Monthly Archives: February 2016

The Child Tax Credit May Be Worth $1,000 Per Qualifying Child

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The Child Tax Credit is an important tax credit that may be worth as much as $1,000 per qualifying child depending upon your income. Here are 10 important facts from the IRS about this credit and how it may benefit your family.

  1. Amount – With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.
  2. Qualification – A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
  3. Age Test – To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2010.
  4. Relationship Test – To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
  5. Support Test – In order to claim a child for this credit, the child must not have provided more than half of their own support.
  6. Dependent Test – You must claim the child as a dependent on your federal tax return.
  7. Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
  8. Residence Test – The child must have lived with you for more than half of 2010. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
  9. Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
  10. Additional Child Tax Credit – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.

Lifetime Learning Credit Is Worth Up To $2,000 Per Tax Return

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The Lifetime Learning Credit is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses–including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. It is worth up to $2,000 per tax return.

Who can claim the LLC?

To claim a LLC, you must meet all three of the following:

  1. You, your dependent or a third party pay qualified education expenses for higher education
  2. You, your dependent or a third party pay the education expenses for an eligible student enrolled at an eligible educational institution
  3. The eligible student is yourself, your spouse or a dependent you listed on your tax return

Who is an eligible student for LLC?

To be eligible for LLC, the student must:

  • Be enrolled or taking courses at an eligible educational institution
  • Be taking higher education course or courses to get a degree or other recognized education credential or to get or improve job skills
  • Be enrolled for at least one academic period* beginning in the tax year

*Academic Period can be semesters, trimesters, quarters or any other period of study such as a summer school session. Academic periods are determined by the school. For schools that use clock or credit hours and do not have academic terms, the payment period may be treated as an academic period.

What are the income limits for LLC?

  • To claim the full credit, your MAGI◊, modified adjusted gross income must be $52,000 or less ($104,000 or less for married filing jointly).
  • If your MAGI is over $52,000 but less than $62,000 (over $104,000 but less than $124,000 for married filing jointly), you receive a reduced amount of the credit.
  • If your MAGI is over $62,000 ($124,000 for joint filers), you cannot claim the credit.

◊MAGI for most people is the amount of AGI, adjusted gross income, shown on your tax return. On Form 1040A, AGI is on line 22 and is the same as MAGI. If you file Form 1040, AGI is on line 38 and you add back the following:

  • Foreign earned income exclusion,
  • Foreign housing exclusion,
  • Foreign housing deduction,
  • Income excluded as bona fide residents of American Samoa or of Puerto Rico.

Claiming the credit

Generally, students receive a Form 1098-T, Tuition Statement, from their school by January 31. This statement helps you figure your credit. The form will have an amount in either box 1 or 2 to show the amounts received or billed during the year. But, this amount may not be the amount you can claim. See qualified education expenses for more information on what amount to claim.

Check the Form 1098-T to make sure it is correct. If it isn’t correct or you do not receive the form, contact your school.

What is the LLC worth?

The amount of the credit is 20 percent of the first $10,000 of qualified education expenses or a maximum of $2,000 per taxpayer. The LLC is not refundable. So, you can use the credit to pay any tax you owe but you won’t receive any of the credit back as a refund.

John S. Wood, C.P.A., P.A. is located at 15310 Amberly Drive, Suite 250, Tampa, FL 33647 and concentrates in individual and business tax preparation and planning. We can be reached at 813-514-2920. Please also visit our website is www.jwoodcpa.com.

American Opportunity Tax Credit Can Be Worth $2,500

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The American Opportunity Tax Credit is a credit for qualified education expenses paid for an eligible student for the first four years of higher education.You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.

Who is an eligible student for AOTC?

To be eligible for AOTC, the student must:

  • Be pursuing a degree or other recognized education credential
  • Be enrolled at least half time for at least one academic period* beginning in the tax year
  • Not have finished the first four years of higher education at the beginning of the tax year
  • Not have claimed the AOTC or the former Hope credit for more than four tax years
  • Not have a felony drug conviction at the end of the tax year

*Academic Period can be semesters, trimesters, quarters or any other period of study such as a summer school session. The schools determine the academic periods. For schools that use clock or credit hours and do not have academic terms, the payment period may be treated as an academic period.

What are the income limits for AOTC?

  • To claim the full credit, your MAGI,♦ modified adjusted gross income must be $80,000 or less ($160,000 or less for married filing jointly).
  • You receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly).
  • You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers).

♦MAGI for most people is the amount of AGI, adjusted gross income, shown on your tax return. On Form 1040A, AGI is on line 22 and is the same as MAGI.

If you file Form 1040, you add the following amounts to AGI (line 38):

  1. Foreign earned income exclusion,
  2. Foreign housing exclusion,
  3. Foreign housing deduction,
  4. Exclusion of income by bona fide residents of American Samoa, or of Puerto Rico.

If you need to adjust your AGI to find your MAGI, there are worksheets in the Publication 970 to help you.

Claiming the credit

Generally, students receive a Form 1098-T Tuition Statement, from their school by January 31. This statement helps you figure your credit. The form will have an amount in either box 1 or 2 to show the amounts received or billed during the year. But, this amount may not be the amount you can claim. See qualified education expenses for more information on what amount to claim.

Check the Form 1098-T to make sure it is correct. If it isn’t correct or you do not receive the form, contact your school.

To claim AOTC, you must complete the Form 8863 and attach the completed form to your Form 1040 or Form 1040A.

What is the AOTC worth?

The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you.

John S. Wood, C.P.A., P.A. is located at 15310 Amberly Drive, Suite 250, Tampa, FL 33647 and concentrates in individual and business tax preparation and planning. We can be reached at 813-514-2920. Please also visit our website is www.jwoodcpa.com.

Individuals May Get New Health Care Information Forms This Year

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Starting this year, you may receive one or more forms providing information about the health care coverage that you had or were offered during 2015. Much like Form W-2 and Form 1099, which include information about the income you received, these forms provide information about your health care coverage that you may need when you file your individual income tax return. Two of these forms are new this year and on is a form that was sent to some taxpayers in 2015.

The new forms are:

Form 1095-B, Health Coverage.

  • Health insurance providers send this form to individuals they cover, with information about who was covered and when.

Form 1095-C, Employer-Provided Health Insurance Offer and Coverage

  • Certain employers send this form to certain employees, with information about what coverage the employer offered. Employers that offer health coverage referred to as “self-insured coverage” send this form to individuals they cover, with information about who was covered and when.

The deadline for insurers, other coverage providers, and certain employers to provide Forms 1095-B and 1095-C is March 31, 2016. Some taxpayers may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their 2015 tax return. While the information on these forms may assist in preparing a return, they are not required; it is not necessary to wait for Forms 1095-B or 1095-C in order to file.

The form that was first issued last year is:

Form 1095-A, Health Insurance Marketplace Statement

  • The Health Insurance Marketplace sends this form to individuals who enrolled in coverage through the Marketplace.  The form includes with information about the coverage, who was covered, and when.

The deadline for the Marketplace to provide individuals with Form 1095-A is February 1, 2016.  If you are expecting to receive a Form 1095-A, you should wait to file your 2015 income tax return until you receive that form.

You are likely to get more than one form if you had coverage from more than one coverage provider, if you worked for more than one employer that offered coverage or if you enrolled for coverage in the Marketplace for a portion of the year and received coverage from another source for part of the year. You are also likely to get more than one form if you changed coverage or employers during the year or if different members of your family received coverage from different coverage providers. You should not attach any of these forms to your tax return but should keep them with your tax records.

John S. Wood, C.P.A., P.A. is located at 15310 Amberly Drive, Suite 250, Tampa, FL 33647 and concentrates in individual and business tax preparation and planning. We can be reached at 813-514-2920. Please also visit our website is www.jwoodcpa.com.