How To Claim CHILD TAX CREDIT The Right Way And Add An Extra $2,000 To Your Refund

The U.S. Department of Agriculture estimates that it costs nearly $15,000.00 a year for a middle-class family to raise a child born in 2002 to age 17 (without adjustment for inflation). In recognition of this cots, you can claim a tax credit each year until your child reaches the ago of 17. The credit is currently up to $1,000.00 per child. This credit is in addition to the dependency exemption for the child.

You may claim a tax credit of up to $1,000.00 in 2004 for each child under the age of 17. If the credit you are entitled to claim is more than your tax liability, you may be entitled to a refund under certain conditions.

Generally, the credit is refundable to the extent of 10 percent of earned income over $10,750.00 in 2004.

Conditions:

To claim the credit, you must meet two conditions.

1. You must have a qualifying child. 2. Your income must be below a set amount.

QUALIFYING CHILD.
You can claim the credit only for a "Qualifying Child." This is a child who is under age 17 at the end of the year and whom you claim as a dependent.

The child need not be your own child ? he or she can be a stepchild, grandchild, great-grandchild, sibling, stepbrother, stepsister, or a descendant of any of these.

For example, if you support your 16 year old sister and claim her as a dependent on your return, she is a qualifying child. An adopted child is a qualifying child as long as the child has been placed with you by an authorized agency for legal adoption, even if the adoption is not yet final.

MAGI LIMIT.
You must have modified adjusted gross income (MAGI) below a set amount. The credit you are otherwise entitled to claim is reduced or eliminated if your MAGI exceeds a set amount. MAGI for purposes of the child tax credit means AGI increased by the foreign earned income exclusion, the foreign housing exclusion or deduction, or the possessions exclusion for American Samoa residents.

The credit amount is reduced by $50.00 for each $1,000.00 of MAGI or a fraction thereof over the MAGI limit for your filing status. The phaseout begins if MAGI exceeds the following limits:

1. Married filing jointly $110,000.00 2. Head of household $75,000.00 3. Unmarried (single) $75,000.00 4. Qualifying widow(er) $75,000.00 5. Married filing separately $55,000.00

Example: In 2004 you are a head of household with two qualifying children. Your MAGI is $90,000.00. Your credit amount of $2,000 ($1,000 x 2) is reduced by $750 ($90,000 - $75,000 = $15,000 MAGI over the limit) = 15 x 50 = $750. Your credit is $1,250.00 ($2,000 - $750).

HOW TO CLAIM THE CREDIT AND GET A BIGGER REFUND.
If the credit you are entitled to claim is more than your tax liability, you can receive the excess amount as a "refund." The refund is limited to 10 percent of your taxable earned income (such as wages, salary, tips, commissions, bonuses, and net earnings from self-employment) over $10,750 in 2004. If your earned income is not over $10,750, you may still qualify for the additional credit if you have three or more children.

If you have three or more children for whom you are claiming the credit, you may qualify for a larger refund, called the additional child tax credit.

QUICK TIP.
If you know you will become entitled to claim the credit (e.g. you are expecting the birth of a child in 2004), you may wish to adjust your withholding so that you don't have too much income tax withheld from your paycheck. Increase your withholding allowances so that less income tax is withheld from your pay by filing a new from W-4, Employee's withholding allowance certificate, with your employer.

The child tax credit is scheduled to decline to $700 per child in 2005 and then increase to $800 in 2009, and $1,000 in 2010 and later years.

You figure the credit on a worksheet included in the instruction for your return. You claim the credit in the "Tax and Credits" section of Form 1040 or the "Tax, Credits, and Payments" section of form 1040A; you cannot claim the credit if you file form 1040EZ

If you are eligible for the additional child tax credit, you figure this on Form 8812, Additional Child Tax Credit.

Mr. Patel is a widely recognized and well respected authority on Personal Income Tax matters (Single Parents, Married Families, Small Business Owners). He put his Harvard MBA on hold to start his own Accounting firm and help everyday people just like you from all walks of life to cut your tax bill in half (by at least $1,250 - $7,500). His firm has 50+ years of experience helping everyday people just like you from all walks of life. He can help you file you Income Tax Return and put a guaranteed bigger refund back in your pocket TODAY regardless of where you live in America. Patel Financial Services has served diverse clients from all backgrounds from ALL OVER AMERICA; all the way from Maine and Florida to California and Texas. To sign up for his newsletter titled "The Wealth Builder & The Tax Cutter" visit his website at http://www.Patelfinancialservices.com or send a blank email to Subscribe@patelfinancialservice.com with the word "Subscribe" in the subject line.

You may also contact his firm directly at 1-717-909-7224

---

Tax Tips - Which Tax Form Is Right For Me?

IRS Tax forms can be confusing.Am I a 1099 or... Read More

What the Tax Software Companies Dont Want You to Know

Haven't done your taxes yet? No problem. Now there is... Read More

Tax Deduction for Alimony Payments? - Yes!

Over 50% of marriages end in divorce in the United... Read More

Save Money on Taxes - Double Your Income Now With Tax Saving Tips on Deductions

Adding Your First Additional Stream of IncomeMost new wealth builders... Read More

How Likely Are You To Be Audited?

Statistics for IndividualsUnfortunately, the IRS increased its rate of auditing... Read More

Tax Tips to Save Money on Taxes - Get the Corporate Kick and Save Loads of Money

Why a Corporation Helps Save You TaxesThe Tax Rates (Notice... Read More

Fraudulent Tax Shelters ? KMPG Goes Down Hard

In the largest criminal tax case ever filed, KMPG has... Read More

How To Get An Instant Pay Raise

As a gentleman was leaving my class recently, he wanted... Read More

Tax Investigation - What You Need To Do

The knock on the door from a Tax Inspector is... Read More

Another Tax Loophole

Just image, you are a small manufacturing company, business has... Read More

The Seven Deadly Tax Sins: Commonly Missed Deductions

It's that time again, the April 15 tax deadline is... Read More

How Home-Based Businesses Can Avoid Giving Uncle Sam More than His Share

How Home-Based Businesses Can Avoid Giving Uncle Sam... Read More

Tax Strategy - Let Washington Pay for Your Corvette, Porsche, or Air Plane

Deducting Your Auto ExpensesAuto deductions are a very complex topic.... Read More

Tax Help Secret: Avoiding the Entreprenuers Curse

Your days as an entrepreneur and businessperson are consumed with... Read More

IRS Obtains More Than 100 Injunctions Against Tax Scheme Promoters

The IRS has obtained civil injunctions against more than 100... Read More

How to Reduce the Estate Tax Using the A-B Revocable Living Trust

In a past article I relayed the plight of the... Read More

Highlights of IRS List of 2005 Tax Scams

Each year, the IRS lists various scams taxpayers get caught... Read More

Tax Trap #1 -- Waiting to Incorporate: What A Difference A Date Can Make

NOTE: This is the first in a series of 5... Read More

Tax Trap #2 -- Double Taxation: Isnt Once Enough?

Have you been thinking about incorporating your small business or... Read More

What You Need To Know About Taxes If You?re Getting Married

It may not be high on the list of wedding... Read More

Marriage or Divorce ? Check Your Social Security Number

Newlyweds and the recently divorced should make sure that names... Read More

Donating Cars To Charity - New Tax Rules

On June 3, 2005, the IRS released guidance on charitable... Read More

Need a Copy of Your Tax Return Information?

Taxpayers have two easy and convenient options for getting copies... Read More

Tax Trap #5 -- Ignoring The IRS (and the 5 best ways to contact them!)

We all love to criticize the IRS, don't we? And... Read More

How To Get An Extension To File Your Business Tax Returns

Yes, the tax season is upon with the first filing... Read More

Furnishing Evidence in E-Tax Compliance

Self-assessment relies on taxpayers voluntarily meeting their tax obligations. This... Read More

How to Cut Duty Cost and Increase Profit as an Importer

Import duties continue to be significant elements in the cost... Read More

Navigating The Internet Sales Tax Laws

QUESTION: I have been contacted by my local city... Read More

Early Distributions From Retirement Plans

An early distribution from an Individual Retirement Arrangement (IRA) or... Read More

Paying Workers ? What Can You Write-Off?

As your business grows, you are going to need help.... Read More

Euro Tax Haven Threat

Media reporting of a new EU savings tax directive has... Read More

Taxation of Isle of Man Companies from April 2006

At the present time a company incorporated in the Isle... Read More

Tax Trap #4 -- The Quagmire of Depreciation

If you are a Small Business Owner or Self-Employed Person,... Read More