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Individual Income Tax > Tax Credits and Computations > Flashcards

Tax Credits and Computations Flashcards

1
Q

Basic List of Nonrefundable Tax Credits (8)

A

(1) Child and Dependent Care Credit
(2) Elderly and Permanently Disabled Credit
(3) Lifelong Learning Credit
(4) American Opportunity Credit (60%)
(5) Retirement Savings Contribution Credit
(6) Foreign Tax Credit
(7) General Business Credit
(8) Adoption Credit

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2
Q

Basic List of Refundable Tax Credits

A

(1) Federal Income Tax Withheld
(2) American Opportunity Credit (40%)
(3) Child Tax Credit (Refund Limited)
(4) Earned Income Credit
(5) Excess Social Security Tax Paid

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3
Q

Who is the Child and Dependent Care credit available to?

A

Taxpayers who maintain a household, work for earned income, and incur eligible expenses for the care of qualifying persons.

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4
Q

Who are Qualifying Persons for purposes of the Child and Dependent Care credit?

A

(1) Dependent qualifying child who is under 13 when the care is provided,
(2) Disabled dependent of any age unable to care for themself, whether or not they can be claimed as a dependent. (Must still meet the support test of a dependent where half of support is provided by taxpayer)
(3) Spouse who is disabled and unable to take care of themself.

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5
Q

What is the earned income requirement for the Child and Dependent Care credit?

A

Married taxpayers must both produce earned income from wages, salaries, or self-employment net income. (unless one is a full time student or physically/mentally handicapped.

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6
Q

Basic list of eligible expenses for the Child and Dependent Care credit?

A

Must be for purpose of allowing taxpayer to work while qualified person is cared for and includes:
(1) Babysitter
(2) Nursery School
(3) Day Care
(4) NOT elementary school

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7
Q

Basic calculation/formula of the Child and Dependent Care credit?

A

Percentage between 20-35% (phaseout based on AGI) multiplied by lesser of:
(1) The earned income of the lesser-earning spouse,
(2) Actual eligible expenses incurred,
(3) The maximum allowable amount ($3,000 for one qualifying person and $6,000 for two or more)

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8
Q

What AGI levels does the phaseout span for the Child and Dependent Care credit?

A

The phaseout is from AGI of $15,000 to $43,000.

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9
Q

What qualified expenses are eligible for the American Opportunity Tax Credit?

A

Qualified expenses include tuition, fees, books, and course materials paid for a student’s first four years at an eligible postsecondary educational institution.

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10
Q

What is the maximum AOTC credit amount?

A

$2,500
100% of the first $2,000 plus
25% of the next $2,000

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11
Q

Can a taxpayer take multiple AOTC credits if they are paying for multiple students?

A

Yes, it is on a per student basis.

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12
Q

Who may qualified expenses be incurred for to be eligible for the AOTC?

A

(1) Taxpayer
(2) Taxpayer’s spouse
(3) Taxpayer’s dependent

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13
Q

What is the participation requirement for the student under the AOTC?

A

The student must be at least half-time for at least one academic period during the year.

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14
Q

What is the criminal limitation under the AOTC?

A

AOTC not available for a student who is convicted of a federal or state felony drug offense in the calendar year for which expenses are incurred.

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15
Q

What is the MAGI phaseout window for the AOTC?

A

Phaseout is from $80,000 to $90,000.

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16
Q

How much of the AOTC is refundable?

A

Up to 40% ($1,000)

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17
Q

What is the maximum amount of the Lifetime Learning Credit?

A

The credit is equal to 20% of qualified expenses up to $10,000.

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18
Q

What are qualified expenses under the Lifetime Learning Credit and what kind of courses can be taken?

A

Tuition and course fees but not course materials.
Undergraduate courses, graduate, certain professional degrees, and courses to acquire or improve job skills.

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19
Q

Can a taxpayer take multiple Lifetime Learning credits if they are paying for multiple students?

A

No, the credit can only be used once on a per taxpayer basis.

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20
Q

What is the MAGI phaseout window for the Lifetime Learning credit?

A

Phaseout is from $80,000 to $90,000.

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21
Q

Who is eligible for the Elderly and Permanently Disabled Credit?

A

Individuals who are:
(1) 65 or older;
(2) under age 65, retired due to permanent disability, and received taxable disability income during the year.

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22
Q

What is the basic statement of the amount of the Elderly and Permanently Disabled Credit?

A

15% times eligible amount

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23
Q

What are the base amounts used to arrive at the applicable eligible amount for the Elderly and Permanently Disabled Credit?

A

(1) $5,000 for single or qualifying surviving spouse
(2) $5,000 if MFJ and only one spouse is qualifying individual
(3) $7,500 if MFJ and both spouses are qualifying individuals
(4) $3,750 for qualified individual MFS

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24
Q

What is the AGI limitation to the base amount for the Elderly and Permanently Disabled Credit?

A

Applicable eligible amount reduced by:
(1) Any SS payments and other excludable pensions or annuities received by taxpayer, and
(2) one half of taxpayer’s AGI that exceeds $7,500 (singles)

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25
Q

Summary of Elderly and Permanently Disabled Credit calculation/formula?

A

(Single)
5,000
- SS/Pension payments
- 1/2 AGI over $7,500
= Balance
x 15%
= Credit

26
Q

Basic rule for adoption credit?

A

Taxpayer can receive credit for qualifying expenses of adopting a child up to $16,810.

27
Q

What is the phaseout window for the adoption credit?

A

Phaseout begins at $252,150 and ends at $292,150 (2024)

27
Q

What happens to adoption credit in excess of tax liability?

A

The credit is not refundable but may be carried forward for five years.

28
Q

What are the rules regarding eligible expenses for the adoption credit?

A

(1) All reasonable and necessary expenses, costs, and fees may be credited,
(2) Credit is not available for adopting the child of a spouse or for a surrogate parenting arrangement,
(3) Medical expenses are not eligible expenses.

29
Q

What years can the adoption credit be claimed relative to the year the payment is made?

A

Credit can be claimed in the year after the payment is made, until the adoption is final when it can be credited in same year spent.
For foreign adoption, no credit can be claimed until adoption is final.

30
Q

Basic rule for Retirement Savings Contribution Credit?

A

Nonrefundable credit available for low to moderate income taxpayers for contributions to a qualified employer-sponsored retirement plan or IRA.

31
Q

What taxpayers are eligible for the Retirement Savings Contribution Credit?

A

(1) At least 18 by end of tax year,
(2) Not a full-time student,
(3) Not a dependent of another taxpayer.

32
Q

For the Retirement Savings Contribution Credit, what percentages of contributions may be credited?

A

Depending on the taxpayer’s AGI and filing status, they may credit either 50, 30, 20, or 0% of eligible contributions.
0% begins at AGI of $38,250 for Singles (2024).

33
Q

Basic Foreign Tax Credit formula/calculation?

A

Credit is lesser of:
(1) Foreign taxes actually paid, or
(2) Crazy formula.

34
Q

What is the formula for determining limit of Foreign Tax Credit?

A

Taxable income from foreign operations
/ Total taxable worldwide income
x US Tax liability
= Foreign tax credit limit

Basically, taxpayer is going to pay at least level of US tax no matter how little the foreign jursdiction taxes but if the jurisdiction taxes more than US, we only give US tax off.

35
Q

What happens to Foreign Tax Credit in excess of tax liability?

A

Any disallowed foreign tax credit can be carried back one year and carried forward ten years.

36
Q

What is included in the General Business Credit?

A

Credit is composed of a bunch of other credits I don’t feel like listing.

37
Q

How is the General Business Credit phased out in relation to tax liability?

A

The first $25,000 of tax liability can be completely credited against.
Over $25,000 in tax liability, only 75% of credit may be used against liability.

38
Q

What happens to unused General Business Credit?

A

The credit can be carried back one year and carried forward 20 years.

39
Q

What are the basics of the Work Opportunity Credit?

A

Available to employers who hire employees from certain groups. Part of the general business credit.

40
Q

What are targeted groups eligible for the Work Opportunity Credit?

A

(1) Disabled,
(2) 18 - 24 years olds from poor families
(3) Vietnam veterans from economically disadvantaged areas,
(4) Certain food stamp recipients.

41
Q

What are the basics of the Small Employer Retirement Plan Start-Up Costs Credit and how long may it be used?

A

The credit is allowed for eligible small businesses related to costs of starting up a new qualified retirement plan. The credit is available for the first three years of the plan.

42
Q

What are the requirements for an eligible employer for the Small Employer Retirement Plan Start-up Costs Credit? (2)

A

(1) Can’t have more than 100 employees who received at least $5,000 in compensation.
(2) At least one plan participant is not a highly compensated employee.

43
Q

What is the amount of credit that can be claimed under the Small Employer Retirement plan Start-Up Costs Credit?

A

The greater of:
(1) 100% of the first $1,000 of eligible start-up costs for employers with 50 or fewer employees (50% for employers with 51-100 employees), or
(2) The lesser of:
(a) $250 for each employee who is eligible for the plan, or
(b) $5,000

44
Q

What are eligible startup costs that can be credited under the Small Employer Retirement Plan Start-up Costs credit?

A

Ordinary and necessary start-up costs to set up and administer the plan, and to educate employees regarding the plan.

45
Q

Small Business Healthcare Tax Credit

A
46
Q

What amount of credit may be taken under the Residential Clean Energy Credit?

A

A taxpayer may receive a 30% credit for the costs of installation of qualifying wind, solar, and geothermal energy-generating systems.

47
Q

What amount of credit may be taken under the Energy Efficient Home Improvement Credit?

A

A taxpayer may receive a 30% credit for the costs of qualified energy efficiency improvements with a maximum of $1,200.

48
Q

What amount of credit may be taken under the clean-vehicle credit?

A

$7,500 for new electric vehicles; $4,000 for used. Subject to MAGI limitations.

49
Q

What amount of credit may be taken under the Alternative Fuel Refueling Property credit?

A

Taxpayer may receive a 30% credit for the costs of qualified alternative fuel refueling property installed in the home. Maximum of 30%.

50
Q

What is the amount that can be claimed under the Child Tax Credit?

A

$2,000 credit for each qualifying child from 2018 until 2025.

51
Q

What is the definition of qualifying child for purpose of the Child Tax Credit?

A

Same as general dependent child definition but age must be under 17 and must be a citizen or resident of the US.

52
Q

When does the Child Tax Credit phaseout begin?

A

Phaseout begins at MAGI of $200,000 for Singles.

53
Q

What is the amount of the Non-child Dependent Credit?

A

$500. Rules are same as Child Tax Credit but can be used for children 17 or older and for non-child qualifying relatives.

54
Q

How much of the Child Tax Credit is refundable?

A

Lesser of:
(1) Excess of Child Tax Credit over Tax liability
(2) Earned income in excess $2,500 multiplied by 15%, or
(3) $1,700 per qualifying child (2024)

55
Q

What are the primary qualifications for being eligible for the earned income credit?

A

(1) Live in the US for more than half the year,
(2) Meet certain earned low-income thresholds,
(3) Not have more than a specified amount of disqualified income,
(4) Be between ages of 25 and 65 if no qualifying children (Only one spouse must meet the test if MFJ),
(5) Must file joint return with spouse with certain exceptions (Can’t be dependent)

56
Q

What is earned income for purposes of the Earned Income credit?

A

Wages, salaries, tips, and other compensation as well as self-employment earnings. Does not include pension and annuity payments.

57
Q

What is the impact of having children on the Earned Income tax credit?

A

Dependent children are not required for the credit but they increase the amount that is allowed as credit and when the phaseout begins.

58
Q

What is the investment income limitations on the Earned Income Tax Credit?

A

If investment income is over $11,600 (2024), the Earned Income credit cannot be claimed at all.

59
Q

Premium Tax Credit

A
60
Q

When is a taxpayer required to make estimated quarterly estimated payments? (2)

A

If:
(1) The amount of expected taxes owed is at least $1,000, and
(2) The taxpayer’s withholding is less than both:
-90% of the current year’s tax and
-100% of last year’s tax.

Individual Income Tax (8 decks)

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