Child Care Credit 2011

IRS cares!

If you paid someone to care for your child under age 13, so you could work or look for work in 2011, you may be eligible to take the credit for the expenses.

Rules for Divorced or Separated parents:

 If you drove away those scary monsters in the closet for more nights in 2011, than the other parent, you are the custodial parent and can claim the credit. It pays, to drive away monsters!

However, if the child lived equal number of nights of 2011, with each parent, the custodial parent is the one with higher adjusted gross income and claims the credit.

Note:  Child support payments received by you are not included in your gross income and are not considered as earned income for figuring this credit.

Which expenses qualify and which do not?

·         Services needed to care for the child as well as run the home for example, cook, maid, babysitter, housekeeper, cleaning person. Chauffeur or gardeners, DO NOT qualify.

·         Employment taxes paid on wages for child care services qualify.

·         Cost of clothing or entertainment DOES NOT qualify.

·         Cost of a day camp, even if it specializes in a particular activity, such as soccer qualifies.

·         Expenses for sending your child to an overnight camp, summer school or tutoring program DO NOT qualify.

·         Medical expenses can be itemized and if so claimed, they DO NOT qualify.

Details in Numbers:

The child care credit can be up to 35% of your qualifying expenses, depending upon your adjusted gross income.

For 2010, you may use up to $3,000 of expenses paid in a year for one qualifying child or $6,000 for two children to figure the credit.

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.

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.

Refer Publication 501 Exemptions, Standard Deduction, and Filing Information for more details.

Working from Home? Claim Tax Deductions!

A recent growing breed of pajama workers in bunny slippers can claim the home office tax deduction.

Refer publication 587 for claiming deductions for Business Use of Your Home . http://www.irs.gov/pub/irs-pdf/p587.pdf

Are you qualified for this deduction?

For the self-employed:

The home office must be the principal place of business, used regularly to interact with clients in the normal course of your trade of business.

For employees:

If you are an employee, the business use of home must be strictly for the convenience of the employer and not merely because it is helpful and appropriate.

Figuring the Deduction

Once you meet the qualifying tests, you will need to figure how much you can deduct.

To find the business percentage, compare the size of the part of your home used for business to the whole house. The resulting percentage determines the business part of the expenses for operating your entire home.

Example:

The area of office is 240 sq. ft and home is 1,200 sq. ft.

So, the office is 20% (240 divided by 1,200) of the total area .

The business percentage is 20%.

Deduction Limit

If the gross income from business use of your home >= total business expenses (including depreciation), you can deduct all business expenses related to the use of your home.

If the gross income from business use of your home < total business expenses, the deduction for certain expenses is limited.

Type of Expenses

Direct Expenses like painting or repairs only in the area used for business are deductible in full.

Indirect Expenses like home insurance, utilities and general repairs are deductible based on the business percentage of your home.

Unrelated expenses like lawn care or painting a room not used for business are strictly not deductible.

Depreciation Deduction

This is an allowance for the wear and tear on the part of home office.The value of land, however cannot be deprecated. To calculate the depreciation deduction for 2011, depreciate the home office part as nonresidential real property under the modified accelerated cost recovery system (MACRS) which uses the straight line method. (Refer publication 946).

Business Furniture and Equipment

Depreciation and section 179 deductions determine if you may be entitled to take deductions on furniture and equipment used in the home office.

IRS defines Listed property like computers , photographic, phonographic and video recording equipment. Special rules apply for this type of property.

More-than-50%-use test

The listed property must be used more than 50% for business or work as employee to claim a section 179 deduction or an accelerated depreciation deduction. This deduction can be claimed for the cost of depreciable tangible personal property bought for use in trade or business.

And the most important of all, Record keeping!

There is no prescribed method of record keeping, but overall the records must show:

·         The part of home used for home office.

·         It is used exclusively for work.

·         Depreciation and expenses for the business part.

Keep your records for as long as they are important for any tax law. This is usually the later of the following dates:

·         3 years from the return due date or the date filed

·         2 years after the tax was paid.

So go ahead, grab a form 8829 and file Expenses for Business Use of Your Home!

PAST YEAR REFUNDS...YOU SNOOZE YOU LOOSE...CLAIM YOUR 2008-2012 REFUND

IRS Has $1 Billion for People Who Have Not Filed a 2008 Income Tax Return

Haven't Filed a Tax Return in Years?: IR-2012-26, Feb. 23, 2012 WASHINGTON — Refunds totaling more than $1 billion may be waiting for one million people who did not file a federal income tax return for 2008, the Internal Revenue Service announced today. However, to collect the money, a return for 2008 must be filed with the IRS no later than Tuesday, April 17, 2012. The IRS estimates that half of these potential 2008 refunds are $637 or more. Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury. For 2008 returns, the window closes on April 17, 2012. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund. The IRS reminds taxpayers seeking a 2008 refund that their checks may be held if they have not filed tax returns for 2009 and 2010. In addition, the refund will be applied to any amounts still owed to the IRS, and may be used to offset unpaid child support or past due federal debts such as student loans. By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2008. Some people, especially those who did not receive an economic stimulus payment in 2008, may qualify for the Recovery Rebate Credit. In addition, many low-and moderate-income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2008 were: $38,646 ($41,646 if married filing jointly) for those with two or more qualifying children, $33,995 ($36,995 if married filing jointly) for people with one qualifying child, and $12,880 ($15,880 if married filing jointly) for those with no qualifying children. For more information, visit the EITC Home Page on IRS.gov. Current and prior year tax forms and instructions are available on the Forms and Publications page of IRS.gov or by calling toll-free 800-TAX-FORM (800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for 2008, 2009 or 2010 should request copies from their employer, bank or other payer. If these efforts are unsuccessful, taxpayers can get a free transcript showing information from these year-end documents by ordering it on IRS.gov, filing Form 4506-T, or by calling 800-908-9946. Individuals Who Did Not File a 2008 Return with a Potential Refund State Individuals Median Potential Refund Total Potential Refunds ($000)* Alabama 18,400 $641 $15,738 Alaska 5,800 $641 $5,952 Arizona 29,000 $558 $24,913 Arkansas 9,600 $620 $8,152 California 122,500 $595 $112,201 Colorado 20,500 $589 $18,909 Connecticut 12,500 $697 $13,893 Delaware 4,200 $644 $3,784 District of Columbia 4,000 $642 $3,791 Florida 70,400 $650 $66,974 Georgia 35,800 $581 $30,661 Hawaii 7,600 $714 $8,307 Idaho 4,700 $541 $3,878 Illinois 40,800 $692 $40,712 Indiana 21,800 $664 $19,590 Iowa 10,600 $658 $9,295 Kansas 11,500 $631 $10,084 Kentucky 12,300 $640 $10,501 Louisiana 20,500 $662 $18,859 Maine 4,000 $579 $3,248 Maryland 24,600 $641 $22,591 Massachusetts 23,900 $699 $22,957 Michigan 33,300 $660 $30,903 Minnesota 15,200 $584 $12,772 Mississippi 9,900 $591 $8,254 Missouri 21,600 $593 $18,213 Montana 3,600 $599 $3,192 Nebraska 5,100 $623 $4,371 Nevada 14,500 $619 $13,381 New Hampshire 4,300 $733 $4,518 New Jersey 31,300 $716 $31,185 New Mexico 8,000 $611 $7,420 New York 60,300 $686 $61,240 North Carolina 30,800 $558 $24,997 North Dakota 2,000 $625 $1,895 Ohio 36,400 $622 $31,018 Oklahoma 16,800 $620 $14,787 Oregon 18,500 $527 $14,819 Pennsylvania 38,700 $695 $35,565 Rhode Island 3,400 $674 $3,040 South Carolina 12,200 $547 $10,158 South Dakota 2,300 $669 $2,234 Tennessee 18,400 $626 $16,130 Texas 96,200 $689 $97,057 Utah 7,800 $536 $6,676 Vermont 1,700 $647 $1,410 Virginia 30,800 $624 $28,670 Washington 29,900 $705 $32,138 West Virginia 4,300 $687 $4,068 Wisconsin 14,100 $592 $11,885 Wyoming 2,600 $773 $2,919 Grand Total 1,089,000 $637 $1,009,905 *Excluding the Earned Income Tax Credit and other credits.