REG 2 - Adjustments Flashcards
Define health savings account adjustment?
Enables workers with high deductible health insurance costs to make pretax contributions of up to $3,400 ($6,750 for families)
What are the the four requirements to claim work-related moving expense adjustment?
1) New workplace commute must beincreased by 50 miles.
E.g. if you travel 10 miles daily, then your new workplace commute must be 60 miles.
2) 39-week stay during the 12-month period following arrival (75%) of next year
3) Travel and lodging are deductible - transportation expense, tolls and parking fees.
Nondeductible expenses:
- Meals
- Pre-move house hunting
- Expense of breaking lease
- Temporary living expenses
4) Employer reimbursements are excludable from income and subtracted from the moving expense adjustment
Explain deductible part of self-employment tax adjustment?
Self-employed individuals can deduct 50% of self-employment tax as adjustment
Explain self-employed health insurance adjustment?
Self-employed individuals can deduct 100% of self-employed health insurance (taxpayer, spouse, dependents)
Explain Keogh (Profit-Sharing) Plans: self-employed retirement plan adjustment?
Self-employed taxpayers may deduct the lesser of:
$54,000
or
25% net (Keogh/self-employed) earnings
Explain the “25% net (Keogh/self-employed) earnings calculation”
Business income Less: Business expenses = Net business income Less: 1/2 self-employment tax Less: Keogh deduction = Keogh net earnings
25% x Keogh net earnings = the calculation for self-employed retirement plan adjustment
OR
20% of self-employment income after self-employment tax (if you don’t know Keogh deduction)
E.g. Peter has self-employment net income of $100,000 (after-one half of the self-employment tax).
$100,000 x 20% = $20,000 maximum allowable deduction
Explain penalty on early withdrawal of savings adjustment?
Forfeited interest (the interest penalty on early withdrawal of savings) is an adjustment
- do NOT net against interest income
How is alimony paid to spouse treated? How is alimony received treated?
Alimony paid is an adjustment.
Alimony received is income.