REG CPA- Federal taxation of entities

Marginal Tax Rate:

The amount of taxes that will be paid on the next dollar of taxable income or that will be saved on the next dollar of deduction.

When a taxpayer transfers property to a trust, the taxpayer has made two gifts

The beneficiary of the income interest receives the income from the trust each year. The beneficiary of the remainder interest receives the property (corpus) of the trust when the trust terminates.

Credit for the Elderly and the Disabled: Initial amount varies with filing status.

$5,000 for single or joint return where only one spouse is 65 or older $7,500 for joint return where both spouses are 65 or older $3,750 for married filing a separate return Limited to disability income for taxpayers under age 65

1. Jointly Owned Property-by a husband and wife (right of survivorship or tenancy in the entirety) 2. jointly owned property with the right of survivorship (unmarried owners)

-50% of the value of the property will be included in the estate of the first spouse to die. -100% of the property is included in the estate of the first owner to die. or FMV multiplied by the percentage paid for by the decedent if decedent didnt pay 100%

Retained Interests

-A retained life estate or the retention of a power to alter, amend, or revoke a transfer are retained interests that cause the property subject to the power to be included in the gross estate. -The power to designate possession or enjoyment of property or income will also cause the property to be included in the gross estate.

Gift tax Estate Tax

-A transfer during the life of the donor -A transfer at death

Residential Energy Efficiency Property (REEP) Nonbusiness Energy Credit

-Individual taxpayers are allowed a credit for expenditures for installing certain energy-efficient property in the taxpayer's residence. —This credit is 10% of the amount spent for energy efficiency improvements and residential energy property expenditures, with a lifetime limit of $500 (no more than $200 can be for windows).

Specific Inclusions in Gross Estate

-Life Insurance if The decedent had incidents of ownership or decedent's estate or executor is the beneficiary of the insurance policy. -Jointly Owned Property -retained interest—Property transferred where the decedent retained an interest or a power. -Transfers within Three Years of Death(date of death value, gift tax paid on the gift is included) -Include any property over which the decedent had a general power of appointment

If rates are increasing in the future If rates are decreasing in the future

-accelerate income and defer deductions. -accelerate deductions and defer income.

Gift Splitting The Purpose of a Gift-Splitting Election

-gift of community property is automatically split between the spouses -Is to equalize treatment of gifts by spouses with the treatment of gifts in a community property state. The election is available each year. The donor must be married at the time of the transfer. **both spouses will need to file a gift tax return so that each can elect gift-splitting.

Head of Household-Two exceptions to these rules:

-if qualifying child is an unmarried child, the child need not qualify as a dependent. -if the qualifying relative is a parent, the parent need not live with the tp, but the tp must provide more than 50% of the cost of maintaining the parent's home.

alternate valuation date

-is 6 months after the date of death or on the date the property is disposed of (if earlier than 6 months after the date of death). election to use the alternate valuation date is only available if it causes gross estate and tax payable to decline.

Dependency Exemptions Reqiurements

-qualifying child or a qualifying relative

Child Credit

A $1,000 Child Credit is allowed for each qualifying child under the age of 17. Phased out for married taxpayers with AGI in excess of $110,000 ($75,000 for unmarried). The credit is reduced $50 for each $1,000 (or portion) over the trigger AGI amount. The additional child tax credit is refundable to the extent of 15% of the taxpayer's earned income in excess of $3,000

A Charitable Contribution Deduction—Is allowed for gifts to charitable organizations.

A charity is defined similarly to income tax (educational, scientific, religious organizations), but includes foreign charities and excludes cemeteries. There is no limitation on the amount of the deduction.

Credit for New Qualified Plug-In Electric Drive Motor Vehicles

A credit is also allowed for purchases of new qualified plug-in electric drive motor vehicles. The credit is limited to $5,000 for most passenger cars and trucks, but can go as high as $7,500 for large commercial vehicles. This credit phases out based on the number of vehicles sold during the year. A similar credit is allowed for new qualified plug-in electric drive two-wheeled motorcycles. This credit is limited to the lower of 10% of the cost or $2,500

Personal Exemption if TP or Spouse dies

A personal exemption can be claimed on the taxpayer's final return even if the taxpayer or spouse dies during the tax year. A full exemption is allowed even if birth or death occurred during the year.

Dependent Care Credit

A qualifying child or dependent under the age of 13 automatically qualifies (the child can violate the gross income test and still qualify for care). Other dependents or a spouse will also qualify if they are incapable of self-care (physical or mental disability). This individual must live in the same household as the taxpayer for 1/2+ of tax year. Expenditures for household services and care are required for the credit. The credit percentage begins at 35% if an AGI is less than $15,000, and is reduced by 1% for each $2,000 increment (or part) in an AGI above $15,000. The minimum dependent care credit is 20%. The maximum amount of expense eligible for the credit is $3,000 ($6,000 if more than one individual qualifies for care) or, if lower, earned income (of the lesser-earning spouse if married).

Unified credit

A unified credit provides that the first $5,450,000 (2016) of transfers from an estate and/or gifts will not trigger a tax liability -applies to taxable transfers by gift or bequest -it is not used to offset transfers eligible for a marital deduction or charitable deduction

Multiple Support Agreements

Allow a group of taxpayers who (together) support an individual more than 50%. TP thats claiming the exemption provides over 10% but < 50% of support. Written agreement and signed if 10%+

Annual Exclusion

An "annual exclusion" of $14,000 (2016 and 2015) eliminates modest gifts from the application of the gift tax. The annual exclusion is applied per donee per year. The annual exclusion only applies to a gift of a present interest. Thus, if the gift is made in trust and will not benefit the recipient currently, there is no exclusion allowed.

Hospital Insurance Tax

An additional .9% hospital insurance tax applies to wages as follows: Joint filers with wages > $250,000. Single and head of household filers with wages > $200,000. Self-employment income above these limits. This tax applies only to employees, not to employers.

Qualified terminable interest property (QTIP) will qualify for the deduction.

An election is made to use the marital deduction for a transfer to a spouse of less than a complete interest in trust. The surviving spouse must receive all of the trust income annually (or more often) for life, but the decedent determines where the property goes at the surviving spouse's death. The property must be included in the surviving spouse's estate at its value when the survivor dies.

No marital deduction is allowed for non-citizen spouses.

An exception to this rule is a transfer to a qualified domestic trust, which assures estate tax imposition upon a non-citizen spouse's death.

Motor Vehicle Credits

An income tax credit is available for alternative motor vehicles. The alternative motor vehicles, to which this credit applies, are qualified fuel cell motor vehicles, advanced lean burn technology motor vehicles, qualified hybrid motor vehicles, qualified alternative fuel motor vehicles, and qualified plug-in electric drive motor vehicles. The alternative motor vehicle credit is also allowed against the AMT.

Tax Strategies—Common tax strategies that may be helpful for solving problems on the exam include:

Avoid income by choosing nontaxable fringe benefits over taxable salary. Defer income by meeting rules such as like-kind exchange rules. Maximize contributions to retirement plans. Recognize capital gains if capital losses have already been recognized which can offset the gains. Generate passive income to offset unused passive losses. Insure that carryforward amounts are used before they expire (e.g., charitable contributions, net operating losses).

Dependent Care Credit rules

Care can be given within the home, but the care-giver cannot be a dependent relative or child of the taxpayer. If married, then the taxpayer must file jointly (unless abandoned) and the spouse must also be employed. Income is imputed to a full-time student (at least five months per year) or a spouse incapable of self-care ($250 per month for one child; $500 per month for more than one).

Gross gifts include the following:

Cash and property transfers Debt forgiveness to family members Sales at bargain prices to family members Loans to family members at a bargain (below-market interest rates) Transfers of property into trust for the benefit of others Purchases of jointly owned real estate or securities if one co-owner contributes more than a fair proportionate share

Personal Credits:

Child Tax Credit Saver's (IRA) Credit Education Tax Credits Dependent Care Adoption Expense Credit Elderly Credit Alternative Motor Vehicle Credit Residential Energy Efficient Property Credit Foreign Tax Credit

Other Deductions

Debts of the Estate, final expenses, Casualty and Theft Losses, Charitable Contributions, funeral and admin expenses

Differences in tax rates over time present opportunities for tax planning. These differences can happen for several reasons.

Differences due to changing tax brackets based on change in taxable income Differences due to the time value of money Differences due to statutory changes in rates across years hifting income to lower-bracket taxpayers is also a viable strategy. Differences based on character of income also present planning opportunities Differences based on jurisdiction

Kiddie Tax

Discourage taxpayers from giving income- generating property to children in order to have the income taxed at the child's low tax rates. Includes all children who are under 18. 18, or between 19 and 23 who are full-time students, if their earned income does not exceed 50% of their total support for the year.

Credit for the Elderly and the Disabled

Eligible taxpayers are those who are either (1) 65 or older or (2) permanently and totally disabled. Permanent and total disability is the inability to engage in substantial gainful activity for a period that is expected to last for a continuous 12-month period. Married individuals must file a joint return to claim the credit unless they have not lived together at all during the year. Credit cannot be claimed if Form 1040A or 1040EZ is filed Credit is 15% of an initial amount reduced by certain amounts excluded from gross income and AGI in excess of certain levels

A Marital Deduction—Is allowed for most gifts to a spouse.

Gifts of terminable interests generally do not qualify for the deduction. The deduction is unlimited in amount. The amount of the deduction is the total gift less any excluded portion (if the annual exclusion applies). The marital deduction does not apply for gifts to a spouse who is not a U.S. citizen, but an annual exclusion of $148,000 (2016) is permitted.

Married Filing Separate

If one spouse itemizes, the other spouse must itemize deductions also. Neither spouse can claim the earned income credit, child and dependent care credit and education credit. An expense or credit is not allowed for adoption expenses. The deduction for net capital losses is limited to $1,500 (rather than $3,000).

Health Coverage Tax Credit

If people are not in the exempt categories and do not meet the requirement by purchasing insurance, then they are subject to penalties

Concurrently held property

If property was held by tenancy in common, only the FMV of the decedent's share is included.

Other requirements of Qualifying child test

In addition to the above, a qualifying child must be younger than the taxpayer who is claiming the child as a dependent. Also, if a parent is qualified to claim the child as a dependent but declines, no other individual can claim the individual unless that individual's AGI is higher than that of any parent.

Surviving Spouse Dependent Child Rules Ignored

In determining whether the child is a dependent, the three rules normally used to determine dependency status are ignored: 1) the joint return test; 2) the gross income test for qualifying relatives; and 3) the rule that a dependent cannot also have dependents.

H, age 67, and his wife, W, age 65, file a joint return and have adjusted gross income of $12,000. H received social security benefits of $2,000 during the year. The computation of their credit would be as follows:

Initial amount- $7,500 Less: social security- $2,000 50% of AGI over $10,000- 1,000 3,000 Balance 4,500 × 15% Amount of credit (limited to tax liability) $675

Lifetime Learning Credit

Is allowed up to a maximum of $2,000 per taxpayer per year. The credit is computed as 20% of $10,000 of qualified educational expenses incurred for the taxpayer, spouse, or dependent. Qualified educational expenses are nondeductible tuition and academic fees. The expenses must be for post-secondary education, but need not relate to a degree program. Student does not need to be at least half-time for expenses to qualify. The Lifetime Learning Credit is phased out ratably for single taxpayers with an AGI for 2016 in excess of $55,000 ($111,000 in the case of a joint return)

The "mini" standard deduction

NO personal exemption! A dependent can earn a regular standard deduction by earning income. The amount of the standard deduction is the greater of the mini standard deduction or earned income plus $350 (2016) (limited to the regular standard deduction).

Exclusions from Gift Tax

Payment of another individual's medical or educational expenses is not considered a gift. Political contributions are not gifts. The satisfaction of an obligation is not a gift. Transfers to civic leagues and social welfare organizations; labor, agricultural and horticultural organizations; and business leagues are not gifts. Donations of personal services Transfers that can be revoked, such as placing assets in revocable trusts or placing cash into a joint bank account until the noncontributing owner actually withdraws funds Payments to minor family members for food, shelter, clothing, and other reasonable support needs Payments to an employee that in substance are compensation for personal services

Which of the following requires filing a gift tax return, if the transfer exceeds the available annual gift tax exclusion?

Payments for college books, supplies, and dormitory fees on behalf of an individual unrelated to the donor.

Naturally, there are several exceptions to "all." For example, the following categories of people are not penalized for not having health insurance:

People who have to pay more than 8% of their income for health insurance (after taking into account employer contributions and tax credits) Members of an Indian tribe Incarcerated individuals Undocumented immigrants People without insurance for less than three months during the year People whose religion opposes reimbursement from an insurance policy People with family income below the threshold for filing a federal income tax return

Order of Credits—Credits are applied against the tax liability in a predetermined order.

Personal, general business, refundable credits

Also reduced by 50% of the excess of AGI over:

Reduced by annuities, pensions, social security, or disability income that is excluded from gross income. Also reduced by 50% of the excess of AGI over: $7,500 if single; $10,000 if joint return; $5,000 for married individual filing separate return.

Formula AMT

Regular taxable income ± Adjustments + Preferences =AMT income − Exemption =AMT base × Rate Tentative minimum tax before foreign tax credit − Certain credits (see discussion below) =Tentative minimum tax − Regular tax liability =AMT (if positive)

The qualifying relative rule

Relationship test (no cousin, foster parent but aunt/uncle, grandfather count), Support test- tp provide 50%+ support (scholarship don't count) Joint return test, citizenship test (same as above) Gross Income Test- dep. GI must be < exempt amt 4050

Qualifying Child

Relationship test- child, stepc, fosterc, sibling, descendant, niece, nephew. Residence test- live with tp 1/2+ year Age test- <19 or <24 FT student for 5mth of tax yr. Joint return test-dep cant file MJoint Citizenship/residency test-of US, Can, Mex Not self-supporting test-must not have provided 50% + of his or her own support. **Age DOES NOT if disabled dependent

Fred and Ethel (brother and sister), residents of a noncommunity property state, own unimproved land that they hold in joint tenancy with rights of survivorship. The land cost $100,000 of which Ethel paid $80,000 and Fred paid $20,000. Ethel died during 2016 when the land was worth $300,000, and $240,000 was included in Ethel's gross estate. What is Fred's basis for the property after Ethel's death?

Since Ethel furnished 80% of the land's purchase price, 80% of its $300,000 fair market value, or $240,000 is included in Ethel's estate. Thus, Fred's basis is $240,000 plus the $20,000 of purchase price that he furnished, a total of $260,000.

Payroll Taxes

Social security tax of 6.2% is levied on the first $118,500 of wages in 2016. Medicare security tax of 6.2% is levied on the first $118,500 of wages in 2016. Tax of 1.45% is levied on all wages paid. The social security and Medicare tax is matched by the employer.

Kiddie Tax Net Unearned Income

Taxable income for the child is divided into net unearned income and other income. Net unearned income is taxed at the parent's tax rate, while other income is taxed at child's tax rate. If the parents are divorced, in general the tax rate of the custodial parent is used. Net unearned income is computed by reducing unearned income

Comparing the rate on tax-free bonds to the rate on taxable bonds. The relationship between the rates is computed as follows:

Taxable rate × (1 - Marginal tax rate) = Tax-free rate For example, a 10% taxable bond is equivalent to a tax-free bond that yields 8.5% for a taxpayer at the 15% marginal tax rate [10% × (1 - 0.15) = 8.5%].

AMT exemption

Taxpayers are entitled to an AMT exemption of $83,800 if married filing jointly ($53,900 if not married) in 2016. The exemption is subject to a phaseout triggered by AMTI over $159,700 if married, $119,700 if single (2016). The phaseout rate is 25% of the amount of AMTI over the trigger. For children subject to the kiddie tax, the AMT exemption cannot exceed the sum of the child's earned income plus $7,400 (in 2016). The AMT has two tax brackets, 26% and 28%.

Nanny Tax

Taxpayers who employ domestic workers, must withhold and pay FICA if cash wages exceeds $2,000 (2016).

Gross Income Test Exceptions and more

That is under the age of 19 That is under 24 full-time student for at least five months during the tax year. **A child under the age of 19 can receive significant amounts of income and not violate the support test. The income would not violate the support test if it was not used to pay for necessities (e.g., the income was placed in savings).

Self-Employment Tax (reported on Form 1040 Schedule SE)

The 1st part of the SE rate (social security) is 12.4% on the first $118,500 (2016) of SE income If wages are earned in addition to SE income, then the ceiling is reduced by the wages subject to OASDI. The 2nd part of the SE rate (Medicare) is 2.9% on all SE income (no ceiling) Last step in calculating the tax is to multiply self-employment income by 92.35% (or reduce it by 7.65%) Self-employment income × 92.35% must exceed $400 for the SE tax to be assessed.

Alternative Minimum Tax

The AMT applies only to taxpayers whose net regular liability is less than the tentative tax calculated under the broad AMT rules. Adjust. that can either incr/decr taxable income when AMT income is computed. The AMT adjustment applies to MACRS 3-, 5-, 7-, and 10-year property that is depreciated using the 200% declining-balance method. For AMT, the 150% declining-balance method is used over the MACRS life. Note that NO AMT adjustments are required for assets purchased in 2008 to 2016 that use bonus depreciation.

Earned Income Credit (EIC)- cant be claimed by corp

The credit percentage increases if the taxpayer maintains a home with qualifying children. The credit percentage is 7.65% for no qualifying children, 34% for one qualifying child, 40% for two qualifying children, and 45% for three or more qualifying children. The most common sources of earned income that qualify for the credit are wages, salaries, tips, and earnings from self-employment. Combat pay can also be included as earned income. Taxable disability payments from an employer plan qualify as earned income until the taxpayer reaches normal retirement age. Taxpayers between the ages of 25 through 64 without qualifying children are also eligible if they are not claimed as a dependent on another's return and lived in the United States for more than half the year.

The parents can elect to report the child's income on their tax return and pay the tax if all the following conditions are met.

The election is made by attaching Form 8814. The child is under age 19, or 24 if a full-time student. The child's income is only from interest, dividends, and capital gain distributions. The child's gross income is less than $10,000. The child is not filing a joint return. No estimated payments, back-up withholding, or prior year refunds can be applied to the tax.

Filing Requirement-The requirement for filing a return is based upon whether the gross estate exceeds the exemption equivalent.

The estate tax is levied on the estate, but installment payments of estate taxes is available for closely held business interests. The estate tax return (form 706) is due nine months after date of death. An estate tax return must be filed if the gross estate plus adjusted taxable gifts equal or exceed the exemption equivalent.

Tax Credits-AMT

The foreign tax credit is allowed for the AMT, as are all nonrefundable personal credits, including: Child tax credit Adoption credit American Opportunity and Lifetime Learning (education) tax credits Low-income saver's credit Residential energy efficient property credit Nonbusiness energy property credit Credit for the elderly and disabled Child and dependent care credit

The Transfer Must be Complete to be Treated as a Gift

The gift must be delivered to the donee. The donor must give up control of the property. The donee must accept the gift; the donee cannot disclaim or refuse the gift or it will be incomplete.

AMT ADJ-For itemized deductions:

The phaseout of itemized ded. is subtracted from taxable inc. (phaseout does not apply for AMT). Medical ded is allowed only to the extent it exceeds 10% of AGI. NO deduction is allowed for taxes (it must be added back to taxable income). 2% percent miscellaneous dedu are NOT allowed. Home mortgage interest is deductible only if the loan proceeds are used to acquire or improve the home. Personal exemp and the standard ded(if used) are added back. The compensation element on the exercise date for an incentive stock option.

Other AMT Credits

The preferential rates on capital gains are available for a net capital gain when calculating the AMT tentative tax. Taxpayers pay the greater of the tentative minimum tax (before credits) or regular tax (before credits). The amount of AMT paid, which is due to timing differences between regular taxable income and AMTI, creates an AMT credit that can be used to offset regular tax liability AMT credits may be carried forward to future tax years.

Deductions—For both the estate and gift taxes.

There is an unlimited marital deduction for transfers to a spouse. There is an unlimited charitable contribution deduction for transfers to charity.

Preferences

These always increase AMT income. Percentage depletion over adjusted basis Interest on "private activity" municipal bonds (except for bonds issued in 2009 and 2010) Excess intangible drilling costs over 10‐year straight‐line amortization

Probate Estate:

This estate includes cash, stocks, and assets such as a residence, clothing, and jewelry. The probate estate is the collection of the decedent's possessions for legal purposes

Head of Household

Unmarried TP must provide 1/2+ of the cost of maintaining the household for a qualifying child or a qualifying relative (a non-relative living in the home for the entire tax year does NOT qualify). If one is a dependent due to a multiple support arrangement, that also does NOT qualify. This home must be the qualifying child's or qualifying relative's principal residence for 1/2+ of the tax year. **GF/BF or a child of GF/BF dont qualify as relative

Taxpayer (or spouse if filing jointly) is blind or reaches age 65 at year-end.

blind, OR at least is age 65, is married or is a surviving spouse. increase SD 65 AND blind, she would receive two additional standard deductions.

The executor of the estate

collects the assets of the decedent, pays the decedent's debts, and distributes the remaining assets to the beneficiaries according to the decedent's will or according to the state law governing inheritances. The estate exists for the period required by the executor to perform his or her duties.

A "Saver's Credit"

credit is a maximum of $1,000 and is based upon IRA contributions (Roth or Traditional). The taxpayer must be 18 or older, not a full-time, nor claimed as a dependent on another return, and cannot receive a distribution from the account.

Other Rules

expenses for before or after school care of a child in kindergarten or higher grade may qualify. Full amount paid for day camp or similar programs, even if the program specializes in a particular activity. Summer school/tutoring programs are education and do NOT qualify. Sick child centers may qualify for either the credit or a medical expense, but NOT AS BOTH. For boarding school, amounts paid for food, lodging, clothing, and education must be separated from amounts paid for other goods or services. Additional cost of providing room and board for a caregiver may qualify if expenses are in addition to normal household expenses. Cost of overnight expense does NOT qualify. Expenses incurred during the specific time of day that the taxpayer was looking for a job also qualify.

Self-employment income is

gross income from self-employment less deductions associated with the activity. SE income includes director's fees. The distributive share from a partnership/LLC is self-employment income if the partner is a material participant in the business. The distributive share from an S corp is NEVER included in self-employment income.

Education Credits: American Opportunity Tax Credit (AOTC)

if enrolled in one of first 4 years of post second. edu, allowed up to a maximum of $2,500 per year for each eligible student. The credit is computed as 100% of the first $2,000 of tuition, fee, course material. 25% of the next $2,000 of qualified educational expenses. The expenses must relate to an academic period beginning in the current tax year, or the first three months of the next tax year. To be eligible, the student must be enrolled in a degree program. or at atleast 1/2 time. A qualifying student includes the taxpayer, spouse, or any dependent of the tP. The credit is phased out ratably for single taxpayers with AGI in excess of $80,000 ($160,000 in the case of a joint return). The credit can be claimed against the AMT, and 40% of the credit is refundable.

Personal Exemption: If spouses file married filing separate and if other spouse has no gross income

if no one else has claimed him/her as a dependent, the other spouse can claim him/her as an exemption on the married filing separate return.

Adoption Credit

is allowed for adoption expenses. Qualified adoption expenses incurred or paid during a tax year prior to the year in which the adoption is finalized may be claimed as a credit in the tax year following the year the expense was incurred. Adoption expenses incurred during the year the adoption becomes final or in the year following the finalization of the adoption are claimed in the year they were incurred. all reasonable and necessary adoption fees, court costs, attorney fees, and other expenses that are directly related to the legal adoption by the taxpayer of an eligible child. surrogate parenting arrangement or in adopting a spouse's child do not qualify for the credit.

Health Coverage Tax Credit- Employer Mandate

large employer (i.e., at least 50 full-time equivalent employees) not offering coverage for all its full-time employees and their dependents, offering minimum essential coverage that is unaffordable, or offering minimum essential coverage of less than 60% of medical expenses, is required to pay a penalty. The annual tax penalty is $2,000 per full-time worker. Even if the employer offers health insurance, if any full-time employee is certified as having purchased health insurance through a state exchange and received a tax credit, such employers must then absorb a $3,000 per year tax penalty for each employee receiving the tax credit.

Abandoned Spouse

married taxpayer who is allowed to file as though they are unmarried Head of household. Req. must be met: The taxpayer's spouse has not lived in the home for the last 6 months of the calendar year. The taxpayer must provide more than half the cost of maintaining a home for self and a dependent child.

Earned Income Credit (EIC) Qualifying child

natural child, stepchild, adopted child, foster child, sibling, step-sibling, or a descendant. Includes brothers, sisters, nieces, and nephews. The descendants must be under the age of 19, full-time students under 24, or permanently disabled dependents; the qualifying child must also be younger than the taxpayer. Live with TP 1/2 + yr. A paid preparer must also complete Form 8867 which provides a checklist to insure that the preparer met all due diligence requirements for taking the EIC on the return. There is a $500 penalty for each failure to meet these requirements.

Tie-Breaker Rules of Qualifying child

parents dont file joint- child dependent of who it lives longer with in the tax year if child lives with each parent equally then high AGI parent claims

The credit is disallowed if disqualified income

such as interest, dividends, tax exempt interest, and other investment income exceeds threshold.

Excluded from the computation would be estimated income for SE

taxes on self‐employment income, charitable contributions, investment income, and gains and losses on the disposition of property used in a trade or business. An individual's charitable contributions can only be deducted as an itemized deduction.

The Generation-Skipping Tax (GST)

that prevents the avoidance of the transfer taxes by skipping one generation of recipients. -is triggered by the transfer of property to someone who is more than one generation younger than the donor or decedent (e.g., a grandparent transfers property to a grandchild, rather than a child). -The GST is not applicable to a transfer of property to someone who is more than one generation younger than donor or decedent, if the persons in the intervening generation are deceased

Marital Deduction—In order to avoid taxing a married couple's estate twice, a deduction is provided for a transfer or bequest to a surviving spouse.

the spouse must receive property outright and be able to control its ultimate destination. Property that passes to the surviving spouse as a result of joint tenancy qualifies. Only the net value of property subject to mortgage qualifies. Property rights that are terminable do not qualify. The deduction is unlimited in amount.

Surviving Spouse

use the married-joint rates for 2 years after the taxpayer's spouse has died. Qualifying Widower with Dependent Child. TP must provide 1/2+ of the cost of maintaining the household (rent, mortgage interest, taxes, home insurance, repairs, food, utilities, etc.) for a dependent child, a stepchild, or an adopted child for year. The child's principal place of abode must be with the taxpayer.

Valuation of Property

—Property is included in the gross estate at the fair market value. The valuation date is the date of death, or the executor can elect to have the property valued on an alternative valuation date

Property Owned by the Decedent Property Transferred by the Decedent at Death

—Property owned at the date of death is included in the probate estate. —Is also included in the gross estate. Transfer of property occurs without probate through operation of law.