SU # 5 - Deductions from AGI, Credits, AMT & Limitations

Question 1

5.2 - Job Expenses & Misc Deductions

Itemized Deduction Limitation:

What is the reduction for high income tax payers that must reduced aggregate amount of itemized deductions?

Answer 1

Lesser of 80% of allowable itemized eductions or 3% of amount by which AGI exceeds threshold

Question 2

5.2 - Job Expenses & Misc Deductions

Itemized Deduction Limitation:

By what amount must AGI exceed before the itemized deduction is reduced for MFJ filers?

Answer 2

$311,300

Question 3

5.2 - Job Expenses & Misc Deductions

Itemized Deduction Limitation:

By what amount must AGI exceed before the itemized deduction is reduced for HOH filers?

Answer 3

$285,350

Question 4

5.2 - Job Expenses & Misc Deductions

Itemized Deduction Limitation:

By what amount must AGI exceed before the itemized deduction is reduced for Single filers?

Answer 4

$ 259,400

Question 5

5.2 - Job Expenses & Misc Deductions

Itemized Deduction Limitation:

By what amount must AGI exceed before the itemized deduction is reduced for MFS filers?

Answer 5

$ 155,650

Question 6

5.2 - Job Expenses & Misc Deductions

Business Expenses:

When are reimbursed business expenses excluded from income?

Answer 6

When they are substantiated — deductions subject to 2% of AGI are allowed for unsubstantiated reimbursed business expenses

Question 7

5.3 - Tax Credits

Elderly or Disabled Credit:

How is the elderly or disabled credit calculated?

Answer 7

15% of the reduced initial base amount

Question 8

5.3 - Tax Credits

Elderly or Disabled Credit:

Identify the items that reduce the initial base amount

Answer 8

• tax exempt SS benefits
• excluded pension or annuity benefits
• disability income if less than 65 years old
• 1/2 the excess of AGI over
  
  • $ 7,500 Single
  • $ 10,000 MFJ
  • $ 5,000 MFS

Question 9

5.3 - Tax Credits

Elderly or Disabled Credit:

What is the initial base amount for filers who are Single, MFJ (both 65+) and MFS?

Answer 9

• $5,000 Single
• $7,500 MFJ (both 65+)
• $3,750 MFS

Question 10

5.3 - Tax Credits

Lifetime Learning Credit:

What is the AGI phaseout for the Lifetime Learning Credit?

Answer 10

• $55,000 - $65,000 Single
• $110,000 - $130,000 MFJ

Question 11

5.3 - Tax Credits

Lifetime Learning Credit:

Calculate the Lifetime Learning credit for single filers of the AGI phaseout

Answer 11

Amount of credit allowed * (($ 65,000 - MAGI) / $10,000)

Question 12

5.3 - Tax Credits

Lifetime Learning Credit:

Calculate the Lifetime Learning credit for MFJ filers in the AGI phaseout

Answer 12

Amount of credit allowed * (( $ 130,000 - MAGI) / $ 20,000)

Question 13

5.3 - Tax Credits

Work Opportunity Tax Credit:

What is the amount of the WOTC (work opportunity tax credit)?

Answer 13

• 40% of the 1st $ 6,000 of wages paid to a qualified employee in his/her 1st year of service
• $10,000 for Long Term Family Assistance Recipients
• $3,000 for Qualified Summer Youth Employees

Question 14

5.3 - Tax Credits

Work Opportunity Tax Credit:

What are the employee requirements to be eligible for the Work Opportunity Tax Credit?

Answer 14

• work at least 400 hours
  
  • Reduced to 25% for employment of 120+ hours but less than 400 hours

Question 15

5.3 - Tax Credits

Work Opportunity Tax Credit:

Identify the “max credits” for the WOTC?

Answer 15

• $2,400 certain targeted groups
  
  • ($6,000 * 40%)
• $4,000 LT Family Assistance Recipients
  
  • $ ,10($10,000 * 40%)
• $1,200 Qualified Summer Youth Employees
  
  • ($3,000 * 40%)

Question 16

5.3 - Tax Credits

Work Opportunity Tax Credit:

What is the 2nd year credit for LT Family Assistance Recipients?

Answer 16

• $5,000 — 50% of 1^st $10,000

Question 17

5.3 - Tax Credits

Work Opportunity Tax Credit:

What is the max credit for both years in the aggregate for LT Family Assistance Recipients?

Answer 17

• $9,000 max credit for both years in the aggregate
  
  • ($4,000 first year + $5,000 second year)

Question 18

5.3 - Tax Credits

Work Opportunity Tax Credit:

Idenitfied qualified wages for the WOTC?

Answer 18

• Remuneration for employment
• Funds received from accident & health plans
• Employer contributions to accident & health plans
• Educational assistance
• Dependent care expenses

Question 19

5.3 - Tax Credits

Earned Income Credit:

What are the 3 Earned Income Credit qualifications for an individual who does not have a qualifying child?

Answer 19

• U.S. principal residence
  
  • Greater than ½ the tax year
• At least age 25 and not over 64 years’ old
• Not a dependent of another person

Question 20

5.3 - Tax Credits

Earned Income Credit:

Identify the 7 qualifications for the Earned Income Credit

Answer 20

• Valid SS#
• Earned income from employment
• Not use MFS status
• Be a U.S. citizen or resident alien
• Must not be a qualifying child of another person
• AGI & earned income less than statutory thresholds
• Investment income below annual threshold of $3,400 for 2016

Question 21

5.3 - Tax Credits

Adoption Credit:

What is the max credit for the Adoption Credit?

Answer 21

$ 13,460

Question 22

5.3 - Tax Credits

Adoption Credit:

What is the phaseout for the adoption credit?

Answer 22

• MAGI greater than $201,920

Question 23

5.3 - Tax Credits

Adoption Credit:

At what income level is the adoption credit completely phasedout or unavailable?

Answer 23

• Not available if MAGI = or greater than $241,920

Question 24

5.3 - Tax Credits

Adoption Credit:

Is the unused adoption credit carried forward? If so, what is the statute of limitations?

Answer 24

Yes - carried forward for up to 5 years >> not subject to MAGI phaseout

Question 25

# 5.3 - Tax Credits **_American Opportunity Credit:_** What is the computation for the American Opportunity Credit?

Answer 25

* 100% first $2,000 expenses + * 25% second $2,000 expenses

Question 26

# 5.3 - Tax Credits **_American Opportunity Credit:_** What is the AGI phaseout for the American Opportunity Credit?

Answer 26

* AGI Phaseout: * $80,000 - $90,000 all other filers * $160,000 - $180,000 MFJ

Question 27

# 5.3 - Tax Credits **_American Opportunity Credit:_** What is the AGI phaseout calculation for the American Opportunity Credit?

Answer 27

Amount of credit allowed \* ((AGI - $ 80,000 or $ 160,000 MFJ) / $ 10,000 or $ 20,000 MFJ)

Question 28

# 5.3 - Tax Credits **_Child / Dependent Care Credit:_** How much is the child & depdendent care credit?

Answer 28

35% of expenses limited to $ 3,000 for one child and $ 6,000 for 2 or more children

Question 29

# 5.3 - Tax Credits **_Child / Dependent Care Credit:_** What is the credit available to taxpayers with AGI over $43,000?

Answer 29

20% credit

Question 30

# 5.3 - Tax Credits **_Child / Dependent Care Credit:_** What is the reduction for the child / dependent care credit?

Answer 30

* Reduced by 1% but not below 20% for each $2,000 by which AGI exceeds $15,000

Question 31

# 5.3 - Tax Credits **_Child / Dependent Care Credit:_** Calculate the % reduction for the child / dependent care credit

Answer 31

excess AGI / 2,000 = % reduction

Question 32

# 5.3 - Tax Credits **_Child Tax Credit:_** How much is the child tax credit?

Answer 32

$ 1,000 per qualifying child

Question 33

# 5.3 - Tax Credits **_Child Tax Credit:_** What is the AGI phaseout for the child tax credit?

Answer 33

* $110,000 MFJ * $55,000 MFS * $75,000 Single, HOH

Question 34

# 5.3 - Tax Credits **_Child Tax Credit:_** What is the credit reduction for the child tax credit?

Answer 34

* Credit reduced by $50 for each $1,000 MAGI above thresholds

Question 35

**_AMT Preference Items:_** Identify the most common tax preference items for AMT purposes

Answer 35

* Tax exempt interest on private activity bonds * Issued after 1986 but not 2009 & 2010 * Excess depletion * Drilling costs * Small business stock exclusion * Purchased prior to 9/28/2010 or after 12/31/2015 * 7% of excluded gains would be added back to AMTI * Intangibles

Question 36

**_AMTI Formula:_** What is the formula to calculate AMTI?

Answer 36

Taxable income + Tax preferences + Personal exemptions + STD deduction if not itemizing + / - Certain other adjustments = **Alternative Minimum Taxable Income**

Question 37

**_AMT Adjustments:_** Identify the itemized deductions that are denied for AMT adjustments (must be added back to taxable income for AMTI)

Answer 37

* Miscellaneous itemized deductions * State, local and foreign income taxes * Real and personal property taxes * Other adjustments not allowed * STD deduction * Personal exemption

Question 38

**_AMT Formula:_** Calculate AMT base

Answer 38

Alternative Minimum Taxable Income (AMTI) - Exemption Amount = AMT Base

Question 39

**_AMT Formula:_** Calculate tentative minimum tax (TMT)

Answer 39

AMT base \* AMT rate = TMT

Question 40

**_AMT Formula:_** Calculate AMT

Answer 40

TMT - Regular Income Tax = AMT

Question 41

**_AMT Formula:_** Identify the AMT tax rate and the associated income limit for that rate

Answer 41

26% for the 1st $ 185,400 MFJ or $ 92,700 MFS

Question 42

**_AMT Formula:_** Identify the AMT tax rate for excess income and the associated income limit for that rate

Answer 42

28% rate for all income over $ 185,400 MFJ or $ 92,700 MFS

Question 43

**_AMT Formula:_** Identify the exemption amount & phaseout in calculating AMT tax base for MFJ filing status

Answer 43

* $ 83,800 * 25% phaseout for excess over $ 159,700

Question 44

**_AMT Formula:_** Identify the exemption amount & phaseout in calculating AMT tax base for MFS filing status

Answer 44

* $ 41,900 * 25% phaseout for excess over $ 79,850

Question 45

**_AMT Formula:_** Identify the exemption amount & phaseout in calculating AMT tax base for Single filing status

Answer 45

* $ 53,900 * 25% phaseout for excess over $ 119,700

Question 46

# 5.5 - Losses and Limits **_Rental Real Estate Phaseout:_** How much of a loss deduction is permitted for active participation in rental real estate?

Answer 46

$ 25,000 can offset active income

Question 47

# 5.5 - Losses and Limits **_Rental Real Estate Phaseout:_** What is the MAGI phaseout for rental real estate loss deduction?

Answer 47

* 50% loss reduction if MAGI in excess of $100,000 * Deduction eliminated if MAGI over $150,000