|
|
 |
|
Tax
Credits
I have read that
many people fail to claim all the tax credits they are entitled
to. They are too valuable to ignore - because each dollar of credit
equals a dollar in tax savings. Deductions are much less exciting.
Say you are in the 31% bracket. Finding a buck's worth of additional
write-offs only saves you 31 cents.
AMT Credit
If you paid the dreaded alternative minimum tax in a previous year,
you may have generated an AMT credit. If so, you may now be able
to use the credit to reduce your tax bill. You definitely earned
a credit if the prior-year AMT hit was triggered by exercising incentive
stock options (a few other things can trigger the credit too).
Foreign Tax Credit
If you've worked in a foreign country or have substantial income
from outside the U.S., you probably know all about the foreign tax
credit. It's intended to keep you from being taxed on the same income
by two different countries. But if you simply invested in some international
mutual funds, you may also be able to collect this credit because
it's quite likely you paid foreign taxes last year (whether you
knew it or not). Take a close look at your fund summary statements.
If you have direct holdings in foreign stocks or bonds, any foreign
taxes should show up on Forms 1099-DIV and 1099-INT.
Dependent Care Credit
If you pay someone to take care of your under-age-13 child so you
can work, you could be eligible for the dependent care credit. (If
you're married, your spouse must also work or be going to school.)
The credit percentage ranges from 20% to 30% of qualifying expenses,
depending on your adjusted gross income (AGI). The maximum possible
credit ranges from $480 to $720 with one under-age-13 child or from
$960 to $1,440 if you have two or more. You may also qualify if
you incur expenses by taking care of any other dependent who is
physically or mentally unable to care for himself or herself (for
example, a disabled parent or spouse).
Be careful. You generally can't take this credit if you also contribute
to a pretax flexible childcare spending account through your employer.
So you have to make a choice. The pretax account is usually the
way to go. Since it reduces your taxable salary, it cuts federal
and state income taxes and Social Security and Medicare taxes too.
So the effective tax-savings rate will usually exceed the 20% effective
tax-savings rate that applies to most people who claim the credit.
Dependent Child Credit - New for 1998
If you had at least one dependent child who was under age 17 at
the end of last year, there's a good chance you are eligible for
this one. For 1999 (and later years), the credit is a generous $500
per qualifying child (up from $400 in 1998). Unfortunately, this
break is phased out starting at AGI of 110,000 for joint filers
($75,000 for singles and heads of households and $55,000 for married
people who file separately). Phaseout is complete (meaning you get
zero credit) when AGI exceeds the applicable threshold by $10,000
per child. For example, say you have three qualifying kids and file
jointly. Your credit is completely phased out if your AGI is $140,000
($30,000 above the $110,000 threshold) or more. Assuming you qualify,
there's no form to fill out.
Hope Scholarship and Lifetime Learning Credits
See my previous article "Tax Breaks for Students and Parents". This
tax break is phased out between AGI of $80,000 and $100,000 for
joint filers ($40,000 and $50,000 for singles). Say your 1999 AGI
was way too high to claim a credit. All is not necessarily lost.
Consider letting your dependent college-age child claim the credit
in your place. You'll have to forego claiming a dependent exemption
for your little student. But remember: That break is itself phased
out between AGI of $189,950 and $312,450 for joint filers ($126,600
and $249,100 for singles). Remember, however, the education credit
is worthless to your child unless he or she earned enough to have
a tax bill.
Adoption Credit
If you adopt an under-age-18 child, you may qualify for a tax credit
of up to $5,000 to offset your adoption expenses ($6,000 for a domestic
child with special needs). If you are married, you must file a joint
return to qualify. Naturally, Congress imposed phaseout rules, which
cause the adoption credit to vaporize between AGI of $75,000 and
$115,000.
Earned Income Credit
If you have a modest income, you may qualify for the earned income
credit (EIC). It's a "refundable credit," meaning it can create
a refund even when you don't pay any federal income tax. The maximum
possible EIC for 1999 was $347 if no qualifying child lived with
you; $2,312 if you had one qualifying child; or 3,816 if you had
two or more children. The credit is phased out between AGI of $5,670
and $10,200 if you had no qualifying children; between $12,460 and
$26,928 if you had one; and between $12,460 and $30,580 if you had
two or more. Also, if you had over $2,350 of investment income (including
capital gains) last year, you are completely ineligible. A qualifying
child is one who lived with you over half of last year and was either
under age 19 at year end, a full-time student under age 24, or permanently
and totally disabled.
Elderly/Disabled Credit
The break potentially applies to individuals who: (1) were at least
age 65 at the end of 1999 or (2) were retired on permanent and total
disability. Strict income limits apply, so the credit is off limits
for many. (In fact, the rules are so strict it's hard to figure
out how anyone can be eligible.)
Be sure to consult with a tax advisor for proper planning and implementation
of tax savings ideas to be sure they are right for you.
C.
David Pitzer, CPA, PC
118
Two Mile Pike
Goodlettsville, TN 37072
(615) 851-2727
Fax: (615) 851-8711
Site
Design Provided By:
|
|
Meet
The Staff
Let
David, Chip and
Cheri take care of all your accounting needs!
Tax
Facts
Why Track Your Business In Your Home?
Click Here! |
©
2002, 2003
C. David Pitzer, CPA, PC
|
