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.

For more on TaxAssurances, check out our reviews, photos and links on Yelp.

Also, here is a link to our Signup Form to subscribe to our list.

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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.

For more on TaxAssurances, check out our reviews, photos and links on Yelp.

Also, here is a link to our Signup Form to subscribe to our list.

Benefits Of Reviewing Prior Year Tax Returns

IRS4Did you have your tax preparer look at your returns for the last few years? It’s a good idea for taxpayers to review their returns every year. In many cases the review may reveal missed credits and deductions taxpayers may be entitled to that ultimately give them a bigger tax refund.

Review Last Three Tax Returns

This past tax season I reviewed the last three tax returns for one of my clients. In the end, she was grateful I did. Not only had she done her own tax returns without knowing all of the educational credits she was entitled to but she also received bad advice from a co-worker about the number of exemptions/allowances to claim on her paycheck.

She did take some of the educational credits she was entitled to but because she didn’t realize the true extent (and calculation) of the tax law and credit available, she didn’t take the full credit.

Positive Review Results

The review I did revealed that extra unclaimed credit and resulted in her owing the IRS $300 instead of $1900. A huge difference, especially considering she hadn’t started to pay those taxes because she didn’t have the money.

We also fixed the number of exemptions/allowances on her paycheck based on her circumstances.

Not Just “Plugging Numbers into a Computer”

After going through this review process my client realized that filing taxes was not simply “plugging numbers into a computer.” She realized that she was good at her job but when it came to tax law and taking advantage of all the credits and deductions she was entitled to, she needed an expert.

She also helped the effort by telling me everything that happened in her financial life over the past three years, no matter how small the event may have seemed. This was important because given the complexity of the American population; the IRS has built in a number of credits and deductions to help taxpayers from different walks of life. Preparers know more about these benefits than taxpayers.

In the end for many Americans preparing taxes may seem like an easy undertaking of just plugging numbers into a computer but if they are not careful, they may be missing out on credits and deductions they are entitled to. Working with a qualified tax preparer can help ensure the right credits and deductions are taken.

 

For more on TaxAssurances, check out our reviews, photos and links on Yelp.

Average Tax Prep Fee Inches Up to $273 (REPOST FROM ACCOUNTING TODAY)

REPOST FROM ACCOUNTING TODAY:
WASHINGTON, D.C. (JANUARY 14, 2015)

The average fee for preparing a tax return, including an itemized Form 1040 with Schedule A and a state tax return, will increase a few dollars to $273 this year, a 4.6 percent increase over the average fee of $261 last year, according to a survey by the National Society of Accountants.

The figure also represents an 11 percent increase from two years ago when the survey was conducted.

The average cost to prepare a Form 1040 and state return this season without itemized deductions is expected to be $159, also a 4.6 percent increase over the average fee last year, which was $152. It is an 11.2 percent increase from two years ago.

“When you consider that it takes the average taxpayer five hours to complete a tax return, this is a very strong value,” said NSA executive vice president John Ams in a statement. “The tax code continues to become more complex each year, including some new Affordable Care Act reporting requirements. Professional tax preparers may also be able to find tax deductions and credits that may taxpayers might not notice.”

The NSA collected the fee information during a survey of preparers. The tax and accounting firms surveyed are owners, principals, and partners of local “Main Street” tax and accounting practices who have an average of more than 27 years of experience.

NSA member tax preparers typically hold multiple credentials that demonstrate their expertise, including Enrolled Agent, CPA, Accredited Tax Preparer, Accredited Tax Advisor, and others.

The survey also reported the average fees for preparing additional Internal Revenue Service (IRS) tax forms, including $174 for a Form 1040 Schedule C (business), $634 for a Form 1065 (partnership), $817 for a Form 1120 (corporation), $778 for a Form 1120S (S corporation), $457 for a Form 1041 (fiduciary), $688 for a Form 990 (tax exempt), $68 for a Form 940 (Federal unemployment), $115 for Schedule D (gains and losses), $126 for Schedule E (rental) and $158 for Schedule F (farm).

The NSA noted that the fees vary by region, firm size, population, and economic strength of an area.

The average tax preparation fee for an itemized Form 1040 with Schedule A and a state tax return in each U.S. census district are:

•    New England (CT, ME, MA, NH, RI, VT) – $246
•    Middle Atlantic (NJ, NY, PA) – $314
•    South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) – $268
•    East South Central (AL, KY, MS, TN) – $262
•    West South Central (AR, LA, OK, TX) – $205
•    East North Central (IL, IN, MI, OH, WI) – $240
•    West North Central (IA, KS, MN, MO, NE, ND, SD) – $198
•    Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) – $256
•    Pacific (AK, CA, HI, OR, WA) – $348

Most accounting firms offer prospective clients a free consultation, the NSA pointed out, which can be worth well over $100 based on the hourly fees of most tax preparers.

All the fees cited assume a taxpayer has gathered and organized all the necessary information.

Taxpayers should also make sure they provide information on time to avoid additional fees, the NSA noted. Many tax preparers will charge an average fee of $114 for dealing with disorganized or incomplete files.

Some will charge an average fee of $42 to file an extension, an average fee of $88 to expedite a return, and an average fee of $93 if information is not provided in advance of an agreed-upon deadline. For taxpayers who are audited by the IRS, the average hourly fee to handle the audit is $144.

For more on TaxAssurances, check out our reviews, photos and links on Yelp.