Your Tax Question - 063

Dear John, Is there really a tax deduction for my child's day care? Thanks, Wilma

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Hi Wilma,

There is not a deduction but a Child and Dependent Care Credit. (Credits are always better than deductions).

Here are the details.

1. 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.

2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.

3. You – and your spouse if you are married filing 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 they were physically or mentally unable to care for themselves.

4. The payments for care cannot be paid to your spouse, 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.

5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.

6. The qualifying person must have lived with you for more than half of the year.

7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.For 2009, 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.

8. 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.

9. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax.

There's a lot of little details but it is worth wading through them if you had care expenses. Please let me know if I can help.

Thanks,

John

Your Tax Question - 062

Dear John, Will I qualify for the EIC this year? Thanks, Frank

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Hi Frank,

Um, usually I require a little more information but I'll tell you what I know.

Here are the 2010 tax year income limits, maximum EITC amount and the EITC-related tax law changes. You can also access the information for:

2010 Tax Year

Earned Income and adjusted gross income (AGI) must each be less than:

• $43,352 ($48,362 married filing jointly) with three or more qualifying children
• $40,363 ($45,373 married filing jointly) with two qualifying children
• $35,535 ($40,545 married filing jointly) with one qualifying child
• $13,460 ($18,470 married filing jointly) with no qualifying children

Tax Year 2010 maximum credit:

• $5,666 with three or more qualifying children
• $5,036 with two qualifying children
• $3,050 with one qualifying child
• $457 with no qualifying children

Investment income must be $3,100 or less for the year.

The 2010 Tax Act extended the previous EIC extensions through 2012. And remember, this credit is a refundable credit that returns any amount below $0 to you.

While I am not sure of your specific situation Frank, you should be able to assess it for yourself with the information that I have provided.

And remember, should you want some help with this - I would love to prepare your taxes. ;-)

John

Your Tax Question - 061

Dear John, So is it true that this is the final year for the $1000 per child tax deduction? I was really like this little reduction from the taxes that I pay each year. Please let me know. Sincerely, Angela
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Hi Angela,

The child tax credit was due to expire after 2010 but it has been extended for two years. The child tax credit allows parents to reduce their federal tax bill by up to $1,000 for each qualifying child under age 17.

Also, the expansion of the Earned Income Tax Credit included in the economic stimulus package will continue for two more years as well. But I will leave that for another post.

Thanks,

John

PS. As of now, there are only 76 more days until tax day. If you could use a tax preparer I happen to know this really cool guy that does this sort of thing.

Your Tax Question - 060

Dear John, I see that you are marketing yourself to single moms. Really, if you seriously want to help single moms you should do their taxes for FREE. This just sounds like a crafty way to get business because you don't really care about single moms. You poser! T

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Hi T,

My first thought was just to ignore this question but I thought better of it. I suspect that if you have these thoughts of me then other people may have them too. So I will address it.

1. No, I am not marketing myself to single moms, I am marketing myself to everyone but I am intentionally promoting my services to single moms.

2. Yes, I am trying to gain business for only a fool goes into business to not desire business.

3. As for your accusation about me "not really caring about single moms"? The reality is that I cannot afford to do taxes for FREE as I have a considerable amount of money invested for this tax season (considerable for my budget that is). The software I purchased only allows me to do 50 returns for the year with which to try to regain my investment - if I give those 50 returns away for free then I won't be able to offer tax services again next year. However, since you have come to the aid of single moms and apparently care, I will be very happy to send them to your FREE tax services. Please let us know where that is. (I'm sorry, was that last part snide and sarcastic? Hmmm, my wife says I need to work on that.)

John

PS. What is a "Poser" anyway?

Your Tax Question - 059

ATTN: MY COMPUTER SYSTEM IS UP AND RUNNING - LET"S GET THIS TAX YEAR MOVING!

Dear John, I've heard that there is a wait on doing taxes this year. Is this true? Thx, Shirley

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Hi Shirley,

If you

1. itemize your deductions

2. claim the teacher out of pocket expense

3. or claim the higher education credits

the IRS has said that you are to wait until February 14 to file your taxes with them. The reason for the delay is that Congress did not get their stuff wrapped up until December 17th so the IRS was forced to change these systems until after that time.

Thank you,

John

Your Tax Question – 058

Dear John, I have recently gained employment that grants me a fairly large salary. I have heard of a thing called the “Pease” limitation of deductions for high wage earners. At which point in my income will this Pease limitation affect me? Thanks, Evelyn
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Hi Evelyn,

Congrats on the new job!

For high wage earners the Pease limitation was adopted by Congress to decrease the amount of the income deductions of higher wage earners. It was a 3% reduction on an amount over a specified AGI.

In 2001 the Pease limitation was scheduled to be phased out over time until in 2010 it was eliminated completely. It was set to be reinstated for 2011 but the 2010 Tax Relief Act that was adopted by Congress on December 17^th, 2010 eliminated it all together for another 2 years – until December 31, 2012.

So I say all this to inform you that the Peace limitation on deductions will not affect you until your 2013 taxes. We’ll see what happens then.

Enjoy,
John

Your Tax Question – 057

Dear John, Is it true that I need to wait until after February 15^th to do my taxes this year? Sincerely, Jules
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Hi Jules,

Because congress did not get things wrapped up until mid-December of 2010, the IRS has been scrambling to get their systems changed. For that reason the IRS had informed preparers that beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917, and the educator expenses deduction. So Jules, if you are not one of these effected people you are free to submit your return at any time.

With that said, I also suggest that my clients wait until after February 15^th to do their taxes if they have any dealings with brokerage firms as these firms are not required to have 1099-INT’s to their clients until that time anyway.

I hope this helps,
John

Your Tax Question – 056

Dear John, I had a business trip to L.A. and while I was there I visited some friends and even did some sightseeing. My accountant told me that because I did these things that the trip is not deductible as a business expense. I don't really buy his answer, what do you think? Thanks, Pocko
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Hi Pocko,

Well, I am going to guess that you have had a misunderstanding with your accountant or I don’t have all the facts. From what you have told me I would say that yes, the business portion of your trip is expendable. Here’s how it works.

First, what was the primary purpose of the trip – business or personal? If business then you may move ahead , if personal then you are out of luck.

Was the business purpose of the trip more or less than 50%? If more than 50% then you are allowed to expense but your personal lodging, meals, and incidentals are not allowed, if less than 50% then you do not have a business expense at all.

So let’s say, for instance, you had 2 days business & 1 day personal (66% business, 33% personal). Your flight to LAX is fully expensed but your lodging, meals, and incidental costs must be reduced by the personal amount (33%). Then, your meals have to be reduced by 50% as only 50% of business meals are allowed to be claimed by the IRS.

You see, I expect that there is a communication break-down between you and your accountant because I don’t know of any real accountant that does not know how to properly expense business items. However, should your accountant be someone who should have retired 35 years ago and you find yourself in need of a new accountant – please don’t hesitate to call on me.

Thanks,
John

Your Tax Question - 055

Alright, so this is not a question, rather it is just me passing on information that you may not know...

Did you know that the State of Michigan helps low income households with their heating bill? It's called the Michigan Home Heating Credit and depending on your income status, the number of exemptions that you claim, and the amount paid to heat your home last year, you may qualify for help. It is something that you need to keep in mind when you have your taxes prepared.

It just so happens that I know a pretty decent tax preparer who would love to help you with this. Email me and we can talk.

John

Your Tax Question - 054

Dear John, I have a neighbor who really has no money but still has to file a tax return. Can you help him? Thanks, Paul.

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Hi Paul,

Well, I am not exactly sure where you are writing from I do know that there are volunteers centers to help people who cannot afford to have there taxes done. For instance, Macomb County, MI has a list of such sites in various communities. They also provide for assistance to elderly people who cannot get out to a tax office. Click here for the Macomb County list as of January 21, 2011.

Hope this helps,

John

Your Tax Question - 053

Dear John, I received a 1099 MISC from a company that I am an independent-distributor with. What should I do with this document for tax purposes. Thank you much, Darla
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Hi Darla,

A 1099 informs you and the IRS that you were paid. You can simply claim this on your 1040 but any losses that are realized are limited to your revenues. In other words, your efforts are considered a hobby. If you are pursuing your distributorship with a profit making intent then you are officially a business and should be set up as such.

After that, the income that you will recognize will be subject to Self-Employment taxes (anything >$400.00) and will need to be dealt with. I don't know what sort of money you are realizing but remember that if your 1040 shows that you owe over $1000 in taxes you will be automatically put on quarterly tax payments. The reason this is important to note is because your business (distributorship) must pay an estimated quarterly payment on expected income or the IRS will fine you for not paying in a timely manner.

If you need help with this I work to to serve.

Thanks,
John