STUDY UNIT 6:ADJUSTMENTS AND DEDUCTIONS FROM AGI

Question 1

casualty losses

Answer 1

lesser of the decline in FMV or adjusted basis (less insurance reimbursements) -$100-10%*AGI

Question 2

Self-employement tax

Answer 2

Above the line deduction; not in Schedule A(itmized deduction)

Question 3

State income tax

Answer 3

Itmized deduction itme-Schedule A

Question 4

deductible charitable contribution

Answer 4

Capital:limited to 20% of AGI. (FMV of contribution)//property Limited to 30%// Church 50%//Generally, contributions to private operating foundations are limited to 30% of the taxpayer’s AGI. But contributions of long-term capital gain property to private nonoperating foundations are limited to 20% of the taxpayer’s AGI. Lewis’s charitable contribution deduction should be limited to $20,000 ($100,000 × 20%). The total charitable contribution is equal to $25,000 (lower of FMV or AB) because it is being made to a private nonoperating foundation. The amount of $20,000 can be deducted in 2017 because of the 20% limit. The remaining $5,000 can be carried forward for up to 5 years.

Question 5

Employee’s unreimbursed business car expense.

Answer 5

itemized deduction subject to the 2%-of-AGI floor

Question 6

self-employed individuals

Answer 6

deduct 50% of FICA taxes paid and 100% of payments made for health insurance coverage for the individual and his or her family/up to $5,500 to an individual retirement account are deductible(age of 50_50 or older, a $1,000 catch-up contribution is allowed)

Question 7

contributions to an IRA is limited to

Answer 7

lesser of $5,500 or compensation (eh. when income is $0 no compensation allowed)

Question 8

Qualifying medical expenses

Answer 8

in excess of 10% of AGI may be deducted as an itemized deduction.

Question 9

Gambling losses

Answer 9

are deductible to the extent of gambling winnings as an itemized deduction not subject to the 2%-of-AGI floor

Question 10

Hobby expense

Answer 10

A hobby is an activity for which profit is not a primary motive. Some hobbies, however, do generate income. Hobby expenses may be deducted, but only to the extent of the hobby’s income. Since travel expenses are not deductible even if not incurred in a trade, business, or investment activity, these expenses are miscellaneous itemized deductions subject to the 2%-of-AGI floor. Therefore, the sales of $2,000 is reported in gross income and $2,000 of expenses are reported as an itemized deduction subject to the 2% limitation.

Question 11

Dependent’s starndard deduction

Answer 11

Earned income+$350 (1050-6350Limitation)

Question 12

taxpayer to maintain an individual other than a dependent

Answer 12

eductible up to $50 per month (student must attend full-time in the 12th or any lower grade of a qualified educational organization located in the United States)

Question 13

deducted for a contribution on behalf of a self-employed individual is

Answer 13

Maximum annual contribution:lesser of earned income or 25% of the self-employed individual’s earned income //Earned income92.35%20%

Question 14

Dividends received are

Answer 14

ordinary gross income, but dividends on insurance policies are excluded from gross income to the extent cumulative dividends do not exceed cumulative premiums (provided the cash value does not exceed the net investment, which it normally does not). The dividend is treated as a reduction in the cost of the insurance.

Question 15

Moving exp

Answer 15

Above the line deduction(Direct moving of houshold goods and loding; cannot dedcut meal)

Question 16

Contributions of long-term capital gain property to private nonoperating foundations

Answer 16

limited to 20% remainder carry forward for 5 Y

Question 17

common law negligence

Answer 17

A CPA has a duty to a client and to foreseen third parties who the CPA knows will use the information. The CPA must exercise the skill and care that an ordinarily prudent accountant would in the same circumstances. A CPA who fails to exercise due care is negligent. The CPA’s best defense is that the tax returns were immaterial.

Question 18

A penalty charged for early withdrawal from a time savings account

Answer 18

a deduction for AGI.

Question 19

Investment interest deduction

Answer 19

total investment income - other investment exp

Question 20

Coverdell Education Savings Account

Answer 20

may contribute up to $2,000 per beneficiary (child) per year//phased out for joint filers with modified AGI at or greater than $190,000 and less than $220,000, and for single filers with modified AGI at or greater than $95,000 and less than $110,000.

Question 21

2% limitation itemized decuction

Answer 21

Fees to collect alimony

Question 22

Fee for the biennial permit to practice as a CPA(professionals’ )

Answer 22

Deductible in Schedule C – Profit or Loss from Business

Question 23

Medical insurance premiums

Answer 23

Yes, you may be able to take a write-off for health insurance. But there are limits as to how much of your premiums you can write off. If you’re taking your health insurance as a medical-expense deduction on Schedule A, you can deduct only those medical expenses that exceed 10 percent of your adjusted gross income.