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CPA/REG/Filing Status, Credits & AMT

Filing Status, Credits & AMT

Choosing the right filing status, refundable vs. nonrefundable credits, and the alternative minimum tax.

Medium 55 minArea IV: Federal Taxation of Individuals

Filing status

StatusKey requirement
SingleUnmarried and not qualifying for another status
Married filing jointlyMarried as of the last day of the year (or spouse died during the year)
Married filing separatelyMarried but electing separate returns — often disadvantageous
Head of householdUnmarried (or considered unmarried), pays >50% of the cost of maintaining a home that is the principal residence of a qualifying person for >half the year
Qualifying surviving spouseSpouse died in one of the two preceding years, taxpayer has a dependent child and hasn't remarried — uses joint rates

IMPORTANT: A dependent parent does not have to live with the taxpayer for head-of-household status, as long as the taxpayer pays more than half the cost of maintaining the parent's main home. That's the classic exception tested.

Refundable vs. nonrefundable credits

Refundable (can create a refund)Nonrefundable (limited to tax liability)
Earned Income Tax CreditChild and Dependent Care Credit
Additional Child Tax Credit (refundable portion)Lifetime Learning Credit
American Opportunity Credit (40% refundable)Foreign Tax Credit; Retirement Savings Contributions Credit
Premium Tax CreditAdoption Credit (carries forward 5 years)

Alternative minimum tax

AMT = a parallel calculation. Start with regular taxable income, add back preferences and adjustments, subtract the AMT exemption (which phases out at higher income), and apply AMT rates. The taxpayer pays the higher of regular tax or tentative minimum tax.

  • Common add-backs: state and local taxes deducted, certain private activity bond interest, incentive stock option bargain element, excess depletion/accelerated depreciation
  • The standard deduction is not allowed for AMT purposes

EXAM TIP: Exercising an ISO creates no regular taxable income but does create an AMT adjustment equal to the bargain element (FMV − exercise price) — a classic AMT trigger question.