 Oh, and welcome to the session. This is Professor Farhad in which we will go over a CPA exam simulation. And in the simulation, I'm gonna show you that the questions here are similar to a multiple choice questions. Basically, every single problem here on the simulation can be turned into an easy or a regular multiple choice. The point I'm trying to make is CPA simulations are no more than multiple choice framed differently. Now, once you are looking at a simulation, the first thing you want to know is what type of a simulation I'm dealing with? Is this a journal entry type of simulation? Is this research? Is this document review? Is this, does it involve some dropdown menu? Let's take a look real quick. And here it looks like we have to do some computation. So it's a computation entry. So you have to input some numbers here. So that's the type of the simulation. The next thing you want to find out is what is the topic of the simulation? And just by not reading anything, you can see here, it seems we need to compute adjusted gross income. Great, adjusted gross income. That's the topic of the simulation. What do we need to know about adjusted gross income? Well, do you know your deduction for adjusted gross income? Do you know your deduction from adjusted gross income? So that's what you need to know about adjusted gross income. So let's go ahead now and get started and read what's giving and try to answer the questions. All taxpayer file their form 1040 using the tax filing status of single. Assume that each taxpayer's initial calculation of gross income is 68, which includes no capital gains or losses. Before considering the situation below, enter all the amounts as positive. Enter all the amounts as positive. Whole value of the amount is zero enter zero. So simply put, you are giving an individual single taxpayer gross income 68 and you are giving independent scenarios, which is good. It means that if you got two right, you might get three wrong, you might get four right. So it's not all connected, which is good, which is a good thing. Before we proceed any further, I have a public announcement about my company, farhatlectures.com. Farhat Accounting Lectures is a supplemental educational tool that's gonna help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course, such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions as well as exercises. Go ahead, start your free trial today. Now, starting with the first scenario, you are starting with 68,000 of gross income. You are giving self-employment health insurance premium paid of 6,000. So let's pull the calculator here because we need to start using the calculator as we are computing adjusted gross income. So you would say, I'm starting with 68,000. I have self-employment health insurance premium paid. Well, is this deductible to arrive to AGI? And the answer is yes. You need to know that if you pay self-employed health insurance premium, if you are self-employed and you're paying your health insurance, it's deducted for AGI, it means before AGI. It means you can deduct 62,000 to come up to your AGI. Then these taxpayer paid $6,000 in self-employment tax paid. A self-employment tax paid a business expense. And the answer is yes. Therefore it's deducted for AGI, correct. Is the 9,000 deducted? And the answer is no. You can only deduct half of self-employment tax because half of it is for yourself, half of it is for your business. So you're allowed a $4,500 deduction because self-employment taxes are, 50% of them are deductible. Now, $4,000 unreimbursed non-business casualty loss incurred in federally declared disaster area. Generally speaking, is this a deductible, this is a deductible expenditure or amount or expense? And the answer is yes. It is deductible. It is deductible for AGI, adjusted gross income. And the answer is no, because this $4,000 unreimbursed non-business casualty loss incurred in federally declared disaster area is deductible from AGI. This is part of your itemized deduction. And this is where they're trying to trick you here. There are two tricks here. One is the self-employment, half of it. The other one is, this is a deductible amount, but it's from AGI. So after you compute your AGI, you will deduct itemized deduction if you are taking your itemized deduction. Therefore, as far as I'm concerned, for the first scenario, adjusted gross income is $57,500. Now, can I turn this scenario into a multiple choice? Sure, I would say a taxpayer, a single taxpayer with gross income of $68,000 has the following items, computer adjusted gross income. And I'll give you four options and I'll give you those items and I'll give you four options. And one of the options is $57,500. Notice this is a multiple choice question. However, it's in a simulation format. So I'm not gonna repeat myself, but I'm telling you each, practically, practically, each simulation can be turned into a multiple choice. So the key is to know how to compute adjusted gross income. Let's look at the other scenario. We're starting with $68,000. The taxpayer made a $2,000 contribution to a Roth IRA. That's good, that's a smart taxpayer. Is the amount deductible? No, but it's an IRA. Yes, but it's a Roth IRA. Roth IRA are not deductible. If it's a regular IRA, it will be deductible, assuming they meet all the other conditions. But Roth IRAs are not deductible. Therefore, I will ignore this 2,000. It's not deducted. You'll put it away, it will grow tax-free, but it's not deductible on your 1040 for AGI. $180 remittance of jury duty pay to employer. What does that mean? It means one of the employees got paid $180 for jury duty. That's fine, that's income. Why am I talking about this? Well, the individual submitted this money to their employer, something will happen because you have to take off work to attend a jury duty, it's mandatory. So what happened is the court where you served as a jury, they will pay you money. Well, what did this employee did? They gave this money to their employer. Why? Because you're gonna give money to your employer, then they're gonna give it back to you. This is how it works. So is it deductible for AGI? Yes, because this amount here is deductible because it's gonna be deducted because you gave it to them, they're gonna give it back to you. Because you gave it to them, you can deduct it as far as you are concerned, $180 is deducted. Now, a $200 penalty on early withdrawal of certificate of deposit. What do we need to do with this? Well, you need to know that penalty on early withdrawals of CDs is a deductible amount for AGI. It's one of the deductible amount. If you look at your 1040, there's a line for this. Therefore I can deduct $200. You need to know what are your deductions for AGI? You can memorize them, you can try to understand them. For example, if you work with them constantly, you would remember what they are. But if not, you have to make sure, what's the deduction for AGI? What's the deduction from AGI? The deduction from AGI are the itemized deduction. So you need to know what your itemized deduction. I believe it's easier if you're studying for the exam to remember your itemized deduction and anything that's not itemized, generally speaking, it's for AGI. Therefore it's for AGI, not from AGI. So here the adjusted gross income is 67,620. I would always clear my tape if I'm done with this. Let's take a look at this scenario. Starting with 68,000 as gross income, 24,000 amount of traditional IRA that was rolled over to another traditional IRA in a direct trustee-to-trustee transfer within 50 days. What happened here is you transferred your IRA from one account to another account. It's a direct transfer. You did not see the money. You did not touch the money. Is this deductible, taxable, anything? Not at all. It's nothing, it's all over. Nothing happened. So you don't do anything with this 24,000 because it's trustee-to-trustee transfer. $8,000 gambling losses. No winning reported. Can you deduct your gambling losses? And the answer is yes, if you have gambling winning, you can deduct your gambling losses after your gambling winning. So if you had 5,000 of winnings, you can deduct of the 8,000 and reduce your winnings to zero and you would still have 3,000 of gambling losses. But what can you do with excess gambling losses? Nothing. Therefore, this gambling losses, there's nothing you can do with it. $200, unreimbursed classroom supply. The taxpayer is an eligible educator. You have to know this, just like you have to know about the penalty early withdrawal penalty. Educators, they can deduct a certain amount of money for their AGI if they bought classroom supplies. So they can deduct $200 if this is an eligible educator. And I'm done. For this scenario, 67,800 and I am done. Let's take a look at this scenario, this individual. Clear the tape, starting with 68,000. $6,000 loss on sale of personal use automobile. Well, it's bad, but losses on personal items, not deductible. We can ignore this. $10,000 contribution to the capital of S corporation. That's good, you're starting a business, but it's not deductible for AGI. We're not gonna give you a deduction because you're starting a business. $3,000 right off of a worthless non-business loan. Well, you have to know the rules here. It's a non-business loan. It means a personal loan and it's a right off. Basically, you gave up on collecting the money. If that happens, this becomes a short-term capital loss. And what can you do with 3,000 of short-term capital losses? You can deduct up to 3,000 of short-term capital losses. Therefore, your adjusted gross income is 65,000. Let's take a look at this scenario. Starting with 68,000 in gross income. 1,600 student loan interest paid. Assuming no phase-out apply. Well, can you deduct? The mere fact that they're giving you no phase-out applies. It means somehow it's deductible, right? Because they're telling you they will not tell you no phase-out apply. But they don't have to know the phase-out. All what they're telling you, don't worry about the phase-out. Say, can you deduct student interest loan for AGI? And the answer is yes. Also, there's a limit on how much you can deduct per year and we are assuming we are below the phase-out, we are below the limit. So, yes, you can. It's deductible for AGI. There's a separate line on form 1040 for that. Therefore, I can deduct 1,600. 12,000 cash inheritance received from a relative's estate. Is this deductible for AGI? Well, for one thing, you receive the cash. Why would it be deductible? That would be nice. But you receive the money, then you get a deduction for it, right? So, this is like a no-no, for sure. $8,000 prior year state income tax is paid in the current year. Hold on a second. I think I can deduct my taxes on my state taxes, state income taxes. Well, yes, you might be able to deduct it, but it's an itemized deduction. It's a deduction from AGI, not for AGI. Again, they're trying to trick you. Do you know your deduction? From AGI or for AGI? And this is what forehead lectures does. I can, I have lessons, specifically, emphasizing that deduction from AGI, deduction for AGI. So, to wrap it up, what needs to be done? Well, the simulation is a series, this simulation is a series of simple, multiple choice questions that if you know your adjusted gross income, how to compute what's for adjusted gross income, what's deducted from adjusted gross income, you will ace the simulation. Again, my point is, once you look at the simulation, what's the topic, your confidence level should go up, your stress level should go down. Once you know the topic, and focus. It's easier said than done, but the more the practice, the better off you are. So, the more confident you are, you walk under the exam and you're shaky about adjusted gross income. You're gonna be shaky about the simulation. You walk under the exam and knowing everything about adjusted gross income for and from, you would say, oh, great, bring it on. And this is the attitude that I want you to have. Bring on any simulation. Fahad lectures can help you. Good luck, study hard, and of course, stay safe.