Parents are stressed in so many ways now-a-days, work, school and summer – what to do with the kids while I work! However there may be at the least, some tax relief available. And if you haven’t yet filed your 2016 taxes… don’t forget last summers camps!
Here’s the IRS Special Edition Tax Tip 2014-16, June 11, 2014
Many parents pay for childcare or day camps in the summer while they work. If this applies to you, your costs may qualify for a federal tax credit that can lower your taxes. Here are 10 facts that you should know about the Child and Dependent Care Credit:
- Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 usually qualify. For more about this rule see Publication 503, Child and Dependent Care Expenses.
- Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.
- You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return. Refer to Publication 503 for more details.
- As a rule, if you’re married you must file a joint return to take the credit. But this rule doesn’t apply if you’re legally separated or if you and your spouse live apart.
- You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.
- The credit is a percentage of the qualified expenses you pay. It can be as much as 35 percent of your expenses, depending on your income.
- The total expense that you can use for the credit in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.
- Overnight camp or summer school tutoring costs do not qualify. You can’t include the cost of care provided by your spouse or your child who is under age 19 at the end of the year. You also cannot count the cost of care given by a person you can claim as your dependent. Special rules apply if you get dependent care benefits from your employer.
- Keep all your receipts and records. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your tax return.
- Remember that this credit is not just a summer tax benefit. You may be able to claim it for care you pay for throughout the year.
Did you know that you can claim your Boyfriend or Girlfriend (Partner) on your Personal Tax return!! However there are a few criteria you must meet in order to take advantage of this little known rule.
In order to take advantage of this, your partner must meet the following tests…
- The Partner must be a U.S. Citizen, Resident Alien or a Resident of Canada or Mexico
- Can not be the Qualifying Child of the taxpayer
- You must have lived together the entire year as a member of your family and cohabitation must not be against the law in your state (FYI in Wisconsin, it’s not, I just looked)
- She/He can’t have earned over $4,050
- You must have paid more than ½ her/his living expenses during 2016
- And, he/she must not be able to be claimed by anyone else (ie his/her parents, grandparent, etc)
Well.. Once again, we made it through the 1099 filing season without too many issues. But it does seem that EVERY year there is one or two vendors that outright REFUSE to provide the Tax Payer Information so that you, as a business, can get your 1099s out by the January 31st filing deadline. Having completed these information returns for over 20 years, it always surprises me when I get that one vendor that becomes belligerent about providing the information. The first thing that pops in my head is that they don’t want the IRS or the State Revenue Department knowing that they are getting income from someone. Now, if it’s on a personal level, the IRS doesn’t require INDIVIDUALS to issue 1099s to the Plumber, the Carpenter or the Landlord that you pay in your personal life. But if you are a BUSINESS, in order to deduct those same expenses on your business tax return, you AS A BUSINESS, are required to issue those pesky 1099-MISCs indicating that you paid someone $600 or more during the calendar year.
So, what do you do when you encounter one of these vendors.
First and foremost – CHANGE YOUR INTERNAL POLICY!! Make it a policy in your business that if you issue payment to ANYONE for services, that you do not issue a check until you collect the W-9 Form from them! It’s so much easier to just tell them that your system doesn’t allow for payments to be issued UNLESS this information has been entered into the software. And you can of coarse use the “My accountant won’t let me issue checks without this” excuse. Let us take the heat if that’s easier. But get the W9 form upfront! It will also make the payee much less uncomfortable providing the info when it’s a payment they seek. If/when you ask for that information a year later, they may not even remember doing business with you in the first place.
But ok, you’ve already paid them so now what? I typically use a 3 step process….
First attempt, I start with calling, emailing or faxing to collect the information from them. 99% of the time, this is all I need to do. Most businesses understand that they are required to provide you with this information and don’t make a fuss about it. Sometimes it may take 2-3 attempts, but normally they will send the information. THAT BEING SAID… If you are the RECIPIENT… Don’t just send the W9 out because you get asked! Be sure that you actually did do business with the Person/Business that is requesting the information. Remember that ID thieves will try any number of methods to obtain your information so just take a bit of caution before you just send this out!! And if, you don’t feel comfortable giving us, the accounting firm, the information, just indicate to the requester (if it’s not the business owner asking) that you gave it to your customer. We, the accounting firm, will understand and can the get the information from our client.
Second attempt, I send another email or call indicating that if they don’t provide the information that the IRS REQUIRES the payee to withhold 28% of all payments because they failed to provide the information. This is right on page 2 of the W9 form, and usually, this is more than enough of a deterrent for the provider to give in and provide the information – again, to the recipient… if you don’t feel comfortable giving it to someone just because they say they are an accounting firm… give it to your customer and tell the accounting firm you did so!
Third and final attempt, make my last communication much more stern. I indicate to the recipient that this is something that they are required to do, that the IRS requires that they provide this information and if they don’t provide it, I am required to send a 1099 anyway to the IRS with the words “Refused to Provide” where the tax ID is supposed to go on the form. Have I had to do this? Yes unfortunately. It amazes me to no end that someone would think that I’d waste my valuable time trying to collect something that I really truly didn’t need. Now, back to my first step, do I get that they are being cautious when I, an outsourced accounting firm calls…. YES, but they could just give the info to their customer and let their client give it to me. I’m good with that, just don’t outright refuse to do this!
Finally, when every attempt has failed and the supplier/vendor/service provider just outright refuses, I send the 1099 just as I indicated I would with the words “Refused to Provide” in the box labeled Recipient’s Identification number. I then send this 1099 and a letter to the IRS explaining that this business refused to provide the tax identification number. You may be wondering, why do I bother to do this? I do this because the fines to my clients could be SO huge that I want to be sure that we have done everything that I am required to do to ensure that my client does not end up with the fines. After all it wasn’t their fault that their vendor refused causing them to not have the information they needed.
Moral of the story…. Get the W-9 form before you even give them the check! It’s so much eaiser.
So not to scare you.. ok, maybe to scare you a little bit, every time the Republican’s have had a Super Majority in American Government (House, Senate & Presidency) they have crashed the Economy. So far in history that’s 3 for 3 or 100% of the time! In 1907/1908 during the Banking Panics; 1928 when the GOP gained power, the Stock Market Crashed in October 1930 and created the Great Depression from 1929-1937; and finally the 2007/2008 credit crisis crash that lead to thousands losing their jobs and homes. Honestly, there a lot of CPA’s out there keeping it neutral, but I’m thinking I’d rather go out on limb, be proactive to help people rather than reactive giving advice after the fact. We could be headed for a fourth time in the next 2 years, some of the signs are already there (discussions about eliminating Dodd-Frank, reducing Banking Regulations, Trade rhetoric and fair pay/minimum wage) are just a few of the issues that cause alarms to go off for me.
Now I hope I’m reading the signs wrong, but I was correct about the housing crash and the indicators I saw then. So, here’s my suggestions and you can take them for what they are worth, or not, it’s up to you.
1st, resist buying things you don’t need and pay off as much of your Credit Card debt as you can NOW! Currently your rates are protected by the Frank-Dodd Act which the GOP has whole-heartedly set out to dismantle which means we could be going back to the days of 29.99% credit card interest (that was just 8 short years ago btw).
2nd, Refinance you home if you don’t already have a low FIXED interest rate. Once you are locked in, unless you’ll need to refi for medical or other emergency reasons, you should be ok with your Mortgage with what could be another housing fiasco (again due to the Wall Street Lobbyists on the new Administration). If you have an ARM (Adjustable Rate Mortgage) refinance out of it into a Fixed Rate as soon as possible. This will stabilize your cash flow and hold your payments steady in the event interest rates climb. And if you are planning or buying a new home, shop for that best rate – and don’t take out more than 80% of the value of your home on the Mortgage and always find a FIXED RATE so that you can count on a steady repayment amount. Otherwise, sit tight and enjoy your current home.
3rd, Don’t SPLURGE on spending, but don’t stop spending altogether either. Remember the economy is only sustainable if/when there is demand from consumers for products. Without demand, supplies increases, prices drop and layoffs happen which leads to less disposable income in the economy which will begin to spiral the economy into a downward spin. This is one of the things that happened in the early 2000’s – Sunbeam comes to mind.
4th, BUY LOCAL WHENEVER POSSIBLE! One of the things that will help support our communities is to keep as much in the local economy as possible… Use SMALL LOCAL Credit Unions or Community Banks vs Large Corporate Banks (remember these guys are the ones who got drunk on Wall Street and taxpayers ended up needing to bail out). Buy American if you can’t buy local. Obviously we don’t have Car Manufacturers in all our neighborhoods but we can support other local communities by sticking to American Made goods. This not only helps American Manufacturing plants but also helps the downstream suppliers and local businesses that depend on that plants employees.
5th, be cautious of Phantom Profits in the Stock Market. Phantom Profits are essentially Speculative gains on the value of the Stocks and are not based on REAL earnings of an entity. This was one of the things that happened during the Banking/Credit Crisis of 2007 where approximately 30% of some stock’s value was phantom earnings. When the Market corrected, thousands lost their life savings. Stick with a LONG-TERM strategy – there is no getting rich quick, but you can certainly gamble it all away overnight on something that’s not consistent and not a sound, tested long standing company.
Finally… if you have a good job with good benefits… consider whether or not now is a good time to change. Granted sometimes you can’t help it, but by keeping your life constant through the next couple years, you will have a better chance of getting through possible crises unscathed.