R2

Question 1

What is the calculation of SEP IRA Deduction?

Answer 1

Net self employment income
- 50% SE tax
——————————————–
SE earnings before SEP IRA

*20%
__________________________________
SEP IRA Deduction

Question 2

What is the calc of Medical and Dental exp for itemized deduction?

What is the impact of medical insurance reimbursement on amt reported?

Answer 2

Qualified medical expenses
LESS: Reimbursements
____________________________________
Qualified medical expenses paid

LESS: 7.5% of AGI
________________________________
Any excess is included in itemized deduction

Question 3

What costs are NOT deductible as Medical expenses? (6)

Answer 3

1. Cosmetic/elective surgery
2. non prescription medications/vitamins, herbs
3. Health club dues - gym membership
4. Life insurance premiums
5. Funeral expenses
6. Disability policy that provides income if become disabled / loss of earnings

Question 4

If a Credit card is used to pay medical expenses in Yr1 but the CC bill is not paid till yr2 - when is the expense taken?

Answer 4

In Yr1 - when expense occured

Question 5

What is the impact of changes to tax payers house (wheelchair ramp, elevator, etc) on the medical deduction?

(i.e install elevator for medical purpose of cost of $75k and adds $50k in value, what is the impact on the deduction?)

What if their was no increase in value to the house?

Answer 5

The difference b/n cost of renovation and amt added in value to house is deduction

$75k costs - $50k value added = $25k deduction

The amount of expense can be added to the deduction (i.e $80k cost - 0 value added = $80k deduction)

Question 6

What is the maximum amount of State and local taxes that can be claimed as an itemized deduction?

Answer 6

$10K (MFJ)/$5k(MFS)

Question 7

How are State And Local Taxes (SALT) paid as an W2 employee compared to Self employed individual?

Answer 7

Employee has SALT withheld from paycheck (still deductible on taxes)

SE individual has to pay through Estimated Taxes (not deductible until paid)

Question 8

When calculating state and local taxes itemized deduction - how do you calc the state income vs state sales tax?

Answer 8

Higher of : State income tax OR state sales tax

is taken , not both

Question 9

What are the 6 categories of itemized deductions? (TMI CCM)

Answer 9

Medical
Taxes
Interest
Charity
Casualty
Misc.

Question 10

What is the limit on deducting interest on home?

Answer 10

Can treat no more than $750k of acquisition indebtness (home mortgage principal) for interest deduction

So if mortgage is > $750k –> can deduct up to first $750k

Question 11

What is the Home Equity Loan interest (deductible acquisition indebtness) itemized deduction?

Answer 11

When you own a home and decide to take a loan out on the equity of the house

You can deduct loan int ONLY IF you use the loan proceeds to fix up the home

Question 12

What are Mortgage points and how are they included to itemized deduction?

Answer 12

Mortgage points are paid when acquiring/refi loan on house to pay down the interest.

1 point = 1% of loan

If paying for points on acquisition = deduct in year

IF paying for points on refi = deducted over life of the new mortgage

Question 13

What is investment interest and how is the amount calculated for itemized deduction?

Answer 13

Borrowing money to invest - the interest paid on loan is deductible ONLY IF the income from investment is taxable @ ord income tax rates

can only deduct UP TO the amount of investment income

Question 14

What is Personal interest and what amount is included in itemized deduction?

Answer 14

Person int = life int loan, bank CC, Auto loan

NOT DEDUCTIBLE

Question 15

What is prepaid interest and what amount is included in itemized deduction?

Answer 15

Prepaid int is amount paid in adv - must be allocated over the pd of the loan

Question 16

What is education loan int and what amount is included in itemized deduction?`

Answer 16

int on educational loans –> Adjustment NOT DEDUCTION

Question 17

What are NONdeductible Charitable contributions (3)?

Answer 17

1. CC to Foreign Charities
2. Gifts to political campaigns
3. gift to needy families

Question 18

How much of items other than cash eligible for a Charitable Contribution? (ST cap prop and LT cap prop)

Answer 18

Deductible at the LOWER OF: Tax basis OR FMV @ date of donation

LTCG deductible @ FMV of donation

Question 19

What are the Charitable contribution limit for cash and and LTCG property for deduction?

Answer 19

Cash = 60% of AGI
LTCG prop = 30% of AGI

Question 20

What are the CFWD rules for Charitable contributions?

Answer 20

If over CC limits (60% cash) –> CFWD 5 years, no BCK

Question 21

When is it needed for substantion of prop for Charitable contribution?

Answer 21

MUST be obtained for deduction of prop (clothing, furniture) to Charitable org. Deduction would be lower of FMV or cost basis

Question 22

What is the rule of services for Charitable contribution?

Answer 22

Services itself donated to org is NOT deductible

Cash paid OOP while donating time = deductible

Question 23

When are casualty losses deductible?

Answer 23

ONLY in presidential declared disaster

Question 24

What are the 5 refundable tax credits?

Answer 24

Child Tax credit
Earned Income Credit
Fed Income Tax Withheld
Excess SS tax Paid
American Opportunity Credit (40%)

Question 25

Define the following for the Child Tax Credit: 1. How much is the General credit? 2. Requirements 3. Phase out 4. Refundable amount 5. MFJ, AGI of $407,368, 2 children (QC) - what is the credit

Answer 25

1. $2k per Qualifying child (under 17) AND $500 for each dependent for nonqualifying child 2. Must be qualifying child 3. $50 p/o on the $2K overall credit every $1k over $200K(S/MFS)/$400k(MFJ) 4. LESSOR OF: A. Excess Child tax credit over tax liab B. Earned Income in excess of $2.5k *15% (375) C. $1.6K per child 5. $407,368 - 400,000(P/O) = 7,368 7,368/1,000 = 7.37 --> round to 8 8 x $50 = 400 $4,000 (2 kids) - 400 = $3,600 Credit

Question 26

What is the calculation of Foreign Tax Credit?

Answer 26

LESSOR OF: 1. Foreign Taxes Paid OR 2. TI from all foreign operations * U.S tax ________________________________ TI WW

Question 27

How are legal expenses deducted in the tax formula?

Answer 27

Trade or biz expenses deductible on Schedule C to be deducted FOR AGI Not deductible for individual

Question 28

When can an employee claim a credit for excess SS tax withheld?

Answer 28

Can claim credit when excess SS was withheld over the max amt IF that excess was correctly withheld by 2+ employers

Question 29

In a incentive stock option --> when is the income/gain realized?

Answer 29

In the year the stock was sold

Question 30

How do you calc the deductible amount of SE tax?

Answer 30

SE income * 92.35% SE tax on income --------------------------------------------- SE income subject to SE Tax *15.3% (7.65*2) SE Tax rate ------------------------------------- SE tax liability *50% is deductible ______________________________________ deductible amount

Question 31

What types of taxes are allowed to be deducted as an Itemized deduction?

Answer 31

RE Tax, Property tax, SALT

Question 32

How much can a K-12 teacher deduct up to in OOP costs for supplies?

Answer 32

$300

Question 33

How much of student loan interest can be deducted per year? Are there any limitations? Where is this included in the tax formula?

Answer 33

$2,500 per year --> excess is not deductible P/O begins $70k/140k Deduction to arrive at AGI

Question 34

Can a dependent of another take the std deduction and in what amount?

Answer 34

Yes GREATOR OF: $1,250 OR EI + 400

Question 35

What types of interest are included in the calculation of interest of itemized deduction? (HIPPE)

Answer 35

Home mortgage interest (first and second home) up to 750k up mortgage OR home equity loan (IF loan is to rennovate home) Investment interest - only up to the investment income, cannot be negative, Personal - NOT deductible Prepaid - included only when incurred AND paid Educational interest - NOT deduction (it is adjustment)

Question 36

What are the 4 taxes included for itemized deductions?

Answer 36

Property tax income tax RE tax LESSOR OF: State and local OR sales tax

Question 37

In an nonqualified stock option plan - when does a stockholder recognize income?

Answer 37

Stockholder recognizes ORD income @ FMV * # shares purchase At date granted (received the option)

Question 38

How are unreimbursed business meals as employee classified in TI?

Answer 38

NOT included/not deductible

Question 39

If an individual files a tax return with 0 liability in the prior tax year - what is the min amount of payment due in the current year to avoid tax payments?

Answer 39

Lessor of: 1. 90% of CY tax or 100% of PY tax

Question 40

What is the max qualified expenses for the lifetime learning credit and what is the max credit? How is the credit calculated?

Answer 40

$10K expenses $2K credit Credit = Expenses * 20%

Question 41

How is the American Opportunity Credit Calculated?

Answer 41

1st 2K of expenses * 100% 2nd up to 2K * 25% Max is 2,400

Question 42

When calculating Medical expense for deduction - what is the exception in dependency qualifications?

Answer 42

If providing over 50% of another individual AND paying for medical expenses --> can include amount paid REGARDLESS of the amount of gross income the supported individual has

Question 43

Do you pay tax in a coverdell interest income?

Answer 43

No, no interest is taxable - coverdell is tax free

Question 44

What is the latest date that an IRA contribution can be made in order to qualify as a deduction on prior year return?

Answer 44

April 15

Question 45

When calc taxes allowed for itemized deductions - how are special assessments treated?

Answer 45

Not deductible

Question 46

Under a Section 529 education savings plan - what is the max withdrawal per year?

Answer 46

$10k