The Trouble with Children (part 1 of 3): Give me some credit(s)

(This is Part 1 of a 3-part series of related blogs.  See part 2 here.)

The trouble with children is that they grow up too fast. I realized this year that my oldest, who will be 17 this summer, will be ineligible for the Child Tax Credit for 2015! Soon he will be off to college, or work, and I will no longer get to claim a dependency exemption for him either! Luckily I have two other deductions – I mean children – that have several more years before they hit “adulthood”.

In all seriousness, there are tax issues that families with children face as those children grow. As I said above, when a child reaches age 17, they no longer qualify for the Child Tax Credit. When a child turns 19, they are considered an adult, and cannot be claimed as a dependent unless they are a full-time student. A college student age 19-23 can still be claimed as a dependent if they otherwise meet the requirements to be a dependent. Individuals who are separated or divorced must also be careful that only one of them claims a child as a dependent for a given year.

The Child Tax Credit mentioned above is available for qualifying dependent children up to age 17. The credit is $1,000 per child, but is phased out as a taxpayer’s adjusted gross income increases. The credit is generally non-refundable , but there is a refundable portion of the credit, called the additional Child Tax Credit, through December 31, 2017. You may want to consult a tax advisor for more information, since the tax code is too complex to explain in a short blog post.

Another issue to consider is the Child & Dependent Care Credit. This non-refundable credit is allowed for only a portion of qualifying childcare expenses paid to allow both the taxpayer and the taxpayer’s spouse to work. Generally, a taxpayer must have earned income and employment-related dependent care expenses, and the child must be a qualifying dependent under age 13. The maximum amount of expenses allowed for the credit is $3,000 per child, up to $6,000 total. Any employer-provided dependent care assistance is subtracted from this amount. The credit amount ranges from 20% to 35% of the net expenses, depending on the taxpayer’s adjusted gross income. Qualifying expenses include payments made to a care provider inside or outside the home, even if it’s a relative (like your mom or sister). This does not include your 18 year old child watching your 5 year old after school, since they are both your dependents. Qualifying expenses do include summer day camps, but not summer school or tutoring programs. Also remember that the credit is for expenses paid so that the taxpayers can work – it generally doesn’t apply if one parent is a stay-at-home mom or dad. As with everything there are exceptions, so be sure to consult your tax advisor to see if you qualify.

Part 2 will explore the requirements for filing if your child has earned and/or unearned income, so stay tuned.

Melissa Gregg

Business writing tips

Whether writing a newsletter or a business proposal, your writing says a lot about your professionalism.  In this day and age of email and texting short hand, proper grammar can set you above all others.  Proofreading important documents can help ensure that current or potential customers will see past words and punctuation and hear your message.  Here are a few proofreading and grammar tips:

1. Spelling – proofread by reading the words in reverse order.  In doing this, your mind doesn’t fill in the gaps of the words; it sees individual words instead of complete thoughts.  This helps to catch spelling errors.
2. Pause – after proofreading a document, set it down and come back to it after a break.  Taking a fresh look at your writing will give you a chance to see things that were overlooked in the heat of the writing.
3. Homonyms and the like:
1. “their” means someone owns something; “they’re” means they are; and “there” refers to directionality
2. “two” is a number; “too” means also; “to” is a preposition usually leading up to a clarification of something
3. “sale” is when something is for sale, or having a sale; “sell” is when you are trying to sell something;  and “sailing” is a leisure sport (unless you’re off the coast of Africa)
4. “your” is another ownership reference; “you’re” means you are
4. Commas and decimals – always double check commas and decimal places in numbers.  As a seller, you would be none too pleased to realize you proposed to sell something for $100.000 instead of $100,000.  While you might be covered legally, professionalism is key.
5. Extra eyes – when in doubt, have someone else proofread your document.  When you are deep into the idea you are trying to express, writing errors can be easily overlooked.  Having someone else look over your writing can catch errors that you are too involved to notice.

Proposals and newsletters can fall flat for any number of reasons.  Don’t let proofreading be one of them.

John Robert Voynich, CPA

Fake IRS telephone call - don't fall for it!

We've seen fake IRS emails for the past few years and have advised how to avoid being victimized by them.  Earlier this year, Brad Williamson posted an entry on this blog that warned of various IRS-related scams.  His post is a really good read and contains a link to a page from the IRS Web site containing information on various types of scams and how to avoid them.

Receiving an e-mail or a call that purports to be from the IRS can be unnerving.  As the individual tax filing deadline approaches and many are rushing to get taxes filed (or extended), the "bad guys" appear to be increasing their efforts to catch you at a vulnerable moment -- perhaps thinking that you won't take the time to check out their story and will just pay up.  We've had reports just this past week of people receiving telephone calls claiming to be from the IRS.  Don't fall for it!

Here is a page on the IRS Web site from last year about these telephone call scams.  It offers a few simple things you can do to make sure that the call is legitimate (TIP: it probably isn't).  Here's an excerpt:

These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you, and they usually alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS identification badge numbers. If you don’t answer, they often leave an “urgent” callback request.

It seems that there is no end to people trying to get your info (and ultimately your money).  We think it's best if you keep it for yourself!  Oh, and don't forget about the April 15th tax filing deadline!

Craig Rhinehart

Want a raise?

Asking for a raise is usually not easy, and is sometimes counterproductive.  Think about cutting expenses instead.  If you can resist spending money during the month you have effectively given yourself a raise.  Depending on how much of a raise you want and how hard you are willing to work for it, you can find expenses to forego that will provide you that raise.  

For example, let’s consider aiming for a $1,200 raise.  How much of your cable TV subscription do you really utilize?  If you have an $80 package, could you cut it back to the basic cable $30 package?  A gym membership for $20 per month is not much, but do you actually make use of your membership?  Going out to eat one less time per month could easily save another $30 (at least).  Add these together and you have saved $100 per month -- effectively giving yourself a $1,200 raise per year.  

Looking for more ways to give yourself a raise, here are 40 ways to reduce your monthly spending.

John Robert Voynich, CPA

Are you saving (enough) for retirement?

A recent study shows less than 60% of U.S. workers are saving for retirement. However, the better question may be are you saving enough for retirement? The majority of individuals actually saving have accumulated $25,000 or less. That's not enough for retirement!  This is a problem that has been growing since the shift from company pension plans to employee contribution plans (such as a 401k).

At a minimum, be sure to maximize any matching contributions from your employer. Read more here: The Retirement Savings Crisis

Matt Sellers, CPA

IRS scams: An old movie with new characters

According to the IRS, people are reporting that they received e-mails or calls from IRS agents saying they owed taxes and needed to pay immediately or face hefty consequences including arrest, deportation, or suspension of various licenses.  Others were informed that they had an overdue refund and needed to provide personal information in order to receive it.  Those that simply don’t answer the telephone call are left with an urgent message to call the "agent" back.  At its core, this scam is no different than the emails or calls that request your credit card information or bank account numbers so that you can receive a huge inheritance from that long lost uncle you never met. 

You should know that, according to the IRS website (see link below), an agent will never:

1)  call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill;

2)  demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe;

3)  require you to use a specific payment method for your taxes, such as a prepaid debit card;

4)  ask for credit or debit card numbers over the phone; or

5)  threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

6)  initiate contact via email.

You can visit this IRS.gov page for more information on tax scams and consumer alerts.

Bradley S. Williamson

Retirement plan check-up

Monitoring your employees’ retirement plan is an important fiduciary responsibility.  Year end is a good time to give your retirement plan a check up.  The following FAQ’s may help:

  

A)   Does the plan have a fidelity bond?  Has it been updated for the required coverage?

Each plan must have a fidelity bond, which is different than fiduciary liability insurance.   Coverage must be based on the plan’s net assets as of the beginning of the year, with limits ranging from $1,000 to $500,000 per plan official.

B)   Has the plan complied with the IRS rules and regulations -- for example: updating the plan document for recent law changes and timely depositing employee elective deferrals? 

The IRS provides a checklistfor 401(K) Plans and also one for 403(b) Plans.  These checklists guide employers through common compliance issues.  The IRS also provides “fix-it guides” for correcting common compliance deficiencies.

C)   Does the plan have an audit requirement?

Plans with more than 100 eligible participants as of the beginning of the plan year generally require an audit.

D)  Is the plan required to file a Form 5500?

Plans must generally file a Form 5500—Annual Return/Report of Employee Benefit Plan, with limited exceptions.

E)   Have participants of the plan who are age 70-½ or older been notified regarding the minimum distribution requirement and amount. 

Required minimum distributions (RMD) are generally due by December 31, for those participants who are 70-½ or older.  The plan administrator or the trustee is generally responsible for notifying the participant of the RMD requirement and amount. 

F)   Has the plan administrator received all fee and expense disclosures from contracted service providers (CSP)? 

CSPs are required to disclose in writing the dollar amount of fees received from the plan or the schedule or formula used to determine the fee payment amounts.  The CSP must notify the plan sponsor in writing within 60 days of any changes in the plan fees.

G)  Have the participants been notified of the fees and expenses paid during the year?

The plan sponsor is required annually to provide all participants with written details about investment fees, plan fees, and other fee information.

The above information is general in nature.  Contact your CPA if you need more assistance with your retirement plan check-up.  

Daria Cruzen, CPA, MBA

Manager—Audit Department