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CPA REG 2 > CPA REG 2 > Flashcards

CPA REG 2 Flashcards

1
Q

Adjustments

What are some adjustments?

A 
Educator Expense
IRA
Student loan interest expenses
Tuition and Fee Deduction
Moving expenses
Alimony paid
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2
Q

Adjustments

How much can you deduct as educator? What qualifies you as an eligible educator?

A

$250 for single, $500 for filing jointly and BOTH spouses are educators

Eligible educator = K thru 12th grade teacher, instructor, counselor, princpal for at least 900 hrs

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3
Q

Adjustments

Individual Retirement Accounts (IRAs)

A
  • Regular IRAs are deductible adjustments
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4
Q

Adjustments - IRAs

What disqualifies one from being able to deduct IRA contribution as an adjustment?

A

When BOTH conditions are met:

1) Excessive AGI (Rich - > $56k)
2) Active participation in another retirement plan

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5
Q

Adjustments - IRAs

What is the exception to the disqualification for an IRA contribution deduction?

A

The taxpayer is not considered to have another retirement plan if their spouse has one.

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6
Q

Adjustments - IRAs

Is there a phase out? if so, what is the AGI?

A

Yes, there is a phase out at $169k -179k

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7
Q

Adjustments - IRAs

What is the amount of deduction for an IRA contribution?

A

SIngle = $5,000 or individual’s compensation (lesser of)

Married - $10,000

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8
Q

Adjustments - IRAs

What is the additional catch up contribution?

A

people 50 and up are allowed another contribution of $1,000

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9
Q

Adjustments - IRAs

What is a Roth IRA?

A
  • Contributions are post taxed. Therefore they are not deductible.
  • the earnings accumulate tax free
  • distributions are tax free (principal and interest)
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10
Q

Adjustments - IRAs

What are the contribution limits for Roth IRAs

A 
Single = $5k
Married = $10k
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11
Q

Adjustments - IRAs

IS there a phase out for ROth IRAs?

A

Yes, there is a phase out

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12
Q

Adjustments - IRAs

What type of retirement plan do you fall back on when you don’t qualify for IRA or Roth?

A

Non-deductible IRA. Contributions is the lesser of $5k or individual’s compensation

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13
Q

Adjustments - IRAs

What is a nondeductible IRA?

A

Earnings on contributions are tax free until withdrawn but the principal contributions are not taxable (therefore not deductible) when withdrawn.

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14
Q

Adjustments - IRAs

What is the Coverdell Education Savings Account?

A

An education IRA.
Contributions are non-deductible
Max contribution/person = $2k
Distributions (prin & int) = tax free

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15
Q

Adjustments - IRAs

When is a Coverdell distribution tax free?

A

When the distribution is used for qualified education expense (tution, fees, tutoring, books, room and board, suppliesand equipment)

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16
Q

Adjustments - IRAs

What is the time limitation on a Coverdell Savings Account?

A

by the time the beneficiary is 30 years, all must have been used. The beneficiary must be under the age of 18, No limit on number of beneficiaries.

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17
Q

Adjustments - IRAs

Is there a phase out for Coverdell?

A

Yes.

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18
Q

Adjustments - Student Loan Interest Expense

What is the amount for an education loan interest?

A

$2,500, any excess is considered personal interest and not deductible.

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19
Q

Adjustments - Tutition and Fees Deduction

Does above the line education expenses qualify only if it is work related? How much of a deduction do you get?

A

No. That only applies to below the line deductions.

You get $4,000., An excess are treated as below the line (subject to 2% of AGI)

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20
Q

Adjustments - Tuition and Fees

What is the income limit for tuition and fees?

A

The adj of $4k is for AGI AGI> $65

0 = AGI > $80k ($160k for married)

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21
Q

Adjustments - Health Savings Accounts

What are health savings accounts?

A

enable workers with high deductible health insurance to make pre-tax contributions up to $3,050. Increase by $1,000 for 55 yr olds. No contributions for TP covered by Medicare Parts A or B

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22
Q

Adjustments - Moving Expenses

When can you deduct moving expenses?

A

Only if its for work.

New workplace must but 50 miles further from old house than old workplace was AND you need to work there for 39 weeks.

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23
Q

Adjustments - Moving expenses

What moving costs are deductible?

A
  • traveling and lodging of the TP and family

- Transporting the stuff

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24
Q

Adjustments - Moving expenses

What are the non-deductible expenses

A

Meals
Pre move house hunting
Expense of breaking a lease
Temporary living expenses

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25
Q

Adjustments - Self Employment

50% of self employed SS and Medicare is deducted

A

Adjustments - Self Employed Health Insurance

100% deductible

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26
Q

Adjustments - Keogh (Profit Sharing Plans)

Max deduction = $49,000 or 25% net Keogh earnins (lesser)

A

Example
Gross self employ income = $100k
Multiply by 20%
Equals Max allowable deduction = $20k

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27
Q

Adjustments - Penalty on Early Withdrawal of Savings

When you withdraw from the bank and you forfeit the interst

A

Adjustments -Alimony

Deductible for payor if:

1) payments are legally required under a written divorce decree/agreemetn
2) payments made in cash
3) payments cannot extend beyond death of payee

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28
Q

Adjustments - Alimony

What happens with child support?

A
  • non-taxable to payee
  • non- deductible to payor
  • if combined with alimony, child support comes first
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29
Q

Adjustments - Alimony

What happens with property settlements?

A

They are non taxable and non deductible

30
Q

Deductions - AFTER AGI

When do you get a standard deduction?

A

If you don’t choose the itemized deduction, you get the fixed amount deduction, standard deduction.

31
Q

Deductions - AFTER AGI

You get an addition DEDUCTION (not exemption) for being over 65 yrs or blind

A

Deductions - AFTER AGI - Itemized

Medical
Taxes
Interest
Charity
Casualty
Miscellaneous
32
Q

Deductions - Itemized: Medical Expenses

Payments are deductible if made for:
yourself
spouse
dependent (receives over 1/2 support from TP)

A

Deductions - Itemized: Medical Expenses

When can you deduct medical expenses?

When PAID during the year and CHARED during the year

33
Q

Deductions - Itemized: Medical Expenses

What is the formula for medical expenses?

A

Qualified Medical Expense

= Qualified Medical Expenses Paid

= Deductible Medical Expense

34
Q

Deductions - Itemized: Medical Expenses

What are the types of deductible medical expenses?

A 
Medicine and drugs
Doctors
Medical and accident insurance
Required surgert 
Transportation to medical facility
Physically Handicapped costs
35
Q

Deductions - Itemized: Medical Expenses

What types are NON-deductible?

A 
Cosmetic/Elective surgery
Illegal drugs
Travel/vitamins/part of SS
Funerals
LIfe insurance
Cap expenditure (wheel chair depreciation)
Health club memberships
Personal hygiene
36
Q

Deductions - Itemized: State and Local Income Taxes

When are real estate taxes deductible?

A

1) TP legally obligated to pay
2) prorate in year of sale/purchase
3) taxes paid under protest = deductible
4) Redund = Taxable
5) does NOT include street, sewer and sidewalk assesments

37
Q

Deductions - Itemized: State and Local Income Taxes

What state/local/foreign income taxes are deductible?

A
  • Estimate taes
  • Withheld taxes
  • assessments paid for PY tax
38
Q

Deductions - Itemized: State and Local Income Taxes

  • Personal property taxes = Deductible
A

Deductions - Itemized: State and Local Income Taxes

Sales tax

  • Elect to deduct either state/local income tax or stat/local sales tax.
  • if elected, amount is either:
    1) total sale taxes paid
    2) IRS table + sales tax paid for car, boat, etc.
39
Q

Deductions - Itemized: State and Local Income Taxes

What are nondeductible state and local taxes?

A

Federal taxes
INheritance taxes for states
Business and rental property

40
Q

Deductions - Itemized: Interest Expense

What are the types of interest expense?

A 
Home
Investment
Personal 
Prepaid
Education
41
Q

Deductions - Itemized: Interest Expense

Home Mortgage Interest

A

Deduction allowed for:
1) Acquistion indebtness ($1M max)
- Incurred in buying, constructing, improving first or second hom
2) Home equity indebtendess ($100k max)
- using your home as collateral, so debt can be used for anything
- Max amnts = $100k or FMV of property reducted by amnt of indebtness (equity in home)
-

42
Q

Deductions - Itemized: Interest Expense

Investment interest expense deduction is limited to net investment income

A

Deductions - Itemized: Interest Expense

Is interest related to purchase of tax free bonds deductible?

No.

43
Q

Deductions - Itemized: Interest Expense

Personal interest is NOT deductible

A

Deductions - Itemized: Interest Expense

Prepaid interest - allocate to proper period

44
Q

Deductions - Itemized: Interest Expense

Educational loan interest = NOT ITEMIZED DEDUCTION. It is an ADJUSTMENT.

A

BLANK

45
Q

Deductions - Itemized: CC

What are the definitions for Chartiy, gifts and politcal contributions?

A

Charity - items given to orgs (deductible)
Gifts - given to individuals (NON-deductible)
Political contributions - candidate (NON-deductible)

46
Q

Deductions - Itemized: CC

What is the allowable deduction?

A

Cash = 50% of AGI
General Property = Lower of basis or FMV
LT appreciated property = lesser of 30
% AGI or remaining amnt to reach 50%

47
Q

Deductions - Itemized: CC

Can only deduct excess contribution over consideration received

A

Ex.

Vega buys a ticket to the charity ball for $200. Actual value = $50. Deduction = $150

48
Q

Deductions - Itemized: CC

When is the deduction made?

A

Cash or check = when paid

Credit card = when charged

49
Q

Deductions - Itemized: CC

Can time/service be deducted?
What is the number years of CC carryover?

A

No.

5 years.

50
Q

Deductions - Itemized: Casualty

What is the formula to arrive at the deduction for a casualty?

FYI - must be sudden and unexpected

A

Smaller of Adj Basis or FMV

= Loss

= Eligible Loss

= Deduction

51
Q

Deductions - Itemized: Misc (2% AGI)

What are considered Misc?

A
  • Unreimbured Business expenses such as travel, meals, lodging, transporation,
52
Q

Deductions - Itemized: Misc (2% AGI)

What are considered Misc?

A
  • Educational expensese that are QUALIFIED.
  • Qualified =
    1) Maintain/improve skills for work
    2) meet requirements to retain job
  • Disqualified =
    1) meets min job requirements
    2) qualifys for a new trade/business
53
Q

Deductions - Itemized: Misc (2% AGI)

What are considered Misc?

A
  • Uniforms
  • Business gifts ( $25/recipient)
  • Expense of INvestors (safe deposit box & Investment advidce)
  • Subscription of prof journals
  • Tax prep fee
  • Hobbies
54
Q

Deductions - Itemized: Misc (NO 2% AGI)

Gambling losses

A

Fully deductible to the extent of winnings

55
Q

Tax Credits

What are personal tax credits?

A

they reduce the personal tax liability to zero but you get no cash refund

56
Q

Tax Credits

What are refundable credits? What are some examples?

A

Subtracted from income tax liability, they may result in a cash refund even if no tax is withheld from wages

Earned income
Child tax credit
Withholding taxes

57
Q

Tax Credits

What is the child and dependent care credit?

A

You get a credit of 20%-35% of eligible expenditures

One dependent = $3k max expenses
Two+ dependents = $6k max EXPENSES

58
Q

Tax Credits

Who are eligible for the child/dependent care credit?

A
  • A qualifying child (<13 year)
  • disabled dependent
  • disabled spouse
59
Q

Tax Credits

What are the eligible expenses for a child/dependent care credit?

A

Must be for the purpose of enabling the TP to work:

  • babysitter
  • nursery school
  • day care
  • NOT grammar school
60
Q

Tax Credits

What is the minimum percentage for the child/dependent credit?

A

20$ for AGI > $43k

61
Q

Tax Credits

What is the criteria to be eligible for the elderly/permanently disabled credit?

A

You get a credit of 15% of eligible incomeif you are:

  • 65 years or more
  • under 65 and permanently disabled
62
Q

Tax Credits

What are the two kinds of education credit?

A

American Opportunity Credit and the Lifetime Learning Credit

63
Q

Tax Credits

What is the American Opportunity Credit?

A

credits against federal income taxes for qualified tuition, fees, and course materias paid in the FIRST FOUR YEARS of college.

PER STUDENT basis

64
Q

Tax Credits

How much the AOC?

A

100% of the first $2,000 of qualified expenses
+
25% of next $2,000 of expenses paid during the year

65
Q

Tax Credits

what is the phase out for AOC?

A

beings with AGI > $80k ($160 joint) with full phase out at $90k

66
Q

Tax Credits

What is the Lifetime Learning Credit?

A
  • available for unlimited number of years
  • for quailified tuition and related expenses
  • credit = 20% of up to $10,000 expenses
  • phase out = AGI> $50k, full = $60k
67
Q

Tax Credits

T or F: You can only use one education credit

A

FALSE. you can use both in one year

68
Q

Tax Credits

What is the Adoption credit?

A

Limit:

  • per child = $13,360
  • Special needs = $13,360

Phase out = $185,210 -$225,210

69
Q

Tax Credits

What are the eligible expenses for the adoption credit?

A

all reasonable/necessasry expenses/costs/fees.

Medical expenses are NOT eligible

credit is not available for adopting a child of a spouse or surrogate

70
Q

Tax Credits

What is the retirement savings contribution credit?

A

nonrefundable tax credit that may offsey both regular and AMT for contributions to either a traditional IRA or ROTH IRa

71
Q

Tax Credits

When are you eligible for a retirement savings contribution credit?

A
  • you are 18 by end of close tax year
  • not a full time student
  • not a dependent

CPA REG 2 (3 decks)

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