Keeping track of income and expenses is essential, even if you don't own a business. And if you do own a business, things get even more complicated. There are paychecks to issue, taxes to track, and subcontractors to pay out. All of these details are a whole lot less challenging when you hire an accountant to oversee them. However, it is still important to know a little bit about accounting yourself. Dig into the articles on this website, and you'll gain a better understanding of accounting principles, what services accountants really offer, and the benefits of hiring these professionals to assist with your finances.
Having a child changed your life in more ways than you may have anticipated, even when it comes to your taxes. When a person welcomes a child into the world, the Internal Revenue Service (IRS) wants to know, and for good reason. Before you begin the tax preparation process, learn about some important information all new parents should know.
Bundling Tax Credits
Many people already understand that they have the opportunity to claim the Child Tax Credit once they have a child. However, some people think that tax credits follow an either-or pattern, but it's not the case. For example, if you have a child and you meet the income guidelines for the Earned Income Tax Credit, you can claim both. You do not have to pick which credits you choose; you can take the child tax credit and whatever credits you also qualify for.
Keep in mind that if you share legal custody of your child with the other parent, this situation can impact your tax filings. For example, if you and the other parent share equal custody, you two will need to decide who will claim the child each year. Some families follow an every-other-year motto to keep things balanced. If you do not share equal custody, generally, the person who provides the greatest amount of support will also be the person who can claim the child. Whatever the case, both parents cannot claim the child on separate returns.
Parents can also claim a portion of their childcare costs in the form of the Child and Dependent Care Credit. However, you cannot simply make up a number for this figure. The IRS will require documentation of the amount of this expense in the form of a tax document. Generally, the childcare center will provide you with this documentation and send in a copy to the IRS. If a person claims an amount they cannot verify, they could face penalties and lose the credit.
It is important to pay your fair share of taxes, but it is even more important to avoid paying more than you should. To ensure you can maximize the number of credits you receive for your child, and all your other endeavors, it is a good idea to partner with a tax preparation professional for assistance.
Make sure you maximize your tax benefits as much as possible, and most importantly, do not be afraid to get help.