Summertime Child Care Expenses May Qualify for a Tax Credit

Did you know that your summer day care expenses may qualify for an income tax credit? Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. Those expenses may help you get a credit on next year’s tax return.

 

Summertime Child Care Expenses May Qualify for a Tax Credit

Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.

  1. The cost of day camp may count as an expense towards the child and dependent care credit.
  2. Expenses for overnight camps do not qualify.
  3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you’ll get some tax benefit if you qualify for the credit.
  4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.
  5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

 

IRS Publication 503

For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available below or by calling 800-TAX-FORM (800-829-3676).

  • Publication 503, Child and Dependent Care Expenses (PDF 167K)
education credits

Tax Credit Helps Pay for Higher Education Expenses

The American Recovery and Reinvestment Act was passed in early 2009 and created the American Opportunity Credit. This educational tax credit – which expanded the existing Hope credit – helps parents and students pay for college and college-related expenses.

Here are the top nine things the Internal Revenue Service wants you to know about this valuable credit and how you can benefit from it when you file your 2009 taxes.

  1. The credit can be claimed for tuition and certain fees paid for higher education in 2009 and 2010.
  2. The American Opportunity Credit can be claimed for expenses paid for any of the first four years of post-secondary education.
  3. The credit is worth up to $2,500 and is based on a percentage of the cost of qualified tuition and related expenses paid during the taxable year for each eligible student. This is a $700 increase from the Hope Credit.
  4. The term “qualified tuition and related expenses” has been expanded to include expenditures for required course materials. For this purpose, the term “course materials” means books, supplies and equipment required for a course of study.
  5. Taxpayers will receive a tax credit based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year.
  6. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.
  7. To be eligible for the full credit, your modified adjusted gross income must be $80,000 or less — $160,000 or less for joint filers.
  8. The credit begins to decrease for individuals with incomes above $80,000 or $160,000 for joint filers and is not available for individuals who make more than $90,000 or $180,000 for joint filers.
  9. The credit is claimed using Form 8863, Education Credits, (American Opportunity, Hope, and Lifetime Learning Credits), and is attached to Form 1040 or 1040A.

For more information about the American Opportunity Tax Credit visit the IRS Web site at IRS.gov/recovery.

Top 10 Tips about IRA Contributions

IRA retirements accounts are a great way to plan for retirement. As the years winds down, it is important to begin assessing what kind of contributions you may be making to a retirement plan. You can contribute to your traditional IRA at any time during the year. You must make all contributions by the due date for filing your tax return. This due date does not include extensions. For most people this means you must contribute for 2012 by April 15, 2013. If you contribute between Jan. 1 and April 15, you should contact your IRA plan sponsor to make sure they apply it to the right year.

 

Top 10 Tips about IRA Contributions

The great thing about a traditional IRA is that, even if you make contributions in the following tax year, the IRS lets you take a deduction for some of these IRA contributions on your prior-year tax return (you must make the contributions by mid-April). In other words, if you are filing your 2014 taxes, the contributions you make to a traditional IRA through mid-April of 2015 may be deductible. This is why your account administrator has until May 31 to send Form 5498 to you.

There is still time to make contributions to your traditional Individual Retirement Arrangement, better known as an IRA.

 

Below are the top ten things you should know about money you put aside for retirement in an IRA.

  1. You may be able to deduct some or all of your contributions to your IRA and you also may be eligible for a tax credit equal to a percentage of your contribution.
  2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2008 must be made by April 15, 2009.
  3. The amount of funds in your IRA are generally not taxed until you receive distributions from that IRA.
  4. To figure your deduction for IRA contributions, use the worksheets in the instructions for the form you are filing.
  5. For 2008, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: $5,000 or the amount of your taxable compensation for the year. Taxpayers who are 50 or older can contribute up to $6,000.
  6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit.
  7. You cannot deduct an IRA contribution or claim the Credit for Qualified Retirement Saving Contributions on Form 1040EZ; you must use either Form 1040A or Form 1040.
  8. To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year.
  9. You must have taxable compensation, such as wages, salaries, commissions and tips. If you file a joint return, only one of you needs to have compensation.
  10. Refer to IRS Publication 590, Individual Retirement Arrangements, for information on the amounts you will be eligible to contribute to your IRA account.

You may also qualify for the Savers Credit, formally known as the Retirement Savings Contributions Credit. The credit can reduce your taxes up to $1,000 (up to $2,000 if filing jointly). Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the Saver’s Credit.

You can get a traditional IRA if you’re under age 70 1/2 and receive taxable compensation.

  • Wages, salaries, and tips
  • Sales commissions
  • Professional fees
  • Bonuses
  • Self-employment income
  • Military compensation while serving in a combat zone tax-exclusion area
  • Alimony or separate maintenance payments included in gross income

 

Income not included as compensation for IRA purposes includes:

  • Profit from the sale of stocks or other property
  • Rental income
  • Pension or annuity income
  • Deferred compensation

Both Form 8880 and Publication 590 can be downloaded below or ordered by calling 800-TAX-FORM (800-829-3676).

 

Additional IRS Resources on IRA Accounts:

First-Time Homebuyers Have Several Options to Maximize New Tax Credit

As part of the Treasury Department’s consumer outreach effort and with the April 15 individual tax filing deadline approaching, the Internal Revenue Service today began a concerted effort to educate taxpayers about additional options at their disposal to claim the new $8,000 first-time homebuyer credit for 2009 home purchases. For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they’ve already filed their tax return.

 

First-Time Homebuyers Have Several Options to Maximize New Tax Credit

The Treasury Department encourages taxpayers to explore these options to maximize their credit and get their money back as fast as possible.

“The new credit can get money in the pockets of first-time homebuyers quickly,” said IRS Commissioner Doug Shulman. “For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they’ve already filed their tax return.”

First-time homebuyers represent a significant portion of existing single-family home sales. The expansion in the first-time homebuyer credit will make it easier for first-time homebuyers to enter the housing market this year.

Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchase a home before Dec. 1 receive up to $8,000, or $4,000 for married individuals filing separately. People can claim the credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

The filing options to consider are:

  • File an extension — Taxpayers who haven’t yet filed their 2008 returns but are buying a home soon can request a six-month extension to October 15. This step would be faster than waiting until next year to claim it on the 2009 tax return. Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit.
  • File now, amend later — Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house in the next few months can file their return now and claim the credit later. Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit.
  • Amend the 2008 tax return — Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.
  • Claim the credit in 2009 rather than 2008 — For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when they file the 2009 tax return rather than claiming it now on the 2008 tax return. This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

The IRS reminds taxpayers the amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000, or $150,000 for joint filers. Taxpayers can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

IRS.gov provides more information, including guidance for people who bought their first homes in 2008. To learn more about the overall implementation of the Recovery Act, visit www.Recovery.gov.

Tax Credit for Fuel Cell Vehicles

IRS Explains How Manufacturers and Purchasers Can Take Advantage of Tax Credit for Fuel Cell Vehicles

honda fuel cellWASHINGTON — The Internal Revenue Service today issued a notice providing procedures for vehicle manufacturers to certify that a fuel cell vehicle meets the requirements for a tax credit. It also provides guidance to taxpayers who purchase certified vehicles regarding what they must do to use the credit.

Under the law, the new qualified fuel cell motor vehicle credit is available to purchasers of qualified vehicles. The amount of the new qualified fuel cell motor vehicle credit is based on the weight of the vehicle and on when the vehicle is placed in service. An additional credit may be available for a fuel cell passenger automobile or light truck based on a comparison of the city fuel economy rating of that vehicle with the 2002 model year city fuel economy of a vehicle in its weight class.

For fuel cell vehicles that weigh not more than 8,500 pounds, the base credit amount is $8,000 if the vehicle is placed in service on or before Dec. 31, 2009. The base credit amount is reduced to $4,000 if the vehicle is placed in service after that date.

 

Tax Credit for Fuel Cell Vehicles

The amount of the credit available for heavy vehicles varies from $10,000 to $40,000, depending on the weight of the vehicle.

The notice also provides guidance to taxpayers who purchase vehicles regarding the conditions under which they may rely on the vehicle manufacturer’s certification. The purchaser may claim a credit for the certified amount for a fuel cell vehicle if it is placed in service by the taxpayer after Dec. 31, 2005, and is purchased on or before Dec. 31, 2014.

To certify a vehicle, the manufacturer must submit to the IRS a certification that includes, among other items, the make, model, model year, proposed credit amount and a statement affirming that the vehicle is propelled by power derived from one or more cells that convert chemical energy into electricity.

Related Items:

Notice 2008-33
Source – IRS Newswire