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CPA - Regulation 1 > R2-Individual Tax - Adjustment, Deduction, and Credits > Flashcards

R2-Individual Tax - Adjustment, Deduction, and Credits Flashcards

1
Q

Can you take all Adjustments?

A

Yes, you ALWAYS take every adjustment.

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2
Q

Adjustment/Itemized Deduction - What is above & below the line.

A

Adjustment is above the line (AGI). Itemized Deductions are below the line.

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3
Q

Educator Expense - Adjustment or Itemized Deduction?

A

Adjustments

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4
Q

IRA - Adjustment or Itemized Deduction?

A

Adjustments

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5
Q

Student Loan Interest Expense - Adjustment or Itemized Deduction?

A

Adjustments

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6
Q

Tuition and Fee Deduction - Adjustment or Itemized Deduction?

A

Adjustments

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7
Q

Health Savings Account - Adjustment or Itemized Deduction?

A

Adjustments

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8
Q

Moving Expenses - Adjustment or Itemized Deduction?

A

Adjustments

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9
Q

One-Half Self-Employent FICA - Adjustment or Itemized Deduction?

A

Adjustments

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10
Q

Self-Employment Health Insurance - Adjustment or Itemized Deduction?

A

Adjustments

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11
Q

Self-Employment Retirement - Adjustment or Itemized Deduction?

A

Adjustments

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12
Q

Interest Withdrawl Penalty - Adjustment or Itemized Deduction?

A

Adjustments

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13
Q

Alimony Paid - Adjustment or Itemized Deduction?

A

Adjustments

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14
Q

Attorney Fees Paid in Certain Discrimination/Whistleblower Cases - Adjustment or Itemized Deduction?

A

Adjustments

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15
Q

Alimony Paid - Adjustment or Itemized Deduction?

A

Adjustments

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16
Q

Domestic Production Activity Deduction - Adjustment or Itemized Deduction?

A

Adjustments

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17
Q

What is a deduction to arrive at adjusted gross income

A

Adjustments

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18
Q

Are One Half Self Employment FICA, Self-Employed Health Ins., and Self Employed Retirement deducted at Schedule C?

A

Not Deducted on Schedule C

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19
Q

What is a deduction after adjusted gross income

A

Itemized Deduction / Standard

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20
Q

How much can an eligible educator deduct? Single? Married?

A

$250 Single / $500 Marries

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21
Q

What are the 4 types of IRA’s?

A

Deductible IRA (standard), Nondeductible IRA, Roth IRA, Coverdell Education Savings Account (IRA)

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22
Q

Are earnings accumulated taxed for Deductible IRAs? Withdrawn?

A

Earnings accumulate tax-free. Withdraws are taxed at Ordinary Income.

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23
Q

When are you not permitted to deduct a contribution to an IRA?

A

Excessive AGI & Active Participant in Another Plan

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24
Q

What is the income limit for Deductible IRAs Single & Married?

A

$60-70K for Single/HoH and $96-116K for Joint.

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25
Q

If make $1,000,000 and not in Company Pension Plan. Can you take an IRA?

A

Yes, because it is Excess AGI AND active participant in Another plan

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26
Q

What is the exception to the Active Participant in Another Qualified Plans for IRA’s?

A

Not considered an active participant simply because Wife if an active participant.

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27
Q

What is the phase out for Deductible IRA for individuals who are not active participants, but whose spouse is?

A

$181-$191K. H & Wife tested individually unless “Super Rich”

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28
Q

What is the deductible amount of a regular IRA/ Roth IRA / Coverdell?

A

$5,500 or Individual’s Compensation (2014) – $2,000 annually per beneficiary

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29
Q

What is the deductible amount of a regular IRA/ Roth IRA / Coverdell for Married Couples?

A

$11,000 ($5,500 each spouse)

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30
Q

Name a few things that does not inclue compensation?

A

Interest, Dividends, Annuity Income, and Pensions.

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31
Q

What is Additional Catch-Up Contribution ? How Much?

A

Individuals over 50 can additionally contribute (adjustment) of $1000

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32
Q

How is a Roth IRA taxed?

A

No Tax Impact Now or Later.

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33
Q

What is the Phase-Out Income Limits for Single? Joint? And Married Filing Sepertely for Roth IRA’s?

A

$114-129K for Single; $181-191K for Joint Filing; $0-10K for Married Filing Sepertely

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34
Q

What is the difference between Deductible and Nondeductible IRA?

A

The Principle Contribution is Nontaxable.

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35
Q

Why would anyone want a Nondeductible IRA?

A

Last Resort. Ex. $1M income and Pension Plan.

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36
Q

What is the Maximum Tuition and Fees deduction? Above or Below the Line?

A

$4,000 - Above the line.

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37
Q

Does the education have to be Work-Related if Tuition and Fees Deduction to be valid?

A

No. It can be any class.. Photography, Math, etc.

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38
Q

What happens if you exceed your Maximum Limit for Tuition and Fees Deduction?

A

Expenses above the maxiumum are only deductible as education expenses.

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39
Q

What is the Phase Out Rule for Tuition and Fees Deduction?

A

$4K for AGI up to $65K Single/$130K Joint.. $2K for $65-80K/160K joint… No Adjustment in excess of $80K / $160K Joint.

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40
Q

What are Health Savings Accounts?

A

Pretax contributions to those with High Deductible Heaht Insurance ($3,300K for Single/ $6,550 for Family). No Contribution for Medicare Part A or B members

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41
Q

Do Moving Expenses have to be Work Related?

A

Yes

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42
Q

What is the only employee (not Self) deduction above the line?

A

Moving Expenses. Everything is Itemized

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43
Q

What are the rules for taking Moving Expenses as a deduction?

A

New Workplace has to be 50miles away; Must be Employed Full Time 39 out of 52 weeks (75%), and only Direct Moving Expenses (moving household goods, lodging, etc)

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44
Q

What are nondeductible Direct Moving Expenese?

A

Meals, Prehouse House Hunting, Expense of Breaking a Lease, and Temporary Living Expense.

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45
Q

What 3 above the line deductions are not allowed on Schedule C?

A

Tax on Self Employment (50%), Self-Employment Health Insurance (100%) and Keogh Profit Sharing Plan.

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46
Q

What is the Maximum Annual Deduction Amount for Keogh Plans

A

$52K or 25% net (Keough/Self Empl) earnings

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47
Q

What is the Maximum Annual Deduction Amount for Keogh Plans

A

$52,000 or 100% net earnings (if comp is less than $52K.

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48
Q

What is the Keogh Net Earnings Formula?

A

Business Income - Business Expense = Net Business Income - 1/2 Social Security Tax - Keough Deduction = Keogh Net Earnings x 25%

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49
Q

What is Penalthy on Early Withdrawl of Savings (Interest Income) - Interest Forefeited

A

Early Withdrawl of savings funds in a C.D. before Maturity. DO NOT NET AGAINST INTEREST INCOME.

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50
Q

What are the rules for Alimony/Spousal Support?

A

Legally Required, Must be in Cas, Cannot Extend Beyond Death, Cannot be made to other members of home, Not be designated as anythign else, Must not file jointly.

51
Q

Child Support (Nontaxable to ______ / Nondeductible to _____)

A

Nontaxable to Payee / Nontaxable to Payor.

52
Q

Property Settlements (Nontaxable to ____ / Nondeductible to ______)

A

Nontaxable to Wife .. Nondeductible to Husband

53
Q

What is the Additional Deduction for those who take Standard Deduction? For Whom?

A

Elderly or Blind - this is an ADDITIONAL deduction, not an additional exemption

54
Q

What is the Limitation of Itemized Deduction?

A

If your AGI is about 250K or so… Reduced by 3% by which the taxpayer AGI exceeded amts. Itemized Deductions may not be reduced below 80% of amt before phaseout.

55
Q

What are the 4 items that are not a part of the Phase Out for Limitation of Itemized Deduction?

A

Gambling Loses, Investment Interest Expense, Medical Expenses, and Casualty/Theft (non business). G.I.M.C. - Gimmick. Always allowed 100%

56
Q

Itemized Deductions go under Scheduld ___ for Personal? Schedule ___ for Business? Schedule ____ for Rental

A

Form 1040 Schedula A for Personal - Schedule C for Business - Schedule E for Rental.

57
Q

What are the list of items listed under Itemized Deduction for its respective Schedule?

A

Medical, Taxes, Interest, Charity, Casuality, Misc.

58
Q

When can’t you claim ‘Mom’ as a dependent. Widow, Pay all expenses, etc?

A

When she makes too much taxable income?

59
Q

If mom makes too much taxable income and can’t claim her as a dependent, but we pay all of her medical expenses? Can we claim her

A

Yes, you can claim. Dependent for Medical Itemized Deductions does not consider dependent gross income.

60
Q

Can you claim Medical Expenses for Pets?

A

No

61
Q

When can you claim Medical Expenses as Itemized Deduction.

A

When Paid (Cash or Check) or Charged (Credit Card) even if not ‘paid’ till next year)

62
Q

Qualified Medical Expenses to the extent they exceed Medical Insurance Reimbursement and_____ of AGI are deductible

A

10% of AGI.

63
Q

Medicine & Drugs - Deductible or Nondeductible Medical Expense?

A

Deductible Medical Expense

64
Q

Doctors - Deductible or Nondeductible Medical Expense?

A

Deductible Medical Expense

65
Q

Medical and Accident Insurance - Deductible or Nondeductible Medical Expense?

A

Deductible Medical Expense

66
Q

Transportation to Medical Facility - Deductible or Nondeductible Medical Expense?

A

Deductible Medical Expense

67
Q

Physically Handicapped Costs - Deductible or Nondeductible Medical Expense?

A

Deductible Medical Expense

68
Q

Elective Surgery - Deductible or Nondeductible Medical Expense?

A

Nondeductible Medical Expense (cosmetic surgery due to accident or deformity can qualify)

69
Q

Life Insurance - Deductible or Nondeductible Medical Expense?

A

Nondeductible Medical Expense

70
Q

Capital Expenditure - Deductible or Nondeductible Medical Expense?

A

Nondeductible Medical Expense (Up to Increase in FMV of Propery beciase of the Expenditure)

71
Q

Gym Membership Recommended by Dr for General Health - Deductible or Nondeductible Medical Expense?

A

Nondeductible Medical Expense (more specific for it to be deductible)

72
Q

Personal Hygiene and other personal items - Deductible or Nondeductible Medical Expense?

A

Nondeductible Medical Expense

73
Q

Medical Cost of Installing wheelchair to go upstairs cost $10K and improved value of home by $1. How much is deductible

A

$9K

74
Q

How do you treat Insruance Reimbursements when dealing with Medical expenses?

A

Amt repaid to taxpayer by hospital, health, or accident insurance must reduce otherwise allwoable expenses (before 10% of AGI is applied)

75
Q

Medical Expenses to the extent they exceed ____ of taxpayers AGI are or are not deductible?

A

Medical Expenses to the extent they exceed 10% of taxpayers AGI are deductible

76
Q

For Whom is State, Local, and Foreign Taxed generally deductible?

A

Cash-Method Taxpayers. NOT Federal Income Taxes

77
Q

Real Estate Taxes - Deductible or Nondeductible State/Local/Foreign Tax?

A

Deductible Tax

78
Q

Income Taxes - Deductible or Nondeductible State/Local/Foreign Tax?

A

Deductible Tax

79
Q

Persoanl Perperty Taxes (State and Local Taxes) - Deductible or Nondeductible State/Local/Foreign Tax?

A

Deductible Tax

80
Q

Sales Tax (as of 12/31/2013) - Deductible or Nondeductible State/Local/Foreign Tax?

A

Deductible Tax

81
Q

Federal Income Taxes (includes Social Security) - Deductible or Nondeductible State/Local/Foreign Tax?

A

Nondeductible Tax

82
Q

Inheritance Taxes for States - Deductible or Nondeductible State/Local/Foreign Tax?

A

Nondeductible Tax

83
Q

Federal Estate pick-up Tax - Deductible or Nondeductible State/Local/Foreign Tax?

A

Nondeductible Tax

84
Q

Business (on Schedule C) Tax - Deductible or Nondeductible State/Local/Foreign Tax?

A

Nondeductible Tax

85
Q

Rental Property Tax (on Schedule E) Tax - Deductible or Nondeductible State/Local/Foreign Tax?

A

Nondeductible Tax

86
Q

What is H I P P E in Interest Expense?

A

Home - Interest - Personal - Prepaid - Education

87
Q

What are the 7 things that you need for Real Estate Taxes to be Deductible?

A
  1. Must be legally obligated to pay. 2. Prorated taxes in year of sale/puchase. 3. Taxes Paid under Protest (recovery is G.Inc) rest is R2-20
88
Q

Do Real Estate Taxes include Street, Sewer, Sidewalk Assessment?

A

No. No Special Assesment.

89
Q

If you pay backtaxes on state taxes… When do you claim deduction? Now or different year?

A

Now. Deduct in year paid NOT in year it applies to.

90
Q

Can you deduct state and local income tax and state and local general sales tax?

A

No. You must take one OR the other. Deduct State and Local INCOME OR State and Local SALES Tax, – Income Tax or State Sales Tax

91
Q

What are the 3 Nondeductible Taxes?

A

F. I. B. - Federal Taxes - Inheritance Tax for States - Business (on Sch C)

92
Q

Home Mortgage Interest - Deductible or Nondeductible Interest Expense?

A

Deductible - Allowed for Qualified Residence Interest on 1st or 2nd home (1M for Married. $500K for MFS).

93
Q

Investment Interest - Deductible or Nondeductible Interest Expense?

A

Deductible - Limited to Net (Taxable) investment Income

94
Q

Personal Interest - Deductible or Nondeductible Interest Expense?

A

Not Deductible

95
Q

Prepaid Interest - Deductible or Nondeductible Interest Expense?

A

Deducted when Incurred AND Paid

96
Q

Educational Interest - Deductible or Nondeductible Interest Expense?

A

Education Loan Interest is an Adjustment, not an itemized deduction. - Max $2,500. Excess is not allowed.

97
Q

How many days must a 2nd home be used for personal purposes to be counted as a 2nd Home

A

14 days

98
Q

What are the two categories of qualified residence interest as a deductible interest expense?

A

Acquisition Indebtedness ($1M. $500K MFS maximum) and Home-Equity Indebtness ($100K/ $50 MFS maximum)

99
Q

The investment interest deduction for individuals is limited to _____ (taxable) investment cincome.

A

The investment interest deduction for individuals is limited to net (taxable) investment income. Like Gambling Loss Rules.

100
Q

What is excluded as Investment (Taxable) Income?

A

Interest expense used to purchase tax-free bonds is not deductible. No Negative Dollars allowed as Deduction

101
Q

Charitable Contributions - Which are Tax Deductible? Charity - Gifts - Political Contributions

A

Charity is Tax Deductible – Gifts & Political Contributions are nondeductible.

102
Q

What is the deductible amount for Charitable Contributions?

A

Cash or FMV.

103
Q

What is the maximum allowable deduction for Charitable Contribution?

A

Overall limit 50% – 50% of AGI for Cash – Lesser of basis or FMV for AGI for general property – 30% for L-Term Appreciated Proprery

104
Q

If you bought a charitable raffle ticket - Is it a charitable deduction?

A

No

105
Q

If you paid $200 for a ticket to a ball who’s value was $50 - Is it a Charitable Deduction?

A

$150

106
Q

When is the deduction allowed for Charitable Contributions for Cash/Check/Credit Cards?

A

When Paid for Cash or Check. When Charged for Credit Card

107
Q

Can you deduct the value of time or services donated to Charitable Contributions?

A

No’

108
Q

If I gave away more than 50% of AGI for Charitable Contribution.. Can I carry over?

A

Yes - Charitable Contributions Carryovers are applied on a first-in, first-out basis.

109
Q

Casualty and Theft Losses are deductible? How Much?

A

Yes - 10% of AGI.

110
Q

What are some Miscellaneous Itemized Deduction? What are the rules for them

A

These are only taken if the combined exceed 2% of AGI and were not taxen as an exemption

111
Q

What is the ‘Adjustment’ for Unreimbursed Business Expenses?

A

Only Moving Expenses are adjustments. Everything else is Misc Itemized Deductions

112
Q

What are some Itemized deductions for Unreimbursed Business Expenses for Employees?

A

Travel, Meal, Lodges (Self Empl on Sch C). - Transportation Expenses (100%) - Meals/Entertainment (50% deductible)

113
Q

When can you claim an educational expense as an Itemized Deduction? When are you disqualified

A

Qualified to main or improve skills needed for job. Disqualified if they were needed to meet minimum job requirements.

114
Q

Are uniforms an Miscellaneous Itemized Deduction for Business Expenses

A

Yes.

115
Q

Are Business Gifts an Miscellaneous Itemized Deduction for Business Expenses

A

$25 per receipent per year

116
Q

Are Business Use of Home an Miscellaneous Itemized Deduction for Business Expenses

A

Yes, for part of home exclusively used for work

117
Q

Are Employement Agency Fees an Miscellaneous Itemized Deduction for Business Expenses

A

Yes for looking for a new job in the same profession. Not deductible for first job or new profession

118
Q

Are Expenses of Investors (Safe Deposit Box/Inv. Advice) an Miscellaneous Itemized Deduction for Business Expenses

A

Yes.

119
Q

Are Subscription to Professional Journals an Miscellaneous Itemized Deduction for Business Expenses

A

Yes

120
Q

Are Tax Preperation Fees an Miscellaneous Itemized Deduction for Business Expenses

A

Yes for taxpayers return. No for divorce, unless related to tax planning aspects or pursuing taxable income

121
Q

Are Debit Card Convenience Fees an Miscellaneous Itemized Deduction for Business Expenses

A

Yes the year they were incurred

122
Q

Is there a deduction for Activites not engeined in for profit (hobbies)

A

No Deduction

123
Q

Are Gambling Losses fully deductible as Other Miscellenous Deductions? Subject to 2% of AGI?

A

Fully Deductible. Not subject to 2% of AGI

124
Q

Are Federal Estate Tax Paid on Income for Descentent fully deductible as Other Miscellenous Deductions? Subject to 2% of AGI?

A

Fully Deductible. Not subject to 2% of AGI

CPA - Regulation 1 (2 decks)

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