Category Archives: Deductions

What to Take to Your Tax Preparer

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By Greg Bocquet | MainStreet – Sun, Feb 27, 2011 3:00 AM EST

Taxes are a tricky and complex business for most Americans. Whenever you buy something big or send someone to college, it seems like there’s a new form, a new receipt or a new statement to consider. Plus, there is the fear of being audited to add to the stress.

 

Jennifer Rempe, senior tax analyst for the Tax Institute, the research arm of H&R Block, says that while about 1% of all tax returns are audited, most of them are “correspondence audits” in which the IRS sends a letter asking for clarification of a certain piece of data. Such audits are almost always easy to resolve with the proper paperwork and having your documents in order can have other benefits too. You will lower your tax burden through maximum deductions, get your refund faster and save on the time needed to prepare your return. Plus, you will already have all of your documents ready to resolve any issues that arise.

Read on for the essential documents that everyone should bring to their tax preparer to save the most money they can.

Your Taxes Are Yours Alone

Even if someone else fills out and files your forms, no one but you will be liable for the information. Problems with the tax return go to the taxpayer, not the accountant or whoever signed the forms.

“If the tax preparer relies in good faith on the information the taxpayer provides for them, they can’t be held responsible,” Rempe says.

Bottom line: If you don’t give your accountant the right forms, you won’t get the right deductions.

 

Last Year’s Tax Return

Whether you are an experienced record-keeper or just beginning to get organized, you can probably find a copy of last year’s return somewhere, and it may be the most important thing you can give your tax preparer.

Other than all the Social Security numbers, names of dependents and addresses of property that are necessary for informational purposes, last year’s return is a good blueprint for your tax preparer to follow. It will help him or her see what credits you have previously qualified for and identify red flags when the information is inconsistent.

Rempe agrees: “Barring serious life events, last year’s tax return gives a good idea of what your tax burden will look like this year,” she says.

W-2

If you work full-time, chances are you have taxes withheld from every paycheck to cover your tax burden for the year. If so, your employer will send you a W-2 form by Jan. 31 reporting your total income and the total amount that you have already paid in income, Medicare and Social Security taxes.

For people who had more than one job as a regular employee, each employer will send a W-2 to detail your pay. Unfortunately, if you moved during the year your former employee might not have your current address and your W-2 may never reach you. But keep in mind, your Social Security number didn’t change, so while the IRS will know how much you made, employees might need to call their former employers to ensure they get their tax forms in time.

1099

Simply stated, 1099 forms are issued for all additional income that has not yet been taxed.

Freelancers and temporary or contract workers typically don’t have their taxes taken out at the source. Instead they are paid per job, often by multiple employers, and are responsible for paying the appropriate taxes on that income. Instead of a W-2, this income will be reported on a 1099-MISC form, which is considered “additional income.”

Because these forms can often come from a variety of employers, it’s important for all freelancers or contract workers to track down their 1099s themselves. The IRS will not accept an “I didn’t get my 1099″ excuse if it audits your return, meaning you’ll still have to pay taxes on the amount, along with an additional penalties.

1099s also report dividends from stocks or mutual funds (1099-DIV), or interest earned on savings or other bank accounts (1099-INT), as well as a few others.

Unemployment Forms

Last year was tough for Americans: Many lost their jobs, and many more had trouble finding new ones. With so many people receiving unemployment benefits last year, President Obama was even forced to agree to tax cuts for people making more than $250,000 a year to get Republicans in Congress to approve an extension of unemployment benefits.

Though it’s a federal program, unemployment assistance is administered by state governments, and of course all of them do it differently. Some states automatically withhold taxes from unemployment payments (because unemployment income is taxable) and others don’t. And some states automatically provide year-end information on a 1099-G form, and others don’t.

To ensure you get the assistance you need, Rempe of H&R Block recommends contacting your state’s unemployment office, because simple bank statements showing your unemployment checks won’t do.

“Since different states do it differently, the amount of your checks doesn’t tell you all of the information,” she says. “If your state sends you paper checks, keep the last pay stub of the year to get year-to-date information. If they don’t, you should call them and ask for a year-end summary.”

 

Are You a Schedule C or Schedule D?

Instead of spending 80 hours a week hustling for jobs last year, many frustrated Americans took to sites like eBay or Craigslist to make some extra cash. There are a couple ways this can affect your tax reporting, but remember that anything that you sold for a loss does not need to be mentioned on your taxes.

Conversely, if all you did was sell the contents of the attic or your dad’s garage that you finally helped him clear out, then any money you made (meaning items you sold for more than their original selling prices) must be reported on Schedule D, a form that is submitted with your individual tax return.

If what you did was a little more organized — you bought things at local garage sales and flea markets so that you could flip them and make money — then you’ll need to report the profits (and expenses) of your little operation on a Schedule C form. If your net profit is more than $400, you will need to pay the self-employment tax.

Rempe says the difference is all about intent. Since the distinction is vague, though, best practices apply: Save your receipts and be prepared to document the price at which you bought something.

1098

Now that all your income is accounted for, it’s time for the fun part: expenses, deductions and credits. This is the part of the tax process — if you prepare your returns — where you can watch your base taxable income drop and expected refund rise with every step. So satisfying!

1098 forms cover the specific tax-deductible expenses that the government forces some institutions to report. If you paid tuition to attend college, or for a child in school, you will receive a 1098-T in the mail to document tuition expenses.

If you are a homeowner, your mortgage lender will send you a 1098 that details the mortgage interest you paid (which is deductible) and the real estate taxes you paid last year.

If you made a contribution to charity, the organization will send you a 1098-C detailing the amount of the contribution, or the monetary value of a vehicle or other goods you may have donated.

If your student loans accumulated at least $600 in interest during the year, your lender must issue you a 1098-E to document the exact amount of interest added to your loan balance, because that is also deductible.

All of these documents are issued to you, the taxpayer, so if you do not collect them (which may sometimes mean making a phone call to the charity or school to provide them with the current address), then your tax preparer will not be able to claim the appropriate deductions for you.

Taxes on Personal Property

Just as the government likes to support homeowners by offering them a range of credits and deductions, it also has provisions for people who make other large purchases, like buying a car, boat or mobile home.

These purchases involve expenses that aren’t charged at the point of sale, known as personal property taxes, which are deductible from your income taxes. These charges most often refer to the license plates on your car, or the registration fees for your boat, for example, that are collected by someone other than the dealership.

While you should keep receipts for any big purchases, make sure to also keep records of your registration fees and bring them to your tax preparer. This also goes for old vehicles, which might also grant you a big deduction.

Home Office Receipts

With more people freelancing, blogging and otherwise working from home, maintaining a home office can be a huge expense. Consequently, the IRS respects the needs of taxpayers who work at home, but imposes some strict conditions to ensure they don’t take advantage of the system.

First, a home office has to be used exclusively for business to qualify as a home office at all. If a computer is used half the time for work, you can’t simply claim half the related expenses. A space that has personal as well as business uses is not a home office (for tax purposes), although a small desk or table in a corner of your living room used only for business IS considered a home office deduction.

Once you have established exactly what your home office includes, then you can start deducting. If your home office takes up 20% of the home or apartment you live in, then you can claim 20% of your rent and utilities as expenses for your home office.

Job Search Receipts

Just as many people are working from home, a lot of people are still looking for jobs, and sometimes the accompanying costs of a job search can be significant.

But in the same way that the IRS imposes strict conditions on home offices, job search expenses can be tricky, Rempe of H&R Block says. For example, you can’t just have your friend look over your resume for $20 and then claim that as a job expense — the friend would have to claim the income on his or her tax return. You also can’t claim that $500 suit as a business expense and then wear it to a wedding a week later.

What you can do, though, is keep receipts for any job search expenses that could not be anything other than job-related. That leadership seminar you paid $200 for? It counts. That $60 for a membership on a job search website? That counts too.

Business lunches can be more complicated, though. If you meet a prospective employer over food or coffee, note the details on the back of the receipt if you plan to claim the expense, and keep in mind you must be able to prove (via e-mail, for example) that the lunch had to do with finding a job.

Don’t You Dare Deduct These Expenses!

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By Kay Bell | Bankrate.com – 18 hours ago
 
 
Every tax-filing season, the great quest by filers is to find the most tax deductions. But there are some deductions you should steer clear of.

If you claim these wrong write-offs, you’ll deduct expenses that don’t meet Internal Revenue Service guidelines.

And that means you’ll end up spending time with a tax auditor and paying more in taxes, penalties and interest.

Bankrate doesn’t want that to happen to you, so we’ve put together this list of expenses you might be tempted to claim. Don’t you dare!

But don’t get too upset. We’ve also provided some related tax breaks that do pass IRS muster and will lower your tax bill.

Don’t deduct homeowners insurance, but …

The hazard policy you bought to cover damage from fires, tornadoes, hurricanes, winter storms and other disasters, as well as for more-routine mishaps, offers peace of mind. What it doesn’t provide is a tax deduction for the insurance premiums.

But if you meet some tax law guidelines, you can deduct private mortgage insurance, or PMI on your 2011 tax return. PMI is the insurance your lender requires you to buy if you don’t put down a big enough down payment. PMI premiums are deductible as an itemized expense (it goes on Schedule A with your mortgage interest claim) as long as the mortgage insurance policy was issued between 2007 and 2011.

You also must meet income requirements. If your adjusted gross income is $100,000 or less (or $50,000 and you’re married and filing separately), your full PMI premium amount is deductible. If you make between $100,001 and $109,000, the amount of PMI that you can deduct is reduced. And if your income is more than $109,000 ($54,500 married filing separately), you can’t deduct PMI at all.

You can figure your allowable PMI deduction using the work sheet in the Schedule A instructions.

Don’t deduct a telephone land line, but …

You can’t deduct the cost of your main home telephone land line, even if you primarily use that phone for your business. The IRS says that the first hard-wired phone line in your home is considered a nondeductible personal expense.

But you can deduct as a business expense the cost of business-related long distance charges on that phone.

If you are an employee, they would be claimed as an unreimbursed business expense on Schedule A.

If you are self-employed, you would count the phone calls as an expense on your Schedule C or C-EZ.

And if you install a second telephone land line specifically for your business, its full cost is deductible.

Don’t deduct commuting costs, but …

The cost of getting to and from your workplace is never deductible. Taking public transportation or driving to work is a personal expense, regardless of how far your home is from your office.

And no, you can’t deduct commuting expenses even if you work during the commute.

But you might be able to deduct some commuting costs if you work at two places in one day, whether or not for the same employer. In this case, you can deduct the expense of getting from one workplace to the other.

You also can deduct some expenses related to other work-related travel, such as visits to clients (current and potential) and out-of-office business meetings.

If you’re self-employed, these expenses would go on your Schedule C or C-EZ.

If you’re an employee, travel costs must be claimed as unreimbursed business expenses. As such, your business and other miscellaneous itemized expenses must exceed 2 percent of your adjusted gross income.

Whatever your business travel situation, be sure to keep good records.

You also could encourage your employer to establish a commuter savings account program. This employee transportation fringe benefit lets workers use pretax dollars to purchase mass-transit passes and pay for parking near work.

Don’t deduct your pet, but …

Yes, your dog or cat is a family member. And yes, some insurance companies now include coverage for Fido or Fluffy in auto policies.

But your affection for your pet or an insurer’s willingness to pay for some of your domesticated animal’s care doesn’t carry any weight with the IRS. So don’t dare try claiming your pet as a dependent. Yes, it has been done. And yes, it is disallowed by the IRS when the furry facts are revealed.

You can, however, deduct as itemized medical expenses the costs of buying, training and maintaining a guide dog or other service animal to assist a visually impaired or hearing-impaired person, or a person with other physical disabilities.

Don’t deduct Social Security taxes, but …

You lose a lot of income each payday to Federal Insurance Contributions Act, or FICA, taxes, the money withheld from your checks to pay for your future Social Security benefits. The debate as to whether Social Security will be around when you retire is still raging. But one thing is sure: Don’t even think about trying to deduct these taxes.

But if you overpaid this tax, you can get a credit for your Social Security overwithholding. There is a limit on how much FICA taxes can be contributed each year. The tax is withheld on up to the Social Security earnings base, which is adjusted annually for inflation, and which for 2011 is $106,800 and for 2012 is $110,100.

If you had multiple jobs and your combined earnings exceeded the wage base, you probably had too much FICA withheld. You can claim the excess Social Security tax as a credit when you file your tax return.

Don’t deduct plastic surgery, but …

If you simply are following your inner Joan Rivers, the IRS definitely won’t let you deduct the costs of your nips and tucks.

The IRS specifically says you generally cannot include in deductible medical expenses the amount you pay for procedures such as face lifts, hair transplants, hair removal (electrolysis) and liposuction.

But if a surgery is medically prescribed, for instance, a nose job to treat respiratory issues, and you just happen to like the look of your new sniffer, then that’s OK. The doctor’s decision makes it a medical deduction.

The IRS says: “You can include in medical expenses the amount you pay for cosmetic surgery if it is necessary to improve a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma or a disfiguring disease.”

Remember, all your medical expenses, including any allowable plastic surgeries, must come to more than 7.5 percent of your adjusted gross income before you can claim them.

Don’t deduct dry cleaning, but …

Looking sharp at work rests totally on your shoulders. A recent U.S. Tax Court ruling reaffirmed this tax law when the judge disallowed a television anchorwoman’s deductions for tens of thousands of dollars in clothing she bought to wear on air.

But you can deduct the cost of dry cleaning or laundry of business uniforms. Under the tax code, that means attire you can’t wear anywhere else, although with the ways some folks dress today, that designation could be hard to nail down.

When an outfit is “not suitable for everyday use,” the IRS says the costs of upkeep for the apparel can be claimed as an unreimbursed business expense on Schedule A.

Also deductible are the cleaning charges for nonprofit uniforms, for example, an outfit required of hospital volunteers or Boy Scout or Girl Scout troop leaders. Here the costs of the uniform and its maintenance would count as charitable deductions, also claimed on Schedule A.

Don’t deduct time for volunteer services, but …

Your time is valuable, but that doesn’t matter to the IRS when it comes to volunteering at a charity.

You can’t claim the value of your wages for the hours spent helping out at your favorite nonprofit. Neither can you count as a deduction the value of a project you created, such as a poster that you, a graphic artist, designed for the charity.

But you can deduct other costs associated with your charity work. This includes your mileage in connection with the group’s work, which can be claimed on Schedule A at the rate of 14 cents per mile.

You also can claim as a charitable deduction unreimbursed out-of-pocket expenses.

As with all things tax, keep good records. Track your charitable travel and hang on to the receipts for the poster board and special markers you bought just for the nonprofit’s poster project.

Don’t deduct OTC medication, but …

Headache and cold treatments from your neighborhood pharmacy shelves have never been tax deductible. There was some confusion here because for a while, the IRS allowed owners of medical flexible spending accounts, or FSAs, to use money in those pretax accounts to pay for over-the-counter drugs.

That option ended when 2011 began. Now you must get a doctor’s prescription for OTC medications before the purchase can be reimbursed with FSA funds.

But you still can deduct diagnostic tests, such as store-bought tests for pregnancy and diabetic blood sugar levels.

And the IRS says moms get a tax deduction on breast-feeding supplies, including pumps and bottles, because, like obstetric care, “they are for the purpose of affecting a structure or function of the body of the lactating woman.”

Don’t deduct kids’ overnight camp costs, but …

When school lets out for the summer, working parents face a child care dilemma: what to do with the youngsters while Mom and Dad are at the office.

Some families send the kids off to summer camp. That’s a great experience for the kiddos and eases, at least temporarily, parental child care concerns.

But sleep-away camps, in the summer or any other time of the year, are not tax deductible.

However, if you decide instead to keep the kids at home and simply send them to day camp during the hours you’re working, that expense could qualify as a claim for the child and dependent care credit.

If your care costs are for one child, you can count up to $3,000 of care expenses each year toward the credit. The expense amount is doubled for the cost of caring for two or more dependents.

Your actual tax credit can be up to 35 percent of your qualifying expenses, depending upon your income. And while that might not seem like a large percentage, remember that since it’s a credit, you get to use it to offset your tax bill dollar for dollar.

Tax credits for higher education

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By Kay Bell | Bankrate.com – Fri, Mar 2, 2012 3:00 AM EST
 
 

Are you footing the costs of higher education for yourself or your family? Let your Uncle Sam lend a hand with some tax credits.

Two tax credits, the American opportunity credit and the lifetime learning credit, can help students and their parents defray education expenses. As the names indicate, these educational assistance options are credits rather than deductions, so they take a bigger bite out of your tax bill.

A deduction reduces your taxable income, which can, but is not guaranteed to, reduce your final tax bill. A credit, however, is subtracted directly from the final tax you owe.

American opportunity credit

The American opportunity credit was created as part of the 2009 stimulus bill. It is an enhanced version of the previous Hope educational assistance credit.

The American opportunity credit is worth $2,500, whereas claiming the Hope got you at most $1,800. Even better, up to 40 percent of the American opportunity credit is refundable, meaning you could get up to $1,000 back as a refund even if you don’t owe any taxes.

There are income limits on who can claim the American opportunity credit, but they are greater than were those associated with the hope tax credit. Now you can earn up to $80,000 if you’re a single filer — twice that if married filing jointly — and still claim the full American opportunity credit. A reduced credit amount is available for single filers who earn up to $90,000 and joint filers making up to $180,000.

While the American opportunity credit is improved, it still has some restrictions. It can only be used to claim expenses incurred during the first four years of college. It also is temporary. Unless Congress continues it, the credit will expire at the end of 2012.

Lifetime learning credit

If your educational costs are beyond four undergraduate years of college, you’ll want to look at the Lifetime learning credit. It lives up to its name. It can be used for undergraduate, graduate and professional degree courses for anyone.

This means a qualifying course you took to improve your current job skills or get new work could be partially paid for by the tax credit.

If you meet Internal Revenue Service guidelines, you can count $10,000 of your education expenses. If you have a child also going to college and that child has eligible expenses, you can count those toward the $10,000 total, too, since the credit can be applied to all qualified education expenses in a taxpayer’s family.

These costs, however, don’t translate directly to your tax break. Rather, you get to claim up to 20 percent of your eligible lifetime learning expenses, which could net you a maximum $2,000 credit.

You can claim the lifetime learning credit in full for the 2011 tax year if your modified adjusted gross income is less than $51,000 and you are a single filer or if it is $102,000 and you file a joint return with your spouse. The credit amount will be reduced if you make between $51,000 and $61,000 as a single taxpayer or between $102,000 and $122,000 and are a married couple filing jointly.

Coordinating credits

To qualify for the credits, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. If the student was claimed as a dependent, he or she cannot file for the credit.

You also cannot claim credits for a student named as a dependent on your tax return if you already used the tuition and fees adjustment for that same student. But you can claim the credits even if you received a distribution from a Coverdell education savings account or a qualified tuition program. Just make sure you don’t use Coverdell or tuition account money to pay for the expenses you use to claim an education credit.

If a student meets the requirements for the American opportunity credit and the lifetime learning credit, you must pick which to claim. You cannot take both for the same student in the same year.

However, if you have multiple kids in college, you can choose to take the American opportunity credit and the lifetime learning credit on a per-student, per-year basis. This means that, for example, you can claim the American opportunity credit for your daughter and the lifetime learning credit for your son on the same tax return.

IRS can help you look after the kids

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 By Kay Bell | Bankrate.com – Mon, Mar 5, 2012 3:02 AM EST

Most working parents are well aware they get a tax break to help cover the costs of sending Jimmy or Janie to day care. But some parents overlook the tax advantage of summer day camp costs.

During school vacations, many parents turn to these supervised programs to provide child care while they work. Overnight camps don’t count, but the Internal Revenue Service says day camp expenses do qualify for this popular credit.

Regardless of whether you paid for after-class child care during the school year or a week of day camp during summer break, you can apply the costs to the child and dependent care tax credit and use it to cut your tax bill at filing time.

And while this credit also applies to care for dependents other than children, there are limits — on what you spend as well as how much you earn — that reduce the actual amount of the credit. Plus, you must make sure you and the person being cared for meet IRS eligibility guidelines.

In addition to summer day camp, here are some care services that are eligible for the credit.

Care services eligible for credit
  • Private home nurses.
  • Licensed dependent-care centers.
  • Nursery school and kindergarten costs. In these cases, if the costs of school are separate from child care expenses, only the child care portion qualifies.
  • Household help as long as the services are necessary for the well-being and protection of the qualifying individual.

Actual care cost limits

The first thing to keep in mind is that the credit probably will not pay for all of your child care costs. The IRS limits the dollar amount you can claim and you only get to count a percentage of that amount.

You can claim only up to $3,000 for the care of one person and $6,000 for two or more. Then this amount is further reduced based on your overall income (more on this later).

There is some good news, however. If you paid someone to watch over your two (or more) kids, you can combine all your care costs to reach the $6,000 limit.

In the case of Janie and Jimmy, their folks could count the $2,800 for Janie’s care and $3,200 for Jimmy’s in order to claim a total of $6,000, instead of only $5,800 by adding $2,800 plus $3,000. By using the total amount rather than splitting the actual costs and then applying the limits and figuring the credit, they’ll get a larger tax break.

Percentage restrictions

The second limit is the percentage of costs that you can claim. Once you determine your allowable expense amount, your actual credit is limited to a percentage of that figure.

So regardless of how much you pay, the potential maximum child and dependent care credit is $1,050 (35 percent of $3,000) for the care of one person, twice that for two or more. Depending upon your income, the percentage range drops from 35 percent to 20 percent of your allowable care costs.

The 35 percent rate is only for lower-income taxpayers. If you make more than $15,000, the credit percentage is incrementally phased down by salary range until it hits 20 percent for those earning more than $43,000.

And even if your care costs come up to the maximum credit amount, you may not get it all if your tax bill is less than your allowable credit. The dependent care credit is not refundable, meaning it can only take your tax bill to zero. Any excess credit is not usable.

For example, if you claim a $1,050 maximum credit for the care of one child and owe $750, the IRS will use your credit to wipe out your tax bill, but you won’t get the extra $300 as a refund.

Defining dependents

If you pay for child care, you can claim this credit to help offset some of your costs as long as your child meets IRS guidelines.

The youngster must be younger than 13. He or she also must meet the requirements set out in the IRS’ dependent requirements. Basically, this means the child must be related to you and live with you most of the time. There are exceptions in the cases of divorced or separated parents, so read the tax filing instructions carefully or consult your tax adviser if this is your situation.

But the child and dependent care credit is not limited to child care costs. It also can be claimed when you pay for care of other dependents as they are deemed qualified by the IRS. For example, if you pay someone to look after your spouse or a dependent of any age who is incapacitated because of physical or mental limitations, you might be eligible for this tax break.

Only working taxpayers need apply

Then there’s the credit’s job catch. You can only claim dependent care that was necessary so that you can go to or look for work.

If you’re married, the IRS requires both of you to be employed or seeking a job. The only exception is when one spouse is either a full-time student or is physically or mentally incapable of self-care.

After clearing the employment hurdle, other requirements to claim the credit include:

  • A filing status of single, head of household, married filing jointly or qualifying widow or widower with a dependent child. In most cases, married taxpayers who file separate returns cannot claim the dependent care credit.
  • The payments for care cannot be made to someone you can claim as your dependent on your return or to your child who is younger than age 19.

To claim child and dependent care credit, complete and attach Form 2441 to your return. You must file taxes using either Form 1040 or Form 1040A to claim the credit.

Identify your caregivers

You also must include on the tax forms the name and taxpayer identification numbers of the caregivers.

If it’s a business, the operator can provide you with the employer identification number. You also can use Form W-10, Dependent Care Provider’s Identification and Certification, to request this information from the care provider. For individual providers, you generally use the person’s Social Security number.

You might have some additional filing duties related to this credit depending upon who you hire and how you cover the costs.

If you pay someone to come to your home to provide the care, you may be considered a household employer and have to pay employment taxes.

Company benefit considerations

Finally, if you received any dependent care benefits from your employer during the year, you will have to complete Part III of Form 2441 or Schedule 2 to determine the amount of your credit. These amounts are listed in box 10 of your W-2.

Company benefits include money you receive directly from your employer or that was paid by your employer to your care provider. The fair market value of a company-provided day care facility also counts, as does money you put into a dependent care flexible spending account to pay care expenses.

For example, if your company provides untaxed dependent-care benefits directly to you, those amounts reduce the amount of expenses you can claim. If the company pays you $1,000 for child care costs, you must reduce your credit amount by that payment, so a $3,000 limit now becomes $2,000 to offset the company payments.

In the case of a spending account, if you paid $10,000 for a nursery school to look after your two children while you were at work, $6,000 is the maximum allowable credit amount. But you used $5,000 from your workplace flexible spending account to pay part of those costs, so the account money will reduce how much you can claim toward the child care credit — the $6,000 maximum care expense amount is cut to $1,000.

In both these instances, because the workplace child care assistance is not taxable income to you, you cannot use those amounts to help further cut your tax bill.

More information on the credit is available in IRS Publication 503, Child and Dependent Care Expenses, or Chapter 32 of IRS Publication 17, Your Federal Income Tax.