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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
Adjustments - Self Employment 50% of self employed SS and Medicare is deducted
Adjustments - Self Employed Health Insurance 100% deductible
26
Adjustments - Keogh (Profit Sharing Plans) Max deduction = $49,000 or 25% net Keogh earnins (lesser)
Example Gross self employ income = $100k Multiply by 20% Equals Max allowable deduction = $20k
27
Adjustments - Penalty on Early Withdrawal of Savings When you withdraw from the bank and you forfeit the interst
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
28
Adjustments - Alimony What happens with child support?
- non-taxable to payee - non- deductible to payor - if combined with alimony, child support comes first
29
Adjustments - Alimony What happens with property settlements?
They are non taxable and non deductible
30
Deductions - AFTER AGI When do you get a standard deduction?
If you don't choose the itemized deduction, you get the fixed amount deduction, standard deduction.
31
Deductions - AFTER AGI You get an addition DEDUCTION (not exemption) for being over 65 yrs or blind
Deductions - AFTER AGI - Itemized ``` Medical Taxes Interest Charity Casualty Miscellaneous ```
32
Deductions - Itemized: Medical Expenses Payments are deductible if made for: yourself spouse dependent (receives over 1/2 support from TP)
Deductions - Itemized: Medical Expenses When can you deduct medical expenses? When PAID during the year and CHARED during the year
33
Deductions - Itemized: Medical Expenses What is the formula for medical expenses?
Qualified Medical Expense = Qualified Medical Expenses Paid = Deductible Medical Expense
34
Deductions - Itemized: Medical Expenses What are the types of deductible medical expenses?
``` Medicine and drugs Doctors Medical and accident insurance Required surgert Transportation to medical facility Physically Handicapped costs ```
35
Deductions - Itemized: Medical Expenses What types are NON-deductible?
``` Cosmetic/Elective surgery Illegal drugs Travel/vitamins/part of SS Funerals LIfe insurance Cap expenditure (wheel chair depreciation) Health club memberships Personal hygiene ```
36
Deductions - Itemized: State and Local Income Taxes When are real estate taxes deductible?
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
Deductions - Itemized: State and Local Income Taxes What state/local/foreign income taxes are deductible?
- Estimate taes - Withheld taxes - assessments paid for PY tax
38
Deductions - Itemized: State and Local Income Taxes - Personal property taxes = Deductible
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
Deductions - Itemized: State and Local Income Taxes What are nondeductible state and local taxes?
Federal taxes INheritance taxes for states Business and rental property
40
Deductions - Itemized: Interest Expense What are the types of interest expense?
``` Home Investment Personal Prepaid Education ```
41
Deductions - Itemized: Interest Expense Home Mortgage Interest
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
Deductions - Itemized: Interest Expense Investment interest expense deduction is limited to net investment income
Deductions - Itemized: Interest Expense Is interest related to purchase of tax free bonds deductible? No.
43
Deductions - Itemized: Interest Expense Personal interest is NOT deductible
Deductions - Itemized: Interest Expense Prepaid interest - allocate to proper period
44
Deductions - Itemized: Interest Expense Educational loan interest = NOT ITEMIZED DEDUCTION. It is an ADJUSTMENT.
BLANK
45
Deductions - Itemized: CC What are the definitions for Chartiy, gifts and politcal contributions?
Charity - items given to orgs (deductible) Gifts - given to individuals (NON-deductible) Political contributions - candidate (NON-deductible)
46
Deductions - Itemized: CC What is the allowable deduction?
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
Deductions - Itemized: CC Can only deduct excess contribution over consideration received
Ex. Vega buys a ticket to the charity ball for $200. Actual value = $50. Deduction = $150
48
Deductions - Itemized: CC When is the deduction made?
Cash or check = when paid | Credit card = when charged
49
Deductions - Itemized: CC Can time/service be deducted? What is the number years of CC carryover?
No. 5 years.
50
Deductions - Itemized: Casualty What is the formula to arrive at the deduction for a casualty? FYI - must be sudden and unexpected
Smaller of Adj Basis or FMV = Loss = Eligible Loss = Deduction
51
Deductions - Itemized: Misc (2% AGI) What are considered Misc?
- Unreimbured Business expenses such as travel, meals, lodging, transporation,
52
Deductions - Itemized: Misc (2% AGI) What are considered Misc?
- 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
Deductions - Itemized: Misc (2% AGI) What are considered Misc?
- Uniforms - Business gifts ( $25/recipient) - Expense of INvestors (safe deposit box & Investment advidce) - Subscription of prof journals - Tax prep fee - Hobbies
54
Deductions - Itemized: Misc (NO 2% AGI) Gambling losses
Fully deductible to the extent of winnings
55
Tax Credits What are personal tax credits?
they reduce the personal tax liability to zero but you get no cash refund
56
Tax Credits What are refundable credits? What are some examples?
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
Tax Credits What is the child and dependent care credit?
You get a credit of 20%-35% of eligible expenditures One dependent = $3k max expenses Two+ dependents = $6k max EXPENSES
58
Tax Credits Who are eligible for the child/dependent care credit?
- A qualifying child (<13 year) - disabled dependent - disabled spouse
59
Tax Credits What are the eligible expenses for a child/dependent care credit?
Must be for the purpose of enabling the TP to work: - babysitter - nursery school - day care - NOT grammar school
60
Tax Credits What is the minimum percentage for the child/dependent credit?
20$ for AGI > $43k
61
Tax Credits What is the criteria to be eligible for the elderly/permanently disabled credit?
You get a credit of 15% of eligible incomeif you are: - 65 years or more - under 65 and permanently disabled
62
Tax Credits What are the two kinds of education credit?
American Opportunity Credit and the Lifetime Learning Credit
63
Tax Credits What is the American Opportunity Credit?
credits against federal income taxes for qualified tuition, fees, and course materias paid in the FIRST FOUR YEARS of college. PER STUDENT basis
64
Tax Credits How much the AOC?
100% of the first $2,000 of qualified expenses + 25% of next $2,000 of expenses paid during the year
65
Tax Credits what is the phase out for AOC?
beings with AGI > $80k ($160 joint) with full phase out at $90k
66
Tax Credits What is the Lifetime Learning Credit?
- 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
Tax Credits T or F: You can only use one education credit
FALSE. you can use both in one year
68
Tax Credits What is the Adoption credit?
Limit: - per child = $13,360 - Special needs = $13,360 Phase out = $185,210 -$225,210
69
Tax Credits What are the eligible expenses for the adoption credit?
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
Tax Credits What is the retirement savings contribution credit?
nonrefundable tax credit that may offsey both regular and AMT for contributions to either a traditional IRA or ROTH IRa
71
Tax Credits When are you eligible for a retirement savings contribution credit?
- 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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