15 Additional Taxes and Credits Flashcards
15 Additional Taxes and Credits
What is the purpose of the Alternative Minimum Tax (AMT)?
The AMT ensures that higher-income individuals and corporations pay at least a minimum amount of tax if they have significant deductions and credits under the regular income tax system.
What are the 2023 AMT exemption amounts?
Single/HOH: $81,300
MFJ: $126,500
MFS: $63,250
How do you calculate the AMT?
- Start with regular taxable income
- Make AMT adjustments and preferences
- Subtract AMT exemption
- Apply AMT tax rate
- Compare AMT to regular tax and pay the higher amount
What are some common AMT “tax preference” items?
State and local taxes, personal exemptions, standard deduction, and miscellaneous itemized deductions
What form is used to calculate AMT for individual taxpayers?
Form 6251, Alternative Minimum Tax - Individuals
Who can claim the credit for prior year minimum tax?
Individuals, estates, and trusts
What form is used to calculate the credit for prior year minimum tax?
Form 8801, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts
What causes the alternative minimum tax?
AMT is caused by two types of adjustments: “exclusion” items (affect a single tax year) and “deferral” items (affect multiple tax years)
Can the credit for prior year minimum tax be used to offset AMT?
No, it is a regular tax credit and cannot offset AMT
What is the purpose of the “kiddie tax”?
To prevent parents from shifting investment income to their children to be taxed at lower rates
What is the age cut-off for a child to be subject to kiddie tax?
Under 18, or under 19 (or 24 for full-time students) if the child’s earned income is less than half of their support
What are the two ways to report kiddie tax?
- Child files their own return with Form 8615 or
- Parents report child’s income on their return with Form 8814
In 2023, at what amount of unearned income does the kiddie tax start to apply?
$2500
What types of income are subject to kiddie tax?
Unearned income like interest, dividends, capital gains, rents, royalties. Earned income is not subject to kiddie tax.
In what tax year was the First-Time Homebuyer Credit issued as a loan?
2008
What is the typical repayment period for the 2008 First-Time Homebuyer Credit?
15 years
What form is used to repay the First-Time Homebuyer Credit?
Form 5405, Repayment of the First-Time Homebuyer Credit
If a home buyer claimed the maximum credit of $7,500 in 2008, what is the annual repayment amount?
$500 per year for 15 years
What are some exceptions to the repayment requirement?
- Home is destroyed or sold through condemnation
- Home is transferred to ex-spouse in a divorce
- Taxpayer who claimed the credit dies
What is the threshold for withholding and paying FICA taxes for household employees in 2023?
$2,600 or more in cash wages
Which form is used to report household employment taxes?
Schedule H (Form 1040)
What family members are exempt from Social Security/Medicare tax withholding?
Spouse, children under 21, and parents in most cases
Are household employers required to withhold federal income tax from wages?
No, unless the employee requests it and the employer agrees
What is the Section 199A deduction?
A deduction of up to 20% of qualified business income (QBI) for owners of pass-through businesses like sole proprietorships, partnerships, and S corporations
Does the Section 199A deduction apply to C corporation income?
No, C corporation income is not eligible for the QBI deduction
What are the two main limitations on the 20% QBI deduction for high earners?
- Specified service trade or business limitation
- Wage and capital limit
What are the 2023 income thresholds for the 20% QBI deduction?
Single/HOH/MFS: $182,100 - $232,100; MFJ: $364,200 - $464,200
What items are excluded from the definition of qualified business income (QBI)?
Capital gains/losses, dividends, interest income, income from annuities, commodity transactions, foreign currency gains/losses, etc.
Who qualifies for the foreign earned income exclusion?
U.S. citizens and resident aliens who live and work abroad
What are the two tests to qualify for the foreign earned income exclusion?
- Bona fide residence test
- Physical presence test
What is the maximum foreign earned income exclusion amount for 2023?
$120,000 per person
How do you make the election to exclude foreign earned income?
File Form 2555 or Form 2555-EZ with your tax return
What types of income do not qualify for the foreign earned income exclusion?
Passive income like interest, dividends, capital gains, pensions, annuities, and social security benefits
Who qualifies for the foreign housing exclusion?
Employees who have housing expenses paid by their employer
Who qualifies for the foreign housing deduction?
Self-employed individuals with foreign housing expenses
What is the base housing amount for 2023?
16% of the maximum foreign earned income exclusion ($120,000), which equals $19,200 or $56.60 per day
How do you calculate your foreign housing exclusion?
Start with qualified housing expenses, subtract the base housing amount (above), and exclude the difference up to your foreign earned income
What expenses qualify for the housing exclusion/deduction?
Rent, utilities (except phone), real and personal property insurance, furniture rental, residential parking, and certain occupancy taxes
What is the purpose of tax treaties?
To avoid double taxation and prevent tax evasion between the U.S. and foreign countries
How can you find out if the U.S. has a tax treaty with a particular country?
Check the IRS website or refer to Publication 901, U.S. Tax Treaties
What are some common benefits of tax treaties for U.S. citizens living abroad?
Lower tax rates, exemptions for certain types of income, and credits for taxes paid to foreign countries
Who can help resolve tax treaty issues between a taxpayer and a foreign country?
The U.S. competent authority, which is the Deputy Commissioner (International) within the Large Business and International Division of the IRS
$81,300
Single/HOH AMT exemption amount for 2023
Used to calculate AMT on Form 6251
$126,500
Married Filing Jointly AMT exemption amount for 2023
Used to calculate AMT on Form 6251
$63,250
Married Filing Separately AMT exemption amount for 2023
Used to calculate AMT on Form 6251
$2,500
Unearned income threshold for kiddie tax in 2023
If a child’s unearned income exceeds this amount, kiddie tax may apply
$7,500
Maximum First-Time Homebuyer Credit in 2008
Must be repaid over 15 years at $500 per year
$500
Annual repayment amount for 2008 First-Time Homebuyer Credit
Reported on Form 5405 and added to tax liability each year
$2,600
Threshold for withholding and paying FICA taxes for household employees in 2023
If cash wages exceed this amount, employer must withhold and pay FICA taxes
$182,100 - $232,100
Income thresholds for Section 199A deduction (Single/HOH/MFS) in 2023
Used to determine if QBI deduction is limited
$364,200 - $464,200
Income thresholds for Section 199A deduction (MFJ) in 2023
Used to determine if QBI deduction is limited
$120,000
Maximum foreign earned income exclusion per person in 2023
Used to calculate foreign earned income exclusion on Form 2555
$19,200
Base housing amount for foreign housing exclusion/deduction in 2023
Subtracted from qualified housing expenses to determine exclusion/deduction
$56.60
Daily base housing amount for foreign housing exclusion/deduction in 2023
Multiplied by number of qualifying days and subtracted from housing expenses
Form 6251
Alternative Minimum Tax - Individuals
Used to calculate alternative minimum tax for individual taxpayers
Form 8801
Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts
Used to calculate credit for prior year minimum tax
Form 8615
Tax for Certain Children Who Have Unearned Income (Kiddie Tax)
Used to calculate kiddie tax when child files their own return
Form 8814
Parents’ Election To Report Child’s Interest and Dividends
Used to report child’s unearned income on parent’s tax return
Form 5405
Repayment of the First-Time Homebuyer Credit
Used to report annual repayment of 2008 First-Time Homebuyer Credit
Schedule H (Form 1040)
Household Employment Taxes
Used to report Social Security, Medicare, and withheld income taxes for household employees
Form 8995
Qualified Business Income Deduction Simplified Computation
Used by most taxpayers to calculate Section 199A QBI deduction
Form 8995-A
Qualified Business Income Deduction
Used by taxpayers with QBI over threshold amounts or publicly traded partnership income
Form 2555
Foreign Earned Income
Used to calculate foreign earned income exclusion and foreign housing exclusion/deduction
Form 2555-EZ
Foreign Earned Income Exclusion
Simplified form for taxpayers under age 65 with no self-employment income
What is an example of a situation that may trigger AMT?
Having a high income and significant itemized deductions, such as state and local taxes
How do you calculate AMTI (Alternative Minimum Taxable Income)?
Start with regular taxable income, add back certain adjustments and preferences, and subtract the AMT exemption
What is the purpose of Form 6251?
To calculate the alternative minimum tax for individuals
Are all taxpayers required to file Form 6251?
No, only those with certain adjustments or preferences that may trigger AMT
What types of income are subject to the kiddie tax?
Unearned income such as interest, dividends, and capital gains
How does the kiddie tax work?
A child’s unearned income above a certain threshold is taxed at the parent’s marginal tax rate
What is the purpose of Form 8615?
To calculate the kiddie tax when a child files their own tax return
Can a child’s earned income be subject to the kiddie tax?
No, only unearned income is subject to the kiddie tax
Who is considered a household employee?
Someone who works in your home and is subject to your control, such as a nanny, housekeeper, or caregiver
What taxes must be withheld and paid for household employees?
Social Security, Medicare, and optionally, federal income tax
Is a household employer required to issue a W-2 to their employee?
Yes, if the employee’s wages are subject to Social Security and Medicare taxes or if federal income tax was withheld
What is the purpose of Schedule H (Form 1040)?
To report household employment taxes on the employer’s individual income tax return
What types of businesses qualify for the Section 199A deduction?
Pass-through entities such as sole proprietorships, partnerships, and S corporations
How is the Section 199A deduction calculated?
Generally, it’s 20% of qualified business income (QBI), subject to certain limitations based on the taxpayer’s income and type of business
What is the purpose of Form 8995 and Form 8995-A?
To calculate the Section 199A deduction for eligible taxpayers
Can a business owner claim the Section 199A deduction if their business has a net loss?
No, the deduction is based on qualified business income, so a net loss would result in no deduction
What is the difference between the foreign earned income exclusion and the foreign housing exclusion/deduction?
The foreign earned income exclusion applies to earned income up to a certain threshold, while the foreign housing exclusion/deduction applies to housing expenses
How does the physical presence test work?
A taxpayer must be physically present in a foreign country for at least 330 full days during any 12-month period to qualify
What is the purpose of Form 2555 and Form 2555-EZ?
To calculate the foreign earned income exclusion and foreign housing exclusion/deduction
Can self-employed individuals claim the foreign housing exclusion?
No, self-employed individuals can only claim the foreign housing deduction
What is the purpose of the AMT exemption?
To reduce the amount of income subject to AMT
How is the AMT calculated?
By adding back certain adjustments and preferences to regular taxable income and applying a separate tax rate
When was the First-Time Homebuyer Credit issued as a loan?
2008
What is the typical repayment period for the 2008 First-Time Homebuyer Credit?
15 years
What is the unearned income threshold for the kiddie tax in 2023?
2500
How does the kiddie tax affect a child’s unearned income?
Unearned income above the threshold is taxed at the parent’s marginal tax rate
What is the threshold for withholding and paying FICA taxes for household employees in 2023?
2600
Are household employers required to withhold federal income tax?
No, unless the employee requests it and the employer agrees
What types of businesses are eligible for the Section 199A deduction?
Pass-through entities such as sole proprietorships, partnerships, and S corporations
How is the Section 199A deduction calculated?
Generally, it’s 20% of qualified business income (QBI), subject to certain limitations
What are the two tests to qualify for the foreign earned income exclusion?
The bona fide residence test and the physical presence test
What is the maximum foreign earned income exclusion for 2023?
$120,000 per person
What is the difference between the foreign housing exclusion and deduction?
The exclusion applies to employer-provided housing amounts, while the deduction applies to self-employed individuals
What is the base housing amount for 2023?
$19,200 per year or $56.60 per day
Who qualifies for the foreign earned income exclusion?
U.S. citizens and resident aliens who live and work abroad
How do you claim the foreign earned income exclusion?
By filing Form 2555 or Form 2555-EZ with your tax return
What is the difference between a tax home and abode?
A tax home is generally the taxpayer’s main place of business or employment, while an abode is the taxpayer’s place of residence
Can a taxpayer have a tax home abroad and an abode in the U.S.?
Yes, but this would disqualify them from claiming the foreign earned income exclusion
What is the main difference between the bona fide residence test and the physical presence test?
The bona fide residence test requires the taxpayer to establish residency in a foreign country for an uninterrupted period that includes an entire tax year, while the physical presence test requires the taxpayer to be physically present in a foreign country for at least 330 full days during any 12-month period
Can a taxpayer meet both tests in the same year?
Yes, a taxpayer can meet both tests in the same year, but they only need to meet one to qualify for the foreign earned income exclusion
How does the foreign earned income exclusion work for married couples?
Each spouse can claim the exclusion separately, up to the maximum amount per person
Can married couples file separately and still claim the exclusion?
Yes, married couples can file separately and each claim the exclusion if they both qualify
Under what circumstances can the time requirements for the foreign earned income exclusion be waived?
If the taxpayer must leave a foreign country due to war, civil unrest, or similar adverse conditions
How does the waiver of time requirements affect the foreign earned income exclusion?
The taxpayer can still claim the exclusion for the tax year, even if they don’t meet the bona fide residence or physical presence test
