Credits  Reduce tax liability dollar for dollar  Refundable Taxes withheld/estimated payments Earned income credit  May be as high as 45% of earnings More kids, lower income, higher percentage Child tax credit  15% x (Earned Income - $3,000) Adoption credit (beginning in 2010)

Credits  Nonrefundable (no check) Offest AMT also  Adoption credit  Child tax credit  Saver’s credit

Credits  Child tax credit: $1,000 per child Children under 17 Lives with you You provide majority of support Phaseout:  $50 for every $1,000 AGI exceeds $110,000 for MFJ $75,000 single  Two kids; MFJ AGI $150,000

Dependent care credit  Generally 20% of child care expenses Up to lesser of:  amount of earned income of lowest paid spouse  $3,000 for one child; $6,000 for more Reduced by amount reimbursed by employer If AGI is less than $43,000, % is higher  Up to 35% if AGI < $15,000

Credit for Elderly/Disabled  Elderly 65 or older  Disabled: total and permanent  15% x $5,000 – (AGI – $10,000) If married, and only one qualifies  15% x $7,500 – (AGI – $10,000) If married, and both qualify

Credits  Hope American Recovery and Reinvestment Act (2/09)  Replaced with American Opportunity Credit 100% of first $2,000 25% of next $2,000 Maximum credit $2,500  First four years of college  For 2009 and 2010  Phaseout: $160,000 to $180,000 MFJ  40% of credit is refundable  Lifetime

Credits  Adoption Up to $13,170 in 2010  Per child; for expenses paid out of pocket  Phase out: $182,180 - $222,180  Can also exclude up to $10,000 of employer reimbursement

Credits  Foreign tax credit Withholding on dividends Credit is limited to amount of U.S. tax would have paid on dividend Can carry back excess two years and then forward five years

Credits  Retirement Savings tax credit Credit for employee contributions to:  401(k) or other qualified plan  IRAs (including Roth) MFJ AGI up to $33,000 in 2009 Get credit for 50% of contributions up to $2,000 for maximum of $1,000 credit MFJ AGI $33 - $53,000 in 2009  Get credit for 10% of contributions up to $2,000 for maximum of $200 credit Can’t be a full-time student for five calendar months

Credits  American Recovery and Reinvestment Act (2/09) Making Work Pay Credit  2009 and 2010  6.2% of earned income up to $800 MFJ  Phaseout: $150,000 to $190,000 MFJ

Credits  American Recovery and Reinvestment Act  First Time Home Buyer Credit  Did not own a primary residence last three years  Purchases of home under contract by 4/30/10 and close by 6/30/10  Refundable credit equal to 10% of purchase price Up to $8,000  Must own home for three years

Credits  November 2009 “Long Time Homeowner” Tax Credit  Lived in home five consecutive years of last eight years  Credit up to $6,500

Calculation of Tax  Taxable Income: $200,000  Amount of Tax: Appendix E

Payments of Tax  Withholding Based on W-4  Increase exemptions; less tax withheld  Estimated payments: required if: Income not subject to withholding creates tax more than $1,000 Had tax liability last year

Payments of Tax  Estimated Payments Quarterly: 4/15; 6/15; 9/15; 1/15  Pay lower of: 90% of this year’s tax 100% of prior year’s tax  If AGI more than $150,000 MFJ:  Pay lower of: 90% of this year’s tax 110% of prior year’s tax

Self-employment tax  Work for yourself; not an employee No s-e tax if earnings less than $400 If s-e income > $400  S-E tax = s-e income x 15.3%  If addition to income tax  Can deduct ½ of s-e tax in calculating income tax