Vickie - Chapter 2: Individual Income - Adjustments to arrive at AGI Flashcards
What are the adjustments to arrive at AGI?
Educator Expenses IRA contribution student loan interest expense tuition & fee deduction health savings account moving expenses self-employment: - 1/2 self employment FICA tax - self employment health insurance - self employment retirement (Keogh) early interest withdrawal penalty alimony payments
What are the deductible amounts for IRA contribution? What are the differences among the three types of IRA accounts?
The deductible amount per person per year is maximum $5,500 contribution to IRA account.
There are three different types of IRAs.
1) Deductible IRA
- nonworking spouse allowed to contribute and claim the deduction even if no earned income (alimony = earrned income)
- no deduction allowed if both requirements met:
a) RICH excessive AGI
b) active participation in another retirement plan. (exception: if spouse if active participant, you can still deduct the contribution unless really rich - phased out AGI)
- +1K contribution deduction when hit age 50
2) Roth IRA
- $5,500 max contribution (combined with other IRAs. so the amount contributed to roth IRA is amount remaining after subtracting any contribution made to regular IRA).
- no plan participation limits
- phase out income limits
3) nondeductible IRA
- final option when not eligible for deductible IRA and roth IRA
- $5500 limit
What is Coverdell Education Savings?
Another savings account, separate from IRA. These accounts are set up to pay the education expenses of designated beneficiary.
NOT DEDUCTIBLE contributions.
maximum contribution per beneficiary = $2K
contribution not limited by amounts contributed to other IRAs.
Tax free accumulated earnings & distributions
need to use amounts in account by age 30 - must be distributed at this age (will assess tax, and 10% penalty)
What is the student loan interest expense?
Adjustment from gross income to arrive at AGI.
Deductible amount is $2,500.
Any excess is PERSONAL interest, and nondeduct.
dependent cannot claim this adjustment.
What is the tuition & fee deduction?
Adjustment from gross income to arrive at AGI.
max amount deducted is $4K. excess can be deductible as educational expenses - itemized deductions subject to 2% floor.
What is the Health Savings Account?
Adjustment from gross income to arrive at AGI.
Enable workers with high deductible health insurance to make pretax contributions.
What are deductible moving expenses?
Moving is BEFORE home equity / acquisition indebtness interest (therefore, moving expenses is adjustment BEFORE AGI, and home interest is AFTER AGI).
Deductible moving expenses are all direct moving costs.
Costs to self and family only - travel, lodging during the move, household goods.
NOT deductible moving expenses - house hunting, cost of breaking lease, temporary living, meals.
What are the deductible expenses related to self employment?
1/2 SE FICA tax
SE Health insurance
SE retirement
self employed pays TWO taxes from the net income that Schedule C created. 1) income tax and 2) SE tax (which is SS/medicare). The SE tax is 1/2 deductible.
the 1/2 SE tax is for SS and Medicare which is the EMPLOYER portion of the tax (adjustment to AGI). the other 1/2 SE tax is PERSONAL and not deducted.
