Tax Benefits
Chapter 1
pp. 1-37
2015 National Income
Tax Workbook™
Tax Benefits Limited by
Income
pp. 1-37
 Many benefits in the I.R.C. are
applicable only to taxpayers
whose income does not exceed
specific thresholds.
 Benefits can be obtained by tax
planning to minimize income
and maximize deductions.
Above-the-Line Deductions
and Exclusions
pp. 2-12
 Gross Income and Adjusted
Gross Income (AGI) are defined
by the I.R.C. (§ 61 and § 101140)
 Definition of Modified Adjusted
Gross Income (MAGI) can vary
depending on the benefit.
Above-the-Line Deductions
and Exclusions
pp. 2-12
 Three income-limited items factor
into AGI.
▪ Deductions for contributions to IRAs
▪ Deductions for student loan interest,
▪ The exclusion for certain interest
paid on US savings bonds.
IRA Contributions
pp. 2-7
 Deductions for traditional IRA contributions
may be limited if the taxpayer/spouse can
participate in an employer provided
retirement plan.
 To determine deductible amount when in the
phaseout range:
(End of phaseout range – MAGI) x
contribution limit / Phaseout range =
Deductible amount
IRA Contributions
pp. 2-7
 Contributions to Roth IRA are not deductible,
but are subject to a limit which is phased out
as MAGI increases.
 To determine contribution limit when in the
phaseout range:
(End of phaseout range – MAGI) x maximum
contribution / Phaseout range = Contribution
limit
Student Loan Interest
Deductions
pp. 7-9
 Up to $2,500 deduction of qualified
student loan interest.
 Not available if filing MFS, and
deduction is only available to the
borrower.
 If student loan is refinanced including
additional funding used for noneducation expenses, none of the
subsequent interest is considered
student loan interest.
US Savings Bond Interest
Exclusion
pp. 9-11
 Interest earned on US savings
bonds can be excluded provided
they were used to pay qualifying
educational expenses.
 Limited exclusion in the phaseout
range is calculated by:
(End of phaseout range – MAGI) x qualified savings
bond interest/ Phaseout range = Exclusion
US Savings Bond Interest
Exclusion
pp. 9-11
 Planning Pointer
▪ Taxpayers may consider
switching from low-rate
savings bonds to a higher
performing 529 plan, a tax
free exchange.
Comparative Case Studies
pp. 11-12
 Case #1: Barbara Brown
▪ IRA deduction not limited
 Case #2: Gloria Green
▪ Calculation of nondeductible
contribution
 Case #3: Wilma White
▪ MAGI exceeds phaseout range
Below-the-Line Deductions
pp. 12-24
 2015 standard deductions
▪ Single - $6,300
▪ MFJ or QW - $12,600
▪ HoH - $9,250
▪ MFS - $6,300
Below-the-Line Deductions
pp. 12-24
 Pease rule –
itemized deductions
reduced by lesser of
two amounts
▪ 3% of AGI in
excess of
thresholds to the
right
▪ 80% of all affected
itemized
deductions
Filing
Status
Single
MFJ or
QW
HoH
MFS
AGI
$258,250
$309,900
$284,050
$154,950
Personal Exemptions
Deduction Phaseout
 Personal and
dependent
exemption
deduction can be
completely phased
out if AGI is
substantial.
 Decreases by 2%
for each $2,500
over threshold
amounts to the
right. No deduction
for AGI above
phaseout region.
p. 13
Filing
Status
Single
Phaseout Phaseout
Begins
Ends
$258,250 $380,750
MFJ or
QW
HoH
MFS
$309,900
$432,400
$284,050
$154,950
$406,550
$216,200
Personal Exemptions
Deduction Phaseout
 Pease limitation
▪ See Example 1.6 – 1.8
p. 13
Other Itemized Deductions
pp. 15-19
 Medical/dental expenses can
be claimed as an itemized
deduction, but deduction is
reduced by 10% of AGI (7.5%
of AGI if over 65 during 20132016).
Other Itemized Deductions
pp. 15-19
 Mortgage insurance through the
VA or RHS are fully deductible
in the year the contract is
issued.
 FHA and private mortgage
insurance must be allocated
over the shorter of the term of
the mortgage or 84 months.
Other Itemized Deductions
pp. 15-19
 Example 1.9 Limited Specific
Itemized Deductions
▪ Medical expenses and
mortgage insurance
deductions
Other Itemized Deductions
pp. 15-19
 Charitable contribution
deductions are AGI limited.
▪ Generally the limit is 50% of
AGI, but can be lower
depending on type of property
donated.
▪ Excess carries over for 5
years.
Other Itemized Deductions
pp. 15-19
 Losses from theft of personal
use property events are
reduced by $100, and then by
10% of AGI.
 Losses from business and
income property are not subject
to these reductions.
Other Itemized Deductions
pp. 15-19
 Other expenses related to
generating taxable income may
be eligible itemized deductions,
subject to a 2% of AGI floor.
Alternative Minimum Tax
pp. 19-21
 I.R.C. § 55 imposes the alternative
minimum tax (AMT) on both
corporate and noncorporate
taxpayers, which limits the use of
specified benefits to reduce total
tax.
 2015 AMT rates are 26% for
alternative minimum taxable
income less than $185,400, and
28% otherwise.
Comparative Case Studies
pp. 23-24
 Case #1: Barbara Brown
▪ Itemized deductions less than
standard deduction
 Case #3: Wilma White
▪ Subject to Pease Limitations
and PEP
Refundable/Nonrefundable
Credits
pp. 24-37
 Credits reduce taxes by the
same amount for low-bracket
taxpayers as for high-bracket
tax payers.
 Many credits are limited or
eliminated as a taxpayer’s
income increases.
Earned Income Credit
pp. 24-28
 The EIC is applicable to those
who have income from wages,
salaries, tips, union strike
benefits, or long-term disability
benefits received prior to
minimum retirement age.
Earned Income Credit
pp. 24-28
 The EIC increases over a range of
earned income: Not Filing MFJ or MFS
Qualifying
Children
Credit
Rate
(%)
Income for
Maximum Credit
Phaseout
Phaseout Maximum
Rate(%)
Credit
None
7.65
$6,580 - $8,240
$8,240 $14,820
7.65
$503
One
34.00
$9,880 - $18,110
$18,110 $39,131
15.98
$3,359
Two or more
40.00
$13,870 - $18,110 $18,110 $44,454
21.06
$5,548
Three or more
45.00
$13,870 - $18,110 $18,110 $47,747
21.06
$6,242
Earned Income Credit
pp. 24-28
 The EIC increases over a range of
earned income: Filing MFJ or MFS
Qualifying
Children
Credit
Rate
(%)
Income for
Maximum Credit
Phaseout
Phaseout Maximum
Rate(%)
Credit
None
7.65
$6,580 - $13,750
$8,240 $20,330
7.65
$503
One
34.00
$9,880 - $23,630
$23,630$44,651
15.98
$3,359
Two or more
40.00
$13,870 - $23,630 $23,630$49,974
21.06
$5,548
Three or more
45.00
$13,870 - $23,630 $23,630 $53,267
21.06
$6,242
Earned Income Credit
pp. 24-28
 Taxpayers with more than $3,400 in
investment income for the year cannot
claim EIC.
 Self-employed taxpayers with earned
income in the phasein range for the EIC
may be able to increase their EIC by
deferring expenses from and
accelerating income to that year.
 Taxpayers in the phaseout range of the
EIC may be able to accelerate
deductions and defer income to qualify
for a higher EIC.
Child Tax Credit
pp. 28-30
 Can be as much
as $1000 per
qualifying child.
 Phases out with
increasing AGI,
decreases by
$50 for each
$1000 the AGI
exceeds the
limits.
Filing
Status
MFJ
Phaseout
Range
$110,000 $129,001
Single, $75,000 HoH, or $94,001
QW
MFS
$55,000 $74,001
Child and Dependent Care
Credit
pp. 30-32
 Expenses for child or dependent
care while the taxpayer is working
can qualify for a tax credit.
 Qualifying expenses are limited by
earned income, and as AGI
increases expenses used to
calculate the percentage is
reduced from 35% to 20%.
Retirement Savings
Contribution Credit pp. 32-33
 Maximum credit is a percentage
of $2,000 ($4,000 for MFJ) of
qualified savings returns.
 Percentage is 50%, 20%, or
10%, depending on taxpayers
AGI.
Education Credits
pp. 33-36
 American Opportunity Tax Credit
▪ Extended through Dec. 31, 2017
▪ 100% of first $2000, 25% of next
$2,000, for $2,500 maximum
credit, 40% of which is
refundable.
▪ Phased out over a range of AGI.
Education Credits
pp. 33-36
 Lifetime Learning Credit
▪ Taxpayers can claim 20% of
the first $10,000 of qualified
educational expenses.
▪ MAGI phaseouts are lower
than for AOTC, $110,000 to
$130,000 for MFJ, $55,000 $65,000 for all others.
Case Studies
pp. 36-37
 Case #1: Barbara Brown
▪ AOTC and EITC refundable
credit
 Case #2: Gloria Green
▪ AOTC credit, but ineligible for
other credits
 Case #3: Wilma White
▪ Exceeds all credit phaseout
ranges
Questions?
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