Tax Credits Flashcards
How do you qualify for the earned income tax credit?
- Cannot file MFS
- Investment income below $3,650
- Have a qualifying child or:
- Be age 25-64
- Maintain a house in the US for more than 1/2 the year
- Do not have to file foreign income tax form (2555)
- Not be claimed as a QC on someone else’s return
How do you compute the earned income credit amount?
- IRS given % x earned income. There’s also a maximum amount of earned income, beyond which there’s no credit.
- % is determined by the number of qualifying children
How do you qualify for the Adoption Expenses Credit? What is the maximum credit? What is the phase-out? Is it a refundable credit? Can it be carried forward?
- Qualifying expenses are adoption fees, court costs, and attorney fees, among others.
- A qualifying child is less than 18, or physically and mentally handicapped.
- The maximum credit is $14,400
- The phase out is high, $216k - 256K
- Not refundable
- Can be carried forward 5 years
How do you qualify for the child tax credit?
How much is it?
Is it phased out?
Is it refundable?
- 2k for each dependent child under 17
- Child must be a US citizen, and a dependent on your return
- Step-children and foster children qualify
- If married, must file MFJ.
- Phased out for MAGI levels in 2021
- Up to $1400 refundable
What is the Family Credit (Qualifying dependent credit)?
- $500 credit for each dependent family member
How do you qualify for the child and dependent care expenses credit?
How much is it?
Phaseouts? Refunability? Carry forward?
- Must have employment related dependent care costs for a dependent under 13 or a handicapped dependent or spouse.
- Must file MFJ
- Credit = eligible costs x a % between 20 and 35. For AGI above $43,000 it’s 20%. Not eligible if dependent of the taxpayer provides the care.
- Care can be outside the home or inside, but if outside, person must spend 8h/day inside home.
- Amount of expense cannot exceed earned income.
- Full time student or disable taxpayer are assumed to have earned income to maximum limit.
What is the maximum level of expense for the child or dependent care expenses?
The lesser of actual expenses or $3k for 1 child and $6k for 2 children
Who is eligible for the AOC?
What expenses are eligible?
How do you calculate the credit?
Is it refundable?
- Eligible persons are those pursuing an undergrad degree who don’t already have one.
- Tuition textbooks and fees are eligible, room and board is not.
- Credit is 100% of first 2k, 25% of second 2k
- Credit is 40% refundable up to $1k
How much is the LLOC?
What are the AOC/LLOC phaseouts?
Can you claim the AOC/LLOC in the same year as taking a deduction for education expenses?
20% x up to 10k in expenses
They’re the same beginning in 2021: 160 to 180 MFJ.
You cannot claim this either credit if you take the education expenses deduction.
Who qualifies for the kiddie tax?
What income qualifies?
How much is exempt?
- A dependent child under 19, or under 24 if student, with unearned income qualifies.
- $2,200 is exempt: $1,100 for standard deduction + $1,100 taxed at the kid’s marginal rate.
How do you solve kiddie tax problems with earned and unearned income?
Separate income into earned and unearned. Take the both deductions against unearned, then back one out against earned.
Start with unearned income because it’s the same either way: Take out $1,100 for standard deduction, and $1,100 that’s taxed at the kid’s marginal rate. The rest is taxed at the parent’s marginal rate.
For earned income, deduction is earned income + 350 - 1,100 (used for unearned income) taxed at child’s marginal rate.
What is the AMT formula?
Taxable income +/- adjustments + preferences = AMTI
AMTI - Exemption = AMTI tax base
AMTI tax base x AMT rate = Tentative minimum tax
Tentative minimum tax - foreign income tax credit - regular tax = AMT
What deductions are lost under the AMT?
SALT
2% floor deductions (suspended till 2025).
What are AMT adjustments?
- Accelerated depreciation for real and personal property.
- Standard deduction
What are the AMT preference items (3)?
- % depletion—the amount of % depletion taken in excess of adjusted basis of property at the end of the year is an AMT preference item.
- intangible drilling costs—excess of regular tax deduction over [AMT amortization + (.65 x net oil and gas income)].
- interest on private activity bonds—not taxable for regular tax but included for AMT. Expenses for carrying these bonds can offset this income for AMT.
