REG Chapter 2

Question 1

Adjustments are also known as

Answer 1

Deductions to arrive at Adjusted Gross Income

Question 2

Adjustment for Educator Expenses

Answer 2

Deduct up to $250 or $500 for MFJ

Question 3

Adjustment - Individual Retirement Account (4)

Answer 3

Deductible IRA

Nondeductible IRA

Roth IRA

Education IRA

Question 4

Adjustment - Deductible IRA

Answer 4

Make contribution for Y1 by 04/15 Y2
Earnings accumulate tax free
Withdrawal is ordinary income and may have penalty

Can’t take deduction if excessive AGI AND Active in another plan

Limit single $61K, MFJ $98K

Maximum deduction is $5.5 K per person

Question 5

Adjustment - ROTH IRA

Answer 5

Contributions are not deductible when made
Earnings accumulate tax free
Distribution of tax and principal is tax free if it qualifies
Limit is $5.5K per spouse

Question 6

Adjustment - Nondeductible IRA

Answer 6

Last Resource

Taxable - previously accumulated earnings
Nontaxable - principal contributions

Question 7

Adjustment - Education IRA

Answer 7

Maximum of $2K per beneficiary “grandchildren”
Principal and interest distributions are tax free
Use before beneficiary is 30 years old

Question 8

Adjustment - Student loan interest

Answer 8

Limited to $2,500

Question 9

Adjustment - Tuition and Fees

Answer 9

$4K if AGI is less than $65K, if exceeding that then maximum is $2K

Question 10

Adjustment - Health Savings Account

Answer 10

Up to $3,350

Question 11

Adjustment - Moving Expenses

Answer 11

Need to stay at new job for 75% of the year and work full time

Deduct travel and lodging of tax payer and family

Forget about meals, house hunting, cost of breaking lease, and temporary living expenses

Question 12

Adjustment - Tax on self-employment

Answer 12

Deduct 50% of self employed social security/medicare tax

Question 13

Adjustment - self employed health insurance

Answer 13

Deduct 100% - not included on schedule C

Question 14

Adjustment - Keogh profit sharing plan

Answer 14

Confusing

Question 15

Adjustment - Penalty on early withdrawal of Savings

Answer 15

Forfeited interest

Question 16

Adjustment - Alimony

Answer 16

Must be legally required under a written divorce
Must be in cash of equivalent
Cannot extend beyond the death of the payee-spouse

Question 17

Itemize deduction - Medical expenses

Answer 17

Qualified medical expense
< insurance reimbursement >
= qualified medical expenses paid
< 10% AGI >
= Deductible Medical Expenses

Question 18

Itemize deduction - state, local, and foreign taxes

Answer 18

Excludes federal income taxes

Deductible on year PAID not on year it applies to

Question 19

Itemize deduction - Interest Expense

Answer 19

For first and second home

Question 20

Itemize deduction - Charitable contribution

Answer 20

Cash or FMV of property
CASH 50% of AGI limit
PROPERTY 30% of AGI limit

Excess - carryover 5 years

Question 21

Itemize deduction - Casualty and theft losses

Answer 21

Smaller loss - can't exceed adjusted basis
< insurance recovery >
= Taxpayer loss
< 100 >
= Eligible loss
< 10% AGI >
= Deductible Loss

Question 22

Itemize deduction - Miscellaneous

Answer 22

Combination has to exceed 2 % of AGI Limit

Not reimbursed business expenses, transportation expenses, meals and entertainment, educational, uniform, business gifts (25 per person), subscription to journal, tax preparation fee

Question 23

Charitable contribution of appreciated property held for short term

Answer 23

Deduct adjusted basis, not the FMV, just because it was held for a short period of time

Question 24

Deductible qualified residence interest

Answer 24

Interest paid on a debt that is secured by a home mortgage

Deduct interest paid as an itemize deduction

Question 25

Is insurance premium that will reimburse you for medical care allowed as a medical expense deduction?

Answer 25

Yes However, premiums on disability policy are not deductible because those reimburse you for lost income

Question 26

Personal Tax Credits vs Refundable Credits

Answer 26

Personal tax credits reduce personal tax liability to 0 but do not give you a refund Refundable credits reduce tax liability and may give you a refund

Question 27

Child and Dependent Care Credit

Answer 27

Credit of 20 - 35% of eligible expenditures $3,000 per kid, up to $6,000 If AGI is $15K then gets 35% If AGI is over $43K then gets 20%

Question 28

Credit for the Elderly and/or Permanently Disabled

Answer 28

15% if person is 65 or older or under 65 but retired because he is permanently disabled

Question 29

American opportunity credit

Answer 29

First 4 years of college, max is $2,500 100% of first $2K and 25% of the remainder Phase out starts when AGI reaches $80K and gone at $90K

Question 30

Lifetime Learning Credit

Answer 30

$2,000 max per year | Phase out starts when AGI reaches $55K and gone at $65K

Question 31

Adoption Credit

Answer 31

Per child is $13,460

Question 32

Foreign Tax Credit

Answer 32

Carry back 1 year or forward 10

Question 33

Work opportunity credit

Answer 33

When employer hires from special group of people 40% of first $6,000 first year's wages

Question 34

Child Tax Credit

Answer 34

May claim up to $1K for each qualifying child | CARES but kid must be under 17 and resident of citizen of US

Question 35

Earned Income Credit

Answer 35

Meet low income threshold | It is a refundable credit

Question 36

Small employer pension plan start up costs

Answer 36

Up to $500 per year for the first 3 years

Question 37

AMT - Adjustments PANIC TIMME

Answer 37

``` Increase or Decrease AMTI P - Passive activity losses A - Accelerated depreciation N - Net operating loss I - Installment income of a dealer C - Contracts ``` ``` Increase AMTI T - Tax deductions I - Interest deductions M - Medical deductions M - Misc. deductions nos allowed E - Exemptions ```

Question 38

AMT - Adjustments PANIC TIME

Answer 38

``` Increase or Decrease AMTI P - Passive activity losses A - Accelerated depreciation N - Net operating loss I - Installment income of a dealer C - Contracts ``` ``` Increase AMTI T - Tax deductions I - Interest deductions M - Medical deductions M - Misc. deductions nos allowed E - Exemptions ```

Question 39

AMT - Tax Preference Items | P P P

Answer 39

Always add backs P - private activity bond interest income P - percentage depletion the excess over adjusted basis property P - pre 1987 accelerated depreciation

Question 40

AMT - Credits FACCE

Answer 40

Permitted as a credit to reduce AMT ``` F - foreign tax credit A - adoption credit C - child tax credit C - contributions for retirement E - earned income credit ```

Question 41

Statue of Limitations

Answer 41

General rule is 3 years If 25% understatement of gross income then 6 years No statue of limitations for fraud

Question 42

Statue of Limitations on Refunds Form 1040X

Answer 42

Later of: 3 years from the date the return was filed or 2 years from the date the tax was paid

Question 43

Estimated Taxes - Required Minimum Payment 2 Conditions must be met

Answer 43

If amount of taxes owed is expected to be $1K or more and If withholding is less than 90% of CY tax or 100% of PY If taxes to be paid were less than $1K then there is no penalty for not making the minimum payments

Question 44

Annualized method vs Seasonal method for minimum tax payments required

Answer 44

Annualized is when you pay 110% of PY tax Seasonal is when you pay 90% of the CY tax