How to maximize the Child and Dependent Care Tax Credit

Federal, State, Local and International Taxes – The Child and Dependent Care Credit can help offset some of the costs you pay for the care of your child, a dependent or a spouse. Here are some facts the IRS wants you to know about the tax credit for child and dependent care expenses:
1. If you paid someone to care for your child, dependent or spouse last year, you may qualify for the child and dependent care credit. You claim the credit when you file your federal income tax return.
2. You can claim the Child and Dependent Care Credit for “qualifying individuals.” A qualifying individual includes your child under age 13. It also includes your spouse or dependent that lived with you for more than half the year that was physically or mentally incapable of self-care.
3. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
4. You, and your spouse if you file jointly, must have earned income, such as income from a job. A special rule applies for a spouse who is a student or not able to care for himself or herself.
5. Payments for care cannot go to your spouse, the parent of your qualifying person or to someone you can claim as a dependent on your return. Payments can also not go to your child who is under age 19, even if the child is not your dependent.
6. This credit can be worth up to 35 percent of your qualifying costs for care, depending upon your income. When figuring the amount of your credit, you can claim up to $3,000 of your total costs if you have one qualifying individual. If you have two or more qualifying individuals you can claim up to $6,000 of your costs.
7. If your employer provides dependent care benefits, special rules apply
8. You must include the Social Security number on your tax return for each qualifying individual.
9. You must also include on your tax return the name, address and Social Security number (individuals) or Employer Identification Number (businesses) of your care provider.

For more information or no obligation free consultations if your cancelled debt is taxable contact us today!
Aba Tax Accounting
Amare Berhie, Enrolled Agent
Amare@Abataxaccounting.Com
612-282-3200 Toll Free866-936-0430
http://www.abataxaccounting.com
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Published in: on March 15, 2013 at 4:54 pm  Comments (1)  
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IRS Has $917 Million for People Who Have Not Filed a 2009 Income Tax Return

Haven’t Filed a Tax Return in Years?

Federal, State, Local and International Taxes – Refunds totaling just over $917 million may be waiting for an estimated 984,400 taxpayers who did not file a federal income tax return for 2009, the Internal Revenue Service announced today. However, to collect the money, a return for 2009 must be filed with the IRS no later than Monday, April 15, 2013.

The IRS estimates that half the potential refunds for 2009 are more than $500.

Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury.

For 2009 returns, the window closes on April 15, 2013. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.

The IRS reminds taxpayers seeking a 2009 refund that their checks may be held if they have not filed tax returns for 2010 and 2011. In addition, the refund will be applied to any amounts still owed to the IRS or their state tax agency, and may be used to offset unpaid child support or past due federal debts such as student loans.

By failing to file a return, people stand to lose more than refund of taxes withheld or paid during 2009. In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit (EITC). For 2009, the credit is worth as much as $5,657. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2009 were:

$43,279 ($48,279 if married filing jointly) for those with three or more qualifying children,

$40,295 ($45,295 if married filing jointly) for people with two qualifying children,

$35,463 ($40,463 if married filing jointly) for those with one qualifying child, and

$13,440 ($18,440 if married filing jointly) for people without qualifying children.

For no obligation free consultations if your cancelled debt is taxable contact us today!
Aba Tax Accounting
Amare Berhie, Enrolled Agent
Amare@Abataxaccounting.Com
612-282-3200 Toll Free866-936-0430
http://www.abataxaccounting.com
http://www.abatax81.blogspot.com
http://www.abataxaccounting.wordpress.com

Published in: on March 15, 2013 at 4:33 am  Leave a Comment  
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Facts about Mortgage Debt Forgiveness

Facts about Mortgage Debt Forgiveness
If your lender cancelled or forgave your mortgage debt, you generally have to pay tax on that amount. But there are exceptions to this rule for some homeowners who had mortgage debt forgiven in 2012.
Here are 10 key facts from the IRS about mortgage debt forgiveness:
1. Cancelled debt normally results in taxable income. However, you may be able to exclude the cancelled debt from your income if the debt was a mortgage on your main home.
2. To qualify, you must have used the debt to buy, build or substantially improve your principal residence. The residence must also secure the mortgage.
3. The maximum qualified debt that you can exclude under this exception is $2 million. The limit is $1 million for a married person who files a separate tax return.
4. You may be able to exclude from income the amount of mortgage debt reduced through mortgage restructuring. You may also be able to exclude mortgage debt cancelled in a foreclosure.
5. You may also qualify for the exclusion on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. The exclusion is limited to the amount of the old mortgage principal just before the refinancing.
6. Proceeds of refinanced mortgage debt used for other purposes do not qualify for the exclusion. For example, debt used to pay off credit card debt does not qualify.
7. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Submit the completed form with your federal income tax return.
8. Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit cards or car loans. In some cases, other tax relief provisions may apply, such as debts discharged in certain bankruptcy proceedings. Form 982 provides more details about these provisions.
9. If your lender reduced or cancelled at least $600 of your mortgage debt, they normally send you a statement in January of the next year. Form 1099-C, Cancellation of Debt, shows the amount of cancelled debt and the fair market value of any foreclosed property.
10. Check your Form 1099-C for the cancelled debt amount shown in Box 2, and the value of your home shown in Box 7. Notify the lender immediately of any incorrect information so they can correct the form.
For no obligation free consultations if your cancelled debt is taxable contact us today!
Aba Tax Accounting
Amare Berhie, Enrolled Agent
Amare@Abataxaccounting.Com
612-282-3200 Toll Free866-936-0430
http://www.abataxaccounting.com
http://www.abatax81.blogspot.com
http://www.abataxaccounting.wordpress.com

Published in: on March 14, 2013 at 11:56 am  Leave a Comment  
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The mortgage forgiveness debt relief act and debt cancellation

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

The mortgage debt relief act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. For no obligation free consultation contact us today!

Aba Tax Accounting

Amare Berhie, Enrolled Agent

Amare@Abataxaccounting.Com

612-282-3200 Toll Free866-936-0430

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

Published in: on March 5, 2013 at 5:56 am  Leave a Comment  
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Child Tax Credit can save you Money

Federal, State, Local and International Taxes – If you have a child under age 17, the Child Tax Credit may save you money at tax-time. Here are some facts the IRS wants you to know about the credit.

  • Amount.  The non-refundable Child Tax Credit may help reduce your federal income tax by up to $1,000 for each qualifying child you claim on your return.
  • Qualifications.  For this credit, a qualifying child must pass seven tests:
  1. Age test.  The child must have been under age 17 at the end of 2012.
  2. Relationship test.  The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, or stepsister. A child may also be a descendant of any of these individuals, including your grandchild, niece or nephew. You would always treat an adopted child as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
  3. Support test.  The child must not have provided more than half of their own support for the year.
  4. Dependent test.  You must claim the child as a dependent on your federal tax return.
  5. Joint return test.  The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.
  6. Citizenship test.  The child must be a U.S. citizen, U.S. national or U.S. resident alien.
  7. Residence test.  In most cases, the child must have lived with you for more than half of 2012.
  • Limitations.  The Child Tax Credit is subject to income limitations, and may be reduced or eliminated depending on your filing status and income.
  • Additional Child Tax Credit.  If you qualify and get less than the full Child Tax Credit, you could receive a refund even if you owe no tax with the refundable Additional Child Tax Credit.

Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200 Toll Free866-936-0430

http://www.abataxaccounting.com

www.abatax81.blogspot.com

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Published in: on February 21, 2013 at 3:34 pm  Leave a Comment  
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Taxable and Nontaxable Income

Federal, State, Local and International Taxes – Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable:

  • Child support payments;
  • Gifts, bequests and inheritances;
  • Welfare benefits;
  • Damage awards for physical injury or sickness;
  • Cash rebates from a dealer or manufacturer for an item you buy; and
  • Reimbursements for qualified adoption expenses.

Some income is not taxable except under certain conditions. Examples include:

  • Life insurance proceeds paid to you because of an insured person’s death are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
  • Income you get from a qualified scholarship is normally not taxable. Amounts you use for certain costs, such as tuition and required course books, are not taxable. However, amounts used for room and board are taxable.

All income, such as wages and tips, is taxable unless the law specifically excludes it. This includes non-cash income from bartering – the exchange of property or services. Both parties must include the fair market value of goods or services received as income on their tax return.

 

If you received a refund, credit or offset of state or local income taxes in 2012, you may be required to report this amount. If you did not receive a 2012 Form 1099-G, check with the government agency that made the payments to you. That agency may have made the form available only in an electronic format. You will need to get instructions from the agency to retrieve this document. Report any taxable refund you received even if you did not receive Form 1099-G.

 

Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200 Toll Free866-936-0430

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

 

Published in: on February 12, 2013 at 3:22 pm  Leave a Comment  
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What expenses are deductible as moving expenses?

What expenses are deductible as moving expenses?

You may be able to deduct moving expenses whether you are self-employed or an employee. Your expenses generally must be related to starting work at your new job location. However, certain retirees and survivors may qualify to claim the deduction even though they are not starting work at a new job location

Only two categories of direct moving costs paid or incurred that are attributable to the taxpayer and the members of his household are deductible:

• costs of moving goods and personal effects; and

• traveling costs (including lodging but not meals) for the taxpayer’s household.

 

For 2012, the standard mileage rate for using your vehicle to move to a new home is 23 cents per mile. Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200 Toll Free866-936-0430

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

Published in: on February 9, 2013 at 6:20 pm  Leave a Comment  
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How is taxable income computed?

How is taxable income computed?

U.S. Persons (U.S. citizens and resident aliens):

• gross income (except certain income earned working outside the United States or derived from U.S. possessions);      minus

• allowable deductions.

Nonresident Aliens:

• In general:

• tax on certain investment income from U.S. sources and on income effectively connected with a U.S. trade or business;      minus

•  allowable deductions.

• Exception: a nonresident alien married to a U.S. person (U.S. citizen or resident alien) may elect to be taxed as a U.S. person, as well.

Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200 Toll Free866-936-0430

http://www.abataxaccounting.com

www.abatax81.blogspot.com

www.abataxaccounting.wordpress.com

Published in: on February 9, 2013 at 2:30 pm  Leave a Comment  
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TAX CHANGES THAT BENEFIT TAXPAYERS FOR 2012

Federal, State, Local and International Taxes – Thanks to the passage of the American Taxpayer Relief Act of 2012 (ATRA), many tax provisions that expired in 2011 were retroactively extended (or made permanent) that are of benefit to taxpayers filing 2012 returns this year. Here are six of them:

1. Education-Related Tax Deductions – ATRA extended, through 2017 and retroactive to 2012, two popular and widely used education-related tax benefits that expired in 2011: the deduction for qualified tuition and related expenses and the deduction for certain expenses of elementary and secondary school teachers. Both are above-the-line deductions, which means that they can be taken before calculating adjusted gross income (AGI).

2. Limited Non-Business Energy Property Credits – Non-business energy credits expired in 2011, but were extended (retroactive to 2012) through 2013 by ATRA. For 2012 (as in 2011), this credit generally equals 10 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $500 (down significantly from the $1,500 combined limit that applied for 2009 and 2010). 

Because of the way the credit is figured however, in many cases, it may only be helpful to people who make energy-saving home improvements for the first time in 2012. That’s because homeowners must first subtract any non-business energy property credits claimed on their 2006, 2007, 2009, 2010, and 2011 returns before claiming this credit for 2012. In other words, if a taxpayer claimed a credit of $450 in 2011, the maximum credit that can be claimed in 2012 is $50 (for an aggregate of $500). 

The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not.

3. 

  • Mortgage Insurance Deductible as Qualified Interest – ATRA extended, through 2013 (and retroactive to 2012), a tax provision that expired in 2011 that allows taxpayers to deduct mortgage insurance premiums as qualified residence interest. As such, taxpayers can deduct, as qualified residence interest, mortgage insurance premiums paid or accrued before Jan. 1, 2014, subject to a phase-out based on the taxpayer’s AGI.

3. AMT “Patch” Made Permanent – The AMT ‘patch” was made permanent by ATRA; however, exemption amounts for 2012 and beyond are higher than in years’ past and are now indexed to inflation. For tax-year 2012, the alternative minimum tax exemption amounts increase to the following levels:

  • $78,750 for a married couple filing a joint return and qualifying widows and widowers, up from $74,450 in 2011.
  • $39,375 for a married person filing separately, up from $37,225 in 2011.
  • $50,600 for singles and heads of household, up from $48,450 in 2011.

4. Transportation “Fringe Benefits” – Parity for transportation fringe benefits provided by employers for the benefit of their employees expired at the end of 2011; however, ATRA reinstated this parity retroactive to 2012. As such, the monthly limit for qualified parking is $240 and the benefit for transportation in a commuter highway vehicle or a transit pass is $245 for tax year 2012.

  • 5. State and Local Sales Taxes – Retroactive to 2012, ATRA extended (through 2013) the tax provision that allows taxpayers who itemize deductions the option to deduct state and local general sales and use taxes instead of state and local income taxes.

 

If you have questions about these or other tax changes, please call us. We’d be happy to assist you. Call us today for no obligation free consultation!

ABA Tax Accounting

info@abataxaccounting.com

866-936-0430 Toll Free

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Published in: on February 6, 2013 at 3:34 pm  Leave a Comment  
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Good Reasons to E-file Your Tax Return – http://www.abataxaccounting.com/taxservice.php

Federal, State, Local and International Taxes – If you haven’t tried IRS e-file before, now is the time. Most taxpayers – more than 80 percent – file electronically. The IRS has processed more than 1 billion individual tax returns safely and securely since the nationwide debut of electronic filing in 1990. Fewer people file a paper tax return every year. Here are five good reasons to e-file your tax return:

  • Accurate and complete. E-file is the best way to file an accurate and complete tax return. Tax returns that are incomplete or include errors take longer to process.
  • Safe and secure. Tax preparers and software companies who e-file must meet strict guidelines and provide the best in encryption technology. You receive an acknowledgement within 48 hours that the IRS received your tax return. If the IRS does not accept your tax return, you will receive notification and can quickly correct your return and resubmit it.
  • Faster refunds. An e-filed tax return usually means a faster refund compared to a paper return. The IRS issues most refunds in less than 21 days. If you choose direct deposit, your refund goes directly into your bank account. Combining e-file with direct deposit is the fastest way to get your refund. About three out of four taxpayers who file receive a tax refund. Last year the average refund was about $2,700.
  • Payment options. If you owe tax, you can e-file early and set an automatic payment date anytime on or before the April 15 due date. You can pay by check or money order, by debit or credit card, or by transferring funds electronically from your bank account.
  • It’s easy. You can e-file on your own through IRS Free File, the free tax preparation and e-filing service available exclusively at IRS.gov. You can also use commercial tax preparation software or ask your tax preparer to e-file your return. And, if you qualify, IRS Volunteer Income Tax Assistance and Tax Counseling for the Elderly partners will e-file your return for free.

For no obligation free consultation contact us today!

ABA Tax Accounting

info@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://www.abataxaccounting.com

www.abataxaccounting.wordpress.com

www.abatax81.blogspot.com

Published in: on January 30, 2013 at 7:15 pm  Leave a Comment  
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