R1 M7 - Tax Computation & Credit Flashcards

1
Q
A
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2
Q

slide 3:46

A
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3
Q

What is tax credit?

A

Tax Credit reduce personal tax liability , dollar for dollar.

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4
Q

What are two types of tax credit?

A

1) Nonrefundable personal tax credit

2) Refundable credits –> Reduces tax can create a refund

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5
Q

Please give me a list of nonrefundable Personal Tax credit?

A
  • Child and dependent care credit
  • Elderly and Permanent disable credit
  • Education Credits
    1) Lifetime Learning credits
    2) American Opportunity credit (60% nonrefundable)
  • Retirement saving contribution credit
  • Foreign tax credit
  • Adoption Credit
  • General Business credit
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6
Q

Please give me a list of refundable credits

A
  • Child tax credits ( refund is limited)
  • Federal income tax withholding (Form W2)
  • American opportunity credit (40% refundable)
  • Excess social security
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7
Q

Child & Dependent care credit –> 20 % to 35% of work-related expense
- Maximum allowable expense are:
1) $3,000 for 1 qualifying person
2) $6,000 for 2 or more qualifying persons

A

Who qualifies for Child & Dependent Care credit
1) Child under 13 years of age
2) Disabled person of any age who is dependent
3) Spouse is disabled

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8
Q

Child & Dependent care credit:

Is applicable if the parents are working for married filing jointly to benefit from it (self-employed, salary, wages etc.)

A

What is Child & Dependent Care Credit expense?

  • Nursing school
  • Baby Sitting
  • Day Care

It does not include elementary school.

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9
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10
Q

Education Tax incentives

American opportunity Tax credit (AOTC)
- Qualified expense: Tuition, fees, course material (including books)
- Applicable for its first 4 years of post-secondary college education.

What is the maximum (AOTC) Credit?

A

Maximum (AOTC) Credit is $2,500 per student
1) 100% of the first $2,000 of qualified expense plus
2) 25% of the next $2,000 expense for the year

–> Yourself, Spouse and dependent.

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11
Q

Lifetime Learning credit (LLC) is for just a student
- Available for unlimited number of years
- 20% of qualified expense up to $10,000

A

Qualified Expense
- Tuition and course fee
- Graduate level course
- Certain professional degree course
- Course to acquire or improve skills

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12
Q

Coverdell Education Saving Account
- It has no limit on the number of beneficiaries

—> Saving account set for children qualified education expense
—> Maximum contribution per beneficiary is $2,000 per year
—> Beneficiary maybe a child under 18

It can be used in elementary, Middle School or College.

A

Sidenote: Don’t focus on the phase out.

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13
Q

Nonrefundable Tax Credit:

Elderly and permanently disabled
-65 years and older or
- Under 65 and permanently disabled

Retirement Saving contributions credit
- Maximum contribution eligible for credit is $2,000

Foreign tax Credit
- Takes it as an itemized deduction or it can be used as a credit (nonrefundable)
- Carryover of excess (disallowed credit)
- Carried back 1 year
- Carried forward 10 years

General Business credit.

A

Refundable tax credit:

Child tax credit
- Under the age of 17
- Citizen, resident

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14
Q

Earned Income is wages, salaries, tips, self-employment earning
- Does not include pension and annuity income

A
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15
Q

The amount of taxes owed (excess of tax liability over withholding) is expected to be $1,000 or more. Then the IRS will examine the taxpayer’s withholding is less than the lesser of:
- 90% of the current year’s tax; or
- 100% of last year’s tax

A
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16
Q

Failure to pay estimated tax (penalty)

A
17
Q

Net investment Tax –> 3.8%
- Interest, Dividend, Capital gains
- Rental and Royalty income
- Passive investor

A