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Proportionate nonliquidating distribution examples

TP received an additional 10 shares as a stock dividend. He sold the policy for $100 to B, an unrelated individual.He has realized no income and his shares now have a basis of $8 each ($400 divided by 50 shares). Upon the death of TP’s spouse, B received $500 from the life insurance company.

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Student Loan Interest Pay “qualifying” educational expenses of the taxpayer, his spouse, or dependents : include tuition, fees, and room and board reduced by educational exclusions (scholarships, education IRAs, education savings bonds, etc.) Limit: 2500, phase-out proportionately for married taxpayers with AGI in excess of $110,000 over a range of $30,000 ($55,000 for unmarried over a range of $15,000) V.* Qualifying automobile expenses: 0.19 (2008) per mile plus parking and tolls * Lodging: 50 per night, including person who is required to travel with.No deduction is allowed for meals, unless part of treatment program.Accountable Plans: The employer must require the employee to accept lodging as a condition of employment to be excluded from income G.Working condition: nontaxable Benefit that would be deductible (as an employee business expense) if the employee had instead paid the expense H. No Additional Cost Fringes: be used in other tax calculations, such as in the computation of the alternative minimum tax or the exclusion of social security benefits. Social Security Benefits Generally nontaxable, but if the taxpayer’s provisional income (PI) exceeds a specified amount, up to 85% of the benefits is taxable Traditional IRAs – $5,000 (($10,000 if married) in 2008, or compensation, an additional $1,000 catchup contribution is allowed for taxpayers over the age of 50.* Deductible when paid and treatment received, unless prepayment is required Cash basis: in the year paid or withheld Federal taxes, death, excise, and sales taxes: generally non-deductible Taxpayers can elect to deduct state and local sales taxes instead of income taxes.

Amount of sales taxes can be determined by actual receipts or a table provided by the IRS.

High-deductible health plan must have a deductible of at least $1,100 ($2,200 for family coverage) and annual out-of-pocket expenses cannot exceed $5,600 ($11,200 for family coverage). Forgiveness of Debt – Income to the borrower unless gift or bankruptcy – In 2007, 2008, and 2009 on a taxpayer’s principal residence in connection with a debt restructure or foreclosure, up to $2 million of debt relief may be excluded from income.

This debt is limited to acquire, construct, or substantially improve a principal residence. reasonable amount for move and transportation (not meal) for self and other residing with TP.

Health Savings Accounts – Annual contributions are limited to $2,900 for singles, and $5,850 for families.

Distributions must be used qualified medical expenses (health insurance premiums are not qualified) – must only be covered under a high-deductible health plan and may not be entitled to benefits under Medicare.

Deductible for taxpayer, spouse, and dependent (gross income and joint return tests do not apply for this purpose) Medical expenses is the only deduction allowed for payments made on behalf of someone other than the taxpayer * Uninsured expenses above 7.5% of AGI is deductible * Deductible items include dental, medical, and hospital care; prescription drugs; equipment such as wheelchairs, crutches, eyeglasses, hearing aids, contacts; transportation for medical care; medical insurance premiums (for insurance covering the costs of prescription drugs are deductible; for insurance against loss of earnings, limbs, sight, hearing and disability are not deductible); qualified long-term care expenses and insurance; alcohol and drug rehabilitation; weight-reduction programs if as part of medical treatment.