Ed and Julia Higgins are married for all of 2024 with an AGI of $175,000 which includes $25,000 of earned income for Ted and $100,000 of earned income for Julie. Their taxable income is 145,000 and tax liability is $20,000. They have two children, Bryan and Sophia, who meet all of the requirements of a qualifying child for 2024. Bryan is 12 and attends high school full time. The Higgins spend $10,000 during 2023 on child care for Bryan. Sophia is a full-time student in her junior year at UCR. The Higgins spend $6,000 on tuition, books and other course materials for Sophia during 2024. Required: What is the total amount of tax credits that the Higgins’ can report on their tax return
To determine the total amount of tax credits the Higgins family can claim on their 2024 tax return, we need to consider the following credits: 1. **Child and Dependent Care Credit**: - This credit is available for expenses related to the care of a qualifying child under age 13 so that the parents can work. Bryan qualifies since he is 12. - The maximum percentage of expenses that can be claimed is 35%, but it decreases as income increases. For an AGI of $175,000, the percentage is reduced to 20%. - The maximum amount of expenses you can claim is $3,000 for one child. - Therefore, the credit is 20% of $3,000, which equals $600. 2. **American Opportunity Credit (AOC)**: - This credit is available for qualified education expenses for a student in the first four years of post-secondary education. Sophia qualifies as she is a junior. - The maximum credit is $2,500 per student, calculated as 100% of the first $2,000 of qualified expenses and 25% of the next $2,000. - Since the Higgins spent $6,000 on Sophia's education, they can claim the full $2,500. 3. **Child Tax Credit**: - For 2024, the Child Tax Credit is $2,000 per qualifying child under age 17. Bryan qualifies for this credit
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