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Adjustments to Income

Pub 4491 – Page 171Pub 4012 – Tab E

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Adjusted Gross Income

Total Income minus Adjustments =

Adjusted Gross Income (AGI)

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Intake/Interview

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In-Scope Adjustments

● Educator expenses

● Health Savings Account*

● Self-employment tax

● Early withdrawal penalty

● Alimony paid

● IRA contributions

● Student loan interest

● Tuition and fees deduction

● Jury duty pay given to employer

* Optional certification

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Adjustments to IncomeO

ut-o

f-Sc

ope

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Educator Expense – Line 23

● Up to $250 for classroom educational materials for taxpayer and $250 for spouse (if both educators). Ask about this if educator(s)

● Must be K–12 teacher, counselor, principal or aide

● Must work at least 900 hours during school year

● Claim entered on 1040 Wkt 2NTTC Training – 2013 6

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1040 Wkt2 in TaxWise

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Health Savings Accounts

● Counselors may obtain special certification to work with Health Savings Accounts (HSAs)

● Counselors must pass Advanced test before testing on HSA

● Course and test are in Pub 4942 or online at Link & Learn

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Portion of Self Employment Tax – Line 27

● SE Tax = Social Security and Medicare tax for Self-Employed

● Adjustment comes from Schedule SE

● Schedule SE automatically generated from Schedule C

● Details in later lesson

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Early Withdrawal Penalty – Line 30

● Penalty for withdrawal of funds from time deposits, such as CDs

● As reported on 1099-INT or 1099-OID

● In TaxWise, flows from Interest Statement

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Alimony Paid – Line 31a

● Allowed if paid under a Divorce/Separation Agreement

● Must provide recipient’s Social Security No.

● Recipient must claim as income

● Link to Alimony Paid Worksheet from Line 31 if paid to more than one ex-spouse

● Child Support not deductible

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IRA Contribution – Line 32

● Can contribute lesser of $5,500 ($6,500 if age 50 or over) or taxable compensation

● Taxable compensation Wages, tips, bonuses, Sch C income, alimony Not interest, dividends, pensions, social

security

● Actual amount depends on Taxpayer/ spouse retirement plans, modified AGI, age and filing status

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IRA Contribution – Line 32

● Age limits For traditional IRA – under 70½ For Roth IRA – no age limit

Note: Roth IRA contribution is not deductible and will not show on line 32

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IRA Contribution – Link to IRA Worksheet

These data entered automatically

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IRA Contribution (cont)

● Enter Traditional IRA contributions on line 10● If part nondeductible, TW generates Form 8606

● Enter Roth contributions on line 20● Can be a mixture so long as limit is not exceeded

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Non-Deductible Contributions

● If client participates in employer’s plan and AGI is too high Some or all of Traditional IRA

contribution may be nondeductible

● Client might prefer a Roth IRA instead of a Traditional IRA

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Non-Deductible Contributions

● TW adds Form 8606 to form tree Part I is in scope If not carried forward, input beginning of

year basis on line 2 (from 2012 Form 8606 line 14)

● TW carries the deductible amount, if any, to Line 32

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Student Loan Interest – Line 33

● Intake and Interview Sheet – Part V, Q8

● If > $600, should receive Form 1098-E

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Student Loan Interest – Line 33

● Interest paid on qualified student loan for post secondary education expenses

● Qualified Loan: Expenses of taxpayer, spouse, or

dependent (when loan originated) For education expenses paid within

reasonable time since loan was opened For education provided during academic

period when eligible student

Pub 17, Ch 19

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Student Loan Interest – Line 33

● Qualified Loan (cont.) Loan cannot be from relative Taxpayer cannot be filing MFS Taxpayer cannot be claimed on someone

else’s return Loan cannot be from qualified retirement

plan Taxpayer must be liable on the loan

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Student Loan Interest – Line 33

● Maximum $2,500 per year

● Phases out as AGI increases

● Link to 1040 Wkt 2

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1040 Wkt2 in TaxWise

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Tuition and Fees – Line 34

● Up to $4,000 adjustment allowed

● For qualified education expenses of higher education

● One of several choices for education benefits Will cover details in education benefits

lesson later

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Jury Duty Pay Given to Employer

● Show Jury Pay received on Line 21, Other Income

● Enter amount turned over to employer on Line 35

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Quality Review – Adjustments

● Does 1040 page 1 reflect Adjustments properly

● Compare with Interview form

● Compare with last year’s return

● Were other forms generated that should be addressed

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Adjustments to Income

Questions?

Comments…

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Let’s Practice In TaxWise

● Open return for Kent in TaxWise

● From Pub 4491W page 67, enter adjustments

● Verify tax liability

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