R2 Flashcards
Non refundable tax credits
Child and dependent care credit Elderly and permanently disabled credit Education Retirement savings Foreign tax General business Adoption
Refundable credits
Child tax credit Earned income credit Withholding taxes (W-2) Excess Social Security paid American opportunity credit
Statute of limitations: How many years does IRS normally have to audit your return?
3 years after payment was made or the due date, whichever comes later
When does the IRS have 6 years to audit your return?
When the return omits more than 25% of gross income originally reported
When does the IRS have unlimited time to audit your return?
When there is fraud or it is a false return
When is the deadline for filing a refund claim?
Two years from the date the tax was paid or three years from the time the return was filed, whichever is later
How much is deductible for eligible educator expenses?
250 single or 500 married, eligible educator expenses are kindergarten through grade 12 teacher with 900 hours
Traditional IRA’s are deductible unless
The taxpayer has excessive AGI and is an active participant in another qualified plan
What is the maximum one can contribute to Coverdell Education IRA’s?
2,000
What is the limit on Student Loan Interest Expense adjustment?
2,500
Who qualifies for medical expenses paid for itemized deductions and what % of AGI must you subtract off?
Payments qualify for filing taxpayer, spouse, and dependent who received over half of support, payments can be paid or charged during the year, and you must subtract any insurance reimbursements and then the 10% of AGI.
What are nondeductible moving expenses?
Meals, pre-move house hunting, breaking a lease, and temporary living expenses
What % of social security and medicare tax is deducted to arrive at adjusted gross income?
50%
Maximum allowable Keogh deduction?
20% of self employment income (business income - business expense - 1/2 self employment tax)
Rules on Alimony payments
must be legally required under a written divorce agreement, must be in cash or its equivalent, and cannot extend beyond the death of the payee-spouse.
Rules on Child support
It is nontaxable and payments first go to this before they go to alimony
How much are the additional deductions for the elderly and/or blind?
single is 1550 or married is 1250 per person per handicap
Who qualifies for medical expenses and what % of AGI must you subtract off?
Payments qualify for filing taxpayer, spouse, and dependent who received over half of support, payments can be paid or charged during the year, and you must subtract any insurance reimbursements and then the 10% of AGI.
What are the deductible taxes on itemized deductions?
Real estate taxes, income taxes, personal property tax, and sales tax (may elect to deduct either state and local income taxes OR sales tax)
What taxes are nondeductible?
Federal taxes, inheritance taxes for states, business and rental property taxes (FIB)
What kind of interest is deductible?
Home, Investment, and Prepaid
What qualifies as miscellaneous itemized deductions with the 2% AGI test?
Unreimbursed business expenses (Meals/Entertainment expensesand transportation expenses), educational expenses, subscriptions to professional journals, tax preparation fees, debit card convenience fees, expenses of investors – Safe deposit box and investment advice, business gifts, uniforms
Educational Loan Interest
Is an adjustment and max is 2,500
What is the maximum allowable deduction for charitable contributions?
50% cash or 30% FMV property.
What amount do you take for general property in charitable contribution?
Lesser of basis or FMV
What about long-term appreciated property?
Lesser of 30% of AGI or the remaining amount to reach 50% after cash contributions
Formula for Casualty and Theft Losses
Smaller Loss (between lost cost/adjusted basis and decreased FMV)- Insurance recovery = Taxpayer’s loss - $100 = Eligible Loss - 10% of AGI = DEDUCTIBLE LOSS
What % of AGI must miscellaneous itemized deductions be over?
2%
What qualifies as miscellaneous itemized deductions?
Unreimbursed business expenses
What miscellaneous deductions are there without the 2% AGI test?
Gambling losses and federal estate tax paid on income in respect of a decedent
Personal tax credits reduce tax….
but no refund
Refundable credits reduce tax…
and can create a refund
Personal tax credit examples
Child and dependent care credit
Elderly and permanently disabled credit
Education credits (1) lifetime learning credit
More personal tax credit examples
retirement savings contribution credit
Foreign tax credit
General business credit
Adoption credit
Refundable credit examples
Child tax credit
Earned income credit
Witholding taxes (w-2)
More refundable credits
Excess social security paid
American opportunity credit
General rule for child and dependent care credit,
Both parents are working and they pay someone to care for junior, kid has to be under age 13 or could be a disabled dependent or a disabled spouse
How much is the credit for child and dependent care credit?
20 to 35% of eligible expenditures, 3,000 maximum expenditures for one dependent or 6,000 for two
What % credit is available for the elderly and/or permanently disabled and what is the formula?
15%, start with 5,000 for single or 7,500 for joint and subtract all social security benefits then subtract 1/2 Excess AGI (7,500 single) and (10,000 for joint), then multiple by the 15% to get the credit
American Opportunity Credit limit and llifetime learning credit limit
2,500 and this is 100% of the first 2000 and 25% of the next 2,000. Multiple kids is ok. Lifetime = max 2,000 (20% of the first 10,000)
Can you use both the AOC and lifetime credit in same year?
Yes
Foreign Tax Credit limitation
Carryforward/back?
lesser of foreign taxes paid or taxable income from all foreigh operations / taxable income + expemptions x U.S. tax = foreign tax credit limit
Yes, forward 10 years back 1 year
How much is the child tax credit and what are the rules that apply?
1,000, CARES rules apply except child must be under 17
Is the earned income credit refundable
Yes
What happens with excess FICA?
If two or more employers withheld greater than the individual gets the refund, if only one employer than that employer refunds them.
AMT Calculation
Regular T.I. +- Adjustments + Preferences = AMTI - exemption = AMT Base x Tax Computation = Tentative AMT Tax - Tax Credits = Tentative Minimum Tax - regular income tax = alternative minimum tax
Exemption amounts of AMT
The exemption amount is 53,600 less 25% (AMTI 119,200) for single taxpayers, 83,400 less 25% (AMTI 158,900) for joint filers
Adjustments that can increase or decrease
PANIC
Passive Activity Losses
Accelerated depreciation
Net operating loss of the individual taxpayer
Installment income of a dealer
Contracats– percentage completion verses completed contract
Adjustments that can only increase
TIMME
Tax “deductions”
Interest deductions on some home “equity loans”
Medical deductions (limited to excess over 10% AGI; adjustment for taxpayers 65 and over)
Miscellaneous deductions not allowed
Exemptions (personal) and standard deduction
Tax Preference Items are
always "add backs" PPE Private activity bond interest income Percentage depletion the excess over adjusted basis of property Pre 1987 accelerated depreciation
Can the AMT credit reduce regular tax and how long is the time period?
Yes but it cannot reduce AMT tax and the time period is forever
What itemized deduction is not added back for AMT?
Home mortgage interest and charity
What are the AMT credits?
FACCE Foreign Adoption Child Contributions on retirement plans Earned Income
Generally what is the statute of limitations for an audit to be done your return?
Three years from the LATER OF the due date of the return; or the date the return is filed (including amended returns)
What if there is 25% or greater understatement of Gross Income?
They have 6 years from the later of the due date of the return or the date the return is filed
What about fraud and false returns?
No statute of limitations
What about refunds?
Later of three years from the date the return was filed or the original due date of the return; or two years from the time the tax was paid (if not when the return was filed)
