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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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

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, later.

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 not 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.

2. Your modified adjusted gross income (AGI) is more than the amount shown below for your filing status.
a. Married filing jointly – $110,000.
b. Single, head of household, or qualifying widow(er)
– $75,000.
c. 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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Federal Government Spending on the E.B.T. Card

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The E.B.T. card. For many people, it creates a heated controversy on its need, use, waste and fraud.

In 2015, the federal government spent $103 Billion on E.B.T. card related benefits through the Department of Agriculture.  That’s 2.78% of the $3.7 Trillion that the federal government spent overall in 2015.

Here’s how it was spent and a description of the programs it was spent on:

  • $76 Billion on SNAP

http://www.fns.usda.gov/snap/supplemental-nutrition-assistance-program-snap

  • $21 Billion on Child Nutrition

https://fnic.nal.usda.gov/lifecycle-nutrition/child-nutrition

  • $6 Billion on WIC

http://www.fns.usda.gov/wic/women-infants-and-children-wic

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Money Clubs for Children

zealblack2bboy2band2bpiggy2bbankStarting an after school money club with a few other classmates can go a long way in the development of a child’s understanding of money. They can not only arrange trips to the bank together but they can also sit down every so often and talk about how money affects their lives. This provides a great experience that can go a long way in a child’s understanding of money.

Today many schools do not make money management a part of their daily curriculum. There are a number of very valid reasons why. Something has to be done however to bridge the money intelligence gap. The reason, at a certain point every child will grow up and have to be money smart. Without lessons on money they will have a financial intelligence gap that could hinder them. It won’t help with their family and it won’t help their work life.

Take Children to the Bank

Clubs can do a number of things to promote childhood understanding of money. As mentioned earlier members can take monthly trips to local banks. While they are there, club members can deposit allowance, birthday and holiday money they get from family and friends. They can talk with the tellers, bank managers and other employees about their accounts and how they work. They can also go over many other aspects of banking.

Children Share Reports on Money with Each Other

The young members of the club can also do reports on different aspects of money management and share those finding with their fellow members. They can go over the history of money, report on how salaries work or explain to each other how bills are paid. However, no matter what the money report is about each member gets something that they might not have received before. Those who have, can add to the conversation.

Parents Share Money Ideas with the Club

Another great way for children to bridge the money intelligence gap is to have parents come into the meetings with their own experiences with how to handle money. Parents can do this on their own, through the PTA or working with the local bank representatives.

Children look up to adults and parents especially. Parents can work together on the right ideas and presenters to give their children the best lesson they can on how to handle money.

Children of all ages can start or continue the process of learning about money management along with everything else they need to learn. The challenge however has been how to make that learning happen on a regular basis. Starting and expanding a money club can go a long way in encouraging that learning process.

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Keeping The Dream Alive

older-black-businessmanJerry runs Regal Printing, a successful print shop (C-corporation), he started 25 years ago. He has two employees, but he and his wife are sole owners with all management and decision making responsibility.

Jerry and his wife, Elizabeth, pooled their savings to get the business off the ground and have spent their lives nurturing it. It is by far their largest asset. Their oldest daughter is very active in the business, but their other two children are too young. Will any of their three children run Regal Printing some day? Or perhaps one of their key people? That depends.

Ninety percent of the 21 million U.S. businesses are family owned. Yet only 30 percent of family run companies today succeed into the second generation, and only 15 percent survive into the third (Source: SBA.gov). Business continuation planning can be difficult for your clients, especially with all the day-to-day problems that need immediate attention. But, lack of planning can be devastating. Most likely the 30 percent of businesses that do make it, make it because their owner planned for the orderly transfer of the enterprise.

Jerry and Elizabeth’s situation is common. A family business is often the owner’s major asset. The death or disability of a business owner who is usually the key to the success of a business can seriously damage the business’ value. Good planning can substantially minimize these risks.

Let’s take a look at why some owners plan for business continuation while others do not, the methods and tools to transfer business interests, and how to begin developing a plan.

“Business continuation” planning simply means planning for the transfer of business ownership and management from the current owner to someone else. There are a number of good reasons why owners should plan for the transfer of their businesses, such as avoiding the business passing to under-qualified owners, protecting key employees or raising cash. However, most of the time the planning is done simply to “keep the dream alive” and ensure the business extends beyond the owner’s lifetime as in Jerry’s case. Few business owners work for a lifetime only to consciously decide to let their business dissolve when they’re no longer able to manage it.

Every business owner should consider having a buy-sell agreement to ensure the continuation of the business and to protect the owner and his or her family.However, owners frequently don’t know what they want to do, nor do they understand the various options open to them. Buy-sell agreements work no matter what form a business takes: sole proprietorship, partnership, limited liability corporation, C corporation, or S corporation.

Beyond taking that all-important first step and getting the agreement set up, having the dollars available to make the transfer happen is also key. Generally, the most convenient and thorough method of funding the buy-sell agreement is through life and disability income insurance. Buy-sell agreements funded with life insurance offer these benefits:

  1. Creation of an exit timeline
  2. Determination of a value for the business
  3. Liquidity to support the family
  4. Identification of a transferee

Clearly, a buy-sell agreement best protects owners and families if arrangements are made prior to death or disability. And, funding the buy-sell agreement so the dollars are there when needed is essential. There are a myriad of disability and life insurance solutions for this problem. It’s never too early to plan for the continuation of your business. To get started, ask yourself some general questions:

  •  Why do you want to plan for business continuation, and what do you want to accomplish?
  • When and how do you want to transfer your business?
  • Who are possible candidates to own your business?
  • What do you consider an acceptable value for your business?
  • What problems could arise in the continuation process?
  • Who is available to help you?

First and foremost, assess your business continuation situation carefully so your plan accomplishes your goals. A buy-sell agreement funded with life insurance or disability income insurance may offer some answers to keep the dream alive!

 

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