MODULE 33 TAXES: INDIVIDUAL
(even if one spouse is not working), provided that the com-
bined earned income of both spouses is at least equal to the
amounts contributed to the IRAs. Even though Val is cov-
ered by his employer's qualified pension plan, the Whites
are eligible for the maximum deduction because their gross
income of $35,000 + $4,000 = $39,000 does not exceed the
base amount ($85,000) at which the maximum $5,000 de-
duction would be reduced. Also note that Pat's $4,000 of
taxable alimony payments is treated as compensation for
purposes of qualifying for an IRA deduction. Since they
each contributed $5,000 to an IRA account, the allowable
deduction on their joint return is $10,000.
96. (d) The requirement is to determine the definition of
"earned income" for purposes of computing the annual con-
tribution to a Keogh profit-sharing plan by Davis, a sole
proprietor. A self-employed individual may contribute to a
qualified retirement plan called a Keogh plan. For 2009, the
maximum contribution to a Keogh profit-sharing plan is the
lesser of $49,000 or 25% of earned income. For this pur-
pose, "earned income" is defined as net earnings from self-
employment (i.e., business gross income minus allowable
business deductions) reduced by the deduction for one-half
of the self-employment tax, and the deductible Keogh con-
tribution itself.
97. (d) A single individual with AGI over $65,000 for
2009 would only be entitled to an IRA deduction if the tax-
payer is not covered by a qualified employee pension plan.
98. (c) The requirement is to determine the allowable"
IRA deduction on the Cranes' 2009 joint return. Since Sol
is covered by his employer's pension plan, Sol's contribu-
tion of $5,000 is proportionately phased out as a deduction
by AGI between $89,000 and $109,000. Since the Cranes'
AGI exceeded $109,000, no deduction is allowed for Sol's
contribution. Although Julia is not employed, $5,000 can be
contributed to her IRA because the combined earned income
on the Cranes' return is at least $10,000. The maximum
IRA deduction for an individual who is not covered by an
employer plan, but whose spouse is, is proportionately
phased out for AGI between $166,000 and $176,000. Since
Julia is not covered by an employer plan and the Cranes'
AGI is below $166,000, the $5,000 contribution to Julia's
IRA is fully deductible for 2009.
99. (d) The requirement is to determine the Lees' maxi-
mum IRA contribution and deduction on a joint return for
2009. Since neither taxpayer was covered by an employer-
sponsored pension plan, there is no phaseout of the maxi-
mum deduction due to the level of their adjusted gross in-
come. For married taxpayers filing a joint return, up to
$5,000 can be deducted for contributions to the IRA of each
spouse (even if one spouse is not working), provided that the
combined earned income of both spouses is at least equal to
the amounts contributed to the IRAs. Additionally, an indi-
vidual at least age 50 can make a special catch-up contribu-
tion of $1,000 for 2009, resulting in an increased maximum
contribution and deduction of $6,000 for 2009. Thus, the
Lees may contribute and deduct a maximum of $12,000 to
their individual retirement accounts for 2009, with a maxi-
mum of $6,000 placed into each account.
100. (c) The maximum amount of contributions to a
defined contribution self-employed retirement plan is lim-
465
ited to the lesser of $49,000, or 100% of self-employment
income for 2009.
101. (d) The requirement is to determine which allowable
deduction can be claimed in arriving at an individual's ad-
justed gross income. One hundred percent of a self-
employed individual's health insurance premiums are de-
ductible in arriving at an individual's adjusted gross income
for 2009. Charitable contributions, foreign income taxes (if
not used as a credit), and tax return preparation fees can be
deducted only from adjusted gross income if an individual
itemizes deductions.
I1.G. Deduction for Interest on Education Loan
102. (b) The requirement is to determine the incorrect
statement concerning the deduction for interest on qualified
education loans. For a tax year beginning in 2009, an indi-
vidual is allowed to deduct up to $2,500 for interest on
qualified education loans in arriving at AG!. The deduction
is subject to an income phase-out and the loan proceeds must
have been used to pay for the qualified higher education
expenses (e.g., tuition, fees, room, board) of the taxpayer,
spouse, or a dependent (at the time the debt was incurred).
The education expenses must relate to a period when the
student was enrolled on at least a half-time basis. The sixty-
month limitation was repealed for tax years beginning after
2002.
103. (c) The requirement is to determine how Dale
should treat her $1,000 jury duty fee that she remitted to her
employer. Fees received for serving on a jury must be in-
cluded in gross income. If the recipient is required to remit
the jury duty fees to an employer in exchange for regular
compensation, the remitted jury duty fees are allowed as a
deduction from gross income in arriving at adjusted gross
income.
Ill. Itemized Deductions from Adjusted Gross Income
104. (b) The requirement is to determine George's tax-
able income. George's adjusted gross income consists of
$3,700 of dividends and $1,700 of wages. Since George is
eligible to be claimed as a dependency exemption by his
parents, there will be no personal exemption on George's
return and his basic standard deduction is limited to the
greater of $950, or George's earned income of $1,700, plus
$300. Thus, George's taxable income would be computed
as follows:
Dividends $ 3,700
1.700
Wages $ 5,400
AGI o
Exemption (2.000)
Std. deduction $~
Taxable income
105. (c) The item asks you to determine the requirements
that must be met in order for a single individual to qualify
for the additional standard deduction. A single individual
who is age sixty-five or older or blind is eligible for an ad-
ditional standard deduction ($1,400 for 2009). Two addi-
tional standard deductions are allowed for an individual who
is age sixty-five or older and blind. It is not required that an
individual support a dependent child or aged parent in order
to qualify for an additional standard deduction.