The most misunderstood tax form there is
The W-4 is the most misunderstood tax form there is in my opinion. As I type this, I am in the heat of tax season and time and time again I see so many people tremendously overwitheld in taxes or underwithheld in taxes. The IRS evens offer a free W-4 calculator. You can find it at http://www.irs.gov/individuals/page/0,,id=14806,00.html
Summertime Child Care Expenses May Qualify for a Tax Credit
Summertime Child Care Expenses May Qualify for a Tax Credit
Did you know that your summer day care expenses may qualify for an income tax credit? Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. Those expenses may help you get a credit on next year’s tax return.
Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.
- The cost of day camp may count as an expense towards the child and dependent care credit.
- Expenses for overnight camps do not qualify.
- If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
- The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.
- You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
IRS Publication 503, Child and Dependent Care Expenses
Flat Tax?
“If Congress were to pass a flat tax, you’d simply pay a fixed percentage of your income, and you wouldn’t fill out any complicated forms, and there would be no loopholes for politically connected groups, and normal people would actually understand the tax laws, and giant broccoli stalks would come around and mow your lawn for free, because Congress is NOT going to pass a flat tax, you pathetic fool.” Dave Barry
The myth of the mortgage deduction
The mortgage interest is one of the most celebrated tax deductions in all of the tax deduction kingdom. But should you pay off your mortage or even pay cash for a home purchase assuming you have the money available, thereby forgoing the tax deduction of mortage interest? The answer is "yes" and I will explain why.
First of all you should never occur an expense just to get a tax deduction thus reducing your tax. If you are in a 28% tax bracket and you pay $10,000 in mortgage interest, the $10,000 deduction saves you $2,800 in taxes, but you are still out of pocket the remaining $7,200.
Second, the standard deduction continues to rise. In 2009 and 2010 married filing joint taxpayers received a standard deduction of $11,400. That means you get a deduction of $11,400 even if you don't have any itemized deductions, such as mortgage interest.
But you might suggest you can invest the money and make more than the mortgage company is charging you for interest. Good luck in finding a trully safe investment that can do that.
Understand how life changing events-Affect your Taxes
You need to discuss the tax consequences of life changing events with a tax professional. Examples of life changing events are: marriage, divorce, death of a loved one, new career, loss of a job, increase in pay, decrease in pay, starting your own business, birth of a child, family member attending college, purchase of a residence, and purchase of rental property, for example.
There are specific tax consequences to each of the above examples. For example, the death of a loved one, may mean moving from filing joint tax rates to filing single tax rates in the following year. Also, you loose a personal exemption deduction and are subject to the single standard deduction amount.
Be proactive in your tax planning and understand the tax consequences of life changing events.