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