Did you know that you can claim a federal income tax credit when you pay someone to care for your kids while you’re at work or school?

The Child and Dependent Care Credit is valuable because it reduces the amount of tax you owe dollar-for-dollar. Here’s an overview of the rules.

 
● Child care expenses must be work-related. This requirement means you have to pay for child care so you can work or actively look for work. If you’re married, you and your spouse must both work. Exceptions to this “earned income” rule include spouses who are full-time students or who are not able to care for themselves due to mental or physical limitations.

 
● Expenses generally must be paid for care of your under-age-13 child. However, expenses you pay to care for a physically or mentally disabled spouse or adult dependent may also count.

 
● Expenses must be paid to someone who is not your dependent. Amounts you pay your spouse, your child’s parent (such as an ex-spouse), anyone claimed as a dependent on your tax return, or your own child age 18 or younger do not qualify for the credit. For example, if you pay your 17-year-old dependent child to watch a younger sibling, that expense doesn’t count for purposes of claiming the credit.

 
● The care provider has to be identified on your tax return. You’ll typically need to show the name, address, and taxpayer identification number. You can request this information by asking your provider to complete Form W-10, Dependent Care Provider’s Identification and Certification.

 
● The amount you can claim depends on how much you spend for the care up to a dollar limit of $3,000 of expenses for one dependent and $6,000 for two or more dependents.

 
Contact us for more information.

Looking for a great way to fund a portion of your vacation costs?

 

Are you thinking about turning a business trip into a family vacation this summer? This can be a great way to fund a portion of your vacation costs. But if you’re not careful, you could lose the tax benefits of business travel.

 
Reasonable and necessary
Generally, if the primary purpose of your trip is business, expenses directly attributable to business will be deductible (or excludable from your taxable income if your employer is paying the expenses or reimbursing you through an accountable plan). Reasonable and necessary travel expenses generally include:
• Air, taxi and rail fares,
• Baggage handling,
• Car use or rental,
• Lodging,
• Meals, and
• Tips.
Expenses associated with taking extra days for sightseeing, relaxation or other personal activities generally aren’t deductible. Nor is the cost of your spouse or children traveling with you.

 
Business vs. pleasure
How do you determine if your trip is “primarily” for business? One factor is the number of days spent on business vs. pleasure. But some days that you might think are “pleasure” days might actually be “business” days for tax purposes. “Standby days,” for example, may be considered business days, even if you’re not engaged in business-related activities. You also may be able to deduct certain expenses on personal days if tacking the days onto your trip reduces the overall cost.
During your trip it’s critical to carefully document your business vs. personal expenses. Also keep in mind that special limitations apply to foreign travel, luxury water travel and certain convention expenses.

 
Maximize your tax savings
For more information on how to maximize your tax savings when combining business travel with a vacation, please contact us. In some cases you may be able to deduct expenses that you might not think would be deductible.

Did you know summer day camp can save you taxes?

Although the kids might still be in school for a few more weeks, summer day camp is rapidly approaching for many families. If yours is among them, did you know that sending your child to day camp might make you eligible for a tax credit?

 
The power of tax credits
Day camp (but not overnight camp) is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2016, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.
Remember that tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax. For example, if you’re in the 28% tax bracket, $1 of deduction saves you only $0.28 of taxes. So it’s important to take maximum advantage of the tax credits available to you.

 
Rules to be aware of
A qualifying child is generally a dependent under age 13. (There’s no age limit if the dependent child is unable physically or mentally to care for him- or herself.) Special rules apply if the child’s parents are divorced or separated or if the parents live apart.
Eligible costs for care must be work-related, which means that the child care is needed so that you can work or, if you’re currently unemployed, look for work. However, if your employer offers a child and dependent care Flexible Spending Account (FSA) that you participate in, you can’t use expenses paid from or reimbursed by the FSA to claim the credit.

 
Are you eligible?
These are only some of the rules that apply to the child and dependent care credit. So please contact us to determine whether you’re eligible.

 

QSB stock offers 2 valuable tax benefits

 

By investing in qualified small business (QSB) stock, you can diversify your portfolio and enjoy two valuable tax benefits:

 
1. Tax-free gain rollovers. If within 60 days of selling QSB stock you buy other QSB stock with the proceeds, you can defer the tax on your gain until you dispose of the new stock. The rolled-over gain reduces your basis in the new stock. For determining long-term capital gains treatment, the new stock’s holding period includes the holding period of the stock you sold.

 
2. Exclusion of gain. Generally, taxpayers selling QSB stock are allowed to exclude up to 50% of their gain if they’ve held the stock for more than five years. But, depending on the acquisition date, the exclusion may be greater: The exclusion is 75% for stock acquired after Feb. 17, 2009, and before Sept. 28, 2010, and 100% for stock acquired on or after Sept. 28, 2010. The acquisition deadline for the 100% gain exclusion had been Dec. 31, 2014, but Congress has made this exclusion permanent.

 
The taxable portion of any QSB gain will be subject to the lesser of your ordinary-income rate or 28%, rather than the normal long-term gains rate. Thus, if the 28% rate and the 50% exclusion apply, the effective rate on the QSB gain will be 14% (28% × 50%).

 
Keep in mind that these tax benefits are subject to additional requirements and limits. For example, to be a QSB, a business must be engaged in an active trade or business and must not have assets that exceed $50 million.

 
Consult us for more details before buying or selling QSB stock. And be sure to consider the nontax factors as well, such as your risk tolerance, time horizon and overall investment goals.

 

 

 

 

 

 

 

 

Should you make estimated tax payments?

 

If you’re required to make quarterly estimated tax payments this year, the first one is due on the same day as your federal income tax return. Failing to pay estimates, or not paying enough, may lead to penalties. Here’s what to consider.

 
Do you need to make estimates? If you operate your own business, or receive alimony, investment, or other income that’s not subject to withholding, you may have to pay the tax due in installments. Each estimated tax installment is a partial prepayment of the total amount you expect to owe for 2016. You make the payment yourself, typically four times a year.

 
How much do you need to pay? To avoid penalties, your estimated payments must equal 90% of your 2016 tax or 100% of the tax on your 2015 return (110% if your adjusted gross income was over $150,000).

 
There are exceptions to the general rule. For instance, say you anticipate the balance due on your 2016 federal individual income tax return will be less than $1,000 after subtracting withholding and credits. In this case, you can skip the estimated payments and remit the final balance with your return next April.

 
Contact us for more information about estimated tax payments.

Need more time to finish your federal income tax return?

Can’t finish your federal income tax return by the April deadline? Requesting an extension to shift the due date to October 17, 2016, takes three steps.

First, estimate your 2015 tax liability. Second, enter that number on the extension request form (Form 4868). Third, file Form 4868 by the regular due date of your return. You can request the extension on paper, by phone, or online. Be aware that an extension doesn’t give you more time to pay the tax you owe.

 

April is a busy month for taxes- don’t miss the deadlines!

 

Is your tax return finished? If not, this year you have an extra day – or two – to file. April 18, 2016, is the due date to file your 2015 individual federal income tax return and pay any balance due. If you live in Maine or Massachusetts, you have until Tuesday, April 19, to file and pay.

 
Here’s why. The normal due date – Friday, April 15 – is Emancipation Day. That’s a holiday in the District of Columbia, so the tax filing deadline shifts to Monday, April 18. However, Monday, April 18, is also a holiday (Patriots Day) in Maine and Massachusetts. That means if you live in either of those states, your deadline moves to April 19. The extended due dates apply whether you file electronically or on paper.

 
Here are other major mid-April deadlines.
● The above due dates also apply to filing an automatic extension for your 2015 individual income tax return if you can’t file by the deadline. You don’t need to explain to the IRS why you need more time and the automatic extension gives you until October 17, 2016, to file your return. An extension does not, generally, give you more time to pay taxes you still owe. To avoid penalty and interest charges, taxes must be paid by the April deadline.
● Filing 2015 partnership returns for calendar year partnerships.
● Filing 2015 income tax returns for calendar year trusts and estates.
● Filing 2015 annual gift tax returns.
● Making 2015 IRA contributions.
● Paying the first quarterly installment of 2016 individual estimated tax.
● Amending 2012 individual tax returns (unless the 2012 return had a filing extension).
● Original filing of a 2012 individual income tax return to claim a refund of taxes. If you have tax refunds due for prior years, the refund is lost unless you file a return to claim it.

Teach your child this vital skill

 

Financial literacy is a vital skill in today’s world. Will your children be able to handle their finances when they became adults? Here are tips to help ensure the answer is yes.

 
Shave spending. Take the weekly allowance to the next level by helping your child develop a budget. Review the results to reinforce good habits.

 
Stress savings. Even young children can grasp the power of compound interest. A simple example is asking your child to put a dollar in a piggy bank. Offer to pay five percent interest if the money is still there in a week or a month. Make the same offer at the end of the first time period, and pay “interest on the interest” as well.

 
Introduce investments. Create a portfolio, either real or paper, consisting of shares of one or more stocks or mutual funds. Make a game of charting the investment’s progress on a regular basis.

 
Cover credit. Take on the role of lender and let your child request an advance on a weekly allowance. Charge interest.

 
Talk taxes. Use word search or crossword puzzles to teach tax terminology. Consider creating a “Family Economy” game using examples from your own budget.

 

 
Lessons in financial responsibility can benefit your children now and in the future. Get them started on the right path.

 

 

 

 

Are you reviewing these 5 areas to benefit your business?

As a business owner, monitoring operations and dealing with everyday problems no doubt takes up the bulk of your day. But carving out time for a comprehensive review can benefit your business. Here are 5 key areas to consider.

 
Insurance coverage. Automatic renewal may appear to be a time-saver. But you might be missing out on necessary updates and the opportunity to revise your coverage. Sit down with your insurance agent and discuss your business operations, focusing on risks from new ventures or changes in laws. Make sure you have suitable liability coverage.

 
Tax Strategy. A month after you file your tax return, make an appointment with your tax advisor. Go over your return together and identify opportunities for tax savings. Question everything, starting with whether you’re using the right form of business entity. Ask about recent changes in the tax code and how they might benefit your business. Make your advisor a partner in your business strategy.

 
Succession planning. Have a specific plan for each key managerial position, including yours. Will you promote from within or recruit externally in the case of an unexpected vacancy? Which managers can be cross-trained to keep your business operating during the short-term absence of another employee?

 
Banking relationships. Schedule a meeting with your controller or chief financial officer to go over your cash balances and banking relationships. Then both of you meet with your banker. Address service concerns or problems that arose during the year. Look for ways to reduce idle cash, boost interest earned, and improve cash flows.

 
Personal Estate Planning. Your company is likely a significant part of your estate. A good estate plan is essential if you hope to pass it on to your heirs. But your company, your personal circumstances, and the tax laws are continually changing. Make sure your plans are current.

 
Contact us for more suggestions. We can assist you in securing your business’s long-term success.

Did you enroll in HealthCare.gov? You may be eligible for a federal tax credit

If you or a family member enrolled in a qualified health plan offered through a government insurance marketplace, such as HealthCare.gov, you may be eligible for a federal tax credit. The amount of the credit varies depending on your household income and can be claimed on your tax return. Alternatively, you have the option to receive all or part of the credit in advance in the form of payments to your insurer that reduce your health insurance premiums.

 
Either way, you need to file a federal income tax return. That’s the case even if you’re usually not required to file. In the case of advance payments, failing to file your tax return can prevent you from receiving the credit in future years.
To make sure you received the correct amount of the credit, or to claim it, attach Form 8962, Premium Tax Credit, to your return.

 
For questions or filing assistance, please contact our office..