TEN TIPS ON A TAX CREDIT FOR CHILD AND DEPENDENT CARE EXPENSES

If you paid someone to care for your child, spouse, or dependent last year, you may qualify to claim the Child and Dependent Care Credit when you file your federal income tax return. Below are 10 things the IRS wants you to know about claiming the credit for child and dependent care expenses.

1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.

2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.

3. You – and your spouse if you file jointly – must have earned income from wages, salaries, tips, and other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or were physically or mentally unable to care for themselves.

4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person; to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.

5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.

6. The qualifying person must have lived with you for more than half of 2011. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. See Publication 503, Child and Dependent Care Expenses.

7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.

8. For 2011, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income, such as a flexible spending account for daycare expenses.

10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. See Publication 926, Household Employer's Tax Guide.

If you need any more information let us know.

FARMERS WITH MF GLOBAL 1099’S

A majority of our farm clients are incorporated so the March 1st filing requirement for farmers does not apply. But, unincorporated farmers file by March 1 of each year to escape having to pay estimated tax payments in January. This year, many farmers received their Form 1099 from MF Global very late and in many cases after March 1.

The IRS just announced penalty relief for any farmers who had to file their return after March 1 due to MF Global. This release indicated that the IRS understood the magnitude of the records and associated untangling of MF Global records delayed the issuance of forms 1099, so they have provided instructions on how to get out of the penalty.


A farmer will need to file form 2210-F with their return, but write “MF Global” at the top of the form and attach a statement indicating they were late due to the untimely receipt of form 1099s from MF Global.

I CAN'T PAY MY TAXES - WHAT DO I DO?

Q. I blew it. I owe tax and don’t have any money. What do I do? Am I going to jail? Should I hide?

A. The worst thing you can do is ignore the problem. If you owe tax with your federal tax return, but can't afford to pay it all when you file, there are some things you can do to keep interest and penalties to a minimum.

· File your return on time and pay as much as you can with the return. By doing this it will eliminate the late filing penalty, reduce the late payment penalty and cut down on interest charges

· Consider obtaining a loan or paying by credit card. The interest rate and fees charged by a bank or credit card company may be lower than interest and penalties imposed by the Internal Revenue Code

· Request an installment payment agreement. You do not need to wait for IRS to send you a bill before requesting a payment agreement. Options for requesting an agreement include:
 • Using the Online Payment Agreement application and
 • Completing and submitting IRS Form 9465-FS, Installment Agreement Request, with your return IRS charges a user fee to set up your payment agreement. See www.irs.gov or the installment agreement request form for fee amounts.

· Request an extension of time to pay. For tax year 2011, if you qualify you may request an extension of time to pay and have the late payment penalty waived as part of the IRS Fresh Start Initiative.

To see if you qualify visit www.irs.gov and get form 1127-A, Application for Extension of Time for Payment. But hurry, your application must be filed by April 17, 2012. Good luck, and start saving for 2012. Estimated payments are due 4/15/12, 6/15/12, 9/15/12 and 1/15/13. I would work on the 2011 first.

MORE TIME TO FILE FOR SOME

Most people must file their tax return on April 17th this year but some taxpayers get more time to file without having to ask for it.

These include:
• Taxpayers abroad. U.S. citizens and resident aliens who live and work abroad, as well as members of the military on duty outside the U.S., have until June 15 to file. Tax payments are still due April 17.
• Members of the military and others serving in Iraq, Afghanistan or other combat zone localities. Typically, taxpayers can wait until at least 180 days after they leave the combat zone to file returns and pay any taxes due. For details, see Extensions of Deadlines in Publication 3 , Armed Forces Tax Guide.
 • People affected by certain tornadoes, severe storms, floods and other recent natural disasters. Currently, parts of Indiana, Kentucky, Tennessee and West Virginia are covered by federal disaster declarations, and affected individuals and businesses in these areas have until May 31 to file and pay.

BEWARE OF PHONEY TAX SCHEMES

Recently I was in Chicago speaking at an industry conference.  After my tax program a participant came up to me and said that he had been contacted by a group that promised him a refund due to a “loophole” in the tax law that would give him some type of education credit.  He was going to have to send them some money to have them get the credit for him.  My advise… run.

As a matter of fact the IRS recently issued a warning about the new scheme.  Scammers have been targeting senior citizens, members of church groups, working families and other potential victims this tax season.  Just like the person that talked to me, the schemes promise large tax refunds to people who have little or no income and normally don’t have a tax filing requirement. Promoters claim they can obtain for their victims a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college.

Con-artists falsely claim the tax refunds are available even if the victim went to school decades ago. A variation of the scheme also falsely claims the college credit is available to compensate people for paying taxes on their groceries. Huh?

The schemes can be extremely costly for the victims. Promoters may charge them exorbitant upfront fees to file the tax claims and are often gone before victims discover that they have been scammed.

There is a bigger problem in that regardless of who prepared their tax return, the taxpayer is legally responsible for the accuracy of your tax return and must repay any refunds received in error, plus any penalties and interest. You could even face criminal prosecution.

In recent weeks, the IRS said it has identified and stopped an upswing in these bogus tax refund claims coming in from across the country.

COMPANY PAID HEALTH INSURANCE

Q:I am the owner of a business and I am going to start paying health insurance for my employees.Does it make a difference who's name the policy is under?

A:You did not tell me what form of business you are using.
 Here is the chart:

• Sole Proprietorship = Individuals name
• Single Member LLC = Individuals name
• Partnership = Partner or company
• LLC = Partner or company
• One worker S corporation = Shareholder of company
• Two or more worker S Corporation = Company
• C corporation = Company

YOU MAY OWE TAX IF CREDIT CARD DEBT FORGIVEN

Q: I just received a 1099C from a credit card company.  The attachment says that the amount is due to debt that they forgave.  They said that it may be taxable. Can you explain?  I did not get any money from the company.  How can that be taxable?  The amount is $31,269.

A: This can be a little complicated.  I strongly suggest that you work with a competent professional on this matter. 

You aren't the only ones surprised by 1099C's.  There are a lot of them being sent out due to the poor economy.  Lenders, like the credit card companies, are required to send out these 1099's or face steep penalties.  Realize that they also send a copy to the IRS.  We have found some discrepancies in the 1099's.  Discrepancies include amount of debt written off, when the debt was written off and wrong taxpayer numbers.

Here is the deal on the tax law:  Debt that is canceled or forgiven is considered taxable income. There are a couple of exceptions which is why you need to be working with a competent professional.  If you can prove that the debt was discharged in bankruptcy or if you were insolvent then you might meet the exception. 

If you happen to meet one of the exceptions you still need to recognize the 1099C on the tax return and then explain why it was not taxable.  If you do not, you most likely will get a letter or visit from the IRS.