If your parents are getting older, and you’re starting to handle some of their medical or personal bills, there are some smart ways to help financially — without putting yourself in an economic hole.
Here are three financial tips to lighten the load when you’re providing monetary assistance to your Mom or Dad or allowing them to live with you. [continue reading…]
Q: Can I claim the child tax credit plus the child and dependent care credit?
A: As long as you legally qualify for both credits, you are allowed to claim both the Child Tax Credit and the Child and Dependent Care Credit, according to IRS rules.
To claim these credits on your taxes, simply calculate the amounts of the credits to which you are entitled, then file your 1040 tax return plus any other required forms. [continue reading…]
Nobody likes to pay taxes. In fact, most people prefer to get a little something back from the IRS after filing a federal tax return.
Even though it’s more prudent, financially speaking, to break even – or have to write the IRS a small check – I recognize that lots of Americans love the idea of getting a juicy check from the government during tax season. No wonder, then, that as of March 2011, the IRS says the average tax refund check now tops $3,100.
One way to get the government to send you a juicy check like that is to claim tax credits.
A tax credit reduces the taxes you owe dollar for dollar. What’s even better is that some tax credits are refundable, meaning you get that sought-after check back from the feds.
If you’re looking to fatten your bank account, the IRS wants you know about the following four tax credits that you should consider claiming (if you’re eligible, of course):
- The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
- The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
- The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
- The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
This is just a sampling of federal tax credits. Lots of other ones exist too, and each one is subject to its own qualifications, limitations and rules. But the point is this: if you legitimately qualify for a tax credit, do go ahead and claim it. The refund you could get will make your time and effort worthwhile.
All taxpayers want to lower their tax bills. One way to do it is by claiming tax credits to which you may be entitled. A tax credit is better than a tax deduction, because a tax credit gives you a dollar-for-dollar reduction in what you owe Uncle Sam.
And one of the most lucrative tax breaks the government offers is doled out to parents and others who paid someone else last year to care for their child, spouse or another dependent.
Does this sound like your situation? If so, here are 10 things the IRS wants you to know about claiming the child and dependent care credit on your federal income tax return:
- The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.
- The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
- You – and your spouse if you file jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or were physically or mentally unable to care for themselves.
- The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.
- Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
- The qualifying person must have lived with you for more than half of 2010. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. See Publication 503, Child and Dependent Care Expenses.
- The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
- For 2010, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
- The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
- If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. See Publication 926, Household Employer’s Tax Guide.
Got more questions about claiming this tax credit? Be sure to read IRS Publication 503, Child and Dependent Care Expenses. You an even get the publication free of charge by calling 800-TAX-FORM (800-829-3676).