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Posted by robpimentel on September 6, 2007, 4:10 am
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Hi Herb, and thanks for your response. Please see my comments below.
> 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".
I guess what I meant by "lose" was that if my credits (line
56) were 2500 and the taxes I owed (line 46) were 2000, then
I wouldn't realize the full benefit of the $2500 in credits.
I looked up the definition of after-tax income and I think I
understand the concept, I'm just not sure how to calculate
it. Would my after-tax income be line 38 minus line 63?
>> 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...?
My limited understanding was that if there was a significant
change (E.g. income dropped by 33%) it might impact the
balance between my credits and the taxes I owed, and
ultimately dictate which strategy/ ies I could employ to
maximize the benefit of the credits I would receive. My
apologies if the information was unnecessary.
>> 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!
Ok, if I understand you correctly, education credits (or at
least LLC) must be claimed for the same tax year in which
the expenses were incurred, or rather paid?
>> 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 benefit of not itemizing deductions in this scenario
would be (a) less work (b) less chance a making a mistake on
my return (c) something else??
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