R2 - Tax Computation and Credits

Question 1

What are the Non-refundable credits?

Answer 1

Dependent care credit
Elderly and permanently disabled credit
Lifetime learning credit (LLC)
AOTC (60%)
Retirement savings contribution credit
FTC
General Business Credit
Adoption Credit

Question 2

What are the Refundable Credits?

Answer 2

CTC (limited)
EIC
AOTC (up to 40%, remaining 60% is non-refundable)

Question 3

Dependent care credit - Standards

Answer 3

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

Question 4

Dependent Care Credit Computation

Answer 4

1. Limited to the lowest earned income
2. Max 35% of expenses when AGI is $15k or less
3. 20% to 35%: -1% every $2000 AGI is over $15k until it reaches 20%.
4. Min 20% after 1. and 2. are disallowed

Question 5

Elderly and permanently disabled credit - Standards

Answer 5

15% of eligible income for ≥65yo or <65yo and retired due to perm disability

Question 6

Elderly and permanently disabled credit - Eligible Income

Answer 6

Base amt ($5K (S); $7.5K (MFJ)
(-) SS income
(-) 50% of AGI over filing status level ($7.5K (S); $10K (MFJ)
(=) Eligible income

Question 7

Elderly and permanently disabled credit - Computation

Answer 7

Eligible income * 15%

Question 8

American Opportunity Credit (AOTC)

Answer 8

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)

Question 9

Lifetime Learning Credit (LLC)

Answer 9

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)

Question 10

Adoption Credit

Answer 10

Max credit is $14,300 per child
May be CF up to 5yrs
PHO = MAGI over $214,K and $254,K Range $40K

Question 11

Retirement Savings Contribution Credit (IRA)

Answer 11

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

Question 12

Foreign Tax Credit

Answer 12

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.

Question 13

Child Tax Credit

Answer 13

$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.

Question 14

General Business Credits (GBC)

Answer 14

1. 1st 25K is automatically allowed.

2. 75% of excess is allowed

Question 15

Work Opp Tax Credit

Answer 15

1. 40% 1st $6K of first year wages

2. 40% of 1st $3K of summer youth

Question 16

Earned income credit

Answer 16

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

Question 17

EIC Computation

Answer 17

Earned Income
(-) PHO threshold
(=) PHO Amt

Max credit = Max income elegible * PHO %

Max credit - PHO amt = EIC

Question 18

Small ER Retirement Plant Startup Costs

Answer 18

• Available for the 1st 3 yrs
  Credit is greater of:
• 50% of costs (max $500) OR
• Lesser of $250 per employee or $5,K

Question 19

Estimated Taxes

Answer 19

$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%.

Question 20

Failure to Pay Estimated Tax Penalties

Answer 20

No penalty when tax liability is