We all know how it goes – as soon as the New Year begins the tax forms begin filling up your mailbox. Just another year to throw the 1099s and W-2s in a pile and ship them off to your accountant just in time to throw a return together and be done with it. Many people see tax time as a necessary evil which they grin and bear their way through the steps in order to get it done and over with. If you are one of these people you may benefit from doing things a little different this year and seeing where it gets you.
There are many benefits to paying attention during your tax filing process if you have never cared or take the time to understand before. It doesn’t matter whether you are a wealthy business owner or just a normal guy or gal working for your paycheck – a good CPA can help you get the most benefit not only tax wise but possibly financially as well. Taking time with your tax preparer to understand the why’s and how’s can open your eyes to things you may be able to do differently to better your tax or financial position in the future. If your accountant does not have your best interest at heart then find a new one because a good accountant takes a personal interest in their clients and wants to see them do as well as absolutely possible. A good accountant will not only be able to prepare your tax return to its fullest potential but they are able to advise you on future moves and desires.
This year, make a resolution to spend some time with your accountant, learn something new, and solidify the relationship. Having a trusted advisor as opposed to a tax preparer on your team will take you a long way and be worth every penny.
Having a baby is such a wonderful blessing, but along with the tremendous amount of joy comes a large amount of new expenses. The federal government offers a number of tax breaks to help parents save money on their tax bill.
For 2016, you can claim a $4,050 exemption by adding your child as a dependent. This will reduce the amount of income which you will be taxed on. This is not a prorated amount, meaning that you qualify for the entire amount no matter what time of the year the child was born. For example, a married couple with one child would qualify for three exemptions, even if that baby was born in December of the year.
There is a phase-out on the dependent exemption that applies once your adjusted gross income exceeds $259,400 for single filers, $285,350 for head of household, $155,650 for married filing separately, and $311,300 for married couples filing jointly in 2016.
The child tax credit provides a credit of $1,000. A credit is different than a deduction in that it reduces the amount of the tax bill dollar for dollar compared to a deduction that reduces the amount of income you are being taxed on.
There is a phase-out for the child tax credit which starts when your income is above $110,000 for married couples filing jointly, $75,000 for single filers and head of household, or $55,000 for married filing separately.
The dollar limit on the amount of the expenses you can use to figure the credit is $3,000 for the care of one child under age thirteen or $6,000 for two or more children under age thirteen. The amount of your credit is between 20-35 percent of your allowable expenses. There is not a complete phase-out for this credit, but the credit decreases as the amount of income increases. Families with an adjusted gross income of $43,000 or more will only be able to take 20% of allowable expenses.