Identify some nonrefundable tax credits.
- Nonrefundable tax credits: - may reduce personal liability to zero, but may not result in a cash refund
1) Foreign tax credit
2) Child and dependent care credit
3) Elderly or disable credit
4) Education credits
5) Adoption credit
6) Retirement plan contribution credit
7) General business credit.
What are the refundable credits?
Refundable credits: - may result in cash refund
Children Earn Allowances Each Week
1) Child tax credit
2) Earned income credit
3) American opportunity credit (40% refundable)
4) Excess SS paid
5) Long term unused minimum tax credits
6) Withholding taxes
What are the child/dependent care credit limitations?
Up to 35% of eligible expenditures or $3,000 max ($6,000 for two or more dependents).
Max of $15,000 AGI, reduced by 1% for $2,000 increment over $15,000, to a min of 20%.
A qualifying child is one under age 13 for whom an exemption may be claimed, any disabled dependent who is unable to care self, or a spouse who is disabled and unable to care for self.
Describe the tax credit for the elderly or disabled.
1) Either at least 65 or totally and permanently disabled and have disability income.
2) If single or married and only one is over 65, 15% of $5,000 reduced by nontaxable SS benefits received and half of AGI over $7,500 (single) or $10,000 (married).
3) If married and both are over 65, 15% of $7,500 reduced by nontaxable SS benefits received and half of AGI over $10,000.
4) Claim the credit to the extent of tax liability.
State the limitations of the American Opportunity Tax Credit.
For 2014, the credit for the first four years of post-secondary education is limited to $2,500 as follows:
- 100% of the first $2,000 in tuition costs plus
- 25% of the second $2,000.
What is the limit for the Adoption Credit?
- Per child: $13,190
- Special needs child: $13,190
The credit is not available for adopting a child of a spouse or for a surrogate parenting arrangement.
Medical expenses do not qualify.
What are the eligibility requirements for the retirement plan contribution credit?
1) At least 18 by close of the tax year
2) Not a full-time student
3) Not a dependent
4) Income limits apply
State the formula to determine the amount of the foreign tax credit.
1) Can claim either itemized deduction or credit.
2) There is no limitation to the amount of foreign taxes paid that are claimed as itemized deductions.
3) Overall limitation for the credit: (Net foreign income/ Worldwide taxable income) * US tax liability before credit on worldwide taxable income
Credit is lesser of foreign taxes paid or overall limit. Any unused credit can be carried back 1 year and forward 10 years.
Taxable Income from all foreign operations * U.S. Tax
Taxable Income + Exemptions
Describe the child tax credit.
$1,000 tax credit for each qualifying child.
Qualifying child: "CARES" rules apply, except that a child must be under the age of 17.
Higher income taxpayers must reduce credit by $50 for each $1,000 which modified AGI exceeds:
A) $110,000 for a joint return
B) $75,000 for an unmarried individual
C) $55,000 for MFS
The child tax credit is refundable to the extent of the lesser of:
- excess child tax credit (over tax liability)
- earned income less $3,000 multiplied by 15%
What are the eligibility requirements for the EIC (Earned Income Credit)?
Eligibility: To be eligible for the earned income credit, a taxpayer must:
1) Live in the US (main home) for more than half the tax year
2) Meet certain low earned income thresholds
3) Not have more than a specified amount of disqualified income
4) Be over 25 and under 65 if there are no qualifying children
5) File a joint return with spouse (if married).
State the alternative max tax formula and the tax rate.
Regular Taxable Income
AM Taxable Income
Alternative Minimum Tax Base
x Tax computation
Tentative Minimum Tax
(Regular Income Tax)
Alternative Minimum Tax
Name some adjustments for AMTI calculations PANIC TIMME
*Note: #1-5 may increase or decrease. #6-10 only increase.
1) P - Passive activity losses
2) A - Accelerated depreciation (post-1986 purchase)
3) N - Net operating losses
4) I - Installment income of a dealer
5) C - Contracts, percentage completion vs. completed contract
6) T - Tax deductions
7) I - Interest deductions on some home equity loans
8) M - Medical deductions (limited to excess over 10% AGI; adj for taxpayers age 65 and over)
9) M - Misc deductions not allowed
10) E - Exemptions (personal) and standard deduction
Name some tax preference items for AMTI calculations.
1) Private activity bond interest income (exceptions apply)
2) Percentage depletion
3) Pre-1987 accelerated depreciation
*Note: these are always add-backs (plus), which means it results in more income or less deductions being recognized for AMT vs. regular tax
What credits are allowed against the AMT?
1) Foreign tax credit
2) Adoption credit
3) Child tax credit
4) Contributions to retirement plans credit
5) Earned income credit
*Note: These credits are permitted as a credit to reduce the AMT
What is the statute of limitations for an assessment?
The statute of limitations on assessments in the statutory period duing which the gov't can assess an additional tax. It applies to individuals and all entities.
Three years from the later of:
1) Due date of return
2) Date return is filed
If 25% Understatement of Gross Income (good faith mistakes do not affect this determination):
Six years from the later of:
- the due date of return, or
- the date the return is filed
****State the statute of limitations for fraud or filing false tax returns.****
There is NO statute of limitations for fraud or filing false returns.
What is that statute of limitations for a refund?
The later of:
1) 3 years from the time the return was filed
2) 3 years from the due date of the original return
3) 2 years from the time the tax was paid (if not when the return was filed)
What is that statute of limitations for a refund for Bad Debts, Worthless Securities?
Seven years from the later of:
- the due date of the return, or
- the date the return is filed
Who must (is required to) make estimated tax payments?
1) $1,000 or more tax liability and the taxpayer's withholding is less than the less of 90% of current year's tax.
2) Inadequate Tax Estimates
- met if the taxpayer's withholding is less than than lesser of:
- 90% of current year's tax, or
- 100% of last year's tax
- 100% of last year's tax [110% if AGI is > $150,000 ($75,000 for MFS)]