Tax credits Flashcards
What are tax credits?
Dollar for dollar reductions of the income tax liability of the taxpayer
What are refundable tax credits?
Are paid to the taxpayer, even if the amount exceeds the taxpayers tax liability it creates a refund
What are non-refundable tax credits
Tax liability can be reduced to zero if taxpayer has multiple nonrefundable tax credits they must be offset using the priority list to find in the code. Some credits are subject to carryover provisions no refund for amount over zero.
What are some of the personal tax credits?
Foreign tax credit
Child independent CareCredit
Adoption credit
Child tax credit
American opportunity tax credit
Lifetime learning credit
What is the foreign tax credit?
Means of avoiding double taxation by granting a tax credit for foreign taxes, paid or accrued to a foreign country or a US possession
May not take advantage of both foreign tax credit and the foreign earned income exclusion
What is the child and dependent care credit?
Allowed for a portion of child or dependent care expenses paid for the purpose of allowing the taxpayer to be gainfully employed
Taxpayer must have earned income
Must be paying the child or dependent care expenses, to be able to work or look for work and must keep a home for a qualifying individual
The employment related expenses is eligible for the credit are limited to $3000 for one qualifying child and $6000 for two or more qualifying children
The adoption credit is a non-refundable credit for qualified adoption expenses. What is the maximum credit for 2024 per eligible child
$16,810 must be taken in the year of adoption and use credit may be carried forward up to five years
Phase out is AGI of 252,150. They complete phase out at $292,150
What is the child tax credit and what are the thresholds
$2000 credit is given for each qualifying child under age 17. They must be a dependent.
Is refundable credit up to $1700 per child dependents receive a 500 credit per person
The phase out for Married filing jointly is $400,000 MAGI
Phase out for single or head of household $200,000 MAGI
What is the American opportunity tax credit and what are its income phase out range?
Available credit for qualified tuition expenses, incurred in the first four years of post secondary education
Room and board are not qualifying expenses
Credit is 100% of the first $2000 of qualified expenses paid in the tax year +25% of the next $2000 with a maximum of $2500 for the tax year
Calculator on a per student basis
Must be a student for half the load during one term
Convicted drug felon is not eligible
40% of the credit is refundable, but is not refundable if taxpayers subject kitty tax
Phase out MFS $160,000 - $180,000 MAGI
Single $80,000 - $90,000
What is the lifetime learning credit and what are its phase out?
20% of qualified expenses up to $10,000 with a maximum of $2000 credits per year per tax return not per student
Available for tuition and fees
Can be enrolled less than half time and claim for an unlimited number of years
Cannot claim both the American opportunity, tax and lifetime learning credits for the same individual in the same year , Possible to take the American opportunity tax and the lifetime learning credits on the same return if there are two students in the family, each qualifying individually
MFJ $160,000 - $180,000
Single $80,000 - $90,000
What is MAGI?
AGI and foreign earned income exclusion and US possessions and Puerto Rico income exclusions
Highlights of tax benefits for higher education for 2024 exhibit
