Tax Calculations and Credits Flashcards
Identify some Tax Credits.
Nonrefundable tax credits
- Foreign Tax Credit
- Child and dependent Care Credit
- Elderly or disabled credit
- Education credits
- Adoption credit
- Retirement plan contribution credit
- General business credit
Refundable Credits
- Child tax credit
- Earned income credit
- Withholding taxes
- Excess Social Security paid
- Long-term unused minimum tax credits
What are the child/dependent care credit limitations?
Up to 35% of eligible expenditures or $3,000 maximum ($6,000 for two or more dependents). Maximum of $15,000 AGI, reduced by 1% for each $2,000 increment over $15,000 to a minimum of 20%.
A qualifying child is one under age 13 for whom an exemption may be claimed, any disabled dependent who is unable to care for self, or a spouse who is disabled and unable to care for self.
Describe the tax credit for the elderly or disabled.
Either at least 65 or totally and permanently disabled and have disability income.
If single or married and only one is over 65, 15% of $5,000 reduced by nontaxable Social Security benefits received and half of AGI over $7,500 (single) or $10,000 (married)
If married and both are over 65, 15% of $7,500 reduced by nontaxable SS benefits received and half of AGI over $10,000.
Claim the credit to the extent of tax liability.
State the limitations of the American Opportunity Tax Credit.
Credit for the first four years of post secondary education is limited to $2,500 as follows: 100% of the first $2,000 in tuition costs and 25% of the second $2,000.
What are the eligibility requirements for the retirement plan contribution credit?
- At least 18 by close of the tax year.
- Not a full-time student
- Not a dependent
- Income limits apply
State the formula to determine the amount of the foreign tax credit.
- Can claim either deduction or credit.
- There is no limitation to the amount of foreign taxes paid that are claimed as deductions.
- Overall limitation for the credit:
(Net Foreign Income/Worldwide taxable income)
X
U.S. tax liability before credit on worldwide taxable income. - Credit is lesser of foreign taxes paid or overall limit. Any unused credit can be carried back 1 year and forward 10 years.
State the limitation of the work opportunity credit.
- 40% of the first $6,000 of wages per employee paid during the first year of employment
- 40% of the first $3,000 to certain summer youth.
Describe the child tax credit
- $1,000 tax credit for each qualifying child.
- Qualifying child: “CARES” except child must be under the age of 17.
- Higher income taxpayers must reduce credit by $50 for each $1,000 by which modified AGI exceeds:
- $110,000 for a joint return - $75,000 for an unmarried individual - $55,000 for married filing separately
What are the eligibility requirements for the EIC?
A Taxpayer must:
- Live in the U.S. for more than half the taxable year.
- Meet certain low earned income thresholds;
- Not have more than a specified amount of disqualified income;
- Be over 25 and under 65 if there are no qualifying children; and
- File a joint return with spouse (if married)
State the alternative minimum tax formula and the tax rate.
Formula:
Taxable Income
\+/- Certain Adjustments
\+ Tax preferences
- Exemption allowance
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
AMTI
x Tax Rate (26% and 28% for individuals)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
AMT (the greater of AMT or regular tax is total tax liab.)
- The exemption amount is phased out by 25 cents per dollar of AMTI above $150,000 (112,000 for single, $75,000 married filing separately)
**Exemption Allowance Amounts:
MFJ - $45,000
Single - $33,750
MFS - $22,500
For AMTI in excess of $175,000 tax rate on excess is 28%
Name some adjustments for AMTI calculations.
“PANIC TIMME”
Passive activity losses Accelerated depreciation Net operating losses Installment income of a dealer Contracts, percentage of completion vs. completed contr.
Tax deductions
Interest deductions on some home equity loans
Medical deductions (Limited to excess over 10% AGI)
Miscellaneous deduction not allowed
Exemptions (personal) and standard deduction
Name some tax preference items for AMTI calculations.
Private activity bond interest income (exceptions apply)
Percentage depletion
Pre-1987 accelerated depreciation
What credits are allowed against the AMT?
- Foreign tax credit
- Adoption credit
- Child tax credit
- Contributions to retirement plans credit
- Earned income credit
- Small Business Health Care Tax Credit
What is the statute of limitations for an assessment?
Three years from the later of:
- Due date of return
- Date return is filed
What is the statute of limitations for a refund?
The later of:
- Three years from the time return was file
- Three years from the due date of the original return
- Two years from the time the tax was paid (if not when the return was filed)
