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CPA REG 1-8 > REG Chapter 2 > Flashcards

REG Chapter 2 Flashcards

1
Q

Adjustments are also known as

A

Deductions to arrive at Adjusted Gross Income

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2
Q

Adjustment for Educator Expenses

A

Deduct up to $250 or $500 for MFJ

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3
Q

Adjustment - Individual Retirement Account (4)

A

Deductible IRA

Nondeductible IRA

Roth IRA

Education IRA

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4
Q

Adjustment - Deductible IRA

A

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

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5
Q

Adjustment - ROTH IRA

A

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

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6
Q

Adjustment - Nondeductible IRA

A

Last Resource

Taxable - previously accumulated earnings
Nontaxable - principal contributions

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7
Q

Adjustment - Education IRA

A

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

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8
Q

Adjustment - Student loan interest

A

Limited to $2,500

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9
Q

Adjustment - Tuition and Fees

A

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

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10
Q

Adjustment - Health Savings Account

A

Up to $3,350

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11
Q

Adjustment - Moving Expenses

A

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

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12
Q

Adjustment - Tax on self-employment

A

Deduct 50% of self employed social security/medicare tax

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13
Q

Adjustment - self employed health insurance

A

Deduct 100% - not included on schedule C

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14
Q

Adjustment - Keogh profit sharing plan

A

Confusing

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15
Q

Adjustment - Penalty on early withdrawal of Savings

A

Forfeited interest

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16
Q

Adjustment - Alimony

A

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

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17
Q

Itemize deduction - Medical expenses

A 
Qualified medical expense
< insurance reimbursement >
= qualified medical expenses paid
< 10% AGI >
= Deductible Medical Expenses
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18
Q

Itemize deduction - state, local, and foreign taxes

A

Excludes federal income taxes

Deductible on year PAID not on year it applies to

19
Q

Itemize deduction - Interest Expense

A

For first and second home

20
Q

Itemize deduction - Charitable contribution

A

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

Excess - carryover 5 years

21
Q

Itemize deduction - Casualty and theft losses

A 
Smaller loss - can't exceed adjusted basis
< insurance recovery >
= Taxpayer loss
< 100 >
= Eligible loss
< 10% AGI >
= Deductible Loss
22
Q

Itemize deduction - Miscellaneous

A

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

23
Q

Charitable contribution of appreciated property held for short term

A

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

24
Q

Deductible qualified residence interest

A

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

Deduct interest paid as an itemize deduction

25
Q

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

A

Yes

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

26
Q

Personal Tax Credits vs Refundable Credits

A

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

27
Q

Child and Dependent Care Credit

A

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%

28
Q

Credit for the Elderly and/or Permanently Disabled

A

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

29
Q

American opportunity credit

A

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

30
Q

Lifetime Learning Credit

A

$2,000 max per year

Phase out starts when AGI reaches $55K and gone at $65K

31
Q

Adoption Credit

A

Per child is $13,460

32
Q

Foreign Tax Credit

A

Carry back 1 year or forward 10

33
Q

Work opportunity credit

A

When employer hires from special group of people

40% of first $6,000 first year’s wages

34
Q

Child Tax Credit

A

May claim up to $1K for each qualifying child

CARES but kid must be under 17 and resident of citizen of US

35
Q

Earned Income Credit

A

Meet low income threshold

It is a refundable credit

36
Q

Small employer pension plan start up costs

A

Up to $500 per year for the first 3 years

37
Q

AMT - Adjustments

PANIC TIMME

A 
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
38
Q

AMT - Adjustments

PANIC TIME

A 
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
39
Q

AMT - Tax Preference Items

P P P

A

Always add backs

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

40
Q

AMT - Credits

FACCE

A

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
41
Q

Statue of Limitations

A

General rule is 3 years

If 25% understatement of gross income then 6 years

No statue of limitations for fraud

42
Q

Statue of Limitations on Refunds

Form 1040X

A

Later of:

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

43
Q

Estimated Taxes - Required Minimum Payment

2 Conditions must be met

A

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

44
Q

Annualized method vs Seasonal method for minimum tax payments required

A

Annualized is when you pay 110% of PY tax

Seasonal is when you pay 90% of the CY tax

CPA REG 1-8 (7 decks)

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