifts to supervisor/boss non-deductible Bad Debts: business bad debts are ordinary deductions- deductible, no limit, arise from trade/business. Non-business are short-term capital losses, when individual is not in the business of loaning money Office-in-Home: home must be used regularly and exclusively as place of business, regular place to

meet clients/patients, office is separate, dwelling unit is used for inventory storage. Income Limitation: cannot create a net loss for the business. Allocation: % of sq feet rent, home insurance, repairs, cleaning, gardening, homeowners dues, and depreciation, excess carried-forward Form 8829: self-employed. Allowable deducts schedule c, if taken as an employee business expense schedule a, but must be for employers convenience & no regular office provided Schedule D: non-business bad debts under shortterm, limit $3,000, remaining balance can be carriedforward. Bankrupt! Form 8582: Passive loss rule: may not deduct in excess of gains, losses can carry-forward, deduct when investment is sold, cannot offset active/ portfolio income Rental property is passive, even if actively managed unless heavily involved (more than 50% personal service or more than 750 hours), individual taxpayers can take up to $25,000 of rental loss against ordinary income, $25,000 is reduced $0.50 per $1 over AGI $100,000 Schedule E: Primarily personal use- rented less than 15 days; rental income not taxable, mortgage interest & real estate taxes schedule a, other expenses are non-deductible Primarily rental use- rented more than 15 days and personal use isnt more than 14 days or 10% of rented days; allocation- rental days / total days used= rental%, Expenses x rental%= rental deductions, personal days/total days= personal%, personal% of mortgage& real estate on schedule A If rental deductions exceed rental income, deduct against other income, passive loss Dual use- rented more than 15 days and personal days more than 14 days or 10% of rental days, allocation: same as primarily rental Formula: Gross rental income-interest & taxes=balance- utilities & maintenance=balance depreciation (limit to the amount left) = Net Income Schedule SE: