Step 5: Children and Education
If you are low income and have kids you probably greatly look forward to filing your taxes every year. Essentially one leg of the welfare system in this country is giving low income families extra help at tax time. For those of you who are not versed in the intricacies of government fiance, let me just say that welfare is not because the government actually cares about people suffering or being unable to care for their children. It is good for big business.
While this concept is confusing at first glance it really makes sense when you think about the "Robin Hood Theory" a little more. The people who are rich are that way mainly because they don't spend their money on foolish things like the newest consumer goodies, whereas the poor stay poor because somebody gives them a couple thousand dollars and instead of investing it for the future they go out and spend it on a 42" flat screen television. This consumer spending is what everyone seems to think "stimulates the economy" leading to welfare packages being called economic stimulus packages. See now when you hear the economists on the media fretting over low consumer spending numbers and that the government needs to do something you will understand what they are talking about.
Now let's get down to details. Earned Income Credit (EIC) is the big one that will pay out thousands of dollars if you happen to fall in the right income bracket and have a couple kids you are supporting. At real low incomes it goes up and then reaches a climax point somewhere around $15,000 income, then goes down again and is fully gone around $20,000 in income. I don't know very many urban areas where people can afford to live on such little money, so I personally don't deal with EIC much although any major chain is well equipped to file these returns, and the outlandish fees that H&R Block and friends charge they get away with because the people getting EIC are getting thousands of dollars back from the government that they didn't pay in, and would rather pay hundreds more and get their money now than wait a few weeks and get hundreds of dollars more.
Child tax credit is one that more people I know fall into, but less dramatic. Basically you get a thousand dollar tax credit for each kid, also subject to income minimums and limits- or "phaseouts" as the government calls them- basically the amounts you get of these credits decrease as the income goes up through a certain dollar range.
Child and Dependent Care Credit is a more interesting one. Basically if you pay for daycare you may be able to get some of what you pay as a tax credit. This gets interesting because "Summer Camp" is considered day care, yet classes are not. So I try to tell the parents I know to get their kids Karate teachers to do "Summer Camp" intensive classes that the kids can do because those are the ones that will give them a credit. Or if you teach children's classes- say arts and crafts, this is a good thing to know, hold a crafts "Summer Camp" and your clients can get a tax benefit from what they pay you to teach their kids projects off this website.
Educational issues start getting slightly more complex- no private grade school does not count for any tax credits. The credits start in at college level education, and there are three choices: Hope (for the first two years only) and Lifetime Learning are credits and then there also is an educational expenses deduction. Depending on your gross income and how much you paid in educational expenses will determine which credit is best- probably something to consult an accountant for maximum savings. If you are interested in learning more about the complicated aspects or want more information for your own knowledge here are some resources: http://crystalcleartax.com/le-highereducation.php
While this concept is confusing at first glance it really makes sense when you think about the "Robin Hood Theory" a little more. The people who are rich are that way mainly because they don't spend their money on foolish things like the newest consumer goodies, whereas the poor stay poor because somebody gives them a couple thousand dollars and instead of investing it for the future they go out and spend it on a 42" flat screen television. This consumer spending is what everyone seems to think "stimulates the economy" leading to welfare packages being called economic stimulus packages. See now when you hear the economists on the media fretting over low consumer spending numbers and that the government needs to do something you will understand what they are talking about.
Now let's get down to details. Earned Income Credit (EIC) is the big one that will pay out thousands of dollars if you happen to fall in the right income bracket and have a couple kids you are supporting. At real low incomes it goes up and then reaches a climax point somewhere around $15,000 income, then goes down again and is fully gone around $20,000 in income. I don't know very many urban areas where people can afford to live on such little money, so I personally don't deal with EIC much although any major chain is well equipped to file these returns, and the outlandish fees that H&R Block and friends charge they get away with because the people getting EIC are getting thousands of dollars back from the government that they didn't pay in, and would rather pay hundreds more and get their money now than wait a few weeks and get hundreds of dollars more.
Child tax credit is one that more people I know fall into, but less dramatic. Basically you get a thousand dollar tax credit for each kid, also subject to income minimums and limits- or "phaseouts" as the government calls them- basically the amounts you get of these credits decrease as the income goes up through a certain dollar range.
Child and Dependent Care Credit is a more interesting one. Basically if you pay for daycare you may be able to get some of what you pay as a tax credit. This gets interesting because "Summer Camp" is considered day care, yet classes are not. So I try to tell the parents I know to get their kids Karate teachers to do "Summer Camp" intensive classes that the kids can do because those are the ones that will give them a credit. Or if you teach children's classes- say arts and crafts, this is a good thing to know, hold a crafts "Summer Camp" and your clients can get a tax benefit from what they pay you to teach their kids projects off this website.
Educational issues start getting slightly more complex- no private grade school does not count for any tax credits. The credits start in at college level education, and there are three choices: Hope (for the first two years only) and Lifetime Learning are credits and then there also is an educational expenses deduction. Depending on your gross income and how much you paid in educational expenses will determine which credit is best- probably something to consult an accountant for maximum savings. If you are interested in learning more about the complicated aspects or want more information for your own knowledge here are some resources: http://crystalcleartax.com/le-highereducation.php
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