R2

Question 1

Common adjustments to arrive at AGI

Answer 1

Educator expenses
Traditional IRA contribution deduction
Student loan interest deduction
Moving expenses (only for members of the US Armed Forces moving pursuant to military order)
Deductive part of self employment tax
Self employed health insurance deduction
Deduction for contributions to certain self employed retirement plans
Penalty on early withdrawal of savings
Alimony paid (on or before 12/31/18)
Attorney fees paid in certain discrimination and whistleblower cases

Question 2

Educators can deduct up to what amount of qualified expenses paid?

Answer 2

$300, if joint return and both educators $600 maximum deduction

Question 3

Three types of individual retirement accounts

Answer 3

Deductible traditional IRA
Roth IRA
Nondeductible traditional IRA

Question 4

What is the maximum annual contribution to IRAs:

Answer 4

lesser of $6000 or earned income (if married 12,000)

if 50 and over, lesser of 7,000 or earned income (if married 14,000)

note: for married couples combine their earned income

Question 5

Limitations on deduction of traditional IRA contributions

Answer 5

Participation in employer sponsored retirement plans: AGI phase out when “rich”

single: 68,000 - 78,000
MFJ: 109,000 - 129,000

Special Rule: OK if spouse not working unless super rich

MFJ: 204,000-214,000

Question 6

What is a qualified distribution (nontaxable)

Answer 6

Made at least 5 years after the first day of the year of the taxpayers first contribution

meets one of the following requirements:
age 59.5 or older
disabled
first time homebuyer (10k limit)
made to beneficiary after the taxpayers death

Question 7

Traditional IRA tax on

Answer 7

Distributions of both principal and earnings are taxable as ordinary income because got to take a deduction on the contributions (principal)

Question 8

Nondeductible Traditional IRA tax on

Answer 8

earnings only because did not get to take a deduction for contributions (principal)

Note: no phase out based on high income for nondeductible traditional IRA

Question 9

Early distribution penalty is

Answer 9

regular tax + 10% penalty

Question 10

Which early distributions are EXEMPT from penalty (CHIME)

Answer 10

Child (within one year of birth/adoption)
Home (first home - 10k limit)
Insurance premiums
Medical expenses (qualified ones)
Education (higher ed expenses)

Question 11

Adjustment for education loan interest is limited to

Answer 11

$2,500 per year

Question 12

What amount of self employment tax is deducted to arrive at AGI?

Answer 12

50% because you pay both employer and employee

Question 13

What amount of self employed health insurance is deducted to arrive at AGI?

Answer 13

ALL premiums paid for the taxpayer, spouse and dependents

Question 14

What is the maximum contribution to a SEP IRA

Answer 14

lesser of:
20% of self employment net income reduced by one half of self employment tax deduction

$61,000 ($67,500 for taxpayers age 50 or older)

Question 15

What is the maximum contribution to a SIMPLE IRA

Answer 15

lesser of:
100% of self employment net income reduced by one half of self employment tax deduction or

$14,000 ($17,000 for taxpayers 50+)

Question 16

What is the maximum contribution to a Solo 401k

Answer 16

lesser of:
20% of self employment net income reduced by one half of self employment tax deduction or

$61,000 ($67,500 for taxpayers age 50 or older)

Question 17

The following conditions must exist for alimony to be deductible (2018 & before)

Answer 17

Payments must be legally required under a written divorce (or separation) decree or agreement

Payments must be in cash (or it’s equivalent)

Payments cannot extend beyond the death of the payee-spouse

Payments cannot be made to members of the same household

Payments must not be designated as anything other than alimony

Question 18

If payment includes both child support and alimony, payments goes to what first

Answer 18

child support first and then alimony

Question 19

Standard deduction amount for different taxpayers

Answer 19

Single - 12,950
Head of household - 19,400
MFJ/Surviving Spouse - 25,900
MFS - 12,950

Note: MFS standard deduction is available only if both taxpayer and spouse do not itemize

Question 20

Additional Standard Deduction for age 65+ and/ blindness

Answer 20

1 qualified taxpayer:
65 or blind - 1,750 (1,400 married)
65 AND blind - 3,500 ( 2,800 married)

2 qualified taxpayers:
each 65 or blind - 2,800 married
both 65 AND blind - 5,600 married

Question 21

Standard deduction amount for a taxpayer who is a dependent of another

Answer 21

greater of:
1,150 or
earned income + 400

Question 22

Schedules to report

Answer 22

Personal Items - Schedule A
Business Items - Schedule C
Rental Items - Schedule E

Question 23

Individuals are typically “cash basis” and therefore to be tax deductible the item must ah e been

Answer 23

incurred as an expense
paid or charged to credit card before year end

Question 24

Calculation of deductible medical expenses

Answer 24

Qualified medical expenses
- Insurance reimbursement
= Qualified medical expenses “paid”
- 7.5% of AGI
= Deductible medical expenses

Question 25

Types of deductible medical expenses

Answer 25

medicine and prescription drugs (incl. medicare part d premiums)
doctors
medical and accident insurance premiums
medically necessary surgery
transportation to medical facility (actual costs or 18 cents per mile)
physically disabled costs

Note: cosmetic surgery required due to an accident or deformity can qualify

Question 26

Deductible Taxes (limited to 10k in aggregate)

Answer 26

Real Estate Taxes (state and local, prorate, does NOT include street, sewer and sidewalk assessment taxes)

Personal Property Taxes (must be based on the value of the personal property & paid during the tax year)

Income Taxes (state, local and foreign) - refunds are included in gross income if itemized deduction taken in PY

Sales Tax (can deduct instead of state and local income taxes)

Question 27

Nondeductible Taxes

Answer 27

Federal taxes (including social security)
Inheritance taxes for states
Business (Sch C) rental property taxes (Sch E)

Question 28

Deductible Interest Expense

Answer 28

Home mortgage interest up to 750,000 (375,000 MFS) - interest above these ants are treated as personal and not deductible

Investment Interest Expense (limited to net investment income)

Prepaid Interest - allocate to proper period

Question 29

Investment income includes

Answer 29

interest
dividends (other than qualified dividends)
short term capital gains
royalties (in excess of expenses)
net long term capital gains and qualified dividends (only if the taxpayer elects not to claim the reduced capital gains tax rate)

Question 30

Charitable Contributions Deduction based on type of property

Answer 30

ordinary income property:
amount of the deduction is the lesser of adjusted basis of FMV at the the time of contribution

long term capital gain property
amount of deduction is FMV at time of contribution

Question 31

AGI limitation on individual charitable contribution deductions to public charities

Answer 31

Cash - 60% of AGI
Ordinary income property - 50% of AGI
Long term capital gain property - 30% of AGI

Question 32

AGI limitation on individual charitable contribution deductions to private operating foundations (distributes funds to its own charitable programs)

Answer 32

Cash - 60% of AGI
Ordinary income property - 50% of AGI
Long term capital gain property - 30% of AGI

Question 33

AGI limitation on individual charitable contribution deductions to private non-operating foundations (distributed funds to other charitable organizations)

Answer 33

Cash - 30% of AGI
Ordinary income property - 30% of AGI
Long term capital gain property - 20% of AGI

Question 34

Individual charitable contribution carryover period

Answer 34

five years

Question 35

Deduction for Casualty Losses

Answer 35

Only deducible is sustained in a presidentially declared disaster area

Smaller of lost cost/adjusted basis or decreased FMV
-Insurance recovery
= Taxpayers loss
-100
=Eligible loss
-10% of AGI
=Deductible Loss

Question 36

Nonrefundable personal tax credits

Answer 36

child and dependent care credit
elderly and permanently disabled credit
educational credits
 hello

Question 37

Under an employee stock purchase plan

Answer 37

the option exercise price may not be less than the lesser of 85% of the FMV of the stock when granted or exercised

the option cannot be exercised more than 27 months after the grant date

Question 38

the gain on incentive stock options is

Answer 38

not recognized until the sale occurs

Question 39

employee stock purchase plans are

Answer 39

a type of qualified stock option plan

Question 40

in regards to stock options, the employer may recognize a deductible expense for a non qualified stock option

Answer 40

in the same year that the employee will recognize ordinary income

Question 41

for an incentive stock option, once exercised, the stock must be held for

Answer 41

at least two years after the grant date and at least on year after the exercise date

Question 42

the employee receiving a non qualified stock option must recognize

Answer 42

ordinary income in the amount of the value of the option if traded on an established market

Note: bargain element in non qualified stock options must be included in form W-2