Acct 308 Chap9 lesson

Acct 308 Chap9 lesson - CCH Federal Taxation Comprehensive...

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CCH Federal Taxation Comprehensive Topics Chapter 9 Tax Credits, Prepayments, and Special Methods ©2005, CCH INCORPORATED 4025 W. Peterson Ave. Chicago, IL 60646-6085 800 248 3248 http://tax.cchgroup.com
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CCH Federal Taxation Comprehensive Topics 2 of 46 Household and Dependent Care Credit Qualifying individual. A qualifying individual can be a child under age 13, or a mentally or physically handicapped dependent or spouse. “Gainful employment” expenses. Gainful employment expenses include household services such as babysitting, housekeeping, and nursing. Outside services, such as daycare facilities, must be in qualified facilities. These expenses must be incurred to enable the taxpayer to be employed or to seek employment. Chapter 9, Exhibit 1a
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CCH Federal Taxation Comprehensive Topics 3 of 46 The formula for computing qualifying expenses is as follows: 35% x the lesser of (a), (b), or (c) Where: a = actual gainful employment expenses b = $3,000 per qualifying individual, not to exceed $6,000 c = earned income (if married, use income of the spouse with the lower income) Household and Dependent Care Credit Chapter 9, Exhibit 1b
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CCH Federal Taxation Comprehensive Topics 4 of 46 The maximum expenses eligible for the credit must be reduced by amounts excludable from income under an employer-provided dependent care assistance program. Credit percentage. The credit percentage is the greater of 35%, reduced by 1 percentage point for each $2,000 of adjusted gross income, or fraction thereof, above $15,000 or 20% Household and Dependent Care Credit Chapter 9, Exhibit 1c
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CCH Federal Taxation Comprehensive Topics 5 of 46 Household and Dependent Care Credit—Example QUESTION: How much of the dependent care credit may be applied against their tax liability? FACTS: Billy and Lynda are married taxpayers filing a joint return with three dependents ages 2, 5, and 14. They incurred employment-related childcare expenses in the amounts of $2,000, $5,000 and $14,000 respectively. Lynda worked part time and had earnings of $3,000. Billy had earnings of $97,000. SOLUTION: Credit allowed is $600 ($3,000 qualified expenses x 20% credit percentage) Qualifying expenses of $3,000 are the lesser of: a = $7,000 actual gainful employment expenses ($2,000 + $5,000) b = $6,000 (i.e., $3,000 each for the 2- and 5-year-old) c = $3,000 earned income of the spouse with the lower income Credit percentage is the greater of: (a) 0% = 35% – [($100,000 AGI – $15,000 threshold amount) ÷ $2,000], expressed as a % (b) 20% (minimum credit percentage) Chapter 9, Exhibit 1d
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CCH Federal Taxation Comprehensive Topics 6 of 46 Eligible taxpayers. Eligible taxpayers must meet one of the following two conditions: 1. Reach age 65 before the end of the tax year 2. Retire under age 65 before the end of the tax year due to total, permanent disability. Married taxpayers.
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Acct 308 Chap9 lesson - CCH Federal Taxation Comprehensive...

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