Filing status
| Status | Key requirement |
|---|---|
| Single | Unmarried and not qualifying for another status |
| Married filing jointly | Married as of the last day of the year (or spouse died during the year) |
| Married filing separately | Married but electing separate returns — often disadvantageous |
| Head of household | Unmarried (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 spouse | Spouse 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 Credit | Child 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 Credit | Adoption 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.