Tax Computations & Credits Flashcards
Long term capital gains and qualified dividends
get preferential tax rate
0% , 15% , 20%
Tax Credits
Dollar for dollar reduction of tax
- Nonrefundable credits: Reduces tax but CANT create credit
- Refundable credits: Reduces tax and CAN create credit
1) Child and Dependent Care Credit
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%
Refundable Credits
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)
2) Credit for the Elderly and/or permanently disabled
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)
3) Educational tax incentives
1) American Opportunity tax credit (AOC)
2) Lifetime Learning Credit (LLC)
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
3) Educational tax incentives
- Coverdell Education Savings Accounts
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 )
3) Educational tax incentives
Section 529 Qualified Tuition Programs (QTP)
- distribution from a QTP may be excluded from beneficiary gross income if paid for qualified higher education expenses
M3 - page 10
look at the chart of education tax incentives: summary
Adoption Credit
- 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
Nonrefundable Credits
1) Adoption Credit
2) Retirement Saving Contribution Credit ( in addition to IRA adjustment)
3) Foreign Tax Credit
2) Retirement Saving Contribution Credit ( in addition to IRA adjustment)
- 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
Foreign Tax Credit
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
General Business Credit
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
Work Opportunity Credit
- 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