Free «Claiming Tax Credits» Essay Sample

Situation 1:

Discussion & Evaluation of Ashby and Curtis’ Qualification for Child and Dependent Care Expenses


The child and dependent care expenses credit is primarily intended for those taxpayers who provisionally incur significant expenses, which are essentially related to their employment. Hoffman, Smith, and Willis (2007) state that, “The credit for child and dependent care expenses is a specified percentage of expenses incurred to enable the taxpayer to work or to seek employment” (p.13-22). However, there are limitations characterizing the relative qualification for this tax credit plan. This essentially describes the eligibility criterion required to fulfill an individual’s qualification. “To be eligible for the credit, an individual must have either of the following: a dependent under age 13, a dependent or spouse who is physically or mentally incapacitated and who lives with the taxpayer for more than one-half of the year” (Hoffman, Smith & Willis, 2007). In addition, it is important to note in order for married couples to qualify for the plan, then there is need for them to file a joint return.

Moreover, there are eligibility requirements for employment related expenses, which ordinarily include household service payments incurred for the qualifying individual including those spent in a bid to secure employment by the tax payer. The expenses include: expenses incurred at home and out-of-the expenses incurred for the care of the under 13 dependent (Hoffman, Smith & Willis, 2007). On account of the earned income ceiling there are various restrictions applicable, which is primarily based upon the individual’s total income. However, for married couples: this is applicable for to the spouse having lesser total amount of his or her earned income; for nonworking spouses is physically/mentally disabled or a fulltime student, he or she is classified as having earned income of which the deemed amount is $250 or $500 for one or more qualifying individuals respectively (Hoffman, Smith & Willis, 2007). In essence, credit varies between 20% to 35%, which depends upon the taxpayer’s AGI (Hoffman, Smith & Willis, 2007).

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Issue and conclusion

By taking due consideration of the above facts, it is evident that Curtis and Ashby qualify for the child and dependent care expenses credit. This is because they suit the legibility requirements with regard to the age of Jason and the fact that expenses required to cater for Jason’s nursery are essentially required to pursue her passion for art. However, it is also important to consider that the spouse became fully unemployed after Jason’s birth; she was neither physically/mentally disabled nor a full time student. Hence, Ashby can only claim credit on account of the free time she gets to pursue her art talent while Jason attends school.

Federal Governments’ Purpose for Tax Credits

Federal governments have potentially significant reasons for giving tax credits to its citizens. These reasons are primarily based upon the safe guarding of vulnerable populations against exposure to potential poverty levels by virtue of their economic situations. For instance, incomes excluded from tax include: gifts and inheritances, interest earned from certain state, municipal or tribal bonds, returns coming from capital, reimbursements received from employers especially for business expenses, $250,000 for individuals or $500,000 for married couples filing jointly, compensation from injury or sickness, certain forms of social security benefits, health coverage paid for someone, disaster relief payments, and foster care payments qualified (O’Brien et al, 2007). Majority of these tax benefits significantly cover some of the critical elements, which have been found to affect individual, group, or family’s economic potential, which has an overarching effect on the poverty assessment results for such persons. Hence, in an effort to reduce negative effects, the Federal governments sought to introduce such strategic income tax credits. Furthermore, this significantly protects the low income earners from economic deterioration.

Situation 2:

Tax Research Memorandum/Letter

To: Sandy and John

From: Jacqueline Patman

RE: Qualification for Earned Income Credits


Earned income credits primarily target low income earners who are required to place refundable tax claims, which elementally depends upon the taxpayer’s total earned income for a relative period of time annually. “Then, from that figure is subtracted the taxpayer’s ‘phase-out percentage’ multiplied by the taxpayer’s AGI, reduced (but not below zero) by the phase-out amount. These percentages and amounts vary depending on the income and family status of the taxpayer” (Lieuallen, 2009). This helps in classifying the qualifying groups more appropriately. Schnepper (2009) further notes that, “For tax payers with earned income (or adjusted gross income [AGI]), if greater) in excess of the beginning of the phase-out range, the maximum credit amount is reduced by the phase-out rate multiplied by the amount of earned income (or AGI, if greater) in excess of the beginning of the phase-out range” (p.78). There are various rules prescribing the eligibility criterion, which are essentially based upon the individual citizenship and age, earned income amount, and standard set foe earned income credit. Eligible individuals are those having a dependent child under the age of 19 or a United States resident between 65 and 25 years of age who are not dependent upon other person’s return for tax (Lieuallen, 2009). In addition, the earned income amount usually entails salaries, wages, and earnings from self-employment income.


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