 Hello, and welcome to the session. This is Professor Farhad. In this session, we would look at an actual CPA exam simulation released by the AI CPA. This is as real as it gets as the AI CPA administered the actual CPA exam. Specifically, we're going to be looking at RAG simulation. As always, I would like to remind you to connect with me on LinkedIn. If you haven't done so, YouTube where you would need to subscribe. I have 1,600 plus, accounting, auditing, finance and tax lectures. I cover all CPA topics and practically all accounting courses, including hundreds if not thousands of CPA questions. On my website, I have additional resources such as PowerPoint slides, true, false, notes, multiple choice, 2,000 plus CPA questions. So what I'm going to do now, I'm going to move on to the CPA simulation and work the simulation together. So this is what the simulation would look like. So the first thing you want to do is take a look at the instruction. And this is what it actually looks on the exam days. You want to make sure you are familiar with all your resources. So basically the simulation reads, review the items for each independent situation for separate tax payers shown in column A of the table below and enter the appropriate amount of the taxpayer AGI reflected on form 1040 US individual tax return in column B. This is column B right here. All taxpayer file their 1040 using tax filing status of single assume that each taxpayer initial calculation of the gross income is 68,000 which include no special capital gain or loss before considering the situation listed below. Enter all amounts as positive, whole values of the amount is zero enter zero. So basically they want to test you to know if you have to come up with AGI. So they want you to know what are the deduction for AGI? That's basically what they're asking you. Do you know how to compute AGI adjusted gross income? That's the whole question. Now, the first thing I want to tell you is in this simulation, if you get the simulation you are lucky in a sense that each situation is independent. So if you get two wrong, you'll get three right. You may get three right for wrong but you can get five correct. So this is good because they are not interconnected but the topic is the same adjusted gross income. What does that mean for you? It means all what they're asking you is do you know what's deducted for AGI? What's not deducted for AGI? So it's the same concept that you have learned for the multiple choice, but it's tested differently. That's the only thing. So simulations are nothing more than just long multiple choice questions and sometimes they're short multiple choice questions. So let's take a look at the first question. So situation, these are the situations. Situation two, okay? We have, so basically we are starting, so let's pull the calculator here. We are starting with, let me just make sure we can see the calculator. Let me pull it, okay, there we go. Let me get it close to here because we're gonna need to use the calculator for this example, obviously. Let me just go back, okay. So we are starting with the energy with the gross income of $68,000. That's what we have. Now, we are told that we had $6,000 of self-employment health insurance premium. Well, because those figures, those cases are not taken into account. So what do we need to do if we have self-employment health insurance premium paid? Well, that's deductible for AGI. What does that mean? It means we need to deduct $6,000. Now we're down to $62,000. Now we are down to $62,000. Then we incurred $9,000 of self-employment tax paid. So what do we do if we incurred 9,000 of self-employment tax paid? It means we have a business and we had to pay self-employment taxes. We can deduct half of the self-employment tax to get to AGI. So we're gonna deduct $4,500. Now, the last thing we have is $4,000 and that's reimbursed non-business, which is personal casualty loss incurred in a federally declared disaster area. Is this deductible? Yes, it is deductible. It's deductible for AGI. No, it's not. So remember, unreimbursed non-business casualty loss incurred in a federally declared disaster area is deductible from AGI. Therefore, we cannot deduct it here. Because either ask and you hear, compute AGI. Therefore, AGI is simply put $57,500. Now, could they ask you this question in a multiple choice? I'm sorry, 57. So be careful, 57,500. So this same scenario could have been listed in a multiple choice given you four options and you will choose compute AGI. Here's the gross income. Here are the three factors. Which one of them is deductible for AGI? It's as simple as that. So notice, it's just a multiple choice in a different format, okay? Let's take a look at this scenario. So we are always clear that they, before you start the second problem. So you are starting with 68,000 in gross income and they want you to take into account 2,000 contribution to Roth IRA. What do you need to know about Roth IRA? Roth IRA is not deductible. Therefore, we ignore it. It doesn't affect our adjusted gross income. $180 remittance of jury duty pay to employer. Now, what happens sometime? When you receive money from jury duty, it's income. But if you remit that money to your employer, then you can deduct it. So the net effect is zero. You got it, they paid it, the county or whatever the state paid you that money. But if you give it to your employer, you can deduct it. It means we can deduct it because it was remitted to employer. So you can deduct $180 or down to 67,820. And there was a $200 penalty on early withdrawal of certificate of deposit. You need to know that you can deduct this penalty. So we can deduct 200. And that's it for the scenario. Our adjusted gross income is 67,620. Can this question be phrased in a multiple choice? Sure, it can. Just to give you the information differently. That's all what they did, okay? So adjusted gross income is 67,620, except, okay? Clear the tape. Let's look at this example. Let's bring out the calculator a little bit, okay? We have 24,000 is the amount of traditional IRA that was rolled over to another traditional IRA in a direct trustee-to-trustee transfer within 50 days. What happened is we transfer our money from one IRA to another. So let's start with 68,000. Do we have to do anything about this? Is it deductible for AGI? That's clear. Is it deductible for AGI or anything like this? And the answer is no. If it's trustee-to-trustee, we never saw the money, it's not deductible for AGI. In other words, we did not touch the money. It went from one account to another. It's not to another IRA, it's a roll over. It's not, it's non-taxable event in a sense. We have 8,000 gambling losses incurred, no winning. Well, gambling losses are deducted to the extent of winning and they're not deducted for AGI here because they're told us there's no winning, okay? So nothing we can do with this. $200 unreimbursed classroom supplies that taxpayer is an eligible educator. Well, if that's the case, you can deduct up to 250 so you can deduct 200. Therefore you're down to 67,800. Again, can you, with this question, is it possible? Can it be asked in a multiple-choice format? Sure, it can. Okay, let's look at number five. Let's bring down the calculator a little bit. Let's look at number five. So we are starting with $68,000 in gross income. $6,000 loss on a sale of personal automobile. There's nothing we can do with this. $10,000 contribution to the capital of an S corporation. It has nothing to do with adjusted gross income. $3,000 right off of a worthless non-business loan, personal non-business loan. You need to know the rules for this. Personal non-business loan, it becomes worthless. It's considered short-term capital loss. We can deduct up to 3,000. We can deduct up to 3,000. We're down to 65,000. The answer is 65,000. Let's look at scenario six. Clear the tape before you start again. So we're starting with 68,000. 1,600 student loan interest paid, assuming no phase out apply. If no phase out apply, we can deduct up to 2,500. Therefore 1,600 is deductible. We received $12,000 cash inheritance received from a relative's estate. Well, if we received inheritance, that's tax free for us. 18,000 prior year AMT paid in the current year. You paid your taxes of the AMT of last year. That has nothing to do with adjusted gross income. Therefore the answer is 66,400. Simply put, if you understand what's deducted for AGI, what's deducted from AGI, you'll be able to ace this simulation. Now, how would you know what's deducted for AGI, what's deducted from AGI? Guess what? On my YouTube channel, on my income tax course, I have a whole chapter about what's deducted for, what's deducted from AGI. Also on my website, I will have additional exercises so you can practice this. So I strongly suggest you visit my website. You take your CPA exam once in your lifetime. It's an investment. Go ahead, subscribe, invest. You need to pass the exam. Good luck and I'm here to help.