REG 2 - Adjustments

Question 1

Explain two other ways to say adjustments?

Answer 1

1) Above-the-line deductions

2) Deductions to arrive at AGI

Question 2

What are three amounts deducted as adjustments and NOT on Schedule C?

Answer 2

1) Deductible part of self-employment tax
2) Own self-employmed health insurance
3) Deduction for self-employed retirement plan

Question 3

What is the maximum amount eligible educators can deduct as an adjustment?

Answer 3

Eligible educators can deduct up to $250 of qualified expenses (classroom supplies).

If both spouses are educators then a deduction of $500 can be taken.

Question 4

Define eligible educator as it relates to the educator expenses adjustment?

Answer 4

Kindergarden through grade 12 teacher, instructor, counselor, principal, or aide in a school for atleast 900 hours during a school year.

Question 5

What are the four different types of individual retirement accounts (IRA)?

Answer 5

1) Deductible IRA
2) Nondeductible IRA
3) Roth IRA
4) Coverdell education savings account (IRA)

Question 6

What is the last day to contribute to a deductible IRA and receive a maximum deduction? Does filing an extension allow taxpayer to extend the deadline of contributing to a deductible IRA to receive a maximum deduction?

Answer 6

• The adjustment is only allowed for a taxable year if the contribution was made by April 15th.

Filing an extension does not allow the taxpayer to extend deductible IRA adjustment.

Question 7

When does a deductible IRA get taxed? How are the accumulated earnings and distributions taxed?

Answer 7

• Tax “adjustment”
• Earnings accumulate tax-free
• Withdrawal of principle is taxable
• Withdrawal of earnings is taxable
• Maximum contribution is $5,500

Question 8

What two conditions must BOTH be present in order to NOT be able to take deductible IRA adjustment?

Answer 8

The following two conditions must BOTH be present in order to not be able to take deductible IRA adjustment:

1) Excessive AGI = Rich
2) Active participation in another qualified plan = In a retirement plan

Question 9

Define excessive AGI in the deductible IRA adjustment condition? - one of two conditions that must BOTH be present in order to not be able to take IRA deduction

Answer 9

When AGI of taxpayer equals or exceeds the higher amounts of:

Single: $62,000 - $72,000 ($10,000 phase out range)
MFJ: $99,000 - $119,000 ($20,000 phase out range)

Example: Kristi’s AGI is $64,000 and is an active employer pension plan. How much is the maximum Kristi can deduct?

AGI - $64,000
Less - (62,000)
= $2,000
/
$10,000 (phase out range)
= 20%
x
$5,500
= $4,400 - maximum allowable IRA deduction

Question 10

Define active participation in another qualified plan in the deductible IRA adjustment condition? - one of two conditions that must BOTH be present in order to not be able to take IRA deduction

Answer 10

• When a husband and wife are in a qualifed retirement plan
• Exception: Husband and wife are tested separatley
• The maximum amount of deduction is phased out for taxpayers with modified AGI more than $186,000

Question 11

What is the maximum amount that can be deducted for deductible IRA contrbution for single and married filing joint filers?

Answer 11

Single
The lesser of $5,500 or individual’s compensation

Married Filing Joint
$11,000 if there COMBINED earnings atleast total that much

Question 12

Explain the additional catch-up contribution allowed for deductible IRA?

Answer 12

Individuals who are 50 years of age or older (by Dec 31) are allowed an extra adjustment of $1,000