TAX: Personal Tax Credits

Question 1

What is the difference between deductions and credit?

Answer 1

Credits are dollar for dollar

Deductions are limited by the tax bracket that your in

Question 2

What is a refundable credit?

Answer 2

Refundable credit- allows the taxpayer to receive more back than what was actually paid in

Question 3

What is the most common refundable credit?

Answer 3

Earned Income Credit

Question 4

What is the child credit? What is the amount? What is the qualifying age?

Answer 4

$2,000

Child under the age of 17

Qualifying children include: dependent child, stepchild, grandchild, sibling

Question 5

What is the phase out for child tax credit?

Answer 5

Phased out with AGI $400,000 (MFJ)/ $200,000 (all other)

$50 for each $1000 of excess AGI (or portion thereof)

Question 6

Is the child tax credit refundable?

Answer 6

Yes, up to $1400 for taxpayers who have earned more than $2500 or more

Question 7

What is the family credit?

Answer 7

$500 non-refundable credit for those NOT qualifying child

Examples of this:

• Parent who you’re helping support, qualifying relative
• Other dependent who are are qualifying
• Children that older than 17 and less than 19
• Children less than age 24 that are full-time college students

Question 8

What are the two types of education credits?

Answer 8

• American Opportunity Credit

- Lifetime learning credit

Question 9

What is the American Opportunity Tax Credit?

Answer 9

If enrolled in one of the first four years of post-secondary eduction credits, a credit of $2500 is allowed:

100% of the first 2,000 of tuition
25% of the next 2000 paid

Question 10

What is the qualification for the American opportunity credit?

Answer 10

• Have to enrolled in a degree program
• For each eligible student
• At least one-half of the year

Question 11

What is the lifetime learning credit?

Answer 11

20% of the qualified tuition expenses
The maximum credit is $2,000 per year
No at least half-time student requirement
Don’t need to be enrolled in a degree program

-This credit is PER TAXPAYER!!

Question 12

Can you double dip on the two education credits?

Answer 12

Nope, it’s one or the other. You cannot have both in one tax year

Question 13

What is the Child and Dependent Care Credit?

What are the qualifications?

Answer 13

Be careful. Make sure you know between the other child credit.

Percentage you can take: 20%-35%

Qualification:
- A qualifying child (under the age of 13 years old)

• Limited to:
  Earned income of the lower paid spouse or
  $3,000 (6,000 for two or more qualified individuals)

Credit percentage is 35% if AGI is $15,000 or less. It is reduced by 1% for each 2,000 (or portion) but it will never go below 20%

Next Step: Take your percentage from above and multiply it by the limits above (earned income or $3,000 or $6,000)

Question 14

How is the earned income credit generated?

Answer 14

Earning income.

Question 15

How does the credit percentage increase?

Answer 15

If you maintain a home, with qualifying children

Question 16

Do you end up loosing the credit for higher income earners ?

Answer 16

Yes, it could eventually hit zero because you don’t need it

Question 17

What are the most common sources of earned income?

Answer 17

Wages, salaries, tips, earnings from self-employment

Disability benefits (if taxable)

Question 18

If you have tax-exempt income in excess of this amount, you won’t be able to take the earned income credit?

Answer 18

3600

Question 19

Who can qualify as a qualifying child for the earned income credit?

Answer 19

Child, step child, foster child, adopted child, etc

Under the age of 19, or students under 24 who are a student or permanently disabled dependent