INDIVIDUAL - ADJUSTED GROSS INCOME

Question 1

What is the benefit to an Individual Retirement Account (IRA)?

Answer 1

Taxpayers have the opportunity to contribute money to an IRA and in so doing, the taxpayer may be able to delay the tax consequences of the contributed amount and/or the earnings on that amount.

Question 2

What are the 2 types of IRAs?

Answer 2

1. Tradition IRA
2. Roth IRA

A taxpayer can have both.

Question 3

How is the IRA contribution limit applied when a taxpayer has more than one IRA?

Answer 3

If the taxpayer has more than one IRA, the contribution limit applies to the total contributions to all IRAs made for the year.

Question 4

A person can contribute up to $6,000 to their IRA for 2019, but the amount contributed cannot exceed the earned income of the individual. True or False?

Answer 4

True.

Note: The total amount is adjusted up to $7000 for people over 50.

Question 5

If age 50 or older, due to a $1,000 catch-up contribution, a person can contribute up to $7,000 for 2019 to an IRA, but the amount contributed cannot exceed the earned income of the individual. True or False?

Answer 5

True.

Question 6

If the taxpayer’s spouse is nonworking, an additional $6,000 for 2019 can be transferred into a spouse’s IRA. If both spouses work, both make IRA contributions up to $6,000 for 2019, or up to the amount of their individually earned income, whichever is lower. True or False?

Answer 6

True.

Question 7

IRA Contributions made up to the 15th of April may be treated as if they were made during the previous tax year. No extensions beyond April 15 are allowed even if the tax return filing deadline is extended for the taxpayer. True or False?

Answer 7

True.

Question 8

How do Traditional IRA contributions affect AGI?

Answer 8

A traditional IRA allows contributions to be deductible from gross income to arrive at AGI in certain circumstances.

Question 9

If an employee doesn’t offer an employer-sponsored retirement plan, the taxpayer can deduct the full amount of his/her IRA contributions up to the $6,000 limit for 2019. True or False?

Answer 9

True.

As an aside: An individual is considered an active participant in a plan as long as he or she is eligible to participate, regardless of whether or not they DO participate. They are subject to the phase out parameters.

Question 10

When are IRA contributions deductible even if an employee is participating in an employer-sponsored retirement plan?

Answer 10

If the individual is an active participant in an employer-sponsored retirement plan, he or she can still deduct their IRA contributions so long as their AGI before IRA deductions is less than the phase out amounts.

Question 11

If you are in the IRA contributions Phase Out range, what is the deduction you can still make?

Answer 11

$400.00

Question 12

The spousal IRA phaseout is the same as the employed spouse. True or False?

Answer 12

False.

The phase out amount for a spouse of an employed spouse is significantly higher.

The spouse of an active participant may deduct a contribution up to $6,000 for 2019 if the AGI is less than the spousal phaseout. range of UPDATE: $193,000 – $203,000 for 2019.

Question 13

IRA Phase Out Ranges

Answer 13

IRA Phase Out Ranges are:

1. MFJ & QW = $103K-$123K
2. S or HH = $64K-$74K
3. MFS = $0-$10K

Question 14

Sally works at ABC Co. and is an active participant in a pension plan provided through ABC. Her husband, Ron, is a stay-at-home father and does not work. Sally earns $140,000 per year from ABC. They contributed a total of $6,000 to their IRAs - $3,000 to each.

What contributions, if any, are deductible?

Answer 14

In this case, the contribution for Sally is not deductible since her salary is above the threshold level for the employee participant.

However, because their joint income is less than the spousal phaseout range, the $3,000 contributed to Ron’s IRA is deductible.

Question 15

What age must a taxpayer achieve to avoid IRA withdrawal penalties?

Answer 15

59 1/2

Question 16

What is the penalty for early IRA withdrawal, barring the few exceptions?

Answer 16

10%

Question 17

What is the Medical Expense amount that must be met to avoid the Early Withdrawal Fee for an IRA?

Answer 17

Medical expenses in excess of 7.5% of AGI in 2019, precludes a taxpayer from paying the 10% penalty for early withdrawal.

Question 18

You can avoid the IRA 10% penalty for early withdrawal if the funds are used for Education expenses. True or False?

Answer 18

True.

Qualifying Education Expenses include university tuition, fees, books, supplies, equipment, and room and board expenses for the taxpayer, spouse, children or grandchildren.

There is a regular tax, but no penalty.

Question 19

What is the maximum amount that can be withdrawn from an IRA early for a First Home purchase, and still avoid the 10% penalty?

Answer 19

$10,000.00

There is a regular tax, but no penalty.

Question 20

Medical insurance for individuals who have received 12 consecutive weeks of state or federal unemployment compensation, does not incur the IRA Early Withdrawal Penalty Tax of 10%. True or False?

Answer 20

True.

There is a regular tax, but no penalty.

Question 21

What is the age when a taxpayer is required to take the Minimum Required Distribution from your IRA?

Answer 21

72, or 70.5 if you reached that age prior to Jan 1, 2020.

Question 22

What is the Penalty Tax for failing to take the Required Minimum Distribution (RMD) from your IRA after reaching the mandated age?

Answer 22

If RMDs are not taken a 50% additional tax must be paid on the amounts that should have been distributed.

Question 23

All contributions to Roth IRAs are non-deductible. True or False?

Answer 23

True.

Question 24

Qualified distributions (withdrawals) from Roth IRAs are tax-exempt. True or False?

Answer 24

True.

You pay tax on what goes in, but you have no tax liability at the time of distribution.

Question 25

The earnings of the Roth IRA are tax deferred. True or False?

Answer 25

True.

Question 26

What constitutes a Qualified Roth IRA Distribution?

Answer 26

1. Made 5 years after initial contribution to the Roth IRA.
2. Made after the age of 59½ is reached, or because of death or disability or for a first time home purchase.

Note 01: Unqualified distributions are charged 1 10% Penalty Tax.

Note 02: There are no RMDs for a Roth IRA because the taxes were already paid when the money was put into the account.

Question 27

How is AGI (Adjusted Gross Income) calculated?

Answer 27

AGI is your Total Income minus all Deductible Expenses deductible for AGI.

Note: There are also Deductions From AGI, which need to be calculated once the AGI is determined.

Question 28

What is an HSA?

What are the max contributions for Single and family?

Answer 28

Health Savings Account

An HSA is established by a TP with a qualified trustee to pay for or reimburse certain medical expenses.

Self-Only Max Contribution is $3500.

Family Max Contribution is $7,000. And additional $1,000 is available for 55 and older.

Question 29

HSA benefits are:

Answer 29

• TP receives a tax deduction for contributions
• TP can exclude employer contributions from gross income
• Contributions remain in the HSA from year to year until used.
• Interest or other earnings on the HSA assets accumulate tax free
• Distributions may be tax-free is used to pay for QUALIFIED MED EXPENSES.
• The additional tax on distributions NOT used for Qualified Med Expenses is 20%
• An HSA is “portable” so it stays with the TP when changing employers or leaving the workforce.

Question 30

Moving Expenses - How does the TCJA affect their status as a deduction?

Answer 30

The TCJA (Tax Cuts and Jobs Act) suspends the deduction for moving expenses from 2018 through 2025.

EXCEPT for members of the Armed Forces.

Question 31

How does the TCJA affect the “Exclusion of Qualified Moving Expense Reimbursements” from gross income and wages?

Answer 31

The TCJA (Tax Cuts and Jobs Act) repeals the exclusion of qualified moving expense reimbursements for taxable years beginning after Dec 31, 2017 and before Jan 1, 2026).

EXCEPT for members of the armed forces.

Question 32

NON-Deductible Moving Expenses that TP members of the armed forces CANNOT deduct.

Answer 32

• Meals while traveling
• Any part of the purchase of a new home
• Car tags
• Driver’s license
• Expense of buying/ selling a home (closing costs, mortgage fees, points)
• Expenses of entering or breaking a lease
• Home improvements
• Loss on home sale
• Losses from ending club memberships
• Mortgage penalties
• Pre-move house hunting expenses
• Real estate taxes
• Refitting carpets/ drapes
• Return trips to former residences
• Security Deposits
• Storage charges except those incurred in transit and for foreign moves.

Question 33

What is the Deductible part of Self-Employment Tax?

Answer 33

A self-employed taxpayer may deduct 50% of self-employment taxes reported on Schedule SE as an adjustment to gross income on Form 1040, Schedule 1.

Question 34

Who does the IRS consider to be self-employed?

Answer 34

Anyone who carries on a business as a Sole Proprietor or an Independent Contractor. A partner’s distributive share of ordinary income or loss is also self-employment income.

Question 35

Self-employed Health Insurance

Answer 35

A self-employed TP may adjust income on his personal income tax return (using Form 1040, Sch 1) for the amount of medical, dental, and qualified long-term care insurance premiums (limited) that he pays on behalf of himself, his spouse, his dependents, and his child who is under 27 years at the end of the year, even if the child is NOT a dependent.

Question 36

What is the threshold to be considered Self-Employed as it pertains to an S-Corp?

Answer 36

A TP is considered self-employed if he receives wages from an S-Corp in which he is MORE than a 2% shareholder.

Question 37

Keogh Plans

Answer 37

This is what retirement-plans for self-employed people were formerly called. It is simply a Qualified Plan for the SE.

But the law no longer distinguishes between corporate and other plan sponsors.

SEP and Simple options are more popular due to lower admin costs.