1 NTTC Training 2012 Non-Refundable Credits (Part 1) Tax credits that reduce the calculated income...

1NTTC Training 2012

Non-Refundable Credits(Part 1)

Tax credits that reduce the calculated income tax, but not below zero Foreign Tax Credit Child and Dependent Care Credit Education Credit (part refundable) Retirement Savings Credit Child Tax Credit Credit for the Elderly

2NTTC Training 2012

FOREIGN TAX CREDIT

Pub 4491 Lesson 24Pub 4012 Tab 5Form 1040 Line 47

3NTTC Training 2012

FOREIGN TAX CREDIT1040 Ln 47, Tab 5

Avoids double taxation on foreign income General case is complicated, out-of-scope Simplified case

Income from foreign interest and dividends Foreign tax shown on 1099-INT/DIV Total foreign tax $300 or less ($600 MFJ) Enter total directly on 1040 line 47

4NTTC Training 2012

CHILD/DEPENDENT CARE CREDIT

Pub 4491 Lesson 22Pub 4012 Tabs G, 1, 5Form 1040 Line 48

5NTTC Training 2012

CHILD & DEPENDENT CARETab G

A nonrefundable tax credit for work-related dependent care expenses

Five criteria to qualify1. Qualifying Person (the dependent) Test2. Earned Income Test3. Work-related Expense Test4. Joint Return Test5. Provider Identification Test

6NTTC Training 2012

LimitationsTab G

$3,000 maximum expense for one qualifying child, $6,000 for two or more

Your allowed expenses are reduced by any employer child-care benefits

Child care expenses cannot exceed income earned from employment (Special case if disabled or student)

7NTTC Training 2012

CALCULATING THE CREDITTabs G, 1, 5

Use Form 2441 If employer benefits start on page two Page one has names and SSN/EIN of

providers Final credit is percentage of allowed

expenses based on AGI (20% or better)

8NTTC Training 2012

CHILD/DEPENDENT EXAMPLE

Joe & Mary have one child, 10, a dependent Both work and earn about $15K each. AGI is

$33K and tax before credits is $1,100 Day care center was paid $250 per month

for a total of $3,000 for 2011 The expenses are necessary so that both

Joe and Mary can work Can they claim the credit, if so, how much?

9NTTC Training 2012

DEP CARE EXAMPLE ANSWERTab G

YES, credit is available Child is under 13 and qualifying person

Amount of credit is nonrefundable and, based on their AGI, is 25% of $3000 expenses or up to $750 based on tax liability

10NTTC Training 2012

Dependent Care and NYS

NYS also has a dependent care credit which is based on the Federal credit

The NYS credit is refundable Even if the federal credit does you no

good because you owe no federal tax, calculate the 2441 anyway so you can get money from NYS


EDUCATION CREDIT

Pub 4491 Lesson 23Pub 4012 Tabs G, 5Form 1040 Lines 49, 66


EDUCATION CREDITSTab G

American Opportunity and Lifetime Learning Who can claim the credit Who can claim dependent’s expenses Who cannot claim the credit Qualifying expenses expanded for AOC (vs

only tuition costs & required fees for LL) No double dipping if tax-free assistance


EDUCATION CREDIT CAUTIONSTab G

Refundable American Opportunity Credit on Form 8863 (revised form for 2012) – only certain taxpayers under age 24 are eligible for refundable portion See Pub 970 for additional details

If scholarships are in excess of tuition and other allowable expenses, there is no credit and excess is income to be added to wages on line 7


MULTIPLE CREDITS

Can claim American Opportunity and Lifetime Credits but NOT for same student.

Example: TP has dependent who is college

undergraduate – American Opportunity TP takes course at local community

college – Lifetime Learning


CLAIMING THE CREDIT1040 Lns 49 & 66; Tab 5

Complete Form 8863, one page 2 for each student. Summarize on page one.

Review notes regarding eligible taxpayers and expenses

Taxpayer should have Form 1098-T Shows amount paid school &/or amount

billed, scholarships and student status Verify paid amount with taxpayer


FORM 1098-T


EDUCATION QUIZ #1Tab G

Jim & May Brown, $28,000 AGI, 2 children Rose, sophomore, in college full-time John, 4th year full-time college senior Both children claimed as dependents Browns made tuition payments of $6000 in

August for 2011 classes and $6000 in December for 2012

For what education credits do they qualify?


EDUCATION QUIZ #1ANSWER 1

AMERICAN OPPORTUNITY CREDIT for both children

Can the Browns include the payments they made in December for 2012?


EDUCATION QUIZ #1ANSWER 2

AMERICAN OPPORTUNITY CREDIT for both children

Can the Browns include the payments they made in December for 2012?

YES


EDUCATION QUIZ #2

If Rose had paid for her own tuition, how would the answer differ?


EDUCATION QUIZ #2 ANSWER

If Rose had paid for her own tuition, how would the answer differ?

NOT AT ALL, unless Rose not claimed as a dependent. If Rose claimed as a dependent, Jim and May can claim the education credit no matter who paid the expenses.


EDUCATION QUIZ #3Tab G

If Jim and May had not claimed Rose as a dependent (even though entitled to the exemption), who could claim the credit?


EDUCATION QUIZ #3 ANSWERTab G

If Jim and May had not claimed Rose as a dependent (even though entitled to the exemption), who could claim the credit?

ROSE could claim the nonrefundable portion, but not the refundable portionG-3 (can’t claim personal exemption either)

Jim and May could not claim the credit.


CHILD TAX CREDIT

Pub 4491 Lesson 25Pub 4012 Tab GForm 1040 Lines 51, 65


CHILD TAX CREDIT1040 Lns 51 & 65, Tab G

Nonrefundable part on Form 1040, Ln 51 Up to $1000 per qualifying child Reduced if AGI above threshold Unused credit may qualify for refundable on

Ln 65, Additional CT Credit (Form 8812)


MISCELLANEOUS CREDITS

Pub 4491 Lesson 26Pub 4012 Tabs G, 5Form 1040 Lines 50, 52, 53


RETIREMENT SAVINGS CREDITForm 8880 1040 Ln 50, Tabs G & 5

Credit available to low to moderate income taxpayers who contribute to a retirement plan and leave the money in the plan

Requires knowledge of retirement withdrawals for past three years

Credit is percentage of net contribution based on AGI

Example: MFJ 10% for AGI of $36K to $56K; 0% above $56K (2011 data)


ELDERLY/DISABLED CREDIT1040 Ln 53, Tab G

Extremely rare due to severe income limitations, including amount of social security benefits

Requires Schedule R If eligible, need to enter any nontaxable

income not entered on the 1040 Write-in credit on 1040 line 53

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