A Tax Credit On rise Breaking down the improved Child and Dependent Care Tax Credit for 2021 tax year

A Tax Credit On rise Breaking down the improved Child and Dependent Care Tax Credit for 2021 tax year

Child care can be a big expense for families, and this significant improvement to the child and dependent credit is a much-needed help for these families. You may be eligible for the child and dependent care credit if you pay someone to look after your children or another dependent while you work or look for work. This credit “returns” a percentage of the money you spend on child care and can save you hundreds or even thousands of dollars on your taxes. This article takes you through the ins and outs of Child and Dependent Care tax credit, and we hope it will be of good use to you.

What are the benefits?

The Child and Dependent Care Credit is a tax credit created to aid working parents in helping offset child care costs.

The credit comes with two key advantages:

  • Rather than a tax deduction, this is a tax credit. A tax deduction reduces the amount of money you have to pay on taxes. Depending on your tax bracket, a $1,000 deduction may only cut your tax bill by $150 or $200. A tax credit, on the other hand, decreases your taxes straight, dollar for dollar. Your tax bill will be reduced by $1,000 if you receive a $1,000 tax credit.
  • The credit is available to those families making under $400,000 a year. The credit does start to phase out once your income is over $125,00 by a certain percentage.

Who is eligible for this?

You must have paid someone, such as a nanny or daycare provider, to care for one or more of the following people to qualify for the child and dependent care credit:

  • A child under the age of 12 who you declare as a dependent on your tax return at the end of the year.
  • If your spouse cannot care for themselves and has lived in your house for at least half of the year, you may file a claim.
  • Any other individual identified as a dependent on your tax return cannot care for themselves and has resided in your house for at least half of the year.
  • If filing jointly, a tax credit On both husband and wife must work, subject to certain exceptions.

So how much credit can you obtain?

Your credit amount is determined by the amount you spend on child and dependent care, as well as your income. So how does it really work? You may want to go through the points that have been mentioned below:

  • Add up the entire amount of your credit-eligible childcare expenses
  • You must deduct money received from your permitted costs if your employer gives you money to pay for child care charges or withhold money from your salary on a pre-tax basis.
  • Make sure your income is under $400,000.

For the 2021 tax year (tax payable in 2022):

For one qualifying person, the number of eligible credit increases from $3,000 to $8,000, and for two or more qualifying individuals, the credit increases from $6,000 to $16,000.
The percentage of qualified expenses eligible for the credit rises from 35% to 50%.
Also, for this year, the credit is fully refundable.

The starting point for the credit reduction has been raised from $15,000 to $125,000 of adjusted gross income (AGI).

Also, a tax credit on the maximum amount donated to a dependent care flexible spending account is worth mentioning. The amount of tax-free employer-provided dependent care benefits has been increased from $5,000 to $10,500 for 2021.

So this is all about Child and Dependent care tax credit. However, you will always be needing a knowledgeable accountant who can make the entire process easy for you. So whatever you do, always take the right advice from the expert so that you are not losing out on the tax credits you deserve!

NYC Small Business Resilience Grant: Let’s recover our city’s businesses

NYC Small Business Resilience Grant: Let’s recover our city’s businesses

Recently, a piece of big good news has been going around New York! We all heard about the New York State Covid-19 Pandemic Small Recovery Grant Program. This was formed to provide flexible grant assistance to the businesses that faced financial hardship during the pandemic. But what is new in this? Because now the amount has been increased to $10,000 this time! But before applying, a few aspects of this grant need to be acknowledged to make the process easier for you. Hence, we present you with yet another piece of writing where you will find the answer to all your queries about the NYC Small Business Resilience Grant.

Are you eligible for this?

Before you apply for this grant, you must know if you are qualified for this or not. Firstly, and obviously, your business needs to be inside New York City. The businesses could be anything. You can have your store or be a real estate agent, mechanic, plumber, or even if you use your car as an Uber service, you are eligible for this. Also, the authority has a designated map that marks the low-income area of New York. If your business organization falls under that map, you are bound to get this grant no matter which business you have. However, suppose you have a restaurant, hotel, theater, or any sort of entertainment business. In that case, you will be qualified for this even if your company does not fall under the low-income area. But the most important thing to remember is, your income needs to be reduced by 25%, and you must have valid documents to show that. Otherwise, it is a tough call!

How can you make use of this money?

This money can be used for your business’s rent, utility, operating cost, or whatever payment you have daily. The most important thing is, you do not have to give this back. So, you are free to even invest back in your business without the worry of returning it.

The City Wants Everyone to Recover

The city wants everyone to be held back and move with an even bigger force. And hence, the application for this grant has already begun and will continue till the end of this month. But as we know, the stock is limited. Hence, you have more chances to get it as soon as you apply. And you will get approved through email.

NYC small business recovery grant is a once-in-a-lifetime opportunity for all the New Yorkers who are struggling to revive their business once again. To ensure that all the companies get their due help, the accountants are providing all the possible assistance. Ahad and Co. is no different. We have our very own in-house experts who have helped businesses around New York with all sorts of accounting-related matters. So, for any kind of assistance regarding this grant, feel free to reach out Ahad&Co.

Education Tax Credits and Deductions: Ease up your Higher Education Process

Education Tax Credits and Deductions: Ease up your Higher Education Process

Higher education in the USA is not everyone’s cup of tea. While many people still find it far-fetched due to the vast amount of time and money it takes, some try their luck in higher education. And why won’t they? From the world’s top 100 to Ivy League colleges, all can be found in the USA! These universities have a huge amount of tuition fees and a considerable amount of tax included with it. But does that mean your dreams shall die down? Of Course not!

In such cases, the education tax credit could be your savior. An education credit reduces the amount of tax owing on your tax return, which helps with the cost of higher education. You may be eligible for a refund if the credit lowers your tax to less than zero. The American opportunity tax credit (AOTC) and the lifelong learning credit are the two education credits available (LLC).
But can everyone really claim an education credit? That is why we thought to make an entire article about this!

There are actually three criteria that you must meet before you claim any credit for your education.

1. You are dependent on a third party for your education. This means, if some distant relative runs your education or you are the one working day and night for your college tuition, the education tax credit can help you lessen your burden.

2. You are an eligible student enrolled in an eligible educational institution (a school offering higher education beyond high school).

3. And lastly, the eligible student is yourself, your spouse, or a dependent you list on your tax return.

 

This sheds light on the topic of who is not really part of this criteria. At first, we should all be clear about the fact that this is only for U.S residents. So yes, if you or your spouse who’s studying here but a non-resident of this country, this one’s not for you. Also, you cannot claim this tax credit twice. I mean, reasonably speaking, the government is liable to give you this benefit only at the first attempt of your higher education study. And last but not least, if you are dependent on your parents, you will not be subjected to claim any educational tax benefit, considering your parents’ tax-pay earners, and you have no burden of your education.

Now, if the question comes to your mind that why do these three criteria get special treatment, the answer is quite simple, an education tax credit is for those people who may find it hard to bear their educational expenses. It aims to help the students who are potential enough to have a higher degree but may fall behind due to financial constraints.

However, this entire process of the education tax credit could be a tricky business. The whole procedure could juggle you up, and you may never reach the point of enabling the tax credit. To drag you out of such situations, there are professionals around the corner. They become your consultant, help you out and eventually make sure you enable your education tax credit. They make sure that you know your rights as a taxpayer and become familiar with the obligations and benefits you might have from states.

Hence, if you want to obtain the education tax credit to make your journey to a higher degree even smoother, make sure you consult a very good CPA!

Getting into the details of Medicaid Payment Benefits

Getting into the details of Medicaid Payment Benefits

If you are a resident of the United States of America, you have probably heard about the term Medicaid benefits. But in case you are not familiar with the term, States may provide Medicaid benefits on a fee-for-service (FFS) basis, through managed care plans, or both. The state pays providers directly for each covered service received by a Medicaid beneficiary under the FFS model.

Who can get this benefit?

  • Pregnant women.
  • Children under 19.
  • Parents/Caretaker relatives (people who live with their child, grandchild, or another relative or step-relative, under age 18 or 19 if a full-time student).
  • Childless adults ages 19-64, including disabled individuals who are NOT on Medicare.
  • Those who are on a family planning benefit program.

However, in the financial qualification process States take both income and assets into account. And not all of them qualify into the list of Medicaid. For instance, Medicaid will not pay for: Durable medical equipment replaced through a warranty, provided by another government agency.To qualify for Medicaid in 2021, a single applicant must earn less than $2,382 per month and have up to $2,000 in countable assets. But apart from that, there are other things that come to the list. Check the list below to know more –

  • Wages.
  • Taxable interest.Dividends.
  • Dividends.
  • Unemployment Benefits.
  • Pensions
  • IRA distributions.
  • Alimony
  • Income from self-employment
  • State income tax refunds
  • Rental income
  • Social Security Benefits (this is true even if your benefits are not taxable).

These are a few basics that we need to know about Medicaid payments. Now, what is really new in this story? I mean, why all of a sudden we are talking about this. Well, we have all the right reasons to talk about this now. Because finally, the IRS has excluded Medicare Payments from the gross income.

How does that work?

For the longest period, Medicaid payment was included in the gross income which means, the receivers’ had to pay tax even for the benefits they used to get from the states. But under section 131 of the Internal Revenue Code (IRC) exempts foster care payments from gross income, but only when the foster individuals are placed in the caregiver’s home by the state. Despite the statutory language, IRS Notice 2014-7 considers Medicaid waiver payments to be excludable “difficulty of care” foster payments. As a result, taxpayers can deduct these payments from their taxable income.

What is your benefit in this?

Very simple, Medicaid Payment is now non-taxable. This means, now the payment you get for taking care of the elderly, children, or any of your loved ones, is all yours.

Still, having trouble understanding the process? For that, you need an accounting expert who will not only make you understand but will guide you through this process. Ahad & Co, an accounting firm based in Bronx, New York is devoted to making you understand all the pros and cons of taxes. They will not only help you get the refund but will also guide you throughout the process. So yes, if you want to know how Medicaid payments work, Ahad & Co could be your convenient solution.

5 Major Red Flags That Could Trigger IRS

5 Major Red Flags That Could Trigger IRS

IRS is a name that every taxpayer and accountant hears on a daily basis. The IRS reviews a taxpayer’s account and financial information to ensure the rules are followed. The IRS can initiate an audit up to three years after the tax-filing deadline or up to six years if you exclude 25% or more of your income. If you have enough evidence to back you up about your tax deductions, it is one of the easiest processes. But, some common red flags may lead to a tax audit, as well as what you can do to avoid IRS difficulties. And as we move forward with this article, we will discuss five significant red flags that may put you in some not-so-pleasant situations with IRS.

1. You didn’t report all your income received in your bank account

The IRS receives copies of the W-2 forms and 1099s that show your earnings, so you’re not the only one who gets them. Expect to hear from the IRS if the figures are off

2. Exaggerating your expenses and deductions

Many people are hesitant to claim the home office deduction because they are concerned that it would result in an audit. This can be a helpful respite to assist offset the costs of setting up and maintaining a home office. However, not everyone who works from home is qualified; the home office deduction is only available for self-employed workers. You must utilize your house for business frequently. It’s not that you need to have a separate office room, but the least you can do is have a space where you don’t do anything else. It must also be your primary place of business or a location where you meet with clients or patients regularly.

3. Reporting business losses.

You may deduct many expenses when you own a business, but the IRS wants to be sure you didn’t start one merely to take advantage of the deductions. Your firm may have more expenses than income in some years, especially when it’s first starting, but the IRS becomes suspicious if it never earns a profit. Enterprises experiencing net losses year after year, or businesses that appear to be just breaking even, are audit red flags.

4. Having transactions in virtual currency

The IRS just used nearly every tool at its disposal to track down taxpayers who sell, receive, trade, or otherwise deal with bitcoin or other virtual currencies. On page one of the 1040 return, there is now a question about virtual currency activity.

5. Engaging in Cash Transactions

A wide variety of cash transactions above $10,000 must be declared under the Bank Secrecy Act. Otherwise, it will be regarded as an illicit act. Thus, be aware when you make a cash transaction or deposits, or you may face IRS inspection.

The above list isn’t meant to be inclusive; it’s merely meant to make you aware that some acts can result in IRS audits. There could be, in fact, there are more such transactional activities that make you notice to IRS, not so positively. So yes, whatever it is, make sure to be transparent about all your transactions. And you are free from red flags!