J.K. Lasser's Your Income Tax 2005: For Preparing Your 2004 Tax Return (J.K. Lasser)

J.K. LASSER’S™ YOUR INCOME TAX 2005......Page 3
How to Use Your Income Tax 2005......Page 5
Form 1040 with references to Your Income Tax 2005......Page 6
Contents Chapter by Chapter......Page 9
What’s New For 2004......Page 27
Key Tax Numbers for 2004......Page 30
Looking Ahead to Tax Changes for Years After 20034......Page 32
PART 1 FILING BASICS 1......Page 35
Do You Have to File a 2004 Tax Return?......Page 37
Filing Tests for Dependents: 2004 Returns......Page 38
Where to File......Page 39
Filing Deadlines......Page 40
Choosing Which Tax Form To File......Page 41
1 Filing Status......Page 43
1.2 Tax Rates Based on Filing Status......Page 44
1.3 Filing Separately Instead of Jointly......Page 45
1.4 Filing a Joint Return......Page 47
1.5 Nonresident Alien Spouse......Page 48
1.6 Community Property Rules......Page 49
1.7 Innocent Spouse Rules......Page 50
1.8 Separate Liability Election for Former Spouses......Page 51
1.9 Equitable Relief......Page 55
1.10 Death of Your Spouse in 2004......Page 56
1.12 Qualifying as Head of Household......Page 57
1.14 Return for Deceased......Page 60
1.16 How a Nonresident Alien Is Taxed......Page 62
1.18 Who Is a Resident Alien?......Page 63
1.19 When an Alien Leaves the United States......Page 65
1.20 Expatriation Tax......Page 66
PART 2 REPORTING YOUR INCOME......Page 67
2 Taxable Wages, Salary, and Other Compensation......Page 69
2.1 Salary and Wage Income......Page 73
2.3 Pay Received in Property Is Taxed......Page 74
2.6 Unemployment Benefits Are Taxable......Page 75
2.8 Deferring Tax on Pay......Page 76
2.10 Waiver of Executor’s and Trustee’s Commissions......Page 77
2.12 Educational Benefits for Employees’ Children......Page 78
2.14 Workers’ Compensation Is Tax Free......Page 79
2.16 Stock Appreciation Rights (SARs)......Page 81
2.17 Stock Options......Page 82
2.18 Restricted Stock......Page 84
3 Fringe Benefits......Page 86
3.1 Tax-Free Health and Accident Coverage Under Employer Plans......Page 88
3.2 Health Savings Accounts (HSAs) and Archer MSAs......Page 89
3.3 Payments From Employer Health and Accident Plans May Be Tax Free......Page 92
3.4 Group-Term Life Insurance Premiums......Page 94
3.6 Adoption Benefits......Page 96
3.8 Company Cars, Parking, and Transit Passes......Page 97
3.9 Working Condition Fringe Benefits......Page 99
3.11 Employee Achievement Awards......Page 100
3.12 Employer-Furnished Meals or Lodging......Page 101
3.13 Minister’s Rental or Housing Allowance......Page 103
3.15 Flexible Spending Arrangements......Page 104
3.17 Discounts on Company Products or Services......Page 106
4 Dividend and Interest Income......Page 107
4.2 Dividends From a Partnership, S Corporation, Estate, or Trust......Page 110
4.4 Real Estate Investment Trust (REIT) Dividends......Page 111
4.7 Dividends Paid in Property......Page 112
4.9 Who Reports the Dividends......Page 113
4.11 Distribution Not Out of Earnings: Return of Capital......Page 114
4.13 Interest on Frozen Accounts Not Taxed......Page 115
4.15 Reporting Interest on Bonds Bought or Sold......Page 118
4.17 Amortization of Bond Premium......Page 119
4.19 Reporting Original Issue Discount (OID) on Your Return......Page 121
4.20 Reporting Income on Market Discount Bonds......Page 122
4.21 Discount on Short-Term Obligations......Page 124
4.22 Stripped Coupon Bonds and Stock......Page 125
4.24 State and City Interest Generally Tax Exempt......Page 126
4.26 Tax-Exempt Bonds Bought at a Discount......Page 127
4.27 Treasury Bills, Notes, and Bonds......Page 128
4.28 Interest on U.S. Savings Bonds......Page 129
4.29 Deferring U.S. Savings Bond Interest......Page 130
4.30 Minimum Interest Rules......Page 131
4.31 Interest-Free or Below-Market-Interest Loans......Page 132
4.32 Minimum Interest on Seller-Financed Sales......Page 133
5 Reporting Property Sales......Page 136
5.2 How Property Sales Are Classified and Taxed......Page 137
5.3 Capital Gains Rates and Holding Periods......Page 139
5.4 Capital Losses and Carryovers......Page 140
5.6 Losses May Be Disallowed on Sales to Related Persons......Page 141
5.8 Sample Entries of Capital Asset Sales on Schedule D......Page 143
5.9 Counting the Months in Your Holding Period......Page 147
5.10 Holding Period for Securities......Page 148
5.13 Calculating Gain or Loss......Page 149
5.14 Amount Realized Is the Total Selling Price......Page 150
5.16 Unadjusted Basis of Your Property......Page 151
5.17 Basis of Property You Inherited or Received as a Gift......Page 152
5.18 Joint Tenancy Basis Rules for Surviving Tenants......Page 154
5.19 Allocating Cost Among Several Assets......Page 156
5.21 Tax Advantage of Installment Sales......Page 157
5.22 Figuring the Taxable Part of Installment Payments......Page 159
5.23 Electing Not To Report on the Installment Method......Page 161
5.24 Restriction on Installment Sales to Relatives......Page 162
5.25 Contingent Payment Sales......Page 163
5.28 Dispositions of Installment Notes......Page 164
5.30 Boot in Like-Kind Exchange Payable in Installments......Page 166
5.32 Worthless Securities......Page 167
5.33 Tax Consequences of Bad Debts......Page 168
5.34 Four Rules To Prove a Bad Debt Deduction......Page 169
5.35 Family Bad Debts......Page 170
6 Tax-Free Exchanges of Property......Page 171
6.1 Trades of Like-Kind Property......Page 172
6.2 Personal Property Held for Business or Investment......Page 173
6.3 Receipt of Cash and Other Property—“Boot”......Page 174
6.4 Time Limits for Deferred Exchanges......Page 176
6.6 Exchanges Between Related Parties......Page 178
6.7 Property Transfers Between Spouses and Ex-Spouses......Page 179
6.8 Tax-Free Exchanges of Stock in Same Corporation......Page 181
6.11 Exchanges of Coins and Bullion......Page 182
6.12 Tax-Free Exchanges of Insurance Policies......Page 183
7 Retirement and Annuity Income......Page 184
7.1 Retirement Distributions on Form 1099-R......Page 186
7.2 Lump-Sum Distributions......Page 188
7.4 Averaging on Form 4972......Page 189
7.6 Lump-Sum Payments Received by Beneficiary......Page 191
7.7 Tax-Free Rollovers From Qualified Plans......Page 192
7.8 Direct Rollover or Personal Rollover......Page 193
7.9 Rollover of Proceeds From Sale of Property......Page 195
7.10 Distribution of Employer Stock or Other Securities......Page 196
7.11 Survivor Annuity for Spouse......Page 197
7.13 When Retirement Benefits Must Begin......Page 198
7.15 Penalty for Distributions Before Age 59½......Page 199
7.16 Restrictions on Loans From Company Plans......Page 200
7.17 Tax Benefits of 401(k) Plans......Page 202
7.19 Withdrawals From 401(k) Plans Restricted......Page 203
7.20 Annuities for Employees of Tax-Exempts and Schools (403(b) Plans)......Page 204
7.21 Government and Exempt Organization Deferred Pay Plans......Page 205
7.22 Figuring the Taxable Part of Your Annuity......Page 206
7.23 Life Expectancy Tables......Page 210
7.26 Simplified Rule for Calculating Taxable Employee Annuity......Page 212
7.27 Employee’s Cost in Annuity......Page 214
7.28 Withdrawals Before Annuity Starting Date......Page 215
8 IRAs......Page 216
8.1 Starting a Traditional IRA......Page 217
8.2 Traditional IRA Contributions Must Be Based on Earnings......Page 218
8.3 Contributions to a Traditional IRA If You Are Married......Page 219
8.4 IRA Deduction Restrictions for Active Participants in Employer Plan......Page 220
8.5 Active Participation in Employer Plan......Page 224
8.6 Nondeductible Contributions to Traditional IRAs......Page 225
8.8 Taxable Distributions From Traditional IRAs......Page 226
8.9 Partially Tax-Free Traditional IRA Distributions Allocable to Nondeductible Contributions......Page 227
8.10 Tax-Free Rollovers and Direct Transfers to Traditional IRAs......Page 229
8.11 Transfer of Traditional IRA to Spouse at Divorce or Death......Page 230
8.12 Penalty for Traditional IRA Withdrawals Before Age 59½......Page 231
8.13 Mandatory Distributions From a Traditional IRA After Age 70½......Page 234
8.14 Inherited Traditional IRAs......Page 239
8.16 Salary-Reduction SEP Set up Before 1997......Page 242
8.17 Who Is Eligible for a SIMPLE IRA?......Page 243
8.18 SIMPLE IRA Contributions and Distributions......Page 244
8.20 Annual Contributions to a Roth IRA......Page 245
8.21 Converting a Traditional IRA to a Roth IRA......Page 247
8.22 Recharacterizations and Reconversions......Page 248
8.23 Distributions From a Roth IRA......Page 249
8.24 Disributions to Roth IRA Beneficiaries......Page 251
9 Income from Rents and Royalties......Page 252
9.2 Checklist of Rental Deductions......Page 253
9.3 Distinguishing Between a Repair and an Improvement......Page 255
9.5 Depreciation on Converting a Home to Rental Property......Page 256
9.7 Personal Use and Rental of a Residence During the Year......Page 258
9.8 Counting Personal-Use and Rental Days for a Residence......Page 259
9.9 Allocating Expenses of a Residence to Rental Days......Page 261
9.10 Rentals Lacking Profit Motive......Page 263
9.12 Production Costs of Books and Creative Properties......Page 264
9.14 Intangible Drilling Costs......Page 265
9.16 Oil and Gas Percentage Depletion......Page 266
10 Loss Restrictions: Passive Activities and At-Risk Limits......Page 268
10.1 Rental Activities......Page 269
10.2 Rental Real Estate Loss Allowance of up to $25,000......Page 270
10.3 Real Estate Professionals......Page 273
10.5 Classifying Business Activities as One or Several......Page 275
10.6 Material Participation Tests for Business......Page 276
10.7 Tax Credits of Passive Activities Limited......Page 278
10.8 Determining Passive or Nonpassive Income and Loss......Page 279
10.9 Passive Income Recharacterized as Nonpassive Income......Page 281
10.11 Partnership Rules......Page 283
10.13 Suspended Losses Allowed on Disposition of Your Interest......Page 284
10.15 Personal Service and Closely Held Corporations......Page 286
10.16 Sales of Property and of Passive Activity Interests......Page 287
10.17 At-Risk Limits......Page 288
10.18 What Is At Risk?......Page 289
10.19 Amounts Not At Risk......Page 290
10.22 Recapture of Losses Where At Risk Is Less Than Zero......Page 292
11 Other Income......Page 293
11.3 Gambling Winnings and Losses......Page 294
11.5 Refunds of State and Local Income Tax Deductions......Page 295
11.7 How Legal Damages Are Taxed......Page 298
11.8 Cancellation of Debts You Owe......Page 300
11.9 Schedule K-1......Page 302
11.10 How Partners Report Partnership Profit and Loss......Page 303
11.13 Unified Tax Audits of Partnerships......Page 304
11.14 Stockholder Reporting of S Corporation Income and Loss......Page 305
11.15 How Beneficiaries Report Estate or Trust Income......Page 306
11.18 Forms Farmers File......Page 307
11.19 Income Averaging for Farmers......Page 308
PART 3 CLAIMING DEDUCTIONS......Page 309
12 Deductions Allowed in Figuring Adjusted Gross Income......Page 311
12.2 Claiming Deductions From Gross Income......Page 312
12.3 What Moving Costs Are Deductible?......Page 314
12.4 The Distance Test......Page 315
12.5 The 39-Week Test for Employees......Page 316
12.8 Reimbursements of Moving Expenses......Page 317
12.10 Limits on Deductible HSA Contributions......Page 318
12.11 Distributions From HSAs......Page 320
12.12 Archer MSAs......Page 321
13 Claiming the Standard Deduction or Itemized Deductions......Page 322
13.1 Claiming the Standard Deduction......Page 324
13.3 Husbands and Wives Filing Separate Returns......Page 325
13.5 Standard Deduction for Dependents......Page 326
13.6 Prepaying or Postponing Itemized Expenses......Page 328
13.7 3% Itemized Deduction Reduction......Page 329
14 Charitable Contribution Deductions......Page 331
14.1 Deductible Contributions......Page 332
14.2 Nondeductible Contributions......Page 333
14.3 Contributions That Provide You With Benefits......Page 334
14.4 Unreimbursed Expenses of Volunteer Workers......Page 335
14.5 Support of a Student in Your Home......Page 336
14.6 What Kind of Property Are You Donating?......Page 337
14.8 Bargain Sales of Appreciated Property......Page 340
14.9 Art Objects......Page 341
14.10 Interests in Real Estate......Page 342
14.14 Donations Through Trusts......Page 344
14.15 Records Needed To Substantiate Your Contributions......Page 346
14.17 Ceiling on Charitable Contributions......Page 347
14.18 Five-Year Carryover for Excess Donations......Page 349
14.19 Election To Reduce Property Gift Appreciation......Page 350
15 Itemized Deduction for Interest Expenses......Page 351
15.1 Home Mortgage Interest......Page 352
15.2 Home Acquisition Loans......Page 353
15.4 Home Construction Loans......Page 354
15.5 Home Improvement Loans......Page 355
15.6 Mortgage Payment Rules......Page 356
15.7 Interest on Refinanced Loans......Page 357
15.8 “Points”......Page 358
15.10 Investment Interest Limitations......Page 359
15.12 Earmarking Use of Loan Proceeds......Page 361
15.13 Year To Claim an Interest Deduction......Page 363
15.14 Prepaid Interest......Page 364
16 Deductions for Taxes......Page 365
16.2 Nondeductible Taxes......Page 366
16.4 When Taxes and Interest Are Capitalized......Page 367
16.8 Allocating Taxes When You Sell or Buy Realty......Page 368
16.9 Who May Deduct Real Property Taxes......Page 370
16.12 Foreign Taxes......Page 371
17 Medical and Dental Expense Deductions......Page 372
17.2 Allowable Medical Care Costs......Page 373
17.4 Reimbursements Reduce Deductible Expenses......Page 374
17.5 Premiums of Medical Care Policies......Page 378
17.7 Expenses of Your Dependents......Page 379
17.9 Travel Costs May Be Medical Deductions......Page 381
17.11 Nursing Homes......Page 383
17.12 Nurses’ Wages......Page 384
17.13 Home Improvements as Medical Expenses......Page 385
17.14 Costs Deductible as Business Expenses......Page 386
17.15 Long-Term Care......Page 387
17.16 Life Insurance Used To Pay Medical Costs of Terminally ill......Page 388
18 Casualty and Theft Losses and Involuntary Conversions......Page 389
18.1 Sudden Event Test for Casualty Losses......Page 390
18.2 When To Deduct a Casualty Loss......Page 392
18.3 Disaster Losses......Page 393
18.4 Who May Deduct a Casualty Loss......Page 394
18.5 Bank Deposit Losses......Page 395
18.7 Deducting Damage to Your Car......Page 396
18.8 Proving a Casualty Loss......Page 397
18.9 Theft Losses......Page 398
18.12 Floors for Personal-Use Property Losses......Page 399
18.13 Figuring Your Loss on Form 4684......Page 400
18.14 Personal and Business Use of Property......Page 403
18.16 Insurance Reimbursements......Page 404
18.17 Excess Living Costs Paid by Insurance Are Not Taxable......Page 405
18.20 Involuntary Conversions Qualifying for Tax Deferral......Page 406
18.22 Time Period for Buying Replacement Property......Page 407
18.24 Cost of Replacement Property Determines Postponed Gain......Page 409
18.25 Special Assessments and Severance Damages......Page 410
18.26 Reporting Gains From Casualties......Page 411
19 Deducting Job Costs and Other Miscellaneous Expenses......Page 412
19.1 2% AGI Floor Reduces Most Miscellaneous Expenses......Page 413
19.3 Checklist of Job Expenses Subject to the 2% AGI Floor......Page 414
19.5 Dues and Subscriptions......Page 415
19.6 Uniforms and Work Clothes......Page 416
19.8 Local Transportation Costs......Page 417
19.9 Unusual Job Expenses......Page 418
19.10 Computers and Cellular Phones......Page 419
19.13 Employee Home Office Deductions......Page 420
19.15 Checklist of Deductible Investment Expenses......Page 421
19.16 Costs of Tax Return Preparation and Audits......Page 423
19.17 Deducting Legal Costs......Page 424
19.18 Contingent Fees Paid Out of Taxable Awards......Page 425
20 Travel and Entertainment Expense Deductions......Page 426
20.2 Commuting Expenses......Page 427
20.4 IRS Meal Allowance......Page 428
20.5 Business Trip Deductions......Page 431
20.6 When Are You Away From Home?......Page 432
20.7 Fixing a Tax Home If You Work in Different Locations......Page 433
20.9 Deducting Living Costs on Temporary Assignment......Page 434
20.10 Business-Vacation Trips Within the United States......Page 435
20.11 Business-Vacation Trips Outside the United States......Page 436
20.12 Deducting Expenses of Business Conventions......Page 437
20.13 Travel Expenses of a Spouse or Dependents......Page 438
20.16 The Restrictive Tests for Meals and Entertainment......Page 439
20.17 Directly Related Dining and Entertainment......Page 440
20.22 Entertainment Facilities and Club Dues......Page 441
20.24 50% Cost Limitation on Meals and Entertainment......Page 442
20.25 Business Gift Deductions Are Limited......Page 443
20.26 Record-Keeping Requirements......Page 444
20.27 Substantiating Deductions for Travel and Entertainment......Page 445
20.30 Tax Treatment of Reimbursements......Page 446
20.31 What Is an Accountable Plan?......Page 447
20.32 Per Diem Travel Allowance Under Accountable Plans......Page 448
20.33 Automobile Mileage Allowance......Page 449
20.34 Reimbursements Under Non-Accountable Plans......Page 450
21 Personal Exemptions......Page 451
21.1 How Many Exemptions May You Claim?......Page 452
21.3 Test 1. Relationship Test......Page 453
21.4 Unrelated or Distantly Related Dependents Living With you......Page 454
21.5 Test 2. Gross Income Limit for Dependents......Page 455
21.7 Test 3. Support Test......Page 456
21.8 Lodging and Food as Support......Page 458
21.9 Examples of Allocating Support......Page 459
21.11 Special Support Test for Divorced or Separated Parents......Page 461
21.13 Test 5. The Dependent Does Not File a Joint Return......Page 463
21.15 Reporting Social Security Numbers of Dependents......Page 464
21.16 Phaseout of Personal Exemptions......Page 465
PART 4 PERSONAL TAX COMPUTATIONS......Page 467
22 Figuring Your Regular Income Tax Liability......Page 469
22.3 Tax Computation Worksheet Replaces Rate Schedules......Page 470
22.5 Tax Credits......Page 471
23 Alternative Minimum Tax (AMT)......Page 472
23.1 Computing Alternative Minimum Tax on Form 6251......Page 474
23.2 Adjustments for AMT......Page 476
23.3 Tax Preference Items......Page 478
23.7 Avoiding AMT......Page 479
24 Computing the “Kiddie Tax” for Children Under Age 14......Page 481
24.2 Children Not Subject to the “Kiddie Tax”......Page 482
24.3 Children Under Age 14 Subject to the “Kiddie Tax”......Page 483
24.4 Computing “Kiddie Tax” on Child’s Return......Page 484
24.5 Parent’s Election To Report Child’s Dividends and Interest......Page 485
25 Personal Tax Credits Reduce Your Tax Liability......Page 487
25.2 Child Tax Credit for Children Under Age 17......Page 488
25.3 Figuring the Child Tax Credit......Page 489
25.4 Qualifying for Child and Dependent Care Credit......Page 490
25.5 Limits on the Dependent Care Credit......Page 491
25.7 Household and Dependent Tests for Dependent Care Credit......Page 492
25.8 Expenses Qualifying for the Dependent Care Credit......Page 493
25.11 Social Security and Medicare Taxes (FICA) for Household Employees......Page 495
25.12 Federal Unemployment Taxes (FUTA) for Household Employees......Page 496
25.13 Qualifying Tests for EIC......Page 497
25.14 Income Tests for EIC......Page 498
25.17 Qualifying for the Adoption Credit......Page 499
25.18 Claiming the Adoption Credit on Form 8839......Page 500
25.19 Credit for Qualified Retirement Savings Contributions......Page 501
25.22 District of Columbia First-Time Homebuyer Credit......Page 502
26 Tax Withholdings......Page 503
26.2 When Income Taxes Are Withheld on Wages......Page 504
26.5 Withholding Allowances......Page 505
26.8 When Tips Are Subject to Withholding......Page 506
26.10 FICA Withholdings......Page 507
26.11 Withholding on Retirement Distributions......Page 508
26.12 Backup Withholding......Page 509
27 Estimated Tax Payments......Page 510
27.1 Do You Owe an Estimated Tax Penalty for 2004?......Page 511
27.2 Planning Estimated Tax Payments for 2005......Page 512
27.4 Estimates by Husband and Wife......Page 513
27.5 Adjusting Your Payments During the Year......Page 514
PART 5 PERSONAL TAX SAVINGS PLANS......Page 515
28 Tax Planning......Page 517
28.1 Tax-Saving Opportunities......Page 518
28.2 When To Defer Income and Accelerate Deductions......Page 519
28.3 Earning Over the Thresholds for the Exemptions Phaseout and Itemized Deduction Reduction......Page 520
29 Tax Savings for Residence Sales......Page 521
29.1 Avoiding Tax on Sale of Principal Residence......Page 522
29.2 Meeting the Ownership and Use Tests......Page 523
29.3 Home Sales by Married Persons......Page 525
29.4 Reduced Maximum Exclusion......Page 526
29.5 Figuring Gain or Loss......Page 528
29.6 Figuring Adjusted Basis......Page 529
29.7 Personal and Business Use of a Home......Page 530
29.9 Loss on Residence Converted to Rental Property......Page 533
29.10 Loss on Residence Acquired by Gift or Inheritance......Page 535
30 Tax Savings for Investors in Securities......Page 536
30.2 Earmarking Stock Lots......Page 537
30.3 Sale of Stock Dividends......Page 538
30.4 Stock Rights......Page 539
30.5 Short Sales of Stock......Page 540
30.6 Wash Sales......Page 542
30.8 Constructive Sales of Appreciated Financial Positions......Page 544
30.9 Straddle Losses......Page 545
30.10 Capital Gain Restricted on Conversion Transactions......Page 547
30.11 Puts and Calls and Index Options......Page 548
30.12 Exchange Option Trading......Page 549
30.14 Treasury Bills and CDs......Page 550
30.16 Investing in Corporate Bonds......Page 552
30.17 Treasury Bonds, Notes, and U.S. Agency Obligations......Page 554
30.18 Investing in Tax-Exempts......Page 555
30.19 Investing in Unit Investment Trusts......Page 556
30.21 Savings Bonds......Page 557
30.22 I Bonds......Page 558
30.23 Trader, Dealer, or Investor?......Page 560
30.24 Mark-to-Market Election for Traders......Page 561
31 Tax Savings for Investors in Real Estate......Page 562
31.1 Investing in Real Estate Ventures......Page 563
31.2 Sales of Subdivided Land—Dealer or Investor?......Page 564
31.3 Exchanging Real Estate Without Tax......Page 565
31.5 Cancellation of a Lease......Page 566
31.7 Granting of an Easement......Page 567
31.9 Foreclosures and Voluntary Conveyances to Creditors......Page 568
31.11 Abandonments......Page 570
31.12 Seller’s Repossession After Buyer’s Default on Mortgage......Page 571
31.14 Foreclosure Sale to Third Party......Page 573
31.15 Transferring Mortgaged Realty......Page 574
32 Tax Pointers for Investors in Mutual Funds......Page 575
32.3 Timing Your Investment......Page 576
32.6 Tax-Exempt Bond Funds......Page 577
32.9 Redemptions and Exchanges of Fund Shares......Page 578
32.10 Basis of Redeemed Shares......Page 579
32.11 Comparison of Basis Methods......Page 580
33 Gift Planning and Life Insurance......Page 584
33.2 Gift Tax Basics......Page 585
33.3 Custodial Accounts for Minors......Page 586
33.5 Life Insurance Offers Tax Advantages......Page 587
33.6 How Life Insurance Proceeds Are Taxed to a Beneficiary......Page 589
33.7 A Policy With a Family Income Rider......Page 590
33.8 How Other Insurance Proceeds Are Taxed......Page 591
34 Special Rules for Senior Citizens......Page 592
34.2 Social Security Benefits Subject to Tax......Page 593
34.3 Computing Taxable Social Security Benefits......Page 594
34.5 Retiring on Social Security Benefits......Page 595
34.6 How Tax on Social Security Reduces Your Earnings......Page 596
34.7 Claiming the Credit for the Elderly and Disabled......Page 597
34.9 Reduction of the Credit Base Amount for the Elderly and Disabled......Page 598
34.10 Tax Effects of Moving to a Continuing Care Facility......Page 599
34.11 Imputed Interest on Refundable Entrance Fees......Page 600
35 Members of the Armed Forces......Page 601
35.2 Tax-Free Armed Forces Benefits......Page 602
35.4 Tax-Free Pay for Service in Combat Zone or Hazardous Duty Area......Page 603
35.6 Tax Forgiveness for Combat Zone or Hazardous Duty Area Deaths......Page 605
35.8 Tax Information for Reservists......Page 606
36 How to Treat Foreign Earned Income......Page 608
36.2 What Is Foreign Earned Income?......Page 609
36.3 Qualifying for the Foreign Earned Income Exclusion......Page 611
36.4 How To Treat Housing Costs......Page 612
36.5 Meeting the Foreign Residence or Physical Presence Test......Page 613
36.6 Claiming Deductions......Page 614
36.7 Exclusion Not Established When Your Return Is Due......Page 615
36.10 Earnings in Puerto Rico......Page 616
36.12 Exchange Rates and Blocked Currency......Page 617
36.14 Foreign Tax Credit......Page 618
37 Planning Alimony and Marital Settlements......Page 620
37.2 Decree or Agreement Required......Page 621
37.4 Payments Must Stop at Death......Page 622
37.5 Child Support Payments Are Not Alimony......Page 624
37.7 3rd Year Recapture If Alimony Drops $15,000 or More......Page 625
37.8 Legal Fees of Marital Settlements......Page 626
38 Educational Tax Benefits......Page 627
38.4 U.S. Savings Bond Tuition Plans......Page 628
38.5 Contributing to a Qualified Tuition Program (Section 529 Plan)......Page 629
38.6 Distributions From Qualified Tuition Programs (Section 529 Plans)......Page 630
38.7 Education Tax Credits......Page 631
38.8 Hope Credit......Page 633
38.10 Income Phaseout of Education Credits......Page 634
38.12 Distributions From Coverdell ESAs......Page 635
38.13 Tuition and Fees Deduction Available Through 2005......Page 637
38.14 Student Loan Interest Deduction......Page 638
38.15 Types of Deductible Work-Related Costs......Page 639
38.16 Work-Related Tests for Education Costs......Page 640
38.17 Local Transportation and Travel Away From Home to Take Courses......Page 642
39 Estate Taxes......Page 644
39.3 Finding the Value of Your Estate......Page 645
39.5 Estate Tax Rates......Page 646
39.6 Reducing or Eliminating a Potential Estate Tax......Page 647
39.7 Estate Tax Freeze Advisory......Page 648
PART 6 BUSINESS TAX PLANNING......Page 649
40 Income or Loss From Your Business or Profession......Page 651
40.2 Reporting Self-Employed Income......Page 652
40.3 Accounting Methods for Reporting Business Income......Page 654
40.5 Reporting Business Cash Receipts to the IRS......Page 656
40.6 Filing Schedule C......Page 657
40.7 Deductions for Professionals......Page 661
40.9 How Authors and Artists May Write Off Expenses......Page 662
40.10 Deducting Expenses of a Sideline Business or Hobby......Page 663
40.11 Deducting Expenses of Looking for a New Business......Page 664
40.12 Exclusive and Regular Use of a Home Office......Page 665
40.13 What Home Office Expenses Are Deductible?......Page 667
40.15 Business Income May Limit Home Office Deductions......Page 668
40.16 Home Office for Sideline Business......Page 669
40.17 Depreciation of Office in Cooperative Apartment......Page 670
40.19 Your Net Operating Loss......Page 671
40.20 Form 1045......Page 672
40.23 General Business Credit......Page 673
41 Retirement Plans for Self-Employed......Page 675
41.2 Choosing a Keogh Plan......Page 676
41.4 Deductible Keogh or SEP Contributions......Page 677
41.7 Annual Keogh Plan Return......Page 680
41.9 SIMPLE IRA Plans......Page 681
42 Claiming Depreciation Deductions......Page 682
42.1 What Property May Be Depreciated?......Page 683
42.3 First-Year Expensing Deduction......Page 684
42.4 MACRS Recovery Periods......Page 686
42.5 MACRS Rates......Page 687
42.6 Half-Year Convention for MACRS......Page 688
42.8 150% Rate Election......Page 689
42.9 Straight-Line Depreciation......Page 690
42.10 Computers and Other Listed Property......Page 691
42.12 Straight-Line Recovery for Equipment in Service Before 1987......Page 692
42.13 MACRS for Real Estate Placed in Service After 1986......Page 693
42.16 Depreciating Real Estate Placed in Service After 1980 and Before 1987......Page 695
42.18 Amortizing Goodwill and Other Intangibles (Section 197)......Page 696
42.20 Bonus Depreciation for Eligible Property Placed in Service Before 2005......Page 698
43 Deducting Automobile Expenses......Page 700
43.1 IRS Automobile Allowance......Page 701
43.3 Auto Depreciation Restrictions......Page 703
43.4 Annual Ceilings on Depreciation......Page 704
43.5 MACRS Rates for Cars......Page 707
43.6 Straight-Line Method......Page 710
43.8 Depreciation After Recovery Period Ends......Page 711
43.10 Recapture of Deductions on Business Auto......Page 712
43.12 Leased Business Autos: Deductions and Income......Page 713
43.13 Deduction for Hybrid Vehicle......Page 714
44 Sales of Business Property......Page 715
44.2 Ordinary Income Recapture on Depreciable Realty......Page 716
44.4 Gifts and Inheritances of Depreciable Property......Page 717
44.8 Property Used in a Business (Section 1231 Assets)......Page 718
44.9 Sale of Property Used for Business and Personal Purposes......Page 719
44.11 Corporate Liquidation......Page 720
45 Figuring Self- Employment Tax......Page 721
45.1 What Is Self-Employment Income?......Page 722
45.3 Schedule SE......Page 723
45.4 How Wages Affect Self-Employment Tax......Page 724
45.5 Optional Method If 2001 Was a Low-Income or Loss Year......Page 725
45.6 Self-Employment Tax Rules for Certain Positions......Page 726
PART 7 FILING YOUR RETURN AND WHAT HAPPENS AFTER YOU FILE......Page 729
46 Filing Your Return......Page 731
46.2 Getting Ready To File Your Return......Page 732
46.3 Applying for an Extension......Page 733
46.4 Paying Taxes Due or Getting Your Refund......Page 734
46.5 Electronic Filing......Page 735
46.7 Tax Return Preparers......Page 736
47 How Tax Data Is Processed by the IRS......Page 743
47.2 Information Returns Required by the IRS......Page 744
47.3 When the IRS Can Assess Additional Taxes......Page 746
47.5 Tax Penalties for Late Filing and Late Payment......Page 747
47.6 Tax Penalties for Inaccurate Returns......Page 748
48 IRS Tax Audits......Page 750
48.1 Odds of Being Audited......Page 751
48.3 Preparing for the Audit......Page 752
48.5 Agreeing to Audit Changes......Page 753
48.6 Disputing the Audit Changes......Page 754
48.8 Suing the IRS for Unauthorized Collection......Page 755
49 Filing Refund Claims, and Amended Returns......Page 757
49.3 Joint Refund Claims......Page 758
49.6 Interest Paid on Refunds......Page 759
49.8 Amended Returns Showing Additional Tax......Page 760
PART 8 INDEX......Page 761
Index (Parts 1–7)......Page 25
PART 9 2004 TAX TABLE, TAX COMPUTATION WORKSHEET, EARNED INCOME CREDIT TABLE......Page 783
Tax Table......Page 784
Tax Rate Schedules......Page 796
Earned Income Credit Table......Page 797
2004 TAX FORMS......Page 803