R2: Adjustment

Question 1

The self-employment tax is

Answer 1

One-half deductible from gross income in arriving at AGI

Question 2

Student loan adjustment rules

Answer 2

• Above the line adjustment
• Maximum of $2,500
• Married couples must file jointly to claim the deduction
• Phased out at $80,000

Question 3

Earned income for SEP IRA plans

Answer 3

Net self-employment earnings reduced by 1/2 the self-employment tax

Question 4

Traditional IRA deduction

Answer 4

$6,000 per year ($12,000 per married couple)

Question 5

Phase-out of traditional IRA

Answer 5

AGI at $104,000 - 124,000

Question 6

Phase-out range for spouse who is not an active participant

Answer 6

AGI of $196,000 - 206,000

Question 7

Phase-out range for spouse who is not an active participant

Answer 7

AGI of $196,000 - 206,000

Question 8

Maximum deductible amount for SEP IRA

Answer 8

Lesser of net earnings OR[Net business income - 50% of self-employment tax] x 20%

Question 9

Vacation home rental rules: 14 days or 10% of days rented

Answer 9

If the property is rented for the greater of 14 days or 10% of total days rented, then gross income from rental is not taxable and none of the rental expenses are deductible

Question 10

Hobby revenue and expenses

Answer 10

Hobby revenue: taxable

Hobby expenses: not deductible

Question 11

Kiddie tax standard deduction

Answer 11

Greater of
$1,100 + itemized deductions related to unearned income OR
$2,200

Question 12

SEP IRA maximum contribution calculation

Answer 12

Lesser of:

• $57,000 maximum OR
• 20% of net earnings (business income minus expenses minus 1/2 self-employment taxes)