Personal Tax Credits Flashcards
What’s the difference between deduction and tax credits? Which one is better?
Tax credits: reduces tax liability.
Deductions: reduces taxable income.
Tax credits.
Does credits have phase-out limit?
Yes.
What’s the difference between non-refundable and refundable credit?
Refundable credits allow TP to receive pmts from federal government in excess of his federal income tax withholding for the year.
How much is the child credits and criteria?
$1,000 for a qualifying child under 17 yrs old.
Child credit: Who are included in “qualifying child”?
Dependent child, stepchild, grandchild, siblings, and nieces, and nephews.
Child credit: is there phase-out limit? How is it computed? What’s the provision for a portion of credit?
Yes.
The child tax credit is reduced or eliminated if your adjusted gross income is above certain thresholds. The credit amount is reduced by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified adjusted gross income (AGI) exceeds the threshold amount.
The threshold is:
$110,000 on a joint return $75,000 for an unmarried individual $55,000 for a married individual filing a separate return
A portion maybe refundable for some TPs.
American opportunity tax credit: what’s the total allowable credit? Criteria?
$2,500 for each eligible student (one-half of the normal load of a full-time students).
Allowed for only 4 yrs for those in post-secondary education (a degree program).
American opportunity tax credit: Credit breakdown?
- A 100% credit for the first $2,000.
* A 25% credit for the next $2,000 paid.
American opportunity tax credit: what are the eligible items? Eligible time frame?
Tuition, fees, course materials.
Must related to an academic period beginning in the current tax year, or the first 3 months of the next tax year.
American opportunity tax credit: phase-out?
Yes. Cap for married filing joint: $160,000
American opportunity tax credit: tax treatment if a TP has 3 children who qualify?
TP can take $2,500 each, the total of $7,500 credits.
Lifetime learning credit: Total allowable credit? Criteria?
A credit of 20% (up to $10,000) of qualified tuition expenses per TP (NOT per student) (the maximum $2,000 per tax year) when American Opportunity credit is not available.
Lifetime learning credit: must students be at least half-time or enrolled in a degree program?
No.
Lifetime learning credit: who does this apply to?
Fees paid for TP, spouse, dependents.
Lifetime learning credit: phase-out exist?
Ex) If income exceeds the married threshold by $1,000, what is the reduction?
Yes.
The phase-out for married taxpayers is proportional over a $20,000 range beginning at $112,000 ($10,000 range beginning at $55,000 for single taxpayers).
If income exceeds the threshold by $1,000 ($113,000), then they lose 5% of their credit ($1,000/$20,000).
Education credit? what does “no double dipping” mean?
These credits AND other tax benefits for higher education (higher education deduction of $4,000 for AGI, Sec 529 and etc) are mutually exclusive and can’t use together.
Child and Dependent Care Credit: What is the credit based on? Criteria?
Percentage (between 20-35%) of qualified expenses incurred for care for a qualified individual to enable TP to work or looking for work, or being student.
Child and Dependent Care Credit: who is qualifying individual?
- A qualifying child (as defined for dependency rules) under age 13.
- A dependent or spouse who is physically or mentally incapacitated and has the same abode as TP for more than half the tax year.
Child and Dependent Care Credit: how is the amount of qualified expenses determined?
Lowest of;
- Qualified expense
- Earned income of the lowest paid spouse
- $3,000 ($6,000 for 2 or more qualified individuals) - cap.
Child and Dependent Care Credit: what does tax law assumes re: full-time students at qualifying institution (exception to the earned income rule)?
Assumes the student earns $250 a month - total $3,000 a year - so that you can still qualify for credit without income.
Child and Dependent Care Credit: Percentage allocation?
Credit percentage is 35% if AGI is $15,000 or less.
It’s reduced by 1% for each $2,000 (or portion thereof) AGI in excess of $15,000 (but not below 20%).
Earned income credit: is this refundable or non-refundable? What must TP have to obtain this credit? Length covered?
Refundable (even if there was no tax withholding).
Earn income.
Full 12 months period.
Earned income credit: How is the amount of income increased?
When TP maintains a home with qualifying children (who must stay at least half of year).
Earned income credit: is there phase-out? Based on what?
Yes, based on earned income or AGI (if greater). This also depends on number of qualifying children.
What are most common sources of earned income that qualifies for credit? Does combat pay qualify?
Wages, salaries, tips, earnings from self-employment.
Yes.
Earned income credit: does disability pmts qualify? Criteria? Length?
Yes, if they are taxable.
Until TP reaches normal retirement age.
