Thursday, January 31, 2013

Child and Dependent Care Credit

Eleven Things About the Child and Dependent Care Credit

Paid someone to watch the kids so you could work?  You may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are 10 things to know about claiming a credit for child and dependent care expenses.
  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.
  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 file jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment.
  4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return.  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 2010.
  7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.  It is a sliding scale as your income increases with a floor of 20%.
  8. For 2010, 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.
  9. 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.
  10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay social security and Medicare tax and pay federal unemployment tax.
  11. Child care expenses can be associated with before- and after-school care, day camps and similar programs, as well as pre-school expenses. The Internal Revenue Service has determined that children who are in kindergarten do not qualify for the deduction because it is an educational cost. This is true even if the cost is for a private school that has a full day of kindergarten. Day camps must not be overnight camps to qualify as deductible.  The IRS has indicated that the costs of sending a child to overnight camp are not employment-related.

Thursday, January 24, 2013

I have been asked a couple of times this tax season when.....

When are Social Security benefits taxed!  The easy answer, when you......ok let's look....

How is Social Security Income Taxed?
When your retirement is approaching you have look at everything – such as all of your income streams retirement and your living expenses you’ll be expecting.  Something that you also want to check are taxes you’d be expected to pay, specifically taxes on your Social Security income.  Key question: Will My Social Security Income Be Taxed?

Not everyone has to pay taxes on their Social Security benefits. To see if your Social Security will be taxed, you have to look at your combined income and your marital status. According to IRS the income thresholds for Social Security are:
  • If you’re single and your total combined income (see below) for the year is between $25,000 and $34,000, then up to 50% of your benefits can be taxed.
  • If you’re single and your total combined income for the year is greater than $34,000, then up to 85% of your benefits can be taxed.
  • If you’re married filing jointly and your total combined income for the year is between $32,000 and $44,000, then up to 50% of your benefits can be taxed.
  • If you’re married filing jointly and your total combined income for the year is greater than $44,000, then up to 85% of your benefits can be taxed.
* Combined Income-Combined income when figuring tax on social security income is Adjusted Gross Income plus nontaxable interest plus 1/2 of social security benefits.

Thursday, January 17, 2013

Possible home office scenarios for an S corp

Some potential uses of the home office deduction from the perspective of the S corp...
If you are an employee of your own one-man corporation, whether a regular “C” corporation or a “sub-chapter S” corporation, you have three choices for handling the costs of a qualifying home office:
• You can deduct the costs as an unreimbursed “employee business expense” under “Job Expenses and Most Other Miscellaneous Deductions” on Schedule A. Expenses in this category of itemized deduction are only deductible to the extent that the total exceeds 2% of your Adjusted Gross Income.
• The corporation can pay you rent for the home office.
• The corporation can pay you for the costs of a home office under an “accountable” plan for employee business expense reimbursement.

The third option, being reimbursed under an accountable plan, provides the greatest tax savings. It is an excellent way to get money out of your closely-held corporation tax-free. The corporation can deduct the amount of the reimbursement and you do not have to report the payment as income.
This option is “more better” than having the corporation pay you rent for the home office. While your corporation can deduct the rent paid to you, you must report the rent as income on Schedule E. You can only deduct the pro-rated share of real estate taxes, mortgage interest and casualty losses against the rental income on Schedule E, expenses that are otherwise deductible in full on Schedule A. You cannot deduct the proportionate share of any other expenses "with respect to the use of [the] dwelling". While this generally includes insurance on the dwelling, repair and maintenance on the dwelling, depreciation on the dwelling, and certain other indirect expenses, it does not include expenses which are not "with respect to the use of [the] dwelling" (such as the cost of electricity used to power office lights and equipment).

Tuesday, January 15, 2013

I usually don't post much during tax season, but....

Come on, who isn't excited about an easier way to do the home office tax deduction....

IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year

WASHINGTON — The Internal Revenue Service today announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.

In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction).

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

Only drawback is that this does not start until 2013.....but we like it!