Part XI: Individual Taxes

Question 1

personal exemptions

Answer 1

You get one and one for your spouse if MFJ, even if the spouse dies during the year.

Question 2

dependent exemptions

Answer 2

You get addition exemptions for each:

1. Qualifying child.
2. Qualifying relative.

Question 3

relationship test (for qualifying child)

Answer 3

1. must be a natural, step, adopted or foster child.

2. Can also be a sibling or step-sibling, or a descendant of any of these.

Question 4

residence test (for qualifying child)

Answer 4

child must have the same residence as the taxpayer for > 50% of the taxable year

Question 5

residence test & divorce

Answer 5

1. When parents are divorced, parent w/custody or having child for 50+% of yr. get to claim exemption.
2. The custodial parent can waive the exemption and let the other parent claim it.

Question 6

residency test (for qualifying child)

Answer 6

dependent must be a citizen or resident of the U.S., Canada, or Mexico.

Question 7

age test (for qualifying child)

Answer 7

1. dependent must be under age 19 at end of tax year, or under 24 if a full-time student for at least 5 months of the tax yr.
2. No age limitation if dependent is permanently and totally disabled.

Question 8

not self-supporting (for qualifying child)

Answer 8

dependent must not have provided more than 50% of his/her own support during tax yr.
1. Same rule for qualifying relative.

Question 9

qualifying relative exemption

Answer 9

1. Very broad and includes anyone living in the taxpayer’s house for the full tax yr.
2. No age test.

Question 10

gross income test (for qualifying relative)

Answer 10

Dependent’s GI must be less than exemption amount ($3,950 for 2014), unless dependent passes the age test for qualifying child.

Question 11

multiple support agreements

Answer 11

When multiple taxpayers support one dependent and each deserves a portion of the exemption.

Question 12

MFJ

Answer 12

married status is determined on last day of yr., or the last day the taxpayer is alive

Question 13

MFS

Answer 13

Neither spouse filing separately can claim the EIC, an education credit, or the child and dependent care credit.

Question 14

surviving spouse

Answer 14

1. Can use the joint rates for 2 yrs. after spouse’s death.

2. Surviving spouse must provide 51+% of the costs of maintaining household for a dependent child.

Question 15

How does surviving spouse file?

Answer 15

1. MFJ in year of spouse’s death.

2. Surviving spouse filing for next two years.

Question 16

head of household (HoH)

Answer 16

Taxpayer alone must provide 51+% of the costs of maintaining household for 1+ dependents.

Question 17

single

Answer 17

If unmarried and does not qualify for HoH or surviving spouse.

Question 18

When does a self-employed person have to file a tax return?

Answer 18

If you are self-employed and your income is above $400.

Question 19

self-employment tax includes…

Answer 19

1. Soc. sec. tax of 12.4% of income up to an annual cap of $117k.
2. Medicare tax of 2.9% on all self-employment income.

Question 20

Alternative Minimum Tax (AMT) basics

Answer 20

1. Tough topic to master.

2. Most important things to know are AMT adjustments and AMT preferences.

Question 21

AMT formula

Answer 21

tentative AMT tax - regular tax.

Question 22

purpose of AMT formula

Answer 22

To prevent high-income taxpayers from paying a smaller % of tax than other taxpayers.

Question 23

AMT adjustments

Answer 23

adjustments that either increase or decrease taxable income in computing AMT income

Question 24

examples of AMT adjustments

Answer 24

1. Difference between AMT cost recovery and regular tax
2. No installment method allowed.
3. No standard deduction or persona/dependency exemption allowed.
4. Medical expenses only in excess of 10% of AGI.
5. Interest on home equity loans only allowed if to improve residence.
6. No phase out of itemized deductions.

Question 25

AMT preferences

Answer 25

these always increase AMT income

Question 26

examples of AMT preferences

Answer 26

1. % depleted over adjusted basis.
2. Interest on private activity municipal bonds.
3. Excess intangible drilling costs over 10-yr. straight-line amortization.
4. Pre-1987 accelerate depr. over straight-line.

Question 27

child credit

Answer 27

1. Gives a $1,000 credit for each qualifying child.
2. Dependent children, stepchildren, or grandchildren.
3. No credit for married taxpayers w/AGI above $110,000.

Question 28

Hope/American Opportunity Credit

Answer 28

1. Provides up to $2,500 per yr. for each eligible student.

2. For 100% of the first $2,000 and 25% o the next $2,000 of qualified education expenses, totaling $2,500.

Question 29

Lifetime Learning Credit

Answer 29

Max. $2,000 per taxpayer per year for qualified education expenses.

Question 30

Dependent care credit

Answer 30

1. Provides tax credit for portion of expenses for caregiving while taxpayer is working.
2. Person receiving the care- under 13 or disabled- must live w/taxpayer for 6+ months of yr.
3. Care can be given in the home but it can’t be from dependent relative or child.
4. Taxpayer must be employed and make as much as the expenses.

Question 31

Adoption credit

Answer 31

For adoption expenses up to $13,190.

Question 32

purpose of EIC

Answer 32

To reduce the tax burden of low income taxpayers.

Question 33

EIC % of credit…

Answer 33

increases based on the number of qualifying children the taxpayer has.

Question 34

How can a married taxpayer file to receive EIC?

Answer 34

Must file EIC.

Question 35

Can the EIC result in a refund if the taxpayer has no tax liability?

Answer 35

Yes.

Question 36

Can foreign income taxes paid by businesses be claimed as a credit or a deduction?

Answer 36

Either one.

Question 37

Can individuals claim the foreign tax credit?

Answer 37

Yes.

Question 38

general bus. credit

Answer 38

Combination of several tax credits that are computed separately but combined into one amount to provide uniform rules to offset a taxpayer’s tax liability.