REG 2 - Adjustments

Question 1

Define health savings account adjustment?

Answer 1

Enables workers with high deductible health insurance costs to make pretax contributions of up to $3,400 ($6,750 for families)

Question 2

What are the the four requirements to claim work-related moving expense adjustment?

Answer 2

1) New workplace commute must beincreased by 50 miles.
E.g. if you travel 10 miles daily, then your new workplace commute must be 60 miles.

2) 39-week stay during the 12-month period following arrival (75%) of next year
3) Travel and lodging are deductible - transportation expense, tolls and parking fees.

Nondeductible expenses:

• Meals
• Pre-move house hunting
• Expense of breaking lease
• Temporary living expenses

4) Employer reimbursements are excludable from income and subtracted from the moving expense adjustment

Question 3

Explain deductible part of self-employment tax adjustment?

Answer 3

Self-employed individuals can deduct 50% of self-employment tax as adjustment

Question 4

Explain self-employed health insurance adjustment?

Answer 4

Self-employed individuals can deduct 100% of self-employed health insurance (taxpayer, spouse, dependents)

Question 5

Explain Keogh (Profit-Sharing) Plans: self-employed retirement plan adjustment?

Answer 5

Self-employed taxpayers may deduct the lesser of:

$54,000

or

25% net (Keogh/self-employed) earnings

Question 6

Explain the “25% net (Keogh/self-employed) earnings calculation”

Answer 6

Business income
Less: Business expenses
= Net business income
Less: 1/2 self-employment tax
Less: Keogh deduction
= Keogh net earnings

25% x Keogh net earnings = the calculation for self-employed retirement plan adjustment

OR

20% of self-employment income after self-employment tax (if you don’t know Keogh deduction)

E.g. Peter has self-employment net income of $100,000 (after-one half of the self-employment tax).

$100,000 x 20% = $20,000 maximum allowable deduction

Question 7

Explain penalty on early withdrawal of savings adjustment?

Answer 7

Forfeited interest (the interest penalty on early withdrawal of savings) is an adjustment

• do NOT net against interest income

Question 8

How is alimony paid to spouse treated? How is alimony received treated?

Answer 8

Alimony paid is an adjustment.

Alimony received is income.