Tax Issues and Credits

Question 1

+/- AMT Adjustments

Answer 1

Passive Activity Losses
Accelerated Depreciation (150, not 200 declining)
Net Operating Loss
Installment Income
Contracts
Tax Deductions (Added back)
Interest Deductions (Home Mortgage Allowed))*
Medical Deductions
2% Miscellaneous Deductions* (Not allowed)
Exemptions

Question 2

+ AMT Preferences

Answer 2

Private Activity Bond Interest
Percentage Depletion
Pre-1987 Accelerated Depreciation

Question 3

Total Tax Liability

Answer 3

Regular tax liability
+ AMT
+ PHC

Question 4

Taxable Income 70,000
State & Local 5,000 (Not Allowed)
Home Mortgage Interest 6,000
Miscellaneous Deductions In Excess of 2% AGI 2,000 (Not Allowed)

Answer 4

AMTI = 70,000 + 5,000 + 2,000 = 77,000

Question 5

Foreign Tax Credit

Answer 5

Lower of foreign tax paid or

(US Tax * Foreign Taxable Income) / Worldwide Taxable Income

Question 6

American Opportunity Credit (First 4 years)

Lifetime Learning Credit (After First 4 years)

Answer 6

• 100% of first $2,000 and 25% of next $2,000 of qualified education expenses for total of $2,500
• Does not phase out until $160,000
• Only post-secondary education

Maximum of 2,000 per year
20% qualified expenses
Phased out over 20,000 range over $110,000
111,000-110,000 = 1,000 / 20,000 = 5% 
95% * 900 = 855

Question 7

Child & Dependent Care Credit

Answer 7

• 35% of child care expenses if AGI is less than $15,000
• Reduced by 1% for each $2,000 increment over $15,000
• Minimum 20% of expenses
• Maximum amount $3,000 limited to % limitation of lower earnings spouse

Question 8

Tax Preparer Penalty

Answer 8

Unreasonable position:
Greater of $1,000 or 50% of fee

Willful attempt:
Greater of $5,000 or 50% of fee

Reasonable basis, good faith, disclosure:
No penalty