> snipped-for-privacy@yahoo.com wrote:
>>> Looking at my 1040 from 2006, I can see that my total
>>> credits (line 56) nearly equaled the tax I owed (line 46).
>>> Based on what the form says, and what is in p970
>>>
>>> "The lifetime learning credit is a nonrefundable credit.
>>> This means that it can reduce your tax to zero, but if the
>>> credit is more than your tax the excess will not be refunded
>>> to you."
>>>
>>> I can expect to "lose" money if the credits ever exceeded
>>> the tax I owed.
>> No, it just means that your tax liability is zero. Your
>> after tax income is higher -- which translates to a "gain".
> I guess what I meant by "lose" was that if my credits (line
> 56) were 2500 and the taxes I owed (line 46) were 2000, then
> I wouldn't realize the full benefit of the $2500 in credits.
> I looked up the definition of after-tax income and I think I
> understand the concept, I'm just not sure how to calculate
> it. Would my after-tax income be line 38 minus line 63?
Close enough
>> Having said that, I expect that the two
>>> values will be nearly equal again this year. Little has
>>> changed for me (income is up a bit, filing status is the
>>> same, number of exemptions is the same, itemized deductions
>>> will be about the same, etc.).
>> Your point is...?
> My limited understanding was that if there was a significant
> change (E.g. income dropped by 33%) it might impact the
> balance between my credits and the taxes I owed, and
> ultimately dictate which strategy/ ies I could employ to
> maximize the benefit of the credits I would receive. My
> apologies if the information was unnecessary.
>>> However, should something happen between now and the end of
>>> the year (E.g. loss of employment), which drastically
>>> lowered my AGI, I was wondering if I could delay the claim
>>> of my Lifetime learning credit for 2007 until my income
>>> climbed again (I.e. 2008, 2009)?
>> Not unless you can delay payment of the educational expenses
>> to the future year. I doubt that the school would approve
>> that!
> Ok, if I understand you correctly, education credits (or at
> least LLC) must be claimed for the same tax year in which
> the expenses were incurred, or rather paid?
Correct
>> If not, are there any other
>>> strategies I could employ to keep my tax owed high enough to
>>> maximize the benefit of the credits (I.e. itemize some
>>> deductions in a subsequent year, generate more interest
>>> income through investments to bring up AGI)?
>> You could always "elect" NOT to itemize deductions, using
>> the credits instead to reduce your tax to zero. Note that
>> deductions can only be claimed in the year paid, not carried
>> forward at your convenience
> The benefit of not itemizing deductions in this scenario
> would be (a) less work (b) less chance a making a mistake on
> my return (c) something else??
The reason I suggested you not itemize is that the Standard Deduction would probably be smaller than your itemized deductions (otherwise, why itemize?) and would reduce your taxable income less. The calculated tax would be higher, thus allowing you to use more of the credits you might have to reduce the tax to zero. While your (a) and (b) reasons are valid, I was being somewhat facetious with my comment.
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