REG 2 - Adjustments

Question 1

Educator Expenses

Answer 1

Can deduct up to $250 of qualified expenses paid. Eligible educators are from kindergarten through grade 12 working in a school for at least 900 hours.

Question 2

Maximum contributions to IRAs

Answer 2

Limited to the lesser of:
1) Under Age 50 and single:
6,000 or Earned income
2) Over Age 50 and single
7,000 or Earned income

*Double for Married individuals

Question 3

Deductible Traditional IRA

Answer 3

Deductions are limited if the taxpayer or spouse participates in an employer-sponsored retirement plan.

Question 4

Phase out of traditional IRA deduction example

Answer 4

Kristi, a 40 year old single taxpayer is an active participant in her employers pension plan. Her AGI is 68,000. AGI Phase out range for unmarried individuals is 66,000-76,000.

2021 AGI:                     68,000
phase out threshold   (66,000)
Excess over threshold    2,000
Divide by range             / 10,000
phase out percentage      20%

Max IRA deduction 6,000
x phase out % (1,200)
2021 allowable IRA deduction 4,800

Question 5

Roth IRA

Answer 5

• Contributions are not deductible
• Earnings accumulate tax free
• Distribution of principal (contributions) is tax free. Distribution of earnings may be taxable, depending on whether the distribution is “qualified” of “nonqualified”

Question 6

Roth IRA: “qualified distributions”

Answer 6

1) Made at least 5 years after the first contribution
2) Meets one of the following:
- 59.5 and older
- Disabled
- First time homebuyer (limited to 10,000)
- Made to a beneficiary after the taxpayers death

*Distributions that meet this criteria are nontaxable

Question 7

Student Loan Interest Expense

Answer 7

Adjustment for education loan interest is limited to 2,500 per year.

Question 8

Moving Expense

Answer 8

Only allowed for members of the armed forces

Question 9

Self-Employment tax

Answer 9

50% is deducted to arrive at AGI

Question 10

Self-Employed Health Insurance

Answer 10

May deduct all of the health insurance premiums paid for the taxpayer, spouse, and dependents

Question 11

Self-Employed Retirement Plans

Answer 11

1) SEP IRA: lesser of
- 20% of self-employment NI reduced by one-half of self-employment tax deduction or
- 58,000 (64,500 for taxpayers 50+)

2) SIMPLE IRA: lesser of
- 100% of self-employment NI reduced by one-half of self-employment tax deduction or
- 13,500 (16,500 for taxpayers 50+)

3) Solo 401(k) : lesser of
- 20% of self-employment NI reduced by one-half of self-employment tax deduction or
- 58,000 (64,500 for taxpayers 50+)

Question 12

Alimony

Answer 12

• 2018 and before : adjustment to payor
• 2019 and later: Nothing
• Child support is nontaxable, nondeductible
• *Property Settlements are nontaxable, nondeductible

Question 13

Qualified Charitable Contributions

Answer 13

Each taxpayer who does not itemize deductions can take an above the line deduction (adjustment) for up to $300.