Category Archives: Deductions

IRS: Summer Day Camp Expenses May Qualify for a Tax Credit

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Along with the lazy, hazy days of summer come some extra expenses, including summer day camp for working parents. But, there’s some good news. If you paid someone to care for a child or a dependent so you could work, you may be able to reduce your federal income tax by claiming the credit for child and dependent care expenses on your tax return.

This credit is available to people who, in order to work or to look for work, have to pay for childcare services for dependents under age 13. The credit is also available if you paid for the care of a spouse or a dependent, of any age, who is physically or mentally incapable of self-care.

The Child and Dependent Care Credit is available for childcare expenses incurred during the summer and throughout the rest of the year. Here are five facts to remember about this credit:

  • The cost of day camp may count as an expense toward the Child and Dependent Care Credit.
  • Expenses for overnight camps do not qualify.
  • Whether your childcare provider is a sitter at your home or a daycare facility outside the home, you may get some tax benefit if you qualify for the credit. You will need the name of the childcare provider, the address, the identification number (i.e. Social Security number or employer identification number) and the total amount paid.
  • The credit can be up to 35 percent of your qualifying expenses, depending on your income.
  • 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.

 

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

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NOTE TO EDITOR: below are links to IRS.gov information and publications about summer day camp expenses.

Here’s a list of helpful IRS forms and publications:

Publication 501, Exemptions, Standard Deduction, and Filing Information

Publication 503, Child and Dependent Care Expenses

Publication 926, Household Employer’s Tax Guide Form (and Instructions)

Form 2441, Child and Dependent Care Expenses

Form 1040, Schedule H Household Employment Taxes

Form W-10 Dependent Care Provider’s Identification and Certification

 

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Last-Minute Filers: Avoid Common Errors

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Tax Return Errors: English | Spanish | ASL

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Tax Return Errors: English | Spanish

IR-2013-40, April 11, 2013

WASHINGTON — The Internal Revenue Service today reminded taxpayers to review their tax returns for common errors that could delay the processing of their returns. Here are some ways to avoid common mistakes.

File electronically. Filing electronically, whether through e-file or IRS Free File, vastly reduces tax return errors, as the tax software does the calculations, flags common errors and prompts taxpayers for missing information. And best of all, there is a free option for everyone.

Mail a paper return to the right address. Paper filers should check the appropriate address where to file in IRS.gov or their form instructions to avoid processing delays.

Take a close look at the tax tables. When figuring tax using the tax tables, taxpayers should be sure to use the correct column for the filing status claimed.

Fill in all requested information clearly. When entering information on the tax return, including Social Security numbers, take the time to be sure it is correct and easy to read. Also, check only one filing status and the appropriate exemption boxes.

Review all figures. While software catches and prevents many errors on e-file returns, math errors remain common on paper returns.

Get the right routing and account numbers. Requesting direct deposit of a federal refund into one, two or even three accounts is convenient and allows the taxpayer access to his or her money faster. Make sure the financial institution routing and account numbers entered on the return are accurate. Incorrect numbers can cause a refund to be delayed or deposited into the wrong account.

Sign and date the return. If filing a joint return, both spouses must sign and date the return. E-filers can sign using a self-selected personal identification number (PIN).

Attach all required forms. Paper filers need to attach W-2s and other forms that reflect tax withholding, to the front of their returns. If requesting a payment agreement with the IRS, also attachForm 9465 to the front of the return. Attach all other necessary schedules and forms in sequence number order shown in the upper right-hand corner.

Keep a copy of the return. Once ready to be filed, taxpayers should make a copy of their signed return and all schedules for their records.

Request a Filing Extension. For taxpayers who cannot meet the April 15 deadline, requesting a filing extension is easy and will prevent late filing penalties. Either use Free File or Form 4868. But keep in mind that while an extension grants additional time to file, tax payments are still due April 15.

Owe tax? If so, a number of e-payment options are available. Or send a check or money order payable to the “United States Treasury.”

IRS Warns of ‘Dirty Dozen’ Tax Scams

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CNNMoney.comBy Blake Ellis | CNNMoney.com – 1 hour 15 minutes ago

Taxpayers should be on alert for identity thieves, e-mails falsely claiming to be from the IRS and shady tax preparers this year, the IRS warns.

These are a few of the tax scams that commonly pop up during tax season, as highlighted in the annual “dirty dozen” list the agency released last week.

“Don’t let a scam artist steal from you or talk you into doing something you will regret later,” said IRS acting commissioner Steven Miller.

Here are 12 schemes to beware of:

1. Identity theft

Identity thieves are increasingly getting hold of taxpayers’ names, Social Security numbers, birth dates and other information, then fraudulently claiming tax refunds in their names.

In response, the IRS has been updating its fraud screening systems and penalizing more identity thieves. Last year, the agency stopped $20 billion in fraudulent refunds from being issued — up from $14 billion in 2011. And earlier this year, it launched a nationwide crackdown that brought enforcement actions against 389 identity theft suspects in 32 states. The IRS has also more than doubled its staff devoted to identity theft cases.

If you get a notice from the agency that more than one return has been filed under your name, it may mean your identity has been compromised. If you suspect that’s the case, contact the IRS Identity Protection Specialized Unit at 1-800-908-4490. And if you are in fact a victim, expect a longer wait for your refund.

2. Phishing

Have you received an e-mail that appears to be from the IRS? It’s probably not. Instead, it could be from a scammer who will try to use any information you reply with to steal your identity and money. The IRS does not use e-mail, texts or social media to contact taxpayers for personal or financial information, so relay any such messages to phishing@irs.gov.

3. Fraudulent tax preparers

When choosing a preparer, make sure he or she has an IRS Preparer Tax Identification Number (PTIN). If a preparer doesn’t put this number on your tax return as required, or fails to sign the form, that should raise a red flag. And watch out for preparers who base fees on the size of your refund or promise refunds that sound too good to be true.

Complaints about shady tax preparers can be submitted via Form 14157.

4. Illegal offshore bank accounts

The IRS has been cracking down on taxpayers illegally hiding income abroad. Launched in 2009, the agency’s voluntary disclosure program has already raked in $5.5 billion in back taxes, interest and penalties from tax cheats for illegally hiding assets in offshore accounts.

If you have a legitimate account abroad, you won’t get in trouble if you properly complete the reporting requirements. But by failing to disclose assets held in offshore accounts, you risk huge penalties — including a fine of $100,000 or 50% of the account balance, whichever amount is greater.

5. Promises of ‘free money’

Be skeptical of flyers and advertisements promising you “free money” from the IRS. Scammers have been targeting low-income and elderly people, often through community churches, convincing them to claim credits they aren’t entitled to — and even Social Security rebates that don’t exist.

These con artists often charge up-front fees and disappear without a trace before the claims are rejected by the IRS. And along with losing whatever they gave the scammer, victims could also end up owing the IRS a hefty $5,000 penalty for making intentional errors on their return.

6. Bogus charities

In the wake of disasters like Superstorm Sandy, scammers come out of the woodwork and solicit donations for bogus charities. Some will even impersonate the IRS and contact disaster victims, claiming to be able to help them file casualty loss claims or obtain refunds. Others will steal victims’ identities by asking for Social Security numbers and personal information.

Before giving money to a charity, verify that the organization is legitimate and that your donations will be tax deductible by using the IRS’s Exempt Organizations Select Check. And don’t give cash — use a check or credit card instead so you’ll have proof of payment.

7. Exaggerated income and expenses

Reporting higher income or expenses so that you qualify for bigger refundable credits may sound tempting, but doing this can get you in big trouble with the IRS. If you get caught, you’ll have to return any refund you fraudulently received and pay interest and penalties on any amount owed.

8. Refund claims for secret government accounts

If someone tries to convince you to file a 1099-OID to claim money the federal government is allegedly holding in a secret account for U.S. citizens, don’t fall for it. The IRS says this is a common scam — and not only will you not receive a refund, you could face big fines and even jail time.

9. Frivolous arguments

Claiming that filing a tax return is voluntary, that only gold-based money is taxable, or that your state isn’t part of the United States won’t get you out of paying your taxes. These are considered frivolous arguments and will be swiftly rejected.

10. Pretending to earn zero income

Taxpayers who fall prey to schemes convincing them to file Form 4852 (a substitute W-2 form) or a corrected Form 1099 in order to falsely reduce their taxable income to zero could face a penalty of $5,000.

11. Disguising corporate ownership

The IRS is on the lookout for firms hiding their true identities by using third parties or forming corporations to make it harder for the IRS to figure out who is the true owner. By creating such entities, some businesses underreport income, fail to file tax returns, claim bogus deductions and even launder money.

12. Misuse of trusts

Schemes recommending that you transfer money into trusts to reduce your income and avoid paying taxes are common, and the IRS has seen a growing number of people improperly stashing money in private annuity and foreign trusts. To avoid getting caught up in an illegal trust arrangement, the IRS recommends consulting with a tax professional.

View this article on CNNMoney

Parents and Students: Check Out College Tax Benefits for 2012 and Years Ahead

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IRS Issue IR-2013-22

WASHINGTON — The Internal Revenue Service today reminded parents and students that now is a good time to see if they qualify for either of two college education tax credits or any of several other education-related tax benefits.

In general, the American opportunity tax credit, lifetime learning credit and tuition and fees deduction are available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the primary taxpayer, the taxpayer’s spouse or a dependent of the taxpayer.

Though a taxpayer often qualifies for more than one of these benefits, he or she can only claim one of them for a particular student in a particular year. The benefits are available to all taxpayers – both those who itemize their deductions on Schedule A and those who claim a standard deduction. The credits are claimed on Form 8863 and the tuition and fees deduction is claimed on Form 8917.

The American Taxpayer Relief Act, enacted Jan. 2, 2013, extended the American opportunity tax credit for another five years until the end of 2017. The new law also retroactively extended the tuition and fees deduction, which had expired at the end of 2011, through 2013. The lifetime learning credit did not need to be extended because it was already a permanent part of the tax code.

For those eligible, including most undergraduate students, the American opportunity tax credit will yield the greatest tax savings.  Alternatively, the lifetime learning credit should be considered by part-time students and those attending graduate school. For others, especially those who don’t qualify for either credit, the tuition and fees deduction may be the right choice.

All three benefits are available for students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. None of them can be claimed by a nonresident alien or married person filing a separate return. In most cases, dependents cannot claim these education benefits.

Normally, a student will receive a Form 1098-T from their institution by the end of January of the following year. This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax benefits. Taxpayers should see the instructions to Forms 8863 and 8917 and Publication 970 for details on properly figuring allowable tax benefits.

Many of those eligible for the American opportunity tax credit qualify for the maximum annual credit of $2,500 per student. Here are some key features of the credit:

  • The credit targets the first four years of post-secondary education, and a student must be enrolled at least half time. This means that expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college do not qualify. Any student with a felony drug conviction also does not qualify.
  • Tuition, required enrollment fees, books and other required course materials generally qualify. Other expenses, such as room and board, do not.
  • The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
  • The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.
  • Forty percent of the American opportunity tax credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student. Other education-related credits and deductions do not provide a benefit to people who owe no tax.

The lifetime learning credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American opportunity tax credit, the limit on the lifetime learning credit applies to each tax return, rather than to each student. Though the half-time student requirement does not apply, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:

  • Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
  • The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
  • Income limits are lower than under the American opportunity tax credit. For 2012, the full credit can be claimed by taxpayers whose MAGI is $52,000 or less. For married couples filing a joint return, the limit is $104,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $124,000 or more and singles, heads of household and some widows and widowers whose MAGI is $62,000 or more.

Like the lifetime learning credit, the tuition and fees deduction is available for all levels of post-secondary education, and the cost of one or more courses can qualify. The annual deduction limit is $4,000 for joint filers whose MAGI is $130,000 or less and other taxpayers whose MAGI is $65,000 or less. The deduction limit drops to $2,000 for couples whose MAGI exceeds $130,000 but is no more than $160,000, and other taxpayers whose MAGI exceeds $65,000 but is no more than $80,000.

Eligible parents and students can get the benefit of these provisions during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4, claiming additional withholding allowances, and giving it to their employer.

There are a variety of other education-related tax benefits that can help many taxpayers. They include:

  • Scholarship and fellowship grants—generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
  • Student loan interest deduction of up to $2,500 per year.
  • Savings bonds used to pay for college—though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
  • Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.

Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the earned income tax credit.

The general comparison table in Publication 970 can be a useful guide to taxpayers in determining eligibility for these benefits. Details can also be found in the Tax Benefits for Education Information Center on IRS.gov.

Eight Tax Benefits for Parents

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IRS Tax Tip 2013-11

Your children may help you qualify for valuable tax benefits, such as certain credits and deductions. If you are a parent, here are eight benefits you shouldn’t miss when filing taxes this year.

1. Dependents. In most cases, you can claim a child as a dependent even if your child was born anytime in 2012.   For more information, see IRS Publication 501, Exemptions, Standard Deduction and Filing Information.

2. Child Tax Credit. You may be able to claim the Child Tax Credit for each of your children that were under age 17 at the end of 2012. If you do not benefit from the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more information, see the instructions for Schedule 8812, Child Tax Credit, and Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit. You may be able to claim this credit if you paid someone to care for your child or children under age 13, so that you could work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit. If you worked but earned less than $50,270 last year, you may qualify for EITC. If you have qualifying children, you may get up to $5,891 dollars extra back when you file a return and claim it. Use the EITC Assistant to find out if you qualify. See Publication 596, Earned Income Tax Credit.

5. Adoption Credit. You may be able to take a tax credit for certain expenses you incurred to adopt a child. For details about this credit, see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Higher education credits. If you paid higher education costs for yourself or another student who is an immediate family member, you may qualify for either the American Opportunity Credit or the Lifetime Learning Credit. Both credits may reduce the amount of tax you owe. If the American Opportunity Credit is more than the tax you owe, you could be eligible for a refund of up to $1,000. See IRS Publication 970, Tax Benefits for Education.

7. Student loan interest. You may be able to deduct interest you paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970, Tax Benefits for Education.

8. Self-employed health insurance deduction - If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid to cover your child. It applies to children under age 27 at the end of the year, even if not your dependent. See IRS.gov/aca for information on the Affordable Care Act.

Forms and publications on these topics are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
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