Chapter 3-4

Question 1

Charitable contributions subject to the 50% limit that are not fully deductible in the year made may be

Answer 1

Carried forward 5 years.

Question 2

What are the tax preference items?

Answer 2

P - Percentage depletion
P - Private activity bonds (except 2009-2010)
I - IDC
Q - QSBS - except 9/28/10-12/31/13
E - Excess depletion

Question 3

Name common AMT adjustments

Answer 3

P - PAL
A - Accelerated depreciation post 86
N - NOL
I - Installment method by dealer for property sales
C - Contracts L/T (difference between percentage
completion & completed contract
T - Taxes (reduced by benefited refunds)
I - Interest (mortgage & recalc invest interest)
M - Medical expenses between 7.5% & 10%
M - Misc itemized deductions subject to 2%
E - Exemptions

Question 4

What is the criteria that two individuals must pass in order to file MFJ?

Answer 4

On the last day of the tax year:

1. Legally married and cohabiting as husband and
   wife
2. Legally married and living apart but not separated
   pursuant to a valid divorce decree or separation
   agreement
3. Separated under a valid divorce decree that is not
   yet final

Question 5

What is the criteria for Qualifying Widower / Surviving Spouse and how long is it available?

Answer 5

Available two years following year of death.
1. The taxpayer was eligible to file a joint return with
his or her spouse for the year during which the
spouse died, whether or not a joint return was
filed
2. The taxpayer’s spouse died during either of the
two immediately preceding tax years.
3. The taxpayer has not remarried during the tax
year.
4. The taxpayer maintains a home for at least one
dependent who is a son, daughter, stepson or
stepdaughter, whether related by blood or
adoption. This dependent resides with the
taxpayer for the entire tax year except for
temporary absences.

Question 6

What are the qualifications for Head of Household?

Answer 6

1. is not married, is legally separated, or married
   and lived apart from spouse for the last six
   months.
2. is not a qualifying widower
3. not a non resident alien
4. maintains household for more than half the
   taxable year for qualifying dependent.

Question 7

What constitutes dependent for Head Household?

Answer 7

Over half the support for

Dependent son or daughter - Lives with taxpayer
Parents - not required to live with taxpayer
Relative - lives with taxpayer

Question 8

What are the qualifications for exemptions for married couples?

Answer 8

Each spouse receives an exemption. If married filing separate, may claim spouse as exemption if:
1. spouse has no gross income AND
2 spouse not claimed as a dependent of another

Question 9

What requirements must be met for exemption for qualifying child?

Answer 9

C - Close relative (child,step,sib,step,or descend)
A - Age limit - 19/24 college
R - Residency - same abode more than half year
E- Elim. GI test - less than $3,800 (not for child)
S - Support test changes - parent provides over half
of child’s support is eliminated.

Question 10

What requirements must be met for exemption for qualifying relative?

Answer 10

SUPORT
S - Support test -over one-half of support. If multiple
support agreements, but none more than 50%,
qualifying relative who provided at least 10%
may claim
U - Under exemption amount - taxable income must
be under $3,800
P - Precludes dependent filing a joint return - unless
for a refund of all tax paid or withheld (tax = 0)
O - Only citizens of US, or residents of North
America
R - Relative - Any relative. Cousins and foster
parents must live with taxpayer the entire year

        OR T - Taxpayer lives with individual the entire year

Question 11

What is the formula for exemption phase out?

Answer 11

Reduce by 2% for each $2,500 exceeding threshold

Question 12

What is threshold for phase out of exemptions?

Answer 12

Married Filing Jointly	300,000	
Qualifying Widow(er)	300,000	
Head of Household	275,000	
Single                	250,000	
MFS                 	150,000

Question 13

When does the accrual method report income?

Answer 13

1. all events have occurred fixing right to receive
   income
2. amount can be determined with reasonable
   accuracy

Question 14

Explain provisional income, base amount and adjusted base amount for social security?

Answer 14

1. Provisional income - AGI + t/e income + 1/2 SS
   benefits
2. Base amount - $25,000 for all except
   MFJ - $32,000
3. Adjusted base amount - $34,000 for all except
   MFJ - $44,000

Question 15

Explain basic Social Security taxability formula?

Answer 15

+ Provisional income
- Base amount
= excess PI.

If between $25,000 & $34,000 ($32,000 - $44,000 MFJ) smaller of 1/2 excess or 1/2 SS benefit.

Question 16

What are the two types of reimbursed employee expenses, and state whether included in gross income?

Answer 16

1. Nonaccountable - reimbursements/advances are
   included in GI, and expenses deducted subject
   to 2%
2. Accountable - only reimbursements in excess
   of expenses must be included in GI

Question 17

When may an award recipient exclude FMV of award?

Answer 17

1. amount in recognition of religious, scientific,
   charitable, or meritorious achievement
2. recipient selected without action on her part
3. recipient isn’t conditioned on future services
4. amount assigned to a t/e organization designated
   by recipient

Question 18

When employee achievement award (item of tangible personal property) is for safety achievement or length of service, What qualifies it for exclusion?

Answer 18

1. Awards do not exceed $400 for nonqualified
   plan or
2. Awards do not exceed $1,600 for qualified
   plan (provided average award do not exceed
   $400)
   Cost of award, not FMV

Question 19

What is difference between net income from self-employment vs. net earnings from self-employment?

Answer 19

Net income - .9235 = Net earnings

Question 20

What is the increased medicare tax rate (beginning 2013)

Answer 20

An additional Medicare tax (employee increase) of .9%. The additional .9% applies to wages and self employment income that exceeds threshold.
MFJ - $250,000
MFS - $125,000
Others - $200,000

Question 21

How is the adjustment to gross income for self employment tax calculated?

Answer 21

self employment (FICA) tax liability x 57.51%

Question 22

How much is the Net Investment Income Tax, and What is the MAGI threshold?

Answer 22

Subjects investment income to same Medicare tax treatment as wages (3.8%)

MFJ, SS $250,000
MFS $125,000
Single, HH $200,000

Take MAGI, subtract threshold, and take the lesser of that number or investment income, which is lower and multiply by 308%

Question 23

What is the new Medicare rate beginning 2013, and what is the MAGI threshold?

Answer 23

3.8% (1.45%, 1.45%, .9%)
MFJ, $250,000
MFS $125,000
others $200,000

Question 24

How much may be excluded from GI for employer provided transit passes?

Answer 24

$240 a month

Question 25

How much may be excluded from GI for employer provided parking?

Answer 25

$240 a month

Question 26

How much may be excluded from GI for employer provided educational assistance?

Answer 26

$5,250 a year

Question 27

How much may be excluded from GI for employer provided term life insurance?

Answer 27

coverage amount of $50,000 (term only)

Question 28

What is the exclusion from GI for employer paid dependent care?

Answer 28

Must be under age 13 Lesser of: $5,000 ($2,500 MFS) or lesser of earned inc. employee/spouse

Question 29

What is the time period for incentive stock opinions to recognize income?

Answer 29

L/T CG if stock sold 2 years or more after option was granted and 1 year or more after option was exercised (employer MAY NOT deduct) otherwise FMV on date of exercise over option price is ordinary (employer MAY deduct)

Question 30

What are the details for nonqualified stock options?

Answer 30

If FMV is ascertainable on the GRANT DATE: 1. employee has GI equal to FMV of option 2. employer has deduction 3. no tax consequences when option is exercised 4. CG or loss reported when stock is sold If FMV is ascertainable on the GRANT DATE: 1. excess of FMV over option price is GI when the option is EXERCISED 2. employer allowed a corresponding compensation deduction 3. employee's basis in stock is exercise price plus amount taken into ord. income

Question 31

What are the non-taxable benefits included in Cafeteria plans

Answer 31

1. dependent care assistant 2. group term life up to $50,000 3. disability benefits 4. accident and health benefits 5. group legal services

Question 32

What is the amount educators may claim annually for unreimbursed expenses and where is it reported?

Answer 32

lup to $250 annually above the line.

Question 33

What is deductible under an Archer MSA?

Answer 33

1. earnings generated by plan 2. distributions from Archer MSA used to pay medical expenses 3. distributions made after age 65 4. distribution made upon death or disability Otherwise, distributions that don't meet that criteria are subject to a 15% penalty

Question 34

What is the amount that may be contributed to a Health Savings Account?

Answer 34

Self coverage only - $3,150 ($4,150 for 55 and old) Family coverage - $6,250 ($8,250 if both taxpayers have reached 55) For each month taxpayer did not have insurance, must reduce by 1/12th Contributions for 2012 must be made by April 15 2013

Question 35

What are the qualifications for deductible moving expenses?

Answer 35

1. distance between employee's new place of business and her old residence is at least 50 miles greater than her old residence was from former business.(if staying in old house would increase commuting by 50 miles) 2. Individual must work full time at least 39 weeks in the following 12 months or if self employed, 78 weeks of next 24 months

Question 36

Which moving expenses are deductible?

Answer 36

Direct expenses such as: 1 moving taxpayer & household/personal goods 2. instead of actual expenses, $.23 per mile can be used for driving one's auto

Question 37

Which moving expenses are non-deductible?

Answer 37

``` Indirect expenses such as: 1. meals en route 2. house hunting 3. temporary living expenses 4. expenses related to sale, purchase, lease of residence 5. expense of breaking a lease ```

Question 38

What is the maximum deduction for SEP (Keogh) plan?

Answer 38

limited to lesser of 25% of self-employed earnings or $50,000 (indexed for inflation)

Question 39

What is the annual contribution limit for SEP (Keogh) plan?

Answer 39

limited to lesser of 100% of earned income derived from T or B, or $50,000

Question 40

What are self-employed income reduced by and what is the calculation?

Answer 40

S/E income minus .9235 = S/E earnings | S/E earnings x 20% = SEP max contribution

Question 41

What is the SIMPLE plan? (Saving Incentive Match plan for Employees)

Answer 41

1. S/E taxpayers may make both employer and elective employee contributions 2. employee contributions are considered deferred compensation and are limited to $11,500 3. an employer match of up to 3% of S/E earnings may be deducted above the line

Question 42

What is the 2012 contribution limit for IRA contributions for taxpayer and spouse

Answer 42

Lesser of $5,000 ($6,000 age 50 and over) or 100% includible compensation An additional $5000, ($6,000 age 50 and over) may be contributed to non working spouse if joint return is filed

Question 43

What does compensation include/exclude for calculation of IRA limits?

Answer 43

Includes: alimony and earned income Excludes: pensions, annuities, other deffered compensation distributions

Question 44

What is the phase out for an active participant in an employer sponsored retirement plan?

Answer 44

2012 & 2013 Earned income of: single, HH $58k-$68k $59k-69k MFJ, $92k-$112k $$95k-$115k (spouse covered by a workplace retirement plan) MFJ, $173k-$183k $178k-$188k (spouse not covered by a workplace retirement plan) $0 MFS IRA deduction is proportionately reduced

Question 45

What is the excise tax for excessive IRA contributions?

Answer 45

6% tax

Question 46

When must an owner begin receiving distributions from IRA?

Answer 46

April 1 of the calender year following later of the calendar year in which employee attains age 70 1/2 or retires.

Question 47

What is the age where a penalty will be imposed for distribution of IRA, and what are the exceptions?

Answer 47

distributions made before 59 1/2 subject to 10% penalty tax in addition to regulation taxation. Exceptions to penalty include: 1. death or disability 2. medical expenses >10% (>7.5% 65 or older) 3. qualified higher education expenses 4. purchase of first home (up to $10k)

Question 48

What are the requirements for a qualified Roth IRA distribution?

Answer 48

five year holding period (from year that contribution relates and 1 of 4 of the following: 1. made on or after date which individual reaches age 59 1/2 2. made to beneficiary or individuals estate on or after individuals death 3. attributed to individuals disability 4. to pay for qualified first-time homebuyer exp.

Question 49

What is the contribution limit for Roth IRA?

Answer 49

$5,000 ($6,000 age 50 and over)

Question 50

How much per year can be deducted for student loan interest, and what is the phase out range and formula?

Answer 50

$2,500 per year for interest paid Phase out begin when AGI is (single - $60 to $75k) and (MFJ $125-$155k) Formula - $2,500 x (AGI - $60,000) / $15,000

Question 51

What is the limits for Coverdell Education Savings Account?

Answer 51

1. Nondeductible contribution of $2,000 per child 2. Contributions phased out between $95-$110 single and $190-$220 joint 3. Earnings distributed tax free provided for qualified education expenses 4. Not available in year that American Opp Credit or Lifetime learning credit