 Income Tax 2022-2023, Child Tax Credit and Other Dependent Credit, Tax Software Example. Let's do some wealth preservation with some tax preparation. We are in our example Form 1040 populated with LASERT tax software. You don't need tax software to follow along, but it's a great tool to run scenarios with. You can also get access to the Form 1040 related forms and schedules at the IRS website, irs.gov, irs.gov, starting point single filer Mr. Anderson living in Beverly Hills 90210 W2 Income 100,000. We've got the standard deduction 12,950, getting us to the 87,050 taxable income. Page 2 calculating the tax 14774 withholding 15,000 to get us to the 226. We're mirroring that over here in our Excel worksheet 100,000 W2 Income 12,950 standard deduction gets us to the taxable income 87,050, the tax pulling that from the software 14774 and then we have the payment 15,000 getting us to that 226. Now we're going to add a dependent. Now note that we're thinking about the Child Tax Credit and the other dependent credit and those are intimately tied to the dependence. So when we think about a dependent, then we're going to support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course, each course then organized in a logical reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. I'm going to be thinking what benefit do we get from a dependent. The benefit big benefit usually will be one of the other one of the two credits, either the child tax credit if they qualify for the child tax credit. And if we cannot get that, then we get the other dependent credit. Although there could be other benefits as well. For example, if we have a single filer as we have here and then we have one dependent, it's quite likely that it will move our filing status from single filer to head of household. So from a practical standpoint, what this comes out to then is oftentimes when we're thinking dependence, we're thinking what's going to be the impact on the dependence on the tax return. Usually it's going to be the credits, but we also could have the filing status change. And in practice, you might run into situations where there's that gray area, meaning what if someone qualifies with a joint custody situation between two parents, for example, as it depended on two returns, you can't file both of returns and have the same dependent on two returns or the IRS will of course have a problem with that. And you can think about those types of situations and plan for those types of situations in some type of agreements that are going to be set up, trying to maximize hopefully the tax benefits between everybody involved so that everybody can at least save money from the government and possibly then figure out what you're going to do with it, right? How are you going to divvy that up? It would be one way you might look at it. So in that situation you might think, okay, what's going to be the impact on the filing statuses for the spouses involved? What will be the tax implications of that? And what will be the tax implications of, of course, the credits involved, which could have a difference, for example, if someone hits the AGI limitation and starts to phase out the credit where another, you know, because or another spouse might not hit the AGI limitation and therefore might get a bigger benefit from the credit or something like that. Alright, so let's add a dependent and start taking a look at it. Okay, so from the data input screen we're just going to add our first name, last name, date of birth, and then of course we need a social security number or some kind of identification number. We're going to start off with a standard child here and child lived with the taxpayer when applicable for the earned income credit as well as the child tax credit. For the relationship I'm going to put son not child. Okay, so then we're going to go to the forms here. So now of course on the first page of the form 1040 we've got the child social security number so all the personal information they want it right up front on the first page says the IRS and this one qualifies for the child tax credit because they meet the age requirements and everything. They're under 17. Remember that to be a dependent then they have to be under 19 or 24 if they're a student but to get the child tax credit then they have to be under 17 as the general concept and then if we don't get the child tax credit then they would qualify for the other dependents which would be the idea. In this case however probably pushed them up from single to head of household two because because a dependent is usually required for that that will also change the standard deduction. So if we scroll down here the standard deduction if I changed the head of household went to the 19-4 that wouldn't happen with every child but that could be a significant change for someone switching to the head of household standard status. So let's switch it over here in our worksheet 19-4 that gets us to the 80 thousand sixty six hundred eighty thousand six hundred roll in the dyslexia okay number page two eleven eight fifty five eleven eight fifty five let's put that here eleven eight five five that's gonna be that and then we've got the credit of two thousand so if you look at the worksheet here there's the credit calculation we haven't hit the income threshold which for a single filer as I believe two hundred thousand so we're good on that and we get the full two thousand of the credit so if I put that into our worksheet over here let's say we've got other credits I'm gonna say other credits and let's put the child tax credit I'm just gonna put here dependent one two thousand I'm gonna pull that into my worksheet so that pulls into this line item so that comes out to then if I pull back over nine eight five five and then fifteen to get us to the five one four five five one four five all right so that's our starting point let's add another one we're gonna say Jill Anderson second child so if I pull that on over to the form then notice there's no change to the filing status now because I don't I don't go from a head of household to something else at that point so I'm gonna go down here now I've got my two dependents that are reported both of them are our child tax credit qualified for we don't have any change on the first page because the standard deduction did not change if I go to page number two the tax is now eleven eight fifty five but I've got the four thousand doubling the child tax credit for the two kids that now qualify for the child tax credit so if I was to mirror that over here I got my other credits let's say dependent dependent number two number two and then I'm gonna say two thousand comes up to four thousand pulling that over to the page one page one in our formula there it is seven eight five five fifteen thousand gets us to the seven one four five seven one four five okay now let's imagine that that they're overnight they're over nineteen they're over the seventeen threshold for qualifying for a qualifying child and to be a dependent what they're over the threshold possibly there too but we're saying they're a student age nineteen to twenty three so they still qualify as a dependent that being that nineteen threshold up to twenty four under twenty four but they're not under the seventeen number threshold to qualify for the child tax credit for so there's still a qualifying child in terms of being a dependent but they're not qualifying for the child tax credit so if I pull back over then I went back to one dependent now so we're still ahead of household standards one dependent but even though they are a qualifying child to be a dependent they're not qualified for the child tax credit because they're over the age threshold to be under seventeen and therefore we're in the other credit for other dependence now this one person still may push us over to to be able to claim ahead of household status possibly but we're focused here on page number two where we have a big decrease now now we have the other dependent credit which is only five hundred versus the two thousand so if I mirrored that over here in our worksheet we've got the other credits so this is I should have put these up top this is the other dependent credit child tax credit let's put five hundred here and this should be total of their dependent credit it's gonna be pulling back on over to the first page so now we've got the five hundred and if I go back on and take a look at this at this again that gets us to the eleven forty fifty five and the bottom line of the three thousand six forty five so there's that one okay let's go back to the original scenario here but now let's say that the income is gonna is gonna go up right so we hit the income threshold so how high does that income have to be for single I believe two hundred thousand so let's just test it out if I get to let's let's say two hundred and twenty thousand and I go back on over here then we have the child tax credit but then on page two it's been limited so you have the phase out that's kicking in now we only got one thousand instead of the two thousand now you probably don't need to memorize the worksheet on on you know how they got to the calculation of one thousand versus two thousand you basically need to understand because the tax software will help you with that so you can double check it here but you basically want to be able to say okay I I understand the normal threshold and then what the what the phase out when it will start to phase out due to the income threshold being over two hundred thousand in this case now if I change the income to just two hundred thousand you'll note we'll still taking we're still good for the full two thousand amount so over that amount of starts to phase out now let's go back to let's go back here and let's put it up to like two hundred two hundred fifty thousand and if I go back on over you can see then on page number two it has been removed in essence but if I change the filing status to married filing joint now so if I go back on over here and say now they're married and then back on over so now we have married filing joint and that's going to change our thresholds because now you have two people you would think it would be doubled so you're back up to the two thousand so when does it phase out if you're married it have to go all the way up to like four thousand you would think right so if it was if it was four hundred four hundred thousand not four thousand four hundred thousand you're still good but if you go beyond that four hundred twenty thousand then you've got the phase out kicking in so that's the general idea for the for the upper thresholds pretty high upper thresholds although you know higher income individuals will hit that okay now let's go to the lower income side of things back to head of household and say say now we've got our one dependent but we only earned twenty thousand so if we earn twenty thousand then after the standard deduction our taxable income is only six hundred dollars and then if I calculate my tax it's only sixty one dollars so we only owe sixty we would only owe sixty one dollars in that case so you would think if it was an income tax then the only credit you would get is up to sixty one dollars even though it would normally be two thousand dollars because you don't owe any tax in the first place but and so you can see it kind of capped it right here in our worksheet but that's where the additional child tax credit kicks in down here now we also have the the kind of messing things up with the earned income credit and the child tax credit those are the two big refundable component credits that could basically kick in here so let's jump on over this one's more complex so let's look at the schedule eight eight one two so child tax credit child tax credit or credit for other dependents into the amount online eleven of form 1040 there's your AGI income and so then we've got the twenty thousand there's the two thousand that would be the amount that you would normally get you would think I'm not going to go through it completely line by line here here's the upper income thresholds two hundred thousand or four hundred thousand single married filing joint and then we're limited here enter the amount from credit limit worksheet so here's your worksheet 61 right there and then on page number two we've got the calculation that gives us the one thousand five hundred which is going to be I won't go through it line by line here but the general idea is this is the additional child tax credit for all filers in other words it's the refundable part of the child tax credit if your income liability goes below zero and the bottom line is you can see the refundable portion is limited to one thousand five hundred so you can see up here you actually got sixty one of a credit plus the one thousand five hundred so if I increased my income like a little bit let's make it to two twenty five thousand so now we actually had a little bit more tax five hundred dollars of tax and it wiped out the tax at the five sixty three and now we've got the one thousand four thirty seven for the additional amount here and it's a little bit complicated because again these two have a little bit of interplay that earned income credit being the other big refundable credit which will focus in on in future presentations the point I'm trying to make is you would think that these two would add up to that that limit of one thousand five hundred but it doesn't right because the one thousand five hundred additional child tax credit limit minus this one four three seven you would think that would be this number right so we're still getting you know over the one thousand five hundred additional child tax credit because we're getting this amount that takes the tax down to zero up top the normal child tax credit and then the additional child tax credit at the one thousand four thirty seven now of course if they're they're not a child at all but they but they qualify as an other dependent then we wouldn't get the child tax credit so let's go back to the original the original scenario so now we've got this individual is going to qualify for an other dependence so the question is are they are qualifying child for purposes of being a dependent if so then the added level do they qualify for the bigger credit the child tax credit if not they would be a qualifying child that would give you the other dependent credit if they're not a qualifying child are they a qualifying just relative which which then would of course the only thing you'd be going for that point is the five hundred dollar credit the other dependent credit as opposed to the child tax credit