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REG 2 > Module 1: Adjustments > Flashcards

Module 1: Adjustments Flashcards

1
Q

Above-the-line deductions

A

Adjustments to AGI (Deductions to arrive at AGI)

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2
Q

Which adjustments are not deducted from Schedule C?

A
  1. Deductible part of self-employment tax
  2. Self-employed health insurance deduction
  3. Deduction for contributions to certain self-employed retirement plans
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3
Q

Adjustments for AGI

A
  1. Educator expenses
  2. IRA deduction
  3. Student loan interest deduction
  4. Tuition and fees deduction
  5. Health savings account deduction
  6. Moving expenses
  7. Deductible part of self-employment tax
  8. Self-employed health insurance deduction
  9. Deduction for contributions to certain self-employed retirements plans
  10. Penalty on early withdrawal of savings
  11. Alimony paid
  12. Attorney fees paid in certain discrimination and whistle-blower cases
  13. Domestic production activities deduction
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4
Q

How much can eligible educators deduct?

A

$250 of qualified expenses paid

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5
Q

Educator expenses adjustments were permanently extended by what act?

A

Protecting Americans from Tax Hikes Act of 2015

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6
Q

What is an eligible educator?

A

K through 12 grade teach, instructor,, counselor, principal or aide in a school for at least 900 hours during a school year

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7
Q

For qualified educator expenses, what must they be reduced by?

A
  1. Excludable US series EE and I Savings Bond interest from Form 8815
  2. Nontaxable qualified state tuition program earnings
  3. Nontaxable earnings from Coverdell education savings accounts
  4. Any reimbursements received for these expenses that were not reported in box 1 of W-2
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8
Q

Four different types of individual retirement accounts (IRA)

A
  1. Deductible IRA
  2. Nondeductible IRA
  3. Roth IRA
  4. Coverdell education savings accounts (IRA)
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9
Q

DEDUCTIBLE IRA

Under a deductible IRA, when will a taxpayer NOT be permitted to deduct a contribution to an IRA?

A

When both of the following are present:

  1. Excessive AGI (Rich) —- AGI =/> $62K-72K (Single/H of H) or $99K-119K (Joint)
  2. Active participation by taxpayer or spouse in another qualified plan (in a retirement plan)
    - ——Exception - Not considered active in an employer-sponsored retirement plan merely b/c individual’s spouse is active participant
    - ——Phase out - Max deductible IRA contribution for individual who is not active, but whose spouse is, is phased out for taxpayers with modified AGI > $186K but < $196K
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10
Q

DEDUCTIBLE IRA

Max deduction amount for contribution (general rule)

A

Lesser of:
$5,500
or
Individual’s compensation

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11
Q

DEDUCTIBLE IRA

Max contribution for married couple filing jointly

A

$11K ($5.5K each spouse)

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12
Q

DEDUCTIBLE IRA

Compensation includes:

A
  1. Salary
  2. Wages
  3. Commissions
  4. Bonuses
  5. Alimony
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13
Q

DEDUCTIBLE IRA

Compensation does not include:

A
  1. Interest
  2. Dividends
  3. Annuity income
  4. Pensions
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14
Q

DEDUCTIBLE IRA

Additional Catch-up Contribution

A

Age 50 or over = allowed an additional contribution of $1K

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15
Q

ROTH IRA

A
  • Contributions are not deductible when made
  • Earnings accumulate tax-free while in Roth account
  • Distributions of both principal and interest are also tax-free provided they are qualified distributions
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16
Q

ROTH IRA

Contributions

A

$5,500 (Single) and $11,000 (Married)

- amount contributed to Roth is amount remaining after subtracting any contributions made to regular IRA

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17
Q

ROTH IRA

Are Roth IRAs subject to minimum distribution rules of deductible IRAs (age 70 1/2)?

A

No

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18
Q

ROTH IRA

Phase-out income limits (modified AGI)

A
  • Single with modified AGI >/= $118K but /= $186K but
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19
Q

ROTH IRA

Qualified nontaxable distributions of Roth IRA earnings

A

Those made at least five years after the first day of the year of the taxpayer’s first contribution to a Roth and made:

  1. after taxpayer reaches age 59 1/2;
  2. to a beneficiary after taxpayer’s death;
  3. b/c the taxpayer is disabled; or
  4. for use by a “first time” homebuyer to acquire a principal residence (lifetime limit of $10K)
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20
Q

NONDEDUCTIBLE IRA

Nondeductible contribution limitations up to the lesser of:

A
  1. $5,500 for 2017
  2. individual’s compensation
  3. limit not contributed to other (regular and roth) IRAs
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21
Q

NONDEDUCTIBLE IRA

Distributions from nondeductible IRA will be taxed as follows:

A
  1. Taxable – Previously accumulated untaxed earnings

2. Nontaxable – The principal contributions (not deducted when contributed)

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22
Q

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA)

A

Separate education savings account (trust/custodial account)

Set up to pay the qualified education expenses of designated beneficiary

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23
Q

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA)

Contributions

A

Nondeductible

Max contribution per beneficiary is $2K annually

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24
Q

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA)Earnings

A

Accumulate tax free while in account

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25
Q

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA)

Distributions

A

Tax-Free to the extent that they are used for qualified education expense of designated beneficiary

26
Q

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA)

Qualified Education Expenses

A

Through high school

Includes tuition, fees, tutoring, books, room and board, supplies, and equipment

27
Q

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA)

Time Limitation

A

Any amounts remaining when beneficiary reaches 30 years of age must be distributed

EXCEPTION - Special needs beneficiary

28
Q

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA)

Two forms the distribution may take

A
  1. Distributed to beneficiary - taxable to beneficiary and assessed at 10% penalty
  2. Rollover to another family member - Tax-free, no penalty
29
Q

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA)

Contribution Requirements

A
  1. Designated beneficiary may be any child under age 18
  2. Contribution limit = $2k per beneficiary
  3. Contribution amount phased out for taxpayers with MAGI between 95k-110k (S) and 190K-220K (M)
  4. Phase-out limits are same regardless of whether taxpayers are active plan participants
30
Q

What is the limit for education loan interest?

A

$2,500

31
Q

Phase out of student loan interest

A

$65K-80K (S)

$135K-165K (M)

32
Q

Tuition and Fees Deduction

A

Expired 12/31/2016
Maximum deduction: $2k (2016)
Maximum income limit: = $65K (S)/$130K (M)

33
Q

For the tuition and fees deduction, what is the maximum deduction for taxpayers with AGI in excess of the maximum income limit but below $80K (S/$160K (M)?

A

$2k

34
Q

What form must be received for the tuition and fees deduction?

A

Form 1098-T

35
Q

Health Savings Account (HSA)

A

Enables workers with high-deductible health insurance to make pretax contributions of up to $3.4K in 2017 ($6.75K for families) to cover health care costs

Increases by $1k when reach age 55

No contributions allowed one become covered by Medicare Parts A or B

36
Q

HSA

Excludable withdrawals

A

Any amount paid/distributed out of HSA used exclusively to pay the qualified medical expenses is NOT includable in gross income

37
Q

HSA

Exception to excludable withdrawals

A

Distributions not used to pay qualified medical expenses are includable in gross income + 10% penalty

38
Q

HSA

What is a high-deductible health plan for 2017?

A

A plan that has at least $1,300 annual deductible for self-only coverage and $2,600 deductible for family coverage

39
Q

HSA - High Deductible Plan

What is the out-of-pocket limitation?

A

$6,550 for individuals and $13,100 for families

Include deductibles, co-payments and other amounts that must be paid

40
Q

HSA

Archer Medical Savings Account (MSA)

A

Similar to IRAs but used for health care

Typically used only if HSA is unavailable

41
Q

HSA - Archer Medical Savings Account (MSA)

Who are qualified participants?

A

Self-employed indivs. or employees of small businesses (<50 employees)

42
Q

HSA - Archer Medical Savings Account (MSA)

What is the max out-of-pocket limit for 2017?

A

$4,500 (S)/$8,250 (family)

43
Q

MOVING EXPENSES

When are moving expenses deductible?

A

When the distance b/w the employee’s new place of business and old residence is at least 50 miles greater than his old residence was from his former principal place of work

44
Q

MOVING EXPENSES

How long must an employees work in the new location before he/she may deduct the moving expenses?

A

Full-time for at least 39 weeks during the 12-month period immediately following his arrival

Self-employed must work full-time for at least 78 weeks during 24-month period after arrival

45
Q

MOVING EXPENSES

What moving costs are deductible?

A

Family + Furniture

  • Travel (out-of pocket amounts of 17 cents/mile + tolls and parking fees) and lodging for taxpayer and family
  • Transporting household goods and personal effects
46
Q

MOVING EXPENSES

Nondeductible expenses

A
  1. Meals
  2. Pre-move house hunting
  3. Expense of breaking a lease
  4. Temporary living expenses
47
Q

Tax on Self-Employment (Social Security 50 Percent)

NOT DEDUCTED ON SCHEDULE C

A

50 percent of self-employed SS/Medicare tax is deducted to arrive at AGI

48
Q

Self-Employed Health Insurance

NOT DEDUCTED ON SCHEDULE C

A

100 percent deductible

49
Q

What is the max annual deductible amount for Keogh (Profit-Sharing) Plans?

NOT DEDUCTED ON SCHEDULE C

A

The lesser of:
$54K (indexed for inflation)
OR
25% net (Keogh/self-employed) earnings

50
Q

How would you calculated the Keogh deduction in order to get to Keogh net earnings?

A

20% of self employment income before Keogh deduction

51
Q

What is the max annual contribution for Keogh Plans?

A

The lesser of:
$54K
OR
100% net earnings (only if compensation if < $54K

52
Q

KEOGH PLANS

What is net earnings (from self-employment)

A

Net earning from self employment (after the Keogh deduction and 1/2 of self employment tax)

Business Income minus Business Expense = Net Business Income
minus 1/2 Self-employent tax minus Keogh Deduction = Keogh net earnings

53
Q

Alimony

A

Deductible by the payor; Income for the payee

54
Q

ALIMONY

What conditions must exist for alimony to be deductible?

A

Payments:
1. Must be legally required under written divorce/separation decree/agreement
2. Must be in cash/equivalent (cash or pay credit card bill)
3. Cannot extend beyond death of payee/spouse
4. Cannot be made to members of same household
5. Must not be designated as anything other than alimony
AND
6. Spouse may not file joint tax return

55
Q

Child Support

A

Nontaxable to payee; Nondeductible to payor

56
Q

ALIMONY

Do payments first apply to alimony or child support?

A

Child support

57
Q

IRA Deduction
For a spouse who is an active participant in a retirement plan, where does the phase out begin? And for the spouse for a spouse who is not an active participant, where does the phase out begin?

A

Active: $99K

Not Active: $186K

58
Q

Student Loan Interest

IRC 221

A

Allows the deduction of student loan interest paid on qualified education loans up to a max of $2.5 for the tax year

59
Q

Are capital losses in excess of capital gains a deduction to arrive at AGI?

A

Yes, up to $3K. It is deducted on Form 1040 before calculation of AGI

60
Q

Are trade or business expenses a deduction to arrive at AGI?

A

Yes, deducted on Schedule C. This is before the calculation of AGI

61
Q

For IRA, what is the latest date an IRA contribution can be made in order to qualify as a deduction on the prior year’s return?

A

The due date of the tax retrun for individuals (April 15)

62
Q

Where is qualified mortgage interest paid deducted?

A

On Schedule A as an itemized deduction

REG 2 (4 decks)

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