Individual Taxation - Tax Credits Flashcards
Flow of 1040
General Income - Adjustments = AGI - Deductions = Taxable Income - credits + SE Tax (if applicable) = Total Tax Due - Fed Income Tax Paid = Total Tax Payment/Return
Tax Credits
Reduce Tax dollar for dollar
(Deductions reduce taxable income)
Family and Child
Dependent Care
Earned Income*
Education Credits *partially refundable AOC
Other:
Retirement Savers Credit
Credit for the Elderly and/or Permanently Disabled
Residential Energy Credit
Adoption Credit
Foreign Tax Credit (also for business)
- Due diligence questionnaires required for: Earned Income Tax, American Opportunity and Child Tax Credits (any credit that is refundable)
Family & Child Tax Credit
$2000 per qualifying child
- under 17 by end of year
- max refundable is $1400 per child
- $500 non refundable Family Credit for each qualifying dependent other than qualifying children (over 17 or elderly parent)
Phase out over $400K MFJ/ $200 for single
Dependent Care Credit
Paid someone else to take care of the child under the age of 13 (unless disabled)
- not spouse or sibling but can be a relative (daycare is common)
- non refundable
- 20% of qualified expenses
- Capped at $3000 for 1 and $6000 for more than 1
- 1 child - $600 credit, 2 or more $1200 credit
- no AGI limit
- Babysitter, day care, preschool only (must have 1099 for relative)
- will cap at the lowest income of a parent, full time student does count (assumes $250 1 kid/ $500 for more per month)
If income is very low ($15000 or less)
- 35% not 20%
Earned Income Credit
- Refundable
- Low Income Tax Payers
- W-2, Schedule C, Tips, Combat Pay, Taxable Disability Payments
- Qualifying Children living in home for more than half of the year (much lower income for no kids)
- Can lose if you have too much investment income and tax-exempt income - approx $3650
- not for MFS
- must be US Citizen for year and have SSN
- Paid preparer must fill out Form 8867 (due diligence checklist) for this claim - penalty for everytime fails to meet requirements (not filed)
Education Credits
American Opportunity Credit
- at least half time
- must be candidate for degree
- limit $2500 per student
- for first 4 years of college
- tuition, all equipment and related supplies qualifies
- expenses must relate to current year or first 3 months of following year
- 40% is refundable ($1500 non refundable, $1000 refundable)
- apply non refundable first, then refundable
- AGI limits phase out 80/160; 90/180 none
Calculate: 100% of first 2000 spent and 25% of the next 2000 spent ($4000 max spent to get max credit)
Lifetime Learning Credit
- Non refundable
- Graduate, undergrad or improve job skills
- spent up to $10,000 x 20% = max $2000
- unlimited number of years
- only one per family per year
- AGI limits phase out 80/160; 90/180 none
Other Tax Credits
Retirement Savers Credit:
-max $1000 non refundable.
- 18 by end of year
- not full time student, not dependent to others
- max AGI $34/68
- IRA Contribution x 50% up to $1000 max
Credit for the Elderly and/or Permanently Disabled:
- 15% of eligible income for 65+ or under 65 due to disability
- non refundable
- AGI limit and SS applies
- cannot be claimed on 1040A and 1040 EZ
Residential Energy Credit
- 26% for solar panels
- 26% for solar water
- include panels, inverters, racks, wiring, monitors, site prep
- non-refundable but carries over
- AGI DOES NOT APPLY
Adoption Credit
- non-refundable
- Court Costs, attorney fees, agency fees
- phases out over $216
- carries over if not used
- surrogate or adoption of spouse’s child doesn’t not apply
- Claimed in year adoption becomes final
- max about $14
Foreign Tax Credit
Individuals - 300/600 from portfolio income credit with no calculation
Foreign Source Income / Worldwide Income x US Tax on Worldwide Income
Avoid double taxation
Excess carried back 1 and forward 10
can be itemized instead
