Personal Tax Credits Flashcards
What’s the difference between deduction and tax credits? Which one is better?
Tax credits: reduces tax liability.
Deductions: reduces taxable income.
Tax credits.
Does credits have phase-out limit?
Yes.
What’s the difference between non-refundable and refundable credit?
Refundable credits allow TP to receive pmts from federal government in excess of his federal income tax withholding for the year.
How much is the child credits and criteria?
$1,000 for a qualifying child under 17 yrs old.
Child credit: Who are included in “qualifying child”?
Dependent child, stepchild, grandchild, siblings, and nieces, and nephews.
Child credit: is there phase-out limit? How is it computed? What’s the provision for a portion of credit?
Yes.
The child tax credit is reduced or eliminated if your adjusted gross income is above certain thresholds. The credit amount is reduced by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified adjusted gross income (AGI) exceeds the threshold amount.
The threshold is:
$110,000 on a joint return $75,000 for an unmarried individual $55,000 for a married individual filing a separate return
A portion maybe refundable for some TPs.
American opportunity tax credit: what’s the total allowable credit? Criteria?
$2,500 for each eligible student (one-half of the normal load of a full-time students).
Allowed for only 4 yrs for those in post-secondary education (a degree program).
American opportunity tax credit: Credit breakdown?
- A 100% credit for the first $2,000.
* A 25% credit for the next $2,000 paid.
American opportunity tax credit: what are the eligible items? Eligible time frame?
Tuition, fees, course materials.
Must related to an academic period beginning in the current tax year, or the first 3 months of the next tax year.
American opportunity tax credit: phase-out?
Yes. Cap for married filing joint: $160,000
American opportunity tax credit: tax treatment if a TP has 3 children who qualify?
TP can take $2,500 each, the total of $7,500 credits.
Lifetime learning credit: Total allowable credit? Criteria?
A credit of 20% (up to $10,000) of qualified tuition expenses per TP (NOT per student) (the maximum $2,000 per tax year) when American Opportunity credit is not available.
Lifetime learning credit: must students be at least half-time or enrolled in a degree program?
No.
Lifetime learning credit: who does this apply to?
Fees paid for TP, spouse, dependents.
Lifetime learning credit: phase-out exist?
Ex) If income exceeds the married threshold by $1,000, what is the reduction?
Yes.
The phase-out for married taxpayers is proportional over a $20,000 range beginning at $112,000 ($10,000 range beginning at $55,000 for single taxpayers).
If income exceeds the threshold by $1,000 ($113,000), then they lose 5% of their credit ($1,000/$20,000).
Education credit? what does “no double dipping” mean?
These credits AND other tax benefits for higher education (higher education deduction of $4,000 for AGI, Sec 529 and etc) are mutually exclusive and can’t use together.
Child and Dependent Care Credit: What is the credit based on? Criteria?
Percentage (between 20-35%) of qualified expenses incurred for care for a qualified individual to enable TP to work or looking for work, or being student.
Child and Dependent Care Credit: who is qualifying individual?
- A qualifying child (as defined for dependency rules) under age 13.
- A dependent or spouse who is physically or mentally incapacitated and has the same abode as TP for more than half the tax year.
Child and Dependent Care Credit: how is the amount of qualified expenses determined?
Lowest of;
- Qualified expense
- Earned income of the lowest paid spouse
- $3,000 ($6,000 for 2 or more qualified individuals) - cap.
Child and Dependent Care Credit: what does tax law assumes re: full-time students at qualifying institution (exception to the earned income rule)?
Assumes the student earns $250 a month - total $3,000 a year - so that you can still qualify for credit without income.
Child and Dependent Care Credit: Percentage allocation?
Credit percentage is 35% if AGI is $15,000 or less.
It’s reduced by 1% for each $2,000 (or portion thereof) AGI in excess of $15,000 (but not below 20%).
Earned income credit: is this refundable or non-refundable? What must TP have to obtain this credit? Length covered?
Refundable (even if there was no tax withholding).
Earn income.
Full 12 months period.
Earned income credit: How is the amount of income increased?
When TP maintains a home with qualifying children (who must stay at least half of year).
Earned income credit: is there phase-out? Based on what?
Yes, based on earned income or AGI (if greater). This also depends on number of qualifying children.
What are most common sources of earned income that qualifies for credit? Does combat pay qualify?
Wages, salaries, tips, earnings from self-employment.
Yes.
Earned income credit: does disability pmts qualify? Criteria? Length?
Yes, if they are taxable.
Until TP reaches normal retirement age.
Earned income credit: when will credit disallowed re: disqualified income? What are disqualified income?
If disqualified income exceeds a threshold (2017: $3,450).
Interest, dividends, tax-exempt interest, other investment income.
Earned income credit: what is the filing status that leads to disallowance?
Married filing separately.`
Earned income credit: Must TP be a citizen? Requirement of length of stay in the US? About SSN?
Yes or resident alien.
The entire tax year.
Must have valid SSN.
Earned income credit: exception re: TP with a certain age group? Criteria; dependent and length of stay in US?
Age between 25 and 64 without qualifying children.
Must not be claimed as a dependent by others.
Must have stayed in the US more than half of the year.
Earned income credit: who are qualifying children?
Same rule for the dependency exemption rule - a natural child, stepchild, adopted child, foster child, sibling, step-sibling, or descendants of these.
Earned income credit: what are age requirements for qualifying children? Compared to TP?
Must be under the age of 19, students under 24, or permanently disabled dependents.
Must be younger than TP.
Earned income credit: On which form does information re: qualifying children reported?
Form 1040 Schedule EIC.
Earned income credit: qualifying child; requirement of length at home?
More than half of the tax year in the US.
Earned income credit: how many people can claim qualifying children?
Only one.
Earned income credit: qualifying children: if more than one TP qualifies to claim the EIC?
Similar tie-breaker rules for dependency exemptions apply.
Earned income credit: Can one TPs claim a qualifying child as a dependent and another claim EIC?
No, must be the same TP.
Earned income credit: what form paid preparer must complete? What does the form has and purpose of the form?
Form 8867.
Check list. To insure that the preparer met all due diligence requirements for taking the EIC on the return.
Earned income credit: Penalty for failure to meet the EIC requiremtns?
$510 for each failure.
What is healthcare - individual mandate?
TP must pay a penalty if they do not maintain minimum essential health care coverage.
What does minimum coverage include?
Medicare, Madicaid, Children’s health insurance program, employer-sponsored plans, and plans in the individual market.
Healthcare: what is a penalty of noncompliance?
a penalty (2017) of $695 per adult and $347.50 per child (up to $2,085 per family or 2.5% of family income in excess of filing threshold, whichever is greater).
Healthcare credit; Who are eligible?
Those whose income is between 100% and 400% of the federal poverty level and who do not otherwise have access to coverage.
Healthcare credit; What does it mean “the credit is advanceable”?
It can be used to reduce the monthly health care premium during the year.
The credit is also refundable.
Healthcare credit: when there is an over estimation of credit, what must TP do?
Must pay back.
Employer mandate: Define “large” employers?
Have at least 50 employees.
Employer mandate: To whom must the employer provide coverage?
Full-time employees and their dependents.
Employer mandate: what type of coverage must the employer provide?
Minimum essential coverage of less than 60% of medical expenses.
Employer mandate: penalty?
$2,000 per full-time employee.
Employer mandate: what is the penalty when the employer offers health insurance, but if any full-time employee is certified as having purchased health insurance through state exchange involving tax credit or cost-sharing reduction paid to the employee?
$3,000 per that employee.
Saver’s credit: what is it?
Credits that are allowed for voluntary contributions to IRA and qualified retirement accounts.
Saver’s credit: Maximum allowed?
$1,000.
Saver’s credit: qualification for TP? (4).
Must be 18 or older.
Not a full-time student.
Not claimed as a dependent.
Can’t receive distribution from the account.
Adoption credit: Max in 2017? Is this refundable? Age requirement?
$13,570 for reasonable expenses.
No.
Under 18.
Adoption credit: In the case of children with special needs?
$13,750 (2017) credits available regardless of actual expenses.
Adoption credit: what happens to unused credit?
Carry forward for 5 years.
Credit for elderly and disabled: 2 criteria?
- 65 or older.
2. Permanently disabled.
Credit for elderly and disabled: how long must the condition be expected to last to qualify as permanent?
A continuous 12 months period.
Credit for elderly and disabled: formula for credit computation?
- Initial amount
- Less annuities, pensions, social security, disability income (excluded from gross income)
- Less 50% of AGI over threshold for each filing status
- x 15%
- =credit amount.
Credit for elderly and disabled: what is initial amount for each filing status (4)?
- Single or joint return where only one spouse is 65 or older: $5,000.
- Joint return (both spouses are 65 or older): $7,500.
- Married filing separate: $3,750.
- TP under age 65: limited to disability income.
Credit for elderly and disabled: What is threshold for 50% section?
Single: $7,500.
Joint return: $10,000.
Married filing separate: $5,000.
What are 2 types of motor vehicle credits?
Alternative motor vehicle credit: Qualified fuel cell vehicles.
New qualified plug-in electric drive motor vehicle.
First-time homebuyers credit: Explain credit for purchases after April 8, 2008 and before 2009?
Credit is supposed to repay over 15 yrs on a straight-line basis. If the house is sold before the time, the unrecaptured credit must be added to tax liability. If purchaser dies, don’t have to be repaid. No interest.
Energy-tax credits: what is available credit?
*Residential energy efficiency property (REEP): Sum of (1) 30% of the qualified solar electric property expenditure + (2) 30% of the qualified solar water heating property expenditures.
Earned income credit: what happens to unused credit?
Lost. No carry back or forward.
Earned income credit: Can this be claimed by both individuals and corporation?
No, just individuals.
Which items credits are based on can be refundable even if there is no tax withholding?
Tax credits resulting in a refund are credits for earned income, tax withheld, excess Social Security tax withheld, and excise tax for certain nontaxable uses of fuels and lightweight diesel vehicles.
