Chapter 8 Flashcards
What is Net Investment Income Tax (NIIT)?
Higher income taxpayers are required to pay a 3.8% tax on NII.
How do you choose the amount of additional NIIT that is imposed?
the LESSOR of:
(1) NII
(2) Excess of Modified AGI OVER
$250,000 - MFJ & QSS
$125,000 - MFS
$200,000 - all others
What are examples of Net Investment Income (NII)?
interest, dividends, annuities, royalties, rents, net gain from disposing of property
What are the 2 primary tax differences between self-employed and employees?
(1) the amount of FICA taxes payable
(2) the deductibility of busa expenses
Employees who incur unreimbursed busa expenses relating to their employment can deduct these expenses.
FALSE
What is the Social Security tax rate and what is its base?
12.4% with a tax base of $168,600
What is the Medicare tax rate and what is its base?
2.9% and it has NO tax base
What percentage is the Additional Medicare tax?
0.9%
What is the tax base on the Additional Medicare tax?
applies on the tax base in EXCESS of:
$200,000 - S,HOH,QSS
$125,000 - MFS
$250,000 - MFJ
The EMPLOYER doe not have to pay any portion of this additional Medicare tax.
TRUE
Do self-employed taxpayers have to pay the ENTIRE FICA burden?
YES
What are the steps to calculating SE Tax?
(1) Compute the taxpayer’s NI
(2) NESE
(3) Compute SS Tax
(4) Compute Medicare Tax
(5) Compute the additional Medicare tax, if applicable
If net earnings from self-employment is less than ____, the taxpayer is NOT subject to SE tax.
$400
What is NESE?
Net Earnings from SE
NI (from sched C) x 92.35%
When does the IRS stipulate that an employer/employee relationship exists?
When the party for who services are performed has the right to direct or control the individual performing the services
What are some factors suggesting independent contractor rather tan employee?
- set your own working hours
- work for more than one firm
- work without frequent oversight
- realize either a profit/loss from the activities
What are the 5 types of tax credits covered in this chapter?
(1) Child Tax Credit
(2) Child & Dependent Care Credit
(3) American Opportunity Credit
(4) Lifetime Learning Credit
(5) Earned Income Credit
What is the amount of the CTC a taxpayer can receive?
$2,000 for a QC <17 years old
$500 for each other QR=D
What is the amount of the phase out for CTC?
$50 for each $1,000 for which AGI exceeds:
$400,000 - MFJ
$200,000 - MFS, HOH, S
What is the purpose of the C&DCC?
to help taxpayers pay the cost of providing care for their QD to allow taxpayers to work
Is C&DCC a refundable credit?
NO
Married taxpayers must file a joint return to use C&DCC.
TRUE
What is a QD under C&DCC?
dependent under the age of 13 or a disabled dependent
Care can be provided outside or inside the home under C&DCC?
TRUE
What is the formula for the credit amount (C&DCC)?
“eligible care cost” x applicable %
What is the Eligible Care Cost amount?
the LESSOR of:
(1) actual dependent care costs
(2) $3,000 for 1 QD; $6,000 for >/=2 QD
(3) amount of earned income (if using MFJ, use the income of the “lesser-earning” spouse
MFS are eligible for the AOC?
FALSE
What are eligible expenses under the AOC?
- tuition
- required fees
- required book & other materials
(NOT room and board)
The AOC is allowed on a per _____ _____.
per student basis
(this includes the taxpayer, spouse, taxpayer’s dependents)
How do you calculate the AOC?
- 100% - first $2,000 eligible exp’s
- 25% - next $2,000 eligible exp’s
MAX credit: $2,500
What is the phase-out for AOC?
$80,000 - $90,000 - S, HOH
$160,000 - $180,000 - MFJ
Is the AOC refundable?
YES, 40% of the credit is refundable (so up to $1,000)
Can MFS be eligible for the LLC?
NO
What are eligible expenses under the LLC?
- tuition
- required fees
(NOT books, room/board)
How do you calculate LLC?
20% of up to $10,000 eligible expenses
(MAX of $2,000)
The LLC is allowed on a per _____ _____.
per tax return basis
(this includes the taxpayer, spouse, taxpayer’s dependents)
What is the phase-out for LLC?
$80,000 - $90,000 - S, HOH
$160,000 - $180,000 - MFJ
Is the LLC a refundable credit?
NO
What is the Earned Income Credit (EIC)?
Intended to encourage economically disadvantaged individuals to become contributing members of the workforce
The EIC is refundable.
TRUE
The EIC is available for individuals who have EI from the year from being an employee or self-employed.
TRUE
Taxpayers with _______ income in EXCESS of _____ are NOT eligible for EI credit.
investment; $11,600
MFS taxpayers are eligible for Earned Income credit.
FALSE
What is the formula for EIC?
applicable % x EI
What is the EIC criteria for taxpayers with no children?
they must be ages 25-64
