The Joys Of Child Care Tax Deduction

The policy on child care tax deduction gives you more reasons to maintain your family’s progress. With the joys of a new birth, there are also many tax savings that you may be entitled to. Here are some of the benefits:

(a) Dependency Exemption, which is a supplementary exemption.
(b) Credit on Child Tax.
(c) Credit on Child and Dependent Care.
(d) Tax deduction, through transferring revenue to your child.

(a) Dependency Exemption is a type of personal exemption which will reduce your tax bill by subtracting your gross income’s necessary amount which will be directly proportional to the annual inflation. To benefit from this exemption, you should meet the following criteria:

• The child or dependent must be living in your home the whole year or must be a relative.
• The gross income of your dependent should not exceed the amount of the annual exemption. Note that this benefit doesn’t apply to children under the age of 19 years or full-time students under the age of 24 years.

• You (the taxpayer) should be supporting at least half of your child’s total cost of living.

• The dependent must be a US, Mexico or Canada resident.

If the dependent conforms to all the above rules, then all that is needed for this exemption is the child’s social security number.

(b) Credits on Tax: Together with the personal dependency exemption, there are also certain tax credits that you can apply for after child birth. For example, you can receive Child Tax Credit and Child and Dependent Care Credit. Credits on Tax are a real advantage because they actually reduce the total amount of tax you will pay. If your child is adopted, the foster parents can seek tax credits on their income tax for expenditure on legal adoption.

(c) Income shifting: Since children are included within a lower tax bracket, it will also be possible to save on tax money through transferring your funds from your account to your children’s. Nevertheless, you should take care when doing this. It is not allowed, for example to putting an adult’s investment in a child’s name.

 


Elliott Dawson is a contributing editor at DebtFinanceArticles.com. This article may be reproduced provided that its complete content, links and author byline are kept intact and unchanged. No additional links permitted. Hyperlinks and/or URLs must remain both human clickable and search engine spiderable.

Claiming Tax Deduction On Your Hybrid Car

The tax deduction on hybrid cars allows owners of a hybrid car (a car that has a gasoline-powered engine and an electric motor) to receive a one-time tax relief on their federal income tax returns. This deduction is a one-time deduction, which has been granted under the Working Families Tax Relief Act of 2004.

Therefore the deduction applies to those car owners who purchased their cars in 2004 and 2005. The deduction’s limit for these two years is a very nice $2,000. Nevertheless, the law offers a reduced $500 deduction for hybrid cars which are to be purchased in 2006, and no further benefit have been planned for afterwards.

Luckily, an energy bill that was signed in August 2005 has been amended, and gives hybrid cars even more profitable impetus. The law that will come into effect from January 1, 2006 will replace the limitations of the 2004 law. As a substitute for tax deduction, the new initiative will provide for tax credits in dollars, a pleasing thought for all tax payers.

To receive these tax credits, tax payers must delay the purchase of their hybrid car to 2006. Note however, that this tax credit will only be accessible for the first 60,000 hybrids sold by the carmaker. So, if you want a car from a popular category such as Honda or Toyota, you must be careful not to wait for too long.

The law stipulates, because it is a tax deduction, that the value of the tax credit will depend on the tax range you fall into. Those who have bought hybrid vehicles in 2004 and 2005 can ask for a $2000 decrease on their 2004 or 2005 tax returns. Therefore, if you’re within the 33% tax bracket, the deduction can decrease your tax bill by $600, whilst if you are within the 15% tax bracket, you will be able to save up to $300.

You can also claim tax deduction of all hybrid vehicles that have been on road prior to 2004. For this claim to take place, the owners must adjust the tax return that was filed to ask for a reimbursement within three years of the initial return date or within two years after the tax was paid.

It is quite simple to claim your tax deduction; you don’t need to enumerate the deduction in order to claim it, but you must fill in Form 1040. Underneath the form is where your deduction should be documented, classified as ‘Clean Fuel’.

 


Elliott Dawson is a contributing editor at DebtFinanceArticles.com. This article may be reproduced provided that its complete content, links and author byline are kept intact and unchanged. No additional links permitted. Hyperlinks and/or URLs must remain both human clickable and search engine spiderable.