individual tax credits Flashcards
What is a tax credit?
Credits reduce tax
Deduction reduce taxable income
Credits are preferred since credits reduce tax dollar for dollar (even down to zero and can create a refund)
Most credits are non-refundable since most credits can only reduce tax to zero
Family and Child Tax Credit
The Child Tax Credit is $2,000/ qualifying child and the maximum refundable amount of the credit is $1,600. Stepchildren, grandkids, nieces/nephews and even siblings.
There is also a $500 non-refundable Family Credits for qualifying dependents other than “qualifying children” like over 17 or elderly parent
Dependable Care Credit
- Someone else to take care of your child who is under the age fo 13 and it CANNOT be your spouse, ex spouse,
Capped at 20% of qualified expenses to caregiver. This is limited to the spouse with the lowest income.
If income is low (like lower than 15K) its 35% qualified expenses.
Can use credit no matter AGI
Education Credits
American Opportunity Credit
Lifetime Learning Credit
American Opportunity Credit
- Student must be enrolled at least half time
- Must be a candidate for a degree
- Limit of $2,500/child
- Only available the first four years of college
- Up to $1,000 is refundable
- Tax preparer MUST answer due diligent questionaries.
Lifetime Learning Credit
NONREFUNDABLE
- Taken by the taxpayer, spouse, or dependent takes graduate or undergrad course to improve job skills. The amount of tuition and expenses of up to $10K/year is multiplied by 20%
- max $2k that can be claimed for an unlimited number of years
- Do NOT need to be enrolled half time
- one credit / family / year
- Does not vary based on how many students are in the family
- Tax preparers are required to complete a questionnaire to make sure and essentiall cosign that the taxpayer deserves the credit
Retirement Savers Credit
- Max $1,000, non refundable credit based on contributions made to IRA (traditional or roth)
- Taxpayer must be 18+
- Not allowed with AGI approx $37,000/$74.000
- Meant to help a young person starting out - working and saving for retirment
- Not a full time student
- Not a dependent
IRA contribution x 50% with max of $1,000
Credit for Elderly and/or Permanently Disabled
- 15% of eligible income for 65+ or under 65 and retired due to diability
- Nonrefunable
- AGI limits apply and social security applies
- Basically if you can support yourself in your retirment, you don’t qualify for this credit
- Cannot be claimed on 1040A ro 1040EZ
Start with $7500, less 50% of AGI over $10K less SS benefits ))* 15%
Residential Energy Credit
- Individual taxpayer are allowed 30% credit of for installing solar electric panels and 30% for solar water
- Eligible costs include solar panels, inverters, racking, wiring, monitors, and preparation
- Non-refundable but does carry over
- AGI limits DO NOT APPLY
Any state rebates would reduce the amount eligible for the federal tax credit
Adoption Credits
- Nonrefundable credit to make it easier for married couples to adopt
- Approx $16K (changed annually)
- Eligible amounts - court costs, attorney fees, agency fees
- Doesn’t being to phase out until AGI is over approx $240K
- Nonfundable credit but carries over if not used up
- Costs associated with surrogate does not qualify or adopting spouses child
Credit is normally claimed in the year of adoption becomes final but costs incurred in the following year cam be claimed in the year incurred
Clean Vehicle Credit
- New car $7500
- Non refundable
- Allowed in the year the vehilce was placed in service
- Cars value over $55k or vans over $88k are not allowed
- AGI limits S $150J / HH $225K / MFJ $30K
- Inflation reduction act of 2023 added a used clean vehicle credt
- Sale price must be less than $25K max credit $4K
AGI limits S $75K / HH $112.5K / MFJ $150K
