Question

Determining which individuals are qualified individuals for the purpose of tax credit is an important task performed by the tax preparer. Discuss what are the determining factors for any individual to qualify for one or any of the following tax credits:

-The child and dependent care credit

-The credit for the elderly or the disabled

-The two education credits and how they are calculated, knowing which of the credits to use

-The adoption credit and the differences in domestic and foreign adoptions -

-Child Tax

-Credit Earned Income Credit (EIC)

-Foreign Tax Credit

Answer 1

1) The child and dependent care credit -

You may get the child and dependent care credit if you paid expenses for the care of a child, you may not take this credit if you are married filing tax return separately (you have to file return jointly with your spouse).

2)The credit for the elderly or the disabled-

You will get this credit if your age is 65 or more or you have retired on permanent as well as total disability and you have received taxable disability income for the tax year and have an adjusted gross income under specific limits.

3) The two education credits and how they are calculated, knowing which of the credits to use-

There are two education tax credits available to students are The American Opportunity Credit and the Lifetime Learning Credit.

The American Opportunity Credit applies only to the first four years of post-secondary school education. You can claim up to $2,500 per eligible student, per year. The credit covers 100% of the first $2,000 of qualified tuition, required fees, and qualified expenses, plus 25% of the next $2,000. 40% of the credit is refundable, so you may receive $1,000 per eligible student as a tax refund even if you owe no tax.

The Lifetime Learning Credit applies to undergraduate, graduate, and professional degree courses, and even to post-graduate courses that help improve your job skills. You can claim up to $2,000 per eligible student, per year. The credit is available for any and all years of post-secondary education, and also for adult and continuing education courses. There is no limit on how many years you can claim the credit.

American Opportunity Credit is generally the more valuable tax credit, but it is only good for the first four years of higher education. If you qualify for the Lifetime Learning Credit, you can claim it any number of years.

4) -The adoption credit and the differences in domestic and foreign adoptions -

The adoption credit is available to most adoptive parents. The credit is not available to taxpayers whose income exceeds certain thresholds. The thresholds are indexed for inflation.

Differences in domestic and foreign adoptions -

Domestic adoption is that where the child's biological and adoptive parents are residents of the USA. International is where the biological and adoptive parents are from different countries.

5) -Child Tax Credit

Eligibility for the Child Tax credit depends on a few factors. The child you claim as your dependent has to meet following conditions:

The child was unde age 17 at the end of the tax year.

The child is your daughter, son, stepchild, foster child, adopted child, brother, sister, stepbrother, stepsister, half sister or half brother. The child can also be the direct descendant of any of those mentioned.

The child did not provide more than half of their own support. This is money they use for living expenses. The child also cannot file a joint return that year.

The child must be claimed as your dependent on your federal tax return.

The child must be a U.S. citizen, a U.S. national or a U.S. resident alien. For tax year, the child must also have a Social Security Number.

The child must have lived with you for more than half of the tax year

6) Credit Earned Income Credit (EIC)

To qualify for EIC you must have earned income from working for someone or from running or owning a business or farm and meet basic rules. And, you must either meet additional rules for workers without a qualifying child or have a child that meets all the qualifying child rules for you.

7) -Foreign Tax Credit

Following four tests must be met for any foreign tax to qualify for the credit:

The tax must be imposed on you, You must have paid or accrued the tax, The tax must be the legal and actual foreign tax liability and The tax must be an income.