A document published by the Internal Revenue Service (IRS) that provides guidance on determining the child tax credit that can be claimed and how to calculate the amount of earned income to report when applying for the Additional Child Tax Credit. IRS Publication 972 provides more specialized information pertaining to the child tax credits found in Form 1040 and Form 8812. IRS Publication 972 has a worksheet that helps determine if a child is eligible, and how much credit a taxpayer can take. The maximum amount that can be claimed for a qualifying child is $1,000, and must be claimed using Form 1040. Watch: Tax Deduction Vs. Tax Credit Taxpayers must have a qualifying child in order to be eligible for the child tax credit. A qualifying child is under the age of 17, is claimed as a dependent on the taxpayer's return and is a U.S. citizen, resident alien or national. More information on residency requirements can be found in IRS Publication 519.
A document published by the Internal Revenue Service (IRS) that outlines the three types of tax liability relief for spouses or former spouses who filed joint income tax returns. Couples filing a joint tax return are both liable for the tax liability, referred to as joint and several liability. In the case of a separation, the IRS will continue to consider the tax liability status as joint and several, but in some cases will relieve one partner of any tax, interest and penalties related to the joint tax filing. The three types of relief are innocent spouse relief, separation liability relief and equitable relief. Spouses must complete and file Form 8857 (Request for Innocent Spouse Relief) as soon as they become aware of a liability that they think only the other spouse or former spouse should be liable for. Spouses or former spouses have up to two years from the date the IRS first tried to collect the tax liability to seek relief. The IRS is then obligated to contact the spouse or former spouse to notify them that Form 8857 was filed. Married spouses who file separate returns but live in community-property states may also seek relief. IRS Publication 971 does not cover injured spouse relief.
A tax deferred exchange that allows for the disposal of an asset and the acquisition of another similar asset without generating a tax liability from the sale of the first asset. This can include the exchange of one business for another or one real estate investment property for another property. An 8824 form must be filed with the IRS detailing the terms of the deal.This is also known as a "1031 exchange". There are several important considerations with this type of exchange to ensure that a tax liability is not created upon sale of the first asset: 1. The asset being sold must be an investment property and can't be a personal residence. 2. The asset being purchased with the proceeds must be similar to the asset being sold. 3. Te proceeds from the sale must be used to purchase the other asset within 180 days of the sale of the first asset, although you must identify the property or asset that you are purchasing in the like-kind exchange within 45 days of the sale. There are some limitations on the amount of capital gain that is tax deferred, so ensure that you check the latest tax rules before proceeding with a like-kind exchange.
A federal initiative whereby a person is eligible for a non-refundable credit for a specific amount spent on higher education tuition and fees during the year. These fees can be for the person, his or her spouse, or his or her dependents.
A provision applicable to the Canadian Registered Retirement Savings Plan (RRSP). The plan allows RRSP contributors a non-taxable temporary withdrawal of up to $20,000 from their accounts in order to finance their education or that of their spouse. The provision is subject to limitations, such as a $10,000 annual withdrawal limit and a maximum repayment period of 10 years, after which the ability to recontribute the borrowed sum is lost. Similar to the Canadian government's Home Buyer's Plan, this provision is intended to allow Canadians to finance their education without losing the benefits of tax-deferral in building their retirement nest egg.
An insurance product that features a predetermined periodic payout amount until the death of the annuitant. These products are most frequently used to help retirees budget their money after retirement. Typically, the annuitant pays into the annuity on a periodic basis when he or she is still working. However, annuitants may also buy the annuity product in one large purchase. When the annuitant retires, the annuity makes periodic (usually monthly) payouts to the annuitant, providing a reliable source of income. When a triggering event (such as death) occurs, the periodic payments from the annuity usually cease. Because of the complex nature of annuity products and their implications for the annuitant's standard of living, people are well advised to consult a reputable professional before purchasing any annuity product. Due to the tax-preferred nature of annuities, very wealthy investors or above-average income earners often use these life insurance products to transfer large sums of money or to mitigate the effects of taxes on their annual income.
A special tax law created in 1986 imposed on individuals under 17 years old whose earned income is more than an annually determined threshold. Any extra income earned above of the threshold is taxed at the guardian's rate. This law is designed to prevent parents from exploiting a tax loophole where their children are given large "gifts" of stock. The child would then realize any gains from the investments and be taxed at a far lower rate compared to if the parents had realized the stock's gains. Originally, the tax only covered children under 14 years of age as they cannot legally work and therefore any income was usually the results of dividends or interest from bonds. However, the tax authorities realized that some parents would take advantage of the situation by giving stock gifts to their older, 16-to-18-year-old children.As of May 2007, the government is seeking to tighten the kiddie tax to cover individuals under the age of 18 (or under the age of 24 if they are full time students). However, there are some exceptions provided for individuals that work paid jobs.
A specific class of depreciable property that is subject to a special set of tax rules if it is used for business no more than 50% of the time. Listed property includes such items as vehicles, computer equipment and cell phones. Listed-property rules limit the amount of deductions and depreciation that can be taken if the asset isn't predominantly used in a business or trade. If listed property is used primarily for business reasons, then it is subject to the statutory percentage depreciation method. Listed property that is used for business only half the time at most is depreciated under the straight-line method. Cars used solely to carry passengers are also subject to additional limitations on their depreciation.
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