Ch 2 - Tax Calculation and Credits
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(may reduce personal tax liability to 0, but they may not result in a cash refund)
- 1. Child and Dependent Care Credit
- 2. Elderly and permenently disabled credit
- 3. Education credits, 1. Lifetime Learning Credits
- 4. Retirement Savings Contribution Credit
- 5. Foreign Tax Credit
- 6. General Business Credit.
are subtracted from income tax liability and may result in a cash refund.
- 1. Child Tax Credit (refund is limited)
- 2. Earned Income Credit
- 3. Witholding taxes (w-2)
- 4. Excess Social Security
- 5. Long-Term unused Min Tax Credit
- 6. American Opp credit (40% refundable)
- 7. Adoption Credit (
Child and Dependent Care Credit
- 1. 20-35% of eligible expenditures
- 2. Max Exp: $3000 one child/$6000 2 or more
- 3. General Rule: both parents working and pay to bbysit
- 4. child under 13 whom exemption can be claimed.
- 5. no grammar school expenses
Credit for the elderly and/or permanently disabled
- 1. credit of 15% of eligible income, 65 years of age or older, under 65 retired due to permanant disability.
- 2. Base amts: 5k single and married if 1 qualifies, 7500 married joint both qualify.A
- 3. AGI Limits: 7.5k single, 10k married joint, 5k married seperate.
Calculation of Credit for the Elderly and/or Permanently Disabled.
- <ALL Social Sec>
- <1/2 over 7.5k>
- x 15%
American Opportunity Credit
(not refundable, 40% refundable)
- 1. 2500 limit
- 2. 100% of first 2000 exp, and 25% of second 2000 exp.
- 3. First four years of college
- 4. Multiple kids ok for credit
- 5. Not for convicted felons
- 6. Phase OUT***
The Lifetime Learning Credit
- 1. $2000 max
- 2. Only One Credit per yr is allowed
- 3. 20% of of qualified exp up to $10,000.
- 4. Phase OUT ***
- 1. $12650 per child
- 2. of qualifying expenses not including medical expenses.
- 3. PHASE OUT ***
Retirement Savings Contributinos Credit
- 1. at least 18 yrs old
- 2. not a full-time student
- 3. Not a dependent.
Foreign Tax Credit
- 1. Lesser of Foreign Taxes paid or (tax income from all foreign ops/taxable income) x US TAX
- 2. Any disallowed foreign tax credit may be carried over as follows: 1 year back, 10 going forward.
General Business Credit
- 1. Credits may not exceed net income tax
- 0-25k 100% allowable
- Excess 75% allowable
- 3. Unused credits may be carried back 1 and 20 going forward.
Working Opportunity Credit
- 1. credit to employers who hire employees from a targeted group.
- 2. 40% of first $6000 of first year's wges
- 3. handicapped, 18-24 from poor families, vitnam vets, food stamp recepients.
"Child" tax credit
- 1. $1000 credit for qualifying child
- 2. CARES rules except child has to be under 17 years old.
- 3. Child must be a citizen, a national, or a resident of the US.
- 4. PHASE OUT***
Earned Income Credit
- 1. Most common questions is it refundable
- 2. Live in US more than half the tax year
- 3. over 25 years old
- 4. earned low income
All income taxes witheld from a taxpayer's paycheck are treated as a "credit" against the taxpayer's tax liability.
Excess FICA witholdings
- 1. if excess witheld from two employers you may use a credit (excess)
- 2. If excess withheld from one employer ask for refund from employer.
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