REG 2 Adjustments and Itemized Deductions

Question 1

To arrive at AGI, what makes an educator eligible and what is the max they can deduct?

Answer 1

For kindergarten through 12th grade; at least 900 hrs worked during school year; Up to $250 of qualified expenses paid - $500 for 2 eligible spouses.

Question 2

What are the deductibility requirements for deductible IRAs (phase-outs)?

Answer 2

1. Disallowed: Excess AGI and active participation in another qualified plan.
2. Phase out single/H of H: $61-71,000.
3. Phase out joint: For spouse who is an active participant, $98-118,000; For spouse who is not active but is married to someone who is, $183-193,000.
4. May deduct up to the lesser of $5,500 or the individual’s compensation; For married filing jointly, $11,000.
5. 50 + yrs. allowed an additional $1,000.

Question 3

What is the overall limit for regular deductible and Roth IRA contributions in a year (annual aggregate contributions except Coverdell), the phase-out income limits, and qualified nontaxable distributions of Roth IRA earnings?

Answer 3

1. Single $5,500/Married $11,000
2. Single $116-131,000/Joint $183-193,000/Married filing separately $0-10,000.
3. Made at least 5 years after the first day of the year of the taxpayer’s first contribution And made after age 59 1/2 Or to a beneficiary Or taxpayer is disable Or first time homeowner (not owning 2 yrs before) w/ $10,000 limit.

Question 4

What is a Coverdell Education Savings Account, its contribution requirements, and its time limitation and what to do when met?

Answer 4

1. An educational IRA set up to pay for qualified education expenses of a designated beneficiary.
2. For a beneficiary under 18; nondeductible contributions at $2,000 annually per beneficiary; phase-out of Single $95-110,000/Married $190-220,000.
3. Age 30 - rollover to another family member Or distribute directly to beneficiary where it becomes taxable and assessed a 10% penalty.

Question 5

What is the adjustment for education loan interest limited to and when is it phased-out?

Answer 5

1. $2,500

2. Single $65-80,000/Married $130-160,000

Question 6

What is the maximum above the line tuition and fees deduction and the maximum income limits?

Answer 6

$4,000 for AGI equal to or less than $65,000 ($130,000 for joint); $2,000 for AGI above that but less than or equal to $80,000 ($160,000); No adj. for anything above that.

Question 7

What are the requirements to deduct work-related moving expenses?

Answer 7

New workplace 50 miles father from old house than old workplace was; must work at least 39 weeks out of the year at new location, or 78 weeks out of 2 years for self-employed; only direct costs allowable - nondeductible: meals, pre-move house hunting, expense of breaking a lease, and temporary living expenses.

Question 8

What is the self-employment tax?

Answer 8

Subject to two taxes: income tax and social security/medicare tax. 50% of the self-employed social security/medicare tax is deducted to arrive at AGI.

Question 9

When is self-employed health insurance deductible?

Answer 9

100% deductible on all premiums paid for the taxpayer, spouse, and dependents, provided the plan is set up in the name of the self-employed individual or their business.

Question 10

Describe a Keogh (profit sharing) Plan?

Answer 10

Self-employed tax payer can set up; Max deductible amount is the lesser of $53,000 or 25% of net (Keogh/self-employed) earnings; Max annual addition is the lesser of $53,000 and 100% of net earnings (only if compensation is less than $53,000);

Business Income 
Less: Business Expenses
= Net Business Income
Less: 1/2 Self Employment Tax
Less: Keogh Deduction
= Keogh Net Earnings

Hint: 25% of self-employment after the Keogh deduction is the mathematical equivalent of 20% of self-employment income before the Keogh deduction.

Question 11

What are the standard deductions for 2015?

Answer 11

Single $6,300/H of H $9,250/Joint $12,600/Married filing separately $6,300.

Question 12

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

Answer 12

65 OR blind: Single $1,550/Married $1,250
Both 65 AND blind: Single $3,100/Married $2,500
Each 65 OR blind: Married $2,500
Both 65 AND blind: Married $5,000

Question 13

What is the standard deduction for the dependent of another?

Answer 13

Greater of $1,050 or earned income plus $350, limited to the regular standard deduction.

Question 14

What is the itemized deduction phase-out?

Answer 14

Starts when AGI exceeds: Married filing jointly and surviving spouses $309,900/H of H $284,050/Single $258,250/Married filing separately $154,950; The itemized deductions are reduced by 3% of the amount by which the taxpayer’s AGI exceeds the previously mentioned amounts. The itemized deductions may not be reduced below 80% of the amount allowed before the phase-out.

Question 15

Individuals are typically “cash basis.” Therefore, generally in order to be tax deductible, the item must have been what?

Answer 15

Incurred as an expense and paid or charged before year end.

Question 16

For itemized deductions, what is the deductible medical expenses formula?

Answer 16

Qualified Medical Expenses
Less: Insurance Reimbursements
= Qualified Medical Expense "Paid"
Less: 10% AGI (7.5% for 65+)
= Deductible Medical Expenses

Question 17

What are the deductible and nondeductible taxes for state, local, and foreign taxes as itemized deductions?

Answer 17

Deductible: Real estate taxes, Income taxes, Personal property taxes, and state and local general sales tax if state and local income taxes are not deducted; Nondeductible: FIB: Federal taxes (including social security), Inheritance taxes for states (also called “federal estate pick-up tax”), and Business (on Schedule C) and rental property taxes (on Schedule E).

Question 18

When itemizing interest expense, what two expenses are deductible? Describe them.

Answer 18

1. Home Mortgage Interest: Deductions allowed for “qualified residence interest” on a first or second home (used at least 14 days). The two categories are: 1.) Acquisition indebtedness: incurred in buying, constructing, or improving home (up to $1,000,000/MFS $500,000 w/ excess treated as personal interest). 2.)Home equity indebtedness: used for anything (Lesser of $100,000/MFS$50,000 or FMV of the property reduced by the amount of outstanding “acquisition indebtedness”).
2. Investment Interest Expense: limited to net (taxable) investment income which includes interest and dividends (“portfolio income”), dividends (portfolio or investment income), rents, royalties (in excess of expenses), and net long-term and short-term capital gains (only if the taxpayer elects not to claim the reduced capital gains tax rate).

Question 19

What are the rules with regard to charitable contributions limitation for itemized deductions?

Answer 19

Overall limit = 50% of AGI

1. ) Cash - may be all 50%
2. ) General property - lesser of basis or FMV
3. ) Long-term appreciated property (gifts of long-term capital gain property) - is limited to the lesser of:
   a. ) 30% of AGI
   b. ) The remaining amount to reach 50% after cash contributions.

Question 20

For itemized deductions, what is the formula for casualty and theft losses?

Answer 20

Smaller Loss ( 1. Lost cost/adjusted basis & ; 2. Decreased FMV)
Less: Insurance Recovery
= Taxpayer's loss
Less: $100
= Eligible loss
Less: 10% AGI
= Deductible loss

Question 21

When are miscellaneous itemized deductions allowed and what do they consists of?

Answer 21

That combined exceed 2% of AGI

1. Unreimbursed business expenses: all expenses of meals and lodging (must be overnight); transportation expenses 100% deductible; meals and entertainment expenses 50% deductible.
2. Educational expenses (must be job related)
3. Uniforms.
4. Business gifts ($25 per recipient per year).
5. Employment agency fees (only for new, not first, job in the same profession).
6. Expenses of investors - safe deposit box rental and investment advice and newsletters.
7. Subscriptions to professional journals.
8. Tax preparation fee incurred in preparation of taxpayer’s return.
9. Debit card convenience fees incurred to pay income taxes.

Question 22

What are other miscellaneous deductions?

Answer 22

Itemized deductions that are fully deductible; not subject to the 2% rule; includes gambling losses (only to the extent of winnings) and the federal estate tax paid on income in respect of a decedent.