Answer:
Income tax is the tax paid by individuals, household and business entities to the government on the earnings that they have. The rules and regulations are supervised by IRS which is a government body. Tax credit is a form of tax incentive or rebate which is given by government to the taxpayer when taxpayer fulfills certain criteria. One tax credit is equal to one dollar and is subtracted by the tax liability of taxpayer. Tax credits are both refundable and nonrefundable.
Foreign tax credit is a tax incentive which is given to those who are earning in foreign countries and paying tax in foreign country as well as in resident country. So, the tax credit is given as per the tax paid in foreign country to reduce the effect of double taxation.
There are scenarios where taxpayer has option to deduct foreign tax as itemized deduction instead of tax credit. Two such scenarios are as follows:
• This can be done when there is loss of taxpayer in one country which is equal to gain in other country.
• This is allowed when the taxes paid in foreign country are like property tax i.
e. taxes which are not based on income of individual.
Answer:
Income tax is the tax paid by individuals, household and business entities to the government on the earnings that they have. The rules and regulations are supervised by IRS which is a government body. Tax credit is a form of tax incentive or rebate which is given by government to the taxpayer when taxpayer fulfills certain criteria. One tax credit is equal to one dollar and is subtracted by the tax liability of taxpayer. Tax credits are both refundable and nonrefundable.
Dependent is the one who depends on the taxpayers for his expenses and survival and is relative of the taxpayer. Dependency exemption is the amount that the taxpayer is allowed to deduct from his gross income for each of his qualifying dependent.
Qualifying dependent could be a relative, spouse, child, etc. Qualifying dependent is the one who has passed several test depending upon the relationship with the taxpayer, and taxpayer is allowed to take exemptions on these dependents.
The five tests which are necessary to qualify as child of the taxpayer are as follows:
• Relationship test: The child should have certain specific relationship to qualify like descendant, step child, foster child, sibling, etc.• Age test: The child should be less than 17 years of age, or less than 24 if he is full-time student. There is no age limit in case of totally and permanently disabled child.• Residency test: The child should live with the taxpayer for at least half year except for the reasons of studies, military service, vacation or illness.
• Support test: The taxpayer should provide money for more than 50 percent support item including food, clothing, accommodation, healthcare, education, etc.• Special test: This is applicable in case of divorced or legally separated couple and all other test should lead to qualification. This tells the scenario when a non-custodial parent could show kid as dependent in their returns.
The maximum permissible amount for child tax credit is $1,000 per qualifying child. The amount at which the phasing out of the tax credit starts is when modified AGI is above $110,000. The amount phased out for every $1,000 over and above modified AGI of $110,000 is $50.
When modified AGI was $92,000 then taxpayer will be able to claim $1,000 which is maximum tax credit for each child. There are two children so total tax credit that could be claimed is $2,000.
When modified AGI was $112,000 then taxpayer will not be able to claim $1,000 which is maximum tax credit for each child. There will be deduction of $50 per $1,000 above $110,000 per child. So, tax credit per child will be $900 and as there are two children so total tax credit that could be claimed is $1,800.
Answer:
Income tax is the tax paid by individuals, household and business entities to the government on the earnings that they have. The rules and regulations are supervised by IRS which is a government body. Tax credit is a form of tax incentive or rebate which is given by government to the taxpayer when taxpayer fulfills certain criteria. One tax credit is equal to one dollar and is subtracted by the tax liability of taxpayer. Tax credits are both refundable and nonrefundable.
Education tax credit is a tax incentive which is given to those who are spending on higher education. This credit is provided for certain expenses which are specified. This tax credit is basically to promote higher education and development of human capital.
Education tax credits can be claimed for expenses against higher education for self, spouse or qualifying dependent. The specific expenses that are allowed are tuition fees, other fees, and related expenses like books, stationary, course materials, etc. However, it does not include cost of staying, board, food, etc.
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