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Regulation > Tax Credits > Flashcards

Tax Credits Flashcards

1
Q

Types of Tax Credits

What are they? (2)

R2-33

A

1) Personal Tax Credits
- -reduce tax, but no refund

2) Refundable Credits
- -reduce tax, and can create refund

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2
Q

Personal Tax Credits

What are they? (7)

R2-33

A

–reduce tax, but no refund

“CAGE REF” mnemonic

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3
Q

Personal Tax Credits

What are they?
“CAGE REF” mnemonic

R2-33

A

–reduce tax, but no refund

C– Child and Dependent Care credit
A– Adoption Credit
G– General Business credit
E– Education credit (lifetime learning)

R– Retirement Savings Contribution credit
E– Elderly and Permanently Disabled credit
F– Foreign Tax credit

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4
Q

Refundable Credits

What are they? (5)

R2-33

A

–reduce tax, and can create a refund

“WE ACE” mnemonic

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5
Q

Refundable Credits

What are they?
“WE ACE” mnemonic

R2-33

A

–reduce tax, and can create a refund

W– Withholding Taxes (W-2)
E– Excess Social Security paid

A– American Opportunity credit
C– Child Tax credit
E– Earned Income credit

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6
Q

Personal Credit
Child and Dependent Care credit
(“C” in CAGE REF mnemonic)

Who is eligible?

R2-33

A

1) Both parents working
2) Pay someone to care for:
- -qualifying child (under 13)
- -disabled dependent
- -disabled spouse

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7
Q

Personal Credit
Child and Dependent Care credit
(“C” in CAGE REF mnemonic)

What expenses qualify?

R2-34

A

Exp to allow taxpayer to work

  • -baby sitter
  • -nursery school
  • -day care
  • -Not grammar school
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8
Q

Personal Credit
Child and Dependent Care credit
(“C” in CAGE REF mnemonic)

What amount?

R2-33

A

20% to 35% of eligible expenses

1 dependent: $3,000
2+ dependents: $+6,000

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9
Q

Personal Credit
Child and Dependent Care credit
(“C” in CAGE REF mnemonic)

What amount?

R2-33

A

Max (AGI under $15k)
–35%

Phase-Out (AGI over $15k)

  • -20% to 35%
  • -credit decreases by 1% for each $2k exceeding AGI $15k but not below 20%

Min (AGI over $43k)
–20%

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10
Q

Personal Credit
Elderly and Permanently Disabled credit
(“E” in CAGE REF mnemonic)
Who is eligible?

R2-35

A

credit of 15% of eligible income is available to individuals

  • -age 65+
  • -under 65 and retired bc permanently disabled
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11
Q

Personal Credit
Elderly and Permanently Disabled credit
(“E” in CAGE REF mnemonic)

Calculation

R2-35

A

Base Amount for # of qualifiers:
1 person: $5,000
2 people: $7,500

Reduce by:

  • -SS payments, pensions, annuities
  • -50% of AGI exceeding:
    • 1 qualifier: $7,500
    • 2 qualifiers: $10,000

Multiply by 15%

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12
Q

Personal Credit
Education Tax Incentive
Lifetime Learning Credit
(“E” in CAGE REF mnemonic)

How much

R2-37

A
  • -($2,000) 20% of exp. up to $10,000
  • -use for unlimited number of years
  • -only one credit per family

Phase-Out:
–modified AGI over $55k

Full Phase-Out:
–modified AGI = $65k

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13
Q

Personal Credit
Education Tax Incentive
Lifetime Learning Credit
(“E” in CAGE REF mnemonic)

What exp. qualifies?

R2-37

A
  • -undergrad courses
  • -grad-level courses
  • -prof. degree courses
  • -courses to acquire/improve job skills
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14
Q

Education Tax Incentive

Can more than one education credit be claimed?

R2-37

A

Using both American Opportunity credit and Lifetime Learning Credit = OK.

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15
Q

Education Tax Incentive
Coverdell Education Savings Account Distributions

R2-37

A
  • -can take education credits and also exclude from Gross Income amounts distributed from Coverdell
  • -distribution cannot be used for same ed. exp. for which the credits were claimed
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16
Q

Refundable Credit
Education Tax Incentive
American Opportunity credit
(“A” in WE ACE mnemonic)

Who can take it and for what expenses?

R2-36

A
  • exp on per-student basis. multiple kids is OK
  • -tuition, fees, course materials

Requirements:

  • -first 4 years of college
  • -half-time student for at least 1 period
  • -Not have felony drug offense in calendar year taken
17
Q

Refundable Credit
Education Tax Incentive
American Opportunity credit
(“A” in WE ACE mnemonic)

How much is the credit?

R2-36

A

Credit:
100% of first $2,000 qualified exp
+ 25% of next $2,000 exp paid during the year

Phase-Out:

  • -modified AGI exceeding $80k
  • -full phase-out at $90k

Refundable portion:

  • -40% of the credit
  • -up to $1,000
18
Q

Refundable Credit
Education Tax Incentive
American Opportunity credit
(“A” in WE ACE mnemonic)

How much is refundable?

R2-36

A
  • -40% of the credit is refundable

- -up to $1,000

19
Q

Education Tax Incentive
Qualified Tuition Programs (QTP)
*not a credit

What is it? What exp qualify?

R2-37

A

–exempt from all federal income taxation

Qualified Higher Ed Exp:

  • -tuition, fees, books, supplies, equipment req. for attendance
  • -room and board if enrolled at least half-time
20
Q

Personal Credit
Adoption credit
(“A” in CAGE REF mnemonic)

What expenses qualify?

R2-39

A

Qualifying:
–all reasonable and necessary exp, cost, fees

Not qualified:

  • -adopting spouse’s child
  • -medical exp
21
Q

Personal Credit
Adoption credit
(“A” in CAGE REF mnemonic)

How much is the credit?

R2-39

A

Credit Limit:
–$13,460 per child and special needs child

Phase-Out:
–modified AGI $201,920 - $241,920

–credit is claimed for years after payment is made until the adoption is final

22
Q

Personal Credit
Retirement Savings Contribution credit
(“R” in CAGE REF mnemonic)

Who can take the credit?

R2-39

A

–paid into traditional IRA or Roth IRA

Eligible taxpayer:

  • -at least 18 by close of tax year
  • -not full-time student
  • -not a dependent

–Max contribution = $2,000
Phase-out applies based on modified AGI

23
Q

Personal Credit
Foreign Tax Credit
(“F” in CAGE REF mnemonic)

How much is the credit?

R2-40

A 
Lesser of:
--foreign taxes paid
or
--TI from all foreign operations
--divide by (TI + exemptions)
--multiply by U.S. tax
--equal foreign tax credit limit

Excess (disallowed) credit:
CB 1yr; CF 10yrs

24
Q

Personal Credit
General Business Credit
(“G” in CAGE REF mnemonic)

R2-40

A

–made up of many credits
–credit cannot exceed net income tax less greater of:
–25% of regular tax liability over $25,000
or
–“tentative minimum tax”

tent. tax * allow% = allow amount
$0-$25k * 100% = x
excess * 75% = x
max. credit allowed = total

–CB 1; CF 20

25
Q

Refundable Credit
Work Opportunity credit
(“W” in WE ACE mnemonic)

Who qualifies?

R2-41

A

Employees who hire from the following groups:

  • -disabled
  • -ages 18-24 from poor fam
  • -Vietnam vets (poor areas)
  • -food stamp recipients
26
Q

Refundable Credit
Work Opportunity credit
(“W” in WE ACE mnemonic)

How much is the credit?

R2-41

A
  • -40% of first $6,000 of 1st year wages

- -40% of first $3,000 of certain summer youth

27
Q

Refundable Credit
Child Tax credit
(“C” in WE ACE mnemonic)

How much is the credit?

R2-41

A

–up to $1,000 for each “qualifying child”

Phase-Out:

  • -reduced by $50 per $1,000 exceeding modified AGI
  • -SS: $75k
  • -MFJ: $110k

Refund Limit:
Lesser of:
–excess child tax credit
–earned income under $3,000*15%

28
Q

Refundable Credit
Child Tax credit
(“C” in WE ACE mnemonic)

Who qualifies?

R2-41

A
  • -CARES rules apply
  • -child must be under 17 (not 19 or 24)
  • -citizen, national, or resident of U.S.
29
Q

Refundable Credit
Earned Income Credit (EIC)
(“E” in WE ACE mnemonic)

Who is eligible for the credit?

R2-42

A
  • -live in U.S. for over half tax year
  • -meet low-income threshold
  • -not have disqualified income over $3,400
  • -age 25-65 if no qualifying child
  • -married file jointly

*must have 1+ qualifying child to maximize

30
Q

Is Earned Income Credit (EIC) refundable?

R2-42

A

Refundable credit

“E” in WE ACE mnemonic

31
Q

Refundable Credit
Withholding Tax
(“W” in WE ACE mnemonic)

How much is the credit?

R2-43

A
  • -all income taxes withheld from paycheck

- -if credit > tax liability = refund

32
Q

Refundable Credit
Excess FICA (SS)
(“E” in WE ACE mnemonic)

Who can take the credit?

R2-43

A

2 or more employers:
–credit can be claimed for the excess SS withdrawn from paycheck

1 employer:

  • -employer must refund the excess
  • -no credit is allowed
33
Q

Small Employer Pension Plan Start-Up Costs Credit

Who can take the credit? How much?

R2-43

A

Businesses w/:

  • -under 100 employees
  • -earning at least $5,000 next year

Credit:

  • -50% of first $1,000 of qualified start-up costs for establishing new pension plan
  • -up to $500 per year
  • -up to 3 years
34
Q

Small Business Health Care Tax Credit

How much is the credit?

R2-44

A
  • -up to 50% of costs of employer’s plan premiums
  • -no refund
  • -if using credit, cannot deduct for employee benefits exp

CB 1; CF 20

35
Q

Small Business Health Care Tax Credit

Who is NOT eligible for the credit?

R2-44

A
  • -family members
  • -sole-proprietors
  • -partners
  • -S-corp owners w/ >2% ownership
  • -shareholders owning >5%
36
Q

Residential Energy Credits

How much is the credit?

R2-44

A
  • -max credit of 15%
  • -up to $500

Qualified exp:

  • -non-business energy property or improvements
  • -high-efficiency heat pumps, water heaters

Regulation (13 decks)

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