Pay For Child Care, Get Credit

You may qualify for the Child Care Credit if you are employed and pay for childcare services where you work. There are certain requirements that you must meet in order to claim the credit on your federal tax return. Ask your tax adviser if you need help determining whether you qualify to claim the child care tax credit.

Which Types of Child Care Qualify?

Day care services are the most common types of child care that meets the criteria for the child care tax credit. While overnight camps do not qualify, day camp expenses are eligible. The child care services must be used so you can work or seek regular employment opportunities. Taxpayers can claim the credit whether they file single or jointly. If you are married and you claim the Child Care Tax Credit both you and your spouse must work, or be a full-time student.

Which Children Qualify?

Children who are your dependents and under age 13 who receive care from a qualified child care provider are eligible to have expenses considered under the Child Care Tax Credit. The age requirement is extended for children over the age of 12 who are physically or mentally incapable of self-care. The child must live in your residence for at least half of the year in order for their expenses to be eligible. Major life changes, such as birth, death, or divorce can alter the requirements.

Who is a Qualified Provider?

Certain providers, such as a nanny or babysitter, may provide child care in your home and still qualify. Your spouse does not qualify as a care provider in terms of the Child Tax Credit, nor does care services provided by another dependent child or a non-dependent under the age of 19.

What is the Maximum Credit?

If you pay for care for one child you can claim up to $3,000 of expenses, with the limit extended to $6,000 for two or more children. The credit is then assessed at 20 to 30% of your unreimbursed childcare expenses.

Which Form to File?

When filing your tax return, you must include Form 2441, Child and Dependent Care Expenses. You’ll be required to provide the child care servicer’s contact information, including name address and employer identification number.

Get Educated About these Tax Breaks

The IRS offers some tax breaks that can help you recover some of the money you spent on higher education, such as tuition costs or interest you’ve paid on student loans. This can help make your college education a bit more affordable in the long run.

Tax Credits

There are two different tax credits that you can assess to your expenses in terms of supplies, books, equipment fees, and tuition. These credits have different rules, so check to see which you qualify for:

• American Opportunity Credit: Claim up to $2,500 for the first four years of post-secondary school
• Lifetime Learning Credit: Claim up to $2,000 per student year, applicable to any fees or required tuition in order to attend

Students may be able to add some extra cash to their pocket even if they aren’t required to file a tax return. Some of the additional student credits may be available in these situations.

Student Loan Interest Deduction – If you used student loans to pay for your education, you are eligible to deduct any interest you paid during the tax year. This deduction works for any loans, not just federal loans, which were used for higher education. The deduction caps at $2,500 each year.

IRA Disbursements – You are eligible to use disbursements from your IRA in order to pay for higher education expenses for yourself, spouse or dependent. The total is subject to federal income tax, however you won’t be assessed early withdrawal fees.

Personal Exemption Is Your Gift

Don’t say the IRS doesn’t give you anything. While you’re forced to pay taxes, the IRS offers a personal exemption just for doing so. That means you get a deduction of a set amount each year just because you pay taxes. In 2015, the personal exemption amount is $4,000, which is an increase of $50 over last year.

There are no specific requirements in order to claim a personal exemption. They are available to every taxpayer who files a return. If you’re married, both you and your spouse are eligible to claim a personal exemption as long as they file jointly, meaning their return will have two exemptions listed. Those who file separately from their spouse are only able to claim their spouse’s exemption if the spouse has zero income and is not a dependent of another taxpayer.

Dependents who are claimed on another’s tax return are not eligible for a personal exemption. This generally occurs when children have income and have to file a tax return of their own, but are claimed as a dependent on their parent’s return. In these situations, the child cannot claim a personal exemption on their own return.

Dealing with Dependent Friends

Dealing with Dependent Friends

You like to be there for your friends, especially when they need a little help getting on their feet. For those friends who have become non-rent paying roommates and are spending nights on your couch, you may be able to get a tax benefit by claiming those friends as a dependent.

Many people think only children and relatives can be claimed as dependents on tax returns. However, if you are supporting your unrelated friends, you may be able to claim them as a dependent, especially if you are providing shelter for them. The theory behind this allowance is that often these friends don’t file their own tax returns, meaning they don’t claim a personal exemption. It’s also thought that you will share your return with them.

What Criteria Must My Friends Meet?

Your friends don’t need to be of the opposite sex as you in order to claim them as a dependent. You are legally able to claim your friends who meet the five criteria set forth by the IRS:

You must be responsible for providing half of the other person’s support through the entire tax year. Support includes food, shelter, clothing, health care, education expenses, and other personal expenses.

Your friend must be a legal citizen of either the United States, Canada, or Mexico, or be a resident alien.

Your friend can’t make more than $3,950 in total taxable income. Gifts, welfare benefits, Social Security, or other nontaxable benefits are not included in income.

Your friend needs to have resided in your home for the entire tax year.

The person you are claiming as a dependent can’t file a joint tax return with their spouse. The only time this is acceptable, is if the dependent is filing for purposes for a refund only, because their income (combined with their spouse) is less than the required amount needed to file a return.

If your friend meets the five criteria, you’ll likely be able to claim him or her as a dependent on your taxes. This is the best reward for being a good friend.

Caring for Your Dependents

Caring for Your Dependents

Many taxpayers require a little extra help when it comes to taking care of their dependents. Those who hire professional care for their disabled relatives or childcare for their children younger than 13 so they can work may be eligible to recoup their expenses through the Child and Dependent Care Credit. This tax credit is worth up to 35% of qualifying expenses incurred due to the care of a dependent while you are at work.

Who is Eligible?

Taxpayers are eligible to receive the Child and Dependent Care Credit if they have paid for professional childcare services for any child under age 13. Children over the age of 12 may be eligible if they are not capable of self-care due to a disability. 

You will be required to provide proof that the dependent cannot take care of himself. Also, you’ll need to prove that you were employed, or sought employment, as a result of having the childcare. In situations where your employer offers childcare benefits, you’ll need to deduct the amount from your expenses prior to claiming the credit.

Another stipulation states that the dependent must have lived in your home for more than half of the year. You are required to have provided support to the child or disabled adult in terms of their living expenses. There are times when the noncustodial parent is eligible to claim the child as a dependent, if the child’s parents are divorced. In these cases, the parent with whom the child lives with can claim the credit, even if the child isn’t that parent’s dependent.

There are certain requirements that the care provider must meet in order to be eligible for the parent to claim the credit. When filing, you’ll be asked to provide the caretaker’s name, address, company name (if a business), as well as a tax ID number which is usually their social security number or employee identification number if they work within a company. This information is filed on Form 2441 in which the Child and Dependent Care Credit is claimed.

Child Care Tax Credit

Child Care Tax Credit

Finding someone to care for your child while you work or during school holiday can tie up a large portion of your budget. Sending your kids off to school can account for a much of your childcare needs, but if your children are younger than school age, or if they are on summer vacation, you’re likely to pay more money for childcare. The government wants to help parents offset the cost of childcare expenses incurred for children under thirteen by offering a tax credit. The child for whom the care is rendered must be the taxpayer’s dependent, and separate rules apply to parents who are divorced or separated.

There are different type of child care that qualify for the tax credit. It’s important to be aware of the qualifying care so you can maximize your benefits and cut back your expenses at tax time.

Camp: If you send your child to a day camp, even specialized camps (those that focus specifically on a single sport or craft), you may be entitled to the tax credit. It’s imperative that the day camp follows all state laws in correlation with other care centers. Camps where the child stays overnight don’t qualify.

Expenses for School Costs: Expenses for care before or after school for children in kindergarten or higher qualify for the Child Care Tax Credit. Even those children who aren’t yet at the kindergarten level may qualify if they have school related expenses.

Day Care Center: Facilities who serve six or more children qualify for the credit if they abide by all laws, both local and state. Parents whose children attend a qualifying day care center are eligible to claim the credit.

Care at Home: This is an important distinction. If you pay someone to watch your child in your own home, you do not qualify for the credit. This is because the caretaker would be your employee, and you should be following payroll rules and taxation.

The Child Care Tax Credit ranges between twenty and thirty five percent of your expenses, in relation to you annual income. The higher your income, the less of a credit you are entitled to. For one child, the credit may be worth anywhere from $600 to $1,050, because you can claim up to $3,000 of expenses for the year. For more than one child, the expense limit is increased to $6,000, however that is the maximum amount regardless of how many children are given care.

You will be required to submit information about the child care facility, such as the provider’s name, address, tax ID number for those organizations who are not exempt. You should ask for all of this information upon payment of the service, so you are able to claim the credit.

Some states offer a tax credit in addition to the federal credit. If you reside in a state that has this option, you may need to provide additional information like a phone number, in order to claim the expense. You can also qualify for the credit if you file a joint return with your spouse, provided your spouse is a full time student. Additionally, those who are the primary caretaker for their disabled spouse may qualify for the credit.

Let’s Make Amends

Let’s Make Amends

If you've found errors on your tax return after it’s been filed, you may need to file an amended return, depending on the type of error and the circumstances of the return. However, determining when to file an amended return can be a complicated process.

In some cases, taxpayers may notice that their previous year dividend income has changed after they received their statement from their financial institution. If the change is a minimal amount, despite being enough to warrant a small refund, many financial counselors recommend ignoring the difference. Often, it’d cost more to file the updated return than it’d be worth.

However, if you are notified of a pending refund that concerns a large sum of money, you’ll want to change your tune. The IRS suggests that you file an amended return if there was an error in filing status on your original return. Filing status can affect income, deductions, and credits, and taxpayers who file an amended return should use Form 1040X. It’s also necessary to determine the specific requirements for your state, and abide by them.

According to the IRS, the best practice when expecting a refund from the original return, is to wait to file your amended return until you after you’ve already received the refund. It can take 12 weeks to process a Form 1040X request, but it is acceptable to cash the original refund check while waiting on an amended return.

If you owe additional taxes, the IRS expects payment of the balance as soon as possible. You should abide by this expectation in order to avoid unnecessary interest and penalties.

The status of your amended return is available three weeks after you submit. You can check the status via the IRS website (irs.gov) and clicking on the link: “Where’s My Amended Return?” If you don’t have access to the internet, you can call the IRS hotline at 866-464-2050. The tracking system can provide the status of an amended return for the previous three years.