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CPA: REG > Chapter 2 Section 1: Adjustments and Itemized Deductions > Flashcards

Chapter 2 Section 1: Adjustments and Itemized Deductions Flashcards

1
Q

How do Self-Employment FICA, Self-Employed Health Insurance, and Self-Employed Retirement factor into taxes?

A

Adjustments for AGI, not deducted on Schedule C

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2
Q

What are deductions to arrive at AGI, and what are adjustments to AGI or to arrive at taxable income?

A

To arrive at: adjustment

To AGI: deduction

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3
Q

What amount can be deducted for educator expenses?

Who is an eligible educator?

A

$250

K-12

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4
Q

What are the four types of IRA accounts?

A

Deductible IRA
Nondeductible IRA
Roth IRA
Coverdell Education Savings Account IRA

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5
Q

For deductible IRAs, what can you deduct?

A

The regular IRA, as an adjustment, as long as the contribution is made by April 15

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6
Q

Are accumulated earnings on a deductible IRA taxed?

A

No, it is deferred

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7
Q

Are withdrawals from a deductible IRA taxed?

A

Yes, as ordinary income

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8
Q

When are contributions to a deductible IRA not deductible?

What is the exception?

A

When you are rich AND a participant in a retirement plan
You are not considered a participant just because your spouse is, until you’re super rich. Then you are because your spouse is.

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9
Q

What amount contributed to a deductible IRA can be deducted?

A

The maximum is the lesser of:
5500 or the individual’s compensation

For a married couple, double 5500 and total their compensation

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10
Q

What is the surprising element included in compensation for the calculation of a deductible IRA contribution?

A

Alimony

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11
Q

What is the catch-up contribution?

Who qualifies?

A

An additional contribution of 1000 is allowed per year

Individuals 50 years or older

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12
Q

Are contributions to a Roth IRA deductible?

A

No

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13
Q

Are accumulated earnings on a Roth IRA taxed?

A

Not while they are still in the account

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14
Q

Are distributions from a Roth IRA taxed?

A

No, up until you’ve distributed what you contributed. Anything else is earnings, and is taxed unless it’s qualified nontaxable distributions.

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15
Q

What are the contribution limits for a Roth IRA?

How do they interact with other types of IRAs?

A

Single: 5500, married: 11000

It is combined with all the other types of IRAs

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16
Q

Is there a phaseout for Roth IRAs?

A

Yes, according to MAGI

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17
Q

What are the conditions for a qualified nontaxable distribution of the accumulated earnings of a Roth IRA?

A

Distributed after the taxpayer is 59 1/2 years old OR
To a beneficiary after the taxpayer’s death OR
Because the taxpayer is disabled OR
For use by a first time homebuyer

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18
Q

Are rollovers from a regular to Roth IRA taxable?

A

They are taxable as income, but there is no penalty for the temporary withdrawal if it is before they are old enough.

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19
Q

Who would use a nondeductible IRA?

A

It’s a last resort option - a fallback for people not eligible for a deductible or Roth.

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20
Q

What are the contribution limits for a nondeductible IRA?

A

The lesser of 5500 or the individual’s compensation.

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21
Q

Are accumulated earnings on a nondeductible IRA taxed?

A

Not until they are withdrawn.

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22
Q

Are distributions from a nondeductible IRA taxed?

A

Earnings - yes

Principal contributions - no

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23
Q

Who is a good example of someone who would use a Coverdell Education Savings Account?

A

Grandparents, for their grandkids

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24
Q

Are contributions to a Coverdell Education Savings Account deductible?
How many contributions can be made per year?
What is the maximum amount of a contribution?

A

They are nondeductible
You can make a contribution for each beneficiary, and you can have as many beneficiaries as you want
2000 per beneficiary

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25
Q

Are accumulated earnings on a Coverdell Education Savings Account taxed?

A

Not while in the account

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26
Q

What grades can the qualified education expenses be for when using a Coverdell account?

A

K-12

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27
Q

What is the time limitation on a Coverdell account?

What happens when it’s reached?

A

When the beneficiary reaches 30 years old.

Any remainder must be distributed, either to the beneficiary, or rolled over to another family member

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28
Q

What are the contribution requirements for a Coverdell account?
What is the maximum contribution?

A

The beneficiary must be under 18

The max contribution is 2000

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29
Q

Is there a phaseout for Coverdell accounts?

A

Of course.

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30
Q

What is the adjustment for education loan interest?
What about the excess?
Is there a phaseout?

A

2500
The excess is disallowed, because it is personal
Yes, there is a phaseout.

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31
Q

What is the tuition and fees adjustment?
What do you do with the excess?
Is there a phaseout?

A

The maximum is 4000
Excess is a deductible education expense, subject to 2% of AGI limit
Yes

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32
Q

What are health savings accounts?

A

They enable workers with high deductibles to make pretax contributions up to 3350 to cover health care costs

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33
Q

What are the qualifications for deductible moving expenses?

A

Move far away for work reasons
Stay for 75% of the next year
Only allow direct costs (not meals, pre-move hunting, breaking a lease, or temporary housing)

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34
Q

What amounts are deductible for:
Self-employment tax
Self-employment health insurance
Self-employment Keogh plans

A

Tax: 50%
Health Ins: 100%
Keogh: Lesser of 53000 or 25% of net Keogh earnings

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35
Q

How do you calculate Net Keogh Earnings?

A 
Business Income
-Business Expenses 
=Net Business Income
- 1/2 S/E tax
- Keogh Deduction
= Keogh Net Earnings (x25% = deduction)
36
Q

What is the alternative way to get deductible amount for Keogh plans?

A

Net business income
- 1/2 S/E tax
= Gross S/E Income
x 20%

37
Q

Explain the penalty on Early Withdrawal of Savings

A

The interest is forfeited, do not net against net interest income

38
Q

Are alimony payments deductible?
Is child support?
Are property settlements?

A

Alimony: yes
Child Support: no
Property: no

39
Q

What is the key condition for the standard deduction when married filing separately?

A

Both need to take the standard

40
Q

What impact does being elderly or blind make?

A

You get a larger standard deduction

NOT an additional exemption

41
Q

Are there phaseouts on itemized deductions?

What is the maximum amount of itemized deductions to be disallowed?

A

Yes

20% - so you are guaranteed 80%

42
Q

Do veterinarian expenses qualify as medical?

A

No. We don’t care about pets.

43
Q

When do you deduct medical expenses?

A

When paid or charged - no matching

44
Q

What is the formula for deductible medical expenses?

A 
Qualified medical expenses
- Insurance reimbursements
= Qualified medical expense paid
- 10% of AGI
= Deductible medical expenses
45
Q

What do you do with insurance reimbursements that exceed medical costs?

A

Include the excess as taxable income

46
Q

What state, local and foreign taxes are deductible?

A

Real estate
Income
Personal property
Sales

47
Q

What is the relationship between income and sales tax for deductions?

A

You choose one or the other

48
Q

How do you handle real estate taxes in the year of sale?

A

Prorate them

49
Q

What taxes are nondeductible?

A 
Federal taxes (including social security)
Inheritance taxes (for estates)
Business and rental property taxes (scheds C and E)
50
Q

Is home mortgage interest deductible?

A

Yes, to buy your first or second home

Also, home equity indebtedness interest is deductible up to 100000 or the equity in the home

51
Q

Is investment interest expense deductible?

A

Only up to net taxable investment income

52
Q

Is personal (consumer) interest deductible?

A

No

53
Q

When is prepaid interest deductible?

A

When incurred and paid

54
Q

Is educational loan interest deductible?

A

It’s an adjustment, not a deduction

55
Q

How do you define charity?

A

Items given to organizations - not individuals or political campaigns

56
Q

What is the maximum deduction for charity?

A

50% of AGI for cash

30% of AGI for capital property

57
Q

What do you do with consideration received for a charitable contribution?

A

You subtract the value of the consideration received from the donation, and deduct the remainder.

58
Q

Can you deduct the value of time or services donated?

A

No

59
Q

What do you do with charitable contributions above the 50% limit?

A

Carry forward for up to 5 years

60
Q

Are casualty and theft losses deductible?

A

They are, when:
Individual events are over $100
The total of the events exceeds 10% of AGI
They are sudden and unexpected

61
Q

Are unreimbursed business expenses deductible?

A

Yes, as long as the combination of miscellaneous itemized deductions exceeds 2% of AGI

62
Q

What transportation expenses qualify as unreimbursed business expenses?

A

Anything other than your normal commute

63
Q

What do you do with insurance reimbursements that exceed medical costs?

A

Include the excess as taxable income

64
Q

What state, local and foreign taxes are deductible?

A

Real estate
Income
Personal property
Sales

65
Q

What is the relationship between income and sales tax for deductions?

A

You choose one or the other

66
Q

How do you handle real estate taxes in the year of sale?

A

Prorate them

67
Q

What taxes are nondeductible?

A 
Federal taxes (including social security)
Inheritance taxes (for estates)
Business and rental property taxes (scheds C and E)
68
Q

Is home mortgage interest deductible?

A

Yes, to buy your first or second home

Also, home equity indebtedness interest is deductible up to 100000 or the equity in the home

69
Q

Is investment interest expense deductible?

A

Only up to net taxable investment income

70
Q

Is personal (consumer) interest deductible?

A

No

71
Q

When is prepaid interest deductible?

A

When incurred and paid

72
Q

Is educational loan interest deductible?

A

It’s an adjustment, not a deduction

73
Q

How do you define charity?

A

Items given to organizations - not individuals or political campaigns

74
Q

What is the maximum deduction for charity?

A

50% of AGI for cash

30% of AGI for capital property

75
Q

What do you do with consideration received for a charitable contribution?

A

You subtract the value of the consideration received from the donation, and deduct the remainder.

76
Q

Can you deduct the value of time or services donated?

A

No

77
Q

What do you do with charitable contributions above the 50% limit?

A

Carry forward for up to 5 years

78
Q

Are casualty and theft losses deductible?

A

They are, when:
Individual events are over $100
The total of the events exceeds 10% of AGI
They are sudden and unexpected

79
Q

Are unreimbursed business expenses deductible?

A

Yes, as long as the combination of miscellaneous itemized deductions exceeds 2% of AGI

80
Q

What transportation expenses qualify as unreimbursed business expenses?

A

Anything other than your normal commute

81
Q

Are business meals and entertainment deductible?

A

50% is

82
Q

Are education expenses deductible?

A

Yes, as long as they are job related and are needed to keep your job.

83
Q

What is the deduction for business gifts?

A

$25 per person per year

84
Q

Are expenses for hobbies deductible?

A

no

85
Q

Are gambling losses deductible?

A

Only up to the amount of gambling winnings

CPA: REG (35 decks)

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