Unit 5

Question 1

Above the Line Deductions Defined

Answer 1

Deducted from gross income to arrive at AGI

Question 2

Educator Expenses Deduction

Answer 2

Above the line: up to 250$ in 2020/ Must have >900 hours per school year

Question 3

Health Saving Account Deduction

Answer 3

Tax Exempt Trust with high deductible health plan

Question 4

Health Saving Account Deduction LIMIT

Answer 4

Self: 3,550$ (+1k age 55-64)
Family <7.1k
Not Dependent
Need not have insurance whole year

Question 5

Self Employment Tax Deduction

Answer 5

Allowed deduction for employer portion of FICA tax paid.

Question 6

Self Employment Tax Deduction AMOUNT

Answer 6

50% of tax or 6.2% of first 127.7k of net SE income + 1.45% Se income no cap.

Question 7

Net Self Employment Income Deduction =

Answer 7

Net Self Empolyment Profit x 92.35% (.09 is employers portion medicare so not deductible.

Question 8

SE SEP, SIMPLE< Qualified Plans Deduction AMOUNT

Answer 8

MOST USED SEP
Max is lesser or 25% of SE earnings or 57k.
SE Earnings are reduced by deductible park of SE taxes.
Contributions are subtracted from NE to equal SE Earnings.

SIMPLE: limited to 13.5k, employer can match 3% be deducted as above the line.

Question 9

Self Employed Health Insurance Deduction AMOUNT

Answer 9

Can deduct 100% of payments for coverage.
Limited to EI from business.
No deductions when eligible for employer sponsored plan/spouse

Question 10

Alimony Deduction

Answer 10

Before 2019: gross income to recipient and deductible from payor. After 2019: NOTHING . Before 2019: If pay mortgage 50% deduction as alimony. 50% if itemize of . taxes. No Insurance

Question 11

Child Support Deduction

Answer 11

NOT Deductible

Question 12

Alimony Recapture purpose

Answer 12

To prevent large settlements from being treated as alimony. Happens if payments significantly decrease in 2 or 3rd year oafter divorce.

Question 13

Alimony Recaputure Formula

Answer 13

2nd year recapture = 2nd Alimony - (15k+3rd Alimony)

1st year recapture = 1st alimony - [(2nd alimony - 2nd recaputre) + 3rd alimony /2+15k]

Question 14

IRA Contributions

Answer 14

If not active in employer retirement plan can make contribution to IRA = deductible to lesser of 6k or 100% of includable compensation

Question 15

IRA Contributions: Compensation includes..

Answer 15

Earned Income, NOT pensions, annuities, deferred compensation. IF MFJ+6k

Question 16

IRA Contribution Phaseout If active in employer plane and SINGLE/HoH

Answer 16

AGI <65k FULL
AGI >65<75k PARTIAL
AGI >75k NONE

Question 17

IRA Contribution Phaseout If active in employer plane and MFJ

Answer 17

<104k FULL
>104k<124 PARITAL
>124k NONE

Question 18

IRA Contribution Phaseout If NOT active in employer plane SINGLE/HoH

Answer 18

Any Amount = FULL

Question 19

IRA Contribution Phaseout If NOT active in employer plane MFJ

Answer 19

Includes 1 spouse not covered
FULL AMY AMOUNT

MFJ both covered <196k FULL
>206 NONE

Question 20

IRA Distribution penalty

Answer 20

If made before 59.5 age. for reason other than death/disability. 10% penalty tax. BUT EXECPTIONS

Question 21

IRA Distribution Penalty Exceptions

Answer 21

Pay medical expeneses excess 7.5 AGI
1st Homeowner exp. <10k
Higher Education
Adoption or 1st birth <5k
COVID <100k

Question 22

Student Loan Interest Deduction AMOUNT/Limitation

Answer 22

2500$ of interest paid in 2020. MFJ phaseout 140k-170k

SINGLE/HoH Phaseout 70-85k

Question 23

Student Loan Interest Deduction Phaseout Calculation

Answer 23

Single:

2,500 x (AGI -70k)/15k

Question 24

Tuition and Fees Deduction LIMIT

Answer 24

4$ and AGI <65k
2k for AGI between 65k-80k
MFS cannot take

Question 25

Performing artist above line deduction

Answer 25

Deduct employee business expenses as adj to gross income performed for at least 2 employees, at least 200$ each. expenses are moe than 10% gross income. AGI is less than 16k before expenses.

Question 26

Job related deduction for relocating allowed?

Answer 26

removed untill 2026 except military

Question 27

Other Deductions (above line)

Answer 27

Penalty of early withdrawl
Archer MSA
300$ charity for people who do not itemize

Question 28

Taxpayers deductible loss is limited to smallest amount of following limitations

Answer 28

1. Amount taxpayers basis in activity
2. At Risk Rules
3. Passive Activity Rules

Question 29

At Risk Rules

Answer 29

Amount of loss allowable is limited to amount person has at risk in activity which loss arose.

Question 30

Persons initial at risk amount in activity includes

Answer 30

Money contributed, AB property contributed, borrowed amounts.

Question 31

At Risk Debt does not include debt if ..

Answer 31

Property pledged as security is used in activity, insurance provides protection form personal liability, person interest in activity extended the credit.
Nonrecourse debt is excluded from amount at risk.

Question 32

Disallowed losses are carried forward ..

Answer 32

if amount at risk is below zero , previously allowed losses must be recaptured as income

Question 33

Passive Activity Loss Limitation rules:

Answer 33

Extent of gross income/tax attributable to those passive activities.

Question 34

Business considered Passive if..

Answer 34

Do not participate more than 500 hours, more than 100 and exceeds participation of other, materially participated for any 5 years of 10 before years. (no theft losses)

Question 35

Passive Activity Loss Amounts

Answer 35

up to 25k from rental real estate in excess of passive GI.

Reduced 50% of persons MAGI >100k (without SS, IRA)

Question 36

Wash Sales

Answer 36

Not deductible. Occur when taxpayer sells aset at a loss within 20 days purchases identical asset