 Income Tax 2021-2022 Software Example, Lifetime Learning Credit. Get ready to get refunds to the max. Diving into Income Tax 2021-2022. Assert tax software. You don't need tax software to follow along, but you might want to have access to the forms and schedules, which you can find on the IRS website, irs.gov, irs.gov, starting point, single filer. Note that we're really going to be focused in on the credit here and the major difference with regards to the filing status on that credit will be either married or non-married. So we're not really focused in on going from say single to head of household because our focus is going to be on the credit for the education credits. We've got Adam Smith at the starting point living in Beverly Hills 90210 and we have no dependence to start out with the wages at the 50,000. And then down below we've got the 12,550 standard deduction, the taxable income at the 37,450, page number two tax calculated at that 4,298. Our focus then is on the credit, which is on Form 8863. This is going to be the education credits. We've got the two credits kind of scramb together, scrunched together in the same form, that being the American Opportunity Credit and the Lifetime Learning Credit because you're typically thinking first trying to get the American Opportunity Credit and if you cannot then go into the Lifetime Learning Credit. So I'm going to start out here for Adam Smith. This is the only person that could be claiming at this point in time because we've got well in general because there's no dependence on the tax return and we'll start out with the benefit or the best option, which is the American Opportunity Credit. So just to recap that and then we'll switch it to the Lifetime Learning Credit. So remember the first page is actually kind of like the second thing that you do in part one because really the second page over here is basically the starting point because you're going to have, and you could have multiple second pages depending on how many people have education expenses that you're calculating credits on. We will start with one and that's going to be Adam Smith himself, the tax payer himself here. So we've got Adam Smith. We've got the number over here, the Social Security number. He's going to cool you. If you went to multiple universities, obviously we just made up cool you here. If you went to multiple universities, then we might have another university on the right hand side and then you've got your questionnaire. Did the student receive a form 1098? We're going to say yes. Typically if you got a 1098, that would mean that you may qualify for the credit and the 1098 would look something like this. However, note that if you have the 1098, that would indicate that you have expenses that may qualify for an education credit. That does not mean, however, that you might not have other kind of things that might be included as you do the credit calculation. So then we're going to say that did the student receive form 1098 into the institution's employer identification number is going to be here and then you've got your series of questions and these are the questions that will often default to say if someone does not qualify for the American Opportunity credit then possibly taking someone to the point of them then qualified for the lifetime learning credit hopefully in that event if they can't get the American Opportunity credit. So has the Hope Scholarship credit or American Opportunity credit been claimed for the student for any four tax years before 2021? So if yes, then we can't take it. So we're going to say no at the starting point and then 24 was the student enrolled at least half time for at least one academic period that began or is treated as having begun in 2021 at an eligible educational institution in a program leading towards a post-secondary degree certificate or other recognized post-secondary educational credential. We could say yes here, if no, we stop and go to 31. Did the student complete the first four years of post-secondary education before? So the default to get the American Opportunity would be no. Was the student convicted before 2021 of a felony? So we've got the calculation here going to the American Opportunity credit the better of the two as opposed to the lifetime learning credit. And so if I pull that on over to page one, that then goes to the refundable American Opportunity credit. Notice the American Opportunity credit is the only one that has a refundable component to it and then you've got your income phase outs. We talked about in a prior presentation and that gives us the 1,000 of it that is that refundable component. And then the non-refundable component has, could have part of the American Opportunity credit and if it was the lifetime learning credit, which we'll see shortly, will all be down here in the non-refundable component. So the best position would be the American Opportunity credit which has these two halves, refundable, non-refundable, flowing in then to schedule three. There's the 1,500. That flows into the 1040 page number two that we see the amount flowing in from the schedule three, 1,500 and the 1,000 from the American Opportunity credit. This is the refundable component that could take the tax liability below zero. So then if I go back on over and we say now let's say that they don't qualify for one of these items. So I'm going to let's go back to the form here and let's look at page two and let's take this one by one and say number 23 that was the Hope Scholarship or Opportunity credit been claimed for this student for four years. Let's say it was. We're going to say it was claimed for that four years. So I'm going to say four years were claimed. If I go back on over, now this one has stopped our calculation and we've moved from the American Opportunity credit to the lifetime learning credit. There's the 20,000. That then rolls into page one. Nothing's in the refundable American Opportunity credit area. It's all down here. There's the 20,000 down below. The cap to maximize the credit is 10,000. So there's the 10,000. 20% of that is 2000. Then you've got your income thresholds. We were at the 50,000 on the income that's pulling in from page one of the form 1040. In essence, the AGI adjusted gross income that is flowing into here, not page two, not page two, flowing into here. So we've got no phase out that's taking place. And then we've got our 2000. And it's all non-refundable. So that non-refundable component flows into schedule three. There it is, the 2000 here that flows into the 1040 page number two. There's the 2000. What does it mean that it's non-refundable? It's up here as opposed to down here in the refundable area. It means that if your income goes low, then you might not get a benefit from it. So if I brought my income down to the 20,000 and I go back on over, for example, it's been limited to the 748, which I could see here, and I can see here on the calculation, they limited the credit. We can also, if I go back up to the starting point, see the phase out going the other way. If my income goes too high, then it's going to phase out as well. So it's around 90,000. So if I said it was like 85,000 on income and I go back on over, it's going to start to phase out the credit. You can see a 50%. So now it's down to the 1000 instead of the 2000. So it's phasing out around that 90. If you go above 90, then it goes away. So let's bring it back to 50,000. Back to 50,000. Bring it on back over. Let's go to page number two. And now we could see that same effect if I was to put this question back to where it was before. So we didn't claim it before. Or, you know, and then we're going to say, was the student enrolled in at least half time? If we say, no, they're not enrolled in half time, then once again, that's going to kick us out of taking the American Opportunity Credit and taking the Lifetime Learning Credit. So that's the other one that's going to phase us out. If I go back on over and say, we were full-time this time. So that's something you want to check with your financial institution or your academic institution to make sure what is full-time. Do I qualify for full-time so that you can hopefully take the larger credit there? Did the student complete the first four years of post-secondary? So if we say they did, they completed the first four years. Once again, it takes us out of being able to take the American Opportunity. Defaults back to the Lifetime Learning. Then to the American Opportunity Credit being taken. And then the last one, of course, was the student convicted of a felony possession of distribution of controlled substance. So no selling drugs on college campuses. Dang it. So then that means you lose the American Opportunity Credit and go to the Lifetime Learning Credit. So those are going to be the things that can kind of pull you over going from one credit to the other. Now also note that you might have multiple people. It's going to cap you. It's going to cap the credit at that 2,000 amount unlike what we saw with the American Opportunity Credit. So in other words, if I was to add another person here and say we had a dependent, let's say Adam Smith is going to be or Sam Smith is going to school too. Sam's going to school. I want to go to Cool U. I want to go to Cool U, too. Sam says, so we'll add another one and this is going to be Sam and say let's say that he doesn't meet one of these. He's not a full-time or wasn't ruled half but he's also going to Cool U so you would think he would qualify for the Lifetime Learning Credit and we'll put the tuition at 20,000 again just to max it out. And if I go back on over two-page twos now we've got Adam that qualifies for the Lifetime Learning but not the American Opportunity. Sam qualifies for the Lifetime Learning not the American Opportunity but if I go to page one you got the 40,000 up top but it's capping it at the 2,000. We didn't get an added benefit basically from the other one because it's capped per return whereas the American Opportunity Credit is not. If I changed these two back to the American Opportunity Credit then I would get the benefit if I say they both qualify for the American Opportunity Credit for example then it's not like I can only take one of them now they both qualify for the American Opportunity page two page two two and now the American Opportunity I would get the benefit of both of them the 2,000 up top and the 3,000 down below the lifetime learning is limited now of course you could have the situation where you have one qualifies for the Lifetime Learning and one qualifies for the American Opportunity Credit that could happen so let's say the parent would probably be the one that doesn't qualify for the other so let's say this one the student was enrolled in half time for this one for Adam qualifies this time for the Lifetime Learning because they couldn't get the American Opportunity which would be better and then Sam qualifies for the American Opportunity so now if I go back to page one you've got the first one the 2,500 rolling in for the bigger credit the refundable component for the American Opportunity you get the 1,000 for the one student and then the non-refundable credit down here has the non-refundable portion of the American Opportunity Credit and the calculation of the Lifetime Learning Credit to get to the 3,500 which is combining the non-refundable portion of the American Opportunity and the Lifetime Learning now I couldn't add another Lifetime Learning Credit because it caps out per return at 2,000 but we could add another American Opportunity Credit so if I said we had another person here Jane Jane is going to go okay so we're going to add Jane here and say that she she is going to be Jane and now she qualifies for the American Opportunity Credit let's say she's going to Cool U too we all go to Cool U Cool U is the best college ever we spent 20,000 for Jane at Cool U going back on over so now we've got on page 2 we've got 3 page 2s we've got Adam that qualified for the Lifetime Learning because they didn't qualify for the American Opportunity but then Sam qualified for the American Opportunity and Jane qualified for the American Opportunity so the 2 American Opportunities are flowing in to page 1 and we get the benefit of both of them and then we've got the non-refundable component of the American Opportunity Credit and then the calculation of the Lifetime Learning Credit for the non-refundable portion of it so it's a little confusing with the mixing and the matching between the 2 credits but that's the gist that's the idea and that's how it's done at least that's how I do it and that's how it's done at least that's how I do it