REG Chapter 2

Question 1

Adjustments or deductions to arrive at AGI (above the line)

Answer 1

1. Educator expenses
2. IRA
3. Student loan interest expenses
4. Tuition and fee deduction
5. Health savings account
6. Moving expenses
7. 1/2 Self-employement FICA (not on sched C)
8. Self-employed health insurance (not on sched C)
9. Self-employed retirement (not on sched C)
10. Interest withdrawal penalty
11. Alimony paid

Question 2

What are the different retirement accounts?

Answer 2

• Deductible IRA
• Nondeductible IRA
• Roth IRA
• Coverdell education savings account (IRA)

Question 3

Deductions from AGI (below the line)

Answer 3

1. Standard Deduction
2. Medical expenses (over 10% AGI)
3. State, local, and foreign taxes
4. Interest expense (home/investment)
5. Charitable contributions (up to 30/50% AGI, carryover of 5 years)
6. Casualty and theft losses (over 10% AGI)
7. Misc. itemized deductions (over 2% AGI)
8. Other miscellaneous deductions

Question 4

List the itemized deductions that are not subject to the AGI phase out:

Answer 4

GIMC (gimmick)

• Gambling losses
• Investment interest expense
• Medical expenses
• Casualty and theft (non business)

Question 5

Deductible medical expenses:

Answer 5

1. Medicine and drugs
2. Doctors
3. Medical and accident insurance
4. Required surgery
5. Transportation to medical facility
6. Physically handicapped cost

Question 6

Deductible taxes:

Answer 6

RIPS:

1. Real estate taxes
2. Income taxes (state, local, foreign)
3. Personal property taxes
4. Sales tax

Question 7

Nondeductible taxes:

Answer 7

FIB:

• Federal taxes
• Inheritance taxes for state
• Business and rental property taxes

Question 8

Interest expense deductions

Answer 8

1. Home mortgage interest (on up to 1M/100K equity)
2. Investment interest expense, interest on money borrowed to invest (limited to investment income, excess carried forward indefinitely)

Question 9

Miscellaneous Itemized Deductions

Answer 9

• Over 2% of AGI
• Unreimbursed business expenses
• Educational expenses (related to current job)
• Uniforms
• Business Gifts ($25/pp)
• Job hunting
• Expenses of investors
• Subscriptions to professional journals
• Tax prep fee
• Debit card convenience fees to pay income taxes

Question 10

What are the tax rates for individuals?

Answer 10

10%
15%
25%
28%
33%
35%
39.6%

Question 11

List the nonrefundable personal tax credits available to an individual:

Answer 11

• Reduce taxes but no refund*
  1. Child and Dependent care credit
  2. Elderly and permanently disabled credit
  3. Education (lifetime learning)
  4. Retirement savings contribution credit
  5. Foreign tax credit (back 1 / forward 10)
  6. General business credit
  7. Adoption credit

Question 12

List the refundable tax credits:

Answer 12

• Reduces tax and can create refund*
  1. Child tax credit (refund is limited)
  2. Earned income credit
  3. Withholding taxes (W-2)
  4. Excess social security paid
  5. American opportunity credit (40% refundable)

Question 13

Foreign tax credit formula

Answer 13

(taxable income from all foreign operation / taxable + exemptions) X U.S. tax = foreign tax credit limit

Question 14

AMT Adjustments

Answer 14

PANICTIMME:

• Passive activity losses
• Accelerated depreciation
• Net operating loss of the individual tax payer
• Installment income of the dealer (no installment!)
• Contracts - percentage completion (must for AMT) vs completed contract
• Tax “deductions”
• Interest deductions on some home equity loans
• Medical deductions
• Miscellaneous deductions not allowed
• Exemptions and standard deductions

Question 15

AMT Tax preference items

Answer 15

PPE: (increase)

• Private activity bond interest income
• Percentage depletion the excess over adjusted basis in property
• Pre 1987 accelerated depreciation

Question 16

AMT Credits

Answer 16

FACCE:

1. Foreign tax credit
2. Adoption credit
3. Child tax credit
4. Contributions to retirement plans credit
5. Earned income credit