Tax Credits Flashcards
Types of Tax Credits
What are they? (2)
R2-33
1) Personal Tax Credits
- -reduce tax, but no refund
2) Refundable Credits
- -reduce tax, and can create refund
Personal Tax Credits
What are they? (7)
R2-33
–reduce tax, but no refund
“CAGE REF” mnemonic
Personal Tax Credits
What are they?
“CAGE REF” mnemonic
R2-33
–reduce tax, but no refund
C– Child and Dependent Care credit
A– Adoption Credit
G– General Business credit
E– Education credit (lifetime learning)
R– Retirement Savings Contribution credit
E– Elderly and Permanently Disabled credit
F– Foreign Tax credit
Refundable Credits
What are they? (5)
R2-33
–reduce tax, and can create a refund
“WE ACE” mnemonic
Refundable Credits
What are they?
“WE ACE” mnemonic
R2-33
–reduce tax, and can create a refund
W– Withholding Taxes (W-2)
E– Excess Social Security paid
A– American Opportunity credit
C– Child Tax credit
E– Earned Income credit
Personal Credit
Child and Dependent Care credit
(“C” in CAGE REF mnemonic)
Who is eligible?
R2-33
1) Both parents working
2) Pay someone to care for:
- -qualifying child (under 13)
- -disabled dependent
- -disabled spouse
Personal Credit
Child and Dependent Care credit
(“C” in CAGE REF mnemonic)
What expenses qualify?
R2-34
Exp to allow taxpayer to work
- -baby sitter
- -nursery school
- -day care
- -Not grammar school
Personal Credit
Child and Dependent Care credit
(“C” in CAGE REF mnemonic)
What amount?
R2-33
20% to 35% of eligible expenses
1 dependent: $3,000
2+ dependents: $+6,000
Personal Credit
Child and Dependent Care credit
(“C” in CAGE REF mnemonic)
What amount?
R2-33
Max (AGI under $15k)
–35%
Phase-Out (AGI over $15k)
- -20% to 35%
- -credit decreases by 1% for each $2k exceeding AGI $15k but not below 20%
Min (AGI over $43k)
–20%
Personal Credit
Elderly and Permanently Disabled credit
(“E” in CAGE REF mnemonic)
Who is eligible?
R2-35
credit of 15% of eligible income is available to individuals
- -age 65+
- -under 65 and retired bc permanently disabled
Personal Credit
Elderly and Permanently Disabled credit
(“E” in CAGE REF mnemonic)
Calculation
R2-35
Base Amount for # of qualifiers:
1 person: $5,000
2 people: $7,500
Reduce by:
- -SS payments, pensions, annuities
- -50% of AGI exceeding:
- 1 qualifier: $7,500
- 2 qualifiers: $10,000
Multiply by 15%
Personal Credit
Education Tax Incentive
Lifetime Learning Credit
(“E” in CAGE REF mnemonic)
How much
R2-37
- -($2,000) 20% of exp. up to $10,000
- -use for unlimited number of years
- -only one credit per family
Phase-Out:
–modified AGI over $55k
Full Phase-Out:
–modified AGI = $65k
Personal Credit
Education Tax Incentive
Lifetime Learning Credit
(“E” in CAGE REF mnemonic)
What exp. qualifies?
R2-37
- -undergrad courses
- -grad-level courses
- -prof. degree courses
- -courses to acquire/improve job skills
Education Tax Incentive
Can more than one education credit be claimed?
R2-37
Using both American Opportunity credit and Lifetime Learning Credit = OK.
Education Tax Incentive
Coverdell Education Savings Account Distributions
R2-37
- -can take education credits and also exclude from Gross Income amounts distributed from Coverdell
- -distribution cannot be used for same ed. exp. for which the credits were claimed
Refundable Credit
Education Tax Incentive
American Opportunity credit
(“A” in WE ACE mnemonic)
Who can take it and for what expenses?
R2-36
- exp on per-student basis. multiple kids is OK
- -tuition, fees, course materials
Requirements:
- -first 4 years of college
- -half-time student for at least 1 period
- -Not have felony drug offense in calendar year taken
Refundable Credit
Education Tax Incentive
American Opportunity credit
(“A” in WE ACE mnemonic)
How much is the credit?
R2-36
Credit:
100% of first $2,000 qualified exp
+ 25% of next $2,000 exp paid during the year
Phase-Out:
- -modified AGI exceeding $80k
- -full phase-out at $90k
Refundable portion:
- -40% of the credit
- -up to $1,000
Refundable Credit
Education Tax Incentive
American Opportunity credit
(“A” in WE ACE mnemonic)
How much is refundable?
R2-36
- -40% of the credit is refundable
- -up to $1,000
Education Tax Incentive
Qualified Tuition Programs (QTP)
*not a credit
What is it? What exp qualify?
R2-37
–exempt from all federal income taxation
Qualified Higher Ed Exp:
- -tuition, fees, books, supplies, equipment req. for attendance
- -room and board if enrolled at least half-time
Personal Credit
Adoption credit
(“A” in CAGE REF mnemonic)
What expenses qualify?
R2-39
Qualifying:
–all reasonable and necessary exp, cost, fees
Not qualified:
- -adopting spouse’s child
- -medical exp
Personal Credit
Adoption credit
(“A” in CAGE REF mnemonic)
How much is the credit?
R2-39
Credit Limit:
–$13,460 per child and special needs child
Phase-Out:
–modified AGI $201,920 - $241,920
–credit is claimed for years after payment is made until the adoption is final
Personal Credit
Retirement Savings Contribution credit
(“R” in CAGE REF mnemonic)
Who can take the credit?
R2-39
–paid into traditional IRA or Roth IRA
Eligible taxpayer:
- -at least 18 by close of tax year
- -not full-time student
- -not a dependent
–Max contribution = $2,000
Phase-out applies based on modified AGI
Personal Credit
Foreign Tax Credit
(“F” in CAGE REF mnemonic)
How much is the credit?
R2-40
Lesser of: --foreign taxes paid or --TI from all foreign operations --divide by (TI + exemptions) --multiply by U.S. tax --equal foreign tax credit limit
Excess (disallowed) credit:
CB 1yr; CF 10yrs
Personal Credit
General Business Credit
(“G” in CAGE REF mnemonic)
R2-40
–made up of many credits
–credit cannot exceed net income tax less greater of:
–25% of regular tax liability over $25,000
or
–“tentative minimum tax”
tent. tax * allow% = allow amount
$0-$25k * 100% = x
excess * 75% = x
max. credit allowed = total
–CB 1; CF 20
