REG 2

Question 1

Adjustments and Deductions - List the deductions for AGI.

Answer 1

Educator Expenses, IRA, Student Loan Interest Expenses, Tuition and Fee Deduction, Health Savings Account, Moving Expenses, One-Half Self-Employment FICA, Self-Employed Health Insurance, Self-Employed Retirement, Interest Withdrawal Penalty, Alimony Paid, Attorney fees paid in certain discrimination and whistleblower cases, Domestic Production Activities Deduction.

Question 2

Adjustments and Deductions - Which is a deduction for AGI: Child Support or Alimony?

Answer 2

Deduction for AGI = Alimony Paid, Child Support is not Alimony and is not deductible by the payor or taxable to the recipient.

Question 3

Adjustments and Deductions - What are the limits on IRA deductions?

Answer 3

For IRAs the lesser of $5,000 or individual’s compensation, with a nonworking spouse, limit is $10,000 provided the combined earnings of both spousestotal at least that much. Where a spouse is an active participant in an employer retirement plan, the allowable deduction to arrive at AGI is phased out proportionally for modified AGI between $56,000 (base) and $66,000 ($90,000 and $110,000 for married filing jointly). {2011} Phase-out percentage is 20% of the maximum IRA deduction (AGI less base).

Question 4

Adjustments and Deductions - What are the limits on nondeductible IRAs?

Answer 4

The lesser of: $5,000 (2011); Individual’s compensation; Limit not contributed to other regular and Roth IRAs; Earnings on such contributions will accumulate tax-free (deferred) until withdrawn.

Question 5

Adjustments and Deductions - What is the time limit on Cowerdell Education Savings Account (Education IRAs)?

Answer 5

Any amounts remaining when the beneficiary reaches the age of 30 must be distributed. Left over funds = Must be distributed to beneficiary, taxable, and a 10% penalty assessed; or Rollover to another family member is permitted with no 10% penalty.

Question 6

Adjustments and Deductions - What are the limits on deductions to Keogh plans?

Answer 6

Keogh plans are for self-employed taxpayers and their employees. Deductible amount is lesser of 25% of net earnings from self-employment (after Keogh deduction) and one-half of self-employment tax or $49,000 (2011). The maximum annual addition (contribution) may exceed the deductible amount for the year. It is limited to the lesser of $49,000 (2011) or 100% net earnings if compensation is less than $49,000.

Question 7

Adjustments and Deductions - Describe the self-employed deductions (adjustments) for AGI.

Answer 7

Self-employment tax: 50% of self-employment tax; Self-employed health insurance: 100% may be deducted.

Question 8

Adjustments and Deductions - What are the requirements for moving expenses to be deductible?

Answer 8

*Must change job sites. *50-mile move (distance from former residence to new job site must be 50 miles or more of the distance from former residence to former job site). *Must work in new location for 39 weeks furing the 12 months folowing arrival (If self-employed, 78 weeks furing the 24-month period after arrival). NOTE: There is a per-mile car allowance or actual out-of-pocket amounts. Meal costs are not deductible.

Question 9

Adjustments and Deductions - What is the additional deduction for elderly and/or blind:

Answer 9

For 2011, if 65 or older, add $1, 450 (single or head of household), or $1,150 (married filing jointly or separately or qualifying widow[er]). If blind, add same amounts as above. If both are over 65 and blind, amounts are $2,900 and $2,300, repectively.

Question 10

Adjustments and Deductions - What taxpayers are not eligible to use the standard deduction?

Answer 10

*One spouse itemizes deductions on a separate return. *Taxpayer is a dual-tatus or nonresident alien. *Taxpayer has a short tax year. –The standard deduction is limited if taxpayer can be claimed on another person’s return (greater of $950 or earned income of dependent plus $300 up to basic standard deduction amount).

Question 11

Adjustments and Deductions - Identify the major classes of itemized deductions.

Answer 11

*Medical and dental expenses *Taxes paid *Interest paid *Gifts to charity *Casualty and theft losses *Miscellaneous deductions subject to the 2% floor (job expenses, investment expenses, tax preparation) *Other miscellaneous deductions not subject to the 2% floor (gambling losses to extent of winnings)

Question 12

Adjustments and Deductions - What are the limitations on medical expenses?

Answer 12

*Medical expenses are deductible to the extent they exceed 7.5% of AGI. *Cost of surgery for elective socmetic reasons is non deductible. *Self-employed individuals may deduct 100% of medical insurance premiums from gross income. *A dependent for medical expenses must meet only the support, relationship, and citizenship or residency tests.

Question 13

Adjustments and Deductions - Identify the taxes that are deductible as itemized deductions.

Answer 13

Taxpayers have a choice of deducting either the local sales tax or state and local income tax. Other deductible taxes include: *Real estate taxes *Person property taxes *Foreign taxes (either deductible or may be taken as a credit)

Question 14

Adjustments and Deductions - Identify the types of interest that are deductible and nondeductible

Answer 14

*Qualified residence interest on principal and second residence is subdivided into: ^Acquisition indebtedness ($1,000,000 limitation). ^Home wauity indebtedness ($1,000,000 limitation). ^Points paid on a principal residence mortgage loan are fully deductible. ^Points paid to refinance a home (or for a home equity loan) must be capitalized and deduction spread out over life of loan. ^Certain mortgage insurance premiums. *Interest on loans for investment purposes, limeted to net investment income, can be carried forward. *Prepaid interest (use accrual basis for determining deductible amount). *Educational loan interest is an adjustment and not an itemized deduction. *Comsumer interest is NOT deductible

Question 15

Adjustments and Deductions - What are the limitations on charitable contribution deductions?

Answer 15

*Overall limit = 50% of AGI. Cash, may be all 50%. Long-term capital gain property (deduct FMV) is limited to the lesser of: ^30% of AGI *The remaining amount to reach 50% after cash contributions *Escess contributions can be carried forward five years. *Cash contributions must be substantiated by a bank record or a written communication by the charitable organization

Question 16

Adjustments and Deductions - What is the limit on nonbusiness casualty and theft losses:

Answer 16

If partial loss: Deduction is based on decrease in FMV not to exceed adjusted basis. If total loss: Deduction is adjusted basis. - Aggregate losses are reduced by: *Insurance recovery *$100 per casualty/theft event *10% of AGI

Question 17

Adjustments and Deductions - Identify some miscellaneous deductions subject to the 2% of AGI floor.

Answer 17

*Unreimbursed business expenses *Educational expenses not deducted above AGI *Uniforms *Business gifts ($25 limit per recipient per year) *Business use of home *Employment agency fees *Expenses of investors *Subscriptions to professional journals *Tax preparation fee

Question 18

Adjustments and Deductions - Identify some miscellaneous expenses NOT subject to the 2% of AGI floor

Answer 18

*Gambling losses *Federal estate tax paid on income in respect of a decedent

Question 19

Tax Calculations and Credits - Identify some tax credits

Answer 19

^ Nonrefundable tax credits *Foreign tax credit *Child and dependent care credit *Elderly or disabled credit *Education credits *Adoption credit *Retirement plan contribution credit *General business credit ^ Refundable credits *Child tax credit *Earned income credit *Whitholding taxes *Excess Social Security paid *Long-term unused minimum tax credits

Question 20

Tax Calculations and Credits - What are the child/dependent care credit limitations?

Answer 20

Up to 35% of eligible expenditures or $3,000 maximum ($6,000 for two or more dependents). Maximum of $15,000 AGI, reduced by 1% for each $2,000 increment over $15,000, to a minimum of 20%. A qualifying child is one under age 13 for whom an exemption may be claimed; any disabled dependent who is unable to care for self; or a spouse whi is disabled and unable to care for self.

Question 21

Tax Calculations and Credits - Describe the tax credit for the elderly or disabled.

Answer 21

*Either at least 65 or totally and permanently disabled and have disability income. *If single or married and only one is over 65, 15% of $5,000 reduced by nontaxable Social Security benefits received and half of AGI over $7,500 (single) or $10.000 (married). *If married and both are over 65, 15% of $7,500 reduced by nontaxable Social Security benefits received and half of AGI over $10,000. *Claim the credit to the extent of tax liability

Question 22

Tax Calculations and Credits - State the limitations of the American Opportunity Tax Credit

Answer 22

For 2011-2012, the credit for the first four years of post-secondary education is limited to $2,500 as follows: 100% of the first $2,000 in tuition costs and 25% fo the second $2,000.

Question 23

Tax Calculations and Credits - What are the eligibility requirements for the retirement plan contribution credit

Answer 23

*At least 18 by close of the tax year *Not a full-time student *Not a dependent *Income limits apply

Question 24

Tax Calculations and Credits - State the formula to determine the amount of the foreign tax credit

Answer 24

*Can claim either deduction or credit *There is no limitation to the amount of foreign taxes paid that are claimed as deductions *Overall limitation for the credit: Net foreign income divided by Worldwide taxable income times US tax liability before credit on worldwide taxable income. Credit is lesser of foreign taxzed paid or overall limit. Any unused credit can be carried back one year and forward ten years.

Question 25

Tax Calculations and credits - State the limitation of the work opportunity credit

Answer 25

*40% of first the $6,000 of wages per employee paid during the first year of employment *40% of the first $3,000 to certain summer youth

Question 26

Tax Calculations and Credits - Describe the child tax credit

Answer 26

$1,000 tax credit for each qualifying child. - Qualifying chile: “CARES” rules apply, except that a child must be under the age of 17 ^Higher-income taxpayers must reduce credit by $50 for each $1,000 by which modified AGI exceeds *$110,000 for a joint return *$75,000 for an unmarried individual *$55,000 for married filing separately

Question 27

Tax Calculations and Credits - What are the eligibility requirements for the EIC?

Answer 27

Eligibility: To be eligible for the earned income credit, a taxpayer must: *Live in the US (main home) for more than half the taxable year;, *meet certain low earned income thresholds *Not have more than a specified amount of disqualifying children; and *File a joint return with spouse (if married).

Question 28

Other Taxes - State the alternative minum tax formula and the tax rate.

Answer 28

Taxable income +/- Certain adjestments + Tax preferences - Exemption allowance (2011) {1}$74,450 Married filing joint, $48,450 single, $37,225 married filing separate—AMTI X Tax rate {2} 26% and 28% for individuals –AMT, the greater of AMT or regular tax is total tax liability {1}The exemption amount is phased out by 25 cents per dollar of AMTI abovce $150,000 ($112,500 for singer, $75,000 married filing separate). {2}For AMTI in excess of $175,000, tax rate on excess is 28%.

Question 29

Other Taxes - Name some adjustments for AMTI calculations PANIC TIMME

Answer 29

*Passive activity losses *Accelerated depreciation *Net operating loss *Installment income of a dealer *Contracts, percentage completion vs. completed contreact *Tax deductions *Interest deductions on some home wquity loans *Medical deductions (limited to excess over 10% AGI) *Miscellaneous deductions not allowed *Exemptions (personal) and standard deduction

Question 30

Other Taxes - Name some tax preference items for AMTI calculations

Answer 30

*private activity bond interest income (exceptions apply) *Percentage depletion *Pre-1987 accelerated depreciation

Question 31

Other Taxes - What credits are allowed against the AMT?

Answer 31

*Foreign tax credit *Adoption credit *Child tax credit *Contributions to retirement plans credit *Earne income credit *Small Business Healthcare Tax Credit

Question 32

Other Taxes - What is the statute of limitations for an assessment?

Answer 32

Three years from the later of: *Due date of return *Date return is filed

Question 33

Other Taxes - What is the statute of limitations for a refund?

Answer 33

The later of: *3 years form the time the return was filed *3 years from the due date of the original return *2 years from the time the tax was paid (if not when the return was filed)

Question 34

Other Taxes - Who must make the estimated tax payments?

Answer 34

Taxpayers with: *$1,000 or more tax liability and the taxpayer’s withholding is less than the lesser of 90% of current year’s tax, or *100% of last year’s tax [110% if AGI is > $150,000 ($75,000 for married filing separately)]