What You Need to Know About the Child and Dependent Care Tax Credit
Don't overlook the Child and Dependent Care Tax Credit. It can reduce the taxes you pay. Here are 10 facts from the IRS about this important tax credit:
- Child, Dependent or Spouse. You may be able to claim the credit if you paid someone to care for your child, dependent or spouse last year.
- Work-Related Expense. The care must have been necessary so you could work or look for work. If you are married, the care also must have been necessary so your spouse could work or look for work. This rule does not apply if your spouse was disabled or a full-time student.
- Qualifying Person. The care must have been for "qualifying persons." A qualifying person can be your child under age 13. A qualifying person can also be your spouse or dependent who lived with you for more than half the year and is physically or mentally incapable of self-care.
- Earned Income. You must have earned income for the year, such as wages from a job. If you are married and file a joint tax return, your spouse must also have earned income. Special rules apply to a spouse who is a student or disabled.
- Credit Percentage / Expense Limits. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on the amount of your income. Your allowable expenses are limited to $3,000 if you paid for the care of one qualifying person. The limit is $6,000 if you paid for the care of two or more.
- Dependent Care Benefits. If your employer gives you dependent care benefits, special rules apply. For more on these rules see Form 2441, Child and Dependent Care Expenses.
- Qualifying Person's SSN. You must include the Social Security number of each qualifying person to claim the credit.
- Care Provider Information. You must include the name, address and taxpayer identification number of your care provider on your tax return.
- Form 2441. You file Form 2441 with your tax return to claim the credit.
Home Energy Credits Save Money and Cut Taxes
You can trim your taxes and save on your energy bills with certain home improvements. Here are some key facts to know about home energy tax credits:
Non-Business Energy Property Credit
- Part of this credit is worth 10 percent of the cost of certain qualified energy-saving items you added to your main home last year. This may include items such as insulation, windows, doors and roofs.
- The other part of the credit is not a percentage of the cost. It is for the actual cost of certain property. This may include items like water heaters and heating and air conditioning systems. The credit amount for each type of property has a different dollar limit.
- This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.
- Your main home must be located in the U.S. to qualify for the credit.
- Be sure you have the written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product's packaging. You can rely on it to claim the credit, but do not attach it to your return. Keep it with your tax records.
- You may claim the credit on your 2015 tax return if you didn't reach the lifetime limit in past years. Under current law, this credit is available through Dec. 31, 2016.
Residential Energy Efficient Property Credit
- This tax credit is 30 percent of the cost of alternative energy equipment installed on or in your home.
- Qualified equipment includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.
- There is no dollar limit on the credit for most types of property. If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year's tax return.
- The home must be in the U.S. It does not have to be your main home, unless the alternative energy equipment is qualified fuel cell property.
- This credit is available through 2016.
Six Reasons to Choose Direct Deposit for Your Tax Refund
When you file your taxes, you have options on how to receive your refund. The best way to get it is by direct deposit. Eight out of 10 taxpayers get their refunds by direct deposit. Here are six good reasons why you should do the same in 2016:
IRS Direct Deposit:
- Is Fast. The fastest way to get your refund is to electronically file your federal tax return and use direct deposit. Use IRS Free File to prepare and e-file your federal return for free. You can still use direct deposit even if you file a paper tax return.
- Is Secure. Since your refund goes directly into your account, there's no risk of having your refund check stolen or lost in the mail. This is the same electronic transfer system used to deposit nearly 98 percent of all Social Security and Veterans Affairs benefits into millions of accounts.
- Is Convenient. With direct deposit, your refund goes directly into your bank account. There's no need to wait for your check to come in the mail.
- Is Easy. Choosing direct deposit is easy. When you e-file, just follow the instructions in the tax software. If you file a paper return, the tax form instructions will guide you. Make sure that you enter the correct bank account and routing number.
- Has Options. You can split your refund into several financial accounts. These include checking, savings, health, education and certain retirement accounts. Beginning this year, there is a new retirement account offered by the U.S. Treasury Department. It's called a MyRA account and you can designate all or a portion of your refund to a new MyRA account if you mark the "savings" box in the refund section of your return. Use IRS Form 8888, Allocation of Refund (including Savings Bond Purchases), to deposit your refund in up to three accounts. Don't use Form 8888 to designate part of your refund to pay your tax preparer.
- Saves Money. Direct deposit also saves you money. It costs the nation's taxpayers more than $1 for every paper refund check issued but only a dime for each direct deposit made.
You should deposit your refund into accounts in your own name, your spouse's name or both. Avoid making a deposit into accounts owned by others. Some banks require both spouses' names on the account to deposit a tax refund from a joint return. Check with your bank for their direct deposit requirements.
There is a limit of three electronic direct deposit refunds made into a single financial account or pre-paid debit card. Taxpayers who exceed the limit will receive an IRS notice and a check refund in the mail. Helpful tips about direct deposit and the split refund option are available in Publication 17, Your Federal Income Tax. You can view, download and print tax products on IRS.gov/forms anytime.
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights.
Explore your rights and our obligations to protect them on IRS.gov.
Don't Let Taxes Disrupt Your Retirement Plans!
Many people carefully plan ahead for retirement, setting up tax-advantaged savings accounts and deciding on the best place to live. They may be surprised, then, to learn about the many tax issues that apply to retirees, all of which should be taken into account in their planning. That can include taxes on distributions from retirement or investment accounts, required minimum distributions from some retirement nest eggs and potential taxes on Social Security payments. Many fail to consider state and local income, sales or property taxes-as well as state taxes on retirement benefits and estates.
The good news is that it's possible to anticipate and reduce some of the complications that taxes can cause in retirement. If you're not certain how to get started, be sure to call our office. We can provide the advice you need to build a foundation for a secure retirement.
2016 Standard Mileage Rates for Business, Medical and Moving Announced
WASHINGTON - The Internal Revenue Service today issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
* 54 cents per mile for business miles driven, down from 57.5 cents for 2015
* 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
* 14 cents per mile driven in service of charitable organizations
The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates. The charitable rate is based on statute.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.