# REG_2_03

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1. Calculate the Child and Dependent Care Credit for the following: Joann is a widow with 2 kids. Her AGI is \$43,500. Her work related expenses for the kids are \$7,400. Is this a refundable credit?
• \$43,500 – 15,000 = 28,500. Round up to the nearest \$2000 = \$30,000
• \$30,000 / 2,000 = 15% reduction from max percentage
• 35% - 15% = 20%
• Max allowable for 2 kids = \$6,000
• \$6,000 * 20% = \$1,200 credit
• This is NOT a refundable credit
2. Calculate the credit for the elderly and permanently disabled from the following: social security income = \$3,120, taxable interest = \$215, taxable part of pension = \$3,600, wages from part-time job \$4,245. Is this a refundable credit?
• Taxable Income = \$215 + 3,600 + 4,245 = \$8,060
• Taxable income – allowance = excess AGI = \$8,060 - \$7,500 = \$560
• Excess AGI X 50% = \$280
• Credit = (\$5,000 – all SS – excess AGI) x 15% = (\$5000 – 3,120 – 280) * 15% = \$240 credit
• This is NOT a refundable credit
3. What are the rules to receive the American Opportunity Credit? Is this a refundable credit?
• 100% of the first \$2,000 of qualified expenses (tuition, fees, books)
• 25% of the next \$2,000 of qualified expenses
• Must be at least half-time student for the first 4-yrs of college education
• Available to any number of dependents (ex = 3 kids, 3 separate credits)
• Phase out begins with modified AGI of \$80,000 single or \$160,000 MFJ, with full phase-out at \$90,000 / \$180,000
• 40% is allowed in a refund
4. What are the rules to receive the Lifetime Learning Credit. Is this a refundable credit?
• Up to 20% of the first \$10,000 of tuition and fees for any professional level education (college, CEUs, job training)
• Available only once regardless of how many dependents (3 kids, 1 credit), but you can use a combination of the American Opportunity Credit + Lifetime Learning Credit on different kids
• Phase-out for AGI >\$56,000/\$112,000 with full phase out at \$66,000/\$132,000
• This is NOT a refundable credit
5. What are the rules for the Child Tax Credit? Is this a refundable credit?
• Credit is \$1000 for each child, reduce by \$50 for each \$1,000 or fraction for AGI over \$75,000/\$110,000
• Child must be <17 yo, no provision for student
• Child must be a resident or citizen of the US
• Refund limit of lesser of the actual excess over tax due OR [(earned income - \$3000)*15%]
6. Is the Earned Income Credit a refundable credit?
Yes
False
8. Safe harbor rules for paying estimated tax include what amounts?
• 90% of the current year’s tax due OR
• 100% of last year’s tax due (110% if AGI >\$150,000)
9. What is the maximum AGI for which someone can take the Retirement Savings Contributions Credit? What is the maximum credit available?
• Single >\$31,000; MFJ >\$62,000
• The maximum credit available is 50% of a \$2,000 contribution per person (\$1,000 per person).
10. A taxpayer makes appropriate estimated tax payments and pays any residual amount when filing for a timely extension. Assume the taxpayer discovers that additional tax is due when he files the return before the extension date. What is the exemption amount for which no penalty on this extra tax is incurred?
As long as the additional tax due is <\$1,000, no penalty for underpayment of tax will be assessed (although there could be a penalty for failure-to-pay)
11. What are the rules for using the Child and Dependent Care Credit?
• The child must be under 13 years old.
• The maximum allowed expense is:
• \$3,000 for one child, or \$6,000 for 2+ children OR
• The lowest income amount earned per spouse
• This amount is then reduced by the combined earnings of both spouses (previous formula) but no less than 20% of the max credit available
12. Which filing status would disqualify a taxpayer from receiving the Earned Income Tax Credit?
Married - filing separately
13. What are the rules for earning the Earned Income Tax Credit?
• The taxpayer must be between ages 25-65 if no children OR
• The taxpayer must have one or more qualifying children, age 18 or less, who live with the taxpayer for 6+ months
• The taxpayer must be related to the qualifying child(ren) by blood, marriage, or law (legally placed foster child, adopted child)
 Author: BethG ID: 334338 Card Set: REG_2_03 Updated: 2017-10-25 00:59:07 Tags: REG TAX Folders: Description: Becker Review 2017 Show Answers: