R2-M1 Adjustments

Question 1

what are adjustments?

Answer 1

deductions to arrive at adjusted gross income

Question 2

what is limitation for educator expenses?

Answer 2

• can deduct up tp $300 of qualified expenses for single, and $600 for MFJ if both couple are educators
• eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal or aid working in a school for at least 900 hours during school year
• DO NOT include for homeschooling

Question 3

what is deductible traditional IRA?

Answer 3

• Deductible Traditional IRA: is deductible from gross income to arrive at AGI.
• Contribution must be made by 4/15
• earnings accumulate tax free UNTIL withdrawn
• Distributions are taxable as ordinary income
• required minimum distribution (RMD) is by 4/1 of the following year in which taxpayer reaches 73 yrs old
• deduction is limited if the taxpayer or spouse participates in an employer-sponsored plan or super rich

Question 4

what is ROTH IRA?

Answer 4

• Contributions are NOT deductible when made
• earnings accumulate tax free
• Distribution of principal is tax free, but distribution of earnings may be taxable, depending on if the distribution is “qualified” or “nonqualified”
  + qualified distribution: at least 5 years after the first day of the taxpayer’s first contribution to ROTH; and meet one of the these: 59.5 yrs old or older, disabled, first-time homebuyer (10k), death
• No RMD because ROTH IRA is not taxable

Question 5

what is nondeductible traditional IRA?

Answer 5

• final option: used when not eligible for both deductible traditional and roth
• overall limitation still applies ($6,500 or earned income)
• RMD required
• no phase-out based on high income

Question 6

what happens when rollover from traditional to roth IRA?

Answer 6

• taxed as if it is a distribution
• not subject to 10% penalty tax

Question 7

what is rule of student loan interest expense?

Answer 7

• limited to $2,500 per year
• phase out for AGI applies

Question 8

what are rules of Health savings accounts?

Answer 8

• enable workers with high-deductible health insurance plans (have at least $1,500 annual deductible for self coverage and $3000 for family) to make pretax contribution up to $3,850 (2023) or $7,750 (families) to cover health care costs

Question 9

what is rule about moving expense?

Answer 9

Only allowed for members of the Armed Forces (or spouses and dependents) on active duty when moving pursuant to military orders

Question 10

what are rules of self-employment tax?

Answer 10

• self-employed taxpayers are subject to 2 taxes: income tax and self-employment (social security and medicare) tax
• 50% of self-employment taxi is deducted at arrive at AGI

Question 11

what are two expenses NOT deducted on Sch C?

Answer 11

• Self-employment tax
• Self-employed health insurance
• self-employed retirement plans

Question 12

what are considered cash equivalent regarding alimony payment?

Answer 12

• Pay credit card bills
• pay tuition

Question 13

what is earned income defined as?

Answer 13

net self-employment earnings reduced by 50% of the self-employment tax