Taxes: Personal Tax Credits

Question 1

Taxes:
Personal Tax Credits
Order of Credits

Answer 1

Order of Credits

1. personal, limited to gross tax, no carryover of excess
2. general business credit limited to % of gross tax after personal credits, back 1 and forward 20
3. refundable credits, applied last because no limit

Question 2

Taxes:
Personal Tax Credits
Personal Credits

Answer 2

Personal Credits
Child Credit
- $1k for each qualifying child (dependent) under 17
- include childs names and SS#’s
- phaseout married with AGI greater than $110k ($75 unmarried). Reduced $50 for every $1k over the trigger
- refundable to extent of 15% earned income over $3k

Question 3

Taxes:
Personal Tax Credits
Education Credits
Hope Credit

Answer 3

Education Credits
Hope Credit (American Opportunity Credit)
- max $2.5k per year
- 100% first $2k and 25% next $2k of education expenses
- qualified education expenses are tuition and academic fees for first 4 years of college
- qualifying student includes taxpayer, spouse, or dependent enrolled at least 1/2 time
- phaseout for single AGI > $80k ($160k MFJ) over a $10k range (completely gone single @ $90k)
- can be claimed against AMT and 40% refundable

Question 4

Taxes:
Personal Tax Credits
Education Credits
Lifetime Learning Credit

Answer 4

Education Credits
Lifetime Learning Credit
- max $2k per taxpayer per year
- computed as $20% of $10,000 qualifying expenses
- qualified expenses same as Hope Credit, but books only if required to be purchased from the university
- does not have to be 1/2 time or more student
- phaseout AGI over $55k ($110MFJ) over $10k range
- AOTC, LLC, and distributions for education IRA are mutually exclusive, in that education expenditure can never qualify for more than one
- Key: AOTC 100% and 25% vs LLC 20%,
AOTC $4k per year vs LLC $10k per lifetime
AOTC 4 year college vs 4 year post secondary
AOTC per student vs LLC per return per year

Question 5

Taxes:
Personal Tax Credits
Education Credits
Saver’s Credit

Answer 5

Education Credits
Saver’s Credit
- allowed for voluntary contributions to IRA and qualified retirement accounts
- max of $1k and is based on IRA contributions
- taxpayer must be 18+, not a full time student, and not dependent on another return, and cannot receive distribution from account
- no credit for taxpayer with AGI > $61k MFJ ($47.75 HOH, $30.5 Single)
- multiply by 50%, 20%, or 10% depending on AGI

Question 6

Taxes:
Personal Tax Credits
Dependent Care Credit

Answer 6

Dependent Care Credit
- tax credit for a portion of expenses incurred in care giving while taxpayer is employed
Eligibility
- dependent must live with taxpayer more than 1/2 year
- dependent under 13 automatically qualifies (violate the gross income test okay)
- other dependents or spouse if incapable of self-care
Expenditures
- caregiver cannot be a dependent relative or child of taxpayer
- taxpayer must be employed and earn at least amount of expenses. if married must be MFJ and spouse also employed
Income
- imputed to full time student (5 months) or incapable spouse ($250 per child; $500 if more than one)
Other Rules
Calculation
- credit begins at 35% if AGI less than $15k, and reduced by 1% for each $2k over
- Key: taxpayer with AGI over $43k get 20%
- max is $3k ($6k if more than one), or earned income if lower

Question 7

Taxes:
Personal Tax Credits
Adoption Credit

Answer 7

Adoption Credit

• credit for adoption expenses
• up to $13,400
• available for children with special needs regardless
• phaseout, taxpayers with AGI over$201k and completely for AGI over $241k
• limited to regular tax liability, carry forward 5 years

Question 8

Taxes:
Personal Tax Credits
Elderly Credit

Answer 8

Elderly Credit

• 15% of difference between initial amount and income
• 65 or totally disabled
• flat amount of $5k if one or $7.5 if two
• income is certain types of retirement pay plus 1/2 of an AGI over $7.5 ($10k if joint)

Question 9

Taxes:
Personal Tax Credits
Motor Vehicle Credits

Answer 9

Motor Vehicle Credits
Alternative Motor Vehicle Credits
- qualified fuel cell motor vehicles (end 2015)
- also allowed against AMT
New Qualified Plug-In Electric Motor Vehicles
- limit $5k passenger up to $7.5k commercial

Question 10

Taxes:
Personal Tax Credits
Earned Income Credit

Answer 10

Earned Income Credit
- mitigating employment taxes for low income taxpayers
Generated by Earning Income
- % increases in home with qualifying children
7.65% no children
34% one child
40% two children
45% for three plus
- phaseout for high AGI, % depends on # kids
- qualifying child = dependent, except: includes brothers, sisters, nieces, and nephews
- live in taxpayers home more than 1/2 year
- only claimed by one person, then tie-breaker rules
- disqualified if interest, dividends, tax exempt interest, or other investment income > $3.4k
- if married, must be MFJ
- taxpayer must have been US citizen entire year

Question 11

Taxes:
Personal Tax Credits
Health Coverage Tax Credit

Answer 11

Health Coverage Tax Credit

- beginning in 2014, all individuals must have health insurance or penalties