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Regulation CPA Review > REG 2 > Flashcards

REG 2 Flashcards

1
Q

List the deductions for AGI.

A
  • Educator Expenses
  • IRA
  • Student Loan Interest Expenses
  • Tuition & Fee Deduction
  • Health Savings Account
  • Moving Expenses
  • 1/2 Self-Employment FICA
  • Self-Employed Health Insurance
  • Self-Employed Retirement
  • Interest Withdrawal Penalty
  • Alimony Paid
  • Attorney fees paid in certain discrimination and whistleblower cases
  • Domestice Production Activities Deduction
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2
Q

Which is a deduction for AGI: Child support or Alimony?

A

Deduction for (to arrive at) AGI = Alimony Paid

Child support is not alimony and is not deductible by the payer or taxable to the recipient.

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3
Q

What are the limits on IRA deductions?

A

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 spouses total 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 $58,000 (base) and $68,000 ($92,000 and $112,000 for married filing jointly).

Phase out percentage is 20% of the maximum IRA deduction (AGI less base).

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4
Q

What are the limits on nondeductible IRAs?

A

The lesser of:

a. $5,000 for 2012
b. Individual’s compensation; or
c. Limit not contributed to other regular and Roth IRAs.

Earnings on such contributions will accumulate tax-free (deferred) until withdrawn.

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5
Q

What is the time limit on Coverdell Education Savings Accounts (Education IRAs)?

A

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.
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6
Q

What are the limits on deductions to Keogh plans?

A

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 1/2 of self-employment tax OR $50,000 (2012).

The maximum annual addition (contribution) may exceed the deductible amount for the year. It is limited to the lesser of $50,000 (2012) of 100% net earnings if compensation is less than $50,000.

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7
Q

Describe the self-employed deductions (“adjustments”) for AGI.

A

Self-employment tax:
50% of self-employment tax

Self-employed health insurance:
100% may be deducted

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8
Q

What are the requirements for moving expenses to be deductible?

A
  • Must change job sites.
  • 50 miles 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 during the 12 months following arrival. (If self-employed, 78 weeks during the 24 month period after arrival)

Note that there is a per mile car allowance (23 cents) or actual out-of-pocket amounts. Meal costs are not deductible

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9
Q

What is the additional deduction for elderly and/or blind?

A

For 2012, if 65 or older, add $1,450 (single or head of household), or $1,150 (married filing jointly or separate or qualifying widower).

If blind, add same amounts as above.

If both 65 AND blind, amounts are $2,900 and $2,300.

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10
Q

What taxpayers are not eligible to use the standard deduction?

A
  • One spouse itemizes deductions on a separate return.
  • Taxpayer is a dual-status 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).

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11
Q

Identify the major classes of itemized deductions.

A
  • 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)
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12
Q

What are the limitations on medical expenses?

A
  • Medical expenses are deductible to the extent they exceed 7.5% of AGI.
  • Cost of surgery for elective cosmetic reasons is not 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/residency tests.
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13
Q

Identify the taxes that are deductible as itemized deductions.

A
  • Taxpayers have a choice of deducting either the local sales tax or state and local income tax.
  • Other deductible taxes include:
    • Real estate taxes
    • Personal property taxes
    • Foreign taxes (either deductible or may be taken as a credit)
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14
Q

Identify the types of interest that are deductible and nondeductible.

A
  • Qualified residence interest on principal and second residence is subdivided into:
    • Acquisition indebtedness ($1,000,000 limitation)
    • Home equity indebtedness ($100,000 limitation)
    • Points paid on a principle residence mortgage loan are fully deductible
    • Points paid to refinance a home (or 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, limited 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
  • Consumer interest is NOT deductible.
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15
Q

What are the limitations on charitable contribution deductions?

A
  • 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
  • Excess contributions can be carried forward five years.
  • Cash contributions must be substantiated by a bank record or a written communication by the charitable organization.
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16
Q

What is the limit on nonbusiness casualty and theft losses?

A
  • 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
17
Q

Identify some miscellaneous deductions subject to the 2% of AGI floor.

A
  • 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
18
Q

Identify some miscellaneous expenses NOT subject to the 2% of AGI floor.

A
  • Gambling losses

- Federal estate tax paid on income in respect of a decedent

19
Q

Identify some tax credits.

A

Nonrefundable tax credits:

  • Foreign tax credit
  • Child and dependent care credit
  • Elderly or disabled credit
  • Education credits
  • Retirement savings contribution credit
  • General business credit

Refundable credits:

  • Child tax credit
  • Earned Income credit
  • Withholding taxes
  • Excess social security paid
  • Long-Term unused minimum tax credits
  • American opportunity credit
  • Adoption credit
20
Q

What are the child/dependent care credit limitations?

A

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 disable dependent who is unable to care for self; or a spouse who is disabled and unable to care for self.

21
Q

Describe the tax credit for the elderly or disabled.

A
  • Either at least 65 or totally and permanently disabled and have disability income.
  • If single or married and only 1 over 65, 15% of $5,000 reduced by nontaxable social security benefits received and 1/2 of AGI over $7,500 (single) or $10,000 (married).
  • If married and both over 65, 15% of $7,500 reduced by nontaxable social security benefits received and 1/2 of AGI over $10,000.
  • Claim the credit to the extent of tax liability.
22
Q

State the limitations of the American Opportunity Credit.

A

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

23
Q

What are the eligibility requirements for the retirement plan contribution credit?

A
  • At least 18 by close of the tax year
  • Not a full-time student
  • Not a dependent
  • Income limits apply
24
Q

State the formula to determine the amount of the foreign tax credit.

A

-Can claim either deduction or credit.
-There is no limitation to the amount of foreign taxes paid
-Overall limitation for the credit:
(Net foreign income / Worldwide taxable income) x (US tax liability before credit on worldwide taxable income)

Credit is lesser of foreign taxes paid or overall limit. Any unused credit can be carried back 1 year and forward 10 years.

25
Q

State the limitation of the work opportunity credit.

A
  • 40% of first $6,000 of wages per employee paid during first year of employment.
  • 40% of first $3,000 to certain summer youth.
26
Q

Describe the child tax credit.

A
  • $1,000 tax credit for each qualifying child.
  • Qualifying child: “CARES” rule 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
  • Refundable to the extent of the lesser of:
    • Excess child tax credit (over tax liability)
    • Earned income less $3,000 times 15%.
27
Q

What are the eligibility requirements for the EIC?

A
  • Live in the U.S. (main home) for more than half the taxable year,
  • Meet certain low-income thresholds,
  • Not have more than a specified amount of disqualified income,
  • Be over the age of 25 and less than 65 if there are no qualifying children, and
  • File a joint return with spouse with certain exceptions.
28
Q

State the alternative minimum tax formula and the tax rate.

A 
Taxable income
\+- Adjustments
\+ Preferences
- Exemption
= AMTI
x Tax rate
=AMT, the greater of AMT or regular tax is total tax liability

The tax rate is 26% or 28%.

29
Q

What are the exemption amounts for AMT?

A

For 2012:

  • $33,750 less 25% (AMTI less $112,500) for single taxpayers
  • $45,000 less 25% (AMTI less $150,000) for joint filers
  • $22,500 less 25% (AMTI less $75,000) for married filing separately.
30
Q

Name some adjustments for AMTI calculations.

HInt: PANIC TIMME

A
  • Passive activity losses
  • Accelerated depreciation
  • Net operating loss
  • Installment income of a dealer
  • Contracts, percentage completion vs. completed contract
  • Tax deductions
  • Interest deductions on some home equity loans
  • Medical deductions (limited to excess over 10% AGI)
  • Miscellaneous deductions not allowed
  • Exemptions (personal) and standard deduction
31
Q

Name some tax preference items for AMTI calculations.

A
  • Private activity bond interest income (exceptions apply)
  • Percentage depletion
  • Pre-1987 accelerated depreciation
32
Q

What credits are allowed against the AMT?

A
  • Foreign tax credit
  • Adoption credit
  • Child tax credit
  • Contributions to retirement plans credit
  • Earned income credit
33
Q

What is the statute of limitations for an assessment?

A

Three years from the later of:

  • Due date of return
  • Date return is filed
34
Q

What is the statute of limitations for a refund?

A

Later of:

  • 3 years from the date 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)
35
Q

Who must make estimated tax payments?

A

Taxpayers with:

  1. $1,000 or more tax liability, and
  2. The taxpayer’s withholding is less than the lessor of 90% of current year’s tax or 100% of last year’s tax [110% if AGI is >$150,000 ($75,000 for MFS)]

Regulation CPA Review (8 decks)

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