Lesson 4 (Ch. 6 & 7)

Question 1

List some “above the line” deductions?

Answer 1

Educator Expenses
Certain Business Expenses
HSA Contributions
Moving Expenses (Military)
Self-Employment Tax
Self-Employed Health Insurance
Penalty on Early Withdrawal of Savings
Alimony Paid
IRA Contributions
Student Loan Interest
Tuition on Fees

Question 2

What are “below the line” deductions?

Answer 2

The greater of Itemized or Standard deduction, plus 20% QBI (TCJA).

Question 3

Which type of deduction is better for the taxpayer?

Answer 3

Above the line (deductions for AGI).

Question 4

In order to qualify as “deductible”, business expenses must be…? (3 qualifiers)

Answer 4

Ordinary, Necessary and Reasonable

Question 5

What are the requirements to qualify for an HSA?

Answer 5

1. Be covered by a HDHP
2. No other health insurance except the above
3. Not enrolled in Medicare
4. Not claimed as a dependant on someone else’s tax return.

Question 6

Who can deduct contributions to a traditional IRA?

Answer 6

1. Not an active participant in an employer plan - No AGI Limit.
2. Active participant - S: 65k - 75k; MFJ: 104k - 124k
3. One spouse active, the other not - The spouse who is not an active participant may have a deductible traditional IRA contribution as long as their joint AGI does not exceed $206,000 (2020). The deductible IRA contribution is phased out between $196,000 - $206,000 for 2020.

Question 7

What is the loan interest deduction limit?

Answer 7

$2,500

Question 8

What are the loan interest deduction phaseouts?

Answer 8

Single: $70k - $85k
MFJ: $140k - $170k
MFS: $0

Applies to MAGI

Question 9

What are the IRS limits for transportation for medical care and lodging while away from home for medical care?

Answer 9

Travel: $0.17/mile
Lodging: $50/person per night

Question 10

What is the tax benefit rule?

Answer 10

If you take a deduction for a medical expense in 2020 and then you’re reimbursed in 2021, you have to include the reimbursement amount as income in 2021

Question 11

What qualifies for the qualified residence deduction?

Answer 11

Primary residence and one vacation home.

Question 12

Acquisition Indebtedness

Answer 12

Debt used to acquire, construct, or improve the principal residence (This qualifies for the qualified residence deduction).

Question 13

General requirements for charitable deductions

Answer 13

Made to qualified organizations
Subject of the gift is property (not services)
Deductible portion must exceed value received by donor
Paid in cash or property before close of tax year

Question 14

Gifts of less than entire interest (portion) are not deductible unless it is

Answer 14

1. An undivided portion of the donors entire interest
2. a remainder interest in personal residence or farm
3. a partial interest if transferred in trust
4. a charitable gift annuity

Question 15

Gift/service mileage

Answer 15

$0.14/mile

Question 16

Deductibility of Personal Casualty and Theft Loses

Answer 16

Lower of the following

1. The decline in value of the asset less insurance proceeds received
2. Adjusted basis in the property less insurance proceeds received

Further limitations
$100 is deducted from the loss caused by each occurence.
Only casualty losses in excess of 10% AGI are deductible

Question 17

QBI deduction is the lesser of….

Answer 17

20% of qualified business income or 20% of the taxpayers adjusted taxable income