Category Archives: Tax Credits

Summer Camp Costs May Brighten Your Tax Return

This article was originally published in Hershey Advisors’ monthly Tax and Business Alert.

The coming and going of Memorial Day marks the beginning of summer in the minds of many Americans. Although the kids might still be in school for another week or two, 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 break?
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Day camp is a qualified expense under the child and dependent care credit. This tax break is worth 20% of qualifying expenses, subject to a cap — and could be worth even more if your adjusted gross income is less than $43,000. For 2016, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.
Be aware, however, that overnight camp costs don’t qualify for the credit, nor do expenses related to summer school tutoring. In addition, certain types of child care are ineligible. These include care provided by a spouse and care provided by a child who’s under age 19 at the end of the year.
A variety of additional rules may apply. For example, eligible costs for care must be work-related. In other words, parents need to pay for the care so that they can work (or look for work). If you think you might qualify for the child and dependent care credit, please contact us. We can help you determine whether you’re eligible and then properly claim this potentially valuable tax break.

IRS to Parents: Don’t Miss Out on These Tax Savers

The following is IRS Tax Tip 2016-17:

Children may help reduce the amount of taxes owed for the year. If you’re a parent, here are several tax benefits you should look for when you file your federal tax return:

  • Dependents.  In most cases, you can claim your child as a dependent. You can deduct $4,000 for each dependent you are entitled to claim. You must reduce this amount if your income is above certain limits. For more on these rules, see Publication 501, Exemptions, Standard Deduction and Filing Information.
  • Child Tax Credit.  You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more information, see Schedule 8812 and Publication 972, Child Tax Credit.
  • Child and Dependent Care Credit.  You may be able to claim this credit if you paid for the care of one or more qualifying persons. Dependent children under age 13 are among those who qualify. You must have paid for care so that you could work or look for work. See Publication 503, Child and Dependent Care Expenses, for more on this credit.
  • Earned Income Tax Credit.  You may qualify for EITC if you worked but earned less than $53,267 last year. You can get up to $6,242 in EITC. You may qualify with or without children. Use the 2015 EITC Assistant tool at IRS.gov to find out if you qualify. See Publication 596, Earned Income Tax Credit, to learn more.
  • Adoption Credit.  You may be able to claim a tax credit for certain costs you paid to adopt a child. For details see Form 8839, Qualified Adoption Expenses.
  • Education Tax Credits.  An education credit can help you with the cost of higher education.  Two credits are available. The American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the credit reduces your tax to less than zero, you may get a refund. Even if you don’t owe any taxes, you still may qualify. You must complete Form 8863, Education Credits, and file a return to claim these credits. Use the Interactive Tax Assistant tool on IRS.gov to see if you can claim them. Visit the IRS’s Education Credits Web page to learn more on this topic. Also, see Publication 970, Tax Benefits for Education.
  • Student Loan Interest.  You may be able to deduct interest you paid on a qualified student loan. You can claim this benefit even if you do not itemize your deductions. For more information, see Publication 970.
  • Self-employed Health Insurance Deduction.  If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid during the year. This may include the cost to cover your children under age 27, even if they are not your dependent. See Publication 535, Business Expenses, for details.

You can get related forms and publications on IRS.gov.

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.

Still Time to Make Your IRA Contribution for the 2014 Tax Year

The following is IRS Tax Tip 2015-50:

Did you contribute to an Individual Retirement Arrangement last year? Are you thinking about contributing to your IRA now? If so, you may have questions about IRAs and your taxes. Here are some IRS tax tips about saving for retirement using an IRA.

  • Age rules.  You must be under age 70½ at the end of the tax year in order to contribute to a traditional IRA. There is no age limit to contribute to a Roth IRA.
  • Compensation rules.  You must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income. It also includes tips, commissions, bonuses and alimony. If you are married and file a joint tax return, only one spouse needs to have compensation in most cases.
  • When to contribute.  You can contribute to an IRA at any time during the year. To count for 2014, you must contribute by the due date of your tax return. This does not include extensions. That means most people must contribute by April 15, 2015. If you contribute between Jan. 1 and April 15, make sure your plan sponsor applies it to the year you choose (2014 or 2015).
  • Contribution limits.  In general, the most you can contribute to your IRA for 2014 is the smaller of either your taxable compensation for the year or $5,500. If you were age 50 or older at the end of 2014, the maximum you can contribute increases to $6,500. If you contribute more than these limits, an additional tax will apply. The added tax is 6 percent of the excess amount that you contributed.
  • Taxability rules.  You normally won’t pay income tax on funds in your traditional IRA until you start taking distributions from it. Qualified distributions from a Roth IRA are tax-free.
  • Deductibility rules.  You may be able to deduct some or all of your contributions to your traditional IRA. Use the worksheets in the Form 1040A or Form 1040 instructions to figure the amount that you can deduct. You may claim the deduction on either form. You may not deduct contributions to a Roth IRA.
  • Saver’s Credit.  If you contribute to an IRA you may also qualify for the Saver’s Credit. The credit can reduce your taxes up to $2,000 if you file a joint return. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit. You can file Form 1040A or 1040 to claim the Saver’s Credit.

Additional IRS Resources:

Education Tax Credits: Two Benefits to Help You Pay for College

The following is IRS Tax Tip 2015-33:

Did you pay for college in 2014? If you did it can mean tax savings on your federal tax return. There are two education credits that can help you with the cost of higher education. The credits may reduce the amount of tax you owe on your tax return. Here are some important facts you should know about education tax credits.

American Opportunity Tax Credit:

  • You may be able to claim up to $2,500 per eligible student.
  • The credit applies to the first four years at an eligible college or vocational school.
  • It reduces the amount of tax you owe. If the credit reduces your tax to less than zero, you may receive up to $1,000 as a refund.
  • It is available for students earning a degree or other recognized credential.
  • The credit applies to students going to school at least half-time for at least one academic period that started during the tax year
  • Costs that apply to the credit include the cost of tuition, books and required fees and supplies.

Lifetime Learning Credit Credit:

  • The credit is limited to $2,000 per tax return, per year.
  • The credit applies to all years of higher education. This includes classes for learning or improving job skills.
  • The credit is limited to the amount of your taxes.
  • Costs that apply to the credit include the cost of tuition, required fees, books, supplies and equipment that you must buy from the school.

For both credits:

  • The credits apply to an eligible student. Eligible students include yourself, your spouse or a dependent that you list on your tax return.
  • You must file Form 1040A or Form 1040 and complete Form 8863, Education Credits, to claim these credits on your tax return.
  • Your school should give you a Form 1098-T, Tuition Statement, showing expenses for the year. This form contains helpful information needed to complete Form 8863. The amounts shown in Boxes 1 and 2 of the form may be different than what you actually paid. For example, the form may not include the cost of books that qualify for the credit.
  • You can’t claim either credit if someone else claims you as a dependent.
  • You can’t claim both credits for the same student or for the same expense, in the same year.
  • The credits are subject to income limits that could reduce the amount you can claim on your return.
  • Visit IRS.gov and use the Interactive Tax Assistant tool to see if you’re eligible to claim these credits. Also visit the IRS Education Credits Web page to learn more. If you can’t claim a tax credit, check the other tax benefits you might be able to claim.

Additional IRS Resources:

IRS to Parents: Don’t Miss Out on These Tax Savers

The following is the IRS Tax Tip 2015-14:

Children may help reduce the amount of taxes owed for the year. If you’re a parent, here are several tax benefits you should look for when you file your federal tax return:

• Dependents.  In most cases, you can claim your child as a dependent. You can deduct $3,950 for each dependent you are entitled to claim. You must reduce this amount if your income is above certain limits. For more on these rules, see Publication 501, Exemptions, Standard Deduction and Filing Information.

• Child Tax Credit.  You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more, see Schedule 8812 and Publication 972, both titled Child Tax Credit.

• Child and Dependent Care Credit.  You may be able to claim this credit if you paid for the care of one or more qualifying persons. Dependent children under age 13 are among those who qualify. You must have paid for care so that you could work or could look for work. See Publication 503, Child and Dependent Care Expenses, for more on this credit.

• Earned Income Tax Credit.  You may qualify for EITC if you worked but earned less than $52,427 last year. You can get up to $6,143 in EITC. You may qualify with or without children. Use the 2014 EITC Assistant tool at IRS.gov to find out if you qualify. See Publication 596, Earned Income Tax Credit, to learn more.

• Adoption Credit.  You may be able to claim a tax credit for certain costs you paid to adopt a child. For details see Form 8839, Qualified Adoption Expenses.

• Education tax credits.  An education credit can help you with the cost of higher education.  There are two credits that are available. The American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the credit reduces your tax to less than zero, you may get a refund. Even if you don’t owe any taxes, you still may qualify. You must complete Form 8863, Education Credits, and file a return to claim these credits. Use the Interactive Tax Assistant tool on IRS.gov to see if you can claim them. Visit the IRS’s Education Credits Web page to learn more. Also see Publication 970, Tax Benefits for Education, for more on this topic.

• Student loan interest.  You may be able to deduct interest you paid on a qualified student loan. You can claim this benefit even if you do not itemize your deductions. For more information, see Publication 970.

• Self-employed health insurance deduction.  If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid during the year. This may include the cost to cover your children under age 27, even if they are not your dependent. See Publication 535, Business Expenses, for details.

You can get related forms and publications on IRS.gov.

Back-to-School Tax Credits

The following is the IRS Summertime Tax Tip 2014-23:

Are you, your spouse or a dependent heading off to college? If so, here’s a quick tip from the IRS: some of the costs you pay for higher education can save you money at tax time. Here are several important facts you should know about education tax credits:

  • American Opportunity Tax Credit. The AOTC can be up to $2,500 annually for an eligible student. This credit applies for the first four years of higher education. Forty percent of the AOTC is refundable. That means that you may be able to get up to $1,000 of the credit as a refund, even if you don’t owe any taxes.
  • Lifetime Learning Credit. With the LLC, you may be able to claim a tax credit of up to $2,000 on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.
  • One credit per student. You can claim only one type of education credit per student on your federal tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student. For example, you can claim the AOTC for one student and claim the LLC for the other student.
  • Qualified expenses. You may include qualified expenses to figure your credit. This may include amounts you pay for tuition, fees and other related expenses for an eligible student. Refer to IRS.gov for more about the additional rules that apply to each credit.
  • Eligible educational institutions. Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify.
  • Form 1098-T. In most cases, you should receive Form 1098-T, Tuition Statement, from your school. This form reports your qualified expenses to the IRS and to you. You may notice that the amount shown on the form is different than the amount you actually paid. That’s because some of your related costs may not appear on Form 1098-T. For example, the cost of your textbooks may not appear on the form, but you still may be able to claim your textbook costs as part of the credit. Remember, you can only claim an education credit for the qualified expenses that you paid in that same tax year.
  • Nonresident alien. If you are in the U.S. on an F-1 student visa, you usually file your federal tax return as a nonresident alien. You can’t claim an education credit if you were a nonresident alien for any part of the tax year unless you elect to be treated as a resident alien for federal tax purposes. To learn more about these rules see Publication 519, U.S. Tax Guide for Aliens.
  • Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on your income.

For more information, visit the Tax Benefits for Education Information Center on IRS.gov. Also, check Publication 970, Tax Benefits for Education. You can get it on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources: