American Tax Service

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Child and Dependent Care Tax Credit 

What is the child and dependent care tax credit?One of the most difficult financial burdens, when you have young children, is paying for dependent care, but some good news is that there are some relief options when it comes time to file your taxes.

What is the Child and Dependent Care Tax Credit?

The child and dependent care tax credit is available for almost anyone who has a dependent and is working.

The dependent care tax credit is different than the child tax credit, and this article is intended to help you understand how to claim the childcare tax credit.

How do I Qualify for the Child and Dependent Care Tax Credit?

How to qualify for the dependent and child care credit.

To qualify:

You must have at least one dependent child or adult who cannot provide their own care. You also must be working and receiving an income to qualify for this tax credit. If you have a spouse, they must also be working or unable to provide care for the dependent at home (for example, if they are on disability).

Generally, the child must be your dependent and under the age of 13. However, there are specific circumstances for children and adults older than 13 to be eligible for the credit.

The child must also live with you at least half the year in the case where custody is split between parents or guardians.How much is the child care credit worth?

The daycare center must also be a qualifying provider for the credit. You do not qualify if you pay your adult children to supervise your kids during the day.

For specific qualification scenarios and questions, it is always best to check the IRS’s official website (www.irs.gov) or speak with a tax professional.

How Much is the Child and Dependent Care Tax Credit Worth?

It can be tricky to calculate exactly how much the tax credit will be worth when it comes time to file your taxes. However, the basic starting point is that you get up to $3000 for one dependent and up to $6000 for having multiple dependents in dependent care.

You do not get that full amount back as a credit, however. Instead, a sliding scale based on your adjusted income will provide a percentage of this amount that gets credited back on your taxes.

For example, let us also assume that you have 2 dependents living with you for the entire year, and you spent $4800 on dependent care through the calendar year. You could expect a $1440 tax credit on your return based on these rough parameters.

This is a significant credit, which is different than a tax deduction. Essentially, this money will go back into your pocket or directly reduce the amount of taxes you owe for the year.

Can I Claim Child and Dependent Care if I Have a Higher Income?

Learn how to claim the child care credit>One of the nice things about the child and dependent care tax credit is that it does not disappear with higher incomes. So while the percentage is less, this credit is designed with working families in mind, and you can still get a good amount of the expenses you pay for dependent care back in your tax refund.

Claim Your Credit With Online Tax Filing

Today’s online tax filing is up to date with the latest tax forms, including the new child care and dependent tax deductions and credits. You can easily claim the dependent and child care tax credit.

Online filing services can import your W2 information into your tax return so you can avoid worrying about your forms being delivered via snail mail.

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Rental Property Tax Deduction

Deciding to become a landlord can be highly beneficial for yourental home financially. However, it also comes with a significant amount of work.

As well as the general responsibilities associated with running a rental property, you need to find tenants, pay all your expenses, and ensure you have insurance.

In personal tax terms, renting out a property can complicate the situation. There are rental property tax deductions available to help you out with running your business, though.

Different deductions are available from the IRS. However, remember that the IRS says that these expenses must generally be accepted within the rental industry and should be ordinary in nature.

There are deductions for many things, such as interest on your mortgage, repairs to your home, and insurance plans.

Interest on Your Mortgage

Practically every homeowner will need to take out a mortgage to finance their property purchase. If you’re one of those landlords who possess a mortgage, one of the largest homeowner deductions you can take is the interest payments on your mortgage.

You can’t deduct anything that pays off the original loan amount, but any amount you pay to pay off the interest is fully deductible.

Your mortgage statement will have your interest-related payment every month. Just take one of these statements and find your monthly interest payment area. Then, multiply this figure by 12, and this is the amount you can deduct.

Furthermore, any origination fees, credit card interest, and refinancing your rental property are just some of the other things that can be deducted. These are more complex to deduct, though, and may require the services of a professional accountant.

Deducting Property Taxes

Nearly every state and municipality in the country has some sort of property tax. Depending on where you are, this could be a few hundred dollars a year or a few thousand dollars a year. A quick look online will help you figure out how much you’ll be expected to pay this year. You can also find this out from a tax professional.

If you also happen to live in a state that charges for a license to become a landlord, this is also deductible.

You also need to be aware of states that charge for short-term rentals. These are known as occupancy taxes and strongly resemble state sales taxes.

Also, remember that if you pay sales tax on purchases for your business, Social Security taxes for any employees, or employee salaries, you can also deduct expenses like this on your taxes.

Are You Paying Premiums on Your Insurance Plan?

Some lenders may require that you take out insurance before they’ll authorize the mortgage application. Insurance is a fully tax-deductible expense. This applies to home insurance and other forms of liability and disaster insurance.

If you employ others, you can deduct the cost of their health insurance and their workers’ compensation insurance as well.

Insurance premiums are typically higher for landlords who own rental properties, but the fact that you can deduct those premiums eases the burden somewhat.

You have the additional protection of deducting the cost of damages in the event of theft, floods, earthquakes, and hurricanes.

Tax Deductions for Depreciation

Your property and the contents of that property are naturally going to depreciate over time. In tax terms, this is known as depreciation, which is tax-deductible.

Depreciation can be claimed as a tax-deductible expense from the moment you purchase the property. So you don’t need to have any tenants yet.

You can take this deduction by calculating the expected lifespan of the property. The deduction can then be taken over multiple years.

According to the IRS, take note that land can’t depreciate, so you can only include the property on the land.

You can also add in the value of any equipment you use to manage your rental property. Such equipment may include your work computer and the car you use to move between your properties.

Any improvements to add value or extend the lifespan of your property may also be included. These improvements could include a new roof, new furniture, or purchasing energy-efficient appliances.

The improvement must last for more than a year, offer value to your rental business, and be expected to lose value in time, according to IRS Publication 946.

This is a complex process, so don’t be afraid to call in the help of a professional.

Deducting Maintenance and Repair Costs

Any home improvements you make can be deducted in the form of depreciation. Maintenance and repair costs, though, are also fully deductible. You can add this in separately to further increase the size of your tax deduction.

These costs are only eligible if they keep your property in good condition. They can’t add significant value to your property.

Acceptable expenses would include things like calling in an exterminator, landscape gardening, painting the walls, or fixing a leaky pipe.

If you decide to hire an independent contractor to manage these problems, the labor costs can be deducted. This also applies to any managers you hire to care for your rental property.

If you decide to handle these problems yourself, you can make deductions for equipment and tools.

Under the same rules, you can deduct fees paid to a homeowner’s association or any condo fees.

Can Utilities Be Deducted?

Different landlords will handle the utilities differently. For example, some charge utilities directly to their tenants, while others cover the utilities themselves.

If you’re the type of landlord who covers the utility bills, these payments are tax-deductible.

Smart landlords will pay the utilities and then take the utility fees from their tenants. This is legal, and the deduction can still be claimed without any problems. You will still need to declare the payment from the tenant as income, though.

Professional Fees are Also Tax-Deductible

Landlords have the chance to take specific professional fees as deductions. These can apply to everything from hiring a tax accountant to the cost of the software used to prepare your taxes.

Lawyer fees are fully tax-deductible, as are real estate agent fees. In addition, any advertising fees are fully deductible.

Even landlords who hire advisors can write off the fees paid to those advisors.

In short, any professional fees are classified as operational expenses.

There are some exceptions, though. For example, legal fees used during title disputes and costs to recover properties are not tax-deductible.

Is Travel Tax Deductible?

Professional landlords often have multiple properties. The good news is that you can deduct your travel expenses. This includes travel necessary to show your property to potential tenants and to collect income.

Your regular commutes, on the other hand, are not tax-deductible.

There are two ways in which you can take deductions for travel expenses. You can use the actual expenses or use the standard mileage rate. The standard mileage rate can be found here.

Office Space is Also Deductible

Do you have a dedicated workspace for your business?

Whether it’s a commercial property or a room in your home that you use exclusively for business, you can deduct the associated costs.

The rental costs and the square footage will be your most significant expenses. But anything can be deducted if it’s necessary for running your business, including expenses as small as the cost of printer ink.

Take note. You must maintain accurate records of your purchases. In addition, the home office space deduction is sometimes flagged for auditing, so ensure that you keep as much paperwork as possible.

How Can You Claim Your Tax Deductions?

Online tax filing will help you claim all rental property tax deductions you are eligible for. If you keep accurate records throughout the year, this will be a much easier process than you might think.

The tax deduction process would become more complicated if you used the same rental property as a primary residence at any time during the last tax year. The online software will tell you how many days you can use the home as a residence per year. If you exceed this limit, your tax situation changes.

How to File Taxes Online Using TurboTax

When you file with TurboTax Online Online they will search over 350 tax deductions and credits to find every tax break you qualify for so you get your maximum refund.

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Federal Tax Deductions for Home Renovation

Tax Deductions for Home RenovationThere are many strategies to use house remodeling and upgrades to reduce your taxes.

Remodeling your house is not usually a cost that can be deducted from your federal income taxes. However, there are many techniques that you can utilize for home remodeling and upgrades to decrease your taxes. This includes tax breaks and incentives for remodeling and enhancements made to your house, either when you bought the home or after.

Making Use of Your Mortgage to Make Property Upgrades

An excellent way to reduce home remodeling expenses would be to make the upgrades to the residence when it is purchased.

If the home loan you are taking out to purchase a house incorporates extra cash to make upgrades and your purchasing price for the property contains this amount. You will be able to deduct the interest charges on this sum from your earnings as an element of your mortgage interest deduction when filing taxes.

Upgrades That Are Eligible As Medical Expenses

Upgrades to your property can additionally be subtracted from your earnings as medical-related costs should they be medically required.

The price of putting in entry or exit ramps, customizing washrooms, lowering cupboards, expanding doorways and hallways, and putting in handrails, to name a few, are home enhancements that are deducted as medical-related costs. However, the deduction costs must be sensible, given their medical objective, and expenses sustained for visual or architectural purposes cannot be subtracted.

In a nutshell, helping to make a property wheelchair accessible meets the requirement, however, putting in a statue in the backyard will not.

In addition, any sums invested in these upgrades that improve the worth of your property cannot be declared as a medically relevant expenditure.

Tax Incentives for Electrical Power Production

The most effective strategy to reduce your income taxes would be to take full advantage of energy tax incentives when you install eligible electrical power-producing technologies.

You can receive a one-time federal tax credit of 30% of the price of eligible geothermal heat pumps, solar power hot water heaters, photovoltaic panels, compact wind generators, or energy cells put into service for a current or brand new construction house until December 31, 2016.

Apart from fuel cells (which have to be set up in your primary home to be eligible), the credit can also be applied for items fitted in holiday or 2nd residences.

The 30% credit applies to the price, which includes manual labor and setup, and you do not have a maximum restriction (with the exception of fuel cells). So, for instance, if you buy and set up a small wind power turbine for $10,000, you receive a $3,000 tax credit right away – not including the long-term cost savings on your electricity bill.

This tax credit must be used in the year the device was installed, and a Manufacturer Certification Statement has to come with the device to be eligible. For particulars, check out Federal Tax Credits for Energy Efficiency.

House Sale Exclusions

Under the home sale exclusions, you are not required to pay out capital gains on the increase in the value of your principal residence once you sell it if your profit margin is under $250,000.

Since home makeovers improve the basis in your house, they will often reduce the amount of your final sale price, which is measured as profit, which means that it might actually help get you under the house sale exclusion to avoid revenue altogether. But, even if not, the enhanced basis will likely reduce the taxable amount of the selling price.

Keep in mind, that online tax filing will help you claim every home tax deduction and credit you are eligible for, like those related to renovating your house.

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What You Need to Know about the New Child Tax Credit

The original child tax credit, known as the CTC, was first introduced back in 1997, before becoming available to claim in 1998. In the beginning, this was a simple nonrefundable credit for $400, which applied to each qualifying child if they were under the age of 17.

child tax credit

There have been many changes over the last 20 years, with qualifying children being worth a tax credit of $2000 per child. This was refundable for taxpayers who had at least $3,000 of earned income.

Taxpayers who had above $75,000, or $110,000 for joint taxpayers, saw the tax credit decreased or removed entirely.

But What’s Important about the Child Tax Credit?

The Tax Cuts and Jobs Act (TCJA) has changed several aspects of the child tax credit. You should be aware of these changes if you claim the child tax credit.

Higher Amount – Each qualifying child under 17 is now worth $2,000 to families.

Refundable – Now, the refundable part of the tax credit is limited to just $1,400. Following 2018, this limit will be adjusted according to inflation.

Earned Income – This threshold has been limited to $2,500.

Credit Phaseout – The credit phaseout limit, where it begins, is now $200,000, or double if you’re filing jointly. It also applies to the additional $500 credit for any other dependents in your household.

Social Security Number – Each qualifying child must have a social security number to qualify.

What’s the Impact of Tax Reform on the Child Tax Credit?

Before the implementation of the TCJA legislation, taxpayers who could claim the child’s dependent exemption could also claim the CTC. Both the child and the taxpayer had to meet various criteria for the government to consider someone as ‘dependent.’

The TCJA has changed the rules, and the dependent exemption has been eliminated entirely. However, the ‘dependent’ definition has been retained in relation to the CTC.

What Does This Mean?

It means that the new CTC makes sure the taxpayer must be related to the child, such as being a son or a grandchild. They must also live in the taxpayer’s house for at least half of the year, and they can’t provide more than half of their own support.

There are other special rules for divorced or legally separated parents that must be considered. Talk to a tax professional if this situation applies to you.

As before, due diligence requirements are in place for tax professionals who prepare returns on behalf of CTC claimants.

These changes are valid until the end of the year 2025.

How to Claim the Child Tax Credit

In order to claim the child tax credit, you have to make sure that your child is considered a qualifying child. You also have to list them as a dependent on Form 1040.  Keep in mind; it’s easy to claim the credit if you file your taxes online.

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What is Capital Gains Tax on Sale of a Business?

Year in and year out, as a business owner, you pay taxes on what’s called “ordinary income”. When you sell your business, the tax on the increased value of your business is called capital gains tax. This article discusses the definition, calculation, and ways to minimize or eliminate capital gains taxes on the sale of a business.

capital gains tax sale business

What Are Capital Gains Taxes?

When you earn a salary, commissions or business income, you get taxes on the income as it is received. These forms of income are earned regularly and pay taxes on a pay as you go basis. When you own an asset that appreciates in value however, like a house, an antique car, stock in a company or a business, it grows over time. But you don’t pay the tax as it appreciates, instead you only pay the capital gains tax, when you sell the house or asset.

Tax law has long recognized a principle of paying tax on what you have the ability to pay. Thus, you pay the tax when you actually realize the gain, i.e. you pay capital gains tax only when you sell the business. That’s the good news.

Calculating Capital Gains Tax

Then there is the bad news, and it’s two fold. First, calculating capital gains tax can be very complicated. You are well served to work through your trusted tax advisor and/or a service like the TurboTax tax calculator to help you work through this maze of rules on calculating your capital gain. The other piece of bad news is that since you only pay it once on any given asset, it can tend to be a very high amount of tax that comes due all at one time. For that reason, we will spend some time later in this article discussing ways to defer or eliminate this tax.

Selling Assets that have Capital Gains in the Sale of a Business

The vast majority of business are sold as “asset sales” rather than “stock sales”. This means the buyer is actually purchasing a bundle of assets the seller’s business has owned, rather than the entire business as an entity. While the buyer may even buy the name and continue to operate essentially the same business under the same name, he did not buy it as an entity, he bought certain assets within the entity.

For example, let’s say the seller is selling out of the coffee shop he owns – let’s call it Beano’s Java House. The day after the buyer takes over, he wants and tries to make look and feel like the Beano’s Java House all the customers walked into yesterday, but in reality, he did not buy the entity itself, instead, he bought the coffee roaster, payment portal, food racks, inventory, etc. – and he bought something very, very special. That special ingredient in the purchase of every business is called “goodwill”.

Goodwill is considered the ongoing value of the reputation of the business. It is often the biggest asset in the entire deal. It’s the reason the buyer wants the same name, same location, same tables inside the shop, even the same baristas working for him. To the buyer, goodwill is the most important part of the deal, but to get that, there are lots of other assets he needs to buy too.

Here’s why that’s so important. The IRS treats each one of these assets differently. Some, like inventory, generally are not eligible to get capital gains treatment. On the opposite end, goodwill definitely is. In the middle, furniture, equipment, etc. are often taxed uniquely because they are subject to depreciation expense while the seller owns the business. The process of selling business assets is complicated because each type of business asset is handled differently. Maybe you can begin to see why calculating capital gains tax on the sale of a business is so complicated.

Minimizing Capital Gains Tax and What to Do Before You Sell Your Business

Here are a few tips to minimize capital gains, and to get all the information you need for your tax return:

Start with Your Asset Allocation Schedule

When you use a skilled, professional attorney like the lawyers on the team at Landmark Legal Services, they will be sure you have a sound, Asset Purchase Agreement documenting exactly what you agree to when you sell your business. That agreement will include many exhibits, and one of the most important among them is the Asset Allocation Schedule. This schedule is the roadmap to all the numbers and figures you need to report your capital gains on the sale of the business.

Rely on a Professional Business Valuation

Another thing you should have done, actually in advance of the sale is to have a valuation on your business. The closer the date of the valuation is to the date you receive a letter of intent to purchase the business, the more accurate it will be. We recommend working through a group like the Buyer Seller Match or the Intermediary Link in order to ensure you get the most accurate valuation you can before selling the business.

Minimizing the capital gains tax you pay when selling your business

There are many strategies you can employ to minimize the impact of capital gains taxes when you sell your business. These largely involve installment sales, charitable trusts, other irrevocable trusts and the best allocation of assets to limit your exposure to capital gains. Capital gains in the sale of a business can present difficult issues both in how you limit your exposure to them, and in how you calculate what you owe. Regardless, the skilled professionals at Landmark Advisors are available to help.  Please contact as and schedule a time we can talk through your situation.

See these IRS publications for more details: