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Author: TomDa Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121598  
Subject: Child Tax Credit Date: 7/13/1999 12:19 PM
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I'm a new investor & just finished the first four chapters of 'The Motley Fool Investment Workbook'. The workbook stresses the importance of investing first in tax sheltered accounts to avoid paying taxes on investment income.

Because of the new Child Tax Credit I actually receive more credit than I owe in income tax.

Would it be to my advantage to report my investment income now when I owe no taxes, instead of later when I may owe taxes?

I'll be starting my investment program w/ $5,000 in the Foolish Four so we're not talking big bucks here. Thank you for your time. Tom Davis
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Author: zorloc Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17239 of 121598
Subject: Re: Child Tax Credit Date: 7/13/1999 12:54 PM
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Then the Roth IRA (assuming you qualify) would be perfect for you. Contributions to the Roth IRA are "after tax dollars" but when properly withdrawn are tax-free. Thus if you pay no income tax, and have earned income you will not pay any taxes EVER on the money put into a Roth IRA.

As for puting more money in tax-defered accounts (such as a 401K). It depends on your situation. If it looks like you will have no tax liability for a long time, then it may be to your advantage to keep your funds in taxable accounts. But if you are going to loose the child tax benefits soon, and/or you have a Foolish 401k (or other plan) available, you should look to protecting your money ASAP.

jbw

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Author: BobCPA Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17258 of 121598
Subject: Re: Child Tax Credit Date: 7/13/1999 6:06 PM
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TomDA writes:

I'm a new investor & just finished the first four chapters of 'The Motley Fool Investment Workbook'. The workbook stresses the importance of investing first in tax sheltered accounts to avoid paying taxes on investment income.

Because of the new Child Tax Credit I actually receive more credit than I owe in income tax.

Would it be to my advantage to report my investment income now when I owe no taxes, instead of later when I may owe taxes?...


In some cases the Child Tax Credit can provide a tax refund if you can't use it all to offset your income taxes. In other cases it will not and therefore be lost. So, if you get a refund because of the credit the tax shelter logic still holds. If not it may be more advantageous to generate taxable income, at least upto the amount of unused credit available.

Hope this helps

Bob

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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17278 of 121598
Subject: Re: Child Tax Credit Date: 7/13/1999 8:22 PM
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Because of the new Child Tax Credit I actually receive more credit than
I owe in income tax.

Would it be to my advantage to report my investment income now when I
owe no taxes, instead of later when I may owe taxes?...

In some cases the Child Tax Credit can provide a tax refund if you can't use
it all to offset your income taxes. In other cases it will not and therefore be
lost. So, if you get a refund because of the credit the tax shelter logic still
holds. If not it may be more advantageous to generate taxable income, at
least upto the amount of unused credit available.

Hope this helps

Bob

Actually, the Child Tax Credit is a non-refunding Credit and never returns credit in excess of your normal income tax. It will not offset Self Employed Social Security, the AMT, SS on tip income, IRA penalty Taxes, nor Nanny Tax.
The ADDITIONAL Child Tax Credit, however, is a refunding tax and will offset all of these, and like the Earned Income Credit, might actually give you money back (a reverse income tax).
Obviously if you are getting credits in excess of your regular tax, and can't use them, shifting more income in to be taxed is to your advantage as it effectively won't be taxed. Ed

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Author: BobCPA Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17289 of 121598
Subject: Re: Child Tax Credit Date: 7/14/1999 1:38 AM
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Ed writes:

Bob
Actually, the Child Tax Credit is a non-refunding Credit and never returns credit in excess of your normal income tax. It will not offset Self Employed Social Security, the AMT, SS on tip income, IRA penalty Taxes, nor Nanny Tax.
The ADDITIONAL Child Tax Credit, however, is a refunding tax and will offset all of these, and like the Earned Income Credit, might actually give you money back (a reverse income tax).
Obviously if you are getting credits in excess of your regular tax, and can't use them, shifting more income in to be taxed is to your advantage as it effectively won't be taxed.


Ed,

I'm sure you are aware the Child Tax Credit worksheet is used in calculating the amount of the "Additional" Child Tax Credit. I prefer to keep my replies simple and help by pointing the author in the right direction rather than confusing them with technical tax terms and the boring details of the US tax code. Also, giving specific tax advice online without all the details would be irresponsible. However, I'd be happy to discuss any tax issues with you in detail in the appropriate forum for this at the misc.taxes and us.taxes newsgroups. Oh and by the way its called the Self-employment tax not Self Employed Social Security. :)

Bob

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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17307 of 121598
Subject: Re: Child Tax Credit Date: 7/14/1999 2:12 PM
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I'm sorry, Bob, if I said something wrong or offensive. I was trying to clarify the poster's frustration of having credits he couldn't use and your post seem to infer he could possibly use them.
I'm sure you are aware the Child Tax Credit worksheet is used in
calculating the amount of the "Additional" Child Tax Credit.

Yes I do, however, I got the impression from your post that you thought the Child Tax Credit would "refund", and they are two different Credits, figured on different worksheets.

I prefer to
keep my replies simple and help by pointing the author in the right
direction rather than confusing them with technical tax terms and the boring
details of the US tax code.

He might be confused in thinking the Child Tax Credit COULD refund him money.

Also, giving specific tax advice online without
all the details would be irresponsible.

It happens all the time on these forums, usually because the poster didn't know enough about the subject to provide the necessary information, or ask the correct question. A considerable amount of extrapolation is often necessary. Was there something wrong with my advice? I find if I make a mistake, several of you are available to set things straight.
However, I'd be happy to discuss
any tax issues with you in detail in the appropriate forum for this at the
misc.taxes and us.taxes newsgroups.

Wern't we supposed to get into detail on this forum? The forums you refer to seem to be for tax protestors, not meaningful discussions, and are not TMF forums.
Oh and by the way its called the
Self-employment tax not Self Employed Social Security. :)

Bob

In the interest of clarity I refer to it as SESS because that is what it is and it avoids confusion to the person first coming into contact with it. Since you mention it, I'll post a good question for you on the us.taxes newsgroups, title 4972s. I just got another non-answer from the IRS. Enjoy. ;>) Ed

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Author: BobCPA Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17315 of 121598
Subject: Re: Child Tax Credit Date: 7/14/1999 6:56 PM
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I'm sorry, Bob, if I said something wrong or offensive. I was trying to clarify the poster's frustration of having credits he couldn't use and your post seem to infer he could possibly use them.

Ed,
No offense taken. But what I was implying (since it was my reply) is that if he couldn't use the child tax credit to offset income tax, that in some cases he "could" use the unused portion of it in some form to get a refund. Because if the unused child tax credit is $0 the (refundable) additional child tax credit is $0. I didn't go into the details of how to compute the 2 worksheets and additional form 8812 to calculate the additional child tax credit (i.e. take the amount from line 7 of the child tax credit worksheet and put it on line 6 of form 8812... blah, blah, blah). This would have been more confusing then simply mentioning the fact that the unused portion of the child tax credit could be used in "ultimately" getting him a refund. Maybe I should have mentioned the additional child tax credit as well, but his post asked about the child tax credit. If you don't follow the logic in that then lets just agree to disagree and not waste the time of the good people here with a flame war. Besdies, I'm sure the IRS would be able to explain this more clearly to TomDA then either one of us. ;^)

Bob

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17331 of 121598
Subject: Re: Child Tax Credit Date: 7/14/1999 10:32 PM
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[[ If you don't follow the logic in
that then lets just agree to disagree and not waste the time of the good people
here with a flame war.]]

I'd certainly agree with that. And thanks to both of you for at least being civil in your discussions. Many other message folders aren't as polite when dealing with disagreements.

[[ Besdies, I'm sure the IRS would be able to explain this
more clearly to TomDA then either one of us. ;^)]]

If TomDA would like more information on the Child Tax Credit and the Additional Child Tax Credit, he can read what the IRS has to say about it in IRS Publication 553 at the IRS web site.

And, actually, the IRS doesn't do a bad job in this publication.

TMF Taxes
Roy

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