IRS rules determine who can claim many child-related federal income tax breaks after parents divorce or legally separate.
Continue readingWhich Parent Gets the Tax Breaks After Divorce?
Can Your Business Benefit from the WOTC?
Employers who hire new workers may qualify for a tax benefit, but they shouldn’t wait too long. The Work Opportunity Tax Credit (WOTC)…
Continue readingSending the Kids to Day Camp this Summer?
If your child is going to a summer day camp while you work, it may count as an expense toward the federal Child and Dependent Care Credit. For one qualifying child under age 13, you may annually use up to $3,000 of eligible child care expenses, including day camp expenses, to claim the credit for one child, or $6,000 for two or more children. Under current law, the credit ranges in value from 20% to 35% of the expenses up to those limits, depending on the taxpayer’s income.
Note, overnight camp costs don’t qualify for the credit and aren’t deductible. Contact the office with your questions.
408-252-1800
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Deductions vs. Credits
Many taxpayers are unclear on the difference between deductions vs. credits. Both can be powerful tax-saving tools. Here’s how they each work:
Deductions lower a taxpayer’s taxable income before the tax is calculated. For instance, on an individual return, you can either claim the standard deduction or itemize deductions, depending on which option reduces your taxable income more.
Credits directly reduce the tax due, dollar-for-dollar. As a result, credits are more valuable than deductions of the same dollar amount. Some credits, such as the Child Tax Credit, are partially or fully refundable, meaning that if the credit exceeds the tax owed, the taxpayer may receive some or all of the difference as a refund.
If you have additional questions or are interested in tax services, don’t hesitate to contact our office.
408-252-1800
Use It or Lose It: Your 2024 Gift Tax Annual Exclusion
As the year winds down, you may want to combine estate planning with tax savings by taking advantage of the gift tax annual exclusion. It allows you to give cash or property up to a specified amount to an unlimited number of family members and friends each year without gift tax implications.
That specified amount is subject to annual inflation adjustments. For 2024, the amount per recipient is $18,000. Notably, in 2025, this amount will increase to $19,000 per recipient. Why is this significant? The amount was stagnant at $15,000 for several years (2018 to 2021). Beginning in 2022, the amount has increased by $1,000 annually due to inflation.
Each year you need to use your annual exclusion by December 31. The exclusion doesn’t carry over from year to year. For example, if you don’t make an annual exclusion gift to your granddaughter this year, you can’t add the $18,000 unused 2024 exclusion to next year’s $19,000 exclusion to make a $37,000 tax-free gift to her next year.
For frequently asked questions on gift taxes, visit the IRS website. Contact the office with any additional questions.
408-252-1800
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Are You Aware of the Business Credits and Other Tax Benefits Available?
It’s a challenging time for many businesses. Therefore, any help you can get, such as tax incentives and sales tax exemptions, can make a big difference. Unfortunately, these benefits often go unclaimed because businesses don’t know about them or erroneously think they’re ineligible.
1. Statutory Incentives
Some credits are available “as of right.” That is, if your business meets the specified requirements, you just need to claim the benefit on a timely filed tax return to receive it.
State and federal tax credits and exemptions are designed as incentives for businesses to engage in certain activities or invest in specific economically distressed areas. Here are a few:
Work Opportunity Tax Credit (WOTC). The WOTC is a federal credit ranging from $2,400 to $9,600 per eligible new hire from certain disadvantaged groups. Examples include convicted felons, welfare recipients, veterans and workers with disabilities. Other steps must also be taken, such as completing paperwork.
State and federal research and development tax credits. These credits may be available to an eligible business that invests in developing new products or techniques, improving processes, or developing software for internal use, regardless of size. The federal “increasing research activities” credit is generally equal to 20% of the amount by which the business increases qualified research expenditures, compared to a base amount.
The credit is available even to businesses with no income tax liability and may be carried forward to offset taxable income in future years. If eligible, a start-up company can claim the federal research credit against up to $500,000 in employer-paid payroll taxes.
Empowerment zone incentives. Certain tax breaks are available to companies that operate in federally designated, economically distressed “empowerment zones.” Tax credits may be worth up to $3,000 for each eligible employee.
Industry-based and investment credits. Many states and other jurisdictions offer tax credits and other incentives to attract certain types of businesses, such as manufacturing or film and television production. Jurisdictions may also offer investment tax credits for capital investments within their borders.
2. Discretionary Incentives
Discretionary tax breaks must be negotiated with government representatives. Typically, these incentives are intended to persuade a business to stay in or relocate to a certain state or locality.
To secure these incentives, a business must show it’ll bring benefits to the jurisdiction, such as job creation and revenue generation. Discretionary incentives may include income and payroll tax credits, property tax abatements and utility rate reductions.
3. Sales Tax Exemptions
States with sales taxes provide exemptions for some business purchases. Common exemptions include purchases by:
- Retailers for the purpose of resale,
- Manufacturers of equipment, raw materials or components used in the manufacturing process,
- Specific tax-exempt entities, and
- Agricultural businesses that buy such items as farming equipment and fuel, feed, seeds, fertilizer, and chemical sprays.
Businesses should familiarize themselves with the exemptions available where they do business and what it takes to qualify. For example, they may need to prove to the sellers that they have a resale or exemption certificate.
Don't Miss These Opportunities
Every year, a vast amount of tax credits and incentives aren’t claimed because businesses are unaware of them or erroneously believe they’re ineligible. Many more examples exist. Contact the office for help ensuring that your business receives all the tax breaks it deserves.
(408) 252-1800
Sending the Kids to Day Camp May Bring a Tax Break
Among the many challenges of parenthood is childcare for kids when school lets out. Babysitters are one option, or you might consider sending them to a day camp. There’s no one-size-fits-all answer, but if you do choose a day camp, you could be eligible for a tax break. (Unfortunately, overnight camps don’t qualify.)
Dollar-for-dollar Savings
Day camp can be a qualified expense under the child and dependent care tax credit. The credit is worth 20% to 35% of the qualifying costs, subject to an income cap. The maximum amount of expenses that can be claimed is $3,000 for one qualifying child or $6,000 for two or more children, multiplied by the percentage that applies to your income level.
For those qualifying for the 35% rate with maximum expenses of $3,000, the credit equals $1,050, or $2,100 for two children with expenses of at least $6,000. The applicable credit percentage drops as adjusted gross income (AGI) rises. When AGI exceeds $43,000, the percentage is 20% of qualified expenses, subject to the $3,000 or $6,000 limit.
Tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar, that is, $1 of tax credit saves $1 of taxes. This is compared to deductions, which simply reduce the amount of income subject to tax. So, if you’re in the 24% tax bracket, a $1 deduction saves you only $0.24 of taxes.
Qualifying for the Credit
Only dependents under age 13 generally qualify. However, the credit may also be claimed for expenses paid to care for a dependent relative, such as an in-law or parent, who is incapable of self-care. Eligible care costs are those incurred while you work or look for work.
Expenses paid from, or reimbursed by, an employer-sponsored Flexible Spending Account can’t be used to claim the credit. The same is true for a dependent care assistance program.
Determining Eligibility
Additional rules apply to this credit. Contact the office if you have questions about your eligibility for the credit and the exceptions.
408-252-1800
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Tax Breaks for Increasing Accessibility
Certain small business owners may qualify for tax breaks by making their premises accessible to people with disabilities. The CDC reports that 61 million people in the United States are affected by disabilities.
The Disabled Access Credit is a nonrefundable credit for up to 50% of eligible access expenditures made by qualifying small businesses in each year the costs are incurred. Also available is a barrier removal tax deduction when a business removes an architectural barrier and the removal improves access for persons with disabilities and the elderly.
Both tax benefits can be used in the same year if the requirements are met. To learn more: https://www.irs.gov/newsroom/tax-benefits-to-help-offset-the-cost-of-making-businesses-accessible-to-people-with-disabilities
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Boost Your Home Improvements with Tax Credits
For many homeowners, summer means it’s time to tackle home improvement projects. By investing in certain energy-efficient updates, taxpayers not only can lower their power bills but also can score some tax breaks.
The Energy Efficient Home Improvement Credit equals 30% of qualified expenses (up to $3,200) incurred to improve a home after Jan. 1, 2023. Examples include insulation and exterior doors or windows.
The Residential Clean Energy Credit is equal to 30% of qualified property installed in a U.S. home from 2022 through 2032. Examples include solar electric panels, solar water heaters and wind turbines.
Additional rules and limits apply to these credits. Here’s more: https://www.irs.gov/newsroom/irs-home-improvements-could-help-taxpayers-qualify-for-home-energy-credits
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Hiring? How to Benefit from the Work Opportunity Tax Credit
If you’re a business owner or manager who is seeking to hire, you should be aware of the details of a valuable tax credit for hiring individuals from one or more targeted groups. Employers can qualify for the Work Opportunity Tax Credit (WOTC), which is worth as much as $2,400 for most eligible employees (higher or lower for certain employees). The credit is limited to eligible employees who begin work for an employer before January 1, 2026.
Who is Eligible?
Generally, an employer is eligible for the WOTC only for qualified wages paid to members of a targeted group. These groups are:
- Qualified members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program,
- Qualified veterans,
- Qualified ex-felons,
- Designated community residents,
- Vocational rehabilitation referrals,
- Qualified summer youth employees,
- Qualified members of families in the Supplemental Nutritional Assistance Program (SNAP),
- Qualified Supplemental Security Income recipients,
- Long-term family assistance recipients, and
- Long-term unemployed individuals.
To claim the WOTC, an employer must first get certification that the person hired is a member of one of the targeted groups above. An employer can do so by submitting Form 8850, Pre-Screening Notice and Certification Request for the WOTC, to their state agency within 28 days after the eligible worker begins work.
You Must Meet Certain Requirements
There are several requirements to qualify for the credit. For example, each employee must have completed a specific number of hours of service for the employer. Also, the credit isn’t available for employees who are related to or who previously worked for the employer.
There are different rules and credit amounts for certain employees. The maximum credit available for first-year wages generally is $2,400 per employee. But it’s $4,000 for long-term family assistance recipients, and it’s $4,800, $5,600 or $9,600 for certain veterans. Additionally, for long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit, over two years, of $9,000.
For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum WOTC credit available for summer youth employees is $1,200 per employee.
An eligible employer claims the WOTC on its federal income tax return. The credit value is limited to the business’s income tax liability.
A Valuable Credit
There are additional rules and requirements. In some cases, employers may elect not to claim the WOTC. And in limited circumstances, the rules may prohibit the credit or require an allocation of it. However, for most employers hiring from targeted groups, the credit can be worthwhile. Contact the office with questions or for more information about your situation.
408-252-1800
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