R2 - Tax Computation and Credits Flashcards
What are the Non-refundable credits?
Dependent care credit Elderly and permanently disabled credit Lifetime learning credit (LLC) AOTC (60%) Retirement savings contribution credit FTC General Business Credit Adoption Credit
What are the Refundable Credits?
CTC (limited)
EIC
AOTC (up to 40%, remaining 60% is non-refundable)
Dependent care credit - Standards
MFJ - Both most work
Dependents - Kids and Disabled
Income must be earned (WORK IT!!!!)
Max expense: $3K (1 child or disabled) or $6K (2+ children or disabled)- No matter if you spent more than $3K
Child must be <13 yo; disabled is any age
Dependent Care Credit Computation
- Limited to the lowest earned income
- Max 35% of expenses when AGI is $15k or less
- 20% to 35%: -1% every $2000 AGI is over $15k until it reaches 20%.
- Min 20% after 1. and 2. are disallowed
Elderly and permanently disabled credit - Standards
15% of eligible income for ≥65yo or <65yo and retired due to perm disability
Elderly and permanently disabled credit - Eligible Income
Base amt ($5K (S); $7.5K (MFJ)
(-) SS income
(-) 50% of AGI over filing status level ($7.5K (S); $10K (MFJ)
(=) Eligible income
Elderly and permanently disabled credit - Computation
Eligible income * 15%
American Opportunity Credit (AOTC)
Per student - Multiple kids is ok First 4 yrs of college Credit is maximum of $2,500: 100% of first $2,000 (+) 25% of $2,000 ($500). (=) Max of $2,500 PHO = MAGI $80K; ($160K MFJ) - MAGI $90K; ($180K MFJ)
Lifetime Learning Credit (LLC)
Unlimited # of yrs
Credit = 20% of qual’d expenses up to $10K (Max credit is $2,000)
1 student per year
PHO MAGI over $58K; ($116K MFJ) - MAGI over $68K; ($136K MFJ)
Adoption Credit
Max credit is $14,300 per child
May be CF up to 5yrs
PHO = MAGI over $214,K and $254,K Range $40K
Retirement Savings Contribution Credit (IRA)
Either IRA or Roth IRA
Must be 18yo, not a full time student, not dependent
Max Eligible contribution = $2,000
Max credit: 50% (19K) 20% (41K) or 10% (64K) depending on income
Foreign Tax Credit
Foreign Taxable Income (÷) Total global taxable income (=) % of allowable credit (*) US Tax (=) FTC limit
Credit is on Foreign Tax paid.
C/O - Carryback 1 yr, or CF 10 yrs.
Child Tax Credit
$2k per child
Under age of 17
Credit is phased-out when MAGI reaches $400K (MFJ); $200K (all others)
Refundable limit: Lesser of:
a. Tax - CTC
b. (Earned income - $2,500) * 15%
c. $1,400 per child.
General Business Credits (GBC)
- 1st 25K is automatically allowed.
2. 75% of excess is allowed
Work Opp Tax Credit
- 40% 1st $6K of first year wages
2. 40% of 1st $3K of summer youth
Earned income credit
The lower the income, the bigger the credit
Must live in US
If no children, be over 25yo and under 65yo
MFJ and SP can’t be dependent of another
PHO = $8,790 - $14,680 no children
PHO = $19,330 - $25,220 w/ children
EIC Computation
Earned Income
(-) PHO threshold
(=) PHO Amt
Max credit = Max income elegible * PHO %
Max credit - PHO amt = EIC
Small ER Retirement Plant Startup Costs
- Available for the 1st 3 yrs
Credit is greater of: - 50% of costs (max $500) OR
- Lesser of $250 per employee or $5,K
Estimated Taxes
$1K or more tax liability - MUST MAKE ES
- Must pay 90% of current year’s tax; or 100% of PY tax (Safe Harbor)
- If income is over $150K ($75k MFS) in PY; then safe harbor is 110%.
Failure to Pay Estimated Tax Penalties
No penalty when tax liability is
