Video: Tax Phaseouts

In this lesson, Nick Palazzolo, CPA, unravels the intricacies of tax phaseouts and their impact on eligibility for credits and deductions. With the goal of ensuring that tax benefits are directed towards lower to middle-income earners, Nick illustrates through the child tax credit and student loan interest deduction how phaseouts gradually reduce these benefits as income rises. He leads you through a series of calculations to demonstrate the phaseout process, clearly showing how benefits decrease as income exceeds certain thresholds and stressing the importance of being familiar with these computations for the exam. By diving into detailed examples, Nick aims to clarify how taxpayers may still qualify for a partial benefit even when their income lies within the phaseout range, equipping you with the knowledge to navigate these rules confidently.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Phase-outs. Now, these phase-outs apply to, as we'll see, many of these credits. And what is the purpose of a phase-out? Well, this is a gradual reduction or elimination of certain tax benefits, deductions, or credits. So phase-outs apply to many different things. First, we're just introducing the concept of a phase-out, how it works. I mean, if you feel completely confident in this, you don't need examples, feel free to skip ahead, but we're going through this, make sure that there's not a single stone left unturned here. And the purpose of this is to make sure that the only more so the lower middle income taxpayers benefit from these credits, deductions, benefits, and higher income taxpayers pay their fair share, they don't get the benefit there. Sorry, higher income taxpayers, but that's what you get there. Now, to understand this, we're going to dive through the child tax credit and the student loan interest deduction. We will dive through these tax credits and deductions later on in the lesson as well. And the numbers here we're going to be using are not particularly accurate. This is just to demonstrate how a phase-out works. The phase-out amounts, these do change year to year annually. Again, kind of just like the credit amounts, if they're memorized, we'll have these in the resources and the memorization guides to make sure you're memorizing those. But for our examples, we'll just be using amounts that are pre-given by us here. So we see here year three, the phase-out amount thresholds are these amounts. These are not the, likely when you're taking the exam, these are not the amounts. These are just made up by us right here. So this credit, and also we're not worried about the specifics of the credit. We're just

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