 Income tax 2022-2023, credits for qualifying children and other dependents, specific instructions. Let's do some wealth preservation with some tax preparation. 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. Most of this information comes from instructions for Schedule 8812, credits for qualifying children and other dependents, tax year 2022, specific instructions you can find on the IRS website, irs.gov, irs.gov. Looking at the income tax formula, we're down at the bottom in the credit area. Remember in the first half of the income tax formula is in essence an income statement ending with the taxable income, which is similar to net income in a normal income statement. We're then going to calculate the tax based on the taxable income, not with a flat tax, not with one rate in other words, but with the progressive tax system to get to the tax before credits and other taxes. Then we deal with the credits and other taxes like the self-employment tax and we deal with the payments in the form of estimated tax payments or the withholdings finally getting to the tax refund or tax due. Note that we have this breakout between the credits on two lines. We have the credits up here and then the credits down here. That is generally to deal with the issue of having refundable and non-refundable credits. When we think about an income tax system, normally you would think it would not be correct to have credits that bring the tax liability below zero. So the credits up top here are typically those that are non-refundable. They will not bring the liability below zero. The ones down here are the ones that are refundable, meaning if your liability goes below zero, you might still get a quote refund, end quote, which is really kind of a benefit program, the tax code being used as a benefit program in that instance. All right, specific instructions. Part one, child tax credit and credits for other dependents, all filers, line number four. We'll take a look at this in more detail with some examples of the forms in future presentations right now. We'll just go through the line items. So add the number of boxes checked under, quote, child tax credit, end quote, and column four of dependents section on form 1040 or 1040 SR and enter the results on line four. So first page of the form 1040, you have then all of your information. You've got your personal information, your social security number, your spouses, their social security number, your dependents, their social security numbers. And then in the dependents section, you're going to be checking off if they qualify for the child tax credit or other dependent credit. You can't have both of them checked off, just one or the other. And then on page two, we can then kind of interpret what's going to happen with regards to the calculation for the credits just by glancing at page one and whether you checked off the box for child tax credits or other dependent next to your dependents. So caution, you cannot check both child tax credits box and the credit for other dependents box for the same person. If you do that, that would be a big red flag you would think to the IRS and there could be a delay on the return. So line number six, add the number of boxes checked under, quote, credit for other dependents, end quote, and column four of the dependents section on form 1040 or 1040 SR and enter the result on line six. So line 13, enter the amount from credit line worksheet A. So we'll go into, I won't go into the worksheet in a lot of detail here because we want to get the general concept down and then rely to some degree on the software so that we can basically communicate with people in terms of the projections that we can, their tax planning as well as just explaining the credits. And then we can use the software to kind of back into, let the software do the calculation and then try to verify the calculation to make sure it is correct. So when completing credit limit worksheet A, you may be instructed to complete credit limit worksheet B. If you meet certain conditions, complete credit limit worksheet B only if you need all the following. One, you are claiming one or more of the following credits. B, you've got, sorry, A, mortgage interest credit form 8396, B, the adoption credit form 889, C, residential clean energy credit form 5695, part one, D, district of Columbia first time home buyer credit form 8859. So these are kind of more unusual type of situations that could complicate the calculation possibly because it might have a calculation adjustment for like the modified AGI calculation or something like that. These are areas where of course tax software is helpful because hopefully the tax software, if you're doing the data input properly can help to pick those kind of changes up. And then you can kind of double check and verify by deconstructing to make sure everything's properly done. Two, you are not filing form 2555, three, line four of schedule 8812 is more than zero. All right, so then you got the bonafide residence of Puerto Rico. So somewhat of a special situation, bonafide residence of Puerto Rico. So in 2022, if you were born, if you were a bonafide resident of Puerto Rico, you may be eligible to claim the ACTC additional child tax credit. If you had at least one qualifying child, you can claim the ACTC additional child tax credit in part two of form 1040 SS US self-employment tax return, including additional child tax credits for bonafide residence of Puerto Rico instead of form 1040 or 1040 SR in schedule 8812. If you aren't required to file form 1040 or 1040 SR to determine your ACTC additional child tax credit on schedule 8812 complete part two A and two B as follows. Online 18 a include only earned income. You reported on form 1040 or 1040 SR don't include income earned in Puerto Rico, which you exclude from US tax as a bonafide resident of Puerto Rico. Online 21 include all your withheld social security, Medicare and additional Medicare taxes, including those taxes withheld by Puerto Rican employers that are shown on Puerto Rico forms. 499 R-2 W2 PR. All right. Generally, you, uh, generally you were a bonafide resident of Puerto Rico. If during 2022 you met the president's test, uh, did, did, uh, did not have a tax home outside Puerto Rico and did not have a closer connection to the United States or to a foreign country. Then you have to Puerto Rico for more instructions on bonafide resident status. You can see publication five seven zero. You can find the IRS website tax guide for individuals with income from US possessions. All right. Line 15 check this box. If you do not want to claim the additional child tax credit. So if you check this box, skip parts, uh, to A and to B and enter zero online 27. So in other words, we're thinking about the additional child tax credit now. So when, when we think about the child tax credit, the general process is going to be here. We have a dependent. Do they qualify first for the child tax credit? If not, can I get the other dependent credit if they qualify for the child tax credit? Great. Then, but then what if I don't have the income to claim the child tax credit and I have to dip into the refundable portion, the, the additional child tax credit. You may be able to opt out of, of taking the additional child tax credit. If you basically wanted to, you would think that that would not normally be the thing that you would want to do unless there's some rational reason for doing that. So line 18 A, if you have net earnings from self-employment and you use either optional method to figure those net earnings, use the earned income worksheet later to figure the amount to enter online. 18 A, otherwise all other taxpayers can use the earned income chart later to figure amount to enter online. 18 A line 18 B, enter your line 18 B, the total amount of non-taxable combat pay that you and your spouse if filing jointly received in 2022. This amount will be reported either online one eye of form 1040 or 1040 SR or should be shown in form W2 box 12 with code Q. Part 2B, certain filers who have three or more qualifying children and bona fide residents of Puerto Rico. Line 21, so if you are completing part 2B and your employer with withheld or you paid additional Medicare tax. Or tier one RRTA tax, use the additional Medicare tax and RRTA tax worksheet later to figure the amount to enter online 21. All right, so we'll go into some tax software examples fairly shortly so we can basically look at these forms in more detail and see how we might basically put these in practice. Note, obviously that when you're communicating with people, then you're not going to have like the line by line breakout in your head. But you want to be unless you are have quite imaginative detailed thought process. But you want to have the general rules in your mind so that you can communicate with people and so that you can project make projections into the future. What you think is going to happen for tax planning purposes. And then when you do the tax thought returns, usually tax software is quite useful to help break out some more of this information down. And then you can double check it by deconstructing it, seeing what the tax software did and recalculating it to see if it's properly inputting the way it should be inputting according to the more specific rules.