Filing Stat. Tax&Credits, Book&Taxable Inc. Flashcards
Taxpayer may file MFJ (maried filing Jointly if:
Be married
Agree to file a joint retur
Have the same tax year
Be either a U.S Citizen oe a resident alien(green card)
What are the requirements to file as Qualifying Widower (spouse) - Can file for this status for up to 2 yrs after death - that CY of death plus 2 taxable yrs
be entitlec to file jintly the year spouse died
Cannot have remarried
Have a dependent child who lived with taxpayer for entire tax year
Entitle to file MFJ before spouse died
Paid more than half of homes upkeep for the entire tax yr
Qualifying child Requirements
CARES Junior
C- Close relative
A - Age (Child must be under 19 or under 24 if full time student for at least 5 months, or child is totally/permanently disabled
R - Residency (Child lives in ur residency for more than 50% of the time)
E - Eliminate (gross Income) (Gross Income test does not include SS, tax exempt interest, tax exempt scholarships, life insurance premiums)
S - Support - child cannot have provided more than 50% of their own support during the tax yr
Junior - Joint Return, child cannot file a joint return in the tax yr, unless its to claim a refund
Requirements for Qualifying relative (person cannot be a qualifying child)
SUPORT includes child, stepchild, sibling, stepsibling, nieces, nephews
S- Support person must either live with the taxpayer all year as a member of the household or be related to taxpayer. provide 0ver 50%
U - Under $5050 for 2024 (gross Income) so under taxable income gross exception exludes SS, tax exempt interest and scholarships
P - Precludes (Joint)
O - Only (citizens) cant be married unless $0 tax liability
R - Relative or
T - Taxpayer lives with individual for whole year
Multiple Support Agreement: If no one person provides more than half the total support, but two or more together do, and they agree to it, one of them can claim the person as a dependent under a multiple support agreement.
Special Rules for Divorced or Separated Parents: Special rules apply for children of divorced or separated parents or parents who live apart. Typically, the child is the qualifying child of the custodial parent, but there are exceptions.
Nonrefundable Tax Credits (Mnemonic)
FREE GC
Foreign tax credit
Retirement savings contribution credit
Elderly & disabled credit
Education credits (lifetime learning)
General business credit
Child & dependent credit
Refundable Tax Credits
FACEE
● F - Federal income tax withheld
● A - American opportunity credit
(40% refundable)
● C - Child tax credit now FAMILY Tax Credit - $2k per each qualifying child
● E - Earned income credit
● E - Excess social security tax paid”
What is “Safe Harbor”
To avoid penalties for underpayment of estimated taxes, the IRS offers “safe harbor” rules for individual taxpayers. These rules are designed to provide guidelines on the minimum amount of estimated tax payments or withholdings that should be made during the year to avoid penalties.
● Payment of 90% of CY Tax Liability
● Payment of 100% of PY Tax Liability:
- Payment of 110% of PY Tax Liability if CY AGI is > than $150,000 ($75,000 if married filing separately) and % of CY
NoPrior Year Tax Liability: If you had no tax liability in the prior year (i.e., you didn’t have to file a return or your total tax was zero), there’s no required payment for the safe harbor
Net Investment Income Tax (NIIT):
● NIIT is 3.8% on the lesser of net investment income
OR
the excess of modified adjusted gross income (MAGI) over $200,000 for single filers.
Keogh Contribution
Due to their low contr limits, individually managed retirement accounts like IRAs are not attractive options for self-employed taxpayers. The Keogh plans (qualified retirement plans) were created to allow these taxpayers make significantly higher tax-deferred contr from their self employment income
Annual contr is limited to:
Lesser of : 20% of net self employment income before the deduction , which means including deduction or 25% after deduction, Annual limit ($69,000) or 100% of earned income
Permanent Differences
Add to get TI Non Deductible Exp : EXp reported on F/S (so it is subtracted which will reduce net income) but they are not deductible for tax purposes so should be included in taxable income. EX: fines/penalties, exp related to production of tax-exempt income, some entertainment exp
Subtract to get TI Tax Exempt Income : Like interest on municipal bonds
Different Treatment of Rev & Exp : Like life insurance proceeds received upon death of an insured key exec.
Temporary Differences
Depreciation Differences
Deffered Revenue : like subscription revenue may be recognized in different pds for financial reporting but taxed upfront
Allowance for Doubtful Accounts : FI, calculates it but TI recognizes it when the debts are written off
Warranty Expenses: in FI recognized when a product is sold but for TI when the exp actually occurs
Criterias for Family Tax credit (formerly child tax credit)
● C - Child tax credit now FAMILY Tax Credit - $2k per each qualifying child
Qualifying Child:
-Under 17yrs old @ end of tax yr
-Specified family relationship to the taxpayer and claimed as dependent on the taxpayers return
-Must be a US citizen, resident with valid SS #
-income limits apply phasing out d crdit 4 higher income
How to Calc. NII tax liability
Lesser of:
20% of NII (Investment income: interest income, dividend income, capital gains (nonbusiness), income from investment , annuities, passive income)
OR
excess MAGI (AGI + foreign earned income exclusions) over threshold
Then multiply by 3.8% tax rate
Calc C Corp tax liability
Lesser of:
100% of PY tax liab
OR
100% est CY Liab
However when C Corp has $1mil or more in any of the preceding tax yr, must make quarterly pmts of the CY est. tax pmt
How to Calc Foreign tax credit
Can be taken as a deduction or credit, choose whichever gives the lower tax liability
To avoid tax penalty a C corp
100%of PY
100% of CY
if corp had no PY tax liabilities or had more than $1million taxable income, 100% of PY would not suffice to avoid underpayment of tax liability
