AC 452 Chaper 12

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AC 452 Chaper 12
2013-02-10 15:47:59


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  1. Adoption expenses credit-
    A provision intended to assist taxpayers who incur nonrecurring costs directly associated with the adoption process, such as legal costs, social service review costs, and transportation costs. Up to 12,650 (12,650 for a child with special needs regardless of the actual adoption expenses) of costs incurred to adopt an eligible child qualify for the credit. A taxpayer may claim the credit in the year qualifying expenses are paid or incurred if the expenses are paid during or after the year in which the adoption is finalized. for qualifying expenses paid or incurred in a tax year prior to the year the adoption is finalized, the credit must be claimed in the tax year following the tax year during which the expenses are paid or incurred.
  2. American Opportunity credit-
    This credit replaces the HOPE scholarship credit for 09-12 and applies for qualifying expenses for the first four years of postsecondary education. Qualified expenses include tuition and related expenses and books and other course materials. Room and board are ineligible for the credit. The maximum credit available per student is 2500 (100 percent of the first 2000 of qualified expenses and 25 percent of the new 2000 of qualified expenses.) eligible students include the taxpayer, taxpayer's spouse, and taxpayer's dependents. to qualify for the credit, a student must take at least one half of the full time course load for at least one academic term at a qualifying educational institution. the credit is phased out for higher income taxpayers.
  3. Child tax credit-
    A tax credit based solely on the number of qualifying children under age 17. the maximum credit available is 1000 per child through 2012. a qualifying child must be claimed as a dependent on a parent's tax return to qualify for the credit. Taxpayers who qualify for the child tax credit may also qualify for a supplemental credit. The supplemental credit is treated as a component of the earned income credit and is therefore refundable. The credit is phased out for higher income taxpayers.
  4. Credit for certain retirement plan contributions-
    A nonrefundable credit is available based on eligible contributions of up to 2000 to certain qualified retirement plans, such as traditional and Roth IRAs and section 401 (k) plans. The benefit provided by this credit is in addition to any deduction or exclusion that otherwise is available resulting from the qualifying contribution
  5. Credit for child and dependent care expenses-
    A tax credit ranging from 20 to 35 percent of employment related expenses for amounts of up to 6000 is available to individuals who are employed and maintain a household for a dependent child under age 13, disabled spouse, or disabled dependent.
  6. Credit for employer provided child care-
    A nonrefundable credit is available to employers who provide child care facilities to their employees during normal working hours. The credit, limited to 150, 000 is comprised of two components. The portion of the credit for qualified child care expenses is equal to 25 percent of these expenses, while the portion of the credit for qualified child care resource and referral services is equal to 10 percent of these expenses. Any qualifying expenses otherwise deductible by the taxpayer must be reduced by the amount of the credit. In addition the taxpayer’s basis for any property used for qualifying purposes is reduced by the amount of the credit.
  7. Credit for small employer pension plan startup costs-
    A nonrefundable credit available to small businesses based on administrative costs associated with establishing and maintaining certain qualified plans. While such qualifying costs generally are deductible as ordinary and necessary business expenses, the availability of the credit is intended to lower the costs of starting a qualified retirement program and therefore encourage qualifying businesses to establish retirement plans for their employees. The credit is available for eligible employers at the rate of 50 percent of qualified startup costs. The maximum credit is 500 bases on a maximum 1000 of qualifying expenses.
  8. Disabled access credit-
    A tax credit designed to encourage small businesses to make their facilities more accessible to disabled individuals. The credit is equal to 50 percent of the eligible expenditures that exceed 250 but do not exceed 10250. Thus the maximum amount for the credit is 5000. The adjusted basis for depreciation is reduced by the amount of the credit. To qualify, the facility must have been placed in service before November 6, 1990.
  9. Earned income credit-
    A tax credit designed to provide assistance to certain low income individuals who generally have a qualifying child. This is a refundable credit. To receive the most beneficial treatment, the taxpayer must have qualifying children. However it is possible to qualify for the credit without having a child. To calculate the credit for a taxpayer with one or more children for 2012, a statutory rate of 34 percent for one child 40 percent for two children and 45 percent for three or more children is multiplied by the earned income (subject to a statutory maximum of 9320 with one qualifying child or 13090 for two or more qualifying children). Once the earned income exceeds certain thresholds. The credit is phased out using a 15.98 percent rate for two or more qualifying children. For the qualifying taxpayer without children, the credit is calculated on a maximum earned income of 6210 applying a 7.65 percent rate with the phase-out beginning at a higher threshold applying the same rate.
  10. Employment taxes-
    Taxes that an employer must pay on account of its employees. Employment taxes include FICA (Federal Insurance Contributions Act) and FUTA (Federal Unemployment Tax Act) taxes. Employment taxes are paid to the IRS in addition to income tax withholdings at specified intervals. Such taxes can be levied on the employees, the employer, or both.
  11. Energy tax credits-
    variety of credits for business and individuals to encourage the conservation of natural resources and the development of energy sources other than oil and gas.
  12. Estimated tax-
    the amount of tax (including any AMT and self-employment tax) an individual expects to owe for the year after subtracting tax credits and income tax withheld. Any individual who has estimated tax for the year of 1000 or more in excess of withholdings must make quarterly estimated tax payments.
  13. Foreign tax credit-
    a U.S. citizen or resident who incurs or pays income taxes to a foreign county on income subject to U.S. tax may be able to claim some of these taxes as a credit against the U.S. income tax.
  14. General business credit-
    the summation of various nonrefundable business credits, including the tax credit for rehabilitation expenditures, business energy credit, work opportunity credit, research activities credit, low income housing credit, and disabled access credit. The amount of general business credit that can be used to reduce the tax liability is limited to the taxpayer’s net income tax reduced by the greater of the tentative minimum tax or 25 percent of the net regular tax liability that exceeds 25000. Unused general business credits can be carried back 1 year and forward 20 years.
  15. Lifetime learning credit-
    a tax credit for qualifying expenses for taxpayers pursuing education beyond the first two years of postsecondary education. Individuals who are completing their last two years of undergraduate studies, pursuing graduate or professional degrees, or otherwise seeking new job skills or maintaining existing job skills are all eligible for the credit. Eligible individual include the taxpayer, taxpayer’s spouse, and taxpayer’s dependents. The maximum credit is 20 percent of the first 10,000 of qualifying expenses and is computed per taxpayer. The credit is phased out for higher income taxpayers.
  16. Low-income housing credit-
    beneficial treatment to owners of low income housing is provided in the form of a tax credit. The calculated credit is claimed in the year the building is placed in service and in the following nine years.
  17. Nonrefundable credits-
    A credit that is not paid if it exceeds the taxpayer’s tax liability. Some nonrefundable credits qualify for carryback and carryover treatment.
  18. Permanent and total disability-
    A person is considered permanently and totally disabled if he or she is unable to engage in any substantial gainful activity due to a physical or mental impairment. In addition, this impairment must be one that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months. The taxpayer generally must provide the IRS a physician’s statement documenting this condition.
  19. Refundable credits-
    A credit that is paid to the taxpayer even if the amount of the credit (or credits) exceeds the taxpayer’s tax liability.
  20. Rehabilitation expenditures credit-
    a credit that is based on expenditures incurred to rehabilitate industrial and commercial buildings and certified historic structures. The credit is intended to discourage businesses from moving from older, economically distressed areas to newer locations and to encourage the preservation of historic structures.
  21. Rehabilitation expenditures credit recapture-
    when property that qualifies for the rehabilitation expenditures credit is disposed of or ceases to be used in the trade or business of the taxpayer, some or all of the tax credit claimed on the property may be recaptured as additional tax liability. The amount of the recapture is the difference between the amount of the credit claimed originally and what should have been claimed in light of the length of time the property was actually held or used for qualifying purposes.
  22. Research activities credit-
    a tax credit whose purpose is to encourage research and development. It consists of three components: the incremental research activities credit, the basic research credit, and the energy credit. The incremental research activities credit is equal to 20 percent of the excess qualified research expenditures over the base amount. The basic research credit is equal to 20 percent of the excess of basic research payments over the base amount.
  23. Self-employment tax-
    In 2011 and 2012, a tax of 10.4 percent is levied on individuals with net earnings from self-employment (up to 110,100 in 2012 and 106,800 in 2011) to provide social Security benefits (the old age, survivors, and disability insurance portion) for such individuals. For 2010, the rate is 12.4 percent. In addition, in 2012 a tax of 2.9 percent is levied on individuals with net earnings from self-employment (with no statutory celling) to provide Medicare benefits (the hospital insurance portion) for such individuals. If a self-employed individual also receives wages form an employer that are subject to FICA, the self-employment tax will be reduced if total income subject to Social Security is more than 110,100 in 2012. A partial deduction is allowed in calculating the self-employment tax. Individuals with net earnings of 400 or more from self-employment are subject to this tax.