(Holly Petherbridge) CPA Clients Waiting On Tax Credit Extension News
by Holly Petherbridge | Jan. 28, 2013
As lawmakers continue to bicker over tax cut extensions, CPA's and their clients await the news on four key credit associated with children. As of now, the fear of losing out on what was once "normal" refunds and is now looking at smaller checks and for some a tax liability for the first time. Low-income families may lose a significant amount from the child tax credit. Very low-income families may lose as well under the Earned Income Tax Credit. Families who are already struggling financially could possibly take on more financial hardships if the government does not extend these tax credits. No one wants to pay more taxes, but when it becomes a choice to pay the IRS or put food on the table, lawmakers need to step up and help low-income Americans.
Child Tax Credit
Right now, the Child Tax Credit offers a tax credit of $1000 per child for low-income families. The original deduction was $500. Under the Bush tax cuts, the amount was doubled in order to provide extra relief for low-income families. This amount would lower any tax liability and extra credit would be returned to the family as a refund. Married couples earning more than $110,000 or single parents who earned more than $75,000 would not be able to benefit from the credit. It was clearly designed for low-income families in order to give relieve them from any tax burden.
Next year, if the credit is not extended, your CPA will only be deducting $500 per child. If the qualifying family has two children, the credit will be $1000 instead of last year's $2000. That is a significant amount, especially if it is the difference between receiving a refund or having to pay towards a liability.
Child and Dependent Care Tax Credit
Working parents or those looking for work were able to report up to $3000 in child care expenses. Prior to President Bush creating the tax credit, families were only able to claim up to $2400. If the tax break expires, families with two children will be looking at only claiming $1440 instead of the current $2100 under the Bush plan.
Work with your local CPA in order to claim the maximum amount on your tax return. With less tax credits, tax returns will need to be processed with precision to maximize any type of favorable return.
Earned Income Tax Credit
The Earned Income Tax Credit helps boost millions out of poverty. It allows Americans to hold onto a larger part of their earnings. More children translates to more credit. Your CPA awaits the tax credit extension news. Helping married or single clients hold onto more of their income is what this credit is all about. No extension of this plan will heavily affect married couples with children and will still have some effect on single taxpayers with children.
American Opportunity Tax Credit
This credit replaced the Hope Credit to give low-income families opportunity to send their children off to college. Qualifying families have been able to claim up to $2500 each year for four years while their child attends college. Obama had upped the refundable amount to 40% which means that $1000 of this credit could be refundable by cash refund. This cash refund is extremely important to low-income families as it is for many, the only money received in their return.
If the extension is not extended, the Hope Credit will return giving qualifying families a maximum credit of $1800 which can only be claimed for 2 years and may not be refunded as cash return.
About Holly Petherbridge
Chris Reeder and Associates Certified Public Accountants is conveniently located in Murrieta, California, but our entire staff of accountants, CPA's and personal or business tax service professionals frequently visit our client's at their location. So, if you can't come to us, we'll certainly come to you. Visit http://www.cdrcpa.com/ for more information.
About Chia-Li Chien
Chia-Li Chien, CFP®, CRPC, PMP; Chia-Li “like JOLLY,” Succession Strategist of Value Growth Institute, dedicated to helping private business owners increase their company equity value. She is the award-winning author of the books Show Me The Money and Work toward Reward and a faculty of the American Management Association. Her blog and newsletter was named a Top Small Business Resource by the New York Times You’re the Boss blog. Contact her at firstname.lastname@example.org or (704) 268-9378 .