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Tax Planning Us 2007 Taxes

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Tax Planning Us 2007 Taxes

Tax planning us 2007 taxes Publication 503 - Main Content Table of Contents Tests To Claim the CreditQualifying Person Test Earned Income Test Work-Related Expense Test Joint Return Test Provider Identification Test How To Figure the CreditFiguring Total Work-Related Expenses Earned Income Limit Dollar Limit Amount of Credit How To Claim the CreditTax credit not refundable. Tax planning us 2007 taxes Employment Taxes for Household Employers How To Get Tax HelpLow Income Taxpayer Clinics Tests To Claim the Credit To be able to claim the credit for child and dependent care expenses, you must file Form 1040, Form 1040A, or Form 1040NR, not Form 1040EZ or Form 1040NR-EZ, and meet all the following tests. Tax planning us 2007 taxes The care must be for one or more qualifying persons who are identified on Form 2441. Tax planning us 2007 taxes (See Qualifying Person Test. Tax planning us 2007 taxes ) You (and your spouse if filing jointly) must have earned income during the year. Tax planning us 2007 taxes (However, see Rule for student-spouse or spouse not able to care for self under Earned Income Test, later. Tax planning us 2007 taxes ) You must pay child and dependent care expenses so you (and your spouse if filing jointly) can work or look for work. Tax planning us 2007 taxes (See Work-Related Expense Test, later. Tax planning us 2007 taxes ) You must make payments for child and dependent care to someone you (and your spouse) cannot claim as a dependent. Tax planning us 2007 taxes If you make payments to your child, he or she cannot be your dependent and must be age 19 or older by the end of the year. Tax planning us 2007 taxes You cannot make payments to: Your spouse, or The parent of your qualifying person if your qualifying person is your child and under age 13. Tax planning us 2007 taxes See Payments to Relatives or Dependents under Work-Related Expense Test, later. Tax planning us 2007 taxes Your filing status may be single, head of household, or qualifying widow(er) with dependent child. Tax planning us 2007 taxes If you are married, you must file a joint return, unless an exception applies to you. Tax planning us 2007 taxes See Joint Return Test, later. Tax planning us 2007 taxes You must identify the care provider on your tax return. Tax planning us 2007 taxes (See Provider Identification Test, later. Tax planning us 2007 taxes ) If you exclude or deduct dependent care benefits provided by a dependent care benefit plan, the total amount you exclude or deduct must be less than the dollar limit for qualifying expenses (generally, $3,000 if one qualifying person was cared for or $6,000 if two or more qualifying persons were cared for). Tax planning us 2007 taxes (If two or more qualifying persons were cared for, the amount you exclude or deduct will always be less than the dollar limit, since the total amount you can exclude or deduct is limited to $5,000. Tax planning us 2007 taxes See Reduced Dollar Limit under How To Figure the Credit, later. Tax planning us 2007 taxes ) These tests are presented in Figure A and are also explained in detail in this publication. Tax planning us 2007 taxes Qualifying Person Test Your child and dependent care expenses must be for the care of one or more qualifying persons. Tax planning us 2007 taxes A qualifying person is: Your qualifying child who is your dependent and who was under age 13 when the care was provided (but see Child of divorced or separated parents or parents living apart , later), Your spouse who was not physically or mentally able to care for himself or herself and lived with you for more than half the year, or A person who was not physically or mentally able to care for himself or herself, lived with you for more than half the year, and either: Was your dependent, or Would have been your dependent except that: He or she received gross income of $3,900 or more, He or she filed a joint return, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Tax planning us 2007 taxes Dependent defined. Tax planning us 2007 taxes   A dependent is a person, other than you or your spouse, for whom you can claim an exemption. Tax planning us 2007 taxes To be your dependent, a person must be your qualifying child (or your qualifying relative). Tax planning us 2007 taxes Qualifying child. Tax planning us 2007 taxes   To be your qualifying child, a child must live with you for more than half the year and meet other requirements. Tax planning us 2007 taxes More information. Tax planning us 2007 taxes   For more information about who is a dependent or a qualifying child, see Publication 501. Tax planning us 2007 taxes Physically or mentally not able to care for oneself. Tax planning us 2007 taxes   Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Tax planning us 2007 taxes Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves. Tax planning us 2007 taxes Person qualifying for part of year. Tax planning us 2007 taxes   You determine a person's qualifying status each day. Tax planning us 2007 taxes For example, if the person for whom you pay child and dependent care expenses no longer qualifies on September 16, count only those expenses through September 15. Tax planning us 2007 taxes Also see Yearly limit under Dollar Limit, later. Tax planning us 2007 taxes Birth or death of otherwise qualifying person. Tax planning us 2007 taxes   In determining whether a person is a qualifying person, a person who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the person's home more than half the time he or she was alive in 2013. Tax planning us 2007 taxes Taxpayer identification number. Tax planning us 2007 taxes   You must include on your return the name and taxpayer identification number (generally the social security number) of the qualifying person(s). Tax planning us 2007 taxes If the correct information is not shown, the credit may be reduced or disallowed. Tax planning us 2007 taxes Individual taxpayer identification number (ITIN) for aliens. Tax planning us 2007 taxes   If your qualifying person is a nonresident or resident alien who does not have and cannot get a social security number (SSN), use that person's ITIN. Tax planning us 2007 taxes The ITIN is entered wherever an SSN is requested on a tax return. Tax planning us 2007 taxes If the alien does not have an ITIN, he or she must apply for one. Tax planning us 2007 taxes See Form W-7, Application for IRS Individual Taxpayer Identification Number, for details. Tax planning us 2007 taxes   An ITIN is for tax use only. Tax planning us 2007 taxes It does not entitle the holder to social security benefits or change the holder's employment or immigration status under U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes law. Tax planning us 2007 taxes Adoption taxpayer identification number (ATIN). Tax planning us 2007 taxes   If your qualifying person is a child who was placed in your home for adoption and for whom you do not have an SSN, you must get an ATIN for the child. Tax planning us 2007 taxes File Form W-7A, Application for Taxpayer Identification Number for Pending U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes Adoptions. Tax planning us 2007 taxes Child of divorced or separated parents or parents living apart. Tax planning us 2007 taxes   Even if you cannot claim your child as a dependent, he or she is treated as your qualifying person if: The child was under age 13 or was not physically or mentally able to care for himself or herself, The child received over half of his or her support during the calendar year from one or both parents who are divorced or legally separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year, The child was in the custody of one or both parents for more than half the year, and You were the child's custodial parent. Tax planning us 2007 taxes   The custodial parent is the parent with whom the child lived for the greater number of nights in 2013. Tax planning us 2007 taxes If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. Tax planning us 2007 taxes For details and an exception for a parent who works at night, see Publication 501. Tax planning us 2007 taxes   The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents. Tax planning us 2007 taxes Please click here for the text description of the image. Tax planning us 2007 taxes Figure a. Tax planning us 2007 taxes Can you claim the credit Earned Income Test To claim the credit, you (and your spouse if filing jointly) must have earned income during the year. Tax planning us 2007 taxes Earned income. Tax planning us 2007 taxes   Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. Tax planning us 2007 taxes A net loss from self-employment reduces earned income. Tax planning us 2007 taxes Earned income also includes strike benefits and any disability pay you report as wages. Tax planning us 2007 taxes   Generally, only taxable compensation is included. Tax planning us 2007 taxes However, you can elect to include nontaxable combat pay in earned income. Tax planning us 2007 taxes If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. Tax planning us 2007 taxes (In other words, if one of you makes the election, the other one can also make it but does not have to. Tax planning us 2007 taxes ) Including this income will give you a larger credit only if your (or your spouse's) other earned income is less than the amount entered on line 3 of Form 2441. Tax planning us 2007 taxes You should figure your credit both ways and make the election if it gives you a greater tax benefit. Tax planning us 2007 taxes    You can choose to include your nontaxable combat pay in earned income when figuring your credit for child and dependent care expenses, even if you choose not to include it in earned income for the earned income credit or the exclusion or deduction for dependent care benefits. Tax planning us 2007 taxes Members of certain religious faiths opposed to social security. Tax planning us 2007 taxes   This section is for persons who are members of certain religious faiths that are opposed to participation in Social Security Act programs and have an IRS-approved form that exempts certain income from social security and Medicare taxes. Tax planning us 2007 taxes These forms are: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, and Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits, for use by members of recognized religious groups. Tax planning us 2007 taxes   Each form is discussed here in terms of what is or is not earned income for purposes of the child and dependent care credit. Tax planning us 2007 taxes For information on the use of these forms, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Tax planning us 2007 taxes Form 4361. Tax planning us 2007 taxes   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee are earned income. Tax planning us 2007 taxes This includes wages, salaries, tips, and other taxable employee compensation. Tax planning us 2007 taxes   However, amounts you received for ministerial duties, but not as an employee, do not count as earned income. Tax planning us 2007 taxes Examples include fees for performing marriages and honoraria for delivering speeches. Tax planning us 2007 taxes   Any amount you received for work that is not related to your ministerial duties is earned income. Tax planning us 2007 taxes Form 4029. Tax planning us 2007 taxes   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation are earned income. Tax planning us 2007 taxes   However, amounts you received as a self-employed individual do not count as earned income. Tax planning us 2007 taxes What is not earned income?   Earned income does not include: Pensions and annuities, Social security and railroad retirement benefits, Workers' compensation, Interest and dividends, Unemployment compensation, Scholarships or fellowship grants, except for those reported on Form W-2 and paid to you for teaching or other services, Nontaxable workfare payments, Child support payments received, Income of a nonresident alien that is not effectively connected with a U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes trade or business, or Any amount received for work while an inmate in a penal institution. Tax planning us 2007 taxes Rule for student-spouse or spouse not able to care for self. Tax planning us 2007 taxes   Your spouse is treated as having earned income for any month that he or she is: A full-time student, or Physically or mentally not able to care for himself or herself. Tax planning us 2007 taxes (Your spouse also must live with you for more than half the year. Tax planning us 2007 taxes )   If you are filing a joint return, this rule also applies to you. Tax planning us 2007 taxes You can be treated as having earned income for any month you are a full-time student or not able to care for yourself. Tax planning us 2007 taxes   Figure the earned income of the nonworking spouse, described under (1) or (2) above, as shown under Earned Income Limit under How To Figure the Credit, later. Tax planning us 2007 taxes   This rule applies to only one spouse for any one month. Tax planning us 2007 taxes If, in the same month, both you and your spouse do not work and are either full-time students or not physically or mentally able to care for yourselves, only one of you can be treated as having earned income in that month. Tax planning us 2007 taxes Full-time student. Tax planning us 2007 taxes    You are a full-time student if you are enrolled at a school for the number of hours or classes that the school considers full time. Tax planning us 2007 taxes You must have been a full-time student for some part of each of 5 calendar months during the year. Tax planning us 2007 taxes (The months need not be consecutive. Tax planning us 2007 taxes ) School. Tax planning us 2007 taxes   The term “school” includes high schools, colleges, universities, and technical, trade, and mechanical schools. Tax planning us 2007 taxes A school does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Tax planning us 2007 taxes Work-Related Expense Test Child and dependent care expenses must be work-related to qualify for the credit. Tax planning us 2007 taxes Expenses are considered work-related only if both of the following are true. Tax planning us 2007 taxes They allow you (and your spouse if filing jointly) to work or look for work. Tax planning us 2007 taxes They are for a qualifying person's care. Tax planning us 2007 taxes Working or Looking for Work To be work-related, your expenses must allow you to work or look for work. Tax planning us 2007 taxes If you are married, generally both you and your spouse must work or look for work. Tax planning us 2007 taxes One spouse is treated as working during any month he or she is a full-time student or is not physically or mentally able to care for himself or herself. Tax planning us 2007 taxes Your work can be for others or in your own business or partnership. Tax planning us 2007 taxes It can be either full time or part time. Tax planning us 2007 taxes Work also includes actively looking for work. Tax planning us 2007 taxes However, if you do not find a job and have no earned income for the year, you cannot take this credit. Tax planning us 2007 taxes See Earned Income Test, earlier. Tax planning us 2007 taxes An expense is not considered work-related merely because you had it while you were working. Tax planning us 2007 taxes The purpose of the expense must be to allow you to work. Tax planning us 2007 taxes Whether your expenses allow you to work or look for work depends on the facts. Tax planning us 2007 taxes Example 1. Tax planning us 2007 taxes The cost of a babysitter while you and your spouse go out to eat is not normally a work-related expense. Tax planning us 2007 taxes Example 2. Tax planning us 2007 taxes You work during the day. Tax planning us 2007 taxes Your spouse works at night and sleeps during the day. Tax planning us 2007 taxes You pay for care of your 5-year-old child during the hours when you are working and your spouse is sleeping. Tax planning us 2007 taxes Your expenses are considered work-related. Tax planning us 2007 taxes Volunteer work. Tax planning us 2007 taxes   For this purpose, you are not considered to be working if you do unpaid volunteer work or volunteer work for a nominal salary. Tax planning us 2007 taxes Work for part of year. Tax planning us 2007 taxes   If you work or actively look for work during only part of the period covered by the expenses, then you must figure your expenses for each day. Tax planning us 2007 taxes For example, if you work all year and pay care expenses of $250 a month ($3,000 for the year), all the expenses are work related. Tax planning us 2007 taxes However, if you work or look for work for only 2 months and 15 days during the year and pay expenses of $250 a month, your work-related expenses are limited to $625 (2½ months × $250). Tax planning us 2007 taxes Temporary absence from work. Tax planning us 2007 taxes   You do not have to figure your expenses for each day during a short, temporary absence from work, such as for vacation or a minor illness, if you have to pay for care anyway. Tax planning us 2007 taxes Instead, you can figure your credit including the expenses you paid for the period of absence. Tax planning us 2007 taxes   An absence of 2 weeks or less is a short, temporary absence. Tax planning us 2007 taxes An absence of more than 2 weeks may be considered a short, temporary absence, depending on the circumstances. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You pay a nanny to care for your 2-year-old son and 4-year-old daughter so you can work. Tax planning us 2007 taxes You become ill and miss 4 months of work but receive sick pay. Tax planning us 2007 taxes You continue to pay the nanny to care for the children while you are ill. Tax planning us 2007 taxes Your absence is not a short, temporary absence, and your expenses are not considered work-related. Tax planning us 2007 taxes Part-time work. Tax planning us 2007 taxes   If you work part-time, you generally must figure your expenses for each day. Tax planning us 2007 taxes However, if you have to pay for care weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including the expenses you paid for days you did not work. Tax planning us 2007 taxes Any day when you work at least 1 hour is a day of work. Tax planning us 2007 taxes Example 1. Tax planning us 2007 taxes You work 3 days a week. Tax planning us 2007 taxes While you work, your 6-year-old child attends a dependent care center, which complies with all state and local regulations. Tax planning us 2007 taxes You can pay the center $150 for any 3 days a week or $250 for 5 days a week. Tax planning us 2007 taxes Your child attends the center 5 days a week. Tax planning us 2007 taxes Your work-related expenses are limited to $150 a week. Tax planning us 2007 taxes Example 2. Tax planning us 2007 taxes The facts are the same as in Example 1 except the center does not offer a 3-day option. Tax planning us 2007 taxes The entire $250 weekly fee may be a work-related expense. Tax planning us 2007 taxes Care of a Qualifying Person To be work-related, your expenses must be to provide care for a qualifying person. Tax planning us 2007 taxes You do not have to choose the least expensive way of providing the care. Tax planning us 2007 taxes The cost of a paid care provider may be an expense for the care of a qualifying person even if another care provider is available at no cost. Tax planning us 2007 taxes Expenses are for the care of a qualifying person only if their main purpose is the person's well-being and protection. Tax planning us 2007 taxes Expenses for household services qualify if part of the services is for the care of qualifying persons. Tax planning us 2007 taxes See Household Services, later. Tax planning us 2007 taxes Expenses not for care. Tax planning us 2007 taxes   Expenses for care do not include amounts you pay for food, lodging, clothing, education, and entertainment. Tax planning us 2007 taxes However, you can include small amounts paid for these items if they are incidental to and cannot be separated from the cost of caring for the qualifying person. Tax planning us 2007 taxes Otherwise, see the discussion of Expenses partly work-related, later. Tax planning us 2007 taxes   Child support payments are not for care and do not qualify for the credit. Tax planning us 2007 taxes Education. Tax planning us 2007 taxes   Expenses for a child in nursery school, preschool, or similar programs for children below the level of kindergarten are expenses for care. Tax planning us 2007 taxes   Expenses to attend kindergarten or a higher grade are not expenses for care. Tax planning us 2007 taxes Do not use these expenses to figure your credit. Tax planning us 2007 taxes   However, expenses for before- or after-school care of a child in kindergarten or a higher grade may be expenses for care. Tax planning us 2007 taxes   Summer school and tutoring programs are not for care. Tax planning us 2007 taxes Example 1. Tax planning us 2007 taxes You take your 3-year-old child to a nursery school that provides lunch and a few educational activities as part of its preschool childcare service. Tax planning us 2007 taxes The lunch and educational activities are incidental to the childcare, and their cost cannot be separated from the cost of care. Tax planning us 2007 taxes You can count the total cost when you figure the credit. Tax planning us 2007 taxes Example 2. Tax planning us 2007 taxes You place your 10-year-old child in a boarding school so you can work full time. Tax planning us 2007 taxes Only the part of the boarding school expense that is for the care of your child is a work-related expense. Tax planning us 2007 taxes You can count that part of the expense in figuring your credit if it can be separated from the cost of education. Tax planning us 2007 taxes You cannot count any part of the amount you pay the school for your child's education. Tax planning us 2007 taxes Care outside your home. Tax planning us 2007 taxes   You can count the cost of care provided outside your home if the care is for your dependent under age 13 or any other qualifying person who regularly spends at least 8 hours each day in your home. Tax planning us 2007 taxes Dependent care center. Tax planning us 2007 taxes   You can count care provided outside your home by a dependent care center only if the center complies with all state and local regulations that apply to these centers. Tax planning us 2007 taxes   A dependent care center is a place that provides care for more than six persons (other than persons who live there) and receives a fee, payment, or grant for providing services for any of those persons, even if the center is not run for profit. Tax planning us 2007 taxes Camp. Tax planning us 2007 taxes   The cost of sending your child to an overnight camp is not considered a work-related expense. Tax planning us 2007 taxes    The cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as computers or soccer. Tax planning us 2007 taxes Transportation. Tax planning us 2007 taxes   If a care provider takes a qualifying person to or from a place where care is provided, that transportation is for the care of the qualifying person. Tax planning us 2007 taxes This includes transportation by bus, subway, taxi, or private car. Tax planning us 2007 taxes However, transportation not provided by a care provider is not for the care of a qualifying person. Tax planning us 2007 taxes Also, if you pay the transportation cost for the care provider to come to your home, that expense is not for care of a qualifying person. Tax planning us 2007 taxes Fees and deposits. Tax planning us 2007 taxes   Fees you paid to an agency to get the services of a care provider, deposits you paid to an agency or preschool, application fees, and other indirect expenses are work-related expenses if you have to pay them to get care, even though they are not directly for care. Tax planning us 2007 taxes However, a forfeited deposit is not for the care of a qualifying person if care is not provided. Tax planning us 2007 taxes Example 1. Tax planning us 2007 taxes You paid a fee to an agency to get the services of the nanny who cares for your 2-year-old daughter while you work. Tax planning us 2007 taxes The fee you paid is a work-related expense. Tax planning us 2007 taxes Example 2. Tax planning us 2007 taxes You placed a deposit with a preschool to reserve a place for your 3-year-old child. Tax planning us 2007 taxes You later sent your child to a different preschool and forfeited the deposit. Tax planning us 2007 taxes The forfeited deposit is not for care and so is not a work-related expense. Tax planning us 2007 taxes Household Services Expenses you pay for household services meet the work-related expense test if they are at least partly for the well-being and protection of a qualifying person. Tax planning us 2007 taxes Definition. Tax planning us 2007 taxes   Household services are ordinary and usual services done in and around your home that are necessary to run your home. Tax planning us 2007 taxes They include the services of a housekeeper, maid, or cook. Tax planning us 2007 taxes However, they do not include the services of a chauffeur, bartender, or gardener. Tax planning us 2007 taxes Housekeeper. Tax planning us 2007 taxes   In this publication, the term housekeeper refers to any household employee whose services include the care of a qualifying person. Tax planning us 2007 taxes Expenses partly work-related. Tax planning us 2007 taxes   If part of an expense is work-related (for either household services or the care of a qualifying person) and part is for other purposes, you have to divide the expense. Tax planning us 2007 taxes To figure your credit, count only the part that is work-related. Tax planning us 2007 taxes However, you do not have to divide the expense if only a small part is for other purposes. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You pay a housekeeper to care for your 9-year-old and 15-year-old children so you can work. Tax planning us 2007 taxes The housekeeper spends most of the time doing normal household work and spends 30 minutes a day driving you to and from work. Tax planning us 2007 taxes You do not have to divide the expenses. Tax planning us 2007 taxes You can treat the entire expense of the housekeeper as work-related because the time spent driving is minimal. Tax planning us 2007 taxes Nor do you have to divide the expenses between the two children, even though the expenses are partly for the 15-year-old child who is not a qualifying person, because the expense is also partly for the care of your 9-year-old child, who is a qualifying person. Tax planning us 2007 taxes However, the dollar limit (discussed later) is based on one qualifying person, not two. Tax planning us 2007 taxes Meals and lodging provided for housekeeper. Tax planning us 2007 taxes   If you have expenses for meals that your housekeeper eats in your home because of his or her employment, count these as work-related expenses. Tax planning us 2007 taxes If you have extra expenses for providing lodging in your home to the housekeeper, count these as work-related expenses also. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes To provide lodging to the housekeeper, you move to an apartment with an extra bedroom. Tax planning us 2007 taxes You can count the extra rent and utility expenses for the housekeeper's bedroom as work-related. Tax planning us 2007 taxes However, if your housekeeper moves into an existing bedroom in your home, you can count only the extra utility expenses as work-related. Tax planning us 2007 taxes Taxes paid on wages. Tax planning us 2007 taxes   The taxes you pay on wages for qualifying child and dependent care services are work-related expenses. Tax planning us 2007 taxes For more information on a household employer's tax responsibilities, see Employment Taxes for Household Employers, later. Tax planning us 2007 taxes Payments to Relatives or Dependents You can count work-related payments you make to relatives who are not your dependents, even if they live in your home. Tax planning us 2007 taxes However, do not count any amounts you pay to: A dependent for whom you (or your spouse if filing jointly) can claim an exemption, Your child who was under age 19 at the end of the year, even if he or she is not your dependent, A person who was your spouse any time during the year, or The parent of your qualifying person if your qualifying person is your child and under age 13. Tax planning us 2007 taxes Joint Return Test Generally, married couples must file a joint return to take the credit. Tax planning us 2007 taxes However, if you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. Tax planning us 2007 taxes Legally separated. Tax planning us 2007 taxes   You are not considered married if you are legally separated from your spouse under a decree of divorce or separate maintenance. Tax planning us 2007 taxes You may be eligible to take the credit on your return using head of household filing status. Tax planning us 2007 taxes Married and living apart. Tax planning us 2007 taxes   You are not considered married and are eligible to take the credit if all the following apply. Tax planning us 2007 taxes You file a return apart from your spouse. Tax planning us 2007 taxes Your home is the home of a qualifying person for more than half the year. Tax planning us 2007 taxes You pay more than half the cost of keeping up your home for the year. Tax planning us 2007 taxes Your spouse does not live in your home for the last 6 months of the year. Tax planning us 2007 taxes Costs of keeping up a home. Tax planning us 2007 taxes   The costs of keeping up a home normally include property taxes, mortgage interest, rent, utility charges, home repairs, insurance on the home, and food eaten at home. Tax planning us 2007 taxes   The costs of keeping up a home do not include payments for clothing, education, medical treatment, vacations, life insurance, transportation, or mortgage principal. Tax planning us 2007 taxes   They also do not include the purchase, permanent improvement, or replacement of property. Tax planning us 2007 taxes For example, you cannot include the cost of replacing a water heater. Tax planning us 2007 taxes However, you can include the cost of repairing a water heater. Tax planning us 2007 taxes Death of spouse. Tax planning us 2007 taxes   If your spouse died during the year and you do not remarry before the end of the year, you generally must file a joint return to take the credit. Tax planning us 2007 taxes If you do remarry before the end of the year, the credit can be claimed on your deceased spouse's own return. Tax planning us 2007 taxes Provider Identification Test You must identify all persons or organizations that provide care for your child or dependent. Tax planning us 2007 taxes Use Form 2441, Part I, to show the information. Tax planning us 2007 taxes If you do not have any care providers and you are filing Form 2441 only to report taxable income in Part III, enter “none” in line 1, column (a). Tax planning us 2007 taxes Information needed. Tax planning us 2007 taxes   To identify the care provider, you must give the provider's: Name, Address, and Taxpayer identification number. Tax planning us 2007 taxes    If the care provider is an individual, the taxpayer identification number is his or her social security number or individual taxpayer identification number. Tax planning us 2007 taxes If the care provider is an organization, then it is the employer identification number (EIN). Tax planning us 2007 taxes   You do not have to show the taxpayer identification number if the care provider is a tax-exempt organization (such as a church or school). Tax planning us 2007 taxes In this case, enter “Tax-Exempt” in the space where Form 2441 asks for the number. Tax planning us 2007 taxes   If you cannot provide all of the information or the information is incorrect, you must be able to show that you used due diligence (discussed later) in trying to furnish the necessary information. Tax planning us 2007 taxes Getting the information. Tax planning us 2007 taxes    You can use Form W-10, Dependent Care Provider's Identification and Certification, to request the required information from the care provider. Tax planning us 2007 taxes If you do not use Form W-10, you can get the information from one of the other sources listed in the instructions for Form W-10, including: A copy of the provider's social security card, A copy of the provider's completed Form W-4, Employee's Withholding Allowance Certificate, if he or she is your household employee, A copy of the statement furnished by your employer if the provider is your employer's dependent care plan, or A letter or invoice from the provider if it shows the necessary information. Tax planning us 2007 taxes    You should keep this information with your tax records. Tax planning us 2007 taxes Do not send Form W-10 (or other document containing this information) to the Internal Revenue Service. Tax planning us 2007 taxes Due diligence. Tax planning us 2007 taxes   If the care provider information you give is incorrect or incomplete, your credit may not be allowed. Tax planning us 2007 taxes However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit. Tax planning us 2007 taxes   You can show due diligence by getting and keeping the provider's completed Form W-10 or one of the other sources of information just listed. Tax planning us 2007 taxes Care providers can be penalized if they do not provide this information to you or if they provide incorrect information. Tax planning us 2007 taxes Provider refusal. Tax planning us 2007 taxes    If the provider refuses to give you the identifying information, you should report on Form 2441 whatever information you have (such as the name and address). Tax planning us 2007 taxes Enter “See Attached Statement” in the columns calling for the information you do not have. Tax planning us 2007 taxes Then attach a statement explaining that you requested the information from the care provider, but the provider did not give you the information. Tax planning us 2007 taxes Be sure to write your name and social security number on this statement. Tax planning us 2007 taxes The statement will show that you used due diligence in trying to furnish the necessary information. Tax planning us 2007 taxes U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes citizens and resident aliens living abroad. Tax planning us 2007 taxes   If you are living abroad, your care provider may not have, and may not be required to get, a U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes taxpayer identification number (for example, an SSN or an EIN). Tax planning us 2007 taxes If so, enter “LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider's taxpayer identification number. Tax planning us 2007 taxes How To Figure the Credit Your credit is a percentage of your work-related expenses. Tax planning us 2007 taxes Your expenses are subject to the earned income limit and the dollar limit. Tax planning us 2007 taxes The percentage is based on your adjusted gross income. Tax planning us 2007 taxes Figuring Total Work-Related Expenses To figure the credit for 2013 work-related expenses, count only those you paid by December 31, 2013. Tax planning us 2007 taxes Expenses prepaid in an earlier year. Tax planning us 2007 taxes   If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received. Tax planning us 2007 taxes Claim the expenses for the later year as if they were actually paid in that later year. Tax planning us 2007 taxes Expenses not paid until the following year. Tax planning us 2007 taxes   Do not count 2012 expenses that you paid in 2013 as work-related expenses for 2013. Tax planning us 2007 taxes You may be able to claim an additional credit for them on your 2013 return, but you must figure it separately. Tax planning us 2007 taxes See Payments for prior year's expenses under Amount of Credit, later. Tax planning us 2007 taxes If you had expenses in 2013 that you did not pay until 2014, you cannot count them when figuring your 2013 credit. Tax planning us 2007 taxes You may be able to claim a credit for them on your 2014 return. Tax planning us 2007 taxes Expenses reimbursed. Tax planning us 2007 taxes   If a state social services agency pays you a nontaxable amount to reimburse you for some of your child and dependent care expenses, you cannot count the expenses that are reimbursed as work-related expenses. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You paid work-related expenses of $3,000. Tax planning us 2007 taxes You are reimbursed $2,000 by a state social services agency. Tax planning us 2007 taxes You can use only $1,000 to figure your credit. Tax planning us 2007 taxes Medical expenses. Tax planning us 2007 taxes   Some expenses for the care of qualifying persons who are not able to care for themselves may qualify as work-related expenses and also as medical expenses. Tax planning us 2007 taxes You can use them either way, but you cannot use the same expenses to claim both a credit and a medical expense deduction. Tax planning us 2007 taxes   If you use these expenses to figure the credit and they are more than the earned income limit or the dollar limit, discussed later, you can add the excess to your medical expenses. Tax planning us 2007 taxes However, if you use your total expenses to figure your medical expense deduction, you cannot use any part of them to figure your credit. Tax planning us 2007 taxes For information on medical expenses, see Publication 502, Medical and Dental Expenses. Tax planning us 2007 taxes    Amounts excluded from your income under your employer's dependent care benefits plan cannot be used to claim a medical expense deduction. Tax planning us 2007 taxes Dependent Care Benefits If you receive dependent care benefits, your dollar limit for purposes of the credit may be reduced. Tax planning us 2007 taxes See Reduced Dollar Limit, later. Tax planning us 2007 taxes But, even if you cannot take the credit, you may be able to take an exclusion or deduction for the dependent care benefits. Tax planning us 2007 taxes Dependent care benefits. Tax planning us 2007 taxes    Dependent care benefits include: Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work, The fair market value of care in a daycare facility provided or sponsored by your employer, and Pre-tax contributions you made under a dependent care flexible spending arrangement. Tax planning us 2007 taxes Your salary may have been reduced to pay for these benefits. Tax planning us 2007 taxes If you received benefits as an employee, they should be shown in box 10 of your Form W-2, Wage and Tax Statement. Tax planning us 2007 taxes See Statement for employee, later. Tax planning us 2007 taxes Benefits you received as a partner should be shown in box 13 of your Schedule K-1 (Form 1065) with code O. Tax planning us 2007 taxes   Enter the amount of these benefits on Form 2441, Part III, line 12. Tax planning us 2007 taxes Exclusion or deduction. Tax planning us 2007 taxes   If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Tax planning us 2007 taxes Your employer can tell you whether your benefit plan qualifies. Tax planning us 2007 taxes To claim the exclusion, you must complete Part III of Form 2441. Tax planning us 2007 taxes You cannot use Form 1040EZ. Tax planning us 2007 taxes   If you are self-employed and receive benefits from a qualified dependent care benefit plan, you are treated as both employer and employee. Tax planning us 2007 taxes Therefore, you would not get an exclusion from wages. Tax planning us 2007 taxes Instead, you would get a deduction on Form 1040, Schedule C, line 14; Schedule E, line 19 or 28; or Schedule F, line 15. Tax planning us 2007 taxes To claim the deduction, you must use Form 2441. Tax planning us 2007 taxes   The amount you can exclude or deduct is limited to the smallest of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). Tax planning us 2007 taxes   The definition of earned income for the exclusion or deduction is the same as the definition used when figuring the credit except that earned income for the exclusion or deduction does not include any dependent care benefits you receive. Tax planning us 2007 taxes    You can choose to include your nontaxable combat pay in earned income when figuring your exclusion or deduction, even if you choose not to include it in earned income for the earned income credit or the credit for child and dependent care expenses. Tax planning us 2007 taxes Statement for employee. Tax planning us 2007 taxes   Your employer must give you a Form W-2 (or similar statement), showing in box 10 the total amount of dependent care benefits provided to you during the year under a qualified plan. Tax planning us 2007 taxes Your employer will also include any dependent care benefits over $5,000 in your wages shown on your Form W-2 in box 1. Tax planning us 2007 taxes Effect of exclusion on credit. Tax planning us 2007 taxes   If you exclude dependent care benefits from your income, the amount of the excluded benefits: Is not included in your work-related expenses, and Reduces the dollar limit, discussed later. Tax planning us 2007 taxes Earned Income Limit The amount of work-related expenses you use to figure your credit cannot be more than: Your earned income for the year, if you are single at the end of the year, or The smaller of your or your spouse's earned income for the year if you are married at the end of the year. Tax planning us 2007 taxes Earned income for the purpose of figuring the credit is defined under Earned Income Test, earlier. Tax planning us 2007 taxes For purposes of item (2), use your spouse's earned income for the entire year, even if you were married for only part of the year. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes You remarried on December 3. Tax planning us 2007 taxes Your earned income for the year was $18,000. Tax planning us 2007 taxes Your new spouse's earned income for the year was $2,000. Tax planning us 2007 taxes You paid work-related expenses of $3,000 for the care of your 5-year-old child and qualified to claim the credit. Tax planning us 2007 taxes The amount of expenses you use to figure your credit cannot be more than $2,000 (the smaller of your earned income or that of your spouse). Tax planning us 2007 taxes Separated spouse. Tax planning us 2007 taxes   If you are legally separated or married and living apart from your spouse (as described under Joint Return Test, earlier), you are not considered married for purposes of the earned income limit. Tax planning us 2007 taxes Use only your income in figuring the earned income limit. Tax planning us 2007 taxes Surviving spouse. Tax planning us 2007 taxes   If your spouse died during the year and you file a joint return as a surviving spouse, you may, but are not required to, take into account the earned income of your spouse who died during the year. Tax planning us 2007 taxes Community property laws. Tax planning us 2007 taxes   Disregard community property laws when you figure earned income for this credit. Tax planning us 2007 taxes Self-employment earnings. Tax planning us 2007 taxes   If you are self-employed, include your net earnings in earned income. Tax planning us 2007 taxes For purposes of the child and dependent care credit, net earnings from self-employment generally means the amount from Schedule SE (either Section A or Section B), line 3, minus any deduction for self-employment tax on Form 1040 or Form 1040NR, line 27. Tax planning us 2007 taxes Include your self-employment earnings in earned income, even if they are less than $400 and you did not file Schedule SE. Tax planning us 2007 taxes Clergy or church employee. Tax planning us 2007 taxes   If you are a member of the clergy or a church employee, see the Instructions for Form 2441 for details. Tax planning us 2007 taxes Statutory employee. Tax planning us 2007 taxes   If you filed Schedule C (Form 1040) or C-EZ (Form 1040) to report income as a statutory employee, also include as earned income the amount from line 1 of that Schedule C (Form 1040) or C-EZ (Form 1040). Tax planning us 2007 taxes Net loss. Tax planning us 2007 taxes   You must reduce your earned income by any net loss from self-employment. Tax planning us 2007 taxes Optional method if earnings are low or a net loss. Tax planning us 2007 taxes   If your net earnings from self-employment are low or you have a net loss, you may be able to figure your net earnings by using an optional method instead of the regular method. Tax planning us 2007 taxes Get Publication 334, Tax Guide for Small Business, for details. Tax planning us 2007 taxes If you use an optional method to figure net earnings for self-employment tax purposes, include those net earnings in your earned income for this credit. Tax planning us 2007 taxes In this case, subtract any deduction you claimed on Form 1040 or Form 1040NR, line 27, from the total of the amounts on Schedule SE, Section B, lines 3 and 4b, to figure your net earnings. Tax planning us 2007 taxes You or your spouse is a student or not able to care for self. Tax planning us 2007 taxes   Your spouse who is either a full-time student or not able to care for himself or herself is treated as having earned income. Tax planning us 2007 taxes His or her earned income for each month is considered to be at least $250 if there is one qualifying person in your home, or at least $500 if there are two or more. Tax planning us 2007 taxes Spouse works. Tax planning us 2007 taxes   If your spouse works during that month, use the higher of $250 (or $500) or his or her actual earned income for that month. Tax planning us 2007 taxes Spouse qualifies for part of month. Tax planning us 2007 taxes   If your spouse is a full-time student or not able to care for himself or herself for only part of a month, the full $250 (or $500) still applies for that month. Tax planning us 2007 taxes You are a student or not able to care for self. Tax planning us 2007 taxes   These rules also apply if you are a student or not able to care for yourself and are filing a joint return. Tax planning us 2007 taxes For each month or part of a month you are a student or not able to care for yourself, your earned income is considered to be at least $250 (or $500). Tax planning us 2007 taxes If you also work during that month, use the higher of $250 (or $500) or your actual earned income for that month. Tax planning us 2007 taxes Both spouses qualify. Tax planning us 2007 taxes   If, in the same month, both you and your spouse are either full-time students or not able to care for yourselves, only one spouse can be considered to have this earned income of $250 (or $500) for that month. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes Jim works and keeps up a home for himself and his wife Sharon. Tax planning us 2007 taxes Because of an accident, Sharon is not able to care for herself for 11 months during the tax year. Tax planning us 2007 taxes During the 11 months, Jim pays $3,300 of work-related expenses for Sharon's care. Tax planning us 2007 taxes These expenses also qualify as medical expenses. Tax planning us 2007 taxes Their adjusted gross income is $29,000 and the entire amount is Jim's earned income. Tax planning us 2007 taxes Jim and Sharon's earned income limit is the smallest of the following amounts. Tax planning us 2007 taxes   Jim and Sharon's Earned Income Limit   1) Work-related expenses Jim paid $   3,300   2) Jim's earned income $   29,000   3) Income considered earned by Sharon (11 × $250) $    2,750   Jim and Sharon can use $2,750 to figure the credit and treat the balance of $550 ($3,300 − $2,750) as a medical expense. Tax planning us 2007 taxes However, if they use the $3,300 first as a medical expense, they cannot use any part of that amount to figure the credit. Tax planning us 2007 taxes Dollar Limit There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. Tax planning us 2007 taxes This limit is $3,000 for one qualifying person, or $6,000 for two or more qualifying persons. Tax planning us 2007 taxes If you paid work-related expenses for the care of two or more qualifying persons, the applicable dollar limit is $6,000. Tax planning us 2007 taxes This limit does not need to be divided equally among them. Tax planning us 2007 taxes For example, if your work-related expenses for the care of one qualifying person are $3,200 and your work-related expenses for another qualifying person are $2,800, you can use the total, $6,000, when figuring the credit. Tax planning us 2007 taxes Yearly limit. Tax planning us 2007 taxes   The dollar limit is a yearly limit. Tax planning us 2007 taxes The amount of the dollar limit remains the same no matter how long, during the year, you have a qualifying person in your household. Tax planning us 2007 taxes Use the $3,000 limit if you paid work-related expenses for the care of one qualifying person at any time during the year. Tax planning us 2007 taxes Use $6,000 if you paid work-related expenses for the care of more than one qualifying person at any time during the year. Tax planning us 2007 taxes Example 1. Tax planning us 2007 taxes You pay $500 a month for after-school care for your son. Tax planning us 2007 taxes He turned 13 on May 1 and is no longer a qualifying person. Tax planning us 2007 taxes You can use the $2,000 of expenses for his care January through April to figure your credit because it is not more than the $3,000 yearly limit. Tax planning us 2007 taxes Example 2. Tax planning us 2007 taxes In July of this year, to permit your spouse to begin a new job, you enrolled your 3-year-old daughter in a nursery school that provides preschool childcare. Tax planning us 2007 taxes You paid $300 per month for the childcare. Tax planning us 2007 taxes You can use the full $1,800 you paid ($300 × 6 months) as qualified expenses because it is not more than the $3,000 yearly limit. Tax planning us 2007 taxes Reduced Dollar Limit If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the dollar limit that applies to you. Tax planning us 2007 taxes Your reduced dollar limit is figured on Form 2441, Part III. Tax planning us 2007 taxes See Dependent Care Benefits, earlier, for information on excluding or deducting these benefits. Tax planning us 2007 taxes Example 1. Tax planning us 2007 taxes George is a widower with one child and earns $24,000 a year. Tax planning us 2007 taxes He pays work-related expenses of $2,900 for the care of his 4-year-old child and qualifies to claim the credit for child and dependent care expenses. Tax planning us 2007 taxes His employer pays an additional $1,000 under a qualified dependent care benefit plan. Tax planning us 2007 taxes This $1,000 is excluded from George's income. Tax planning us 2007 taxes Although the dollar limit for his work-related expenses is $3,000 (one qualifying person), George figures his credit on only $2,000 of the $2,900 work-related expenses he paid. Tax planning us 2007 taxes This is because his dollar limit is reduced as shown next. Tax planning us 2007 taxes   George's Reduced Dollar Limit 1) Maximum allowable expenses for one qualifying person $3,000 2) Minus: Dependent care benefits George excludes from income −1,000 3) Reduced dollar limit on expenses George can use for the credit $2,000 Example 2. Tax planning us 2007 taxes Randall is married and both he and his wife are employed. Tax planning us 2007 taxes Each has earned income in excess of $6,000. Tax planning us 2007 taxes They have two children, Anne and Andy, ages 2 and 4, who attend a daycare facility licensed and regulated by the state. Tax planning us 2007 taxes Randall's work-related expenses are $6,000 for the year. Tax planning us 2007 taxes Randall's employer has a dependent care assistance program as part of its cafeteria plan, which allows employees to make pre-tax contributions to a dependent care flexible spending arrangement. Tax planning us 2007 taxes Randall has elected to take the maximum $5,000 exclusion from his salary to cover dependent care expenses through this program. Tax planning us 2007 taxes Although the dollar limit for his work-related expenses is $6,000 (two or more qualifying persons), Randall figures his credit on only $1,000 of the $6,000 work-related expense paid. Tax planning us 2007 taxes This is because his dollar limit is reduced as shown next. Tax planning us 2007 taxes   Randall's Reduced Dollar Limit 1) Maximum allowable expenses for two qualifying persons $6,000 2) Minus: Dependent care benefits selected from employer's cafeteria plan and  excluded from Randall's income −5,000 3) Reduced dollar limit on work-related expenses Randall can use for the credit $1,000 Amount of Credit To determine the amount of your credit, multiply your work-related expenses (after applying the earned income and dollar limits) by a percentage. Tax planning us 2007 taxes This percentage depends on your adjusted gross income shown on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37. Tax planning us 2007 taxes The following table shows the percentage to use based on adjusted gross income. Tax planning us 2007 taxes   IF your adjusted gross income is: THEN the       Over:       But not over:   percentage is:       $0   —   $15,000   35%       15,000   —   17,000   34%       17,000   —   19,000   33%       19,000   —   21,000   32%       21,000   —   23,000   31%       23,000   —   25,000   30%       25,000   —   27,000   29%       27,000   —   29,000   28%       29,000   —   31,000   27%       31,000   —   33,000   26%       33,000   —   35,000   25%       35,000   —   37,000   24%       37,000   —   39,000   23%       39,000   —   41,000   22%       41,000   —   43,000   21%       43,000   —   No limit   20%   To qualify for the credit, you must have one or more qualifying persons. Tax planning us 2007 taxes You should show the expenses for each person on Form 2441, line 2, column (c). Tax planning us 2007 taxes However, it is possible a qualifying person could have no expenses and a second qualifying person could have expenses exceeding $3,000. Tax planning us 2007 taxes You should list -0- for the one person and the actual amount for the second person. Tax planning us 2007 taxes The $6,000 limit that applies to two or more qualifying persons would still be used to compute your credit unless you already excluded or deducted, in Part III of Form 2441, certain dependent care benefits paid to you (or on your behalf) by your employer. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes Roger and Megan Paris have two qualifying children. Tax planning us 2007 taxes They received $1,000 of dependent care benefits from Megan's employer during 2013, but they incurred a total of $19,500 of child and dependent care expenses. Tax planning us 2007 taxes They complete Part III of Form 2441 to exclude the $1,000 from their taxable income (offsetting $1,000 of their expenses). Tax planning us 2007 taxes Roger and Megan continue to line 27 to figure their credit using the remaining $18,500 of expenses. Tax planning us 2007 taxes Line 30 tells them to complete line 2 without including any dependent care benefits. Tax planning us 2007 taxes They complete line 2 of Form 2441, listing both Susan and James, as shown in the Line 2 example above. Tax planning us 2007 taxes Line 2 Example (a) Qualifying person's name (b) Qualifying person's social security number (c) Qualified expenses you incurred and paid in 2013 for the person listed in column (a) First Last Susan Paris 123-00-6789 -0- James Paris 987-00-4321 18,500. Tax planning us 2007 taxes 00 All of Susan's expenses were covered by the $1,000 of employer-provided dependent care benefits. Tax planning us 2007 taxes However, their son James has special needs and they paid $18,500 for his care. Tax planning us 2007 taxes Line 3 imposes a $5,000 limit for two or more children ($6,000 limit, minus $1,000 already excluded from income = $5,000) and Roger and Megan continue to complete the form. Tax planning us 2007 taxes Even though line 2 indicates one of the Paris children did not have any dependent care expenses, it does not change the fact that they had two qualifying children for the purposes of Form 2441. Tax planning us 2007 taxes Payments for prior year's expenses. Tax planning us 2007 taxes   If you had work-related expenses in 2012 that you paid in 2013, you may be able to increase the credit on your 2013 return. Tax planning us 2007 taxes Attach a statement to your form showing how you figured the additional amount from 2012. Tax planning us 2007 taxes Then enter “CPYE” (Credit for Prior Year Expenses) and the amount of the credit on the dotted line next to line 9 on Form 2441. Tax planning us 2007 taxes Also enter the name and taxpayer identification number of the person for whom you paid the prior year's expenses. Tax planning us 2007 taxes Then add this credit to the amount on line 9, and replace the amount on line 9 with the total. Tax planning us 2007 taxes See Worksheet A. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes In 2012, Sam and Kate had childcare expenses of $2,600 for their 12-year-old child. Tax planning us 2007 taxes Of the $2,600, they paid $2,000 in 2012 and $600 in 2013. Tax planning us 2007 taxes Their adjusted gross income for 2012 was $30,000. Tax planning us 2007 taxes Sam's earned income of $14,000 was less than Kate's earned income. Tax planning us 2007 taxes A credit for their 2012 expenses paid in 2013 is not allowed in 2012. Tax planning us 2007 taxes It is allowed for the 2013 tax year, but they must use their adjusted gross income for 2012 to compute the amount. Tax planning us 2007 taxes The filled-in Worksheet A they used to figure this credit is shown later. Tax planning us 2007 taxes Sam and Kate add the $162 from line 13 of this worksheet to their 2013 credit and enter the total on their Form 2441, line 9. Tax planning us 2007 taxes They enter “CPYE $162” and their child's name and SSN in the space to the left of line 9. Tax planning us 2007 taxes Worksheet A. Tax planning us 2007 taxes Worksheet for 2012 Expenses Paid in 2013 Use this worksheet to figure the credit you may claim for 2012 expenses paid in 2013. Tax planning us 2007 taxes 1. Tax planning us 2007 taxes   Enter your 2012 qualified expenses paid in 2012 1. Tax planning us 2007 taxes     2. Tax planning us 2007 taxes   Enter your 2012 qualified expenses paid in 2013 2. Tax planning us 2007 taxes     3. Tax planning us 2007 taxes   Add the amounts on lines 1 and 2 3. Tax planning us 2007 taxes     4. Tax planning us 2007 taxes   Enter $3,000 if care was for one qualifying person ($6,000 if for two or more) 4. Tax planning us 2007 taxes     5. Tax planning us 2007 taxes   Enter any dependent care benefits received for 2012 and excluded from your income (from your 2012 Form 2441, line 25) 5. Tax planning us 2007 taxes     6. Tax planning us 2007 taxes   Subtract the amount on line 5 from the amount on line 4 and enter the result 6. Tax planning us 2007 taxes     7. Tax planning us 2007 taxes   Compare your earned income for 2012 and your spouse's earned income for 2012 and enter the smaller amount 7. Tax planning us 2007 taxes     8. Tax planning us 2007 taxes   Compare the amounts on lines 3, 6, and 7 and enter the smallest amount 8. Tax planning us 2007 taxes     9. Tax planning us 2007 taxes   Enter the amount on which you figured the credit for 2012 (from your 2012 Form 2441, line 6) 9. Tax planning us 2007 taxes     10. Tax planning us 2007 taxes   Subtract the amount on line 9 from the amount on line 8 and enter the result. Tax planning us 2007 taxes If zero or less, stop here. Tax planning us 2007 taxes You cannot increase your 2013 credit by any previous year's expenses 10. Tax planning us 2007 taxes     11. Tax planning us 2007 taxes   Enter your 2012 adjusted gross income (from your 2012 Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37) 11. Tax planning us 2007 taxes     12. Tax planning us 2007 taxes   Find your 2012 adjusted gross income in the table below and enter the corresponding decimal amount here 12. Tax planning us 2007 taxes             IF your 2012 adjusted gross income is:   THEN the decimal                 Over:   But not over:     amount is:                 $0 — $15,000     . Tax planning us 2007 taxes 35                 15,000 — 17,000     . Tax planning us 2007 taxes 34                 17,000 — 19,000     . Tax planning us 2007 taxes 33                 19,000 — 21,000     . Tax planning us 2007 taxes 32                 21,000 — 23,000     . Tax planning us 2007 taxes 31                 23,000 — 25,000     . Tax planning us 2007 taxes 30                 25,000 — 27,000     . Tax planning us 2007 taxes 29                 27,000 — 29,000     . Tax planning us 2007 taxes 28                 29,000 — 31,000     . Tax planning us 2007 taxes 27                 31,000 — 33,000     . Tax planning us 2007 taxes 26                 33,000 — 35,000     . Tax planning us 2007 taxes 25                 35,000 — 37,000     . Tax planning us 2007 taxes 24                 37,000 — 39,000     . Tax planning us 2007 taxes 23                 39,000 — 41,000     . Tax planning us 2007 taxes 22                 41,000 — 43,000     . Tax planning us 2007 taxes 21                 43,000 — No limit     . Tax planning us 2007 taxes 20           13. Tax planning us 2007 taxes   Multiply line 10 by line 12. Tax planning us 2007 taxes Add this amount to your 2013 credit and enter the total on your 2013 Form 2441, line 9. Tax planning us 2007 taxes Enter the following on the dotted line next to line 9 of Form 2441: “CPYE” The amount of this credit for a prior year's expenses           Also, attach a statement to your tax return showing the name and taxpayer identification number of the person for whom you paid the prior year's expenses and how you figured the credit 13. Tax planning us 2007 taxes       Worksheet A. Tax planning us 2007 taxes Filled-in Worksheet for 2012 Expenses Paid in 2013 Use this worksheet to figure the credit you may claim for 2012 expenses paid in 2013. Tax planning us 2007 taxes 1. Tax planning us 2007 taxes   Enter your 2012 qualified expenses paid in 2012 1. Tax planning us 2007 taxes   $2,000 2. Tax planning us 2007 taxes   Enter your 2012 qualified expenses paid in 2013 2. Tax planning us 2007 taxes   600 3. Tax planning us 2007 taxes   Add the amounts on lines 1 and 2 3. Tax planning us 2007 taxes   2,600 4. Tax planning us 2007 taxes   Enter $3,000 if care was for one qualifying person ($6,000 if for two or more) 4. Tax planning us 2007 taxes   3,000 5. Tax planning us 2007 taxes   Enter any dependent care benefits received for 2012 and excluded from your income (from your 2012 Form 2441, line 25) 5. Tax planning us 2007 taxes   0 6. Tax planning us 2007 taxes   Subtract the amount on line 5 from the amount on line 4 and enter the result 6. Tax planning us 2007 taxes   3,000 7. Tax planning us 2007 taxes   Compare your earned income for 2012 and your spouse's earned income for 2012 and enter the smaller amount 7. Tax planning us 2007 taxes   14,000 8. Tax planning us 2007 taxes   Compare the amounts on lines 3, 6, and 7 and enter the smallest amount 8. Tax planning us 2007 taxes   2,600 9. Tax planning us 2007 taxes   Enter the amount on which you figured the credit for 2012 (from your 2012 Form 2441, line 6) 9. Tax planning us 2007 taxes   2,000 10. Tax planning us 2007 taxes   Subtract the amount on line 9 from the amount on line 8 and enter the result. Tax planning us 2007 taxes If zero or less, stop here. Tax planning us 2007 taxes You cannot increase your 2013 credit by any previous year's expenses 10. Tax planning us 2007 taxes   600 11. Tax planning us 2007 taxes   Enter your 2012 adjusted gross income (from your 2012 Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37) 11. Tax planning us 2007 taxes   30,000 12. Tax planning us 2007 taxes   Find your 2012 adjusted gross income in the table below and enter the corresponding decimal amount here 12. Tax planning us 2007 taxes   . Tax planning us 2007 taxes 27         IF your 2012 adjusted gross income is:   THEN the decimal                 Over   But not over     amount is:                 $0 — $15,000     . Tax planning us 2007 taxes 35                 15,000 — 17,000     . Tax planning us 2007 taxes 34                 17,000 — 19,000     . Tax planning us 2007 taxes 33                 19,000 — 21,000     . Tax planning us 2007 taxes 32                 21,000 — 23,000     . Tax planning us 2007 taxes 31                 23,000 — 25,000     . Tax planning us 2007 taxes 30                 25,000 — 27,000     . Tax planning us 2007 taxes 29                 27,000 — 29,000     . Tax planning us 2007 taxes 28                 29,000 — 31,000     . Tax planning us 2007 taxes 27                 31,000 — 33,000     . Tax planning us 2007 taxes 26                 33,000 — 35,000     . Tax planning us 2007 taxes 25                 35,000 — 37,000     . Tax planning us 2007 taxes 24                 37,000 — 39,000     . Tax planning us 2007 taxes 23                 39,000 — 41,000     . Tax planning us 2007 taxes 22                 41,000 — 43,000     . Tax planning us 2007 taxes 21                 43,000 — No limit     . Tax planning us 2007 taxes 20           13. Tax planning us 2007 taxes   Multiply line 10 by line 12. Tax planning us 2007 taxes Add this amount to your 2013 credit and enter the total on your 2013 Form 2441, line 9. Tax planning us 2007 taxes Enter the following on the dotted line next to line 9 of Form 2441: “CPYE” The amount of this credit for a prior year's expenses             Also, attach a statement to your tax return showing the name and taxpayer identification number of the person for whom you paid the prior year's expenses and how you figured the credit 13. Tax planning us 2007 taxes   $162   How To Claim the Credit To claim the credit, you can file Form 1040, Form 1040A, or Form 1040NR. Tax planning us 2007 taxes You cannot claim the credit on Form 1040EZ or Form 1040NR-EZ. Tax planning us 2007 taxes Form 1040, Form 1040A, or Form 1040NR. Tax planning us 2007 taxes    You must complete Form 2441 and attach it to your Form 1040, Form 1040A, or Form 1040NR. Tax planning us 2007 taxes Enter the credit on your Form 1040, line 48; Form 1040A, line 29; or Form 1040NR, line 46. Tax planning us 2007 taxes Limit on credit. Tax planning us 2007 taxes    The amount of credit you can claim is limited to your tax. Tax planning us 2007 taxes For more information, see the Instructions for Form 2441. Tax planning us 2007 taxes Tax credit not refundable. Tax planning us 2007 taxes   You cannot get a refund for any part of the credit that is more than this limit. Tax planning us 2007 taxes Recordkeeping. Tax planning us 2007 taxes You should keep records of your work-related expenses. Tax planning us 2007 taxes Also, if your dependent or spouse is not able to care for himself or herself, your records should show both the nature and length of the disability. Tax planning us 2007 taxes Other records you should keep to support your claim for the credit are described under Provider Identification Test, earlier. Tax planning us 2007 taxes Employment Taxes for Household Employers If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. Tax planning us 2007 taxes If you are a household employer, you will need an employer identification number (EIN) and you may have to pay employment taxes. Tax planning us 2007 taxes If the individuals who work in your home are self-employed, you are not liable for any of the taxes discussed in this section. Tax planning us 2007 taxes Self-employed persons who are in business for themselves are not household employees. Tax planning us 2007 taxes Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business. Tax planning us 2007 taxes If you use a placement agency that exercises control over what work is done and how it will be done by a babysitter or companion who works in your home, the worker is not your employee. Tax planning us 2007 taxes This control could include providing rules of conduct and appearance and requiring regular reports. Tax planning us 2007 taxes In this case, you do not have to pay employment taxes. Tax planning us 2007 taxes But, if an agency merely gives you a list of sitters and you hire one from that list, and pay the sitter directly, the sitter may be your employee. Tax planning us 2007 taxes If you have a household employee, you may be subject to: Social security and Medicare taxes, Federal unemployment tax, and Federal income tax withholding. Tax planning us 2007 taxes Social security and Medicare taxes are generally withheld from the employee's pay and matched by the employer. Tax planning us 2007 taxes Federal unemployment (FUTA) tax is paid by the employer only and provides for payments of unemployment compensation to workers who have lost their jobs. Tax planning us 2007 taxes Federal income tax is withheld from the employee's total pay if the employee asks you to do so and you agree. Tax planning us 2007 taxes For more information on a household employer's tax responsibilities, see Publication 926 and Schedule H (Form 1040) and its instructions. Tax planning us 2007 taxes State employment tax. Tax planning us 2007 taxes   You may also have to pay state unemployment tax. Tax planning us 2007 taxes Contact your state unemployment tax office for information. Tax planning us 2007 taxes You should also find out whether you need to pay or collect other state employment taxes or carry worker's compensation insurance. Tax planning us 2007 taxes For a list of state unemployment tax agencies, visit the U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes Department of Labor's website. Tax planning us 2007 taxes To find that website, use the link in Publication 926 or search online. Tax planning us 2007 taxes How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Tax planning us 2007 taxes Free help with your tax return. Tax planning us 2007 taxes   You can get free help preparing your return nationwide from IRS-certified volunteers. Tax planning us 2007 taxes The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Tax planning us 2007 taxes The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Tax planning us 2007 taxes Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Tax planning us 2007 taxes In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Tax planning us 2007 taxes To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Tax planning us 2007 taxes gov, download the IRS2Go app, or call 1-800-906-9887. Tax planning us 2007 taxes   As part of the TCE program, AARP offers the Tax-Aide counseling program. Tax planning us 2007 taxes To find the nearest AARP Tax-Aide site, visit AARP's website at www. Tax planning us 2007 taxes aarp. Tax planning us 2007 taxes org/money/taxaide or call 1-888-227-7669. Tax planning us 2007 taxes For more information on these programs, go to IRS. Tax planning us 2007 taxes gov and enter “VITA” in the search box. Tax planning us 2007 taxes Internet. Tax planning us 2007 taxes    IRS. Tax planning us 2007 taxes gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Tax planning us 2007 taxes Download the free IRS2Go app from the iTunes app store or from Google Play. Tax planning us 2007 taxes Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Tax planning us 2007 taxes Check the status of your 2013 refund with the Where's My Refund? application on IRS. Tax planning us 2007 taxes gov or download the IRS2Go app and select the Refund Status option. Tax planning us 2007 taxes The IRS issues more than 9 out of 10 refunds in less than 21 days. Tax planning us 2007 taxes Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Tax planning us 2007 taxes You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Tax planning us 2007 taxes The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Tax planning us 2007 taxes Use the Interactive Tax Assistant (ITA) to research your tax questions. Tax planning us 2007 taxes No need to wait on the phone or stand in line. Tax planning us 2007 taxes The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Tax planning us 2007 taxes When you reach the response screen, you can print the entire interview and the final response for your records. Tax planning us 2007 taxes New subject areas are added on a regular basis. Tax planning us 2007 taxes  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Tax planning us 2007 taxes gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Tax planning us 2007 taxes You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Tax planning us 2007 taxes The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Tax planning us 2007 taxes When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Tax planning us 2007 taxes Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Tax planning us 2007 taxes You can also ask the IRS to mail a return or an account transcript to you. Tax planning us 2007 taxes Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Tax planning us 2007 taxes gov or by calling 1-800-908-9946. Tax planning us 2007 taxes Tax return and tax account transcripts are generally available for the current year and the past three years. Tax planning us 2007 taxes Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Tax planning us 2007 taxes Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Tax planning us 2007 taxes If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Tax planning us 2007 taxes Check the status of your amended return using Where's My Amended Return? Go to IRS. Tax planning us 2007 taxes gov and enter Where's My Amended Return? in the search box. Tax planning us 2007 taxes You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Tax planning us 2007 taxes It can take up to 3 weeks from the date you mailed it to show up in our system. Tax planning us 2007 taxes Make a payment using one of several safe and convenient electronic payment options available on IRS. Tax planning us 2007 taxes gov. Tax planning us 2007 taxes Select the Payment tab on the front page of IRS. Tax planning us 2007 taxes gov for more information. Tax planning us 2007 taxes Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Tax planning us 2007 taxes Figure your income tax withholding with the IRS Withholding Calculator on IRS. Tax planning us 2007 taxes gov. Tax planning us 2007 taxes Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Tax planning us 2007 taxes Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Tax planning us 2007 taxes gov. Tax planning us 2007 taxes Request an Electronic Filing PIN by going to IRS. Tax planning us 2007 taxes gov and entering Electronic Filing PIN in the search box. Tax planning us 2007 taxes Download forms, instructions and publications, including accessible versions for people with disabilities. Tax planning us 2007 taxes Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Tax planning us 2007 taxes gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Tax planning us 2007 taxes An employee can answer questions about your tax account or help you set up a payment plan. Tax planning us 2007 taxes Before you visit, check the Office Locator on IRS. Tax planning us 2007 taxes gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Tax planning us 2007 taxes If you have a special need, such as a disability, you can request an appointment. Tax planning us 2007 taxes Call the local number listed in the Office Locator, or look in the phone book under Unit
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The Tax Planning Us 2007 Taxes

Tax planning us 2007 taxes 10. Tax planning us 2007 taxes   Business Bad Debts Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Definition of Business Bad DebtAccrual method. Tax planning us 2007 taxes Cash method. Tax planning us 2007 taxes Debt acquired from a decedent. Tax planning us 2007 taxes Liquidation. Tax planning us 2007 taxes Types of Business Bad Debts When a Debt Becomes Worthless How To Claim a Business Bad DebtSpecific Charge-Off Method Nonaccrual-Experience Method Recovery of a Bad DebtNet operating loss (NOL) carryover. Tax planning us 2007 taxes Introduction You have a bad debt if you cannot collect money owed to you. Tax planning us 2007 taxes A bad debt is either a business bad debt or a nonbusiness bad debt. Tax planning us 2007 taxes This chapter discusses only business bad debts. Tax planning us 2007 taxes Generally, a business bad debt is one that comes from operating your trade or business. Tax planning us 2007 taxes You can deduct business bad debts on Schedule C (Form 1040) or your applicable business income tax return. Tax planning us 2007 taxes All other bad debts are nonbusiness bad debts and are deductible only as short-term capital losses. Tax planning us 2007 taxes For more information on nonbusiness bad debts, see Publication 550. Tax planning us 2007 taxes Topics - This chapter discusses: Definition of business bad debt When a debt becomes worthless How to claim a business bad debt Recovery of a bad debt Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 556 Examination of Returns, Appeal Rights, and Claims for Refund Form (and Instructions) Schedule C (Form 1040) Profit or Loss From Business 1040X Amended U. Tax planning us 2007 taxes S. Tax planning us 2007 taxes Individual Income Tax Return 1045 Application for Tentative Refund 1139 Corporation Application for Tentative Refund 3115 Application for Change in Accounting Method See chapter 12 for information about getting publications and forms. Tax planning us 2007 taxes Definition of Business Bad Debt A business bad debt is a loss from the worthlessness of a debt that was either: Created or acquired in your trade or business, or Closely related to your trade or business when it became partly or totally worthless. Tax planning us 2007 taxes A debt is closely related to your trade or business if your primary motive for incurring the debt is business related. Tax planning us 2007 taxes Bad debts of a corporation (other than an S corporation) are always business bad debts. Tax planning us 2007 taxes Credit sales. Tax planning us 2007 taxes   Business bad debts are mainly the result of credit sales to customers. Tax planning us 2007 taxes Goods that have been sold, but not yet paid for, and services that have been performed, but not yet paid for, are recorded in your books as either accounts receivable or notes receivable. Tax planning us 2007 taxes After a reasonable period of time, if you have tried to collect the amount due, but are unable to do so, the uncollectible part becomes a business bad debt. Tax planning us 2007 taxes   Accounts or notes receivable valued at fair market value (FMV) when received are deductible only at that value, even though the FMV may be less than the face value. Tax planning us 2007 taxes If you purchased an account receivable for less than its face value, and the receivable subsequently becomes worthless, the most you are allowed to deduct is the amount you paid to acquire it. Tax planning us 2007 taxes    You can claim a business bad debt deduction only if the amount owed to you was previously included in gross income. Tax planning us 2007 taxes This applies to amounts owed to you from all sources of taxable income, including sales, services, rents, and interest. Tax planning us 2007 taxes Accrual method. Tax planning us 2007 taxes   If you use the accrual method of accounting, you generally report income as you earn it. Tax planning us 2007 taxes You can only claim a bad debt deduction for an uncollectible receivable if you have previously included the uncollectible amount in income. Tax planning us 2007 taxes   If you qualify, you can use the nonaccrual-experience method of accounting discussed later. Tax planning us 2007 taxes Under this method, you do not have to accrue income that, based on your experience, you do not expect to collect. Tax planning us 2007 taxes Cash method. Tax planning us 2007 taxes   If you use the cash method of accounting, you generally report income when you receive payment. Tax planning us 2007 taxes You cannot claim a bad debt deduction for amounts owed to you because you never included those amounts in income. Tax planning us 2007 taxes For example, a cash basis architect cannot claim a bad debt deduction if a client fails to pay the bill because the architect's fee was never included in income. Tax planning us 2007 taxes Debts from a former business. Tax planning us 2007 taxes   If you sell your business but retain its receivables, these debts are business debts because they arose out of your trade or business. Tax planning us 2007 taxes If any of these receivables subsequently become worthless, the loss is still a business bad debt. Tax planning us 2007 taxes Debt acquired from a decedent. Tax planning us 2007 taxes   The character of a loss from debts of a business acquired from a decedent is determined in the same way as debts acquired on the purchase of a business. Tax planning us 2007 taxes The executor of the decedent's estate treats any loss from the debts as a business bad debt if the debts were closely related to the decedent's trade or business when they became worthless. Tax planning us 2007 taxes Otherwise, a loss from these debts becomes a nonbusiness bad debt for the decedent's estate. Tax planning us 2007 taxes Liquidation. Tax planning us 2007 taxes   If you liquidate your business and some of the accounts receivable that you retain become worthless, they become business bad debts. Tax planning us 2007 taxes Types of Business Bad Debts Business bad debts may result from the following. Tax planning us 2007 taxes Loans to clients and suppliers. Tax planning us 2007 taxes   If you loan money to a client, supplier, employee, or distributor for a business reason and you are unable to collect the loan after attempting to do so, you have a business bad debt. Tax planning us 2007 taxes Debts owed by political parties. Tax planning us 2007 taxes   If a political party (or other organization that accepts contributions or spends money to influence elections) owes you money and the debt becomes worthless, you can claim a bad debt deduction only if all of the following requirements are met. Tax planning us 2007 taxes You use the accrual method of accounting. Tax planning us 2007 taxes The debt arose from the sale of goods or services in the ordinary course of your trade or business. Tax planning us 2007 taxes More than 30% of your receivables accrued in the year of the sale were from sales to political parties. Tax planning us 2007 taxes You made substantial and continuing efforts to collect on the debt. Tax planning us 2007 taxes Loan or capital contribution. Tax planning us 2007 taxes   You cannot claim a bad debt deduction for a loan you made to a corporation if, based on the facts and circumstances, the loan is actually a contribution to capital. Tax planning us 2007 taxes Debts of an insolvent partner. Tax planning us 2007 taxes   If your business partnership breaks up and one of your former partners becomes insolvent, you may have to pay more than your pro rata share of the partnership's debts. Tax planning us 2007 taxes If you pay any part of the insolvent partner's share of the debts, you can claim a bad debt deduction for the amount you paid that is attributable to the insolvent partner's share. Tax planning us 2007 taxes Business loan guarantee. Tax planning us 2007 taxes   If you guarantee a debt that subsequently becomes worthless, the debt can qualify as a business bad debt if all the following requirements are met. Tax planning us 2007 taxes You made the guarantee in the course of your trade or business. Tax planning us 2007 taxes You have a legal duty to pay the debt. Tax planning us 2007 taxes You made the guarantee before the debt became worthless. Tax planning us 2007 taxes You meet this requirement if you reasonably expected you would not have to pay the debt without full reimbursement from the borrower. Tax planning us 2007 taxes You received reasonable consideration for making the guarantee. Tax planning us 2007 taxes You meet this requirement if you made the guarantee in accord with normal business practice or for a good faith business purpose. Tax planning us 2007 taxes Example. Tax planning us 2007 taxes Jane Zayne owns the Zayne Dress Company. Tax planning us 2007 taxes She guaranteed payment of a $20,000 note for Elegant Fashions, a dress outlet. Tax planning us 2007 taxes Elegant Fashions is one of Zayne's largest clients. Tax planning us 2007 taxes Elegant Fashions later defaulted on the loan. Tax planning us 2007 taxes As a result, Ms. Tax planning us 2007 taxes Zayne paid the remaining balance of the loan in full to the bank. Tax planning us 2007 taxes She can claim a business bad debt deduction only for the amount she paid, since her guarantee was made in the course of her trade or business for a good faith business purpose. Tax planning us 2007 taxes She was motivated by the desire to retain one of her better clients and keep a sales outlet. Tax planning us 2007 taxes Deductible in the year paid. Tax planning us 2007 taxes   If you make a payment on a loan you guaranteed, you can deduct it in the year paid, unless you have rights against the borrower. Tax planning us 2007 taxes Rights against a borrower. Tax planning us 2007 taxes   When you make payment on a loan you guaranteed, you may have the right to take the place of the lender. Tax planning us 2007 taxes The debt is then owed to you. Tax planning us 2007 taxes If you have this right, or some other right to demand payment from the borrower, you cannot claim a bad debt deduction until these rights become partly or totally worthless. Tax planning us 2007 taxes Joint debtor. Tax planning us 2007 taxes   If two or more debtors jointly owe you money, your inability to collect from one does not enable you to deduct a proportionate amount as a bad debt. Tax planning us 2007 taxes Sale of mortgaged property. Tax planning us 2007 taxes   If mortgaged or pledged property is sold for less than the debt, the unpaid, uncollectible balance of the debt is a bad debt. Tax planning us 2007 taxes When a Debt Becomes Worthless A debt becomes worthless when there is no longer any chance the amount owed will be paid. Tax planning us 2007 taxes This may occur when the debt is due or prior to that date. Tax planning us 2007 taxes To demonstrate worthlessness, you must only show that you have taken reasonable steps to collect the debt but were unable to do so. Tax planning us 2007 taxes It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. Tax planning us 2007 taxes Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. Tax planning us 2007 taxes Property received for debt. Tax planning us 2007 taxes   If you receive property in partial settlement of a debt, reduce the debt by the property's FMV, which becomes the property's basis. Tax planning us 2007 taxes You can deduct the remaining debt as a bad debt if and when it becomes worthless. Tax planning us 2007 taxes   If you later sell the property for more than its basis, any gain on the sale is due to the appreciation of the property. Tax planning us 2007 taxes It is not a recovery of a bad debt. Tax planning us 2007 taxes For information on the sale of an asset, see Publication 544. Tax planning us 2007 taxes How To Claim a Business Bad Debt There are two methods to claim a business bad debt. Tax planning us 2007 taxes The specific charge-off method. Tax planning us 2007 taxes The nonaccrual-experience method. Tax planning us 2007 taxes Generally, you must use the specific charge-off method. Tax planning us 2007 taxes However, you may use the nonaccrual-experience method if you meet the requirements discussed later under Nonaccrual-Experience Method . Tax planning us 2007 taxes Specific Charge-Off Method If you use the specific charge-off method, you can deduct specific business bad debts that become either partly or totally worthless during the tax year. Tax planning us 2007 taxes However, with respect to partly worthless bad debts, your deduction is limited to the amount you charged off on your books during the year. Tax planning us 2007 taxes Partly worthless debts. Tax planning us 2007 taxes   You can deduct specific bad debts that become partly uncollectible during the tax year. Tax planning us 2007 taxes Your tax deduction is limited to the amount you charge off on your books during the year. Tax planning us 2007 taxes You do not have to charge off and deduct your partly worthless debts annually. Tax planning us 2007 taxes You can delay the charge off until a later year. Tax planning us 2007 taxes However, you cannot deduct any part of a debt after the year it becomes totally worthless. Tax planning us 2007 taxes Significantly modified debt. Tax planning us 2007 taxes   An exception to the charge-off rule exists for debt which has been significantly modified and on which the holder recognized gain. Tax planning us 2007 taxes For more information, see Regulations section 1. Tax planning us 2007 taxes 166-3(a)(3). Tax planning us 2007 taxes Deduction disallowed. Tax planning us 2007 taxes   Generally, you can claim a partial bad debt deduction only in the year you make the charge-off on your books. Tax planning us 2007 taxes If, under audit, the IRS does not allow your deduction and the debt becomes partly worthless in a later tax year, you can deduct the amount you charged off in that year plus the disallowed amount charged off in the earlier year. Tax planning us 2007 taxes The charge-off in the earlier year, unless reversed on your books, fulfills the charge-off requirement for the later year. Tax planning us 2007 taxes Totally worthless debts. Tax planning us 2007 taxes   If a debt becomes totally worthless in the current tax year, you can deduct the entire amount, less any amount deducted in an earlier tax year when the debt was only partly worthless. Tax planning us 2007 taxes   You do not have to make an actual charge-off on your books to claim a bad debt deduction for a totally worthless debt. Tax planning us 2007 taxes However, you may want to do so. Tax planning us 2007 taxes If you do not and the IRS later rules the debt is only partly worthless, you will not be allowed a deduction for the debt in that tax year because a deduction of a partly worthless bad debt is limited to the amount actually charged off. Tax planning us 2007 taxes See Partly worthless debts, earlier. Tax planning us 2007 taxes Filing a claim for refund. Tax planning us 2007 taxes   If you did not deduct a bad debt on your original return for the year it became worthless, you can file a claim for a credit or refund. Tax planning us 2007 taxes If the bad debt was totally worthless, you must file the claim by the later of the following dates. Tax planning us 2007 taxes 7 years from the date your original return was due (not including extensions). Tax planning us 2007 taxes 2 years from the date you paid the tax. Tax planning us 2007 taxes   If the claim is for a partly worthless bad debt, you must file the claim by the later of the following dates. Tax planning us 2007 taxes 3 years from the date you filed your original return. Tax planning us 2007 taxes 2 years from the date you paid the tax. Tax planning us 2007 taxes You may have longer to file the claim if you were unable to manage your financial affairs due to a physical or mental impairment. Tax planning us 2007 taxes Such an impairment requires proof of existence. Tax planning us 2007 taxes   For details and more information about filing a claim, see Publication 556. Tax planning us 2007 taxes Use one of the following forms to file a claim. Tax planning us 2007 taxes For more information, see the instructions for the applicable form. Tax planning us 2007 taxes Table 10-1. Tax planning us 2007 taxes Forms Used To File a Claim IF you filed as a. Tax planning us 2007 taxes . Tax planning us 2007 taxes . Tax planning us 2007 taxes THEN file. Tax planning us 2007 taxes . Tax planning us 2007 taxes . Tax planning us 2007 taxes Sole proprietor or farmer Form 1040X Corporation Form 1120X S corporation Form 1120S and check box H(4) Partnership Form 1065X if filing on paper or  Form 1065 and check box G(5) if filing electronically Nonaccrual-Experience Method If you use an accrual method of accounting and qualify under the rules explained in this section, you can use the nonaccrual-experience method for bad debts. Tax planning us 2007 taxes Under this method, you do not accrue service related income you expect to be uncollectible. Tax planning us 2007 taxes Because the expected uncollectible amounts are not included in income, these amounts are not later deducted from income. Tax planning us 2007 taxes Generally, you can use the nonaccrual-experience method for accounts receivable for services you performed only if: The services are provided in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law, or the performing arts, or You meet the $5 million gross receipts test for all prior years. Tax planning us 2007 taxes Service related income. Tax planning us 2007 taxes   You can use the nonaccrual-experience method only for amounts earned by performing services. Tax planning us 2007 taxes You cannot use this method for amounts owed to you from activities such as lending money, selling goods, or acquiring receivables or other rights to receive payment. Tax planning us 2007 taxes Gross receipts test. Tax planning us 2007 taxes   To find out if you meet the $5 million gross receipts test for all prior years, you must figure the average annual gross receipts for each prior year. Tax planning us 2007 taxes If your average annual gross receipts for any year exceeds $5 million, you cannot use the non-accural experience method. Tax planning us 2007 taxes   The average annual gross receipts for any year is the average of gross receipts from the year in question and the 2 previous years. Tax planning us 2007 taxes For example, if you were figuring the average annual gross receipts for 2013, you would average your gross receipts for 2011, 2012, and 2013. Tax planning us 2007 taxes Interest or penalty charged. Tax planning us 2007 taxes   Generally, you cannot use the nonaccrual-experience method for amounts due on which you charge interest or a late payment penalty. Tax planning us 2007 taxes However, do not treat a discount offered for early payment as the charging of interest or a penalty if both the following apply. Tax planning us 2007 taxes You otherwise accrue the full amount due as gross income at the time you provide the services. Tax planning us 2007 taxes You treat the discount allowed for early payment as an adjustment to gross income in the year of payment. Tax planning us 2007 taxes Change in accounting method. Tax planning us 2007 taxes   Generally, you must obtain consent to change to a nonaccrual-experience method (other than one of the safe harbor methods) or to change from one method to another. Tax planning us 2007 taxes See Form 3115 and the Instructions for Form 3115 for more information. Tax planning us 2007 taxes Recovery of a Bad Debt If you claim a deduction for a bad debt on your income tax return and later recover (collect) all or part of it, you may have to include all or part of the recovery in gross income. Tax planning us 2007 taxes The amount you include is limited to the amount you actually deducted. Tax planning us 2007 taxes However, you can exclude the amount deducted that did not reduce your tax. Tax planning us 2007 taxes Report the recovery as “Other income” on the appropriate business form or schedule. Tax planning us 2007 taxes See Recoveries in Publication 525 for more information. Tax planning us 2007 taxes Net operating loss (NOL) carryover. Tax planning us 2007 taxes   If a bad debt deduction increases an NOL carryover that has not expired before the beginning of the tax year in which the recovery takes place, you treat the deduction as having reduced your tax. Tax planning us 2007 taxes A bad debt deduction that contributes to a NOL helps lower taxes in the year to which you carry the NOL. Tax planning us 2007 taxes For more information about NOLs, see Publication 536. Tax planning us 2007 taxes Also, see the Instructions for Form 1045, and the Instructions for Form 1139. Tax planning us 2007 taxes Prev  Up  Next   Home   More Online Publications