R1 M4 - Adjustments

Question 1

50 % of self-employment tax is an

A. Adjustment for AGI
B. Itemized Deduction
C. Qualified Business Income

Answer 1

A. Adjustment

Question 2

Please come up with a list of adjustment to arrive at adjusted gross income?

Answer 2

DEAD HAM STEPS

Deduction for contribution to certain self-employed retirement plan

Educator expenses

Alimony paid ( before 12/31/2018)

Deductible part of self-employment tax

Health Savings account deduction

Attorney fees paid in certain discrimination and whistle blower

Moving expenses (only army)

Self-employed health insurance deduction

Traditional IRA Contribution deduction

Penalty on early withdrawal of savings

Student loan Interest deduction

Question 3

Question 4

The Roman received a $1,000 federal tax refund of the prior year’s tax. The Romans had paid $4,000 of federal income tax in the prior year. Is federal income tax taxable?

Answer 4

No federal income tax refund is not taxable

Question 5

Bob and Nancy are married and file a joint return for the current tax year. They are both under age 50 and employed with wages of $50,000 each. Their total AGI is $131,000. Bob is an active participant in a qualified retirement plan at work, but Nancy is not. What is the maximum traditional IRA deduction they can take for the current year?
A. $11,200
B. $14,000
C. $7,000
D. $0

Answer 5

Choice “A” is correct. Nancy may deduct the maximum amount of $7,000 because she is not covered by a qualified employer-sponsored retirement plan and their AGI is less than $230,000 (2024). Bob’s deduction is limited because he is covered by a qualified employer-sponsored retirement plan and their AGI is $8,000 into the phase-out range of $123,000 to $143,000 (2024). Because they are $8,000 into the $20,000 range, 40% of Bob’s deduction is phased out. $7,000 × 40% = $2,800. Therefore, Bob can only deduct $4,200 ($7,000 – $2,800). The total deduction is $11,200 (Nancy $7,000 + Bob $4,200).

Choice “B” is incorrect. $14,000 would be correct if they were both allowed the entire deduction ($7,000 × 2 = $14,000). Bob and Nancy are partially phased out because Bob participates in a qualified employer-sponsored retirement plan.

Choice “C” is incorrect. $7,000 (2024) would be correct if only one of them were allowed to deduct the IRA contribution. Nancy can take the full deduction and Bob can take a partial deduction.

Choice “D” is incorrect. Zero would be correct if they were completely phased out of the deduction. But there is only a partial limitation here.