Ch09 - Chapter 9 Tax Credits Prepayments and AMT 2011 CCH All Rights Reserved 4025 W Peterson Ave Chicago IL 60646-6085 1 800 248 3248

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Chapter 9 Tax Credits, Prepayments, and AMT ©2011 CCH. All Rights Reserved. 4025 W. Peterson Ave. Chicago, IL 60646-6085 1 800 248 3248 www.CCHGroup.com
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CCH Federal Taxation Basic Principles 2 of 32 Chapter 9 Exhibits 1. Tax Credits 2. Household and Dependent Care Credit 3. Elderly and Disabled Persons Credit 4. Child Tax Credit 5. American Opportunity Tax Credit 6. Lifetime Learning Credit 7. American Opportunity Tax and Lifetime Learning Credits 8. American Opportunity Tax and Lifetime Learning Credits Phaseout Rules 9. Adoption Assistance Credit Chapter 9, Exhibit Contents A
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CCH Federal Taxation Basic Principles 3 of 32 Chapter 9 Exhibits 10. Foreign Tax Credit 11. Obtaining Credit for Excess Withholdings 12. Earned Income Credit 13. Alternative Minimum Tax 14. AMT Adjustments 15. AMT Preferences 16. AMT Exemptions Chapter 9, Exhibit Contents B
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CCH Federal Taxation Basic Principles 4 of 32 Tax Credits A tax credit is a direct reduction of the tax due. It differs from a deduction, which is a reduction of income subject to tax. A tax credit is more valuable than a deduction of the same amount. There are 2 types of credits: Refundable credits generally represent prepayments of tax (with the exception of the earned income and child tax credits). The credit may be refunded to the taxpayer even if there is no tax liability. Nonrefundable credits – there have been no prepayments, therefore the taxpayer cannot obtain a refund if the credit exceeds the gross tax. Chapter 9, Exhibit 1
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CCH Federal Taxation Basic Principles 5 of 32 Household and Dependent Care Credit The household and dependent care credit is a nonrefundable tax credit. A credit is allowed for up to 35% of employment related expenses for the care of a qualifying individual. Expenses are limited to $3,000 for 1 qualifying individual ($6,000 for 2 or more qualifying individuals). Phaseout The credit percentage is 35%, reduced by 1 percentage point for each $2,000 of adjusted gross income, or fraction thereof, above $15,000. The credit cannot be reduced below 20%. Chapter 9, Exhibit 2a
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CCH Federal Taxation Basic Principles 6 of 32 Qualifying individual can be a child under age 13, or a mentally or physically handicapped dependent or spouse. “Gainful employment” expenses must be incurred to enable the taxpayer to be employed or to seek employment. Expenses may include household services such as babysitting and housekeeping. It also covers outside services, such as daycare, as long as the service is in a qualified facility. Chapter 9, Exhibit 2b Household and Dependent Care Credit
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7 of 32 35% x the lesser of (a), (b), or (c) 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) If one spouse is a full-time student or incapable of self-care, their earned income is $250 per month for 1 qualifying individual, or $500 per month for 2 or more qualifying individuals. Chapter 9, Exhibit 2c
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This note was uploaded on 01/14/2012 for the course ACCT 101 taught by Professor Smith during the Spring '11 term at UT Arlington.

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Ch09 - Chapter 9 Tax Credits Prepayments and AMT 2011 CCH All Rights Reserved 4025 W Peterson Ave Chicago IL 60646-6085 1 800 248 3248

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