6c - Tax Credits

6c - Tax Credits - Tax Credits Tax Credits Presented by...

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Unformatted text preview: Tax Credits Tax Credits Presented by Akore Berliner, CPA Federal Individual Income Tax Online Lecture Series Tax Credit VS. Tax Deduction Tax Credits reduce tax bill dollar for dollar Tax benefit received from a tax deduction depends on the marginal tax rate of the taxpayer Tax benefit received from a tax credit is not affected by the taxpayers marginal tax rate Example: $1,000 expenditure: tax benefit of 25% credit compared to tax deduction at various marginal tax rates MTR 0% 15% 35% Tax benefit if a 25% credit is allowed $250 $250 $250 Tax benefit if tax deduction is allowed 0 $150 $350 Tax Credits reduce tax bill dollar for dollar Tax benefit received from a tax deduction depends on the marginal tax rate of the taxpayer Tax benefit received from a tax credit is not affected by the taxpayers marginal tax rate Example: $1,000 expenditure: tax benefit of 25% credit compared to tax deduction at various marginal tax rates MTR 0% 15% 35% Tax benefit if a 25% credit is allowed $250 $250 $250 Tax benefit if tax deduction is allowed 0 $150 $350 Refundable vs Nonrefundable Credits Refundable credits Paid even if the tax liability is less than amount of credit Nonrefundable credits Credit can only be used to offset tax liability If credit exceeds tax liability, excess is lost Exception: some nonrefundable credits have carryover provisions for excess Refundable credits Paid even if the tax liability is less than amount of credit Nonrefundable credits Credit can only be used to offset tax liability If credit exceeds tax liability, excess is lost Exception: some nonrefundable credits have carryover provisions for excess General Business Credit General Business Credit Comprised of a number of business credits combined into one amount Includes, but not limited to, the following: Tax credit for rehabilitation expenditures Work opportunity tax credit Research activities credit Low-income housing credit Disabled access credit Credit for small employer pension plan startup costs Credit for employer-provided child care Unused credit is carried back 1 year, then forward 20 years Comprised of a number of business credits combined into one amount Includes, but not limited to, the following: Tax credit for rehabilitation expenditures Work opportunity tax credit Research activities credit Low-income housing credit Disabled access credit Credit for small employer pension plan startup costs Credit for employer-provided child care Unused credit is carried back 1 year, then forward 20 years Work Opportunity Tax Credit Work Opportunity Tax Credit Applies to first 12 months of wages paid to individuals falling within target groups Credit limited to a percentage of first $6,000 wages paid per eligible employee 40% if employee has completed at least 400 hours of service to employer 25% if at least 120 hours of service...
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This note was uploaded on 02/01/2012 for the course ACC 2546 taught by Professor Dean during the Summer '10 term at San Diego State.

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6c - Tax Credits - Tax Credits Tax Credits Presented by...

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