People always have a lot of questions in the run-up to Tax Day. Whether it’s a new state law being passed, the birth of a child, real estate transactions or a promotion at work, no two years ever seem to be exactly the same.
As a CPA with more than 15 years of experience with tax planning, research and consulting, I know how stressful March and April can be for everyone involved. But what people should understand is the earlier they start the tax filing process, not only does it reduce the stress, but it allows time to optimize the return by taking advantage of all available credits and deductions.
I was recently quoted in articles by CNET, about claiming a boyfriend or girlfriend as a dependent, and GOBankingRates, about claiming day care costs. The GoBankingRates article was also picked up by Yahoo Finance and Nasdaq.
Here’s the section where I was quoted in the CNET article:
A dependent is a loved one you provide financial support to throughout the year. Dependents can be a qualifying child, parent or relative, and the IRS explicitly states that a spouse cannot be a dependent. But what about unmarried individuals in a relationship? A tax break is available, but the conditions for it are very specific.
The IRS has a free guide with questions to help you determine if you have a qualified dependent, said Angel Li, certified public accountant and partner at FML CPAs, an accounting firm. “If you have low income, there’s a list of credits you might qualify for by claiming a dependent, such as the earned income credit and child tax credits,” said Li.
Here is my information provided for GOBankingRates:
Angel Li, CPA and partner at FML CPAs, said parents of children age 13 and under are eligible to claim the child care credit. This credit may be applied to day camps and after-school programs.
Li said a qualifying individual may be one of the three options:
— Qualifying child who was under age 13 when the care was provided
— Your spouse who was physically or mentally incapable of self-care and lived with you for more than half of the year
— An individual who was physically or mentally incapable of self-care and lived with you for more than half of the year
To claim day care costs on a tax return, Li said you have to use a qualified child care entity. If it is an individual child care provider, the taxpayer will list their Social Security number (SSN) or an employer identification number (EIN) for a day care center.
Earned income, Li said, includes wages, salaries, tips other taxable employee compensation and net earnings from self-employment.
Work related expenses are costs you pay for services to allow you to work or search for jobs. Li said these costs can be nanny-share arrangements, day care, preschool and day camp for your qualifying persons. Care can be provided either at your home or outside your home.
What if you make payments to someone like your mother-in-law who isn’t a child care facility? Li said in general, you don’t need to pay a child care facility or a private licensed care provider to get the credit. You do need to make sure you report the required information on your return. Li recommends consulting with your tax advisor if the payments are to relatives and dependents.
Generally, Li said married couples must file a joint return to take the credit. They must be able to identify all persons or organizations which provide care for their child or dependent. This includes the name, address and TIN (either the SSN or EIN) of the care provider on your tax return.