It’s that time again when tax preparers seek to maximize their “returns” over a short three month period and taxpayers shop around for the largest refunds possible. The ideal marketplace one would say where both buyers and sellers of services actively seek each other.
In a consumer-driven market with demand overflowing, advertising is primarily focused on claims of who makes the better mouse trap or is able to deliver the largest bacon; an emphasis which in and of itself is honorable but for the spurious and misleading tactics used by some. We see advertisements all around making claims of being able to deliver mini-jackpots to taxpayers having one dependent and whereas this is not necessarily false it fails to inform that several other conditions must also exist in order to create this “perfect storm.”
And so, I have clients coming to my office expecting to automatically receive refunds of upward of fifteen thousand dollars on the basis of having three under seventeen year olds on their tax returns and vehemently rejecting any explanation offered as to why their specific circumstances do not result in the anticipated jackpot.
- Each child gives a dependent exemption which for 2015 is $4,000 and reduces your taxable income,
- Each child (if under 17 years) gives a Child Tax Credit of up to a $1,000 assuming your income does not exceed a certain limit. At incomes higher than $75,000 for Head of Household and Single filers and $110,000 for Married filing jointly this credit progressively reduces (phase-out),
- There is the a credit for Child and Dependent Care expenses of up to $3,000 for one child and $6,000 for more than one child. Again depending on income this credit can be up to 35% of the qualified expense,
- Taxpayer with income not exceeding a certain amount and having up to three children may qualify for the refundable Earned Income Credit (EIC),
- If you have an adopted child as your dependent this entitles you to an adoption credit which increases if the child has special needs,
- In later years when children are attending college and if they continue to be dependents on your tax returns may bring the American Opportunity Credit which can be up to $2,500.
So there you have it. The dependent-related components that, when present and sitting on the platform of the “right” income and filing status among other things, could result in that handsome check you envisaged when at the beginning of the year you went around shouting Happy New Year!
Do not be misled!
Call and let’s talk tax planning!