Module 1: Adjustments

Question 1

Above-the-line deductions

Answer 1

Adjustments to AGI (Deductions to arrive at AGI)

Question 2

Which adjustments are not deducted from Schedule C?

Answer 2

1. Deductible part of self-employment tax
2. Self-employed health insurance deduction
3. Deduction for contributions to certain self-employed retirement plans

Question 3

Adjustments for AGI

Answer 3

1. Educator expenses
2. IRA deduction
3. Student loan interest deduction
4. Tuition and fees deduction
5. Health savings account deduction
6. Moving expenses
7. Deductible part of self-employment tax
8. Self-employed health insurance deduction
9. Deduction for contributions to certain self-employed retirements plans
10. Penalty on early withdrawal of savings
11. Alimony paid
12. Attorney fees paid in certain discrimination and whistle-blower cases
13. Domestic production activities deduction

Question 4

How much can eligible educators deduct?

Answer 4

$250 of qualified expenses paid

Question 5

Educator expenses adjustments were permanently extended by what act?

Answer 5

Protecting Americans from Tax Hikes Act of 2015

Question 6

What is an eligible educator?

Answer 6

K through 12 grade teach, instructor,, counselor, principal or aide in a school for at least 900 hours during a school year

Question 7

For qualified educator expenses, what must they be reduced by?

Answer 7

1. Excludable US series EE and I Savings Bond interest from Form 8815
2. Nontaxable qualified state tuition program earnings
3. Nontaxable earnings from Coverdell education savings accounts
4. Any reimbursements received for these expenses that were not reported in box 1 of W-2

Question 8

Four different types of individual retirement accounts (IRA)

Answer 8

1. Deductible IRA
2. Nondeductible IRA
3. Roth IRA
4. Coverdell education savings accounts (IRA)

Question 9

DEDUCTIBLE IRA

Under a deductible IRA, when will a taxpayer NOT be permitted to deduct a contribution to an IRA?

Answer 9

When both of the following are present:

1. Excessive AGI (Rich) —- AGI =/> $62K-72K (Single/H of H) or $99K-119K (Joint)
2. Active participation by taxpayer or spouse in another qualified plan (in a retirement plan)
   - ——Exception - Not considered active in an employer-sponsored retirement plan merely b/c individual’s spouse is active participant
   - ——Phase out - Max deductible IRA contribution for individual who is not active, but whose spouse is, is phased out for taxpayers with modified AGI > $186K but < $196K

Question 10

DEDUCTIBLE IRA

Max deduction amount for contribution (general rule)

Answer 10

Lesser of:
$5,500
or
Individual’s compensation

Question 11

DEDUCTIBLE IRA

Max contribution for married couple filing jointly

Answer 11

$11K ($5.5K each spouse)

Question 12

DEDUCTIBLE IRA

Compensation includes:

Answer 12

1. Salary
2. Wages
3. Commissions
4. Bonuses
5. Alimony

Question 13

DEDUCTIBLE IRA

Compensation does not include:

Answer 13

1. Interest
2. Dividends
3. Annuity income
4. Pensions

Question 14

DEDUCTIBLE IRA

Additional Catch-up Contribution

Answer 14

Age 50 or over = allowed an additional contribution of $1K

Question 15

ROTH IRA

Answer 15

• Contributions are not deductible when made
• Earnings accumulate tax-free while in Roth account
• Distributions of both principal and interest are also tax-free provided they are qualified distributions

Question 16

ROTH IRA

Contributions

Answer 16

$5,500 (Single) and $11,000 (Married)

- amount contributed to Roth is amount remaining after subtracting any contributions made to regular IRA

Question 17

ROTH IRA

Are Roth IRAs subject to minimum distribution rules of deductible IRAs (age 70 1/2)?

Answer 17

No

Question 18

ROTH IRA

Phase-out income limits (modified AGI)

Answer 18

• Single with modified AGI >/= $118K but /= $186K but

Question 19

ROTH IRA

Qualified nontaxable distributions of Roth IRA earnings

Answer 19

Those made at least five years after the first day of the year of the taxpayer’s first contribution to a Roth and made:

1. after taxpayer reaches age 59 1/2;
2. to a beneficiary after taxpayer’s death;
3. b/c the taxpayer is disabled; or
4. for use by a “first time” homebuyer to acquire a principal residence (lifetime limit of $10K)

Question 20

NONDEDUCTIBLE IRA

Nondeductible contribution limitations up to the lesser of:

Answer 20

1. $5,500 for 2017
2. individual’s compensation
3. limit not contributed to other (regular and roth) IRAs

Question 21

NONDEDUCTIBLE IRA

Distributions from nondeductible IRA will be taxed as follows:

Answer 21

1. Taxable – Previously accumulated untaxed earnings

2. Nontaxable – The principal contributions (not deducted when contributed)

Question 22

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA)

Answer 22

Separate education savings account (trust/custodial account)

Set up to pay the qualified education expenses of designated beneficiary

Question 23

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA)

Contributions

Answer 23

Nondeductible

Max contribution per beneficiary is $2K annually

Question 24

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA)Earnings

Answer 24

Accumulate tax free while in account

Question 25

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA) | Distributions

Answer 25

Tax-Free to the extent that they are used for qualified education expense of designated beneficiary

Question 26

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA) | Qualified Education Expenses

Answer 26

Through high school | Includes tuition, fees, tutoring, books, room and board, supplies, and equipment

Question 27

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA) | Time Limitation

Answer 27

Any amounts remaining when beneficiary reaches 30 years of age must be distributed EXCEPTION - Special needs beneficiary

Question 28

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA) | Two forms the distribution may take

Answer 28

1. Distributed to beneficiary - taxable to beneficiary and assessed at 10% penalty 2. Rollover to another family member - Tax-free, no penalty

Question 29

COVERDELL EDUCATION SAVINGS ACCOUNT (EDUCATION IRA) | Contribution Requirements

Answer 29

1. Designated beneficiary may be any child under age 18 2. Contribution limit = $2k per beneficiary 3. Contribution amount phased out for taxpayers with MAGI between 95k-110k (S) and 190K-220K (M) 4. Phase-out limits are same regardless of whether taxpayers are active plan participants

Question 30

What is the limit for education loan interest?

Answer 30

$2,500

Question 31

Phase out of student loan interest

Answer 31

$65K-80K (S) | $135K-165K (M)

Question 32

Tuition and Fees Deduction

Answer 32

Expired 12/31/2016 Maximum deduction: $2k (2016) Maximum income limit: = $65K (S)/$130K (M)

Question 33

For the tuition and fees deduction, what is the maximum deduction for taxpayers with AGI in excess of the maximum income limit but below $80K (S/$160K (M)?

Answer 33

$2k

Question 34

What form must be received for the tuition and fees deduction?

Answer 34

Form 1098-T

Question 35

Health Savings Account (HSA)

Answer 35

Enables workers with high-deductible health insurance to make pretax contributions of up to $3.4K in 2017 ($6.75K for families) to cover health care costs Increases by $1k when reach age 55 No contributions allowed one become covered by Medicare Parts A or B

Question 36

HSA | Excludable withdrawals

Answer 36

Any amount paid/distributed out of HSA used exclusively to pay the qualified medical expenses is NOT includable in gross income

Question 37

HSA | Exception to excludable withdrawals

Answer 37

Distributions not used to pay qualified medical expenses are includable in gross income + 10% penalty

Question 38

HSA | What is a high-deductible health plan for 2017?

Answer 38

A plan that has at least $1,300 annual deductible for self-only coverage and $2,600 deductible for family coverage

Question 39

HSA - High Deductible Plan | What is the out-of-pocket limitation?

Answer 39

$6,550 for individuals and $13,100 for families Include deductibles, co-payments and other amounts that must be paid

Question 40

HSA | Archer Medical Savings Account (MSA)

Answer 40

Similar to IRAs but used for health care | Typically used only if HSA is unavailable

Question 41

HSA - Archer Medical Savings Account (MSA) | Who are qualified participants?

Answer 41

Self-employed indivs. or employees of small businesses (<50 employees)

Question 42

HSA - Archer Medical Savings Account (MSA) | What is the max out-of-pocket limit for 2017?

Answer 42

$4,500 (S)/$8,250 (family)

Question 43

MOVING EXPENSES | When are moving expenses deductible?

Answer 43

When the distance b/w the employee's new place of business and old residence is at least 50 miles greater than his old residence was from his former principal place of work

Question 44

MOVING EXPENSES | How long must an employees work in the new location before he/she may deduct the moving expenses?

Answer 44

Full-time for at least 39 weeks during the 12-month period immediately following his arrival Self-employed must work full-time for at least 78 weeks during 24-month period after arrival

Question 45

MOVING EXPENSES | What moving costs are deductible?

Answer 45

Family + Furniture - Travel (out-of pocket amounts of 17 cents/mile + tolls and parking fees) and lodging for taxpayer and family - Transporting household goods and personal effects

Question 46

MOVING EXPENSES | Nondeductible expenses

Answer 46

1. Meals 2. Pre-move house hunting 3. Expense of breaking a lease 4. Temporary living expenses

Question 47

Tax on Self-Employment (Social Security 50 Percent) NOT DEDUCTED ON SCHEDULE C

Answer 47

50 percent of self-employed SS/Medicare tax is deducted to arrive at AGI

Question 48

Self-Employed Health Insurance NOT DEDUCTED ON SCHEDULE C

Answer 48

100 percent deductible

Question 49

What is the max annual deductible amount for Keogh (Profit-Sharing) Plans? NOT DEDUCTED ON SCHEDULE C

Answer 49

The lesser of: $54K (indexed for inflation) OR 25% net (Keogh/self-employed) earnings

Question 50

How would you calculated the Keogh deduction in order to get to Keogh net earnings?

Answer 50

20% of self employment income before Keogh deduction

Question 51

What is the max annual contribution for Keogh Plans?

Answer 51

The lesser of: $54K OR 100% net earnings (only if compensation if < $54K

Question 52

KEOGH PLANS | What is net earnings (from self-employment)

Answer 52

Net earning from self employment (after the Keogh deduction and 1/2 of self employment tax) Business Income minus Business Expense = Net Business Income minus 1/2 Self-employent tax minus Keogh Deduction = Keogh net earnings

Question 53

Alimony

Answer 53

Deductible by the payor; Income for the payee

Question 54

ALIMONY | What conditions must exist for alimony to be deductible?

Answer 54

Payments: 1. Must be legally required under written divorce/separation decree/agreement 2. Must be in cash/equivalent (cash or pay credit card bill) 3. Cannot extend beyond death of payee/spouse 4. Cannot be made to members of same household 5. Must not be designated as anything other than alimony AND 6. Spouse may not file joint tax return

Question 55

Child Support

Answer 55

Nontaxable to payee; Nondeductible to payor

Question 56

ALIMONY | Do payments first apply to alimony or child support?

Answer 56

Child support

Question 57

IRA Deduction For a spouse who is an active participant in a retirement plan, where does the phase out begin? And for the spouse for a spouse who is not an active participant, where does the phase out begin?

Answer 57

Active: $99K | Not Active: $186K

Question 58

Student Loan Interest | IRC 221

Answer 58

Allows the deduction of student loan interest paid on qualified education loans up to a max of $2.5 for the tax year

Question 59

Are capital losses in excess of capital gains a deduction to arrive at AGI?

Answer 59

Yes, up to $3K. It is deducted on Form 1040 before calculation of AGI

Question 60

Are trade or business expenses a deduction to arrive at AGI?

Answer 60

Yes, deducted on Schedule C. This is before the calculation of AGI

Question 61

For IRA, what is the latest date an IRA contribution can be made in order to qualify as a deduction on the prior year's return?

Answer 61

The due date of the tax retrun for individuals (April 15)

Question 62

Where is qualified mortgage interest paid deducted?

Answer 62

On Schedule A as an itemized deduction