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Subject Author Date
How do I maximize benefit of tax credits? robpimentel 09-03-2007
Posted by robpimentel on September 3, 2007, 10:14 pm
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 Looking at my 1040 from 2006, I can see that my total
credits (line 56) nearly equaled the tax I owed (line 46).
Based on what the form says, and what is in p970

"The lifetime learning credit is a nonrefundable credit.
This means that it can reduce your tax to zero, but if the
credit is more than your tax the excess will not be refunded
to you."

I can expect to "lose" money if the credits ever exceeded
the tax I owed. Having said that, I expect that the two
values will be nearly equal again this year. Little has
changed for me (income is up a bit, filing status is the
same, number of exemptions is the same, itemized deductions
will be about the same, etc.).

However, should something happen between now and the end of
the year (E.g. loss of employment), which drastically
lowered my AGI, I was wondering if I could delay the claim
of my Lifetime learning credit for 2007 until my income
climbed again (I.e. 2008, 2009)? If not, are there any other
strategies I could employ to keep my tax owed high enough to
maximize the benefit of the credits (I.e. itemize some
deductions in a subsequent year, generate more interest
income through investments to bring up AGI)?

Thanks,
pimy

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Posted by Herb Smith on September 5, 2007, 10:58 am
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 robpimen...@yahoo.com wrote:

> Looking at my 1040 from 2006, I can see that my total
> credits (line 56) nearly equaled the tax I owed (line 46).
> Based on what the form says, and what is in p970
>
> "The lifetime learning credit is a nonrefundable credit.
> This means that it can reduce your tax to zero, but if the
> credit is more than your tax the excess will not be refunded
> to you."
>
> I can expect to "lose" money if the credits ever exceeded
> the tax I owed.

No, it just means that your tax liability is zero. Your
after tax income is higher -- which translates to a "gain".

> Having said that, I expect that the two
> values will be nearly equal again this year. Little has
> changed for me (income is up a bit, filing status is the
> same, number of exemptions is the same, itemized deductions
> will be about the same, etc.).

Your point is...?

> However, should something happen between now and the end of
> the year (E.g. loss of employment), which drastically
> lowered my AGI, I was wondering if I could delay the claim
> of my Lifetime learning credit for 2007 until my income
> climbed again (I.e. 2008, 2009)?

Not unless you can delay payment of the educational expenses
to the future year. I doubt that the school would approve
that!

> If not, are there any other
> strategies I could employ to keep my tax owed high enough to
> maximize the benefit of the credits (I.e. itemize some
> deductions in a subsequent year, generate more interest
> income through investments to bring up AGI)?

You could always "elect" NOT to itemize deductions, using
the credits instead to reduce your tax to zero. Note that
deductions can only be claimed in the year paid, not carried
forward at your convenience

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Tom Russ on September 6, 2007, 4:10 am
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robpimen...@yahoo.com wrote:

> I can expect to "lose" money if the credits ever exceeded
> the tax I owed. Having said that, I expect that the two
> values will be nearly equal again this year. Little has
> changed for me (income is up a bit, filing status is the
> same, number of exemptions is the same, itemized deductions
> will be about the same, etc.).
>
> ... If not, are there any other
> strategies I could employ to keep my tax owed high enough to
> maximize the benefit of the credits (I.e. itemize some
> deductions in a subsequent year, generate more interest
> income through investments to bring up AGI)?

There are generally two strategies for managing this issue.

1. You can delay deductions into the following year by not
paying them this year. One easy one to move about, if you
have a mortgage, is the mortgage payment due on Jan. 1st. If
you pay early you get it this year. Property taxes can
sometimes also be managed in a similar fashion. Optional
payments, like (some) medical expenses and charitable
contributions can also be easily moved into the following
year.

2. You can generate more income. Interest income from
investments is one possibility, although usually not that
easy to control directly. If you have appreciated capital
assets like stocks or mutual funds, you could sell them to
realize capital gains this year. If you want to stay in the
same investment, you could even sell and immediately
repurchase. The "wash sale" rules apply only to losses, not
gains. That would allow you to carefully control the amount
of extra income you get this year.

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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