AGI
What is the maximum allowable deduction for contributions to a Roth IRA for 2020?
Contributions are not deductible
Contributions to a Roth IRA are not deductible.
An active member of the US Armed Forces may deduct qualified moving expenses from gross income. Which of the following items is considered a qualified moving expense?
Airfare for the taxpayer’s spouse to fly to the new duty station (the taxpayer drove separate)
The members of a household relocating to a new duty station do not have to travel together for the trip expenses to be deductible. However, taxpayer’s may only deduct expenses for one trip per person.
A taxpayer uses Form 5329 to calculate additional taxes. Which of the following taxes is NOT reported on Form 5329?
Additional tax due to the Alternative Minimum Tax
Individuals use Form 6251 to calculate their AMT liability.
Michael had to pay $4,000 alternative minimum tax last year caused by deferral items. This year his regular income tax is $60,000 and his tentative minimum tax is $57,000, so he will pay only regular income tax. How much credit for prior year minimum tax can he take this year?
$3,000
The credit for prior year minimum tax paid reduces the present year tax liability, but not below the tentative minimum tax for the year. The minimum tax credit is allowed only for the AMT caused by deferral items.
Which amount of 2020 self-employment income is subject to Social Security tax, reported on Schedule SE?
Net earnings up to $137,700
For 2020, the first $137,700 of net earnings is subject to both Social Security and Medicare taxes. Net earnings above that amount are not subject to Social Security tax. All net earnings are subject to Medicare tax. Therefore, net earnings up to $137,700 is subject to Social Security tax.
John, age 51, and his wife, Susan, age 45, file MFJ. John works part-time and received $20,000 in compensation. Susan does not work. How much can they make in combined contributions to their IRAs for the tax year 2020?
$13,000
For 2020, an individual taxpayer’s maximum contribution to a traditional IRA is the smaller of the following:
John is over age 50 and can contribute $7,000 to his IRA. Susan is eligible to make a contribution of $6,000 to her IRA. The total combined contributions they can make equals $13,000 ($7,000 John + $6,000 Susan).
What is the AGI limit for the deduction of noncash charitable contributions to most churches, educational organizations, hospitals, and publicly supported charities?
50%
The deduction for charitable contributions is limited to a percentage of a taxpayer's adjusted gross income (AGI). A limit of 50% of AGI for noncash gifts and 60% of AGI for cash gifts, applies to churches, educational organizations, hospitals, and publicly supported charities.
For 2020, the 60% of AGI limit is suspended and taxpayers making cash contributions to qualifying 50% organizations may deduct contributions up to 100% of AGI.
A lower limit of 30% of AGI applies to 30% organizations such as veterans' organizations, fraternal societies, nonprofit cemeteries, and certain private nonoperating foundations.
Which of the following, when greater than total tax due, can result in a refund?
All of the above
Generally, a refund results when the taxpayer has made tax payments in excess of tax calculated on Form 1040. Tax payments include taxes already withheld on Form W-2 and 1099, and estimated tax payments made during the taxable year. Additionally, specifically listed credits such as the earned income credit can offset any tentative tax owed. Form 1040 Instructions
If Ellie itemizes her deductions, which of the following deductions is also allowed for purposes of the Alternative Minimum Tax?
Casualty and theft losses
Personal property taxes and real estate taxes are added back (not deductible) for Alternative Minimum Tax if included in itemized deductions. However, if you itemize deductions, medical expenses, charitable contributions, and casualty and theft losses are not added back (are deductible) when calculating alternative minimum taxable income.
Which of the following does not need to file Schedule SE, Self-Employment Tax?
Mary, who earned $1,000 as an employee at a local grocery store.
A taxpayer is required to file a return if any of the following conditions applies, even if income is less than the gross income threshold:
John, Melissa, and Quentin all have earnings from self-employment or church employment which require them to file Schedule SE and pay self-employment tax. Mary is an employee. She pays Social Security and Medicare tax through FICA withholding from her paycheck and does not need to file Schedule SE.
Luis is an ordained minister and common-law employee of a church. His earnings and parsonage allowance are treated as self-employment income on which he pays self-employment tax. The church has no retirement plan covering Luis. Which of the following is Luis permitted to establish for himself?
Traditional IRA
Common-law employees are not self-employed and cannot set up retirement plans for income from their work, even if that income is self-employment income for social security tax purposes.
The Section 199A deduction applies to:
1, 2, 3, 4
The Section 199A deduction applies to:
An individual taxpayer's Total Tax includes:
1, 2, 3, 5
Calculate income tax as a percentage of taxable income. After income tax and any alternative minimum tax, subtract any non-refundable tax credits and add any other taxes owed. Non-refundable credits only reduce tax; the taxpayer does not receive a refund of any excess. The result is the taxpayer’s total tax.
The IRS treats refundable credits the same as payments of tax.
Dan files his taxes jointly with his wife. Their 2020 alternative minimum taxable income (AMTI) is $1,165,000, which exceeds their AMT exemption. Dan must reduce his exemption by what percentage of excess AMTI?
25%
The 2020 exemption amounts reduce by 25% of AMTI in excess of the following:
Troy has income from several sources:
Which of the income sources is NOT considered earnings from self-employment?
Income from the S Corporation
Income passed through to S corporation shareholders is not self-employment income for self-employment tax purposes. This is one of the main advantages of S corporations.
Payment of commissions or fringe benefits could be part of income from self-employment if the recipient is self-employed.
Guaranteed payments from the partnership are earnings from self-employment.
Michael, an active duty member of the US Army, incurs the following expenses when he moves duty stations from Texas to Georgia.
If Michael is reimbursed for 100% of the above expenses, how much of the reimbursement can be excluded from gross income?
$524.60
Because Michael is an active member of the US Armed Forces, reimbursements for moving expenses when he changes duty stations are excluded from gross income, except for the cost of meals. No deduction or tax-free reimbursement is allowed for the cost of meals.
Which of the following is NOT a factor in determining the amount of deductible home mortgage interest?
The size of the home which secures the mortgage
Which of the following is correct regarding tax credits on an individual income tax return?
Both A and B are correct
Non-refundable credits only reduce tax; the taxpayer does not receive a refund of any excess. The IRS treats refundable credits the same as payments of tax. Most tax credits are non-refundable.
Which of the following deductions is NOT added back into taxable income to arrive at alternative minimum taxable income?
Charitable Contributions
In calculating the alternative minimum taxable income, the first step is to add certain adjustments to taxable income. These include:
Itemized deductions for medical expenses, charitable contributions, and casualty and theft loss are not added back when calculating the alternative minimum taxable income.
Samuel made $525 after all expenses mowing lawns last summer while he was home from college. Does he have to report the income as self-employment income?
Yes, that amount is over the filing threshold for self-employment income.
You have to file an income tax return if your net earnings from self-employment were $400 or more.
Dean's 2018 divorce decree requires him to pay $2,000 per month to his ex-wife Cathy until their son reaches his twenty-first birthday. Does Cathy include these payments she receives in her 2020 income?
No, because the payments cease when their son reaches his twenty-first birthday.
She does not include the payments in income. The payments are child support because they terminate on the happening of a contingency relating to the child. There is no requirement that the payment be so designated in the divorce decree; however, payment of alimony must be designated.
A payment that is specifically designated as child support or treated as specifically designated as child support under a divorce or separation instrument is not alimony. A payment is treated as specifically designated as child support to the extent that the payment is reduced either on the happening of a contingency relating to the child or at a time that can be clearly associated with the contingency. Child support payments are not deductible by the payer and are not taxable to the recipient. A payment may be treated as specifically designated as child support even if other separate payments are specifically designated as child support.
A taxpayer is a cash basis taxpayer. In 2020, he incurred the following medical expenses for himself and his daughter, Terry, whom he claims as a dependent on his tax return.
The taxpayer's 2020 medical expense deduction before limitations is?
$4,500
$450 glasses + $800 dentist + $200 hospital ($900 - $700 reimbursement) + $1,250braces (placing on credit card is payment) + $1,500 Medical Insurance + $300 prescriptions = $4,500 Total Medical Expenses
The following are all true EXCEPT for:
Child tax credit phaseout begins for HOH at $400,000
The child tax credit phaseout begins at $400,000 for MFJ, $200,000 for HOH, Single, and MFS.
Alternative Minimum Tax paid in one year can be recaptured in a future year as a credit.
True, but it cannot reduce the future year's tax below the tentative minimum tax for that year.
A taxpayer with AMT liability in the current year may recapture that amount in future years in the form of a credit. However, the credit cannot reduce tax below the tentative minimum tax for that year. The credit is non-refundable and can offset future tax liability only to the extent that prior AMT tax paid was due to deferral items.
What is the amount of net earnings from self employment that determines whether or not a taxpayer must file Schedule SE and pay self-employment tax.
$400
A taxpayer is required to file a return if any of the following conditions applies, even if income is less than the gross income threshold: