Credits

The dependent care credit for children under 13 has been permanently extended. Eligible expenses of up to $3,000 for one child and up to $6,000 for two or more children are allowed.

The dependent care credit for children under 13 has been permanently extended. Eligible expenses of up to $3,000 for one child and up to $6,000 for two or more children are allowed. The credit is reduced from 35 percent to 20 percent when adjusted gross income exceeds $43,000. A planning opportunity exists by first electing up to $5,000 in pre-tax dependent care during open enrollment in employee benefit plans this fall and then using the dependent care credits for expenses above that amount.

The child tax credit has been made permanent. The credit of up to $1,000 per child is available for dependent children under age 17. The credit is reduced and eventually eliminated when adjusted gross income exceeds $75,000 for single taxpayers or $110,000 for married taxpayers filing a joint return. Tax planning to reduce adjusted gross income may provide a larger child tax credit for the year.

The American Opportunity Tax Credit for college costs has been extended for five years through 2017. A credit of up to $2,500 may be claimed during the first four years of college. The credit phases out for adjusted gross income in excess of $80,000 for single taxpayers and $160,000 for married taxpayers filing a joint return.

The $1,500 credit for new windows and doors has expired, but a credit of up to $500 for residential energy property is still available if prior years’ credits were not taken.
Credits in particular are valuable because they reduce taxes dollar-for-dollar, while deductions reduce the amount of income subject to tax.


Carl D. Harper, CPA

The technical information in this newsletter is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the information contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS.