Chapter 9 - 123 Chapter 9 Tax Credits Prepayments and Special Methods SUMMARY OF CHAPTER The various types of tax credits available to taxpayers

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123 Chapter 9 Tax Credits, Prepayments, and Special Methods SUMMARY OF CHAPTER The various types of tax credits available to taxpayers are discussed in this chapter. The student should be able to determine which credits represent a reduction of the income tax, which credits represent a return of a taxpayer overpayment of other types of taxes, and which credits can be used in other years if not fully used in the present year. Nonrefundable Tax Credits ¶9001 Types of Credits A tax credit is a direct reduction in the tax due. Credits are divided into two types: (1) nonrefundable and (2) refundable. A taxpayer cannot obtain the excess if a nonrefundable credit exceeds the gross tax. Refundable credits can reduce the tax below zero and can be offset against the recapture of other credits and against other taxes. The total of nonrefundable credits may not exceed the excess of the taxpayer’s regular tax liability for the year over the tentative alternative minimum tax for the year. The credits that are not used may be carried over to other years. ¶9015 Household and Dependent Care Credit A credit of up to 35 percent of employment-related expenses for care of qualifying individuals may be taken on a return. The credit is reduced by one percentage point for each $2,000 of adjusted gross income above $15,000, but cannot go below 20 percent. Only employment-related expenses qualify for the credit. ¶9025 Elderly and Disabled Persons Credit Individuals can receive a 15 percent credit against their tax for the credit for the elderly. An individual must have reached age 65 before the end of the year or have retired on disability before the close of the year and must have been permanently and totally disabled when he or she retired to receive the credit. ¶9031 Hope and Lifetime Learning Credits Two new credits were established after 1997 for payments for tuition and related expenses. The Hope Scholarship Credit provides a maximum $1,800 per student nonrefundable credit for the first two years of college. The Lifetime Learning Credit provides a maximum $2,000 nonrefundable credit. The credit is figured on a per- taxpayer basis and applies when the Hope credit is not claimed. ¶9032 Child Tax Credit Taxpayers are allowed a credit for qualifying children under age 17. The credit is $1,000 per child for 2008. The credit phases out at higher income levels. ¶9033 Adoption Assistance Credit A nonrefundable tax credit of up to $11,650 of qualified adoption expenses per child has been provided for 2008. Also, employees are entitled to exclude from income up to $11,650 of adoption expenses per adopted child where such amounts are paid or incurred by their employers under a qualified adoption assistance program.
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This note was uploaded on 11/17/2010 for the course FI 515 FI 515 taught by Professor Senn during the Spring '10 term at Keller Graduate School of Management.

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Chapter 9 - 123 Chapter 9 Tax Credits Prepayments and Special Methods SUMMARY OF CHAPTER The various types of tax credits available to taxpayers

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