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REG 2 > Module 3: Tax Computation and Credits > Flashcards

Module 3: Tax Computation and Credits Flashcards

1
Q

For 2017, a reduced tax rate of 20% (if taxpayer is in 39.6% bracket), 15% (most taxpayers), or 0% (if taxpayer is in 15 and/or 10% bracket) is provided for what?

A
  1. Qualified dividends

2. LT capital gains

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2
Q

What is a progressive tax rate structure?

A

The marginal tax rate increases as taxable income increases

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3
Q

What kind of tax structure is the individual income tax rate structure?

A

A progressive tax rate structure

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4
Q

What do tax credits do?

A

Tax credits reduce personal tax liability

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5
Q

What are the 2 basic types of tax credits?

A
  1. Personal tax credits

2. Refundable Credits

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6
Q

What does a personal tax credit do?

A

Reduces personal tax liability to zero, but they may not result in a cash refund

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7
Q

Personal tax credits include:

A
  1. Child and dependent care credit
  2. Elderly and permanently disabled credit
  3. Education credits (lifetime learning credit)
  4. Retirement savings contribution credit
  5. Foreign tax credit
  6. General business credit
  7. Adoption credit
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8
Q

How are refundable credits treated?

A

Subtracted from income tax liability and may result in a cash refund when the credit exceeds tax liability owed even if no tax is withheld from wages

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9
Q

Refundable credits include:

A
  1. Child tax credit (refund is limited)
  2. Earned income credit
  3. Withholding taxes (W-2)
  4. Excess SS paid
  5. America opportunity credit (40% refundable)
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10
Q

Child and Dependent Care Credit

A

Tax credit of 20 to 35% of eligible expenditure

Maximum expenditures:

  • 1 dependent = $3K
  • 2+ dependents = $6K
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11
Q

CHILD AND DEPENDENT CARE CREDIT

What is the general rule for the child and dependent care credit?

A
  1. Both parents work

2. Pay someone to take care of child

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12
Q

CHILD AND DEPENDENT CARE CREDIT

Who are eligible people under the credit?

A
  1. qualifying child under 13 years for whom an exemption may be claimed
  2. Any disabled dependent of any age who is unable to care for himself (must meet support test of a dependent)
  3. Spouse who is disabled and not able to take care of him/herself
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13
Q

CHILD AND DEPENDENT CARE CREDIT

What are eligible expenditures under the credit?

A

Must be fore the purpose of enabling the taxpayer to be gainfully employed:

  • babysitter
  • nursery school
  • day care
  • NOT grammar school
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14
Q

CHILD AND DEPENDENT CARE CREDIT

What is the maximum child care credit?

A

35% against the tax liability

taxpayer must have AGI of $15K or less

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15
Q

CHILD AND DEPENDENT CARE CREDIT

What is the phase-out for the credit?

A

20-35%

Credit decreases by 1% for each $2K of AGI over $15K, but not below 20%

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16
Q

CHILD AND DEPENDENT CARE CREDIT

What is the minimum for the credit?

A

20% for individuals with AGI of >$43K is $600 (20% of $3K) or $1.2K (20% of $6K)

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17
Q

CREDIT FOR THE ELDERLY/PERMANENTLY DISABLED

Who is eligible under the credit?

A

Individuals who are 65 years or older
OR
Under 65 and retired due to permanent disability

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18
Q

CREDIT FOR THE ELDERLY/PERMANENTLY DISABLED

What is the percentage for the credit?

A

15% of eligible income

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19
Q

CREDIT FOR THE ELDERLY/PERMANENTLY DISABLED

What is the base amount used to figure the credit?

A
  1. $5K (S)
  2. $5K (MFJ and 1 spouse is qualified)
  3. $7.5K (MFJ and both are qualified)
    $3.75K (qualified indiv who is MFS)
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20
Q

CREDIT FOR THE ELDERLY/PERMANENTLY DISABLED

What is eligible income reduced by?

A

Base amount must be reduced by any SS payments and other excludable pensions or annuities received by the taxpayer; and
2. on-half of taxpayer’s AGI that exceeds the following levels:
- S $7.5K
-MFJ $10K
MFS $5K

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21
Q

EDUCATION TAX INCENTIVES

What are the different types of education tax incentives?

A
  1. The American Opportunity Credit
  2. The Lifetime Learning Credit
  3. Coverdell Education Savings Account Distributions
  4. Qualified Tuition Programs (QTP)
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22
Q

EDUCATION TAX INCENTIVES

What is the American Opportunity Credit?

A

A credit available against federal income taxes for qualified tuition, fees, and course materials (including books) paid for a student’s first 4 years of college

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23
Q

EDUCATION TAX INCENTIVES

What is the amount of the AOC?

A

Equal to:

  • 100% of the first $2K in 2017 of qualified expenses; plus
  • 25% of the next $2K in 2017 of expenses paid during the year

Maximum credit of $2.5K in 2017

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24
Q

EDUCATION TAX INCENTIVES

What is the criteria for the student for the AOC?

A

Must be at least half-time for at least one academic period during the year

25
Q

EDUCATION TAX INCENTIVES

What is the phase-out for the AOC?

A

AGI = $80K ($160K on joint return) to $90K ($180K joint)

26
Q

EDUCATION TAX INCENTIVES

What is the refundable portion of the AOC?

A

40% of the American opportunity credit is refundable ($1K)

the nonrefundable portion may offset both regular and AMT

27
Q

EDUCATION TAX INCENTIVES

What is the maximum per year for the Lifetime Learning Credit?

A

$2K

28
Q

EDUCATION TAX INCENTIVES

What is the Lifetime Learning Credit?

A

A credit available for an unlimited number of years for qualified tuition and related expenses (except books) at eligible educational instituitions

29
Q

EDUCATION TAX INCENTIVES

What is the amount of the lifetime learning credit?

A

20% of qualified expenses up to $10K

30
Q

EDUCATION TAX INCENTIVES

What are qualified expenses under the LLC?

A

undergraduate courses
graduate-level courses
certain professional degree courses
courses to acquire or improve job skills

31
Q

EDUCATION TAX INCENTIVES

How many LLCs are allowed per year?

A

1 per year

32
Q

EDUCATION TAX INCENTIVES

What is the phase out for LLC?

A

$56K-$66K ($112K-$132K joint)

33
Q

EDUCATION TAX INCENTIVES

What is the restriction for the Coverdell Education savings account distributions?

A

The distribution cannot be used for the same educational expenses for which either the AOC or LLC was claimed

34
Q

EDUCATION TAX INCENTIVES
What is a Qualified Tuition Program (QTP)?
Also called 529 plans

A

A program under which a person may purchase tuition credits or make cash contributions to an account on behalf of a beneficiary for payment of qualified higher education expenses

35
Q

EDUCATION TAX INCENTIVES

What are the requirements for QTP?

A

Must be established and maintained by a state, state agency, or by an eligible educational institution

36
Q

EDUCATION TAX INCENTIVES

What are qualified higher education expenses (QHEEs) under QTPs?

A

Tuition, fees, books, supplied, and equipment required by an education institution for enrollment or attendance, as well as reasonable cost of room and board (if enrolled at least half-time

37
Q

ADOPTION CREDIT

What is the maximum adoption tax credit?

A

$13,570 per child

$13,570 per special needs child

38
Q

ADOPTION CREDIT

Is the adoption credit refundable?

A

Nonrefundable, but any credit in excess of tax liability may be carried forward for up to 5 years

39
Q

ADOPTION CREDIT

What is the phase out for the credit?

A

Modified AGI $203,540 - $243,540

40
Q

ADOPTION CREDIT

What are eligible expense?

A
  • All reasonable and necessary expenses, costs, and fees are available for the credit (legal agency)
  • Medical expenses do not qualify
41
Q

ADOPTION CREDIT

When is the credit claimed?

A

For years after the payment is made until the adoption is final

For foreign children adopted, no credit can be claimed until the year it becomes final

42
Q

RETIREMENT SAVINGS CONTRIBUTIONS CREDIT

How are retirement savings contributions credit applied?

A

Nonrefundable tax credit may offset both regular and AMT for contributions to either a traditional IRA or roth IRA

43
Q

RETIREMENT SAVINGS CONTRIBUTIONS CREDIT

Who are eligible taxpayers?

A

At least 18 year old
Not a full-time student
Not a dependent

44
Q

RETIREMENT SAVINGS CONTRIBUTIONS CREDIT

What is the allowable credit amount?

A

Limited to the excess of the regular tax liability and the AMT of the taxpayer, minus the taxpayer’s nonrefundable personal credits

45
Q

RETIREMENT SAVINGS CONTRIBUTIONS CREDIT

What is the phase out for the credit?

A

MFJ over $62K
HH over $46.5K
S/MFS over $31K

46
Q

FOREIGN TAX CREDIT

What are foreign taxes credits limited to?

A

The lesser of:

  1. Foreign taxes paid, or
  2. (Taxable income from all foreign operations/(Taxable income + Exemptions)) x US Tax = Foreign tax credit limit
47
Q

FOREIGN TAX CREDIT

What are the carryover rules?

A

Carry back one year

Carry forward 10 years

48
Q

GENERAL BUSINESS CREDIT

What may the credit not exceed?

A

“Net Income Tax” (regular income tax + AMT - Nonrefundable tax credits, other than AMT credit)
LESS
The greater of:
- 25% of regular tax liability above $25K; or
- “tentative minimum tax” for the year

49
Q

WORK OPPORTUNITY CREDIT

What is the amount for the credit?

A
  • 40% of 1st $6K of 1st year wages

- 40% of first $3K of certain summer youth

50
Q

WORK OPPORTUNITY CREDIT

What are the qualified groups?

A
  1. Disabled
  2. 18-24 year olds from poor families
  3. Vietnam veterans from economically disadvantaged areas
  4. Certain food stamp recipients
51
Q

“CHILD” TAX CREDIT

How much is the tax credit?

A

$1,000 for each “qualifying child”

52
Q

“CHILD” TAX CREDIT

What is a qualifying child?

A

“CARES” rules on dependency exemptions apply EXCEPT child must be <17 years old

53
Q

EARNED INCOME CREDIT

Is this credit refundable or nonrefundable?

A

Refundable

54
Q

How is excess SS tax withheld treated?

A

As additional tax payments withheld

55
Q

For residential energy credits, what is the max credit?

A

30% of qualifying solar electric and solar water heating property installed in 2017

56
Q

ESTIMATED TAXES

What is a taxpayer required to make estimated quarterly tax payments?

A

If both of the following are met:

  • $1,000 or more tax liability
  • Inadequate tax estimates (withholding is less than the lesser of:
    1. 90% of current year’s tax; or
    2. 100% of last year’s tax – safe harbor)
57
Q

ESTIMATED TAXES

What is the exception to the safe harbor for inadequate estimates?

A

If a taxpayer had AGI in excess of $150K in the prior year, 110% of prior year’s tax liability is used to compute safe harbor for estimated payments

58
Q

In computing the amount of estimated payments due, what methods may be used?

A

The annualized method or the prior year method

REG 2 (4 decks)

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