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REG > 7 Adjustments and Deductions from AGI > Flashcards

7 Adjustments and Deductions from AGI Flashcards

1
Q

What are above-the-line deductions?

A

Adjustments deducted from gross income (AGI) for individual taxpayers. Can be referred to as:

  • adjustments
  • deductions to arrive at AGI
  • deductions for AGI
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2
Q

What deductions from AGI are individual taxpayers allowed to take?

A

The greater of the standard or itemized deductions, and the new qualified business income deduction

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3
Q

What are examples of above-the-line deductions (adjustments) to gross income?

A
  • educator expenses
  • health savings account deduction
  • moving expenses for military
  • deductible part of self-employment tax
  • self-employed SEP and qualified plans
  • self-employed health insurance deduction
  • penalty on early withdrawal of savings
  • alimony paid pursuant to a divorce finalized prior to 2019
  • IRA deduction
  • student loan interest deduction
  • jury duty repayments
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4
Q

What are examples of itemized deductions?

A
  • medical and dental expenses
  • taxes paid
  • interest paid
  • gifts to charity
  • casualty losses in federally declared disaster areas
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5
Q

What is the educator expenses deduction?

A

Elementary (primary) and middle/high (secondary) school educators may claim an above-the-line deduction for unreimbursed expenses paid or incurred for books and supplies used in the classroom up to $300 annually. Each taxpayer (educator) on a joint return may deduct up to the maximum amount.

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6
Q

What are examples of supplies that qualify for the educator expenses deduction?

A
  • books
  • supplies
  • personal protective equipment - ex. face masks and disinfectants
  • computer equipment, including software and services
  • other equipment
  • supplementary materials used in the classroom
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7
Q

Who is considered an eligible educator for the educator expenses deduction?

A

An eligible educator is an individual who, for at least 900 hours during a school year, is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide.

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8
Q

What is a health savings account?

A

A tax-exempt account the taxpayer sets up with a U.S. financial institution to save money used exclusively for future medical expenses.

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9
Q

How is the amount of maximum contributions to an HSA determined?

A

It depends on the nature of their coverage and their age:

  • Self-only coverage, the taxpayer or his or her employer can contribute up to $3650, $4650 for taxpayers 55+
  • Family coverage, the taxpayer or his or her employer can contribute up to $7300, $9300 for taxpayers who both are 55+
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10
Q

For 2022 can HSA contributions include contributions made until April 15, 2023?

A

Yes

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11
Q

What is the moving expenses deduction?

A

Military members on active duty who move pursuant to a military order and due to a permanent change of station are allowed a deduction for relocation expenses.

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12
Q

What schedule is used for adjustments to AGI?

A

1040 Schedule 1

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13
Q

What are the self-employment deductions from AGI?

A
  • deductible part of self-employment tax
  • self-employed SEP, SIMPLE, and qualified plans
  • self-employed health insurance deduction
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14
Q

What is the self-employment tax deduction from AGI?

A

A self-employed person is allowed a deduction for the employer’s portion of the FICA taxes paid to arrive at their AGI. The deduction for the employer’s share is equal to 50% of the self-employment tax.

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15
Q

What is the self-employment tax deduction for 2022?

A

6.2% of the first $147k of net earnings from self employment + 1.45% of net earnings from self-employment (no cap)

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16
Q

Is the .9% additional Medicare tax included in the employer portion of FICA taxes?

A

No, it’s only included on the employee’s portion of FICA taxes and therefore is not deductible

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17
Q

What is the self-employed SEP and Qualified Plans deduction?

A

A self-employed individual can deduct specified amounts paid on their behalf to a qualified retirement or profit-sharing plan, such as a SEP plan.

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18
Q

What is the most common self-employed retirement plan used?

A

SEP plan

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19
Q

What is the maximum annual contribution for a SEP plan in 2022?

A

The maximum annual contribution is limited to the lesser of 25% of the self-employed earnings or $61,000

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20
Q

Hos is the self-employed SEP and qualified plans deduction calculated?

A

net self-employed earnings - deductible self-employment taxes x 20%

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21
Q

What is the self-employed health insurance deduction?

A

Self-employed individuals can deduct 100% of payments made for health insurance coverage for the individual, his or her spouse, and dependents. The deduction is limited to the taxpayer’s earned income derived form the business for which the insurance plan was established.

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22
Q

What is the penalty on early withdrawal of savings deduction?

A

Deduction is allowable for penalties form an early withdrawal of funds from certificates of deposit or other time savings accounts. The deduction is taken in the year the penalty is incurred.

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23
Q

When is alimony deductible?

A

For divorces executed before 2019, alimony is gross income to the recipient and deductible by the payor. Alimony payments may not extend past the death of the payee spouse.

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24
Q

Is alimony for divorced executed or modified after 2018 deductible?

A

No, it is nondeductible to the payor and not included in the gross income in the recipient.

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25
Q

Is child support deductible?

A

No, it is neither gross income to the recipient nor deductible by the payor

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26
Q

Are contributions to individual retirement arrangement (traditional IRAs) deductible?

A

For 2022, contributions are fully deductible, subject to certain qualifying rules and limitations, up to the lesser of $6,000 ($7,000 for taxpayers 50+) or 100% of includible compensation.

27
Q

How are distributions from traditional IRAs treated?

A

Because contributions are deducted from gross income, all distributions are included as ordinary gross income.

28
Q

When do traditional IRA contributions qualify as a deduction?

A

To qualify for the return year, contributions must be made by the due date of the return without regard to extensions

29
Q

What is included in compensation for traditional IRAs?

A

alimony and earned income

30
Q

What is not included in compensation for traditional IRAs?

A

pensions, annuities, or other deferred compensation distributions

31
Q

How much can a taxpayer deduct for contributions for their nonworking spouse or a spouse earning less income if a joint return is fied?

A

An additional $6,000 ($7,000 if 50+). The combined IRA contributions by both spouses cannot exceed their combined compensation for the year.

32
Q

What are the phaseout limits for phasing out the IRA deduction?

A

If the taxpayer is an active participant in an employer-sponsored retirement plan and has earned income of over $109,000 (MFJ or Qualified Surving spouse in 2022), $68,000 (Head of house hold or single taxpayers in 2022), $0 (married filing separate in 2022), the deduction is proportionately reduced over a phaseout range, fully phased out at $129,000.

33
Q

Are individuals labeled active plan participants due to the status of the individual’s spouse?

A

NO

34
Q

What is the phase out limit when an individual’s spouse is also an active plan participant?

A

The individual’s deductible contribution will be phased out when AGI is between $204k and $214k.

35
Q

How much excise tax is imposed on excessive IRA contributionsd?

A

6% excise tax

36
Q

What is the time limit for when owners of an IRA must begin receiving distributions?

A

The owner of an IRA must begin receiving distributions by April 1 of the calendar year following the later of the calendar in which the employee attains age 72 or the calendar year in which the employee retires.

37
Q

Can contributions be made to an IRA even if they are nondeductible?

A

Yes, this is often called a nondeductible IRA because there is no deduction upon contribution, and because earnings are taxed upon withdrawal.

38
Q

What is the penalty for IRA distributions made before age 59?

A

taxation + 10% penalty tax.

39
Q

What are examples of exceptions to the IRA distributions penalty tax?

A
  • death or disability
  • medical expenses in excess of 7.5% AGI
  • qualified higher education expenses
  • the purchase of a first home (up to $10,000)
  • birth or adoption of a child (up to $5,000)
40
Q

Are contributions to Roth IRAs and Roth 401(k)s deductible?

A

No

41
Q

Are earnings on contributions to a Roth IRA taxed?

A

No, provided they meet certain requirements to be considered a qualified distribution.

42
Q

What are the requirements to be a qualified distribution of a Roth IRA?

A
  • Satisfy the 5-year holding period - the distribution may not be made before the end of the 5-tax-year period. The holding period begins with the tax year to which the contribution relates, not the year of contribution.
  • meet one of four other requirements: 1. made on or after the date on which the individual attains age 59.5 2. made to a beneficiary or the individual’s estate on or after the individual’s death 3. attributed to the individual’s disability 4. to pay for qualified first-time homebuyer expenses
43
Q

How are Roth IRA distributions treated?

A

They are treated as made from contributions first, thus no portion of a distribution is treated as attributable to earnings or, if nonqualified, includible in gross income until the total of all distributions from the Roth IRA exceeds the amount of contributions. Nonqualified distributions are included in income after recovery of contribution, and they are subject to the 10% early withdrawal penalty.

44
Q

What is the overall limit for contributions to Roth IRAs?

A

$6,000 ($7,000 for 50+)

45
Q

What are the phase out limits for Roth IRAs?

A

You cannot contribute to a Roth above these phaseouts:

MFJ - $204k to $214k
Single, head of household - $129k to 144k
MFS - $0 to $10k

46
Q

What is the student loan interest deduction?

A

Taxpayers may deduct $2,500 of interest paid on qualified educational loans in 2022. This deduction is available for each year interest is paid. The deduction is subject to income limits

47
Q

What are the phase out limits for the student loan interest deduction?

A

MFJ - $145k to $175k
Single, HH, MFS - $70k to $85k

48
Q

How do you calculate the amount of reduction in the student loan interest deduction?

A

$2,500 x (AGI - $70,000)/$15,000 phaseout range

49
Q

What is the Coverdell Education Savings Accounts (CESA) deduction?

A

Taxpayers may make nondeductible contributions of $2.000 per child (beneficiary) to a CESA. The earnings may be distributed tax free, provided they are used for qualified education expenses. This income exclusion is not available for any year in which the American Opportunity Credit or Lifetime Learning Credit is claimed.

50
Q

What are the phase out limits for a CESA?

A

MFJ - $190k to $220k
Single, HH, MFS - $95k to $110k

51
Q

Is jury duty pay included in gross income?

A

Yes, unless it is remitted to an employer in exchange for regular pay in which is is an above-the-line-deduction

52
Q

What is taxable income?

A

AGI - itemized or standard deductions + qualified business income deduction

53
Q

When would a taxpayer itemize deductions?

A

When the total amount of allowable itemized deductions is greater than the amount of the standard deduction, otherwise the taxpayer claims the standard. A taxpayer must elect to itemize, or no itemized deductions will be allowed.

54
Q

How does a taxpayer elect to itemize deductions?

A

Filing schedule A of form 1040 or 1040-SR, election made in any other taxable year is not relevant, election may be changed by filing an emended return (form 1040x)

55
Q

What taxpayers are not allowed the standard deduction?

A
  • persons who itemize deductions
  • nonresident alien individuals
  • individuals who file a “short period” return
  • a married individual who files a separate return and whose spouse itemizes
  • partnerships, estates, and trusts
  • corporations
56
Q

What are the basic standard deduction amount for 2022?

A

MFJ - 25,900
Qualifying surviving spouse - 25,900
HH - 19,400
Single - $12,950
MFS - $12,950

57
Q

What are the additional standard deduction amounts for 2022?

A

Additional standard deduction amounts if age 65 or blind:

MFJ - 1,400
Qualifying surviving spouse - 1,400
HH - 1,750
Single - 1,750
MFs - 1,400

58
Q

What is considered the standard deduction?

A

Th sum of the basis standard deduction + the additional standard deductions

59
Q

What is the basic standard deduction amount of a child under age 19 or a student under age 24 who can be claimed as a dependent on another individual’s income tax return?

A

It is limited to the greater of either $1,150 or earned income for the year plus $400 up to $12,950 (applicable single standard deduction)

60
Q

Does earned income include dividends or capital gains from sale of stock?

A

NO

61
Q

How does the additional standard deduction apply to to an individual who is both 65 and blind?

A

They are entitled to twice the amount.

62
Q

Is an individual entitled to the additional standard deduction if they reach age 65 before the end of the tax year?

A

Yes, even if they die before the end of the year, but not if they die before reaching age 65 even if they would have otherwise reached age 65 before year’s end

63
Q

Is a person who becomes blind on or before the last day of the taxable year entitled to the additional standard deduction?

A

Yes

64
Q

Is the additional standard deduction prorated if a person dies during a tax year?

A

No, once qualified the standard deduction is allowed in full

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