Determine eligibility for available tax credits and complete an official worksheet for each credit, to demonstrate eligibility.
Note: Completing a tax form requires specific steps that need to be executed in a sequence. The assessments in this course are presented in a sequence and must be completed in order. Incorrect entries in previous assessments will result in incorrect entries in future assessments. Do not complete Assessment 5 until you have submitted and received faculty feedback for Assessment 4.
Introduction
Tax credits work to lower taxpayer liability rather than provide refund incentives. A tax credit is subtracted directly from the taxpayer's tax obligation, providing equal relief to all taxpayers. This can make the credit more valuable than a deduction taken during the filing process.
There are credits for foreign taxes paid, child and dependent care expenses, and for the elderly or disabled; credits for education, retirement savings contributions, and residential energy; and child tax credit, adoption, retirement savings, and earned income.
Part 1: Determine eligible tax credits by completing official worksheets.
Part 2: Complete Schedule A and the 1040.
Scenario
Jacob and Taylor Weaver, ages 45 and 42 respectively, are married and are filing jointly in 2021.
They have three children, Ashley, age 9; Patrick, age 6; and John, age 17.
Social Security numbers are: Jacob, 222-33-4444; Taylor, 555-66-7777; Ashley, 888-99-1234; Patrick, 789-56-4321; John, 123-45-6789.
Taylor works part-time as a paralegal.
She earned $31,000 in 2021.
Income Taxes: $4,200 withheld.
Interest received from Local Bank: $6,575.
Estimated tax payments: $25,000.
$350 paid with their 2020 state tax return.
Jacob and Taylor bought their first house in 2021.
Home mortgage interest: $12,246.
Property tax: $12,230.
Federal income withholding: $2,350.
Charities: $4,500.
$435 to rent a moving truck.
$8,000 to put new siding on the house.
$11,600 for child care expenses ($5,800 for each child).
It was paid to Lil Tigers Daycare, 1115 S. Garrison St., Muncie, IN 47305 (EIN 98-7654321).
Taylor is a part-time student at Ball State University in Muncie.
She received a 1098-T indicating tuition and fees for 2021 in the amount of $6,011.
Health insurance for the family, through Taylor's job, cost $7,500 for all 12 months of 2021.
They paid deductibles and co-payments of $2,550.
Instructions
Read the information provided in the scenario above.
Download the following tax forms and instructions from IRS.gov:
1040.
Schedule A.
Schedule 1.
Schedule 3.
2441.
8863.
Part 1
Use the information in the scenario, on IRS.gov, and in the interactive IRS tools to interpret official rules and instructions to determine available tax credits.