ACC MISC : Chapter 8 Lecture.pdf - Chapter
8: Adjustments to Income...
Chapter 8: Adjustments to Income
Overview
Chapter Description
Upon completion of this chapter, students will be able to determine whether any of
the adjustments to total income specified on lines 11-26 of Schedule 1 (Form 1040)
apply to a taxpayer. Students will also be able to explain the calculation of each
adjustment and be able to identify any additional form required to report the
applicable adjustment on a taxpayer's federal return.
The following content is based on 2022 tax law for 2021 tax returns; however, discussions
of prior year tax law will be addressed as applicable.
Learning Objectives
1) Explain the applicability and reporting of the educator and moving expense
adjustments as they relate to employment.
2) Discuss the required reporting of the three business-related adjustments.
3) Review the required reporting of the retirement-related adjustments for self-
employed and individual taxpayers.
4) Explain the applicability and reporting of the adjustments related to education
expenses.
5) Determine when a deduction can be taken for a Health Savings Account,
penalty on early withdrawal of savings, or alimony as they apply to the
individual taxpayer.
6) Identify the other less common adjustments, which, if applicable, will be
included as part of the totals on Schedule 1 (Form 1040).
Key Terms
Adjusted Gross Income (AGI)
Adjustments to Income
Excess Contributions
Individual Retirement Arrangement (IRA)
Keogh Plan
Modified AGI for purposes of IRAs
Phaseout
Roth IRA
Self-Employment Tax
Tax-Deferred
Outline of Chapter Learning Materials
Based on the chapter learning objectives specified above, the chapter materials will
be organized into six major categories. Each category will include two or more of the
Copyright © 2022, The Income Tax School, Inc. – All Rights Page
Reserved 8.1
, adjustments listed on lines 11-26 of Schedule 1 (Form 1040). Each adjustment will
decrease the taxpayer's total income. After subtracting all applicable adjustments,
the taxpayer will arrive at an amount called adjusted gross income (AGI). The major
categories and adjustments included within each objective will be discussed as
follows:
Copyright © 2022, The Income Tax School, Inc. – All Rights Page
Reserved 8.2
, 1. Employment-related:
Educator expenses
Moving expenses for members of the Armed Forces
2. Business-related:
Certain business expenses of reservists, performing artists, and
fee-basis government officials
Deductible portion of self-employment tax
Self-employed health insurance deduction
3. Retirement-related:
Self-employed SEP, SIMPLE, and other qualified plans
IRA deduction
4. Adjustments related to education expenses:
Student loan interest deduction
Tuition and fees deduction
5. Adjustments related to individual taxpayers:
Health savings account deduction
Penalty on early withdrawal of savings
Alimony paid (for divorces that were finalized by 31 December 2018)
6. Other less common adjustments (lines 24a-24z of Schedule 1 (Form 1040))
Objective #1: Employment-Related Adjustments
Educator Expenses
A maximum of $250 of qualified expenses paid by a taxpayer who was an eligible
educator for tax year 2021 may be deducted on line 11 of Schedule 1 (Form 1040).
For taxpayers filing jointly, the maximum deduction is $500 ($250 each) of qualified
expenses if both taxpayers were eligible educators. However, the deduction is not
shared between the spouses, meaning one spouse cannot deduct $300 of qualified
expenses while the other spouse deducts $200 of qualified expenses. Both spouses
may deduct a maximum of $250 each.
A tax preparer must understand who meets the definition of an eligible educator,
before deducting qualified educator expenses on a taxpayer's return. Taxpayers
whose function or title is as listed below and who work with students in kindergarten
through grade 12 are eligible educators:
Teachers
Instructors
Counselors
Principals
Aides who are in a school for at least 900 hours during a school year
Based on the strict guidance indicated above, daycare and nursery school teachers
would not be eligible. Aides must be able to document that they were employed by a
school for at least 900 hours during the school year.
After it is determined that the taxpayer is an eligible educator, the second step is to
calculate the amount of qualified expenses.
Qualified expenses include ordinary and necessary expenses paid:
For professional development courses, the taxpayer has taken related to
the curriculum they teach or to the students they teach, or
In connection with books, supplies, equipment (including computer
equipment, software, and services), and other materials used in the
classroom.
Copyright © 2022, The Income Tax School, Inc. – All Rights Page
Reserved 8.3
, An ordinary expense is one that is common and accepted in the taxpayer's
educational field. A necessary expense is one that is helpful and appropriate for
the taxpayer's profession as an educator. An expense does not have to be
required to be considered necessary.
Practice Note: In order to prevent the spread of COVID-19, some educators may have
incurred expenses related to personal protective equipment, disinfectant, and other
supplies. Any amounts incurred or paid after March 12, 2020, are considered qualified
educator expenses.
Qualified expenses do not include expenses for homeschooling or nonathletic
supplies for courses in health or physical education. The taxpayer must reduce
their qualified expenses by the following amounts:
Excludable U.S. series EE and I savings bond interest from Form 8815.
Nontaxable qualified tuition program earnings or distributions.
Any nontaxable distribution of Coverdell education savings account earnings.
Any reimbursements the taxpayer received for these expenses that were
not reported in box 1 of their Form W-2. 1
Taxpayers who are eligible educators must present documentation that supports
their claimed adjustment for educator expenses. This documentation should consist
of such items as receipts, canceled checks, and anything else that could indicate the
cost, type of item, purpose, and amount.
The educator expenses are to be listed as an adjustment to income on Schedule 1
(Form 1040), line 11.
2
Moving Expenses
Who Can Deduct Moving Expenses?
If the taxpayer is a member of the Armed Forces on active duty and their move is due
to a military order and incident to a permanent change of station, they can deduct
the moving expenses. Moving expenses are reported on Schedule 1 (Form 1040), line
14. Note that Form 3903, Moving Expenses, should be completed first to ensure the
entry on line 14 is accurate.
3
1
2021 Form 1040 Instructions, page 88
Copyright © 2022, The Income Tax School, Inc. – All Rights Page
Reserved 8.4
8: Adjustments to Income...
Chapter 8: Adjustments to Income
Overview
Chapter Description
Upon completion of this chapter, students will be able to determine whether any of
the adjustments to total income specified on lines 11-26 of Schedule 1 (Form 1040)
apply to a taxpayer. Students will also be able to explain the calculation of each
adjustment and be able to identify any additional form required to report the
applicable adjustment on a taxpayer's federal return.
The following content is based on 2022 tax law for 2021 tax returns; however, discussions
of prior year tax law will be addressed as applicable.
Learning Objectives
1) Explain the applicability and reporting of the educator and moving expense
adjustments as they relate to employment.
2) Discuss the required reporting of the three business-related adjustments.
3) Review the required reporting of the retirement-related adjustments for self-
employed and individual taxpayers.
4) Explain the applicability and reporting of the adjustments related to education
expenses.
5) Determine when a deduction can be taken for a Health Savings Account,
penalty on early withdrawal of savings, or alimony as they apply to the
individual taxpayer.
6) Identify the other less common adjustments, which, if applicable, will be
included as part of the totals on Schedule 1 (Form 1040).
Key Terms
Adjusted Gross Income (AGI)
Adjustments to Income
Excess Contributions
Individual Retirement Arrangement (IRA)
Keogh Plan
Modified AGI for purposes of IRAs
Phaseout
Roth IRA
Self-Employment Tax
Tax-Deferred
Outline of Chapter Learning Materials
Based on the chapter learning objectives specified above, the chapter materials will
be organized into six major categories. Each category will include two or more of the
Copyright © 2022, The Income Tax School, Inc. – All Rights Page
Reserved 8.1
, adjustments listed on lines 11-26 of Schedule 1 (Form 1040). Each adjustment will
decrease the taxpayer's total income. After subtracting all applicable adjustments,
the taxpayer will arrive at an amount called adjusted gross income (AGI). The major
categories and adjustments included within each objective will be discussed as
follows:
Copyright © 2022, The Income Tax School, Inc. – All Rights Page
Reserved 8.2
, 1. Employment-related:
Educator expenses
Moving expenses for members of the Armed Forces
2. Business-related:
Certain business expenses of reservists, performing artists, and
fee-basis government officials
Deductible portion of self-employment tax
Self-employed health insurance deduction
3. Retirement-related:
Self-employed SEP, SIMPLE, and other qualified plans
IRA deduction
4. Adjustments related to education expenses:
Student loan interest deduction
Tuition and fees deduction
5. Adjustments related to individual taxpayers:
Health savings account deduction
Penalty on early withdrawal of savings
Alimony paid (for divorces that were finalized by 31 December 2018)
6. Other less common adjustments (lines 24a-24z of Schedule 1 (Form 1040))
Objective #1: Employment-Related Adjustments
Educator Expenses
A maximum of $250 of qualified expenses paid by a taxpayer who was an eligible
educator for tax year 2021 may be deducted on line 11 of Schedule 1 (Form 1040).
For taxpayers filing jointly, the maximum deduction is $500 ($250 each) of qualified
expenses if both taxpayers were eligible educators. However, the deduction is not
shared between the spouses, meaning one spouse cannot deduct $300 of qualified
expenses while the other spouse deducts $200 of qualified expenses. Both spouses
may deduct a maximum of $250 each.
A tax preparer must understand who meets the definition of an eligible educator,
before deducting qualified educator expenses on a taxpayer's return. Taxpayers
whose function or title is as listed below and who work with students in kindergarten
through grade 12 are eligible educators:
Teachers
Instructors
Counselors
Principals
Aides who are in a school for at least 900 hours during a school year
Based on the strict guidance indicated above, daycare and nursery school teachers
would not be eligible. Aides must be able to document that they were employed by a
school for at least 900 hours during the school year.
After it is determined that the taxpayer is an eligible educator, the second step is to
calculate the amount of qualified expenses.
Qualified expenses include ordinary and necessary expenses paid:
For professional development courses, the taxpayer has taken related to
the curriculum they teach or to the students they teach, or
In connection with books, supplies, equipment (including computer
equipment, software, and services), and other materials used in the
classroom.
Copyright © 2022, The Income Tax School, Inc. – All Rights Page
Reserved 8.3
, An ordinary expense is one that is common and accepted in the taxpayer's
educational field. A necessary expense is one that is helpful and appropriate for
the taxpayer's profession as an educator. An expense does not have to be
required to be considered necessary.
Practice Note: In order to prevent the spread of COVID-19, some educators may have
incurred expenses related to personal protective equipment, disinfectant, and other
supplies. Any amounts incurred or paid after March 12, 2020, are considered qualified
educator expenses.
Qualified expenses do not include expenses for homeschooling or nonathletic
supplies for courses in health or physical education. The taxpayer must reduce
their qualified expenses by the following amounts:
Excludable U.S. series EE and I savings bond interest from Form 8815.
Nontaxable qualified tuition program earnings or distributions.
Any nontaxable distribution of Coverdell education savings account earnings.
Any reimbursements the taxpayer received for these expenses that were
not reported in box 1 of their Form W-2. 1
Taxpayers who are eligible educators must present documentation that supports
their claimed adjustment for educator expenses. This documentation should consist
of such items as receipts, canceled checks, and anything else that could indicate the
cost, type of item, purpose, and amount.
The educator expenses are to be listed as an adjustment to income on Schedule 1
(Form 1040), line 11.
2
Moving Expenses
Who Can Deduct Moving Expenses?
If the taxpayer is a member of the Armed Forces on active duty and their move is due
to a military order and incident to a permanent change of station, they can deduct
the moving expenses. Moving expenses are reported on Schedule 1 (Form 1040), line
14. Note that Form 3903, Moving Expenses, should be completed first to ensure the
entry on line 14 is accurate.
3
1
2021 Form 1040 Instructions, page 88
Copyright © 2022, The Income Tax School, Inc. – All Rights Page
Reserved 8.4
