Compro-Tax / ComproTax Mortgages

This past week a couple in our office brought us face-to-face with some of the realities of the Working Families Tax Relief Act of 2004.

When the unmarried couple came in earlier in the week, the sister had let me know that she had been disallowed the earned income credit about 6 years ago. She said she has been working with the IRS for some time and had not brought resolution to her situation. While we talked, her boyfriend whom she lives with received tax preparation services from another preparer in our office.

This brother claimed her two children on his tax return. After all, he said, “I feed them; clothe them; provide them shelter. Obviously the biological father is not present and does not provide active financial support.

They both returned during their lunch breaks a few days later: the sister returned to have me begin working on her account with the IRS to bring some resolution to her EIC (earned income credit) disallowance many years back.

We worked out our agreement for this work.

The brother had been called in by our other preparer to let him know that the IRS had rejected his return saying that he had been disallowed the dependent exemption for the two children last year and there was a balance owed on his account.

As we explained the four tests for qualifying children, it was clear that he did not meet one of them. The children live under his roof; they are within the proper age ranges; they did not provide more than half their support. He is not related to them blood-wise though, and he has not adopted them.

The young brother understood that while he has every ethical right to claim them as his own, he does not have a leg to stand on when it comes to the new IRS code.

The sister, who has every right to claim them, as she is their mother will not benefit from claiming them until her dis-allowance is settled.

I jokingly asked about the prospect of marriage. Neither responded. The other preparer and I pondered how quickly an adoption could happen. I realized that these are personal decisions that will have to be made between the two of them. I sadly realized that the credits that this family is entitled to: the dependent exemptions, the child tax credit, the child and dependent care credit and the earned income tax credit cannot be realized this year by this family.

I am busy working to get the sister’s situation of dis-allowance resolved.

The brother did a very honorable thing: didn’t claim the children and allowed part of his refund to pay his balance so he can have a clean start.

Especially since this new code goes against an older code of ours which says that family is family if we assume responsibility for each other, I am working hard to get the word out on these new tests for qualifying child.

Call ComproTax Decatur Office @ 404-284-9667 for support in figuring out who qualifies under this new code.  Also, let us know if we can help you with any tax troubles.

A new uniform definition for “qualifying child.”

This definition is used for the dependency exemption, head of household filing status, earned income tax credits for lower-and moderate-income working individuals and families, child tax credit, and credit for child and dependent care expenses. 

Tax breaks for victims of the devastating hurricanes Katrina, Wilma and Rita:

** Suspension of limits on writing off personal casualty losses; normally, such losses must be reduced by a $100 deductible and by 10% of the taxpayer’s adjusted gross income.

**Option to use 2004 income to figure the 2005 earned income credit and refundable child tax credit.  This will help many of our people who are still out of work.

**Waiver of 10 percent penalty for early withdrawals from Individual Retirement Accountas and other 401 (k)s for people whose principle residence was in the disaster area. 

Tax breaks for people who helped hurricane victims include:

• Increase in mileage deduction for vehicles used in volunteer work to help hurrican victims (29 cents a mile for vehicles used between 8/25 - 31, 34 cents a mile from Sept. 1 - Dec. 31).
• Additional $500 exemption ($2,000 household maximum) for taxpayers who housed hurricane victims for 60 continuous days.
• Increased deductions for cash contributions to qualified charities — from 50 percent to 100 percent of adjusted gross income for donations made between Aug. 28 and Jan. 1.  The money didn’t have to be earmarked for hurricane aid.

RETIREMENT

• Ceilings for tax-deferred contributions to traditional IRAs have risen from $3,000 to $4,000 for most savers and from $3,500 to $4,500 for those age 50 and older, within certain income restrictions.  Ceilings on Roth IRA contributions — which are taxed, although later distributions from the Roth aren’t — also increased. 

For more information on these changes and others as well as clarification regarding your particular tax paying circumstance, call us @ 404-284-9667 or leave us a comment here.