Tax Computations & Credits Flashcards

1
Q

Long term capital gains and qualified dividends

A

get preferential tax rate

0% , 15% , 20%

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2
Q

Tax Credits

A

Dollar for dollar reduction of tax

  • Nonrefundable credits: Reduces tax but CANT create credit
  • Refundable credits: Reduces tax and CAN create credit
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3
Q

1) Child and Dependent Care Credit

A

1) Child and Dependent Care Credit

GR: Both parents work
- pay someone to take care of children
-(baby sitter, nursery school, daycare)
not elementary school

Qualifying person

  • kids(under age 13) and
  • disabled (kids & spouse)

……………………………………………….
Calculation of Credit:

lesser of

1) earned income of the lesser earning spouse
2) the actual expense
3) max allowable amount ( $3k or $6k , 3k for one dependent , 6k for 2 or more dependent )

max 35%
phase out 20 -35%
min 20%

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4
Q

Refundable Credits

A

1) Child and Dependent Care Credit
2) Credit for the Elderly and/or permanently disabled
3) American Opportunity tax credit (AOC)
4) Lifetime Learning Credit (LLC)

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5
Q

2) Credit for the Elderly and/or permanently disabled

A

2) Credit for the Elderly and/or permanently disabled

15% of eligible income available to individuals who are:

  • 65 years and older
  • under 65 and retired due to permanently disability

…………….
Base Eligible amount
-$5k for a single person
-7500 for MFJ

The adjusted gross income limit

-eligible income reduced by:

1) social security payments
2) one half of excess adjusted gross income ( single 1/2 over 7500 , MFJ 1/2 over 10k, MFS 1/2 over 5k)

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6
Q

3) Educational tax incentives
1) American Opportunity tax credit (AOC)
2) Lifetime Learning Credit (LLC)

A

1) American Opportunity tax credit (AOC)
- paid for students first four years of college

  • that max credit is $2500 ( per student, per year)

100% of the first $2k qualified expenses = $2k +
25% of the next $2k expenses paid during the year = 500

  • credit phase-out - Robinhood rules

2) Lifetime Learning Credit (LLC)
- credit is equal to 20% of qualified expenses up to $10k = max $2000
- only one student per year
credit phase-out - robinhood rule

…………………………
AOC + lifetime on different kids is okay

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7
Q

3) Educational tax incentives

- Coverdell Education Savings Accounts

A

4) Coverdell Education Savings Accounts
- contributions are nondeductible ($2k annually )
- not limited by any amounts contributed to other IRAs
- can be given to any child under 18, no limit of numbers
- Robinhood rules

  • Earnings accumulate are tax-free,
  • distributions tax-free
  • qualified education expenses through high school
  • reaches 30 years age must be distributed
  • can be rolled over to any other fam member so you don’t lose it
  • cant be used to pay and take credit on it ( no double-dipping )
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8
Q

3) Educational tax incentives

Section 529 Qualified Tuition Programs (QTP)

A
  • distribution from a QTP may be excluded from beneficiary gross income if paid for qualified higher education expenses
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9
Q

M3 - page 10

A

look at the chart of education tax incentives: summary

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10
Q

Adoption Credit

A
  • qualified adoption expenses up to $14300
  • nonrefundable, cf to 5 years
  • Robinhood rule
  • credit is not available adopting a child of a spouse or for a surrogate parenting arrangement
  • medical expenses
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11
Q

Nonrefundable Credits

A

1) Adoption Credit
2) Retirement Saving Contribution Credit ( in addition to IRA adjustment)
3) Foreign Tax Credit

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12
Q

2) Retirement Saving Contribution Credit ( in addition to IRA adjustment)

A
  • IRA credit
  • in addition to the adjustemtn
  • contributions of u to $2000 to either traditional or ROTH IRA
.........................
eligible taxpayers 
- at least 18 years old by the close of the tax year 
- not  a full-time student 
- not a dependent of another taxpayer 

…………………..
allowable credit
- as income goes up, the credit goes down
- 50% of the contribution

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13
Q

Foreign Tax Credit

A

lesser of:

Foreign taxes paid OR

Taxable income from all foreign operations /total taxable worldwide income * U.S tax
= foreign tax credit limit

…………….
carryover of excess (disallowed credit )
- carryback one year
- carry forward 10 years

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14
Q

General Business Credit

A

bunch of credits.

E.g. Facts tax $225,000
Credit $225,000

Tax 
225k 
(25k)   - first 25k 
-------------------
200k 
*25% not allowed 
--------------
$50k not allowed 
so 
credits 
225k 
(50k)
------------
175k usable credit 

50k Carried back one year and forward 20 years

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15
Q

Work Opportunity Credit

A
  • 40% of the first 6k of first years wages
  • 40% of the first 3k to certain summer youth

For employers who hire

  • disabled
  • 18-to 24 years old from poor families
  • Vietnamese veterans from economically disadvantaged areas
  • certain food stamp recipients
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16
Q

Child tax credit

A

$2K credit for each qualified child

  • must be under 17
  • resident of us
    phase-out
17
Q

Earned income credit (refundable)

A
  • the lower the income the bigger the credit

-

18
Q

Tax withheld (W-2)

A

Refund or credit to next year

19
Q

Excess FICA

A

two or more employers - claim the excess as a credit against income tax

one employer - if employer made the mistake they have to refund

20
Q

Small employer retirement plan start-up cost credit

A
  • new qualified retirement plan
  • for first three years

amount:
Greater of
50% of first $1k of eligible start-up cost ( max$500) OR

lesser of
- $250k for each employee OR
$5k

21
Q

Small biz health care tax credit

A

50% of the employers’ cost of the plan premiums

- employer contributes at least 50% of the costs

22
Q

Resident Energy Credits

&

Premium tax credits

A

Resident Energy Credits :
26% of qualifying solar electric or solar water heating
decreased to 21% in 2021

&

Premium tax credits
afford health insurance

23
Q

safe harbor rule

A

look R2-m3 page 18