Income Tax Flashcards
Refundable vs Non-Refundable Tax Credits
Refundable:
- Earned Income Tax Credit
***only fully refundable credit
- Child Tax Credit - up to $1,600 per child
- AOTC -
Non-Refundable:
- Child Care Credit
- Adoption Expenses Credit (excess C/F 5yrs)
- Foreign Tax credit
- Credit for rehab exps
- Disabled Access Credit
Earned Income Credit (EIC)
Disregarded losses:
- Net loss from estates and trusts
- Net loss from non-business rents
- Net capital losses
Adoption Expense Tax Credit
Limited to the least of:
- $15,950 max credit
- qualifying adoption expenses
- amt of tax due
Passive Activity & Income
Passive Income:
- Rental income
Passive Income from a publicly traded limited partnership may not be offset by any other passive losses.
Material Participation Rules
- Participates > 100hrs & no one else spends more
- Participate > 500hrs
- Materially participated in any of 5/10 prior years
- Taxpayer is only one to materially participate
- The activity is a personal services activity and materially participate 3/6 prior years
Summary of Rental Property Exceptions to Passive Loss
- Customer use less than or equal to 7 days
- Customer use less than or equal to 30 days and significant personal services provided
- Extraordinary personal services are provided
- Rental activities incidental to non-rental activity
- Rental activity available during business hours for nonexclusive use of customers
- Rental property used in an activity conducted by partnership, etc. where the taxpayer is the owner and an active participant
Rental Activity
Non-taxable if:
- rented out 2 weeks or less (less than15 days)
Mixed-use:
- property rented 15 or more days AND
- personally used the greater of 15 days or 10% of rental days\
- When personal use exceeds 14 days, expenses are allocated between personal and rental use.
Employee Fringe Benefits
- After 2017, no deduction for miles/commuting with
- Meals 50% deductible
Business Travel Expenses:
- Domestic: airfare deductible if primarily business.
- Foreign: airfare fully deductible if less than 7 days or less than 25% personal time spent. Also, must not have control over timing or arrangements of trip.
Meals and lodging pro-rata.
Illegal Drug Company
- Can ONLY deduct COGS, but no other expenses
- Other illegal businesses such as gambling operations can deduct COGS and other business exp.
FICA Taxes
Federal Insurance Contributions Act (FICA) taxes
- Total FICA: 15.3%
- SSB tax: 12.4%
- Medicare: 2.9%
Net Capital Gains & Losses
- Worthless Stocks:
A fictitious sale on Dec 31st in the year of loss, which allows the stockholder to take the full loss. - Bad Debt (non-business):
treated as STCL
Kiddie Tax
- Standard Deduction:
The greater: $1,250 -OR- $400 + Earned income, not exceeding the normal standard deduction ($13,850) - Unearned Income:
$2,500:
first $1,250 excludable (subtracted from std dev)
second $1,250 taxed to child
If Unearned Income < $1,250 then do not need to calculate separately from Earned Income - include with calculating tax of Earned Income
Tax Credits
Qualifying Child:
- U19/U24 student
- lived with > 1/2 year
- child provided < 1/2 own support
Qualifying Dependent:
- either relative or live with ALL year
- not exceed $4,700 gross income
- taxpayer provide > 1/2 support of dependent
Child/Family Credits:
- Child Tax Credit: $2,000, ages U17
- Family Credit: $500 for qualifying child 17 or older and qualifying persons
- Child & Dependent Care Credit: U13 or handicap; Credit amt = (Applicable % x eligible care costs). Applicable % range 20% - 35%. **Usually 20% x Eligible costs (AGI of $43,000 and above).
$3,000 for one child or $6,000 for two or more ($6,000 is max even if have more qualifying individuals)
Education Credits:
- American Opportunity Tax Credit: $2,500; first 4yrs post secondary; 1/2 of FT courses
- Lifetime Learning Tax Credit: 20% qualifying exp up to $10,000 max.
*Phaseouts for BOTH AOTC & LTLC
Other Credits:
- Adoption Expense Credit: $15,950 limit; child U18 or handicap
- Earned Income Credit: generally, for those who have earned income and a qualifying child. Credit amt = (Applicable %) x (Earned Income). Applicable % determined by # of qualifying children.
**If no children, can still claim if age 25-64.
TEY Formula
When calculating the tax-free rate, use the algebraic equivalent of the TEY formula.
- Stupid trick to remember: If I am given the taXable rate, I need to multiple (X) in the formula.
Ex. The equivalent tax-free rate for the taxable bond is [0.05 × (1 - 0.25)] = 3.75%
where 5% is interest rate of taxable bond, 25% marginal tax rate
Qualified Dividend Requirements
if the individual meets the requisite holding period, which is more than 60 days in the 121 days surrounding the ex-dividend date.
