3 Last-Minute Tax Tips

A quick reallocation here and a receipt there can add up to a sizable refund ... even with a short clock left

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3 Last-Minute Tax Tips

Last-Minute Tax Tips: Child Care Expenses

Childcare185 3 Last Minute Tax Tips
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Next on this list of tax tips are child care expenses. If you have kids and you pay for daycare, mother’s day out or for the services of a nanny, tally up what you paid in 2013. It could give you a nice tax credit.

The Child and Dependent Care Credit can seem a little complicated at first, but I can sum it up like this. If you pay for childcare expenses so you can work outside the home, $3,000 in expenses for the first child (or a total of $6,000 in expenses for two or more children) can be used to calculate the credit. The $3,000 (or $6,000) is multiplied by a factor that varies by income. For example, if your household’s adjusted gross income is more than $43,000, the factor is 0.2. (Don’t worry, popular tax programs such as TurboTax will make these calculations for you.) The factor is greater the less your income is.

So, for a family with two or more dependent kids, the tax credit would be calculated as $6,000 * 0.2 = $1,200.

It’s not uncommon for parents to pay tens of thousands of dollars in child care expense, so it can be frustrating that the amount used in the credit calculation is capped at $6,000. Still, a $1,200 reduction in your tax bill is nothing to laugh off, particularly considering that you were going to be making these expenses anyway.

A few things to note: To qualify, your kids must be under age 13, and the expenses must legitimately be used to allow a parent to return to work. For example, if a family has a stay-at-home mom who is not gainfully employed, they would not be able to apply any preschool or early development classes to the credit.

Also, only expenses you pay for yourself are eligible for the credit. Employer-provider care actually reduces the credit, though it also reduces your taxable income. If you have any doubts, talk to your CPA.


Article printed from InvestorPlace Media, http://investorplace.com/2014/03/last-minute-tax-tips/.

©2014 InvestorPlace Media, LLC

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