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Lesson 10
Adjustments to Income
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Objectives
• Identify which IRA contributions are within the scope of the VITA/TCE
• Calculate and accurately report adjustments to income
• Identify contribution limits for IRAs• Calculate Student Loan Interest
Deduction
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Intake and Interview Sheet
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Adjustments to Income
• Contributions to traditional IRAs• Student Loan Interest Deduction• One-half of the Self-employment
Tax paid• Alimony paid
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Adjustments to Income- continued
• Jury Duty Pay given to your employer• Penalty for early withdrawal of savings• Overnight travel expenses of National
Guard and Reserve members (Covered in Lesson 4 - Military Travel Expenses)
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Individual Retirement Accounts
• Contributions to traditional IRAs may result in an adjustment
• Contributions to non-traditional IRAs do not create an adjustment to income and are not covered in this lesson. Examples include:•Roth IRAs•SIMPLE IRAs•Coverdell ESAs
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Contribution Limits for IRAs
• Maximum contribution for 2006 is $4,000 if the taxpayer is under age 50
• Maximum contribution for 2006 is $5,000 if the taxpayer is age 50 or over
• Spousal IRAs have the same contribution limits
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Deductible Contributions
• Some of the contributed amount may not be deductible depending on:
–Covered by an employer plan (yourself or spouse)
–Modified Adjusted Gross Income–Filing Status
• Excess contributions are taxed at 6% unless withdrawn by April 15th.
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Non-Deductible IRA Contributions
• If the taxpayer is covered by an employer’s pension plan (as indicated on the W-2), part of the IRA contribution may not be tax deductible
• Use Form 8606 to compute and track the non-deductible portion of the IRA
• Contributions to a Roth IRA are never deductible
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IRA Review Questions
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IRA Review Questions (Continued)
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Student Loan Interest
• The maximum deduction for 2005 is $2,500
• If taxpayer paid $600 or more should receive a statement from lender
• AGI limits apply
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Other Adjustments
• One-half Self-employment tax• Penalty for early withdrawal from
savings• Alimony Paid• Jury Duty Pay given to an employer
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Other Adjustments (con’t)
Targeted Questions
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Quality Review
Verify that the: All adjustments, deductions and credits indicated on the intake sheet and supporting documents are included on the return.
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Lesson Summary
• Income adjustments covered in this lesson
• How do they effect the Adjusted Gross Income?
• Where do you claim them?
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TaxWise® Hints Review
• Worksheets are completed as data is entered on the Form 1040 or 1040A.
• Take advantage of F-9 linking directly from lines on the 1040 or 1040A
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Military Course
Moving Expenses
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Military Objectives
• Identify qualifying moves by assisting in determining if the move qualifies as a permanent change of station (PCS).
• Determine when allowances and reimbursements must be included in income.
• Identify deductible moving expenses.• Compute the moving expense
deduction using Form 3903.
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Permanent Change of Station
• Home to Post of Duty.• Post of Duty to Post of Duty.• Post of Duty to home or nearer point
in US within one year.• Spouse and Dependant rule.
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Reimbursements and Allowances
• Any payments received for a do-it-yourself (DITY) permanent change of station (PCS) move must be included in gross income.
• Certain moving and storage services and allowances are not included in gross income.
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Deductible Moving Expenses
• Cost of moving household goods and personal effects.
• The cost of reasonable travel and lodging expense.
• Definition of a foreign move.• How to report Deductible
Expenses.
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Lesson Summary
• Qualifications for Moving Expense Deduction
• Deductible Moving Expenses• Form 3903 – Used to compute
Moving Expense Deduction