Chapter 2

Question 1

Educator Expenses:

Answer 1

Can deduct up to $250 of qualified expenses paid. If spouses are filing jointly and both are eligible educators, the maximum deduction is $500
Must be k-12 (not homeschool teacher)

Question 2

4 IRA accounts are:

Answer 2

• Deductible IRA
• Nondeductible IRA
• Roth IRA
• Coverdell education savings accounts

Question 3

Taxpayer not permitted to deduct a contribution to an IRA when the following two conditions are both present

Answer 3

1. Excessive AGI (rich)

2. Active participation in another qualified plan

Question 4

Individuals who are 50 years of age or older by the end of the year are allowed an additional contribution to IRA of what amount?

Answer 4

$1,000

Question 5

Roth IRA

Answer 5

Not deductible & Tax-free earnings; phases out for super rich

Question 6

Withdrawals from IRAs

Answer 6

Deductible & Taxed when withdrawn

Question 7

Nondeductible IRA

Answer 7

Fall back when not eligible for deductible or Roth IRA.
Not taxed until withdrawn
no phase out

Question 8

Coverdell Education Savings Accounts

Answer 8

• contributions are nondeductible; maximum contribution of $2,000 per beneficiary annually.
• Tax free distribution
• any amount remaining when beneficiary reaches 30yrs old must be distributed

Question 9

Coverdell Education Savings Accounts Time limit penalty

Answer 9

1. distributed to beneficiary - taxable and 10% penalty

2. Rollover to another family member- tax free and no penalty

Question 10

Coverdell Education Savings Accounts Contribution requirements

Answer 10

1. beneficiary must be under 18

2. phases out when contributor is super rich

Question 11

Student Loan Interest Expense

Answer 11

adjustment for eduction loan interest is limited to $2,500

Question 12

Tuition and Fees Deduction

Answer 12

applies regardless of whether eduction is work-related
Maximum contribution: $4,000
Phases out for rich

Question 13

Health Savings Accounts

Answer 13

Pretax contribution increased by 1,000 for 55+

Question 14

Moving expenses

Answer 14

1. new workplace 50+ miles from old home
2. Must be working full time for at least 39 weeks during 12month period following relocation
3. Travel and lodging for family
4. Transporting household goods

Question 15

Nondeductible moving expenses

Answer 15

meals, pre-move house hunting, expense of breaking a lease, temporary living expenses

Question 16

Tax on self-employment

Answer 16

50% deduction

Question 17

Self-employed health insurance premiums

Answer 17

100% deductible

Question 18

Additional deduction for:

Answer 18

65+ or blind

Question 19

Schedule A

Answer 19

personal

Question 20

Schedule C

Answer 20

Business

Question 21

Schedule E

Answer 21

rental

Question 22

Nondeductible medical expenses

Answer 22

1. cosmetic surgery
2. life insurance
3. health club memberships
4. personal hygiene

Question 23

Itemized deductible taxes

Answer 23

1. real estate taxes
2. income taxes
3. personal property taxes
4. sales tax (can be state and local income taxes of sales; cannot be both)

Question 24

Itemized nondeductible taxes

Answer 24

1. federal taxes (social sec)
2. Inheritance taxes for states
3. Business and rental property taxes

Question 25

Deduction for charity

Answer 25

lesser of properties starting price or FMV cash-max 50% of AGI property-max 30% of AGI

Question 26

Appreciated property given to charity

Answer 26

deductible at FMV max 30% AGI to public charity max 20% AGO to private foundation Only 30% can be deducted in appreciated property

Question 27

Charity deduction may not exceed

Answer 27

50% of AGI

Question 28

Casualty and theft losses

Answer 28

must exceed 10% of AGI to deduct; loss must be sudden or unexpected

Question 29

Miscellaneous itemized deductions

Answer 29

cannot exceed 2% of AGI

Question 30

unreimbursed business expenses for itemized deduction

Answer 30

meals/entertainment - 50%

Question 31

Educational Expenses

Answer 31

1. qualified-job related (uniforms, business gifts, etc)

Question 32

Personal tax credits

Answer 32

may reduce tax lability to zero but cannot result in a cash refund

Question 33

Refundable credits

Answer 33

may reduce tax liability and can result in a refund

Question 34

Child and Depended Care Credit

Answer 34

``` Both parents need to work and someone needs to claim income for watching children. Maxes out at 2 kids eligible people: 1. a qualifying child under age 13 2. any disabled depended of any age 3. a spouse who is disabled 4. is babysitting not school **amount of credit is 20% of AGI ```

Question 35

Credit for elderly or permanently disabled

Answer 35

1. 65 or old 2. under 65 and retired due to permanent disability * AGI reduced by 50% then multiplied by 15%

Question 36

American Opportunity Credit

Answer 36

pays for students first 4 years of post secondary school eligible: taxpayer taxpayer's spouse or dependent (multiple kids okay) Cannot have drug offense during year phases out for superrich

Question 37

Lifetime learning credit

Answer 37

available for an unlimited number of years. Only 1 credit per household

Question 38

American Opportunity Credit and Lifetime learning credit is okay for____ but not for _____.

Answer 38

okay for same year, not okay fore same kid. (pick either or for a child not both credits)

Question 39

Adoption Credit

Answer 39

Nonrefundable credit. Not available for adopting child of spouse

Question 40

Retirement savings contribution credits

Answer 40

``` May often tax to IRA or Roth IRA. Eligible: over 18 not a full-time student not a dependent very low income ```

Question 41

Foreign tax credit

Answer 41

``` limited to the lesser of: 1. foreign taxes paid 2. Taxable income from all foreign operations /taxable income+ exemptions xUS tax (US tax is based upon worldwide income) ```

Question 42

Any disallowed foreign tax credit may be carried over as follows:

Answer 42

1. carry back 1 year | 2. carry forward 10 years

Question 43

Work Opportunity Credit

Answer 43

Is available to employers who hire from a targeted group qualified groups: 1. Disabled 2. 18-24 from poor families 3. Vietnam veterans from economically disadvantaged areas 4. Certain food stamp receipts **credit is a low amount

Question 44

Child tax credit

Answer 44

claim $1,000 for each qualifying child. Must be under 17 (not the 19 and student rule). Phases out for rich

Question 45

Earned Income Credit

Answer 45

* Refundable to help poor families make ends meat. Living at low poverty line * -- frequently tested that it is a refundable credit

Question 46

Alternative minimum tax

Answer 46

Designed to hurt the super rich (only hits 3% of population). Pays the greater of regular tax or tentative minimum tax

Question 47

AMT formula

Answer 47

$83,800 - 25% of AMTI 0ver $159,700

Question 48

Statute of limitations

Answer 48

3 yrs from due date of return or date of extension | 6 yrs for 25% understatement of gross income

Question 49

Statute of limitations- fraud and false returns

Answer 49

no statute

Question 50

Refund claim

Answer 50

3 yrs from due date of return or date of extension

Question 51

Bad debts claim

Answer 51

7 yrs from due date of return or date of extension

Question 52

Estimated taxes requirement

Answer 52

Taxpayer is required to make estimated quarterly tax payments is BOTH of the following are met: 1. over $1,000 of tax liability 2. withholdings were less than 90% of this years earnings OR 100% of last year's taxes

Question 53

Hierarchy of authority in tax law

Answer 53

1. Internal Revenue Code | 2. IRS regulations (the interpretation of the IRC)