Chapter 2 Section 2: Tax Calculations and Credits Flashcards
Can personal tax credits give you a refund?
No. They reduce tax, but don’t make it negative
What is the child and dependent care credit?
Who are the dependents that qualify?
What are the expenditure amounts?
Does school count?
20-35% of eligible expenditures for the care of dependents when you are working
Kids under 13, and age disabled dependent, disabled spouse
One dependent: 3000, two or more: 6000
School does not count
What is the credit for the elderly and/or permanently disabled?
What’s the formula?
15% of eligible income for when you're over 65 or disabled. Base: (5000 single 7500 joint) - all social security - 1/2 AGI over: single 7500 joint 1000 = balance x 15% = credit
What are the two education tax incentives?
American Opportunity Credit
Lifetime Learning Credit
Explain the American Opportunity Credit How many years can you use it? What is the dollar equivalent? How many dependents can it be applied to? Is there a phaseout?
Student’s first four years of college
Max of 2500
Multiple dependents can use it
There is a phaseout
Explain the Lifetime Learning Credit How many years can you use it? What is the dollar equivalent How many dependents can use it? Is there a phaseout?
As many years as you want
Max of 2000
There is only one credit per family
There is a phaseout
What is the relationship between education credits and Coverdell?
They can both be used, but you can’t use them for the same expenses
Can you use both education tax incentives in the same year?
Yes
Explain the adoption credit
What is the limit?
Is there a phaseout?
What are eligible expenses?
Limit is 13400 per child
There is a phaseout
All reasonable expenses, except medical, and not including expenses to adopt a stepchild
Explain the Retirement Savings Contribution Credit
Is it refundable?
Who is eligible?
No
Over 18, not a full-time student, not a dependent
Explain the foreign tax credit
What is the limit?
What do you do with the excess?
You can deduct any amount of foreign taxes paid, but the credit is limited to the lesser of:
foreign taxes paid or foreign taxable income/total income x US tax
Excess is carried back 1 or forward 10
What is the formula for the general business credit?
It can’t exceed net income tax less the greater of:
25% of regular tax lia over 25000 or
tentative minimum tax for the year
Explain the work opportunity credit
What is the amount?
Who qualifies?
40% of first 6000 of first year’s wages
Disabled, 18-24 year olds from poor families, Vietnam vets from poor areas, some food stamp recipients
Explain the child tax credit
What is the amount?
Who qualifies?
1000 per kid
Child must be under 17 and a citizen/resident of the US
Explain the earned income credit
Is it refundable?
Who gets it?
It is refundable
You need to make a tiny amount of money and be between 25 and 65
