If both spouses work, then the credit is up to 50% of the amount spent on childcare (max credit of 4K per child) – you can take this credit for up to 2 children in childcare – so for 2 kids, the max credit is 8K and it is refundable. Your ability to enjoy this credit phases out as your joint AGI exceeds 125K If you would rather pay for childcare pre-tax, then (if your employer allows), you can defer up to $10,500 into a Dependent Care FSA, but whatever you defer into the FSA can’t be used to calculate the child care credit. Depending on your situation, a decision needs to be made whether to take advantage of the FSA deferral or the credit – let us help you make the decision.
Under previous law, your ability to get a subsidy (i.e., the government helped you pay for your Health Insurance) through the Health Insurance Marketplace phased entirely if your income exceeded 400% of the Federal Poverty Level. The new law passed in March now allows you to get a subsidy, no matter your income, to the extent that your Health Insurance Premiums obtained through the Marketplace exceed 8.5% of your income. Ask us if this applies to you and how to take advantage of this new rule.
Starting in July, the IRS will send you 1/12th of what they expect your 2021 child tax credit to be (up to $3,600 per child). They are basing their calculations off of the income and children that you claimed on your 2020 return. When you file your 2021 tax return, you will then true up with the IRS and either pay them or they will pay you any difference. If you want to unenroll from the monthly payments then go to www.irs.gov/childtaxcredit2021
Are you withholding enough tax from your wage at work? The only way to be certain is to send us your year-to-date paystubs so that we can take a look. This service is always free to our clients, so don’t hesitate to reach out.
If you are under age 59 ½ , then you might have to pay a penalty to get your hands on your 401K or IRA funds. If you were impacted by COVID in 2020, then you can withdrawal up to 100K from these retirement plans by the end of 2020 and not have to pay the 10% penalty. In addition, you can spread the income out over 3 years (pay tax on it evenly in 2020, 2021, and 2022)
Rental losses are passive losses and are not typically able to be used to reduce your ordinary income. But if your AGI is under $100,000, you can deduct up to $25,000 of your rental loss. If you are a real estate professional you can deduct all of your rental loss no matter what your income is. Using cost-segregation strategies, we can make sure that your rental shows a loss on your tax return, even if it produces positive cash-flow.
A Roth IRA is one of the best wealth transfer vehicles available: You contribute money, that money grows, you never have to take the money out while you are alive, you die and your spouse doesn’t have to take money out and the money continues to grow, then your kids have 10 years to drain the account after your spouse dies. This means that the $7K you contributed this year might be able to grow 50 years AND all of the growth is tax-free.
Purchase a fixer-upper and live in the house for 2 years before selling. Up to $500,000 of the gain is tax free. Repeat every 2 years.
If you have a child in college, then contribute $5K to the Indiana CollegeChoice 529, and then turn around and put that money back into your personal checking account. You don’t need to leave the 529 funds in the 529 to get the $1K Indiana tax credit (i.e., save $1K of Indiana tax each year you do this).
You can receive up to a $200 credit on your Indiana state return. Contributions include the $25 Group Fee for a Indiana College vehicle license plate.
These improvements include water heaters, HVAC systems, windows, exteriors doors, etc. You can receive up to a $500 credit on your federal tax return from these improvements.
There are many tricks (or combination of tricks) to make sure that the college expense produces tax savings:
• Take the AOC or LLC college credit up to $2,500
• Deduct the tuition and fees
• Don’t claim the child as a dependent and let the child claim himself and take the AOC credit
• Make a portion of the child’s scholarships taxable on child’s return to “free up” tuition for the AOC credit
• Withdraw college funds from your Traditional IRA and avoid the 10% early withdrawal penalty
• Contribute $5K to the Indiana 529 and then turn around and withdraw it to pay for college and save $1K in tax
• Hire the child in your corporation and deduct his or her tuition
Non-itemizers (i.e. most people) can now deduct $300 of charitable contributions (of money only) on their 2020 tax return even if they don’t itemize.
The stimulus you already received was really a pre-payment of a 2020 tax credit. When we prepare your 2020 tax return, we calculate the total 2020 stimulus tax credit based on your 2020 tax information (income, dependents, etc) and then subtract what you have already received. If you are due more stimulus, you get it with your 2020 tax return (in the form of an increased refund). If you have received too much stimulus pre-payment, then you don’t have to pay any of the overage back to the government. Be sure to tell us the exact amount of stimulus that you have already received so that we can correctly calculate how much additional stimulus you may be owed
If you earn over $206K, then you can not directly contribute new money to a Roth IRA. You might be able to “backdoor” the contribution though. If you don’t have pre-tax money in a Traditional IRA, then: 1. Create a Traditional IRA and make “nondeductible” contributions (up to $7,000). 2. Convert the nondeductible Traditional IRA to a Roth IRA.