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REG > R2Pt2/5 Credits > Flashcards

R2Pt2/5 Credits Flashcards

1
Q

What is a refundable tax credit?

A

A tax credit which takes the taxpayer’s tax owed on the return below zero, resulting in a refund to the taxpayer.

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2
Q

How many education credits may be taken on a tax return?

A

American Opportunity Credit - per student

Lifetime Learning Credit - per taxpayer

Note: The American Opportunity Credit is refundable.

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3
Q

Which items can be carried over to future years on an individual tax return?

A
  • Charitable contributions
  • Excess Section 179
  • Capital losses
  • AMT Paid
  • Passive Activity Losses
  • Investment interest expense in excess of investment income
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4
Q

How is excess 179 expense carried forward?

A

Carry forward to next year

Use in any year is limited to taxable income.

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5
Q

How long can investment interest expense in excess of investment income be carried forward?

A

Indefinitely.

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6
Q

How long is the carry forward for charitable contributions?

A

Can be carried forward 5 years.

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7
Q

How does an Individual Capital loss carryover?

A
  • Carried forward indefinitely.

- Retain their character (STCL or LTCL).

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8
Q

How long is AMT paid carried forward?

A

It can be carried forward indefinitely.

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9
Q

Which individual tax credits are most commonly refunded?

A
  • Earned Income Credit (EIC)
  • American Opportunity Credit
  • The Additional Child Tax credit.

Note: the REGULAR child tax credit is NOT refundable.

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10
Q

How is AMT Paid Applied?

A
  • It may be applied against future regular income tax
    BUT
  • NOT against future AMT tax liability.
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11
Q

Personal Tax Credits may reduce personal tax liability to Zero but?

A
  • May NOT result in a Cash Refund
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12
Q

What % Tax Credit amount is eligible expenditures for the Child & Dependent Care Credit?

A
  • Tax Credit of 20% to 35%
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13
Q

Who are the Eligible people for the Child & Dependent Care Credit?

A
  • Child under 13
  • Any Disabled Dependent
  • A Disabled Spouse
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14
Q

What are the Eligible Expenses for the Child & Dependent Care Credit?

A
  • Babysitter
  • Nursery School
  • Day Care
  • NOT Grammer School
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15
Q

What is the Minimum % for the Child Credit for individuals with AGI more then $43k?

A
  • 20%
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16
Q

What is the American Opportunity Credit?

A
  • Student’s First 4 years of College education at an Eligible School
  • Expenses are on Per Student Basis
  • Contains a “Phase-Out’
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17
Q

What is the Credit Range & Max amount for the American Opportunity Credit?

A
  • Max.= $2,500
  • 100% of first $2,000 of Expenses Paid
  • 25% of the next $2,000 of Expenses paid
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18
Q

How many years is Lifetime Learning Credit available for?

A
  • Unlimited Amount of years for Qualified tuition & expenses (Except Books)
  • Only one Credit Per Year
  • Contains a Phase-Out
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19
Q

What is the Credit % for Lifetime Learning Credit

A
  • Equal to 20% of Qualified Expenses

- Up to $10,000

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20
Q

When can the Coverdell Education Savings account be used in Conjunction with?

A
  • May Claim the American Opportunity Credit or Lifetime Credit
    &
  • Also, Exclude from Gross Income amounts distributed to Coverdell Educ. Savings Account.
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21
Q

What is the Restriction of the Coverdell Education Savings Account?

A
  • The Distribution can’t be used for the same educational expenses in Either:

~ American Opportunity Credit
~ Lifetime Learning Credit

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22
Q

What Expenses are NOT Eligible for the Adoption Credit?

A
  • Expenses used while adopting a child of a Spouse

- Medical Expenses

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23
Q

What is the Retirement Savings Contributions Credit?

A
  • Non-Refundable Tax Credit

- May offset both regular & Alt. Min. tax from either Trad. IRA or Roth IRA

24
Q

Who are the Eligible Taxpayers for the Retirement Savings Contributions Credit?

A
  • At least 18 by close of the year
  • Not a Full-time Student
  • Not a Dependent
25
Q

Foreign Tax Credits are limited to the Lessor of?

A 
- Foreign Taxes Paid
OR
- [Taxable inc from all foreign operations
/ (taxable inc + exemptions)
X US Tax]
= Foreign Tax Credit Limit
26
Q

What is the carry over for Foreign Tax Credit?

A
  • Carry Back= one year

- Carry Forward= 10 years

27
Q

Who is the Work Opportunity Credit available to?

A
  • Employers who hire employees from a Targeted Group
28
Q

What the Credit % for the Work Opportunity Credit?

A
  • 40% of the first $6,000 of first year’s wages
29
Q

What is the Credit amount for the ‘Child’ Tax Credit & under what Age?

A
  • $1,000
  • 17yrs old or younger
  • Contains a Phase-out
30
Q

What is the Credit that is Refundable, Low income thresholds & Ages betwn 25-65?

A
  • Earned Income Credit
31
Q

What Credit can be claimed when Social Sec. tax withheld is greater then the Max. amount allowed for a year?

A
  • Excess FICA for 2 or More Employers in a year.
32
Q

What Credit is used for Qualified start-up costs for establishing a new qualified pension plan for 3 years?

A
  • Small Employer Pension Plan Start-up Costs Credit
33
Q

What credit is used for some Employers for providing health care coverage to their employees?

A
  • Small Business Health Care Tax Credit
34
Q

What Credit % is allowed for the Small Business Health Care Tax Credit?

A
  • Up to 35% of the Employer’s Costs of the Plan Premiums

- The Credit is allowable as an offset to Alt. Min. Tax

35
Q

Who are Excluded from the Small Business Health Care Tax Credit?

A
  • Cost of Family Members, Sole-Proprietors, Partners
  • S Corp Owner with greater then 2% ownership
  • Shareholders owning more the 5% in a Corp.
36
Q

If the Expenses were used to Qualify for the Small Business Health Care Tax Credit, then they are?

A
  • NOT Allowed as Tax deductions for Employee Benefits Expense.
  • No double Benefit
37
Q

For Eligible Individual Taxpayers, What % of health Care premiums s allowed for Health Coverage Tax Credit?

A
  • 80% of premiums paid by taxpayers & qualifying family members
38
Q

What is the Tax Credit % for Non-business energy property or improvements?

A
  • A Max. of 15%

- $500

39
Q

What are the 5 ‘Timing Differences’ which may Increase or decrease AMTI?

A
  • Passive Activity Losses
  • Accelerated Depreciation
  • Net Operating Loss of the individual Taxpayer
  • Installment Income of a dealer.
  • Contract- Percentage completion Vs.Completed contract
    [PANIC]
40
Q

What are the 5 Items that may be included in Deductions for Regular tax purposes but NOT for AMT purposes & only Increase AMTI?

A
  • Tax ‘ Deductions’
  • Interest Deductions on some Home Equity Loans
  • Medical Deductions (limit 10% over AGI)
  • Misc. Deductions not allowed
  • Exemptions (personal) & St. deduction
    [TIMME]
41
Q

What items are included in “Tax Preference Items”?

A
  • Always ADD-BACKS: Increases to AMTI
  • Private Activity bond interest inc.
  • Percentage Depletion the excess over Adj. Basis of Property
  • Pre-1987 Acc. Depreciation
42
Q

What are the 5 Credits permitted to reduce the Alt. Minimum Tax?

A
  • Foreign Tax Credit**
  • Adoption Credit
  • Child Tax Credit
  • Contributions to Retirement Plans Credit
  • Earned Income Credit
    [FACCE]
43
Q

What is the Statute of Limitations of Tax Returns?

A
  • 3 Years from the Later of:
  • The due date of the return
    OR
  • The date the return is filed.
44
Q

What are the 4 Tax Research Steps?

A

Step1: Carefully Review the inquiry stated in the research tab of the Tax Sims.

Step2: Identify the ‘Call of the Question”

Step3: Choose a Keyword or IRC section & execute a search

Step4: Evaluate the databases results

45
Q

What is the Hierarchy of Authority in the Tax Law?

A 
1st- Internal Revenue Code
2nd- IRS Regulations
3rd- Tax Court Decisions
4th- IRS Agents' Reports
[lowest]
46
Q

What are the 7 Topics covered in the AICPA Statements on Standards for Tax Services?

A
  • Tax Return Positions
  • Answers to questions on Returns
  • Certain Procedural aspects of preparing Returns
  • Use of Estimates
  • Departure from a Position Previously concluded in an Adms. hearing
  • Knowledge of Error
  • Form & Content of Advice to taxpayers
47
Q

What are the reasonable grounds for Omitting an answer to a question?

A
  • Not Easily obtainable & Insignificant
  • Uncertainty
  • Voluminous Answer
48
Q

What are the requirements for the Tax Preparer when there is knowledge of an Error?

A
  • Notify Taxpayer
  • Not Allowed to Notify Taxing Authority
  • Representation in Adms. Proceeding
49
Q

How does Corporate Capital Loss carryover?

A
  • May be carried back 3 years
    and
  • Forward 5 years.
  • Carried forward as STCL only.
50
Q

The Alt. Minimum Tax is computed as the?

A

Excess of the Tentative AMT over the Regular Tax

51
Q

What is NOT an Adjustment OR Preference to arrive at AMT Income?

A

Deductible Contributions to individual Retirement Accounts

52
Q

What is NOT allowed to be deducted in the Computation of AMT Income?

A

-Personal Exemptions

53
Q

What Computation Method is required for the annual payment of timely estimated tax for the current year & avoid underpayment of estimated tax penalty?

A

The Annualization Method

54
Q

When a Taxpayer’s AGI is Under $150K, What is the Minimum Payments required to avoid Penalty of Estimated Tax?

A
  • 90% of Current Tax in 4 equal installments
    OR
  • 100% of the prior Year’s Tax Liability paid in 4 Equal Installments
55
Q

When a Taxpayer’s AGI is OVER $150K, What is the Minimum Payments required to avoid Penalty of Estimated Tax?

A
  • 90% of Current Tax in 4 equal installments
    OR
  • 110% of the prior Year’s Tax Liability paid in 4 Equal Installments
56
Q

If a Taxpayer did NOT File a Current yr Return be/c Income was Insufficient, What is the deadline for filing a refund Claim?

A
  • 2 years from the date the Tax was Paid
    OR
  • Within 3 years from the time the Return was Filed.

REG (25 decks)

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