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Unformatted text preview: Becker CPA Review Regulation 2 Class Notes 1 2009 DeVry/Becker Educational Development Corp. All rights reserved. REGULATION 2 CLASS NOTES This lecture covers the taxation of individuals with an emphasis on adjustments, the standard deduction, itemized deductions, tax calculations, tax credits and the alternative minimum tax. According to the AICPA's Content Specification Outline these items and the items listed in lecture R1 should make up between 28% and 34% of your Regulation examination. ADJUSTMENTS, STANDARD DEDUCTION AND ITEMIZED DEDUCTIONS I. ADJUSTMENTS A. Very Important! B. The examiners can use many terms for the same amounts - Adjustments to Gross Income; adjustments to Arrive at AGI; Deductions to Arrive at AGI; deductions for AGI; above the line deductions. C. Adjustments are available to anyone regardless of taking the standard deduction or itemized deductions. Educator Expenses, IRA, Student Loan Interest, Tuition & Fees, Health Savings Account, Moving Expenses, self-employment Taxes, Self-employed Health Insurance, Self-employed Retirement, Early Interest Withdrawal Penalty, Alimony. D. Educator Expenses (K-12 th Grade, up to $250 qualified expenses ). This expired on 12/31/07, but it is expected to be extended. E. Individual Retirement Accounts (4 types of IRAs) Deductible IRAs are tested often. Know rules regarding deductibility $5,000 in 2008. A non-working spouse can also contribute and claim full amount even if no earned income (based on working spouse's earnings). Alimony counts as "earned income." Limits apply to excessive AGI and active participation in a retirement plan (amounts do not have to be memorized but be familiar with approximate levels). Additional catch-up retirement contribution (Age 50 plus $1,000 in 2008). Roth IRAs are non-deductible , distributions are tax-free , $5,000 contribution limits apply, no plan participation limitations. Phase out = Single $101,000 - $116,000; MFJ $159,000 - $169,000 and MFS $0 - $10,000. Non Deductible IRAs $5,000 contribution limits, only earnings are taxable upon distribution, return of capital is tax-free, proration is necessary. Note the $5,000 contribution limit is aggregated so the maximum IRA contribution for any taxpayer is $5,000 or $10,000 MFJ. Coverdale Education Savings Accounts are not deductible; distributions are tax-free if used for qualified education. Know contribution requirements, $2,000 maximum contribution per beneficiary and phase out for higher AGIs Single $95,000 - $110,000 and MFJ $190,000 - $220,000. F. Student Loan Interest limited to $2,500 and phased out Single $55,000 - $70,000; MFJ $115,000 - $145,000 (MFJ); dependant cannot claim this adjustment....
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- Spring '10