Module 1: Adjustments

Question 1

“AGI” “Adjusted gross income” “above-the-line deductions” “deductions to arrive at adjusted gross income”

Answer 1

-Educator expenses
-IRA deduction
-Student loan interest deduction
-Tuition and Fees deduction
-Health savings account deduction
-Moving expenses
-Alimony paid: Child support cannot be deducted or used as income “taxed” and use up child support before alimony. But alimony paid to spouse can be deducted.
-Attorney fees discrimination
-Domestic production activities “murica”
(deductible self-employment tax, health insurance, and deductions for contributions on individual tax return NOT reported on schedule C)

Question 2

Educator Expenses

Answer 2

Deduct up to $250 or $500 joint for qualified expenses paid.

• qualified is books, supplies, software or computer equipment, professional development “one appropriate for profession as educator”
• reduce expenses by Series EE bonds, Coverdell education savings account, state tuition earnings program

Question 3

IRA “Individual Retirement Accounts” R2-9 for chart

Answer 3

Deductible IRA: Earnings accumulate tax free but taxed as income when withdrawn which means amount contributed is adjustment to AGI. *Unless rich ($62k single $99k joint or a person in another retirement plan actively and $186k phase out joint where one in plan one isn’t)
-Max deductions is lesser of $5,500 or $11,000 joint or individual compensation (aka salary or wages, not interest or dividends) or if 50 or over get another $1,000

Roth IRA: Contributions not deductible when made “aka taxed”. But what you earn in account is tax-free and is qualified distribution and interest is tax-free.

• deductible $5,500 or $11,000
• qualified nontaxable if 59 1/2, beneficiary after taxpayer death, disabled, “first time” home buyer.

Nondeductible IRA: Distributions will be taxed with previous untaxed earnings when withdrawn, not taxed what contributed to principal

Coverdell education IRA: Pay education expenses of a beneficiary. Max adjustment is $2,000 per person beneficiary. Phased out when make over $100k. Principal and earnings nontaxable when withdrawn.

Question 4

Student Loan Interest Expense

Answer 4

Max adjustment is $2,500. Phased out when $65k single $135k joint.

Question 5

Tuition and Fees Deduction

Answer 5

Max deduction of $4,000 for 65k or lower, $2,000 in between $65-$80k, $0 over 80k

Question 6

Health Savings Account

Answer 6

• pretax contributions max $3,400 to cover healthcare costs, 10% penalty if used wrongly
• Cant take out more than $6,500 or $13,000 joint to pay expenses

Question 7

Moving Expenses

Answer 7

New workplace must be 50 miles further from old house. Must stay 75% of the year. Direct moving costs only allowed. “travel and lodging of family”, “tolls or parking fees”

Question 8

Self-employment

Answer 8

• Can deduct 50% of social security tax to arrive at AGI
• Can deduct 100% of health insurance premiums for family
• Keogh Plan “Self-employment retirement plan”: can tax max deduction of lesser $54k or 25% net earnings after deduction is applied

Question 9

Domestic Production Activities

Answer 9

adjustment of 9% if qualified production in US. Can be for sale rent or lease of manufactured equipment.