Keep the Child Care Credit in Mind for Summer

If you are a working parent or look for work this summer, you may need to pay for the care of your child or children. These expenses may qualify for a tax credit that can reduce your federal income taxes. The Child and Dependent Care Tax Credit is available not only while school’s out for summer, but also throughout the year. Here are eight key points the IRS wants you to know about this credit.

1. You must pay for care so you – and your spouse if filing jointly – can work or actively look for work. Your spouse meets this test during any month they are full-time student, or physically or mentally incapable of self-care.

2. You must have earned income. Earned income includes earnings such as wages and self-employment. If you are married filing jointly, your spouse must also have earned income. There is an exception to this rule for a spouse who is full-time student or who is physically or mentally incapable of self-care.

3. You must pay for the care of one or more qualifying persons. Qualifying children under age 13 who you claim as a dependent meet this test. Your spouse or dependent who lived with you for more than half the year may meet this test if they are physically or mentally incapable of self-care.

4. You may qualify for the credit whether you pay for care at home, at a daycare facility outside the home or at a day camp. If you pay for care in your home, you may be a household employer.

5. The credit is a percentage of the qualified expenses you pay for the care of a qualifying person. It can be up to 35 percent of your expenses, depending on your income.

6. You may use up to $3,000 of the unreimbursed expenses you pay in a year for one qualifying person or $6,000 for two or more qualifying person.

7. Expenses for overnight camps or summer school tutoring do not qualify. You cannot include the cost of care provided by your spouse or a person you can claim as your dependent. If you get dependent care benefits from your employer, special rules apply.

8. Keep your receipts and records to use when you file your 2013 tax return next year. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your return.

Tips to Start Planning Next Year’s Tax Return

For most taxpayers, the tax deadline has passed. But planning for next year can start now. The IRS reminds taxpayers that being organized and planning ahead can save time and money in 2014. Here are six things you can do now to make next April 15 easier.

1. Adjust your withholding.  Each year, millions of American workers have far more taxes withheld from their pay than is required. Now is a good time to review your withholding to make the taxes withheld from your pay closer to the taxes you’ll owe for this year. This is especially true if you normally get a large refund and you would like more money in your paycheck. If you owed tax when you filed, you may need to increase the federal income tax withheld from your wages. Use the IRS Withholding Calculator at IRS.gov to complete a new Form W-4, Employee’s Withholding Allowance Certificate.
2. Store your return in a safe place.  Put your 2012 tax return and supporting documents somewhere safe. If you need to refer to your return in the future, you’ll know where to find it. For example, you may need a copy of your return when applying for a home loan or financial aid. You can also use it as a helpful guide for next year’s return.
3. Organize your records.  Establish one location where everyone in your household can put tax-related records during the year. This will avoid a scramble for misplaced mileage logs or charity receipts come tax time.
4. Shop for a tax professional.  If you use a tax professional to help you with tax planning, start your search now. You’ll have more time when you’re not up against a deadline or anxious to receive your tax refund. Choose a tax professional wisely. You’re ultimately responsible for the accuracy of your own return regardless of who prepares it. Find tips for choosing a preparer at IRS.gov.
5. Consider itemizing deductions.  If you usually claim a standard deduction, you may be able to reduce your taxes if you itemize deductions instead. If your itemized deductions typically fall just below your standard deduction, you can ‘bundle’ your deductions. For example, an early or extra mortgage payment or property tax payment, or a planned donation to charity could equal some tax savings. See the Schedule A, Itemized Deductions, instructions for the list of items you can deduct. Planning an approach now that works best for you can pay off at tax time next year.
6. Keep up with changes.  Find out about tax law changes, helpful tips and IRS announcements all year by subscribing to IRS Tax Tips through IRS.gov or IRS2Go, the mobile app from the IRS. The IRS issues tips regularly during the summer and tax filing season.

You can find forms and publications at IRS.gov or order them by calling 800-TAX-FORM (800-829-3676).

Where’s my refund?

The IRS provides some tips for people that filed their taxes and are wondering where their refund is. Your refund status is available to check with the IRS within 24 hours of submitting your e-filed return or 4 weeks after mailing in a paper return. The IRS does not recommend calling them but rather using this website to check on the status. You will need your social security number, filing status, and refund amount in order to check the status of your refund. The status of your refund only updates once a day so there’s no reason to check it more than once.

Tax Court Decision on Construction Worker Classification

The Tax Court has recently concluded that workers hired by a construction company to work on various residential projects were employees. Despite the fact that the workers were hired on a project-by-project basis, the overall facts of the case, including that the workers were controlled by the company’s sole proprietor and that they were an integral part of the business, indicated an employer-employee relationship. Accordingly, the company was liable for employment taxes for the year in dispute.

The case involved Mieczyslaw Kurek who was the sole proprietor of KMA Construction, a home improvement company that engaged in installing tile, sheetrock, doors, and windows, as well as painting and carpentry. Each of these factors were important during the court decision:

1. Kurek had control over the workers.  The Court characterized the right of the principal to exercise control over the agent, regardless of whether the principal in fact does so, as the “crucial test” in analyzing for an employer-employee relationship. In this case, Kurek set the deadlines, monitored the work done, visited the worksites, instructed the workers on the work they were to do and had the right to approve its quality, paid them weekly, and was ultimately responsible for the success of the project. Overall, these facts heavily favored employee status.
2. Kurek supplied heavy tools and materials.  The workers used their own small tools to perform most of their work, but Kurek supplied all heavy tools and purchased all materials used by the workers. This factor slightly favored employee status.
3. Only Kurek had opportunity for profit and risk of loss.  The workers were paid a negotiated flat fee, and were thus insulated from suffering a loss or realizing a profit, and were also prevented from increasing their earnings through their efforts. This factor favored employee status.
4. Workers could be discharged.  Although the workers were hired on a project-to-project basis, Kurek could replace any workers that failed to meet a deadline or perform to Kurek’s satisfaction. This favored employee status.
5. Workers were integral to the business.  Without the workers, Kurek wouldn’t have been able to finish 20-30 projects, while at the same time finding new projects and working with the homeowners. This favored employee status.
6. Work relationship was largely transitory.  The workers were hired for one project at a time, they were free to work on other projects or with other groups, and only seven of the workers actually worked for Kurek during all four quarters of 2005. This slightly favored independent contractor status.
7. Parties believed they created independent contractor relationship.  Kurek and one of the workers credibly testified that they believed they created an independent contractor relationship, which favored independent contractor status.

Thus, overall, the Tax Court agreed with IRS that the workers listed in the notice of determination were employees.

Note: The IRS has in place a Voluntary Classification Settlement Program (VCSP) for employees that have been misclassified as independent contractors (or as other nonemployees). This was talked about in this blog post.

IRS says that their payments are more important than tithing….

The IRS says that payments to them come before tithing to your church, and the Tax Court agreed.

So, what happened is that a taxpayer had quite a bit of liabilities against him, and entered into an Installment Agreement with the IRS.  Typically, when you enter into an installment agreement, you let the IRS know your total monthly income and your necessary expenses.  This taxpayer reported that and included his 10% tithe in his monthly expenses.  The taxpayer worked at the church he tithed to.  The IRS and the Tax Court said that they “did not accept taxpayer’s argument that he was required to tithe as a condition of his voluntary employment or that tithing uplifted his spiritual health since he provided no evidence of specific spiritual benefits that would be affected if he ceased tithing.”  They disallowed the tithe as a part of his monthly expenses.

 

What do you think?  Should the IRS decide what is a necessary expense for you?  Or do you think that this would make too big of a loophole for people to jump through?