Enrolled Agent Exam Review
Child Care Credit - ANS-(also known as a dependent care credit) is provided as a payment
against taxes that are owed by the individuals as a percentage of dependent care expenses
paid. The class of individuals eligible for this credit is individuals who maintain a household for a
qualified individual (usually a child) and who pay child care expenses in order to be employed or
look for work, or in order for both taxpayers to be employed as in the case of married taxpayers
filing a joint return (one spouse can be a full time student). Although the credit is for child care
expenses that allow the taxpayer to look for work, if the taxpayer was not employed during the
year, and had no earned income for the year, the taxpayer cannot take the credit.
The credit is a nonrefundable credit allowed as a reduction of taxes due. The credit may be up
to 35% of the expenses paid for the care of each qualifying individual, and it is limited to $3,000
in the case of one child and $6,000 in the case of more than one child. The credit is reduced by
1% for each $2,000, or fraction of $2,000, of income between $15,000 and $43,000.
A qualifying individual is usually a dependent (specifically a qualifying child) of the taxpayer,
under the age of 13. A qualifying individual also includes a dependent or spouse of the taxpayer
who is either mentally or physically incapable of caring for themselves and who has the same
principal place of abode as the taxpayer for more than half a year.
A taxpayer's spouse or qualifying individual will be deemed to be gainfully employed and to
have earned income of $250 ($500 for more than one child) per month for each qualifying
individual for which the credit is claimed, for each month during which they are a full time
student.
A taxpayer can compute his or her child care credit amount on Form 2441, "Child and
Dependent Care Exp
Dates relevant to dividends - ANS-date of declaration, record, ex-dividend and distribution
(payment).
Dividends - ANS-distributions of cash, other corporate assets or property, or the corporations
own stock to stockholders in proportion to the number of outstanding shares held. Accounting
for dividends represents a debit to retained earnings and the establishment of a liability at the
date of declaration. Dividends must meet the preferences of preferred stock first and then may
be extended to common stock.
Earned Income - ANS-Salary, wages, tips, professional fees, business or farm income, and
other compensation for personal services performed.
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