Enrolled Agent > EA - Part 1: Individuals > Unit 15: Additional Taxes and Credits > Flashcards

Unit 15: Additional Taxes and Credits Flashcards

Understand the AMT, nanny tax, kiddie tax, foreign income rules, and related credits to ensure accurate tax reporting. (40 cards)

Study These Flashcards
1
Q

What is the purpose of the Alternative Minimum Tax?

(AMT)

A

To ensure that individuals and corporations pay at least a minimum amount of tax by providing an alternative set of rules to calculate taxable income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are common scenarios that might trigger the AMT?

A
  • Having a high income coupled with high itemized deductions
  • The exercise of incentive stock options
  • A large sale of capital assets resulting in long-term capital gains
  • Tax-exempt interest from private activity bonds
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are AMT ‘tax preference’ items?

A
  • Depletion
  • Excess intangible drilling costs
  • Interest on private activity bonds
  • Accelerated depreciation on property placed in service before 1987
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What form is used to compute AMT for individual taxpayers?

A

Form 6251, Alternative Minimum Tax—Individuals

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a nonrefundable credit related to AMT that may be available to taxpayers?

A

Credit for Prior Year Minimum Tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the ‘kiddie tax’?

A

A tax on a child’s unearned income over $2,700, taxed at the parent’s rate. Applies to most children under 18 or full-time students under 24.

The kiddie tax does not apply if the child files a joint return with their spouse.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Under what condition is a child’s investment income subject to the kiddie tax in 2025?

A
  • The child’s investment income is more than $2,700 (in 2025)
  • The child is a dependent under age 18, or under 19 and not providing more than half of their support with earned income, or a full-time college student under age 24
  • The child is required to file a tax return
  • At least one parent was alive at the end of the year
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the two ways to report the kiddie tax?

A
  • Child’s return: File their own return and attach Form 8615
  • Parent’s return: Report the child’s unearned income on Form 8814
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the nanny tax?

A

Employment taxes required to be paid by taxpayers who employ household workers, such as babysitters and housekeepers, if they pay cash wages of $2,800 or more in 2025.

Employers must withhold Social Security and Medicare taxes and file Schedule H with Form 1040.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Who is exempt from the nanny tax rules?

A

Wages paid to a taxpayer’s spouse, parent, or child under the age of 21.

In such cases, the taxpayer does not have to withhold FICA tax.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the Section 199A Qualified Business Income Deduction?

A

A deduction of up to 20% in 2025 of qualified business income for eligible taxpayers.

The deduction may also include 20% of qualified REIT dividends and qualified PTP income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

When does the Wage and Property Limitation apply to the QBI deduction, and how is the deduction limited?

A

It applies when the taxpayer’s income is above the QBI phase-in range and the business is not an SSTB. The deduction is limited to the greater of:

  • 50% of W-2 wages paid by the business, or
  • 25% of W-2 wages plus 2.5% of the UBIA of qualified property.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What income is excluded from Qualified Business Income?

(QBI)

A
  • Employee wages
  • Reasonable compensation for S corporation shareholders
  • Guaranteed payments from partnerships
  • Investment income
  • Hobby income
  • Non-taxable income
  • Certain rental real estate income

Rental income must rise to the level of a trade or business to qualify for the QBI deduction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How is the Section 199A deduction calculated for REIT dividends and PTP income?

A

The lesser of:

  • 20% of qualified business income plus 20% of REIT/PTP income, or
  • 20% of taxable income (before any QBI deduction) minus any net long-term capital gains and qualified dividends.

This deduction is available to eligible individuals and is subject to limitations based on income and business structure.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is foreign earned income?

A

Income received for services performed in a foreign country while the taxpayer’s tax home is also in a foreign country.

U.S. citizens and resident aliens are taxed on worldwide income, but may qualify for exclusions or credits.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What types of income are excluded from the foreign earned income exclusion?

A
  • Investment income, such as dividends and interest
  • Passive income from rental activities
  • Pension or retirement income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the maximum foreign earned income exclusion for 2025?

Study These Flashcards
A

$130,000 per individual, or $260,000 for married couples filing jointly or separately.

18
Q

Under which conditions can a married couple each claim the foreign earned income exclusion?

Study These Flashcards
A

Each spouse must live and work abroad to claim the exclusion on a per spouse basis, regardless of filing jointly or separately.

19
Q

How does a taxpayer claim the Foreign Earned Income Exclusion?

Study These Flashcards
A

By filing a U.S. income tax return with Form 2555 attached.

20
Q

What are the two ways a taxpayer can qualify for the Foreign Earned Income Exclusion?

Study These Flashcards
A

By meeting either the bona fide residence test or the physical presence test.

21
Q

Can the Foreign Earned Income Exclusion be applied to wages and salaries of U.S. Armed Forces and government employees?

Study These Flashcards
A

No, it generally does not apply.

22
Q

What is the difference between the foreign housing exclusion and deduction?

Study These Flashcards
A
  • Foreign housing exclusion: Applies to amounts paid by an employer
  • Foreign housing deduction: Applies to amounts paid with self-employment earnings
23
Q

What are the four tests to qualify for the Foreign Tax Credit?

Study These Flashcards
A

The tax must be:

  • Imposed on the taxpayer
  • Paid by the taxpayer
  • A legal and actual foreign tax liability
  • An income tax
24
Q

Which taxes do not qualify for the Foreign Tax Credit?

Study These Flashcards
A
  • Interest or penalties paid to a foreign country
  • Taxes imposed by countries involved with international terrorism
  • Taxes on foreign oil or gas extraction income
25
What form must be filed if the **foreign tax paid exceeds $300**? | ($600 MFJ)
**Form 1116**, Foreign Tax Credit
26
Can taxpayers claim both the **Foreign Tax Credit** and a **deduction for foreign taxes** in the same year?
No, they can choose **one** but may **alternate** between them in different years.
27
Which countries' taxes are **not eligible** for the Foreign Tax Credit according to **IRS Publication 514**?
* Iran * North Korea * Sudan * Syria ## Footnote These countries are currently sanctioned by the U.S.
28
When does the **kiddie tax** not apply even if the child has **unearned income**?
It does not apply if the **child is married** and files a joint return with their spouse.
29
What is the **maximum income** for using **Form 8814** in 2025?
$13,500
30
When must a household employer **withhold** and pay Social Security and Medicare taxes in 2025?
When cash wages paid to a household employee are **$2,800 or more**.
31
# True or False: The foreign earned income exclusion is automatic.
False ## Footnote Taxpayers must file a U.S. income tax return each year with Form 2555 attached to claim the exclusion.
32
Under the **Physical Presence Test**, how many **full days** must a taxpayer be present in a foreign country?
At least **330 full days** during twelve consecutive months.
33
Under what conditions can taxpayers **bypass Form 1116** for the Foreign Tax Credit?
If all foreign income is specified **passive income**, reported on an information return, and total taxes paid **do not exceed $300** ($600 MFJ).
34
What are '**exclusion**' items in the context of AMT?
Items that affect only a single tax year, causing a permanent difference between regular taxable income and AMTI. ## Footnote An example is the deduction for state and local income taxes.
35
How are **household employment** taxes reported?
On Schedule H attached to Form 1040, and Form W-2 is provided to the employee when required.
36
What are the **Section 199A threshold** and phaseout ranges for 2025?
* MFJ: $394,600 to $494,600 * All other filing statuses: $197,300 to $247,300
37
What is the base housing amount for the **foreign housing exclusion** in 2025?
$20,800 ## Footnote This is calculated as 16% of the maximum Foreign Earned Income Exclusion of $130,000.
38
What **expenses** qualify for the foreign housing exclusion?
Reasonable expenses paid for housing in a foreign country, excluding meals and lavish expenses.
39
Does the foreign housing exclusion **reduce** self-employment tax?
No ## Footnote It reduces regular income tax but not self-employment tax.
40
Can nonresident aliens claim the **Foreign Tax Credit**?
No ## Footnote Only U.S. citizens and U.S. resident aliens are eligible.
EA - Part 1: Individuals
flashcards
Decks in class (19)
# Cards
Brainscape helps you reach your goals faster, through stronger study habits.
© 2026 Bold Learning Solutions. Terms and Conditions