Chapter 12 - CHAPTER 12 CHAPTER 12 Tax Credits (Skip pages...

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Unformatted text preview: CHAPTER 12 CHAPTER 12 Tax Credits (Skip pages 6­14) Overview Overview A tool of Federal Income Tax Policy Purpose → Incentives to provide or encourage certain economic behavior or compliance with laws Advantages Provides an equal $ benefit to all taxpayers Available to business & individuals Provides dollar for dollar offset against tax liability Disadvantages Can change as economic and political environment changes Overview (cont) Overview Refundable vs. Non­Refundable Refundable → Credits available even if there is no tax liability (i.e. taxpayer may receive money even if NO tax liability exists) Non­Refundable → Limited to taxpayer’s tax liability (i.e. a taxpayer may receive money ONLY to extent of tax liability) Credits Available to Individuals Credits Available to Individuals Earned Income Credit Refundable credit For low income wage earners Qualified child(ren) increase the amount of credit available Qualified child must be a child of taxpayer < age 19 who lives with taxpayer See table 12­2 on page 12­16 for computation Credits Available to Individuals Credits Available to Individuals (cont) Credit for Elderly or Disabled Child & Dependent Care Credit For taxpayers 65 or older, or on permanent and total disability Credit = 15% x qualifying income Payments for dependent care by taxpayer(s) who work Dependent must be < 13 years old Credit = a percentage of the amount of child care expenses up to $3000 (1 child) or $6000 (2 or more children) Credit % ranges from 35% down to 20% depending on AGI (see table on page 12­21) Credits Available to Individuals Credits Available to Individuals (cont) Child Tax Credit Education Credits – 2 Types Allows credit of $1000 per child Child must be < 17 years old Credit is phased out by $50 for each $1,000 of AGI above $75,000 for single taxpayers ($110,000 MFJ) American Opportunity & Lifetime Learning Available for costs of higher education (post high school) Covers costs of tuition and related expenses (not room & board) American Opportunity Credit is available for first 4 years up to $2500/year. (100% of first $2,000 and 25% of next $2,000 of tuition) Credits Available to Individuals Credits Available to Individuals (cont) Lifetime Learning is available for all years after American Opportunity (AOC) and is 20% of qualifying costs up to $10,000/year. AOC is available for each eligible student while Lifetime Learning Credit is available per taxpayer Income Limitations → AOC credit begins to phase out when AGI exceeds $80,000 ($160,000 MFJ). Total phase out occurs at $90,000 ($180,000 MFJ). Lifetime Learning Credit begins to phase out at $50,000 ($100,000 MFJ) Total phase out at $60,000 ($120,000 MFJ). Credits Available to Individuals Credits Available to Individuals (cont) Adoption Expense Credit Credit of up to $12,170 for costs of adoption Income Limitation → credit begins phasing out when AGI exceeds $182,520. Complete phase­out at $222,520. Amounts are indexed annually Credit for foreign taxes paid to another country T/P can choose Either FTC or Foreign Income Exclusion, but not Both Foreign Tax Credit (FTC) Credits Available to Individuals Credits Available to Individuals (cont) Retirement Plan Contributions Making Work Pay Credit (For 2009 & 2010) First­time Homebuyer Credit (Has ended) Energy Credits ...
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