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CPA Regulation R2 Adjustments > CPA Reg R2 Adjustments > Flashcards

CPA Reg R2 Adjustments Flashcards

1
Q

List of Adjustments for AGI

A

Alimony Payments, Teaching supplies made by teacher for class, interest on student loans, penalty from withdrawal from savings, IRA contribution, self insurance, self paid retirement plans,

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2
Q

Can you contribute to an IRA

A

In order to contribute to an IRS, you must pass test of (1) not be rich and (2) not be in an employer sponsored plan. Spouses that are not working would be included. So if one spouse makes $300K and in an employer sponsored plan the other non working spouse is not eligible.

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3
Q

If one spouse sponsored by a retirement and income is middle class what then is spouses IRA contribution status

A

Spouse covered can’t take our IRA. Spouse not working can contribute to IRA

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4
Q

If one spouse sponsored by a retirement and income is low income what then is spouses IRA contribution status

A

both can contribute

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5
Q

What is maximum a person can contribute to plan

A

$5500 under 50 and $6500 over 50 (additional catch up of $1000)

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6
Q

What are income levels for IRA thresholds if you are covered in a employer plan

A

Single: under $63K full contribution. $63K - $73K reduced. Over $73K not eligible. MFJ: under $101K full amt. $101K-121K reduce. over 121K not eligible. Married filing separately, 0 $10K over not eligible

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7
Q

What are income levels for IRA thresholds if your spouse covered in a employer plan

A

Married filing jointly:$189,000-$199,000

Married filing separately IF you lived with your spouse at any point during the year:$0-$10,000

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8
Q

Does a sole proprietor deduct both keogh saving plan and 1/2 of SE tax to arrive at earned income

A

Yes.

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9
Q

What are some the adjustment for AGI

A

1/2 self employment tax, self employed health insurance, alimony payments, self paid retirement payments or IRA

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10
Q

What is the maximum amount you can deduct for a keogh plan

A

1) The maximum amount is the lessor $55K or 25% of net earnings. 2) to arrive at net earnings for keough: Net Business Income $50,000- $3.532( 50% of SE tax) = $46,468 SE earnings before keogh. 3) Since Keough part of the equation take 25%/125% = 20%.
4) $46,468*20% = 9,294 keough

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11
Q

Itemized deductions: what are allowed and what are disallowed

A

Damage due to property from a nationally declared or presidential declared disaster area and insurance did not reimburse: Allowed. Casualty Loss
Purchase of over-the-counter vitamins: Disallowed
Cash gift to a local non profit or church: allowed Gifts and charity
State and local taxes paid: Allwed Taxes paid
Amount paid for required surgery not covered by Hlth Ins. Allwed Medical and dental exp.
Health care membership: disallwd

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12
Q

What are the itemized deduction limits

A

Medical exp mus exceed 10% of AGI
Taxes paid (state, local and foreign, sales taxes) capped at $10,000
Non deductible taxes: Federal, inheritance, and business
Mortgage Int: up to $750K ( MFS $375K) anything over is not deductible.

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13
Q

What item are adjustment, Itemize, or nieither

A

Federal withholdings; Neither

Tax preparation fees: Neither

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14
Q

Doing a taxable income calc find taxable income when standard deduction = $24,000

A

Gross Income $120,000
less Adj (for Agi)
Student loan int 1700 meets threshold MFG $
Alimony Paid 10,000
AGI $108,300
Less item
Med Exp $4K 0 does not exceed AGI 10%
State Pd tax $18K 10,000 limited to $10K
Mortgage Int 13,000 Meets threshold
Charitable contrib 12200 meets threshold
less great of Itemize 35200
or standard $24K
Taxable Income @ itemize $73,100

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15
Q

What are some of the AGI thresholds for Adjustement and Itemized deductions

A

Student loan interest: Single below $70,000 all
Between $70K - $85K phase out, above $85K not allwed
MFJ: below $140 full, between $140K - $170K phaseout, above $17O not allwed.
Self employed health ins. 100% deductible.
Medical has to exceed 10% of AGI
Taxes paid limited at $10K
Home iMortgage interest up to $75OK S and MFJ, MFS up to $375K.
Charitable deduction : cash 60% of Agi, FMV property 30% agi. gift of l-t capital gain deduct 30% agi.
gift of L-t capital gain 20%
Casualty losss non business are deductible to the exent of loss exceeds $100 and 10% of AGI
Misc itemized deduction 2% of AGI
Gambling losses fully deductible only to the extent of gambling winnings.

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16
Q

What is the maximum amt deducted for charitable contributions

A

haritable deduction : cash 60% of Agi, FMV property 30% agi. gift of l-t capital gain deduct 30% agi.
gift of L-t capital gain 20%. Can not deduct for giveing to needy people. Short term property is deducted lower of basis or FMV

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17
Q

Can cash basis taxpayer claim taxes paid for the following year

A

No

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18
Q

A deduction for interest on investment indebtness is limited to

A

taxpayer;s net investment income for the year.

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19
Q

60% limited charitable deduction can carryforward for how long

A

5 years

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20
Q

when can individual losses for personal use be deducted

A

when they are qualified as casualty or theft losses

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21
Q

What are physical handicap expenses that qualify as medical deductions

A

Repair and maintenance and Tuition, meals, lodging at a special school for handicap dependent children

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22
Q

Does state taxes qualify as itemized deductions

A

yes

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23
Q

If ticket were purchased for an event for a chariity and the cost was higher then the normal price, how much can a taxpayer deduct

A

The difference in the ticket price Purchase $160
actual price 100
Deduct 60

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24
Q

How is prepaid interest deducted

A

It is deducted based on how it accrues. for example, tax payer paid $12000 12 month rent on 12/1 yy1. he get to deduct 1mnth in year 1. the remainder in year 2.

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25
Q

How to calculate casualty loss for tax purpose

A

If $500 FMV before event and FMV $300K after, basis $350K. subtract $500 from lower of FMV after and basis. 300 = $200K less Ins reimb 175 = 25K - $100 and 10% agi $120K = $12. = $12.9K loss deductible

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26
Q

Is Ad valorem tax deductible

A

yes

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27
Q

Can medical expenses paid for services done in prior years be deducted in current year

A

Yes. Also , Medical insurance premiums are deductible

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28
Q

Casualty losses are adjusted by

A

the lower of adjust basis or decrease in FMV. If a person has no insurance a car damaged due to hurricane federal disaster resulted in $4100 adjusted basis and FMV after was $6900 use $4100.

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29
Q

Under what method are the estimate tax payments options ti avoid penalties and interest

A

Must pay using the annualized method: Payment current tax liab @ 90% or pay last year tax liab @ 100%. Or 110% of of the prior for higher income earner over AGI $150K or MFS $75K over AGI its 110%

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30
Q

What is the maximum amount and % that can be calculated for Child and dependent care credit

A

One dependent $3,000; Two or more dependent $6,000 . 20% for one and 35% for two or more.
$3000 max*20% = $600

31
Q

What is lifetime learning

A

Lifetime learning: deduct of to 20% of the first $10K in qualified education expenses: tuition, fees ( not course material) for undergrad, grad, certain profession degree course require to improve skills.

32
Q

What is American Opportunity Credit;

A

Is for post secondary (college) year education/ Max credit is $2500 in 2019. 100% of the firs qualified exp and 25% of next $2000 paid during the year. On a per student basis

33
Q

How is the Child tax credit per child

A

$2000 per qualified child

34
Q

Can a full time student who meets the income requirement be able to get a deduction from the retirement savings contribution savings

A

No. Can not be a full-time student; Not a dependent of another taxpayer and must be at 18 years old by the close of the year.

35
Q

What are Work Opportunity Credits

A

WOC: credits available to employers who hire employees from certain target groups. 40% of first $6000 wages and 40% of the first $3000 summer youth wages.

36
Q

If an individual had a tax liab of $16,500 and paid $16,300 is he penalized

A

No. He paid at least 90% taxes owed.

37
Q

Are Medical expenses deductible on the Adoption credit

A

No. Nor are adoption from spouse or surrogate. Legal fees and agency fees are deductible.

38
Q

If an indv tax payer SS tax withheld was hire than actual amount owed does he get a credit or refund

A

Yes. credit against tax liab. As long as the over payment was the result of two or more employer deduction.

39
Q

Are the credit from retirement savings contribution credit a refundable credit

A

No.

40
Q

What are some of the refundable credits

A

Excess SSI tax paid; Child tax credit; Earned income credit

41
Q

How are foreign tax credits treated

A

As a credit against federal taxes due. and can be itemized. ( there is no subject t 2% floor on itmeized deduction)

42
Q

Is Child and dependent care credit refundable

A

No

43
Q

If MFJ and one spsouse makes $60K and the other makes $2.5K they have 2 eligible kids (one kid 10 the other 14) for the child care expe. How much is the refund credit

A

The total would be $3K one child at 10. maximum is $3K however. it would be test at lower of lowest spouse incoem $2.5 to $3K. $2.5K* 20% = $500

44
Q

If AGI over $150K and tax payer wants to make minimum tax paid how much is it . Prior liab $30. tax payer income prior $175K and next year $250K

A

Annualized; 90% of prior or 100% next year. $30K*110% = $33K

45
Q

What is the the threshold before not eligible for child tax credit

A

$400K MFJ, Single $200K and MFS $200K

46
Q

What is the refundable credit for child tax credit

A

it is the less of $4K ( $2K per child) less tax liab = $3k, AGI $50K Earned income less $2500 *15%= $7125 or $1400 per child= $2800. Refundable = $2800

47
Q

When I see Current year est tax payment is a question, do I added to tax payment calculation

A

Yes. This mean they were added to tax payment side.

48
Q

What is the AMT formula

A 
Regular taxable income  (from 1040)
\+/- Adjustments ( to increase of decrease taxable income)
\+ Preferences
= Alternative minimum taxable income
-AMT exemption ( phased out if income to high)
=AMT base
*AMT rate
=Tentative AMT tax
- tax credits
= Tentative minimum tax
-Regular income tax
=AMT
49
Q

What are the AMT adjustements

A

PANIC TS
Passive Activity losses - added back to recalculate
Accelerated depreciation - Depr is calculated more conservative (no DDB SYD)
Net Op loss: must be recomputed
Install method may not be used - by dealer of property sales
Contracts - AMT requires the use of the percentage of completion method, so any differecne is added or subtracted
Taxes- state, sales and property taxes are not allowed.
Standard Deduction - if the taxpayer took standard deduction rather the itemize, the standard deduction is added back to taxable income to calculate AMT

50
Q

What are the Preferences in AMT

A

They are always added back; PPP
Private activity bond-tax exempt interested
Pre-1987 accel depr on real property and leased personal property
Percentage of completion deduction (excess over adjusted basis of property)

51
Q

What is AMT

A

AMT is a tax designed to ensure that taxpayer who take a large number of tax preferences.

52
Q

Example of AMT calc. MFH couple with 2 kids, age 16 and 14, Gross Income: $200,300. AMT Exemption amt = $111,700 with a phase out begining phase out in $1,020,600

A

Step 1: Regular tax: To calc use gross income $200,300 at a 24% tax rte from tax table sheet and then go to the income tax table threshold sheet and calculate from tiers
0 - 19,400 Diff 19400* tax rate 10% 1940
19,401-78,950 = 59,54912% = 7146
78951-168400= 89,44922% = 19678
168,401-200,300( use gross with tier your income in and not last number in tier) = 31899 (round) 31,90024%
sum up regular tax is $36421
AMTI = Gross income +/- adjustment $200,300+ $10,000 state tax added back = $210,300
Exemption= $111,700 if AMTI not above threshold
Tentative tax+ AMTI $210,300- exemption $111,700 = 98,60026% AMT rate = 25,636
AMT = compare regular $36421 to AMT $25,636. If AMT higher add difference to tax. If AMT lower, zero tax owed on AMT

53
Q

What is the AMT tax rate

A

26% on the first $194,800 taxable excess ($25,636) or $28% over the $194,800 taxable excess.

54
Q

Are capital appreciated gains from charitable contributions a preference for add back in AMT

A

No

55
Q

How long can a credit for prior year AMT Liab be carried forward

A

It can be carryforward indefinitely.

56
Q

What is the requirements for kiddie tax

A

Unearned income from child under 18 or 18-24 and full time student who does not provide over half his support

57
Q

If a 17 dependent has earned income of $5000 and unearned of $3000 from bond int given to him by his grandmother, how is it taxed. Kiddie tax standard deduction is $2200 threshold and regular standard deduction is $1100.

A

Total income 5000+3000 = 8000- net of unearned 800 = 7200-standard deduction 1100= 6100marginal tax
unearned 3000 - 2200 kiddie tax threshold standard deduction = 800 tax at rte applicable to estate and trust.

58
Q

What is the medicare tax rate levied on certain income

A

Begin in 2013, a 3.8% medicare tax is levied on the less of taxpayer’s net investment income or the excess of modified AGI over the threshold amount.

59
Q

a 5 year dependent received int income. Assume a $950 standard deduction. What is the income be taxed

A

$3000- ( $950*2) if there is no threshold = 1100 amount taxed.

60
Q

Double check all answers

A

Double all answers

61
Q

Can stock dividends with option to convert to cash dividends be considered income

A

Yes. stock dividends with option to convert to cash dividends are taxable at FMV per share.

62
Q

What type of property is not subject to uniform cap 263 the beginning of 2018

A

Retailer’s inventory with annual avg. gross receipts of $5M over the past 3 years.

63
Q

What is the full AMTI exemption

A

$111,700 exemption for AMTI that do not exceed $1,020,600 for MFJ. over the $1,020,600 it is a 25% redcuction. Exemption is $71,700 single threshold is $510,000 with 25% over $510,000, mFS $55,850 (threshold is $510,000 with 25% over $510,000)

64
Q

After 12/31/2017 Not op loss are carryforward

A

no carryback carryforward indefinite.

65
Q

What is the max that a MFJ couple with low income can contribute to an IRA

A

$6,000 each

66
Q

If a person with an annuity dies before the full amount is paid. How is the remaining balance filed on person’s final return

A

as a Itemized deduction is misc itemized deduction not subject to 2% AGI floor.

67
Q

If a person add an addition to home for medical reasons. and it increase appreciation of his home. is it deductible

A

Yes. Medical expenses that improve value of home deductible less improve ( subject to AGI 10% floor)

68
Q

Are credit deducted from AGI

A

yes = including earned income credit

69
Q

What is the casualty loss calc

A

lesser of ADJ basis or decrease FMV - cost recovery from insurance co - $100 and 10% AGI

70
Q

What is the max IRA deduction for MFJ with AGI 0f $111K and one spouse is active in a qualified plan

A

Must be between IRA deduction Income threshold for MFJ $103K-$120K . AGI is $111K between threshold. 120-103 = 20 limit. Spouse 111 -103 = 8K limit*30% = $2.4. $6K eligible - $2.4K= $3.6K + Spouse $6K = $9.6K IRA deduction

71
Q

When MFS AMTI $1060M exceeds $1,020M what is their AMT exemption.

A

The AMT exemption is $111.7K for AMTI under $1,020M, If exceed there is 25% reduction for overage. 1,060-1.020= 40*25% = 10. Exemption 111.7 - 10 = 101,7 exemption.

72
Q

What AMT that are timing differences that are credit against future regular taxes

A

Long-term contracts

73
Q

How is AMT tax credits handled

A

As carried forward indefinitely and applied to regular tax only.

74
Q

If a company uses % of completion method for their AMT and their total profit was $80,000, the contract willbe completed in year 5; and was 20% completed in year 3 and 70% completed year 4. what is the % of profit for year 4 for AMT

A

Total contract % is 100%. If 20% year 3 and and 70% was completed by yr 4, this means 30% year5,
20% 3 + 50% yr4 ( to get 70% yr 4 contract completion, it is a cummulative of yr3 20% = 70%) and y4 50% + 30% y5 = 100%

80000 profit* 50% = 40000

CPA Regulation R2 Adjustments (1 decks)

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