Ten Facts about Claiming the Child Tax Credit

The Child Tax Credit is a valuable credit that can significantly reduce your tax liability. Here are 10 important facts from the IRS about this credit and how it may benefit your family.

1. Amount - With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.
2. Qualification - A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
3. Age Test - To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2009.
4. Relationship Test - To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
5. Support Test - In order to claim a child for this credit, the child must not have provided more than half of their own support.
6. Dependent Test - You must claim the child as a dependent on your federal tax return.
7. Citizenship Test - To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
8. Residence Test - The child must have lived with you for more than half of 2009. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
9. Limitations - The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
10. Additional Child tax Credit - If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.

IRS Tax Tip 2010-45

IRS TAX TIP 2010-44

Ten Facts about Mortgage Debt Forgiveness 

If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

Early Distribution from Your Retirement Account

As the economy has continued to resist real growth and unemployment has remained high, some people have resorted to tapping their retirement savings to pay bills.  There are some important things to consider before you take an early distribution from your retirement plan.

• Early distributions are usually subject to a 10 percent tax on top of any regular income tax on the amounts
• Any distribution that is not a rollover to another qualified plan is generally considered early or premature if you are not yet 59 1/2 years of age. (183 days after your 59th birthday)
• Rollovers to an IRA or qualified retirement plan are not subject to the additional 10 percent tax, but you must complete the rollover within 60 days after the day you received the distribution.
• Rollovers where you receive the funds, will usually have tax withheld, but you must put the gross balance that was in the prior account into your new account, including any withheld amounts.  Direct rollovers (from the old account trustee directly to the new one) are usually not subject to withholding.
• There are exceptions to the 10 percent early distribution tax, such as distributions for the purchase of a first home, certain medical or educational expenses, or if you are disabled.
• If you made nondeductible contributions to an IRA in prior years and now take early distributions, the portion of the distribution attributable to those nondeductible contributions is not taxed. The same rule applies to distributions from a Roth IRA.

Why we offer payroll services

Our firm started offering online payroll services to small businesses in January of this year.  In my experience working with small business owners, payroll has always been one of the biggest headaches.  There have been very good payroll services offered online for several years, but they tend to be price prohibitive for most of the small businesses I deal with.  The services I have seen seem to make sense when you get up to 10 or more employees.  That is just not the typical client I deal with every day.  I would say most of my clients have one to two employees.  I knew with the technology available today from all the cloud computing applications, it was just a matter of time before someone dependable offered a payroll solutions.  Enter the folks at Intuit, the makers of Quickbooks.  When I found out they were offering an online payroll solution, I checked it out and found that it works well for my clients.  Because I can sign up to manage multiple client payrolls, I get to offer the service at a much cheaper cost than the standard retail price-another win.

The way this works is you contact me to set you up with a payroll account on Intuit's site.  If you want I can even set up your employees for you on the site or you can go and log on yourself to enter the information. Everything is done over the internet. Each pay period, you go to the site with your log on and enter the information to process your payroll.  It has a very simple easy to understand interface.  You can also offer options that are comparable to other automated payrolls like direct deposit, multi-state payroll and online access to pay-stubs.  Plus your payroll tax obligations are automatically calculated for you to file your 941's, 940's and year end W2's and any state payroll reporting is also automated.  You have the option to file your return yourself or if you want our firm can process your tax returns directly from our site.

Of course it's from the makers of Quickbooks, so the information also imports directly into all versions of Quickbooks.  It also integrates with Peachtree, Quicken, Pro Systems, Microsoft Money and Versa Check software.  If you are an Outright client, our firm will post the payroll information directly into Outright for you, so you can track your payroll expenses inside Outright.

I really believe this service is going to be a big hit for small businesses and the cost is very affordable.  If you get the service through our firm the price is just $25 per month for the first 5 employees.   Most of the other payroll services cost anywhere from $35 to $50 per month, because they are targeted towards companies with larger payrolls.  If you have more than 5 active employees it cost only $1 per month per employee over 5.  Even if you buy the payroll software, it can cost over $300 and you have to constantly keep it updated.  This service will eliminate all those hassles.  There is no commitment and no contract, if you don't like the payroll solution just let us know and we will close your account and stop the monthly billing immediately.

I can tell you to this is going to be a hit with my firm also, because we just finished up January and having to chase down clients and get the information to file their W-2's and year end payroll tax returns can be very trying.

If you want to test drive the software to see how it works click here.

If you want to sign up today send us an email.