Quiz Of The Week: Deductions For Agi

Employees and self-employed individuals who are not active participants in an employer-maintained retirement plan can contribute and deduct up to $5,500. An individual who files a joint return and has less taxable compensation than his or her spouse may contribute to a spousal IRA and deduct the lesser of the limits described above or the sum of that individual’s includable compen¬sation for the tax year, plus the includable compensation of the individual’s spouse, reduced by the sum of the spouse’s attributable IRA deduction, designated non-deductible IRA contribution, and Roth IRA contribution for that tax year. An individual is not considered an active participant in an employer-sponsored plan merely because the individual’s spouse is treated as an active participant.

Gambling activities are deducted on Schedule A (Form 1040). A tax¬payer may deduct gambling losses suffered in the tax year (but only to the extent of that year’s gambling gains) as miscellaneous itemized deductions not subject to the two percent of AGI floor. The more common “for AGI” deductions include expenses incurred in a taxpayer’s trade or business and expenses from the production of rent or royalty income.

Moving expenses. “Non-business” investment expenses are deductible only as an itemized deduction on Schedule A (Form 1040). The more common “for AGI” deductions include certain contributions to pensions, profit sharing and annuity plans for self-employed individuals; deductions for certain retirement savings, such as IRAs, allowed by IRC Section 219; deductions for payments of alimony; and the exclusion of expenses incurred by the taxpayer in connection with the performance of services as an employee, if the expenses are reimbursed and other conditions are satisfied. However, contributions to Roth IRAs are not deductible.

The taxpayer must meet either the 39-week or the 78-week test. In the 78-week test, the taxpayer must be a full-time employee or perform services as a self-employed individual on a full-time basis in the general location of his or her new principal place of work for at least 78 weeks during the 24-month period immediately following his or her arrival there. Thirty-nine of the 78 weeks must be during the 12-month period immediately following his or her arrival in the new area (the 39-week test). Failure to meet the 39- or 78-week test doesn’t bar the deduction if the failure was caused by death or disability, involuntary separation from employment other than for willful misconduct, or reassignment for the benefit of the employer (and is not initiated by the employee after getting full-time employment) if the taxpayer could reasonably have been expected to meet the test.

The limit for making contributions for a married individual filing jointly is $178,000 to $188,000, not for deductions.