M1 Adjustments Flashcards
MCQ-04884
Which of the following is not an adjustment to arrive at adjusted gross income?
Qualified mortgage interest paid.
Qualified mortgage interest paid is deductible on Schedule A as an itemized deduction.
MCQ-14715
Which of the following is not a deduction to arrive at adjusted gross income?
Mortgage interest.
Mortgage interest is an itemized deduction, not a deduction to arrive at adjusted gross income.
MCQ-14716
Which allowable deduction can be claimed in arriving at an individual’s adjusted gross income?
Alimony payment pursuant to a divorce settlement executed on or before December 31, 2018.
Alimony payments are deductible to arrive at adjusted gross income (AGI) if the payments are made pursuant to a divorce settlement executed on or before December 31, 2018.
MCQ-14720
In the current year, a self-employed taxpayer had gross income of $57,000. The taxpayer paid self-employment tax of $8,000, self-employed health insurance of $6,000, and $5,000 of alimony pursuant to divorce finalized in 2007. The taxpayer also contributed $2,000 to a traditional IRA. What is the taxpayer’s adjusted gross income for the year?
$40,000
Adjusted gross income is gross income minus adjustments. Half of the $8,000 self-employment tax is an adjustment for AGI, as is the $6,000 self-employed health insurance, the
$5,000 alimony, and the $2,000 contribution to a traditional IRA. Alimony paid pursuant to a divorce settlement executed on or before December 31, 2018, is deductible by the payor. Alimony paid pursuant to a divorce settlement executed after December 31, 2018, is not deductible. All of these amounts (total of $17,000) are subtracted from the $57,000 gross income to arrive at AGI of $40,000.
MCQ-15448
For the current year, Val and Pat White filed a joint return. Val earned $40,000 in wages and was covered by his employer’s qualified pension plan. Pat was unemployed and received $5,000 in alimony payments (from a divorce agreement executed in 2017) for the first four months of the year
before remarrying. The couple had no other income. Each contributed $5,000 to a traditional IRA account. The allowable IRA deduction on their current year joint income tax return is:
$10,000
In 2022, taxpayers can contribute and deduct up to $6,000 per year to a traditional IRA. Alimony paid pursuant to divorce or separation agreements executed before December 31, 2018, is considered earned income for IRA purposes. For couples filing a joint return where at least one spouse is an active participant in a retirement plan, the deductible portion of the contribution is phased out. For a spouse who is an active participant, the phase-out range in 2022 begins at AGI of $109,000 and is complete at $129,000. For a spouse who is not an active participant, but is married to someone who is, the phase-out range begins at $204,000 and is complete at $214,000 (2022). The earned income for IRA purposes here is $45,000 ($40,000 salary + $5,000 taxable alimony), which is below both phase-out ranges, so each spouse receives a deduction of the $5,000 contribution actually made.
MCQ-15608
In the current year, Mike and Jane Smith filed a joint return. Mike earned $40,000 in wages and was covered by his employer’s qualified retirement plan. Jane was employed part-time and received $7,000 in wages. The couple had no other income. Each contributed $5,000 to a traditional IRA account. The allowable IRA deduction on their current year joint tax return is:
$10,000
In 2022, taxpayers can contribute and deduct up to $6,000 to a traditional IRA. For couples filing a joint return, where at least one spouse is an active participant in a retirement plan, the deductible portion of a traditional IRA contribution is phased out. For a spouse who is an active participant, the phase-out range in 2022 begins at $109,000. For a spouse who is not an active participant, but is married to someone who is, the phase-out range in 2022 begins at $204,000. The Smiths’ income is below both phase-out ranges, so they can each deduct the full $5,000 contributed, or $10,000 in total.
MCQ-06532
An individual starts paying student loan interest in the current year. How many years may the individual deduct a portion of the student loan interest?
Duration of time that interest is paid.
Taxpayers may deduct student loan interest (above-the-line for AGI) paid on qualified education loans up to a maximum of $2,500 for the tax year. There is a phase-out for the deduction and other minor restrictions, such as a married couple being required to file joint returns to take the deduction. There is no limitation of the number of years that the interest may be deducted, other than that the interest may be deducted only when paid.
MCQ-15610
In the current year, an unmarried individual with modified adjusted gross income of $25,000 paid $1,000 interest on a qualified education loan entered into on July 1. How may the individual treat the interest for income tax purposes?
As a $1,000 deduction to arrive at AGI for the year.
The $1,000 of qualified education loan interest paid in the year is reported as a deduction to arrive at AGI for the year. The taxpayer’s AGI of $25,000 is below the phase-out threshold for unmarried taxpayers, so the deduction is not phased out.
MCQ-02009
During the year, Barlow moved from Chicago to Miami to start a new job, incurring costs of $1,200 to move household goods and $2,500 in temporary living expenses. Barlow was not reimbursed for any of these expenses. What amount should Barlow deduct as itemized deduction for moving expense?
$0
Moving expenses are only deductible by members of the U.S. armed forces on active duty when moving pursuant to military orders.
MCQ-12113
Davis, a sole proprietor with no employees, has a SEP IRA plan to which he may contribute and deduct 20 percent of his annual earned income. For this purpose, “earned income” is defined as net self-employment earnings reduced by the:
One-half of the self-employment tax.
For SEP IRA plans, earned income is defined as net self-employment earnings reduced by one-half of the self-employment tax.
MCQ-01960
The self-employment tax is:
One-half deductible from gross income in arriving at adjusted gross income.
MCQ-14721
For the current year, Jennifer has self-employment net income of $50,000 before any SEP IRA deduction and no other earned income for the year. The total amount of self-employment tax related to Jennifer’s earnings was $7,064. What is the maximum amount Jennifer may deduct for contributions to her SEP IRA for the year?
$9,294
The maximum annual deductible amount for self-employed individuals to a SEP IRA is the lesser of $58,000 or 20 percent of net earnings. “Net earnings” is defined as net self-employment income minus 50 percent of self-employment (S/E) taxes.
Net self-employment income $50,000
50% of self-employment taxes (3,532) [$7,064 × 50%]
Self-employment earnings before SEP IRA 46,468
Times 20%
Calculated SEP IRA Deduction $9,294
The 20 percent of self-employment earnings is less than the maximum of $58,000, so the SEP IRA deduction is $9,294.
MCQ-08784
Which of the following amounts represents an adjustment for adjusted gross income (AGI) for the current tax year?
Alimony paid to a former spouse pursuant to a divorce agreement executed in 2014
Alimony paid to a former spouse based on a divorce agreement executed on or before December 31, 2018, is an adjustment to gross income.
MCQ-12112
Pat’s divorce decree, finalized in 2016, requires Pat to make the following transfers to Pat’s former spouse during the current year:
- Alimony payments of $9,000 to be reduced to $7,000 when their child attains the age of 18.
- Property division of stock with a basis of $2,000 and a fair market value of $3,500.
What is the amount of Pat’s alimony deduction for the current year?
$7,000
Any amount of “alimony” that is dependent on a child reaching the age of 18, will be considered child support (which is not deductible) for tax purposes. Accordingly, only the
$7,000 is deductible as alimony. Note that alimony paid on divorce settlements executed after December 31, 2018, is not deductible.
MCQ-14719
Tana’s 2015 divorce decree requires Tana to make the following transfers to Tana’s former spouse during the current year:
Alimony payments of $3,000.
Child support of $2,000.
Property division of stock with a basis of $4,000 and a fair market value of $6,500.
What is the amount of Tana’s alimony deduction for the current year?
$3,000
RULE: Alimony payments to a former spouse pursuant to a divorce settlement executed on or before December 31, 2018, are adjustments to arrive at AGI. Child support payments are not alimony and are not deductible. Property settlements are not alimony and are not deductible. Alimony paid in a
divorce settlement executed after December 31, 2018, is not deductible.
