17.1 COMPUTATION OF TAX AND CREDITS Flashcards
WHAT ARE THE FIVE GROUPS OF TAX CREDITS?
*TAX CREDITS ARE A DOLLAR-FOR-DOLLAR REDUCTION IN A TAXPAYER’S TAX LIABILITY IN CONTRAST A TAX DEDUCTION REDUCES TAXABLE INCOME.
WHAT TAX CREDITS ARE REFUNDABLE?
A REFUNDABLE TAX CREDIT HAS THE ABILITY TO DECREASE YOU TAX LIABILITY TO ZERO AND PROVIDE A REFUND
*FYI NON REFUNDABLE TAX CREDITS ARE APPLIED FIRST
TO BE ELGIBLE FOR EIC, AN INDIVIDUAL MUST HAVE EARNED INCOME AND GENERALLY MUST MAINTAIN A HOUSHOLD FOR MORE THAN HALF THE YEATR FOR A QUALIFYING CHILD. MFS ARE DISQUALIFIED.
WHAT TAX CREDITS ARE PARTIALLY REFUNDABLE?
2K CHILD TAX CREDIT AKA FAMILY TAX CREDIT FOR EACH QUALIFYING CHILD UNDER THE AGE 17 WHO IS CLAIMED AS A DEPENDENT,
THE CREDIT IS REDUCED BY 50$ FOR EACH 1K OF EXCESS AGI,
THE PHASE OUT BEGINS AT 400K.
AMERICAN OPPORTUNITY CREDIT APPLY TO THE FIRST FOUR YEARS OF POST SECONDARY EDUCATION FOR TUITION, FEES AND REQUIRED COURSE FEES QUALIFY BUT NOT ROOM AND BOARD. THE MAXIMUM CREDIT IS 2.5K AND 40% IS REFUNDABLE
WHAT TAX CREDITS ARE NON-REFUNDABLE?
A NONREFUNDABLE TAX CREDIT ONLY HAS THE ABILITY TO DROP YOU TAX LIABILITY TO ZERO.
SOME NOTEWORTHY,
CREDIT FOR OTHER DEPENDENTS - $500 FOR A QUALIFYING DEPENDENT OTHER THAN A QUALIFYING CHILD.
LIFETIME LEARNING CREDIT APPLIES FOR YEARS AFTER THE FIRST FOUR YEARS OF POST SECONDARY EDUCATION. THE CREDIT ALLOWED IS 20% OF QUALIFIED EXPENSES LIMITED TO 10K.
-CHILD AND DEPENDENT CARE CREDIT - APPLICABLE IF THE TAXPAYER REQUIRES CARE FOR A CHILD UNDER THE AGE 13 OR A DISABLED DEPENDENT. SMALLEST OF DEPENDENT CARE EXPENSE, EARNED INCOME OF THE LOWEST PAID SPOUSE), OR 3K (6K FOR MULTIPLE DEPENDENTS) ONCE AGI EXCEED 43K THE CREDIT IS LIMITED TO 20% OF THE LESSER OF THE 3 LISTED SCENARIOUS ABOVE.
WHAT TAX CREDITS ARE CARRYFORWARD? FAR
WHAT IS THE UNEARNED INCOME MEDICARE CONTRIBUTION TAX?
IE NET INVESTMENT INCOME TAX - A SURTAX ON CERTAIN UNEARNED INCOME OF INDIVIDUALS WITH INCOME GREATER THAN A THRESHOLD AMOUNT.
ONLY APPLICABLE IF ABOVE THRESHOLD!
NIIT WAS CREATED TO RAISE REVENUES TO FUND HEALTH CARE REFORM. IT IS ASSESSED ONLY ON U.S. CITIZENS AND RESIDENT ALIENS.
AGI + FOREIGN EARNED INCOME EXCLUSION
AGI + INTEREST + DIV’S + CAPITAL GAIN’S = MAGI
THRESHOLDS,
MFJ & QSS - 250
SINGLE & HOH - 200
MFS - 125
FOR PURPOSES OF DETERMINING NIIT, THE LESSES OR NII OR MAGI OVER THRESHOLD IS MULTIPLIED BY 3.8%
NII = INVESTMENT INCOME - INVESTMENT EXPENSE
FOR PURPOSES OF DEDUCTING IN SCH A THE LESSER OF NII OR INVESTMENT INTEREST PAID IS DEDUCTIBLE
NII - INVESTMENT INCOME - EXPENSES OTHER THAN INTEREST
COMPUTING TAX REFUND OR TAX DUE EXAMPLE
WHAT HAPPENSE WHEN AN EMPLOYEE HAS HAD SOCIAL SECURITY TAX WITHHELD IN AN AMOUNT GREATER THAN THE MAXIMUM FOR A PARTICULAR YEAR?
THE EMPLOYEE MAY CLAIM THE EXCESS AS A CREDIT AGAINST INCOME TAX, IF THAT EXCESS RESULTED FROM CORRECT WITHHOLDING BY TO OR MORE EMPLOYERS.
