SolveYourProblem
Article Series: Taxes
Help Me Understand My Taxes
Child
Care Tax Credit Tips So You Don’t Get Audited
Child care tax credits, also known as dependent
care tax credits, are an important tax break in place to help
hard working families offset the ever increasing cost of child
care they have to pay, just so they can go out to work and
keep their heads above water. In families of low income or
minimum wage workers, child care can sometimes take a bigger
bite out of their pay check than rent, car payments, or food.
Sometimes child care is so expensive, that families find themselves
in the strange position that it makes more financial sense
for them to be unemployed. To mitigate these circumstances,
dependent tax credits allow people to claim the money they
spent on child care as a deduction on their income taxes, lowering
their tax bills, and in some cases, increasingly their refunds.
The downside to all of this, though, is that claiming a dependent
or child care tax credit can sometimes make the IRS look more
closely at your return, and sometimes can put you in the audit
firing line. To make sure this doesn’t happen to you, follow
a few simple tips that will help make your tax return almost
audit proof.
The
first thing you need to do is document, document, and document. Payment for child care is often a casual exchange
of cash between friends. When it comes to file your taxes,
though, that simply isn’t good enough. If you pay in cash,
get a signed and dated receipt of some sort, even if it is
just something you have jotted down on a piece of notebook
paper. Even better, pay by check and keep copies of all cancelled
checks. If your child is enrolled in a day care, keep copies
of your day care contract, the bills they give you, and your
payment receipts. When in doubt, keep it. It will be better
for you to have too much information than not enough if a problem
arises.
The second step you should take is to head
off any problems before the IRS finds them. If there is something on your tax
return that might look strange, include a note with your return
explaining the situation and as much documentation proving
your position as you can. The IRS uses auditing as a way of
generating new income streams, so if they think you will be
able to deflect their challenges, chances are they won’t bother.
Another trick is to file
your taxes on the due date and not before. If you file early, the IRS has more time to sit there
and comb through your return while they’re waiting for all
the procrastinators to get their forms in. Take advantage of
this rare opportunity when procrastination is actually a good
thing, and send your return in with the rush. You’ll be less
likely to stand out in the crowd if the crowd is larger. Also,
file by mail and not electronically. Surveys of recent audits
show that people who filed online were audited in greater numbers
than people who filed through the mail.
Alas, there is no way to completely avoid an IRS audit, and
the fact of the matter is that claiming a child care tax credit
deduction is one thing that pushes your chance of up. Off set
your chances of being audited by following the simple tips
listed above and take heart in the fact that less than 1% of
the population is audited every year. Keep all your paperwork
in order, and if you are the unlucky one, you’ll be ready for
them.
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SolveYourProblem.com : 2007
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