Video: Computation of Tax and Credits - Practice Questions

In this lesson, Nick Palazzolo, CPA, dives into nailing down the computation of taxes and credits, helping unravel the intricacies of calculating overpayments and qualifying for tax credits. Starting with a practical scenario, Nick breaks down each component of a tax return, from regular tax before credits to federal income tax withheld, and walks through an example to clarify how an overpayment is determined. He then shifts focus to the child and dependent care credit, explaining the specific criteria that determine eligibility. Clarifying these integral points with a real-world lens, Nick ensures a deeper understanding of key tax concepts.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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All right, welcome back, all you candidates. We're gonna run through multiple choice questions here for our tax and tax credits. We're gonna compute some taxable amounts. Starting off to begin, an individual taxpayer's return included the following. Now we have a few items here. We're gonna just read the question first, though. What amount, if any, is the taxpayer's overpayment? And let's run through what these items are. We're gonna start off, you might have seen some of these just throughout your career, taken from your W-2. You may have done some of these if you've got a business yourself. Let's see, first off, we've got regular tax before tax credits. So this is the tax that is owed. So you owe $5,000 right off the bat. Then, current year estimated tax payments. This means that you paid $6,000 throughout the year to the IRS. Now this is likely not through your employer. This is, you would have filed a form and submitted this to the IRS. So now you have overpaid $1,000. Reiterate, you owed $5,000. You have paid throughout the year $6,000. Then you file an extension, presumably amount paid with current year extension, and you pay an additional $1,000. And why have you done that? Well, you just really wanna make sure you're not gonna owe any money. That's what happened. So you overpaid 1,000 at this point. Now you pay another 1,000, so you've overpaid 2,000. And lastly, your federal income tax withheld. You know, maybe you've got a side business or business, right, and now you've got a W-2 job. This $1,000 is federal income tax withheld. Again, let's say on your W-2. And there we go. We have a total of $3,000 overpayment. Because we originally owed 5,000, we paid six, and then

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