Tax Level 1- Individual Tax Flashcards

Question

Cash method

Answer 1

Most individual taxpayers use the cash method. Record income on constructive receipt and expenses when payment is made.

Answer 2

Record income when earned and expenses when accrued. The IRS considers the taxpayer to have earned income when all the events have occurred that fix the right to receive such income and the amount is reasonably determinable.

Answer 3

Everybody on the tax return, including dependents, needs a valid taxpayer identification number (TIN) issued by the due date of the return (including extensions). There is an exception for a child that is born and dies in the same year A TIN is a Social Security number (SSN), an individual taxpayer identification number (ITIN), or an adoption taxpayer identification number (ATIN) Earned Income Credit, Child Tax Credit, and Additional Child Tax Credit requires a valid SSN only Under the American Rescue Plan Act of 2021, for 2021 and future years, if a qualifying child does not have a valid SSN, taxpayer may claim the earned income credit for individuals with no qualifying children. Credit for Other Dependents and American Opportunity Credit requires a valid SSN, ITIN, or ATIN

Answer 4

All tips (cash or FMV of property) are subject to federal income tax, SS, and Medicare. A penalty equal to 50% of unpaid SS and Medicare taxes due on unreported tips. Report cash and charge tips to the employer by the 10th of the following month if $20 or more. Tips reported to the employer on time are considered income in month reported. Tips that are not reported on time are considered income in month actually received. Report non-cash tips to IRS, not employer. No SS or Medicare on non-cash tips.

Answer 5

The cost of up to $50,000 of group term life insurance coverage provided by an employer is not included in income. The employee's income shall include premiums paid by the employer for more than $50,000 of coverage.

Answer 6

The amount received due to employer-paid plan premiums is taxable.

Answer 7

Pay received from an employer while sick or injured is part of salary or wages. Include sick pay benefits received from other sources in income if the employee did not pay premiums to receive the benefit.

Answer 8

Include advance commissions or other amounts for future services as income in the year received.

Answer 9

U.S. citizens and resident aliens must report income from sources outside the United States (foreign income) on their tax return unless it is exempt by U.S. law.

Answer 10

Employees of an international organization or a foreign government in the United States are exempt from Social Security and Medicare employee taxes. However, such an employee must pay self-employment taxes on earnings from services performed in the United States, even though the employee is not self-employed.

Answer 11

Include – any salary and fees received for masses, marriages, baptisms, funerals, etc. (payments to the religious institution are not included). Exclude – Rental value of home (including utilities) or housing allowance, up to the actual cost, is excludable (but must be included as earnings from self-employment).

Answer 12

OID is the difference between the stated redemption price at maturity and the issue price. Include a portion of the discount in income as it accrues. OID rules do not apply to tax-exempt obligations, U.S. savings bonds, or if the maturity date is 1 year or less from issue date. No need to report if the discount is less than one-fourth of 1% (.0025) of the redemption price at maturity multiplied by the number of full years from the date of original issue to maturity.

Answer 13

Ordinary dividends are taxed at ordinary income rates. Qualified dividends are eligible for a lower tax rate than other ordinary income. Qualified dividends are subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain. To qualify for the lower maximum rate, the dividends must be paid by a U.S. corporation or a qualified foreign corporation, and the taxpayer must hold the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.

Answer 14

When a corporation makes a distribution but does not have earnings it is a return of an investment in the stock of the company and reduces the basis of the stock. It is not taxable until the taxpayer fully recovers their cost basis.

Answer 15

Generally not taxable unless if any of the following apply: Shareholders have the choice to receive cash or other property. Some shareholders receive cash or other property. The distribution is in convertible preferred stock, resulting in a change of ownership. Some Direct payments to the religious institution are not taxable. The distribution is on preferred stock.

Answer 16

Report dividends in income even if reinvested in stock through a dividend reinvestment plan instead of receiving the dividends in cash.

Answer 17

The surviving spouse can rollover into own account. Other beneficiaries must withdraw balance over a specified period. Distributions are taxable to beneficiary as income in respect of a decedent.

Answer 18

If taxpayer distributes the entire account in a lump sum distribution and pays ordinary income tax on the stock basis (including employer matching), the capital gains rate applies to net unrealized appreciation (NUA) on the stock when it is later sold (regardless of actual holding period). The character of the gain on any further appreciation (above the NUA) after the distribution will depend on the actual holding period.

Answer 19

No deduction for contributions to a non-qualified annuity (funded with after-tax dollars), but amounts within the annuity accumulate free of tax until withdrawn. The tax treatment of a non-qualified annuity depends upon factors such as basis and annuitization. Annuitization is the process of converting an annuity into a series of periodic payments. TIP: An annuity in a qualified plan or IRA will receive the same tax treatment afforded to those plans.

Answer 20

Prior to annuitization – Withdraw earnings first (ordinary income). Amount in excess of earnings (basis) is a return of capital. After annuitization – Allocate a portion of each payment to income and a portion to basis according to the exclusion ratio. The exclusion ratio refers to the basis portion of each payment that is exempt from tax. Using a simplified method, figure the tax-free part of each annuity payment by dividing the cost by the total number of anticipated monthly payments.

Answer 21

The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan within 60 days.

Answer 22

Distributions from a qualified plan (or IRA) minus a prorated part of any cost basis are subject to income tax in the year they are distributed. Since most recipients have no cost basis, a distribution is generally fully taxable.

Answer 23

Exclude all benefits from income if provisional income is below $25,000 ($32,000 MFJ). A maximum of 85% of benefits may be subject to tax when provisional income is above $34,000 ($44,000 MFJ).

Answer 24

Provisional income – 1/2 social security benefits + all other income (including tax exempt interest). Compare to threshold to determine amount of benefits subject to tax: MFJ – 50% threshold $32,000, 85% threshold $44,000 All others – 50% threshold $25,000, 85% threshold $34,000

Answer 25

Include punitive damages (punishment) in income. Do not include compensatory damages (compensation) for personal physical injury, physical sickness, or emotional distress.

Answer 26

Include gambling winnings in income. This includes cash and the fair value of property received. Can claim gambling losses as an itemized deduction on Schedule A but only to the extent of gambling winnings. Cannot report a net loss from gambling.

Answer 27

Include unemployment compensation in income if received under federal or state unemployment law.

Answer 28

Include the amount of canceled debt in income. EXCEPTION: If forgiveness of debt is a gift it is not income. EXCEPTION: Bankruptcy, insolvency, purchase price reduction, certain student loans, certain qualified indebtedness (business real property, principal residence, or farm)

Answer 29

Report fair market value of property or services received in bartering as income.

Answer 30

Can exclude up to $1,600 of ‘‘tangible personal property’’ received for a length of service or safety achievement. $400 for awards that are not qualified plan awards. The award cannot be in cash, cash equivalents, gift cards, gift coupons or gift certificates, or vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items.

Answer 31

Can exclude amounts received as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service. Cannot exclude amounts based on years of service.

Answer 32

Exempt if used for qualified educational expenses. Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. Not room and board.

Answer 33

Exempt when used for qualified higher education expenses. Tuition and fees required for a taxpayer and dependents (for whom an exemption is claimed) to attend an eligible educational institution. Do not include expenses for books, room and board, or for courses involving sports, games, or hobbies that are not part of a degree or certificate-granting program. Married taxpayers must file jointly The taxpayer must be at least 24 years old before the bond’s issue date.

Answer 34

Up to $10,000 excluded on distributions to pay for qualified educational expenses of the designated beneficiary. For elementary or secondary school (public, private or religious) or registered apprenticeships. The cost of room and board qualifies. Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. Secure Act of 2019 allows principal or interest on qualified student loan repayments, (and an additional $10,000 for each sibling). (Lifetime limit per beneficiary.)

Answer 35

An amount received as workers’ compensation for an occupational sickness or injury is fully exempt from tax if paid under a workers’ compensation act or similar statute. The exemption also applies to the victim’s survivors.

Answer 36

Life insurance proceeds paid because of the death of the insured are generally tax-free to the beneficiary. A taxpayer may exclude certain accelerated payments received before death if terminally or chronically ill.

Answer 37

A taxpayer may exclude the following from income: Compensatory damages (not punitive) from a lawsuit. Benefits under a health insurance plan where the taxpayer paid the premiums (or employer paid premiums if included in employee's income). Compensation for permanent loss (or loss of use) of a body part or function, or permanent disfigurement. Must be based only on the injury and not loss of work. These benefits are not taxable regardless of who paid premiums. Reimbursements for medical care.

Answer 38

To be eligible to have HSA contributions made, an individual: Must be covered under a high deductible health plan (HDHP) on the first day of the month. Under the last-month rule, if covered under an HDHP on the first day of the last month of the tax year (December 1 for most taxpayers) considered eligible for the entire year so long as they remain an eligible individual during the testing period. Must not have other health coverage or be enrolled in Medicare. Must not be claimed as a dependent on someone else’s return. For 2022, maximum HSA contribution is up to $3,650 for self-only HDHP coverage and up to $7,300 for family HDHP coverage. An additional $1,000 catch-up contribution is available if age 55 or older. Contributions are due by the due date for filing the return, not including extensions (April 15 after the close of the tax year for most taxpayers).

Answer 39

Taxpayer receives a tax deduction (an adjustment to income) for contributions that they or someone other than an employer made to the HSA, even if not itemizing deductions Employer's contributions to an employee's HSA are excludable from employee's income Contributions remain in the HSA account from year to year until used Interest or other earnings on the assets in the account accumulate tax-free Distributions may be tax-free if used to pay for qualified medical expenses (distributions not used for qualified medical are taxable, and subject to an additional 20% tax unless an exception applies to the 20% tax) An HSA is “portable” so it stays with the taxpayer if they change employers or leave the workforce

Answer 40

Distributions not used for qualified medical are taxable, must be included in income, and are subject to an additional 20% tax unless an exception applies. The additional 20% tax does not apply to distributions made after the account beneficiary dies, becomes disabled, or turns age 65. If a taxpayer fails to be an eligible individual they may have taxable income and owe an additional 10% tax for failure to maintain HDHP coverage.

Answer 41

Effective January 1, 2020, (with a delayed effective date for certain collectively bargained plans), the Secure Act requires the entire balance of the participant’s account be distributed within 10 years. The new 10-year rule applies regardless of whether the participant dies before, on, or after, the required beginning date (age 72). There is an exception to the 10-year withdrawal rule for certain eligible designated beneficiaries, which include a surviving spouse, a child who has not reached the age of majority, a disabled or chronically ill person, or a person not more than ten years younger than the decedent.

Answer 42

IRA beneficiaries must begin withdrawals by December 31 of the year following the owner’s death. A non-spouse designated beneficiary (not a trust or estate) must use one of the following methods: Distribute in a lump sum. Distribute over life expectancy. Distribute the entire account within 5 years following the year of death. Not allowed when an IRA owner is beyond the required beginning date at the time of death. A taxpayer who inherits an IRA from a deceased spouse can move the account into his own name, or begin withdrawals as described previously.

Answer 43

If a distribution from the Roth IRA is not a qualified distribution, part of it may be taxable. Withdrawals are in this order: Regular contributions – Not included in gross income or subject to the 10% early distribution tax. Conversions and rollover contributions – FIFO if multiple. 10% early distribution tax applies to any amount that was included in income due to conversion or rollover. 10% penalty does not apply to nontaxable portion (basis). Earnings on contributions – Included in gross income and subject to10% early distribution tax.

Answer 44

For 2022, the total contributions a taxpayer can make to all their traditional IRAs and Roth IRAs cannot exceed the smaller of the following: $6,000 ($7,000 if age 50 or older, due to a $1,000 catch-up contribution) 100% of taxable compensation for the year Roth IRA contributions might be further limited if the taxpayer's income exceeds a certain level. Traditional IRA contributions are not limited based on the taxpayer's income level.

Answer 45

No age limit for making contributions. The taxpayer or spouse must have taxable compensation during the year. Contributions may be tax deductible, depending on the circumstances. Amounts in the IRA, including earnings and gains, are not taxed until distributed.

Answer 46

A taxpayer may make a contribution (up to the general limit) to a traditional IRA even if it is not deductible. The difference between the total permitted contributions and the IRA deduction is a nondeductible contribution. To designate contributions as nondeductible, a taxpayer must file Form 8606. A nondeductible contribution increases the basis of the IRA and is not taxable when withdrawn. Each distribution is partly nontaxable (return of basis) and partly taxable until the entire basis has been distributed.

Answer 47

The following are examples of prohibited transactions in an IRA: Borrowing money from it Selling property to it Receiving unreasonable compensation for managing it Using it as security for a loan Buying property for personal use with IRA funds. Account stops being an IRA as of the first day of the year of a prohibited transaction and the entire account balance is considered a distribution.

Answer 48

A nontaxable distribution made directly to a qualified charity by the trustee of a traditional IRA. Must be at least age 70.5 at time of distribution. Total QCDs for the year cannot be more than $100,000 ($200,000 if MFJ). QCD is limited to the amount of the distribution that would otherwise be income. If the IRA includes nondeductible contributions, the distribution is first considered to be paid out of otherwise taxable income. Must keep the same type of records as a charitable contribution.

Answer 49

An eligible educator may deduct as an adjustment to gross income up to $300 of qualified expenses in 2022. If filing jointly and both are eligible educators, both spouses may deduct up to $300 of qualified expenses. An eligible educator is a K-12 teacher, instructor, counselor, principal, or aide who worked in a school for at least 900 hours during a school year. Qualified expenses include unreimbursed ordinary and necessary expenses paid for books, supplies, equipment, and other materials used in the classroom. Also includes personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of COVID-19. Does not include costs for homeschooling or nonathletic supplies for courses in health or physical education.

Answer 50

Taxpayers may deduct as an adjustment to gross income up to $2,500 of interest paid on qualified student loans used for higher education. For the taxpayer, a spouse, or a dependent at the time of the loan, who is enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential for education provided during an academic period for an eligible student Taxpayer, and spouse if filing jointly, cannot be claimed as a dependent on another return Cannot file MFS Deduction begins to phase out for taxpayers with MAGI in excess of $70,000 ($145,000 MFJ) and is completely phased out for taxpayers with MAGI of $85,000 or more ($175,000 or more MFJ) in 2022

Answer 51

Which taxpayers are NOT eligible for the standard deduction? Married filing a separate return (MFS) and the other spouse itemizes deductions. The tax return is for a short tax year because of a change in annual accounting period. Nonresident or dual-status alien during the year. EXCEPTION: A nonresident alien who is married to a U.S. citizen or resident alien at the end of the year can choose tax treatment as a U.S. resident and claim the standard deduction.

Answer 52

Medical and dental expenses 2022 expenses that exceed 7.5% of AGI. Deductible expenses include: Costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatments affecting any part or function of the body. Costs of dental care. Costs of equipment, supplies, and diagnostic devices. Medical, dental, and long-term care insurance premiums (not if excluded from wages). Nursing home, home for the aged, or similar institution. Meals and lodging at a hospital or similar institution for medical care. Transportation costs primarily for, and essential to, medical care (bus, taxi, train, or plane fares, or ambulance service). Car expenses—actual out-of-pocket costs (gas, oil) or standard mileage rate (add parking and tolls to either method).

Answer 53

Deduct up to $10,000 ($5,000 MFS) for the aggregate of property taxes and state and local income (or sales) taxes paid or accrued in the taxable year. State and local income tax, or general sales tax, but not both. Foreign income taxes paid (if not taking credit). Real estate taxes based on assessed value. Personal property taxes based only on value and charged on a yearly basis.

Answer 54

Property taxes and state and local income (or sales taxes) in excess of $10,000. Special assessments for real estate. Employment taxes, including Social Security and Medicare Estate, inheritance, legacy, or succession taxes Federal income taxes Transfer taxes, and gift taxes Fines, penalties, license fees, and per capita taxes

Answer 55

Deduction is limited to the taxpayer’s net investment income. If the taxpayer does not use the deduction, he may carry it forward into the next year. Interest incurred to produce tax-exempt income is not deductible.

Answer 56

The deduction for qualified mortgage insurance premiums was only extended through 2021. This extender has expired and is not currently available for 2022.

Answer 57

A taxpayer may deduct interest paid (including points) on home acquisition debt to buy, build, or improve a qualified home (main home or second home). For a home purchased after 2017 (and before 2026), a taxpayer cannot consider more than $750,000 ($375,000 married filing separately) as acquisition indebtedness. Interest on debt secured by the home but not used to buy, build or improve the home (i.e., home equity debt) is no longer deductible.

Answer 58

Noncash gifts of more than $500 must file Form 8283. Appraisal required for any single item or group of related items with a value exceeding $5,000. Attach copy of a contemporaneous written acknowledgment to the return if donating a qualified vehicle worth more than $500.

Answer 59

Cash contributions include gifts made by cash, check, electronic funds transfer, credit card, or payroll deduction. Keep one of the following: Bank records (canceled check or statement) A receipt (or other written communication) from the qualified organization showing the name of the organization, contribution date and amount Payroll deduction records To deduct a cash contribution of $250 or more, the taxpayer must receive an acknowledgment of the contribution from the qualified organization or have payroll deduction records.

Answer 60

The 2022 standard mileage rate is 14 cents per mile driven in rendering gratuitous services to charitable organizations.

Answer 61

Ordinary income property includes short-term gain property, inventory, works of art created by the taxpayer, property subject to depreciation recapture, etc. Deduction limited to FMV minus the amount that would be ordinary income or a short-term capital gain if the taxpayer sold the property for its FMV. Do not reduce the charitable contribution if reporting the ordinary or capital gain income in the same year as the contribution.

Answer 62

The value of taxpayer-provided time or services. Contributions of less than the entire interest in property, such as the right to use property Contributions to or for specific individuals. Contributions to nonqualified organizations such as for-profit groups, state bar associations, chambers of commerce, civic leagues, country clubs and social clubs, foreign organizations except Canadian, Israeli, or Mexican charitable organizations, homeowners’ associations, labor unions, political organizations and candidates.

Answer 63

Use Schedule D to report a capital gain if insurance payment or other reimbursement is more than adjusted basis. May postpone reporting the entire gain by acquiring similar replacement property of (equal or greater value) within two tax years.

Answer 64

There is special relief for qualified disaster losses sustained as a result of a federally declared disaster that occurred in 2016, as well as from 2017 Tropical Storm Harvey, Hurricanes Irma and Maria, and California wildfires. The 10% rule does not apply, and the $100 limit per casualty is increased to $500 per casualty. Taxpayer is not required to itemize deductions on Schedule A. Such casualty losses may be claimed in addition to the standard deduction

Answer 65

Personal casualty and theft losses of an individual are deductible only if attributable to a federally declared disaster. Exception: Casualty losses not attributable to a federally declared disaster can offset other casualty gains. Amount of the loss is the smaller of the adjusted basis before the loss or the decrease in FMV after the loss, minus any reimbursements. Reduce each loss by $100 ($100 rule). Reduce total of all losses by 10% of AGI (10% rule) Use Schedule A to deduct the loss in year of disaster or prior tax year.

Answer 66

The IRS defines net earnings from self-employment as the gross income from a trade or business, less business deductions. A partner’s distributive share of ordinary income or loss is also self-employment income. A taxpayer with net earnings from self-employment of at least $400 must file a tax return to report the income.

Answer 67

Income from the following sources is not income from self-employment: Income earned as an employee Income from rental real estate (unless a real estate dealer) Dividends from stocks or bonds (unless a securities dealer) Payments to a retired partner that continue after death Income received for services as an employee of a state (one example is a notary)

Answer 68

A self-employed taxpayer pays self-employment tax on net earnings from self-employment by attaching Schedule SE to the return. This tax is the equivalent of social security and Medicare tax. Self-employment tax rate is 15.3% (12.4% social security tax and 2.9% Medicare tax) All net earnings are subject to Medicare tax Only the first $147,000 of net earnings are subject to social security tax in 2022

Answer 69

Is taxpayer’s son, daughter, stepchild, foster child, adopted child, brother, sister, stepbrother, stepsister, or a descendant of any of them (a grandchild, niece, or nephew) Was younger than age 17 at the end of the tax year and younger than the taxpayer (or spouse) Did not provide more than half of own support Lived with the taxpayer for more than half of the year Taxpayer claims as a dependent on tax return Is a citizen, a national, or a resident of the United States

Answer 70

$2,000 non-refundable credit for each qualifying child MAGI phaseout begins at $400,000 MFJ ($200,000 all others); reduce credit by $50 per $1,000 above the threshold Must have a qualifying child with valid SSN A non-refundable credit for other dependents (ODC) may be available for qualifying dependents other than qualifying children If a taxpayer cannot use all CTC, a refundable additional child tax credit (ACTC) may be available

Answer 71

For taxpayers that did not have enough tax to claim the full amount of the child tax credit (CTC). The refundable portion of the CTC is the ACTC. The ACTC is up to 15% of earned income (including tax-free combat pay) that exceeds $2,500, up to a maximum refundable ACTC of $1,500 per qualifying child in 2022. Cannot claim if filing Form 2555 (relating to foreign earned income).

Answer 72

$500 nonrefundable credit for qualifying dependents other than qualifying children. Must be a citizen, a national, or a resident of the United States but SSN not required (can use TIN).

Answer 73

EIC is refundable and is based on number of qualifying children. Taxpayer cannot be a qualifying child of another person and: Must have earned income; earned income and AGI cannot be more than annual phase-out amount Investment income must be $10,300 or less in 2022 If married, must usually file a joint return; unless meet special rule for separated spouses Taxpayer(s) and all qualifying children must have a valid SSN; if a qualifying child does not have a valid SSN, taxpayer may claim the self-only EIC for taxpayers with no qualifying children Be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return; and cannot file Form 2555 related to foreign earned income

Answer 74

A qualifying child must live with the taxpayer in the U.S. more than half of the year and be: a son, daughter, stepchild, foster child, adopted child, or a descendant of any of them (for example, a grandchild), or a brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them (for example, a niece or nephew). under age 19 (or a full-time student under age 24) at the end of the year and younger than the taxpayer (or taxpayer’s spouse if filing a joint return). Can be any age if permanently and totally disabled.

Answer 75

A taxpayer must attach Form 8862 to their tax return if the Earned Income Credit (EIC), child tax credit (CTC)/additional child tax credit (ACTC)/credit for other dependents (ODC) or American opportunity credit (AOTC) was reduced or disallowed in a prior year for any reason other than a math or clerical error and the taxpayer nows want to claim the credit that was previously reduced or disallowed and meets all the requirements. Cannot file Form 8862 for 2 years if due to reckless or intentional disregard of the rules, and must wait 10 years for fraud.

Answer 76

Taxpayer (and spouse) must have earned income and work (or seek work). Married couples must file a joint return unless an exception exists. Must pay work-related expenses for the care of a qualifying person. Payments cannot go to a spouse, person who is a dependent of taxpayer, or the taxpayer’s child if under age 19 at the end of the year (even if not a dependent), or the parent of the qualifying person if the qualifying person is the taxpayer’s child (under age 13) Must identify the care provider on the tax return (name, address, TIN).

Answer 77

A married taxpayer living apart from a spouse is not considered married, and can take the credit if all the following apply: Taxpayer files a separate return Taxpayer’s home is the home of a qualifying person for more than half the year. Only the custodial parent can claim the credit. Taxpayer paid more than half of the cost of keeping up a home for the year Spouse did not live in the taxpayer’s home for the last six months of the year

Answer 78

A qualifying person is: A dependent who was under age 13 when the care was provided A spouse or dependent living with a taxpayer for more than half of a year who is physically or mentally unable to care for himself. This includes a person that would be a dependent except for one of the following: They received gross income of $4,400 or more in 2022 They filed a joint return Another person could claim the taxpayer or the taxpayer’s spouse as a dependent

Answer 79

Nonrefundable credit for work-related child and dependent care expenses Expenses to figure the credit cannot be more than any one of the following: $3,000 if one qualifying person or $6,000 if more than one qualifying person If single at the end of the year, the taxpayer’s earned income for the year If married at the end of the year, the smaller of the taxpayer's or spouse’s earned income for the year Credit is a percentage based on AGI (35% maximum, 20% minimum) of work-related expenses (after applying earned income and dollar limits) Maximum credit is $1,050 for one qualifying person or $2,100 for more than one qualifying person

Answer 80

Must be required for enrollment or attendance at an eligible educational institution. Includes tuition and required enrollment fees and amounts paid to the institution for course-related books, supplies, and equipment. Does not include amounts paid for room and board, insurance, medical expenses, transportation, or other similar personal expenses; any course involving sports, games, or hobbies; and nonacademic fees, such as student activity fees, athletic fees, and insurance expenses.

Answer 81

A student does not need to pursue a degree and only needs to enroll in a single course, which can include courses to acquire or improve job skills. Maximum Credit – $2,000 per return and is nonrefundable MAGI limit – credit phase-out begins if MAGI is over $160,000 MFJ and $80,000 S, HH, or QSS; no credit if MAGI is $180,000 or more MFJ and $90,000 or more S, HH, or QSS Availability – for an UNLIMITED number of years; and is available to those with a felony drug conviction Qualified education expenses must be required to be paid to the institution as a condition of enrollment

Answer 82

Student must be pursuing an undergraduate degree or other recognized education credential and enrolled at least half-time for at least one academic period beginning in the tax year. Maximum Credit is $2,500 per eligible student (40% refundable) MAGI limit is $180,000 MFJ and $90,000 S, HH, or QSS Available ONLY for first 4 years No felony drug convictions on student’s records

Answer 83

Nonrefundable credit for qualified contributions or deferrals made to certain retirement plans. Credit begins at 50% of contributions and is reduced depending on taxpayer’s AGI. Only consider contributions up to $2,000 ($4,000 MFJ) Maximum credit is $1,000 ($2,000 MFJ) Cannot take the credit if one of the following is true: Taxpayer's AGI is more than the annual phase-out amount Someone else claimed the taxpayer as a dependent Taxpayer is younger than age 18 Taxpayer is a full-time student

Answer 84

Refundable credit for individuals and families who purchase health insurance coverage through an Affordable Insurance Exchange Only available to individuals and families with household incomes of at least 100%—but no more than 400%—of the federal poverty line (for 2022 the American Rescue Plan Act of 2021 temporarily expanded eligibility for the credit by eliminating the 400% ceiling) Credit is based on the federal poverty line and the taxpayer's tax family size Not available for the purchase of insurance outside of the Exchange Cannot file MFS or be claimed as a dependent of another taxpayer If received advance credit payment must file a return to reconcile advance payments with actual credit allowable

Tax Level 1- Individual Tax Flashcards

(109 cards)