Daryl is single and has a college degree in accounting and is a self-employed CPA. His AGI is $65,000. During 2022, he enrolled in a part-time M.Acc. (Master of Accounting) program and incurred the following expenses: $5,500 (tuition), $800 (books). $200 (other school supplies), and $100 (transportation to and from campus). His maximum deduction(s) in 2022 is (are):
a. Deduction of $0.
b. Deduction for AGI of $6,600 and deduction from AGI of $0.
c. Deduction for AGI of $4.000 and deduction from AGI of $0
d. Deduction for AGI of $4.000 and deduction from AGI of $2.600
The maximum deduction that Daryl can claim in 2022 is a deduction for AGI of $4,000 and a deduction from AGI of $2,600.
The tuition expenses of $5,500 can be claimed as a deduction for AGI, up to a maximum limit of $4,000. Therefore, Daryl can deduct $4,000 from his AGI.
The books and supplies expenses of $800 and other school supplies expenses of $200 are considered miscellaneous itemized deductions, which are subject to a 2% AGI floor. Since Daryl's AGI is $65,000, the 2% AGI floor is $1,300. Therefore, the deduction from AGI for these expenses is $800 - $1,300 = $0.
The transportation expenses of $100 are not deductible as education expenses.
In total, Daryl can claim a deduction for AGI of $4,000 and a deduction from AGI of $0. Therefore, the correct answer is option c. Deduction for AGI of $4,000 and deduction from AGI of $0.
To determine Daryl's maximum deduction in 2022 for his M.Acc. program expenses, we need to consider the rules for deducting education expenses.
1. Determining eligibility for education deductions:
a. The expenses must be incurred for the purpose of maintaining or improving skills required in the taxpayer's current trade or business.
b. The education must not be required to meet minimum job requirements set by the employer or by applicable law to retain salary, status, or job.
2. Determining the deduction amount:
a. Deduction for AGI (above-the-line deduction): This deduction reduces the taxpayer's Adjusted Gross Income (AGI) before calculating taxable income.
b. Deduction from AGI (below-the-line deduction): This deduction is taken after AGI has been determined and reduces taxable income.
Given that Daryl is a self-employed CPA and the M.Acc. program is related to his field of work, he is eligible for education deductions.
Now let's calculate his deductions:
1. Deduction for AGI: Daryl can deduct up to $4,000 of his education expenses (tuition, books, school supplies) as an above-the-line deduction. This deduction will directly reduce his AGI.
2. Deduction from AGI: Daryl can also deduct up to $2,600 of his education expenses (tuition, books, school supplies, transportation) as a below-the-line deduction. This deduction will reduce his taxable income.
Therefore, the correct answer is d. Deduction for AGI of $4,000 and deduction from AGI of $2,600.