Practical IRS Tax Insights – August 2019 Newsletter
Sorry this month’s newsletter is late! The summer seems to be going by so quickly!!
FYI – I continue to post many videos on various topics. To access them log in to my LinkedIn account HERE.
Remember – If you filed for a tax return extension, corporate tax returns are due 9/15 and personal returns are due 10/15.
This month let’s look at some recent changes regarding childcare deductions. Don’t miss out on this tax break if you use a flex plan for child care costs: You can still claim the dependent care credit to the extent your expenses are more than the amount you pay through your workplace flexible spending account. The maximum dependent care costs that can be funded through an FSA are $5,000, but the credit taken on your return applies to as much as $6,000 of eligible expenses for filers with two or more kids. You’d run the first $5,000 of dependent care costs through the FSA, and the next $1,000 would be eligible for the credit on Form 2441. Remember that summer day camp costs qualify for the dependent care credit. If you sent your child to any day camps this summer, such as those for sports, computers, math, theater or just general fun, don’t forget about this tax break. The same goes for camps to help improve your child’s reading or study skills. But expenses for summer school, tutoring programs and overnight camps don’t qualify. Before- and after-school-care programs are also eligible for the credit.
Here’s a quick tutorial on the rules for taking the dependent care credit:
Expenses for the care of children under age 13 and qualifying relatives must be incurred so you can work or look for a job, and you must report the provider’s tax ID number on Form 2441. If taking the credit to help care for a relative who isn’t a qualifying child,such as an aging parent or grandparent, that person needs to have lived with you for more than six months during the year and be unable to care for him- or herself.The credit is worth 20% to 35% of up to $3,000 in eligible child care expenses, depending on your income…$6,000 if you have two or more children needing care. Noncustodial parents need Form 8332 to claim children as dependents, the Tax Court confirms in the case of a man who argued that he was entitled to claim as a dependent for 2015 his son, who lived with his ex-wife after their divorce. However, he failed to attach Form 8332 to his return. After IRS audited the man and disallowed the earned income credit and child credit, his ex-wife signed the 8332. But that didn’t help him because she also claimed the boy as a dependent on her 2015 return and didn’t amend the filing (Demar, TC Memo. 2019-91).
Bipartisan tax ideas are rare these days, but here’s one to keep an eye on. It would allow new parents to take an advance on the child tax credit. Sens. Bill Cassidy (R-LA) and Kyrsten Sinema (D-AZ), who cosponsor the bill, tout it as Congress’s first bipartisan paid-leave proposal. Parents of a newborn or recently adopted child under the age of six could opt to receive up front up to $5,000 of their future child credits. They would then repay the funds over a 10-year period by reducing future child credits $500 per year. The idea is intended to help parents who don’t get paid parental leave at work, but it’s broader than that. Any new parent who can take the child credit would qualify, with the funds used for any purpose. First daughter Ivanka Trump is a fan, which could help the odds of passage.
Using a DNA ancestry company for genetic health testing services? Part of your cost may be treated as a deductible medical expense, IRS says in a private ruling issued to 23andMe. Individuals who buy the DNA collection kit and pay extra to include the genetic testing can allocate the price of the kit between the nondeductible ancestry services and the deductible health testing. Taxpayers can also use flexible spending account funds to pay for the health services. People who buy the cheaper kit only for ancestry services won’t get a deduction. It will be harder to deduct medical expenses on 2019 federal returns if lawmakers don’t act. That’s because the adjusted-gross-income threshold for writing off medicals as itemized deductions on Schedule A jumps from 7.5% to 10%, starting this year. There’s still a bit of hope Congress will revive the 7.5% threshold.
IRS Audits – Remember – We have a four-part checklist to greatly reduce the chances that the IRS will audit your tax return. To this day we know of no one that followed our four-part plan that was audited by the IRS. Let us help you greatly reduce your audit risk! If you do get audited, we have excellent results defending our clients from the IRS. Call 713-774-4467 today!