Co-Parenting and Tax Returns

I’ll say this in my experience with tax refunds and parents with children. Most cases, the mother takes care of the child(ren) most if not every day. New clothes, colds, doctors visits, bedtime stories, homework, sleepovers, school trip money, juice in the middle of the night etc. Also, daycare is not cheap Usually, because of all of this, the mother gets most if not all of the tax refund money.

Depending on the relationship, some mothers may share a portion of the refund. Especially, if the father is very involved but the child(ren) doesn’t live with him.

Some may even trade who claims the child(ren) for a particular year. Even year is for the mother and odd year is the father. If there are multiple children, they may split who claims which child.

But for the most part, mothers claim the child(ren) and keep the refund to use for the remainder of the year or so.

Now every so often, the couples hate each other and they race to the tax preparers’ office to file the return.

Here’s how the IRS decides who gets to claim the child(ren) and get the refund.

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A Checklist and Books from TaxAssurances for the Tax Season

Tax season is here and TaxAssurances is here to help tax payers prepare for it. Every year we give our clients a checklist for all the information we need in order to prepare their returns. Here is that checklist.

TAX PREP CHECKLIST

At TaxAssurances we also recognize that many people want to prepare their own tax return. Here are two books we’ve published to help.
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   3D

The first book, Top 12 Tax Deductions You Might Have Missed: Tax Tips For People Who Do Their Own Federal Taxes is for tax payers that file simple tax returns but want to make sure they take advantage of all the tax benefits possible.

The second book, Top 23 Tax Deductions You Might Have Missed: Tax Tips For People Who Do Their Own Federal Taxes is for tax payers that file complex and complicated tax returns.

Both books help self filers make sure they uncover all the possible deductions they have available. We hope they help.

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Chapter from TaxAssurances’ Book: Child Tax Credit

 

The following post is a chapter in the TaxAssurances’ book, “Top 12 Tax Deductions You Might Have Missed. Tax Tips For People Who Do Their Own Federal Taxes.”

You can purchase the full book on Amazon.

Chapter 1  Child Tax Credit

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Besides being a blessing to a parent’s life, children can provide some real tax benefits. There are a few to consider.

First and foremost, they increase the number of exemptions and deductions a parent can have on their tax return. That’s a great start. But in this chapter, we’ll specifically discuss the child tax credit.

The $1,000 credit per child helps lower a parent’s tax liability for the year. And parents can use the credit for each one of their children.

There are some requirements to take the child tax credit and the IRS has provided some guidance. Here’s exactly what they say:

A qualifying child for purposes of the child tax credit is a child who:

  1. Is your son, daughter, stepchild, foster child, adopted child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, your grandchild, niece, or nephew),
  2. Will be under age 17 at the end of the year,
  3. Did not provide over half of his or her own support for the year,
  4. Lived with you for more than half of the year (with certain exceptions),
  5. Is claimed as a dependent on your return,
  6. Does not file a joint return for the year (or files it only to claim a refund of withheld income tax or estimated tax paid), and  
  7. Was a U.S. citizen, a U.S. national, or a U.S. resident alien. For more information, see Pub. 519, U.S. Tax Guide for Aliens. If the child was adopted, see Adopted child.

Now, it is worth noting that the IRS imposes limits on taking the credit. Also, some parents may not be able to take the credit at all. Here’s what they says about those limits specifically:

You must reduce the maximum credit amount of $1,000 for each child if either (1) or (2) applies. 

  1. The amount on Form 1040, line 47; Form 1040A, line 30; or Form 1040NR, line 45, is less than the credit. If this amount is zero, you cannot take this credit because there is no any tax to reduce. But you may be able to take the additional child tax credit. This credit is for certain individuals who get less than the full amount of the child tax credit. The additional child tax credit may give you a refund even if you do not owe any tax. 
  1. Your modified adjusted gross income (AGI) is more than the amount shown below for your filing status. 
  1. Married filing jointly – $110,000. 
  1. Single, head of household, or qualifying widow(er) – $75,000. 
  1. Married filing separately – $55,000.

Now if that seems confusing don’t worry. The tax prep software works out the details for you. Just know that it is a credit that should appear on your tax return if you qualify.

So if you’re a parent that meets all of these qualifications, make sure you include all your child’s information on your tax return. It can help lower your taxes and potentially get you a larger tax refund.

For more information about the child tax credit and the additional child tax credit, read IRS Publication 972 on the IRS.gov website.

Again, You can purchase the full book on Amazon.

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Alimony Payments Are Tax Deductible

Here’s how the IRS describes what is tax deductible when it comes to divorce or separation:

Amounts paid under divorce or separate maintenance decrees or written separation agreements entered into between you and your spouse or former spouse are considered alimony for federal tax purposes if:

  • You and your spouse or former spouse do not file a joint return with each other
  • You pay in cash (including checks or money orders)
  • The payment is received by (or on behalf of) your spouse or former spouse
  • The divorce or separate maintenance decree or written separation agreement does not say the payment is not alimony
  • If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment
  • You have no liability to make the payment (in cash or property) after the death of your spouse or former spouse, and
  • Your payment is not treated as child support or a property settlement

So as you can see, for taxpayers that are going through a divorce and have to pay alimony there is a silver lining. The payments are tax deductible.

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Gambling Losses are Tax Deductible

Gambling losses are tax deductible. But don’t go running out to your favorite casino and gamble a bunch of your money away thinking you’re going to get a tax deductions. Doesn’t work that simply.

Your gambling losses can be used to offset any gambling winnings you had during the year. Because as a quick reminder, you have to pay federal, state and maybe even local (like New York City) taxes on any money you make gambling.

Here’s how the losses help.

Let’s say you win $1,000 for the year gambling. Yeeee! The downside again is that it’s all taxable.

Now, let’s be honest and say you actually lost $3,000 during the year on your other gambling. The IRS won’t let you deduct the full $3,000 but they will let you write off $1,000 of those losses to offset the $1,000 gain. That’s how gambling losses help.

The important part in all this, keep receipts to show proof in case they ask for it.

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Children Offer Parents Some Great Tax Benefits

Between child tax credits, child and dependent care credits, an increase in deductions and exemptions, children do give parents some great tax benefits.

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Why Can’t We Just Make Taxes Simpler to Do?

It’s safe to say that most Americans want a simpler way to file their tax returns. It’s a sentiment that we all hear around the country. But the reality of how complicated many people’s lives are make the prospect of a simpler tax return almost impossible.

The tax code will always stay complicated because it incentives certain “trying, positive societal behavior.” Namely, going to college or a trade school, buying a home, running a business that employs people, having a family while working. And many others.

Yes, there is abuse and there is a need to fix a lot of our tax code. However, lets think about this scenario. If I sit in my relatives garage playing video games (not as a job) all day and contribute nothing to society, should I get the same treatment as someone who is “trying?” Going to school, struggling with daycare, etc.

That’s why the tax code will always be complicated in a nation of 320 million people.

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