Chapter 13 Flashcards
What are tax credits
prepayments of taxes that are refundable if overpaid
Are tax credits affected by MTR
No they are affected by taxes payable. Flat deduction
What are refundable credits
Paid to tax payer even if liability is less than credit. “negative tax”
What are non-refundable credits
credits that can only be used to offset tax liability. If the credit exceeds the tax liability it is lost
What are the five types of general business credits
Rehabilitation expenditures (historical buildings) Work opportunity credit Research/Energy activities (R&D) Low income housing - given to landlord Disabled access - building a ramp
What is the purpose of general business credits
incentivizing public good
What is a Foreign Tax Credit and its formulas
A credit used to avoid double taxation on income earned in another. It is the less of:
- Foreign taxes imposed
- (Foreign Source TI/Worldwide TI)*(US income tax before FTC)
What is the earned income credit
A credit based on earned income from employment. It is refundable and increases based on dependents. Applicable percentage rate * earned income. (stealth tax)
What is the child and dependent tax credit
Credit amount up to 2k per child and 500 per dependent. Eligible child must be under 17, and U.S. citizen, and qualify as dependent. Total credit is phased out at $50 for each $1000 of AGI. (MFJ 400k Others 200k)
What is the child and dependent care credit
Not refundable. General qualifications are employment related care costs, dependent <13 or handicapped dependent/spouse. Credit amount is eligible care costs * applicable percentage. Max is 3000
When must you make payment procedures
Tax payers who owe >1000 in a year must make estimated payments
What must you do to avoid incurring penalties
Pay the smaller of
90% of this years tax
100% of last years tax
If AGI > 150k then 110% of last years tax
What is the difference between prepayments and deductions
Prepayments are on the accrual basis and deductions are on the cash basis.
