R1 and R2

Question 1

Social security tax withheld in an amount greater than the maximum. R1 M7

Answer 1

An employee who has had social security tax withheld in an amount greater than the maximum for a particular year may claim the excess as a credit against income tax, if that excess was correctly withheld by two or more employers.

Question 2

Calculating AGI

Answer 2

Not all inclusive

Excluded
Workers’ compensation
Loss on sale of personal property/residence

Included
Wages
Damages received for slander

Question 3

Rick purchased 100 shares of XYZ stock on April 4, Year 4, for $8,600.
He sold 50 shares on February 8, Year 5, for $3,000.
He then bought another 50 shares of XYZ on March 1, Year 5, for $3,200.
What is Rick’s basis of the 50 shares purchased on March 1, Year 5?

Answer 3

Rick sold half of the original shares for $3,000. The cost of those shares is $4,300, half of the original purchase price. The realized loss is $1,300 ($3,000 – $4,300).
However, he bought back the shares less than 30 days later.
Therefore, under the wash sale rules, none of the loss is recognized and it is all deferred.
Rick’s cost of the shares purchased on March 1, Year 5, is $3,200. The cost is increased by the deferred loss of $1,300 to arrive at a basis of $4,500 ($3,200 + $1,300).

Question 4

Dependency with multiple support agreement.

Answer 4

In a multiple support agreement, all must be qualifying relatives who together contribute more than 50% of the support of the dependent.
In addition, a contributor must have provided more than 10% of the individual’s support to claim the individual as a dependent.

Question 5

Section 179 vs Depreciation

Answer 5

The total amount that is deductible over time is the same for both cost recovery methods. The total cost of the asset is deducted in the first year under Section 179, subject to certain limitations. If the asset is depreciated, a portion of the total cost is deducted each year over the life of the asset, so that the total cost of the asset has been deducted by the end of the asset’s life.

Question 6

Refundable credits

Answer 6

F.A.C.E.S.
Federal income tax withheld from W-2
American opportunity credit (40% refundable)
Child tax credit (refund is limited)
Earned income credit
Social Security tax paid in excess of maximum

Question 7

Non-refundable credits

Answer 7

Child and dependent care credit
Elderly and permanently disabled credit
Education credits
* Lifetime learning credit
* American opportunity credit (60% nonrefundable)
Retirement savings contribution credit
Foreign tax credit
General business credit
Adoption credit

Question 8

Recognized vs Realized

Answer 8

Realized gain – The actual profit earned when selling an asset or investment for more than its original purchase price or adjusted cost basis. It is the basic calculation of the gain realized from the transaction

Recognized gain – The portion of the total realized gain that is included or “recognized” in taxable income and accounted for in financial statements. Some realized gains may be deferred or excluded from taxable income.