If you have young children and work outside the home, school probably occupies your kids during most of the workday during the school year. But what about during the summer? Who looks after them while you're at work? If you find yourself paying for child care, you should know there’s a silver tax lining for these costs. Generally, you should be able to qualify for the child care credit, and the credit may be more widely available than you think.
To qualify for the credit, you must incur expenses of caring for a child under age 13 so you can be gainfully employed. A married couple is treated as being “gainfully employed” if one spouse works full time and the other works either full-time or part-time or is a full time student. A married couple must file a joint return to claim the credit.
The applicable credit is 35 percent of the qualified expenses for taxpayers with an adjusted gross income (AGI) of $15,000 or less. The percentage is reduced by 1 percent for each $2,000 that your AGI increases until it bottoms out at 20 percent. Thus, the credit is 20 perent for taxpayers with an AGI above $43,000.
The credit is available for the first $3,000 of qualified expenses for one child and $6,000 for two or more children. This results in a maximum credit of $600 for one child and $1,200 for two or more children if you have more than $43,000 in AGI.
To claim the credit, the child care expense must be "qualified." While the costs of traditional babysitters, day care centers and nursery schools are qualified expenses, there are other "non-traditional" child care options that also qualify for the credit.
For instance, costs incurred at a municipal pool or country club may qualify for the credit. So can the cost of sending a child to a day camp where recreational activities like swimming, boating or hiking are the focus. Unfortunately, the cost of an overnight camp does NOT qualify. This includes camps run by the Boy Scouts, Girl Scouts or other organizations.
The day camp can even be a “specialty camp” emphasizing a particular skill or other aspect. The full cost of attending the specialty camp is eligible for the credit, but you can’t add on expenses for special equipment, uniforms or supplies.
Don't forget that you'll need specific information from the child care provider to claim the credit on your personal tax return. Be sure to have the provider (or day camp) name, address and taxpayer identification number. Then make sure that Form 2441 (Child and Dependent Care Expenses) is attached to your return.
If you find yourself getting tangled up in how to figure the percentage of credit, your AGI, and what expenses qualify, just breathe! Our job is to take care of calculating all of that for you and filing the correct forms with your return for you to claim the credit. You simply need to know about this credit so you can include these kinds of child care expenses with your year-end tax information.
Get the information from your provider now and put it in your tax file - you'll be one step closer to being ready to file your return for 2018!
The IRS, state tax agencies and the nation’s tax industry are warning small businesses to be on-guard against a growing wave of identity theft attempts against employers.
Small business identity theft is big business for identity thieves. When businesses and their employees have their identities stolen, their sensitive information can be used to open credit card accounts or file fraudulent tax returns for bogus refunds.
The Internal Revenue Service, state tax agencies and the private-sector tax community -- partners in the Security Summit -- are marking “Small Business Week” with a series of reminders to taxpayers and tax professionals. The week concludes with warnings about small business identity theft.
In the past two years, the Internal Revenue Service has noted a sharp increase in the number of fraudulent filings of Forms 1120, 1120S and 1041 as well as Schedule K-1. The fraudulent filings apply to partnerships as well as estate and trust forms.
Identity thieves are displaying a sophisticated knowledge of the tax code and tax industry filing practices as they attempt to obtain valuable data to help file fraudulent returns. To help counter this, Security Summit partners have expanded efforts to better protect business filers and identify suspected identity theft returns.
Identity thieves have long made use of stolen Employer Identification Numbers (EINs) to create fake Forms W-2 that they would file with fraudulent individual tax returns. Fraudsters also used EINs to open new lines of credit or obtain credit cards. Now they are using company names and EINs to file fraudulent returns.
As with fraudulent individual returns, there are certain signs that may indicate identity theft. Business, partnerships and estate and trust filers should be alert to potential identity theft and contact the IRS if they experience any of these issues:
◄Extension to file requests are rejected because a return with the Employer Identification Number or Social Security number is already on file;
◄An e-filed return is rejected because a duplicate EIN/SSN is already on file with the IRS;
◄Received 5263C or 6042C Letters;
◄An unexpected receipt of a tax transcript or IRS notice that doesn’t correspond to anything submitted by the filer;
◄Failure to receive expected and routine correspondence from the IRS because the thief has changed the address.
Steps to protect businesses
The IRS, state tax agencies and software providers also share certain data points from tax returns, including business returns, that help identify a suspicious filing. The IRS and states ask that business and tax practitioners provide additional information that will help verify the legitimacy of the tax return.
Respond to the “know your customer” questions when prompted by software:
◄Who signed the return – including name and SSN
◄Tax payment history of the company
◄Parent company information
◄Additional information based on deductions claimed
◄Tax filing history of the company
Sole proprietorships that file Schedule C and partnerships filing Schedule K-1 with Form 1040 also will be asked to provide additional information items, such as a driver’s license number. Providing this information will help the IRS and states identify suspicious business-related tax returns.
For small businesses looking to enhance their security, the National Institute of Standards and Technology (NIST) produced Small Business Information Security: The Fundamentals. NIST is the branch of the U.S. Commerce Department that sets information security frameworks followed by federal agencies.
The United States Computer Emergency Readiness Team (US-CERT) has Resources for Small and Midsize Businesses. Many secretaries of state also provide resources on business-related identity theft as well.
The IRS, state tax agencies and the tax industry continue to work together to fight against tax-related identity theft and to protect business and individual taxpayers. Everyone can help. Take steps recommended by cyber experts and visit the Identity Protection: Prevention, Detection and Victim Assistance for information about business-related identity theft.
This article was written by Isaac M. O'Bnnon, Managing Editor of CPAAdvisor.com
The IRS has just announced that it will begin accepting 2017 income tax returns on January 29. You may be more concerned about the April 17 filing deadline, or even the extended deadline of October 15 (if you file for an extension by April 17). After all, why go through the hassle of filing your return earlier than you have to? But it can be a good idea to file as close to January 29 as possible: Doing so helps protect you from tax identity theft.
Here’s why early filing helps: In an all-too-common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.
A victim typically discovers the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.
Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.
The IRS is working with the tax industry and states to improve safeguards to protect taxpayers from tax identity theft. But filing early may be your best defense.
W-2s and 1099s
Of course, in order to file your tax return, you’ll need to have your W-2s and 1099s. So another key date to be aware of is January 31 — the deadline for employers to issue 2017 Form W-2 to employees and, generally, for businesses to issue Form 1099 to recipients of any 2017 interest, dividend or reportable miscellaneous income payments.
If you don’t receive a W-2 or 1099, first contact the entity that should have issued it. If by mid-February you still haven’t received it, you can contact the IRS for help.
Of course, if you’ll be getting a refund, another good thing about filing early is that you’ll get your refund sooner. The IRS expects over 90% of refunds to be issued within 21 days.
E-filing and requesting a direct deposit refund generally will result in a quicker refund and also can be more secure. If you have questions about tax identity theft or would like help filing your 2017 return early, please contact us.