December 2011Monthly Archives

Parents Filing For Taxes
There is a large tax credit available to many households who have a dependent child. This may come as a surprise to many new parents, but it is important to plan for it.

It is worth up to ,000 per child, and one of the real benefits is that it is a tariff credit, not a deduction. Unlike a deduction, a credit reduces your tariff bill dollar-for-dollar.

The reduction is limited to those with certain incomes. First, to qualify you must be able to pass a few governmental tests.

The dependent must be a U.S. citizen or resident who are under age 17 at the end of the tariff year. You can claim your child, stepchild, adopted child, grandchild, or great-grandchild.

You may also be able to claim foster children if they were placed with you by a court or other authorized agency. The child must also live with you for more than half the year in which you are trying to claim the deduction.

The dependent also must not provide more than half of their own support, which is typically only an issue for older dependents. This is also a nonrefundable tax credit, which means that if you do not have enough tariff owed the credit would be reduced so that no refund would be issued.

If you do not qualify for this credit, you may qualify for an addition form. The additional child levy credit is a refundable, and is for those who had a qualifying child and did not receive the full amount of the child tax credit.

Since this is a refundable credit it is possible to get a refund even if you do not have any tariff liability. Qualifying for the additional child tax reduction benefits has the same qualifying and income guidelines.

In addition, if you qualify for the earned income levy reduction benefit, your additional child tariff reduction would be reduced by the earned income credit that you received. There is also the annual gift exclusion tax law to take into consideration.

The annual gift exclusion has nothing to do with the portion of your tax return known as gross income, which includes wages and profits from a business. It actually has to do with gift and estate tariff, or the amount the government charges people if they give away or die with too much money.

In the United States, every person that dies with more than a certain amount is charged a “death tax” on the excess if the money goes to anyone besides their spouse. Currently, the limit is ,500,000 per person.

To keep people from avoiding estate taxation by giving away all their money right before they die, the IRS also puts limits on the amount you can gift in any one year to any one person. There is also a cumulative limit over their lifetime for gifts that exceed the annual exemption amount.

In 2009, this annual gift exclusion was ,000 per recipient, per year. The lifetime gift limit is then maxed out at ,000,000.

Anything you give in excess to ,000 per recipient, per year is essentially subtracted from the lifetime limit of ,000,000. This simultaneously reduces the amount they can be transferred tariff-free at death.

The only time a recipient would ever get taxed is if the donor exceeds their lifetime gift exemption while still alive and refuses to use their credit or to pay the “gift” tariff. Then, in theory, the IRS could ask the recipient to pay it.

There is even more confusion when it comes to paying for college and the annual gift levy exclusion. Anyone is allowed to pay unlimited educational or medical bills of any other person without having to worry about the annual gift limit.

The only requirement is that the payment must be made directly to the educational institution. If an individual puts more than the annual gift limit into a Section 529 account, it may reduce his or her estate tariff exemption.