INDIVIDUAL TAX ISSUES & CREDITS

Question 1

Qualifying Child

Answer 1

1. Relationship - natural, step, adopted, foster
2. Residence - must have same residence as t/p for more than 6 months
3. Residency - must be US citizen, resident of CA or Mexico
4. Age - must be under 19 at the end of the tax year, or under 24 and full-time student for at least 5 months. No limit on permanently disabled
5. Not Self-supporting - must not provide more than 50% of own support

Question 2

Qualifying relative

Answer 2

1. t/p provides more than 50% for them
2. anyone living in t/p house for full tax year (could be in diff state)
3. No age test
4. Gross income is less than exemption amount (SS benefits is exempt from this test)

Question 3

If married couple file separate returns, can one spouse claim the other for exemption?

Answer 3

Yes, if the other spouse has no gross income and cannot be claimed as a dependent on another’s tax return

Question 4

Kiddie Tax

Answer 4

• Children under 18 or between 19 and 23 as full-time students
• net unearned income (interest, dividends) is over statutory amount can be taxed at parent’s rate

Question 5

Head of Household

Answer 5

• unmarried
• maintains home for qualifying child or relative
• child - if lives in home and not dependent
• relative - does not have to live in home, but dependent

Question 6

Self-employed filing requirements

Answer 6

Income is over $400
Tax includes 12.4% of SS up to annual cap of 117,000
Medicare is 2.9%

Question 7

Items that ALWAYS increase AMT income

Answer 7

• percent depleted over AB
• interest on private activity municipal bonds
• excess intangible drilling costs over 10 yr SL amort
• pre-1987 ACE depreciation

Question 8

Items that could increase or decrease AMT income

Answer 8

• AMT cost recovery and regular tax difference
• Installment method NOT allowed
• Standard ded/personal exemption NOT allowed
• Medical expenses in excess of 10% of AGI
• Interest on home equity loans if to acquire/improve
• No phase out of itemized deductions (2% not allowed)

Question 9

Child tax credit

Answer 9

$1,000 per qualifying child under 17

No credit if MFJ AGI is above $110,000

Question 10

Hope credit/American Opportunity

Answer 10

first four year college, up to $2,500 per year

100% for first 2,000 and 25% for next 2,000

Question 11

Lifetime Learning Credit

Answer 11

Up to $2,000 per year for qualified education expenses

does not have to be at least half time student

Question 12

Dependent Care Credit

Answer 12

Like daycare for when t/p is working
Must be under 13, or disabled and live with t/p for more than 6 months
T/p must be employed and make as much as the total expenses

Limited to lower of:
income of lowest paid spouse OR
$3,000 one child (6,000 2 or more children)

Question 13

Earned Income Credit

Answer 13

The % of credit increased based on number of qualifying children
Must file MFJ to receive credit
Could result in refund if have no tax liability

Question 14

Foreign income taxes paid

Answer 14

Can be deduction or a credit

FTC = limited to foreign tax paid or US tax allocable to foreign income
US Tax * (Foreign TI/WW TI)

Excess = CB 1; CF 10

Question 15

Research Credit

Answer 15

20% credit - must be conducted in US and does not apply to surveying, or social science research

Question 16

Work Opportunity Tax Credit

Answer 16

Calc’d based on amount of wages per eligible employee in FIRST year of employment
Max = 2,400