R2Pt2/5 Credits Flashcards
What is a refundable tax credit?
A tax credit which takes the taxpayer’s tax owed on the return below zero, resulting in a refund to the taxpayer.
How many education credits may be taken on a tax return?
American Opportunity Credit - per student
Lifetime Learning Credit - per taxpayer
Note: The American Opportunity Credit is refundable.
Which items can be carried over to future years on an individual tax return?
- Charitable contributions
- Excess Section 179
- Capital losses
- AMT Paid
- Passive Activity Losses
- Investment interest expense in excess of investment income
How is excess 179 expense carried forward?
Carry forward to next year
Use in any year is limited to taxable income.
How long can investment interest expense in excess of investment income be carried forward?
Indefinitely.
How long is the carry forward for charitable contributions?
Can be carried forward 5 years.
How does an Individual Capital loss carryover?
- Carried forward indefinitely.
- Retain their character (STCL or LTCL).
How long is AMT paid carried forward?
It can be carried forward indefinitely.
Which individual tax credits are most commonly refunded?
- Earned Income Credit (EIC)
- American Opportunity Credit
- The Additional Child Tax credit.
Note: the REGULAR child tax credit is NOT refundable.
How is AMT Paid Applied?
- It may be applied against future regular income tax
BUT - NOT against future AMT tax liability.
Personal Tax Credits may reduce personal tax liability to Zero but?
- May NOT result in a Cash Refund
What % Tax Credit amount is eligible expenditures for the Child & Dependent Care Credit?
- Tax Credit of 20% to 35%
Who are the Eligible people for the Child & Dependent Care Credit?
- Child under 13
- Any Disabled Dependent
- A Disabled Spouse
What are the Eligible Expenses for the Child & Dependent Care Credit?
- Babysitter
- Nursery School
- Day Care
- NOT Grammer School
What is the Minimum % for the Child Credit for individuals with AGI more then $43k?
- 20%
What is the American Opportunity Credit?
- Student’s First 4 years of College education at an Eligible School
- Expenses are on Per Student Basis
- Contains a “Phase-Out’
What is the Credit Range & Max amount for the American Opportunity Credit?
- Max.= $2,500
- 100% of first $2,000 of Expenses Paid
- 25% of the next $2,000 of Expenses paid
How many years is Lifetime Learning Credit available for?
- Unlimited Amount of years for Qualified tuition & expenses (Except Books)
- Only one Credit Per Year
- Contains a Phase-Out
What is the Credit % for Lifetime Learning Credit
- Equal to 20% of Qualified Expenses
- Up to $10,000
When can the Coverdell Education Savings account be used in Conjunction with?
- May Claim the American Opportunity Credit or Lifetime Credit
& - Also, Exclude from Gross Income amounts distributed to Coverdell Educ. Savings Account.
What is the Restriction of the Coverdell Education Savings Account?
- The Distribution can’t be used for the same educational expenses in Either:
~ American Opportunity Credit
~ Lifetime Learning Credit
What Expenses are NOT Eligible for the Adoption Credit?
- Expenses used while adopting a child of a Spouse
- Medical Expenses
What is the Retirement Savings Contributions Credit?
- Non-Refundable Tax Credit
- May offset both regular & Alt. Min. tax from either Trad. IRA or Roth IRA
Who are the Eligible Taxpayers for the Retirement Savings Contributions Credit?
- At least 18 by close of the year
- Not a Full-time Student
- Not a Dependent
Foreign Tax Credits are limited to the Lessor of?
- Foreign Taxes Paid OR - [Taxable inc from all foreign operations / (taxable inc + exemptions) X US Tax] = Foreign Tax Credit Limit
What is the carry over for Foreign Tax Credit?
- Carry Back= one year
- Carry Forward= 10 years
Who is the Work Opportunity Credit available to?
- Employers who hire employees from a Targeted Group
What the Credit % for the Work Opportunity Credit?
- 40% of the first $6,000 of first year’s wages
What is the Credit amount for the ‘Child’ Tax Credit & under what Age?
- $1,000
- 17yrs old or younger
- Contains a Phase-out
What is the Credit that is Refundable, Low income thresholds & Ages betwn 25-65?
- Earned Income Credit
What Credit can be claimed when Social Sec. tax withheld is greater then the Max. amount allowed for a year?
- Excess FICA for 2 or More Employers in a year.
What Credit is used for Qualified start-up costs for establishing a new qualified pension plan for 3 years?
- Small Employer Pension Plan Start-up Costs Credit
What credit is used for some Employers for providing health care coverage to their employees?
- Small Business Health Care Tax Credit
What Credit % is allowed for the Small Business Health Care Tax Credit?
- Up to 35% of the Employer’s Costs of the Plan Premiums
- The Credit is allowable as an offset to Alt. Min. Tax
Who are Excluded from the Small Business Health Care Tax Credit?
- Cost of Family Members, Sole-Proprietors, Partners
- S Corp Owner with greater then 2% ownership
- Shareholders owning more the 5% in a Corp.
If the Expenses were used to Qualify for the Small Business Health Care Tax Credit, then they are?
- NOT Allowed as Tax deductions for Employee Benefits Expense.
- No double Benefit
For Eligible Individual Taxpayers, What % of health Care premiums s allowed for Health Coverage Tax Credit?
- 80% of premiums paid by taxpayers & qualifying family members
What is the Tax Credit % for Non-business energy property or improvements?
- A Max. of 15%
- $500
What are the 5 ‘Timing Differences’ which may Increase or decrease AMTI?
- Passive Activity Losses
- Accelerated Depreciation
- Net Operating Loss of the individual Taxpayer
- Installment Income of a dealer.
- Contract- Percentage completion Vs.Completed contract
[PANIC]
What are the 5 Items that may be included in Deductions for Regular tax purposes but NOT for AMT purposes & only Increase AMTI?
- Tax ‘ Deductions’
- Interest Deductions on some Home Equity Loans
- Medical Deductions (limit 10% over AGI)
- Misc. Deductions not allowed
- Exemptions (personal) & St. deduction
[TIMME]
What items are included in “Tax Preference Items”?
- Always ADD-BACKS: Increases to AMTI
- Private Activity bond interest inc.
- Percentage Depletion the excess over Adj. Basis of Property
- Pre-1987 Acc. Depreciation
What are the 5 Credits permitted to reduce the Alt. Minimum Tax?
- Foreign Tax Credit**
- Adoption Credit
- Child Tax Credit
- Contributions to Retirement Plans Credit
- Earned Income Credit
[FACCE]
What is the Statute of Limitations of Tax Returns?
- 3 Years from the Later of:
- The due date of the return
OR - The date the return is filed.
What are the 4 Tax Research Steps?
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
What is the Hierarchy of Authority in the Tax Law?
1st- Internal Revenue Code 2nd- IRS Regulations 3rd- Tax Court Decisions 4th- IRS Agents' Reports [lowest]
What are the 7 Topics covered in the AICPA Statements on Standards for Tax Services?
- 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
What are the reasonable grounds for Omitting an answer to a question?
- Not Easily obtainable & Insignificant
- Uncertainty
- Voluminous Answer
What are the requirements for the Tax Preparer when there is knowledge of an Error?
- Notify Taxpayer
- Not Allowed to Notify Taxing Authority
- Representation in Adms. Proceeding
How does Corporate Capital Loss carryover?
- May be carried back 3 years
and - Forward 5 years.
- Carried forward as STCL only.
The Alt. Minimum Tax is computed as the?
Excess of the Tentative AMT over the Regular Tax
What is NOT an Adjustment OR Preference to arrive at AMT Income?
Deductible Contributions to individual Retirement Accounts
What is NOT allowed to be deducted in the Computation of AMT Income?
-Personal Exemptions
What Computation Method is required for the annual payment of timely estimated tax for the current year & avoid underpayment of estimated tax penalty?
The Annualization Method
When a Taxpayer’s AGI is Under $150K, What is the Minimum Payments required to avoid Penalty of Estimated Tax?
- 90% of Current Tax in 4 equal installments
OR - 100% of the prior Year’s Tax Liability paid in 4 Equal Installments
When a Taxpayer’s AGI is OVER $150K, What is the Minimum Payments required to avoid Penalty of Estimated Tax?
- 90% of Current Tax in 4 equal installments
OR - 110% of the prior Year’s Tax Liability paid in 4 Equal Installments
If a Taxpayer did NOT File a Current yr Return be/c Income was Insufficient, What is the deadline for filing a refund Claim?
- 2 years from the date the Tax was Paid
OR - Within 3 years from the time the Return was Filed.
