Chapter 9 - Tax credits

Question 1

Deduction

Answer 1

Reduce income tax base - dependent on taxpayers marginal tax rate

Question 2

Credit

Answer 2

reduce income tax liability dollar for dollar - no dependent on taxpayers marginal tax rate

Question 3

Refundable credit

Answer 3

paid even if the tax liability is less than the amount of credit - refund

Question 4

Nonrefundable credit

Answer 4

can only be used to offset tax liability - no refund - used before refundable credits

Question 5

List of nonrefundable credits

Answer 5

Foreign tax credit
Child or dependent care
Elderly or disabled
Education credits
Retirement savings credit
Child & family tax credit
Residential energy efficient property
non-business alternative motor vehicle
Non-business alternative fuel vehicle refueling property credit
General business credit
Adoption credit

Question 6

Carryback/forward provisions

Answer 6

Foreign tax credit - 1 year back 10 forward
Adoption - 5 years forward
Residential energy - 1 year forward
General business - 1 year back 20 forward

Question 7

Foreign tax credit

Answer 7

no credit for income excluded from us income
no credit for taxes imposed at higher than us rates
carry back 1 year forward 10 years

Question 8

Child and dependent care credit

Answer 8

child 13 or younger
Eligible care costs x applicable percentage
percentage rage 20-35 based on AGI

Question 9

Child and dependent care costs

Answer 9

lesser of
Earned income - limited by income of lower earning spouse
actual costs
$3000 for 1 or $6000 for two or more

Question 10

American opportunity tax credit (AOTC)

Answer 10

Tuition and expenses
no room and board
Course materials are qualified expenses
up to $2,500 for first 4 years per student - 100% of first $2,000 and 25% of next $2,000
no felony drug conviction

Question 11

Lifetime learning credit (LLC)

Answer 11

Tuition and expenses
no room and bard
no course materials unless required by and paid to the school
Max per household is $2,000 - 20% of expenses up to $10,000

Question 12

AOTC & LLC phaseout

Answer 12

$160,000-$180,000 MFJ
$80,000-$90,000 single

Question 13

AOTC phaseout formula

Answer 13

agi-lower threshold/threshold range=phaseout %
phaseout % x credit - phased out credit

Question 14

Retirement savings credit

Answer 14

credit rate of 50, 20, 10 or 0% based on AGI
maximum credit is $1,000 per year or $2,000 joint

Question 15

Child and family tax credit

Answer 15

Credit of up to $2,000 per child (up to $1,400 refundable)
Phased out by $50 for each $1,000 above AGI
$500 credit for other dependents
$400,000 MFJ
$200,000 everyone else

Question 16

Earned income tax credit

Answer 16

Designed to return social security withholding to low income taxpayers

Question 17

Child and dependent care credit percentages

Answer 17

$15,000 and below 35%
$43,001+ 20%

Question 18

Retirement savings contribution credits

Answer 18

MFJ - $41,000 = 50%
$41-44 = 20%
$44-68 = 10%
$68+=0%
HOH $30,750 = 50%
$30,750-33,000 = 20%
$33-51 = 10%
$51+=0%
EOE $20,500 = 50%
$20,500-22,000 = 20%
$22-34 = 10%
$34+=0%