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What Percentage Does a Small Business Pay in Taxes?

In 2009, the Small Business Administration estimated that the average effective tax percentage rate for small businesses was 19.8% from whatever sources it derives income. This amount small business tax percentageincludes ordinary income, capital gains and excise taxes, but does not include sales tax, property, estate taxes or state income tax. Tax rates vary widely on federal income tax, so the more money your small business makes, the more it will pay in taxes.

While this generally answers the question: what percentage does a small business pay in taxes, it is only a good guide to determine the actual amount your business will pay. The higher your income, the higher percentage you pay. Federal income tax brackets for 2020, for a married couple are:

Taxable Income Tax Rate

$0 – $19,750       10%

$19,751 – $80,250            $1,975 + 12% of the amount over $19,750

$80,251 – $171,050          $9,235 + 22% of the amount over $80,250

$171,051 – $326,600       $29,211 + 24% of the amount over $171,050

$326,601 – $414,700       $66,543 + 32% of the amount over $326,600

$414,701 – $622,050       $94,735 + 35% of the amount over $414,700

$622,051 or more            $167,307.50 + 37% of the amount over $622,050

Small businesses generally are not taxed like corporations. Limited Liability Companies have been created as a form of entity in all 50 states to allow business owners to “pass through” income from their businesses and then to pay the tax at the individual, rather than the corporate level. This means that the tax will be paid after all of the personal deductions for charitable gifts, mortgage interest, real estate taxes, etc., are deducted from their business income. For this reason, many small business owners maximize their mortgages to keep the deductible level of interest high and lower their overall taxable income.

The Internal Revenue Service (IRS) agency does not recognize the legality of a sole proprietorship, partnerships, limited liability companies and limited liability partnerships as taxable corporation  — they are instead considered “pass through” entities.

A limited liability company (LLC), the most common form of small business entity used today, is considered a pass-through tax entity. In these types of companies, profits pass through the company to individual members. Individual members rather than the company itself must report the members’ share of the profit on their personal tax returns.

The percentage a small business pays in taxes is important to the owner’s cash flow, and it is a complicated formula to determine all of the taxes that must be paid. When you come to a point you want to sell your small business, you will be able to add back the amount of taxes you have paid, along with other expenses, to determine the income your company should be valued on.

In many cases, you can download tools from a site like TurboTax to be sure you’re calculating your small business taxes correctly. For more difficult circumstances, a skilled tax or valuation expert, like the team at Landmark Advisors can assist you to help ensure you don’t pay a higher percentage in taxes than you need to.

Contact a trained specialist at Landmark today to be sure you are planning for your small business tax issues in the best way to save money and protect your business value each year.

How to File Taxes Online in 3 Simple Steps - TurboTax Tax Tip Video

Remember, with TurboTax Online Tax Filing we’ll ask you simple questions and fill out the right forms for you. We’ll find every tax deduction and credit you qualify for to get you the biggest tax refund, guaranteed!

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Getting Your W2 Form Online

How to Get Your W2 Form Online

Learn how you can get your w2 form online.

Online tax filing helps users to get their W2 form online quickly. They have a free W2 finder that you can use to search for yours.

After you get your W-2, you can start filing your taxes online, or you can download a copy so you can print it out and attach it to your tax return.

It’s a much faster process than waiting for your W2 to come out in the mail. With over 100 million W2’s available online, there’s a good chance you’ll be able to find yours.

Here are 2 Good Places to Get a Copy of Your W2 Online:

TurboTax W2 Finder will find and retrieve your W2, which allows you to file your taxes as soon as you are ready. This year you can lookup W2 easier than ever before! Just follow the TurboTax screens as it guides you to finding your W2 online.

Millions of employers and financial institutions participate, so the odds are good your W2 will be available to download. You save time by doing so, and it ensures that your information is delivered accurately.

H&R Block W2 Finder will also find and access your W2. When using an online-based company like H&R Block, you will have the capability to get your W2 data online. You won’t have to wait for your forms to come in the mail.

The H&R Block search page can find your W2 in 3 easy steps. You can then import your W2 data into your tax return for free, so that you can get your refund as soon as possible!

What is a W-2 Tax Form?

A W2 is a tax form that documents money paid to you, and money withheld from your paycheck. It includes your commissions, tips, wages, and the taxes that were withheld from your income for federal, state, and social security purposes.

This document has all of the information that you will need to fill out the financial information for your personal taxes. If you have worked, the IRS requires that you use your W-2 to file, and then they determine the amount of taxes that you should pay the federal and state governments.

When Do W2s Come Out?

The IRS mandates that employers have to send out or make W2’s available to their employees by January 31. Even if you switched jobs, they still have this deadline in place, yet sometimes you can expect to receive it earlier. Your former employer will also include your accumulated vacation, severance, and outstanding bonuses on your W-2 form.

To file your income taxes and get your tax refund, you have to have your W2. This form contains all of the important information that you need for your annual income tax filing.

If you do not have your W-2 form by the end of January, confirm that your employer has your correct mailing address. If you don’t receive the W-2 from your employer by Valentine’s Day, contact the IRS at 800-829-1040 and provide them with your details so they can find your information.

Before calling them, make sure you are prepared to provide them with your name, mailing address, phone number, social security number, employers name and address, and the dates that you were employed

The IRS will accept returns without W2’s; however, this could delay your refund. The IRS has to make sure that your income is accurate and matches their records before they can issue you a tax refund.

How to Import Your W-2 Form Using TurboTax Online

TurboTax regularly handles the importing of W-2 forms for tax filing. The majority of businesses, and also the military services, now provide w2 online retrieval. It’s now easier than ever to find and import your W-2 Form from your employer directly into your tax return.

Who Can Get Their W2 Online?

Many companies, including the military, have their employees W-2’s available online for free. The documents can be downloaded via a variety of outsourcing companies, so the distribution process of the W-2’s are automated. Your employer should alert you as to whether or not you will be able to access your W2 online.

If they do allow you to access it online, you will get the benefit of being able to file your taxes earlier in addition to not waiting for paper copies, and eliminating the security risks that come along with having that information sitting around on paper.

What to Do if You Can’t Find Your W 2 Form

The W 2 form is usually mailed to you or made accessible online by the company you work for. If the form is lost, missing, or you can’t find it online, contact your employer immediately. It’s a good idea to call the IRS if you don’t receive the W2 by mid-February.

In the worst-case scenario, you can fill out Form 4852 and attach it to your tax return. The substitute wage and tax statement allows you to input the same details. A tax extension is another possibility and buys you more time.

Your best bet is to file on time. If the W 2 arrives later, and the information is different from your estimates provided, Form 1040X can be filled out to correct any discrepancies, and amend the previous year’s tax return.

Getting Multiple W-2s from the Same Employer with Different Amounts

w2 tax formUsually, if you have multiple W2s from the same employer, with different amounts, you need to enter all of them. Turbo Tax or H&R Block can help you get all of the W-2s entered and will calculate the combined income. You may have to file multiple W-2s if any of the following situations apply to you:

  1. You worked for a temporary agency that sent you on different jobs. This will cause you to have multiple W-2s with different amounts but the same Employer Identification Number.
  2. Your employer changes their payroll or placement agency who is responsible for your pay
  3. Your employer was purchased or merged with another company
  4. Different divisions of your company paid you. In this case, the Employer Identification Numbers will differ
  5. Your employer reports additional compensation, such as reimbursement for employee business expenses

If all of the Employment Identification Numbers, addresses, and names are the same, you may want to contact the payroll department to see why the W-2s were sent out like this. If it is a payroll error, you will have to get a correct W-2.

How to Get a W2 From a Previous Employer

Contacting a current or former employer is the easiest way to get a W2 from a previous employer. The IRS is the next alternative if you can’t reach the employer, or you do not wish to contact them again.

Getting Prior Years W2s

If you file a prior-year tax return, there may be complications such as missing W-2’s and other forms. You can still get a copy of that form. To get a copy of a prior year W-2, there are a couple of possibilities.

How to get W2 form from prior year or previous employer.Contacting the issuer is the easiest way to find that particular W2. Employer payroll departments save such important documents that contain tax information. You can contact them and ask for the form to be sent to your address. This is usually the best way.

You can also contact the IRS directly. If you can’t get in touch with that employer, then you will need form 4506. Although it may take longer and cost you some money, this allows you to obtain the copy of that year’s W-2 rather than do nothing.

It’s important to note the IRS holds past W-2’s and other tax documents for 7-10 years. They’re filed under each taxpayer’s social security number. You can ask for a W-2, but not until a year after it was filed, and form 4506 will be required to get a copy after that. Also note:

  • The IRS charges a $57 service fee; checks are paid to “The United States Treasury.”
  • Check the second page of form 4506 for the address to send it to.
  • It takes the IRS up to two months to process the request and send the W-2.

Remember, with a few clicks of the mouse, you can use the TurboTax W2 finder or the H&R Block W2 finder and get the data from your current online W2, and your tax returns are ready to start in moments.

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How Are Precious Metals Taxed in the U.S.?

Are you considering investing in gold or other precious metals? In this article, you’ll learn that a basic understanding of related tax issues will reveal the most cost-effective ways of buying and owning gold and silver.

But first let’s consider what drives people to invest in precious metals.

Why Do People Invest in Precious Metals?

precious metals tax

For centuries, investors have viewed gold and silver as a refuge against economic crises. One reason for this view is the tendency of gold to move in an inverse relation to a country’s currency. For example, as the US dollar goes down, gold often (but not always) goes up. So precious metals are traditionally viewed as “insurance” to mitigate against losses in stocks and bonds.

This relationship between gold and the dollar attracted renewed attention in the wake of the coronavirus pandemic, when the U.S. government began “printing” trillions in stimulus. This tactic of issuing stimulus funds is commonly viewed as devaluing existing currency and savings. These central bank policies are among the factors that drive the price of gold.

While the view of gold as a “safe haven” is contested, after the coronavirus pandemic began in 2020, both gold and silver outperformed nearly all major commodities.Another reason for interest in precious metals comes from major analysts who believe we’ve entered a bullish “super cycle” for commodities in general, and metals specifically.

While the term precious metals typically also includes palladium and platinum, this article will focus on gold and silver, due to their popularity.

How your investment (or sale of your investment) will be taxed depends on your country of residence. However, we can provide a few observations, using US investors as an example. We highly recommend that you consult a tax professional before investing.

How Does the IRS Tax Gold and Silver?

One key issue is whether you sell your precious metals holdings before or after owning them for one year.

Short-Term Capital Gains

When US investors sell their gold or silver holdings before the one year mark, any profit generated will be treated as a short-term capital gain. That means it will be taxed as ordinary income. (Be aware that your profits can potentially bump you into a higher tax bracket.)

Long-Term Capital Gains

When US investors sell their gold holdings after the one year mark, they will be subject to one of two tax rates:

  1. The “collectibles” tax on net gain.The maximum rate is 28%. Many gold or silver ETFs that are fully backed by bullion, and structured as “grantor trusts,” fall into this category. In these cases even if you do not own the underlying metals, and only profit from price movements, you will still be taxed as though you do own the metal. Coins and bars are also treated as “collectibles.”
  2. The long-term capital gains tax on net gain.Rates are 0%, 15%, or 20%, depending on what tax bracket and filing status you fall under. Most U.S. citizens would pay the 15% rate, according to IRS data. Precious metals mining stocks, mutual funds, and mining ETFs fall under this tax category.

Investing in Foreign CEFs

Foreign CEFs (closed-end funds) backed 100% by bullion typically fall under the long-term capital gains tax category. This would make CEFs the most cost-effective way of owning precious metals. CEFs also provide the convenience of purchasing precious metals by buying shares via a stock brokerage account.

The largest gold CEF is Canadian: the Sprott Physical Gold Trust (NYSE:PHYS). Sprott also offers the Sprott Physical Silver Trust (NYSE:PSLV), the Sprott Physical Gold and Silver Trust (NYSE:CEF), and the Sprott Physical Platinum and Palladium Trust (NYSE:SPPP).

The Sprott physical metal trusts are classified as Passive Foreign Investment Corporations (PFICs) which allows US non-corporate investors to be taxed at long-term capital gains rates.

This requires that the taxpayer:

CEFs Versus Coins and Bars

We’ve seen that the Sprott physical trusts are among the most cost-effective ways to own precious metals.

Small gold coins and bars, by contrast, are the costliest way to buy (and own) gold or silver. There are many retailers offering these products for home delivery.

Since the pandemic began, the premiums (mark-ups) on these coins have risen substantially. In some cases, one-ounce silver coins have been sold with 30% or higher markups above the spot price. (The “spot price” of gold or silver is the current price of one Troy ounce of the metal.) Typically, the larger the size of the bar, the smaller the premium. Dealers also sometimes offer volume discounts and discounts based on method of payment.

Services like BullionVault.com and GoldMoney.com provide cost-effective online purchasing of metals, which are stored in an audited vault for you. (GoldMoney.com has instituted a $10 minimum monthly fee.) Remember that physical metals held in storage by a service like this will be taxed as “collectibles.”

It’s also worth noting that when you buy shares of Sprott physical metal trusts, you own the underlying metal. It’s also possible to “redeem” it (have it delivered to you) but you must meet their requirements to do so.

Conclusion

The investor interested in precious metals has a number of vehicles to choose from: stocks in mining companies and mining interests; mutual funds; various ETFs, and physical coins and bars. But the Sprott physical metal trusts are unique in that they are taxed under the long-term capital gains rates.

Understanding how precious metals are taxed, and premiums associated with small bars and coins, should help you make wise investing decisions.

Remember, when you file your taxes with TurboTax you get your specific questions answered.

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What is the Tax Credit for Electric Cars?

Electric cars are entitled to a tax credit if they qualify. The value of the IRS tax credit ranges from $2,500 to $7,500, depending on the electric vehicle in question. Size and battery capacity are the primary influencing factors.

Are Electric Car Tax Credits Available?

Are electric car tax credits available and how do they work?

Yes, most electric cars are still eligible for this tax credit. Currently, Congress has set the phase-out limit of electric cars sold at 200,000 units per manufacturer. After that the credit begins to phase out for that manufacturer.

We’re going to answer the most common questions regarding whether car tax credits are still available and how to claim tax credits for electric cars.

Is the Credit the Same for Hybrid Cars?

The tax credit is the same. But if we look at the wording provided on the main government website, we can see that they specify plug-in hybrids as qualifying hybrid cars.

You should be aware that the size of the tax credit may differ for hybrid cars because it’s based on the size of the vehicle and its battery capacity. The chances are your electric car will have a higher battery capacity than your hybrid car.

Therefore, if you have a different type of hybrid and it’s not a plug-in hybrid, your car won’t qualify for the electric car tax credit.

Any Tax Credits for Buying a Tesla?

Under the terms of the tax credit, Tesla was one of the manufacturers that qualified for the electric car tax credit. The problem is that Tesla confirmed that by the end of 2018, they will have become the first manufacturer to lose its electric car tax credit.

They have already sold over 200,000 units, and so they won’t be eligible for the tax credit any longer. Unless you bought a Tesla earlier in the year, the chances are it’s too late to buy one in 2018 and qualify for the tax credit.

So, there are no longer any tax credits for Tesla cars.

What About a Used Electric Car?

Electric cars that are used don’t qualify for the tax credit. An electric vehicle must be purchased new. Therefore, if you’ve recently purchased a used electric car, you won’t be able to claim.

The reason behind this is that each car can only get the tax credit once since it’s designed to help people with the purchasing price of a new car.

What if I Lease My Electric Car?

Again, the tax credit is available to help with the purchasing of an electric vehicle. Leasing an electric car also won’t provide you with the tax credit.

Instead, the manufacturer will be entitled to that tax credit. Therefore, you shouldn’t count on getting this tax credit unless you’re purchasing a brand new electric car.

How to Claim the Electric and Hybrid Car Tax Credit

How to claim the electric car tax credit.

So how do you begin claiming the electric and hybrid tax credits available today?

Assuming your car qualifies (and you didn’t buy a Tesla), you will need to fill in Form 8936. Ensure that you have all the essential information about your car, such as the model and its battery capacity. You should also make sure that you’ve kept the sales slip in case you get audited. It should have the date you bought the car on it.

However, to make things easier, you should use online tax filing to help you claim the electric car tax credit. The platform will ask you some basic questions and determine whether you’re eligible for the tax credit.

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When Can I File My 2021 Taxes?

Are You Wondering When Can You File Taxes in 2021?

When can I file my taxes?

The IRS will start accepting tax returns starting Feb 12, 2021.

People can begin filing their taxes immediately with tax software companies, including IRS Free File partners. These companies are accepting tax returns now, and the returns will be automatically transmitted to the IRS starting February 12.

Did you know, anyone can get started with early online tax filing and get a head-start on their tax return. TurboTax and H&R Block will both securely hold and then submit customers’ tax returns to the IRS as soon as they begin accepting returns. Which is usually in mid-to-late January.

There is no faster way for taxpayers to get their tax refunds!

If you file your taxes online, you can easily prepare and file your own taxes. Online software offers advanced tools to help you file your taxes and pay the least amount possible. They also provide fast refunds.

Tax Season 2021 Start Date

The IRS 2021 tax season start date will be Feb 12 and will allow online efile of tax returns for the vast majority of tax filers. Paper tax returns will most likely begin processing later in mid-February as IRS system updates continue (IRS recommends e-filing for faster refunds)

With online tax filing, you can get a head-start on the IRS 2021 tax season start date.

If you start on your taxes now, you’ll be the first to get your refund back! You’ll be asked simple questions about your life and income, and we’ll fill out all the appropriate tax forms and file them for you.

You’ll get step-by-step instructions through your taxes, expert help when you need it, and every deduction and credit that applies to you. We make sure you get the biggest refund possible.

How Soon Can I File Taxes?

When is the first day I can file my taxes?

The Internal Revenue Service has set the opening day of the 2021 filing season on Feb 12, 2021. That’s the day the IRS will begin accepting and processing 2020 tax year returns.

However, you can file your taxes early, and have your return automatically sent to the IRS the minute they begin accepting tax returns.

Which means you’ll get your refund back before everybody else.

When is the Last Day for Filing Taxes

The tax filing deadline for 2021 will most likely be April 18th.

The IRS website also has a wide variety of tools and information available that can make preparing taxes easier. In addition, the IRS recommends that you e-file and choose direct deposit as the way to receive your refund. This ensures you keep your information safe, your return is accurate, and that you receive your refund in the fastest amount of time.

Once again, the IRS has projected that nine out of ten returns will receive their refunds in less than 21 days. If you qualify, you should also take advantage of free tax options available. You can go to the IRS.gov to the “filing” tab to see what options may be available to you.

Additional Tax Filing Facts to Keep in Mind

  • Up to 70% of taxpayers are eligible to file their taxes for Free. Commercial partners of the IRS offer free brand name software to 100 million individuals and families who make less than $62,000.
  • Online tax forms allow you to have electronic versions of IRS paper forms regardless of your income. They can be prepared and filed by you if you are comfortable preparing your own income taxes.
  • VITA and TCE provide free tax help to those who qualify. You can learn more about them by going to the IRS website and entering “free tax prep” in the search box. Alternatively, you can download the IRS2Go mobile app on your phone and find a free tax prep provider that way.

Tips for Filing Your Taxes

  • Organize – Make sure that you have everything that you need before you even begin working on your returns.
  • E-File – E-filing comes with so many benefits such as ease of use, quickness of filing, and identity protection.
  • Sign Up For Direct Deposit – If you want to receive your tax refund in the quickest amount of time, you need to sign up to have it direct deposited.
  • Ask Questions if Needed – If you are unsure about something, ask questions. It is always better to be safe than sorry.

How to Get a Fast Tax Refund

When tax season rolls in, you can start preparing your tax return online. Once you have it completed, you will be among the first of taxpayers who have their returns processed and their refunds issued.

Keep in mind when you file your taxes with TurboTax or H&R Block, the process is easy. They provide you with the largest refund possible by ensuring that they ask the right questions to find out which deductions and credits you qualify for.

You can also use their free tax refund calculators to see how much your tax refund will be. When you file your taxes online, there is no way that you can go wrong, and many taxpayers can file their federal tax returns free or at a discount.

What to Do if You Have Not Received Your W-2

You need a w-2 form when you file a tax return

Before you can file your tax return, you have to have all of the documents needed, including your W-2. All of your employers are responsible for sending you this, yet they do have until February 2nd to do so. If you have not received your W-2 yet, you can follow these steps.

Contact Your Employer – If you have not received your W-2 yet, you need to contact your employer to see when they put it in the mail. It’s possible that it was returned to them due to incorrect mailing details. Once you have contacted them and found out the status, give it a reasonable amount of time for your W-2 to arrive.

Contact The IRS – If you have not received your W-2 after February 14th, it is time to call the IRS at 800-829-1040 for assistance. When calling, make sure you have your name, address, social security number, and phone number. Additionally, you will need your employer’s name, address, phone number, your employment date, the estimate wages earned from them during the year, and estimated federal income tax that was withheld. To make an estimation, you should refer to your most recent pay stub.

File Your Return – Even if you do not have your W-2, the IRS expects you to file by April 18, or request an extension. You can use Form 4852 Substitute for Form w-2, Wage and Tax Statement. This form should be attached to your return; however, keep in mind your refund may be delayed since the IRS has to verify your information.

File Form 1040X – If you receive your W-2 after you have filed your taxes, you must amend your return by filing Form 1040X Amended U.S. Individual Income Tax Return.

To ensure that you receive the maximum refund possible, it is suggested that you file your taxes using online software. It makes filing taxes easy, and when filing your taxes electronically, your tax refund can be returned to you sooner.

IRS News – Getting Ready to File 2020, 2021 Federal Income Tax Returns

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How Much is the Child Tax Credit?

Here is a breakdown of everything you need to know about the Child Tax Credit and Additional Child Tax Credit

How Much do You Get Back in Taxes for a Child?

How Much do You Get Back in Taxes for a Child?

The child tax credit for 2020, 2021, allows you to get back up to $2000 per child in taxes. This is a tax credit, which means it reduces your tax bill dollar-for-dollar, which makes it highly valuable for all families.

To be eligible to claim the child tax credit, your child or dependent must first pass all of the eligibility tests to qualify.

How Does a Child Qualify for the Child Tax Credit?

Here are the qualification requirements for the child tax credit.

  • Your child must be claimed using Form 1040.
  • The child must be under the age of 17 by the end of the tax year.
  • The child can be anyone from a blood relation to a stepchild or adopted child. Direct descendants always qualify.
  • Your qualifying child can only be claimed on a single tax return and can’t have provided more than 50% of their total financial support.
  • They must have lived with you for at least six months of the year and must be a US citizen/national/resident alien.
  • For children born during the tax year, the child must have lived with you for at least half of the remaining tax year.

Claiming the Child Tax Credit

Any parent or legal guardian with a child age 17 or younger at the end of a tax year is eligible to claim the child tax credit. The child must reside with the claiming parent for more than 50-percent of the year. The child also cannot financially support themselves with at least half of their own expenses.

When you prepare your taxes online, you are automatically asked the right questions to determine if you qualify and how much you get back in taxes for a child.

What is the Additional Child Tax Credit?

What is the additional child tax credit?

If the refundable credit you receive from the standard Child Tax Credit is more than your taxes owed, you might receive an Additional Child Tax Credit (provided your income is at least $3,000).

Form 1040 has all the information you need to calculate whether or not this applies to your current family situation.

IRS Child Tax Credit Worksheet

Child tax credit worksheet and calculator

The child tax credit worksheet is a helpful resource provided by the IRS. You can find it through IRS Publication 972. The purpose of the worksheet is to help you calculate how much child tax credit you can claim this coming tax year. You’ll be able to enter information like your income and how many eligible children you have.

You should remember that the child tax credit, is non-refundable. It reduces your tax liability and can do so all the way to $0.

If you have three or more qualifying children, you may be able to take the Additional Child Tax Credit instead. This is handy if you would rather get a refund instead of reducing your total tax liability.

Use the child tax credit worksheet to figure out which option is best for you.

Try the Child Tax Credit Calculator

Thankfully it is simple to calculate both the Child Tax Credit and the Additional Child Tax Credit if you meet the set requirements.

Websites with online tax filing platforms offer a complete service for calculating and claiming the child tax credit. All you need to do is supply basic information, and you will see if you’re eligible for either of these credits.

The dependents credit finder asks simple questions about your dependents and will let you know if you can claim the child tax credit on your tax return and calculate how much you qualify for.

Best of all, you can use these tools for free before you file.

How Much is the Child Tax Credit Phase Out Limit?

You should also keep in mind that the child tax credit begins to phase out at $200,000 for single taxpayers and $400,000 for joint taxpayers.

The child tax credit limit is locked in at $2,000 per child. This has increased substantially under the Tax Cuts and Jobs Act (TCJA), which changed the entire tax system. You need to be aware that the changes state that you can’t get more than $2,000 per child.

However, you need to be aware that many families won’t get $2,000 per qualifying child. Many families will get much less after income, and other restrictions are considered.

Other things could impact how much you get from the child tax credit, such as social security and Medicare payments.

Can I Claim the Child Tax Credit if I File as Married Filing Separately?

Many married couples will get a better deal when filing their taxes when they choose the married filing jointly status. However, there are certain special circumstances where it’s better to use the filing status married and filing separately.

These two filing statuses become a big issue when attempting to claim the child tax credit. When choosing married filing separately, you will see an impact on the amount of child tax credit you can claim.

A married couple filing jointly can claim almost double than what they could get if they’re married and decide to file separately.

Your Filing Status and the Child Tax Credit

If you want to claim the maximum amount in child tax credit, you must choose the married filing jointly tax filing status. There’s no way around it.

For qualifying children, they must be under 16 by the end of the tax year, must be American citizens/nationals/resident aliens. Furthermore, the parent must claim their child as a dependent on their tax return, if the child has lived with them for at least half the year.

This is where there’s a lot of problems with the married filing separately status. Only one parent can claim the child as a dependent on their tax return. The parent not claiming the child only gets half the tax credit amount.

Why Choose Married Filing Separately?

If you’re a taxpayer who stands to gain more when married and filing separately, there are rules to follow. For example, maybe you’ve chosen this filing status because you’re paying back taxes, child support, or other loans.

Another reason why you may decide to file separately is that both you and your spouse have a high income, so by filing separately, you can reduce the tax burden.

Remember that both you and your spouse must choose to use the standard deduction or itemization. The IRS doesn’t allow married couples to choose differently.

What About Dependents on Multiple Returns?

Only one taxpayer or couple can claim the child for the Child Tax Credit and ACTC. If more than one person tries to claim the child, the IRS will determine who gets to claim the child using the tiebreaker rules.

Other Child-Related Tax CreditsLearn about other child related tax credits.

Most parents and legal guardians are aware of the earned income credit (EIC) and child tax credits that they can qualify for to reduce their tax liabilities.

Some do not know that adoption credits can be taken as well as paying out-of-pocket (OOP) for child/dependent care. These deductions can help reduce your tax liability, and in some cases, result in a refund.

Earned Income Credit (EIC) – To qualify for the EIC, you must meet income limitations and have the required number of qualifying children for your income level. The income thresholds can change. An example is the recent earnings year. Families with a single child filing jointly cannot have an adjusted gross income (AGI) more than $46,010. For single/head of household and surviving spouses, the income limit for a single child is $40,320.

Child and Dependent Care Credit – You could deduct up to $3,000 for one dependent or up to $6,000 for more than one with this credit. The percentage of child and dependent care costs that you can claim, as an allowable expense, is 20 to 35-percent based upon your AGI. If you have a single qualifying child, the maximum credit amount is $3,000. For two or more children, the maximum credit is $6,000.

Adoption Tax Credit – If you have already adopted or are in the process, you may qualify for this credit. The method of adopting a child is costly. Some employers assist employees with adoption expenses. This “income” can be deducted and claimed as employer-provided adoption assistance. You can also claim any monies paid to an adoption agency for the adoption of a child that qualifies for the credit.

You cannot receive any excess funds. The maximum credit can change, you should view the yearly guidelines set by the IRS. Extra monies are rolled forward as credits on future tax returns.

Student Loan Interest Student loan interest can be deducted up to the amount of $2,500 per school/tax year. The modified adjusted gross income constraints to claim this credit require that those filing single do not have more than $80,000 income. For those that are married, the income threshold is $160,000 if you file jointly

Filing Status – If you are unwed and your child resided with you for more than half of the year, you could qualify for a higher standard deduction and lower tax rates with the Head of Household filing status.

Exemptions – Receive the standard exemption for each child that qualifies.

How to Claim the Child Tax Credit

You don’t need to worry about figuring this out. Online tax filing makes it easy to claim the child tax credit. After asking you a few simple questions about your family, the tax software will determine for you who qualifies as a dependent on your tax return and how much you can get back.

That way, you’ll get the biggest tax refund possible with the least amount of hassle.

What is the New Child Tax Credit Amount After Tax Reform Changes?

Under the Tax Cuts and Jobs Act (TCJA) the following new child tax credit rules will take place starting in 2019:

  • The Child Tax Credit changes make it worth up to $2,000 per qualifying child. The age cut-off remains at 17 (the child must be under 17 at the end of the year for taxpayers to claim the credit).
  • The refundable portion of the credit is limited to $1,400. This amount will be adjusted for inflation after 2018.
  • The earned income threshold for the refundable credit is reduced to $2,500.
  • The beginning credit phaseout for the child tax credit increases to $200,000 ($400,000 for joint filers). The phaseout also applies to the new $500 credit for other dependents.
  • The child must have a valid SSN to qualify for the $2,000 Child Tax Credit

Additional Considerations

It is important to remember that the Child Tax Credit can only be claimed once per child – it cannot appear on multiple tax returns.

If there is an argument around who is entitled to the credit, the IRS will make a judgment call based on who will receive the money based on a set of predetermined rules.

The Child Tax Credit is not the only way that you can use tax rulings to help support your children. Here’s an overview of the child-related tax savings that might apply to you:

  • There are standard exemptions that apply to each of your qualifying children.
  • The Child and Dependent Care Tax Credit allows you to deduct $3,000 per child or a total of $6,000 if you have multiple dependents.
  • The Adoption Tax Credit is available to those who have adopted a child or are in the process of doing so.
  • Note that if you are unmarried and your child spends at least half of their time living with you each year, then the benefits and deductions available change provided you submit your tax return as a Head of Household.

Form 1040 (Schedule 8812) helps determine if you qualify and the amount of the credit that you will receive. If you prepare your return online, the software will do all of the math for you.