REG 2 - Tax Computation and Credits Flashcards
What is the difference between personal tax credits and refundable credits?
Personal tax credits - reduce tax, but NO refund
Refundable credits - reduce tax and get refund
What is the maximum credit taxpayer can take on child and dependent care credit?
A tax credit of 20 to 35 percent of eligible expenditures:
1 dependent - $3,000
2 dependents - $6,000
Example:Vega has 2 children with an applicable table rate of 20%. Her expenses for a work related housekeeper for kids is $3,600 and $3,800 for nursery school.
The max deduction is:
$3,600 + 3,800 = $7,400
Less: maximum expenditure = $6,000
Child and dependent care credit = $1,200
What are eligible expenses for child and dependent care expenses?
- Babysitter
- Nursery school
- Daycare
- NO grammar school
Define the credit for the elderly and/or permanently disabled credit calculation?
Base amount is reduced by: 1) ALL social security payments 2) 1/2 of the taxpayer's AGI that exceeds: Single: $7,500 MFJ: $10,000 MFS: 5,000
Example for Single:
Base amount given: $5,000 Less: ALL social security Less: 1/2 of AGI thtat exceeds amount for filing status = Balance x 15% = Credit
Explain the American Opportunity Credit as it relates to:
1) The number of years student’s can take credit
2) Maximum amount of credit student’s can take
3) The maximum number of students allowed to take credit on parent’s tax return
4) If there is a phase-out of income limit?
The American Opportunity Credit
1) Paid for a student’s first four years
2) The maximum amount of credit is $2,500:
- 100% of first $2,000 = $2,000
- 25% of next $2,000 = $500
3) Multiple students can claim credit
4) The credit has an income phase out limit
Explain the Lifetime Learning Credit as it relates to:
1) The number of years student’s can take credit
2) Maximum amount of credit student’s can take
3) The maximum number of students allowed to take credit on parent’s tax return
4) If there is a phase-out of income limit?
The Lifetime Learning Credit
1) Allowable credit for an unlimited number of years
2) The maximum amount of credit is $2,000:
- 20% of $10,000 of qualified expenses
3) Credit is limited to one per student on tax return
4) The credit has an income phase out limit
Can you take the American Opportunity Credit and Lifetime Learning Credit in the same year on different kids?
You can take the American Opportunity Credit and Lifetime Learning Credit in the same year on different kids.
What is the maximum amount of adoption credit that can be taken?
Per child - $13,570
Special needs child - $13,570
*There is an income phase-out income limit
What are qualified expenses and nonqualified expenses to take adoption credit?
Qualified Expenses:
- Costs incurred that are necessary (legal agency)
Nonqualified Expenses:
- The credit is NOT available for adopting the child of spouse (divorced couple marries, and adopt child of each other.)
- Medical expenses do NOT qualify as eligible expenses
Define what the eligibility requirement is for a taxpayer to be able to take Retirement Savings Contributions Credit (IRA “credits”)?
Eligible Taxpayers:
- At least 18 years old by the close of the tax year
- Not a full-time student
- Not a dependent
*Know that as income goes up, credit goes down.
Define the allowable foreign tax credit limit for the foreign tax credit?
(Taxable income from ALL foreign operations / Taxable income + exemptions) x U.S. tax = Foreign tax credit limit
Explain the carryover of excess credit?
- Carry back on year
- Carry forward 10 years
Explain what is the general business credit? What is the formula for the general business credit?
The general business credit is a combination of multiple credits.
Formula:
Total credits cannot exceed “net income tax (regular income tax plus AMT less nonrefundable tax credits) LESS first $25,000, LESS 75% of leftover
Example:
Credit is $225,000 and tax is $225,000
$225,000 Less: 25,000 = $200,000 Less: $150,000 (75% x $225,000) = $50,000 - amount the taxpayer pays
