As tax law is very complicated, this article is intended only for educational or illustrative purposes and should not be construed to communicate legal or professional advise. You should contact us with any specific questions so we can properly interpret how the tax laws applies to your situation. Killingbeck Tax Preparation, Kokomo, Indiana. 765-452-8000.

How to Save with 28 Federal Income Tax Credits!

We have put together for you the below listing of the basic rules for tax deductible savings from some 28  Federal Tax Credits. (For additional tax savings laws, please see our listing of Federal Tax Deductions and State Tax Deductions and State Tax Credits under our Tax Preparation listing.)

The tax deductible savings you receive by claiming a Federal Tax Credit does not depends on your top tax bracket as deductions do.  Rather credits are based on a percentage determined by the rules of each credit.   Depending on the particular credit, you may save 10% all the way to 100% of your qualifying amount!  

There are two types of credits.  1)  Nonrefundable credits  help you save when you have tax that you can reduce.  2) Where as  Refundable credits give you money back when even when you don't have any tax to reduce.   In this article we will start by looking at the savings of nonrefundable credits and then look closely at how you can save with refundable credits.    Let us know if you have questions. Killingbeck Insurance, Kokomo Indiana, 765-452-8000.

Nonrefundable Federal Tax Credits that Reduce Tax

1. Foreign Income Tax Credit Saving

    
   1. If foreign tax is reported on 1099-Int or 1099-Div, and amount is under $300 ($600 Married Filing Joint), enter credit for tax paid directly on the back of the 1040. 
   2.  For tax on other foreign income or on amounts over $300 single or  $600 joint, you must complete form 1116 to get credit for foreign taxes paid.  Taxpayer must not be eligible for a refund of these foreign taxes.
   3. The amount of your foreign paid saves by reducing your tax by 100% of foreign taxes paid. 
   4. Credit can't be more than U.S. tax liability multiplied by a percentage.
      
      

2.  Child & Dependent Care Tax Credit Savings

   1. Must live in taxpayers abode for ½ the year except for temporary absence.  A parent who does not provide physical custody for greater part of the year cannot claim credit. 
   2. If married, must file a joint return unless they qualify as head of household.
   3. Age & Relationship--Qualifying individuals:
      1. Your qualifying child under age 13 you claim as a dependent or could have claimed except for non-custodial parent rules. 
      2. Qualifying child is: Taxpayer’s child, adopted child, child placed by authorized service, brother, sister, step brother-sister or a descendant of any these such as a grandchild, niece-nephew.
      3. The taxpayer’s disabled spouse or disabled dependent or would have been a dependent except they filed a joint return,had $3,700 of income, or you or spouse could be claimed as a dependent on someone else's return.  
          
   4. Care must be paid so taxpayer can work or look for work.  If Married, both must be working unless one  is full time student, looking for work or disabled.
      1. If looking for work, must have earned income for the year.
      2. Can’t deduct more than lowest spouse’s income.
         1. A full time student or disabled spouse is considered to earn  $250 per mo 1 child, $500 for 2 or more.
   5.  Payments were not to a person
      1. claimed as a Dependent,
      2.  to a qualifying child of taxpayer 
      3. to taxpayer’s child under age 19
      4. to a person who was your spouse at any time durign the year or
      5. to the parent of a qualifying person if qualifying person is your child under 13. 
   6. Must pay taxes if a Household Employee:
   7. Other Dependent Care Rules
      1. Must include SS # of care provider or credit will be denied unless there is a reasonable cause.
         1. Exception:  Do not need ID number if care provider is a tax exempt charity.
         2. Attach statement to return explaining.
      2.  Don’t include costs when off sick or on vacation.
      3. If dependent care expenses are listed in box 10 of W-2, you need to  complete 2441 to see if can exclude part or all of the benefits. 
   8. The credit is based on the:  
      1. Amount paid up to $3000 for one child, $6000 for more than one child. Please note this is not a $3000 per child limit but $6000 total limit.
      2. The credit is 35% below 15000 AGI, reduces to 20% over $43000.
      3. Can elect whether to include or exclude nontaxable combat pay (can’t use a partial amount.)
   9. Employer provided plan  can only deduct up to $5000.  So if taxpayer pays extra on their own, they can claim extra amount up to the $6000 total limit (or $1000 difference) 
      1. If taxpayer receives child care benefits through work, they need to report those benefits on the Child Care form and claim a deduction for expenses.
   10. Deductible  expenses include: 
       1. Costs of a housekeeper, maid or cook if part of their service is for the well-being of a qualifying.
       2. Necessary medical care for individual.
       3. Child care expenses include: care in home, at nursery,  day care of pre kindergarten grade (no longer includes kindergarten), care after school, day camp, and  transportation costs if provided by caregiver.  
       4. Disabled dependent expenses are only allowed for services in your home.  Exception:  out of home cost are allowed as long as in home 8 hours a day.The Cost of transportation charged by the care provider to or from a day care center.
          
          

3. Education Income Tax Credits Savings 

   1. No credit is allowed if file married filing separately
   2. Qualified Expenses include
      1. Lifetime learning Credit can deduct  normally deduct only tuition and fees.   Can only claim books and supplies if they must be paid to the educational institution as a condition of enrollment.
      2.  For American opportunity credit can claim tuition, fees, books, supplies and equipment purchased. 
         1. Supplies could include printer supplies as well as other supplies.
         2. Equipment might includes computers, printers, etc.    
      3. Can’t deduct expenses paid by scholarships.
   3. Must be for expenses of taxpayer, spouse, or a dependent claimed on return.
      1. Costs paid by student or a 3^rd party are treated as if parent paid.
      2. Only the person who claims the student as a dependent can claim their education credit.
   4. Student can claim credit only if parent does not claim student as a dependent.   But child still cannot claim his own exemption if a dependent of the parent.  It may be advantageous for a parent who doesn’t qualify due to AGI to not claim child so child can claim the education expenses on their return.  No one would claim the dependent exemption. 
   5. Only claim one credit per student per year.
      1. Can’t claim
         1. deduction for tuition and fees on same student as credit.
         2. different credits on same student.
         3. itemized deduction for education and credit or deduction on same student.
      2. Can claim
         1. credit and Coverdell ESA or 529 exclusion on different expenses  in the same year.
         2. different credit or deduction on different students.
         3. Can claim student interest and education credit.
   6. Expenses paid by loan are deemed paid when expense is paid.
   7. If receive reimbursement or refund on a credit claimed, must recapture amount claimed in error on line 44 tax computation in year received.
   8. Compare the credits and education deduction to see which gives best results.  Different phase out amounts, taxpayers tax bracket, and different rules make it so you have to compare which will work the best.
   9. Expenses paid in December of the current tax year for next year's education expenses, can only be deducted if they are for education starting in the first 3 months of the next year.  
      
      
      

   10. American Opportunity Income Tax Credit Savings

       1.  Phase out is Joint $160,000 - $180K,   Single $80,000-$90K.
       2. Must be pursuing an undergraduate degree or other recognized education credential.  No graduate programs.
          1. Available ONLY for 4 years per student including any year Hope credit was claimed.
          2. At beginning of tax year, the student had not completed the first 4 years (freshman through senior) of postsecondary education. 
          3.  Must be enrolled at least ½ time (usually 6 hrs) for at least one semester &  enrolled in degree program.
       3. Eligible costs include tuition and fees, books, supplies, and equipment purchased.
       4. Not allowed to have a felony drug conviction.
       5. Credit is up to $2500 100%  first $2000 &  25% of next $2,000.
       6. Up to 40% of credit maximum of $1000 is refundable unless taxpayer is subject to Kiddie tax.
          
          

   11. Lifetime Learning Income Tax Credit Savings  
       

       1.  Phase out is:  Joint $102,000 - $122K,  Single $51,000-$61K.
       2. No restrictions on drug conviction, hours enrolled, number of  years you can take  or requirement to be a degree candidate.
       3. Each student is allowed a credit of 20% or expenses paid with a maximum per tax return for all students of  $10,000 per year.  The maximum credit is $2000 per year.
       4. Eligible costs include only tuition and fees unless required to buy supplies or books from educational institution.
          
          
          

4. Retirement Savings Income Tax Credit Savings  Form 8880

   1. This Credit is a nonrefundable credit for low income taxpayers who contribute to a retirement plan: traditional or Roth IRA, 401K, 403B, Simple or SEP plan
   2. Income limits:  AGI must be under limits listed in e below
   3. Can’t Claim Credit if taxpayer is
   4. 1. a dependent,
      2. under 18 or
      3. a full time student for 5 months of the year. 
   5.  Credit is reduce if money taken out of retirement account in current year(including up to 4-15) or last two  years..     Must ask if they have taken money out of account! 
      1.  If married in last two years but not now, must also take into account distribution spouse took in those 2 years.
   6. The credit varies according to filing  status & AGI. 
      1. Joint:   50% up to $34,000, 20% to $36,500, 10% to $56,500
      2. HH:     50% up to $25,500, 20% to  $27,375, 10% to $42,375
      3. Single: 50% up to $17,000, 20%  to $18,250 10%  to $28,250
   7. Maximum credit is $1000  ($2000 Joint if both qualify.
      
      
      

5. Child Income Tax Credit Savings

   1. Child must be taxpayer’s dependent who was a U.S. Citizen or resident of the U.S.
   2. Child must be under age 17 at year end.
   3. Child lived with taxpayer for over 1/2 the year unless qualifies for below exceptions.
      1. Child of separate or divorced parents. See rules in Can I Claim My Dependent  section in Tax preparation menu.  
      2. Temporary absence including birth, death, adoption, temporary  absence for school, vacation, illness, military,  juvenile detention . 
   4. Must be taxpayer’s son, daughter, stepchild  adopted child, foster child placed by an authorized service, brother-sister, step-brother-sister or a descendent of any of them including grandchild, niece.   
   5. Child must not provide over 1/2 of their own support.
   6. How Is the Credit Computed?
      1. Taxpayers with qualifying children are allowed a credit against tax of up to $1000 per child. 
      2. Tax credit phases out at higher income levels.   
         1. Beginning phase out    Ending phase out
         2.                                           1 child    2 children    3 children  4 Children
         3. MFJ      $110,000         $129,001  $149,001   $171,001    $189,001
         4.  Single    $75,000        $94,001   $114,001   $134,001   $154,001
         5. MFS        $55,000         $74,001    $94,001   $114,001    $134,001
   7. Additional Child Tax    This credit is for taxpayers who income was too low to get full $1000 child tax credit per child.       
      1. Tax free  combat pay is treated as earned income in figuring refundable credit.
      2. With 1 or 2 children, the credit is also refundable to up to 15% of the amount that earned income exceeds $3,000 plus tax free combat pay.  
      3. With 3 or more children the credit is refundable up to extent of social security tax withheld.
         
         

6. Energy Income Tax Credits Savings:  Form 5695. 

   1. Energy efficient Homes: Use form 5695.
      1. Maximum lifetime credit for all categories is $500.
      2. The improvements must be new, in taxpayer’s main home in U.S. and expected to remain in use for 5 years.
      3. The taxpayer must keep in their records proof from the manufacturer that the item qualifiesl.
      4. Items limited to  10% of cost of qualified improvements.
         1. Insulation, exterior windows and doors, storm windows or doors, and metal pigmented roofs.
         2. Windows are  limited to $2000 or a credit of $200.
         3. Amounts paid to install are not deductible.
         4. Drywall and siding are not eligible.
      5. Items not limited to 10%  Take full amount up to limit
         1.  Items with $300 limit. Geothermal-regular heat pump, central air, gas-propane-oil or heat pump water heater
         2. Items with $150 limit:  Furnace, hot water boiler.
         3. $50 limit on advance main are circulating fan.
         4. Amounts paid to install are deductible.
      6. Solar, photovoltaic & fuel cell installed on home. 
         1. On solar and photovoltaic can claim up to 30% of $6667 cost up to $2000 maximum credit per year.
         2. On fuel cells, 30% of costs up to $1667, $500 credit.
         3. Must be for taxpayers residence in U.S. with +80% personal use. Can’t be for swimming pools or hot tubs.
         4. Includes installation costs.
         5. Includes new construction. Deduct when use begins.
         6. Must be certified equipment.  Need to keep proof.
            
            

7. Income Tax Credit for Elderly or Disabled Savings

   1. Uses Sch. R.  Our tax program computes automatically.
   2. Maximum credit is $1,125 
   3. Watch for this credit as you don’t see very often.  Usually taxpayer receives over $5000 social security or income is   too high.   Works most often in year retired or disabled. 
   4. Who Qualifies for the credit? 
      1. The credit for the elderly is for ANYONE AGE 65  OR OLDER who falls below the income level.
      2. The credit for disability is for ANYONE UNDER  AGE 65 WHO IS PERMANENTLY AND TOTALLY                DISABLED  below the income level.
   5. How Credit is computed: 
      1. If under age 65, you must access schedule R so that tax program knows taxpayer is disabled.
      2. Age 65 or older, the tax program computes automatically based on SS you enter.
      3. Watch       a. If you forget to enter social security fortaxpayer, the tax program will give them a credit when they don’t deserve it.  Watch back of 1040.
   6. Permanently & totally disabled is defined as  being unable to work because of a condition that  lasts over 12 months or expect to lead to death.
      1. Doctor must sign a statement verifying the disability.  Need only attach the physicians statement the first year. 
      2. Are considered retired when they stopped  working not when formally retired.
   7. Income is too high when AGI  or  nontaxable benefits (social sec., railroad retirement, or V.A. Disability) exceed:      
                                                          AGI            Nontaxable benefits*
      SINGLE                                    $17,500              $5000
      MFJ (both qualifying)             $25,000              $7500
      MFJ (one qualifying)              $20,000              $5000
      Married filing sep.                  $12,500               $3750
      
      
      

8. Mortgage Interest Income Tax Credit Savings. Form 8396

   1. We have seen some of these over the years
   2. Must have state issue mortgage credit certificates. 
   3. The credit is determined by multiplying the percentage on the certificate by the amount of interest paid.  If the percentage on the certificate exceeds 20%, the credit is limited to $2000.
   4. Any amount taken as a credit must be deducted from mortgage interest on Schedule A.
   5. If home sold at a gain or refinanced (unless reissued)  within 9 years, must recapture part of credit on form 8828
   6. If credit exceeds tax, it can be carried forward to next year.
      
      
      
9. Form 8859 District of Columbia First Time Tax Credit 
   1. D. C.  Home Buyers Credit.  We don’t see.
      
      
      
10. General Business Income Tax Credit Savings.  Form 3800: 
    1. This form consists of a number of credits we rarely see usually for partners, s-corp. owners, self-employed or owners of rental properties.  Includes:  low income housing, rehabilitation, historical home, work credits, disability access, research, alcohol used as fuel, etc. 
    2. Can carry back credit for 5 years.
       
       

11. Prior Year Minimum Income Tax Credit Savings.  Form 8801

    1. If taxpayer paid alternate minimum tax in a prior year and this years tax is not based on the alternate minimum tax, they qualify for a credit.  Tax program usually computes based on carryover from last year.
       
       
       
12. Credit to holders of income tax credit bonds savings.  Form 8912:
    1. State and local governments can issue Build American Bonds after 2-17-09 and before 1-1-2011. 
    2. These bonds may provide both taxable interest and a federal tax credit to the bondholder. 
    3. The amount of the credit is 35% of the interest on the bond.  
    4.  Build American bonds are issued on Qualified forestry conservation, clean renewable energy, qualified energy conservation, qualified zone academy, and qualified school construction.
       
       
       

13. Plug-in Low Speed Electric Vehicle Income Tax Credit Savings.  Form 8834

    1. Credit applies to vehicles purchased after 2-17-2009.
    2. The credit is 10% of the cost of a new plug in electric vehicle with a maximum credit of $2500
    3. Vehicle must be new.  GVW < 14,000 lbs.  Used on public streets.
    4. It is propelled by an electric motor with capacity of no less than 4 kilowatt hours.  (2.5 kilowatts if 2 or 3 wheeled vehicle.)
    5. Must be primarily designed for use on public streets, has 4 wheels, goes 20-25 miles per hour and not a golf cart.
       
       

14. Plug-in Electric Drive Vehicle Income Tax Credit Savings: Form 8936

    1. This is for qualified electric drive vehicles placed in service after 2008.
    2. Credit is $2,500 plus $417 for each kilowatt hour of traction battery capacity in excess of 4 kilowatt hours up to a maximum of $7,500.
       
       

15. Plug-in Conversion Income Tax Credit Savings:  Form 8910.

    1. The plug-in conversion credit is 10% of the cost (up to $4,000 credit) to convert a vehicle into a qualified plug-in electric drive motor vehicle that operates off batteries. 
       
       

16. Alternate Motor Vehicles - Form 8910

    1. Hybrid credits  Expired 12/31/2010
    2. Advance Lean –Burn  Expired 12/31/201
    3. Fuel Cell:  See instructions to form 8910 for qualifying  models and allowable credits.  Must be original purchaser of vehicle to qualify
       
       

17. Alternate Fuel Credit- Form 8911 

    Any fuel at least 85% of ethanol, natural gas, liquefied natural gas, liquefied petroleum  gas or hydrogen.  Or a mix consisting of two or more of biodiesel, diesel fuel or kerosene.
    1. Credit is smaller of 30% of property costs or $1000.
    2. For business credit is smaller of 30% or $30,000. 

Income Tax Credits That are Refundable.

Refundable income tax credits give you money back (or savings against tax) when even when you don't have any tax to reduce.

1. Earned Income Tax Credit With Children Savings Requirements.  

   1. Taxpayer or Spouse requirements
      1. _ Can’t file married filing separately.
      2. _ Can’t be a qualifying child of another person
      3. _ Can’t have investment income >$3150 (includes interest, tax exempt interest, dividends, net rent & net capital gains.)
      4. _ Can’t have an ITIN.  Taxpayer & child must has SS#,
      5. _ Can’t claim foreign earned income tax deduction
      6. _ Must have earned income below limits in table below.
      7. _ Ayone who is a nonresident alien part of the year can't claim credit.
         
         
         
   2. Child requirements
      1. _ Lived in taxpayers home in U.S. for over 6months except birth, death, military service, adoption or temporary absence.
         1. This is not a requirement to maintain a home.
         2. A taxpayer in the military is treated as having the child live in their household.
      2. _ Child is younger than taxpayer unless disabled.
      3. _ Is -19, or -24 & full time student for 5 months,  or disabled
      4. _ Is Taxpayer’s child, adopted child, child placed by authorized service, brother, sister, step brother-sister or a descendant of any of these such as a grandchild, niece or nephew.
         1.  Married Child must be a dependent (unless release signed.)
         2. No requirement for a single child to be a dependent.
      5. _ Child & spouse didn’t file joint return except for full refund only of withholding income taxes.
      6. _ Be a U.S. citizen or resident alien the entire year.
      7. _ Child isn’t claimed as a qualifying child of another taxpayer.   
         
         
   3. If child qualifies as qualifying child for more than 1 taxpayer 
      1.  If one of the qualifying parties (meets tests 1 & 2)  is child’s parent,
         1. That parent can claim or
         2. If parent(s) qualifies but doesn’t claim child, a relative who meets tests 1 & 2 can claim if their AGI is > parent(s) who can claim child or
         3. If more than 1 relative qualifies and both of their AGIs are > parent(s) then only relative with highest AGI can claim.If parents don’t qualify to claim child (don’t meet tests 1 & 2)
            

      2.  or qualifying parent(s) doesn’t file a return or parent files solely for a full refund of income taxes (no EIC …)  then can only go to qualifying relative with highest AGI.

      3. If 2 parents qualify to claim child (meets tests 1 &2)

         1. Parents can decide who will claim.

         2. If don’t agree, parent who child lived with the most nights during year (or  would have except for temporary absence) is the custodial parent. Don’t count days after child turns 18.

         3. If lived with parents equally, goes to parent with highest AGI

   4. Must have Earned income & AGI be under limits listed below.  Unemployment isn’t earned income.  
      AGI is Less than  MFJ         Other than MFJ          Max. Credit
      3 children        $49,078                     $43,998                 $5,751
      2 children        $46,044                     $40,964                 $5,112
      1 child              $42,132                     $36,052                 $3,094
      
      1. Earned income includes wages, sick pay, salaries, tips, disability pensions & income or loss from a business.\
      2. Nontaxable Combat Pay can be included in earned income for computing EIC and additional Child Tax Credit.  Can either include or exclude (no partial amt.)
      3. Unemployment is not earned income. |
         
         
   5. Where there is a noncustodial parent
      1.  If Noncustodial parent meets the following requirements they can claim the dependent and the  child tax credit (NOT EIC) 
         1.  Parents lived apart at all times the last 6 months of the year.
         2. Child lived with 1 or both parents over ½ the year.
         3. Child received over ½ support from parents.
         4. Child is under age 18 1/2 at end of year.
         5. An 8332 or divorce qualifies them to claim (page 10.)
      2. The Custodial parent, if they qualify, can claim  Head of Household, Dependent Care and EIC.
         
         
   6.  EIC is a refundable credit Refundable means they can receive a refund for the credit even if there is no tax to offset against. 
   7. Can not claim credit on income earned as an inmate in prison. 
      
      
   8.  Double check child's year of birth, last name & SS closely as IRS verifies against SS records.
      1. IRS will send return back to taxpayer if these items do not  match the SS records (or we’ll receive a reject on on an electronic return)
      2. If information is correct, taxpayer will need to check with Social Security Adm. to get SS records corrected.
         
         
   9. If IRS denies an earned income credit,  the IRS will not give earned income credit on that taxpayer until they file form  8862 proving they qualify.  
      1. Can be denied for 2 years where claimed in disregard of tax law. 
      2. Can be denied up to 10 years for fraud.
   10. Do not include income from work performed while an inmate in a penal institution. 
   11. Church employees and Clergy:  Determine how much of 1040 line 7 was also reported on Sch. SE, line 5a.  On the   EIC worksheet, subtract that amount from the amount on 1040 line 7.     
       
       
            

2. Earned Income Tax Credit Without Children Savings

   1. AGI must be under $18,740 MFJ or $13,660 other than MFJ.  Maximum credit is $464. 
   2. Taxpayer or spouse is age 25 to 64 at year’s end.
   3. Are not a dependent or qualifying child of another.
   4.  Must be a resident of the US for over ½ the year.
   5. You didn’t file joint return except for full refund only of withholding income taxes.
   6. Must file joint if married unless qualify to file Married qualifying to file as Head of Household.
      
      

3. Additional Child Income Tax Credit Savings

   1. This credit is for taxpayers whose income tax was too low to get full $1000 credit per child. 
   2. Credit is greater of 15% of earned income in excess of $3000 or excess of SS taxes over taxpayers EITC. 
   3. See topic section of this article for basic child tax credit rules. 
   4. With 1 or 2 children, the credit is also refundable to up to 15% of the amount that earned income exceeds $3,000.
      1. Tax free combat pay is treated as earned income in figuring refundable credit.
   5. With 3 or more children the credit is refundable up to extent of social security tax withheld.
      
      
   6. Tax credit phases out at higher income levels.
      Beginning phase out         Ending phase out
                                                 1 child   2 children    3 children
       MFJ      $110,001         $121,001  $141,001   $161,001
      Single    $75,001            $94,001   $114,001   $134,001
      MFS      $55,001            $66,001    $86,001   $106,001
      
      

4. American Opportunity Refundable Education Income Tax Credit Savings

   1. This entry carries automatically from form 8863.   See American Opportunity Credit in top section of this article.
      
      

5. First Time Homebuyers Income Tax Credit Savings & Replacement Home Income Tax Credit Savings.

   1. Repaying First time homebuyers credit.  Taxpayers who took credit in 2008 are required to start repaying in 2010.  If sell home bought in 2008, must repay remaining credit.  Those in who took the credit in 2009 and 2010 and sold within 3 years may have to repay.
   2. This credit applies Military overseas 90 days in 2009 and Jan-April 2010 have an extra year to claim credit till 4-30-2011 & close 9-30-2011
   3. First Time Homebuyers credit is the lesser of $8000 (MFS $4000) or 10% of the purchase price of a principle residence.  Includes mobilehome, motorhome, trailer if principle residence (can only have 1 principle residence.)   
   4. This credit is refundable.  
   5.  No credit allowed if home cost over $800,000 (after 11-06). 
   6. If two or more unmarried people buy a home, they are limited to a total of $8000.  They can split in any reasonable manner.
   7. A first time homebuyer is someone who hasn’t owned a home in U. S. in last 3 years and is a U.S. Resident.  
      1. If married both must not have owned a home to get credit.
      2. If 2 single people buy home and only 1 qualifies, the one who qualifies can take the whole credit.
   8. The home must be purchased by Military individuals who were overseas 90 days in 2009 and Jan-April 2010 have an extra year to claim credit till 4-30-2011 & close 9-30-2011.   
   9. If buy in 2011, can take credit on 2010 amended return. 
   10. Can’t purchase home from a parents, grandparents, children, from spouse or spouses relatives listed as beginning of this sentence.
   11. Credit phases out on income between 
        $225K to $245K joint, $125K to $145K single.
   12. After 11/6/2009, taxpayer must be age 18 or older (unless spouse is over 18) and not a dependent.  Must attach copy of closing statement and other proof of residence to tax return. 
       
       
   13.  Long Term Home Replacement Credit Rules.
       1. Credit applies to  people who have maintained the same principle residence for any 5 consecutive year period during the 8 year period.
       2. Credit is 10% of cost up to $6500 ($3,250MFS)
       3. No requirement to sell old home.  Does require new home to be used as the principle residence.
       4. Most rules a-l above also apply to replacement home credit.
          
          
          

6. Amount Paid with Extension Income Tax Credit

   1. Extensions do not delay the paying of tax as most people think.
   2. With extensions, you estimate what will be owed and then  send in at least 90% to avoid penalties.
   3. An automatic 6 month extension is granted by using form 4868.  Extension beyond that use form 2588.
   4. Do not have to file State extension if filing federal extension except if have to send in payment. If not filing federal, file state. \
   5. US citizens living outside the country (not visiting though) have an automatic 2 month extension.  Military stationed in a   combat zone has 180 days after they get back.  Send statement with the return to state and federal.
   6. Can file extensions electronically
      
      

7. Excess SS and Tier I RRTA tax Withheld Income Tax Credit Savings
   

          When the taxpayer works for two or more employers it is possible they could exceed the maximum amount of FICA 
   1.  Our  program will figure this automatically. 
   2.  FICA Rates  Overall rate is 5.65%    (Self employed 13.30%)
      1. 2011 FICA is 4.20% of $106,800   ($4,485.60)
      2. 2011 Medicare is 1.45 % any amount.  No top limit. (self employed is 2.9%). 
   3. If the amount withheld from two employers exceeds this amount, tax program should claim refund on back of 1040.   
   4. If you code a W-2 to the wrong spouse, it may give excess SS refund in error.  Watch back of 1040.  
   5. When one employer held out too much in error, taxpayer must make the correction with the employer
      1. If they won’t correct, taxpayer can claim if they claim refund on form 843.
   6. On Sick pay, only the first 6 mo. is subject to FICA.  If held out longer than six months, it must be corrected with the employer.
      
      

8.  Federal Fuel Income Tax Credit Savings:  Form 4136

   1. This Income Tax Credit is for federal tax paid on fuels used off road for farmers, some businesses.
   2. Must report as income the following year.
   3. Use form 4136 for figuring income tax credit savings.
      
      
9.  Notice to shareholder of undistributed long term capital gain income tax credit savings.  Form 2439: 
   1. Enter tax paid by firm for the taxpayer.
      
      
10. Health Coverage Income Tax Credit Savings.  Form 8885:
    This credit is for former employees 55 or older who lost their job due to foreign competition and is receiving trade adjustment assistance.   
    
    1. Employer will send employee a packet if they qualify.
    2. Must be eligible for trade adjustment assistance.
    3. Can't be receiving Cobra reimbursement.
    4. Employee must have paid health insurance premium.
    5. Employee must not have been covered by Medicare.
    6. Credit is a refundable credit.  Can get advance credit.
    7. Use form 8885.  Credit is 65%  or eligible premiums
    8. Can apply for advance credit refund.

11. Income Tax Credit Savings for repayment of income over $3000. 

    1. If taxpayer had to repay income of over $3000 for a prior year during the current year, they can take a credit as a margin entry on this line.  Enter as IRC 1341 margin entry.  You recomputed tax for the earlier year as if the income had not been reported.  The difference between the recomputed tax and the actual tax can be claimed as a tax credit. 
       
       
12.  Prior Year Minimum Income Tax Credit Savings.  Form 8801:
    1. If taxpayer has an unused minimum tax credit carry forward  from 4 years back, you may be able to claim part of it on form 8801.   Credit is the greater of 20% or $5000.  Phase out based on AGI and filing status. 
       
       

13. Adoption Income Tax Credit Savings.  Form 8839  

    1. For 2010-2011 only, the credit is fully refundable!! 
       1. If carrying forward unused credit, it is fully refundable.
    2. Can’t file electronically as must send in return with
       1. Copy of adoption order or certificate
       2. If U.S adoption not finalized, enter ETIN on 8839
       3. If special needs child, attach certificate. 
       4. See Pub. 17 for documents required if adoption not finalized.  
    3. Credit is phased out between $185,210 - $225,210 AGI
    4. The credit is 100% of qualified expenses up to $13,360 for each qualified child. 
       1. This limit is cumulative over all tax years for each child.     
       2.  Unmarried individuals can split credit in any way they agree.
    5. Can’t claim if filing married filing separately.
    6. Qualifying Child must be under 18 or unable to care for self.
    7. Special needs child must be a citizen or resident of US  (including possessions) and certified by the state. Taxpayer gets full $13,360 deduction for special needs child  whether taxpayer paid the full amount or not.
    8. Expenses paid before year of adoption, can’t be deducted till year after payment for U.S. child (or U.S. resident) or year ofadoption for non-U.S. child or special needs child.  
    9. Expenses from an unsuccessful adoption are only deducted if child was a U.S. citizen. 
    10. Qualifying expenses include reasonable and necessary  expenses such as adoption fees, court costs,   attorney fees, traveling expenses, meals, lodging & other related expenses.
    11.  For 2011 don’t have to  carry over any unused credit up to 5 years.
    12. Can’t claim surrogate parent costs or adopting spouses child.
    13. Can’t claim if filing with an ITIN instead of SS#.

Give us a call if you have questions or we can be of help, 765-452-8000.  Killingbeck Insurance & Tax Preparation, Kokomo, Indiana.