Chapter 2 Continued Flashcards
(38 cards)
Child and Dependent Care Credit:
A tax credit of 20 percent to 35 percent of eligible expenditures:
1 dependent - max expenditure 3,000
2 or more - max expenditure 6,000
eligible people - kids under 13, or disabled dependent
general rule - both parents must be working and paying someone to take care of dependent
Credit for the Elderly and/or Permanently Disabled:
credit of 15% of eligible income available to individuals who:
65 years of age and older
under 65 and retired due to PERMANENT disability
The American Opportunity Credit (also known as “Hope Scholarship”):
First 4 years of a students college
maximum is 2,500
qualified “per student” basis (multiple kids ok)
credit phase out begins at AGI 80,000/160,000 joint and ends at 90,000/180,000 joint
The Lifetime Learning Credit:
Maximum is 2,000 per year
available for unlimited number of years for qualified tuition
credit = 20% of qualified expenses up to 10,000
Only get 1 credit no matter how many kids you have going to school
credit phase out begins at AGI 55,000/110,000 joint and ends at 65,000/130,000 joint
Adoption Credit:
Credit is phased out when AGI goes from 201,010 - 241,010
all reasonable and necessary expenses FOR adopting
MEDICAL EXPENSES do NOT qualify
Retirement Savings Contributions Credits (IRA):
must be at least 18, not a full time student, and NOT a dependent of anyone
Foreign Tax Credit:
Lesser of the foreign taxes paid OR
(Taxable income from all foreign operations / Taxable income + exemptions) X US tax = Foreign tax credit
carry back 1 year, forward 10 years
General Business Credit:
Tentative Tax 0 - 25,000 you are allowed 100%
Tentative Tax excess you are allowed 75%
usually can carry back 1 year and forward 20
Work Opportunity Credit:
40% of first 6,000 first year wages or 3,000 to summer youth
this is for hiring disabled people, 18 to 24 poor kids, etc
“Child” Tax Credit:
Can claim a 1,000 credit for each qualifying child
kid must be under 17 age and of course a citizen
phase out of course
Earned Income Credit (REFUNDABLE):
REFUNDABLE
your income has to be really low for this
Which of the following credits can result in a refund even if the individual had no income tax liability?
The earned income credit is refundable. Eligible taxpayers can get advance payments from their employers because the credit is assured.
How may taxes paid by an individual to a foreign country be treated?
A taxpayer may claim a credit against federal income taxes due for foreign income taxes paid to a foreign country or a U.S. possession. There is a limitation on the amount of the credit an individual can obtain. In lieu of this credit, an individual might find it better to deduct the taxes as an itemized deduction (NOT subject to the 2% floor) instead.
The only refundable credits are?
the child tax credit (which is a different credit with a similar name), the earned income credit, withholding taxes, portions of the Hope Scholarship credit, and excess Social Security taxes paid.
An employee who has had social security tax withheld in an amount greater than the maximum for a particular year, may claim:
An employee who has had social security tax withheld in an amount greater than the maximum for a particular year, may claim the excess as a credit against income tax, if that excess resulted from correct withholding by two or more employers.
Which of the following is not an adjustment or preference to arrive at alternative minimum taxable income?
Deductible contributions to individual retirement accounts are not an adjustment or preference in calculating a taxpayer’s alternative minimum taxable income. They are an adjustment in calculating adjusted gross income for regular (not alternative minimum) tax purposes.
Which of the following may not be deducted in the computation of alternative minimum taxable income of an individual?
Alternative minimum tax will add back various deductions to arrive at alternative minimum taxable income. If an item is not added back, then it is allowed to be deducted. Personal exemptions are added back. Therefore, they are not deducted to arrive at alternative minimum taxable income.
Which of the following statements about the alternative minimum tax (AMT) of an individual is correct?
AMT credits may be carried forward indefinitely against regular tax.
What is Alternative Minimum Tax (AMTI)?
Tax designed to ensure that taxpayers who take a large number of tax preference deductions pay a minimum amount of tax on their income. Note: Alternative Minimum Tax = Excess of the tentative AMT OVER regular tax.
AMTI - Exemption Formula:
Exemption amount is 53,600 less 25% (AMTI 119,200) for single and 83,400 less 25% (AMTI 158,900) for joint filers, in NO case can exemption be less than zero
AMTI - Adjustments:
Think Panic Timme
P passive activity losses (increase or decrease AMTI)
A accelerated depreciation (increase or decrease AMTI)
N net operation loss of individual taxpayer (incr or decr)
I installment income of a dealer (increase or decrease)
C contracts % of completion vs. complete (incr or decr)
Note: the timmes ones are itemized deductions
T tax deductions (only increase AMTI)
I interest deductions on some home equity loans (incr)
M medical deductions (limit 10% excess AGI) incr
M miscellaneous deductions NOT allowed (increase)
E exemptions (personal) and standard deduction (incr)
AMTI - Tax Preference Items:
P private activity bond interest income (on certain bonds)
P percentage depletion the excess over adjusted basis of property
P pre-1987 accelerated depreciation
Note: ALL THESE INCREASE AMTI
AMT CREDIT - Credits for Prior Year Minimum Tax:
It may only reduce regular tax, NOT future alternative minimum tax
Carry forward or time period is forever
F foreign tax credit
A adoption credit
C child tax credit
C contributions to retirement plans credit
E earned income credit
Is charity an add back for AMT?
No