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credit is available for hybrid vehicles with both internal
combustion engines and electric motors and vehicles
employing lean burn technology. To qualify for the full credit,
taxpayers must purchase a new qualifying vehicle before the
end of the first calendar quarter after the quarter in which the
manufacturer sells the 60,000th unit of the qualifying vehicles
that it manufactures. Only 50% of the credit is available for
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the second and third calendar quarters after the quarter in
which the 60,000th vehicle is sold, followed by 25% of the
credit for the fourth and fifth calendar quarters The credit was
established for sales of qualifying vehicles after January 1,
2006.
The Foreign Tax Credit allows taxpayers to take a credit for the
lesser of tax on income or profits paid to a foreign government,
or such tax due to the U.S. government on the same income or
profits. The U.S. approach to taxation is that U.S. citizens and
resident aliens are liable for U.S. income taxes on all of their
earnings regardless of whether they were earned in the U.S. or
elsewhere. At the same time, most countries, including the
U.S., impose income taxes on earnings generated within their
borders by foreigners. The purpose of the Foreign Tax Credit is
to prevent U.S. taxpayers who earn income abroad from having
to pay income taxes on the same earnings both in the U.S. and
in the country where it was earned. This is accomplished by
allowing U.S. taxpayers to take a credit on their U.S. tax returns
for the amount of foreign income taxes paid on their earnings,
but the credit cannot exceed the level of U.S. taxes that would
be levied on that income or else the credit would give the
taxpayer funds with which to pay foreign income taxes at the
expense of the U.S. Treasury. The credit is available only for true
income taxes that are paid to foreign governments and will be
disallowed to the extent that a tax was collected that was actu-
ally payment for goods or services, such as utilities, that were
provided by the foreign government.
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204 Tax Power for Individuals
REFUNDABLE CREDITS
Since refundable tax credits will result in a tax refund to the extent that they
exceed a party s tax liability, they are the more highly prized of credits. Several
of the refundable credits are actually nothing more than payments that were
previously made by taxpayers in anticipation of an eventual tax liability or tax
payments from funds that were withheld from earnings by employers and paid
to the U.S. Treasury in behalf of their employees. However, there are some
refundable personal tax credits that are of particular importance to self-
employed taxpayers, and among them are the following.
Credit for Elective Deferral and IRA Contributions
Millions of workers in America have no employer-provided pension or
other retirement fund. The burden of funding an individual plan to provide
retirement income beyond Social Security will rest entirely with the indi-
vidual when the party has chosen to become self-employed or takes a job
with an employer that has no retirement plan. Most workers who are not
covered by a retirement plan are aware of their need to establish some sort
of individual retirement plan, but many of them, especially those with rela-
tively low incomes, feel that they simply cannot spare the income needed
to establish a retirement program, and decide to postpone retirement
savings until their incomes increase. However, individuals optimistic
expectations of dramatic increases in income more often than not go unre-
alized, and even those who do eventually find themselves financially able to
start a retirement program will have missed making contributions to
retirement funds in the earliest years that would have generated the largest
rates of increase from compounding.
In an effort to entice those who earn relatively modest incomes, whether they
are self-employed or work as another party s employee, Congress has provided
an incentive in the form of a credit for such workers who make payments into
certain retirement plans. The credit is available for elective deferrals and IRA
contributions, generally referred to as the Credit for Retirement Savings
Contributions, by virtue of I.R.C. Section 25B. A credit of up to 50% of the
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first $2,000 of a qualified party s qualified retirement savings contribution is
allowed. A qualified party is someone who is at least 18 years of age, who is
not claimed as a dependent on someone else s tax return, and who was not a
full-time student during five or more months during the calendar year for
which the credit is sought. A contribution to a qualified retirement plan (or
IRA of any type provided for in the I.R.C.) a simplified employee pension, a
401(k) plan, or any contribution to a plan or annuity of a tax-exempt organ-
ization, school, or government entity will be considered to be a qualified
retirement savings contribution.
Since the credit for retirement contributions was designed to encourage rela-
tively moderate income earners to make contributions to some type of retire-
ment program beyond Social Security, the percentage of the credit is reduced
from 50% to 20% for married taxpayers filing joint returns who have
adjusted gross income in excess of $30,000 but not over $32,500 and is [ Pobierz całość w formacie PDF ]