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 - 039

Dear John, I'm not exactly sure what the difference is between a deduction and and a credit, could you explain it to me? Thank you, Jim-Bob
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Hi Jim-Bob,

Sure thing, a deduction reduces the amount of income that you pay taxes on and a credit reduces the amount of tax that you actually pay. For instance, in the Adjusted Gross Income section of the form 1040 you can enter certain expenses that you may have during the year and they will reduce the income that you earned and it is that reduced income that is used to with your Itemized or Standard Deductions to determine your Taxable Income and it from your Taxable Income that your Tax is determined. Then, after the Tax is determined Credits are figured and these reduce the Tax amount.

There are 2 types of Credits: Refundable and Non-refundable. A Refundable Credit is one that gives you back money even if the Tax that you owe is $0.00 and Non-Refundable credits do not give any money if you are not paying taxes. The Child Credit is a Refundable Credit so this is why you hear of people getting money back even when they are too poor to pay taxes.

I hope this answers your question Jim-Bob,
John

PS. Congress is not likely to continue the tax cuts and credits that were enacted during the Bush administration which means that many of the tax Refunds and Credits that you now enjoy will end after your next tax season. If you need help figuring out what happens, email me.

Your Tax Question - 027

Dear John, I have heard that the Child Tax Credit that returns $1000.00 per child per family will be expiring this year - is that true? Thx, Clair
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Hi Clair,

Yeah, it's true. 2010 will be the last year for the $1000.00 credit and in 2011 the CTC will revert to a $500.00 credit. Unless Congress acts to extend it - that is the plan.

I'm not much of an activist but this is one of the issues that I think I will write Congress about. If you also want to write a letter, here is a list of suites that will help you do that.

1. How to write a letter to Congress.
2. How to find you congressional representatives.

And FYI - I've heard that it is good to sign your name in blue so that your reps know that it is not part of a mass mailing campaign.

Good luck,
John