Strategies to Maximize the Dependent Care Credit in 2024

ST. CROIX INSIGHTS

Strategies to Maximize the Dependent Care Credit in 2024

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

The COVID-19 pandemic prompted Congress to boost the tax credit for qualified dependent care expenses, but these adjustments have since expired. To maximize your benefit from this refundable credit in 2024, it’s important to understand the current regulations.

Referred to as the “child care credit,” this credit is primarily utilized for expenses related to caring for children. Here’s the breakdown: The dependent care credit applies to the expenses of caring for children under the age of 13 while you (and your spouse, if applicable) are working. As per the current legislation, parents with an adjusted gross income (AGI) exceeding $43,000 can claim a credit equal to 20% of the first $3,000 of qualified expenses for one child under 13, or 20% of the first $6,000 of eligible expenses for two or more children under 13. Consequently, for most parents, the maximum credit amounts to $600 for one child under 13 or $1,200 for two or more.

Here are five strategies you can employ to potentially increase your credit in 2024:

  1. Compensate family members: Consider compensating your parents for babysitting services provided to your under-13 child, especially if you’re assisting them during challenging times. These payments, if reasonable, qualify for the dependent care credit. Alternatively, payments to another child over the age of 18 may also be eligible.
  2. Broaden household staff duties: If you have a housekeeper or maid, you can specify that part of their responsibilities includes childcare while you’re at work. The IRS allows costs for household services that include childcare, provided the expenses are properly allocated.
  3. Explore specialty day camps: Enrolling your child in a specialty day camp focused on their interests, such as soccer, chess, or science, can qualify for the dependent care credit. Unlike overnight camps, the expenses for these programs are fully eligible for the credit.
  4. Utilize educational pursuits: Both spouses must be “gainfully employed” to qualify for the credit, but the tax definition allows for one spouse to be a full-time student. A spouse who attends classes for at least five months of the year, not necessarily consecutively, can still contribute to meeting the requirements for the credit.
  5. Leverage flexible spending accounts (FSAs): Utilizing a dependent care FSA is often advantageous as it allows you to cover expenses with pre-tax dollars, potentially saving on federal and state income taxes. Although the maximum contribution to a dependent care FSA is $5,000, you can still claim the credit for expenses exceeding this amount.

Before implementing any of these strategies, it’s important to consult with your CPA or tax professional to see if they fit into your overall financial planning. By doing so, you can ensure that you’re maximizing your benefits while staying compliant with current tax regulations.

We’re committed to providing you with personalized insights and recommendations to help you achieve your financial goals. Whether it’s identifying additional opportunities for tax savings or developing a comprehensive financial plan, we can guide you every step of the way.

 

The COVID-19 pandemic prompted Congress to boost the tax credit for qualified dependent care expenses, but these adjustments have since expired. To maximize your benefit from this refundable credit in 2024, it’s important to understand the current regulations.

Referred to as the “child care credit,” this credit is primarily utilized for expenses related to caring for children. Here’s the breakdown: The dependent care credit applies to the expenses of caring for children under the age of 13 while you (and your spouse, if applicable) are working. As per the current legislation, parents with an adjusted gross income (AGI) exceeding $43,000 can claim a credit equal to 20% of the first $3,000 of qualified expenses for one child under 13, or 20% of the first $6,000 of eligible expenses for two or more children under 13. Consequently, for most parents, the maximum credit amounts to $600 for one child under 13 or $1,200 for two or more.

Here are five strategies you can employ to potentially increase your credit in 2024:

  1. Compensate family members: Consider compensating your parents for babysitting services provided to your under-13 child, especially if you’re assisting them during challenging times. These payments, if reasonable, qualify for the dependent care credit. Alternatively, payments to another child over the age of 18 may also be eligible.
  2. Broaden household staff duties: If you have a housekeeper or maid, you can specify that part of their responsibilities includes childcare while you’re at work. The IRS allows costs for household services that include childcare, provided the expenses are properly allocated.
  3. Explore specialty day camps: Enrolling your child in a specialty day camp focused on their interests, such as soccer, chess, or science, can qualify for the dependent care credit. Unlike overnight camps, the expenses for these programs are fully eligible for the credit.
  4. Utilize educational pursuits: Both spouses must be “gainfully employed” to qualify for the credit, but the tax definition allows for one spouse to be a full-time student. A spouse who attends classes for at least five months of the year, not necessarily consecutively, can still contribute to meeting the requirements for the credit.
  5. Leverage flexible spending accounts (FSAs): Utilizing a dependent care FSA is often advantageous as it allows you to cover expenses with pre-tax dollars, potentially saving on federal and state income taxes. Although the maximum contribution to a dependent care FSA is $5,000, you can still claim the credit for expenses exceeding this amount.

Before implementing any of these strategies, it’s important to consult with your CPA or tax professional to see if they fit into your overall financial planning. By doing so, you can ensure that you’re maximizing your benefits while staying compliant with current tax regulations.

We’re committed to providing you with personalized insights and recommendations to help you achieve your financial goals. Whether it’s identifying additional opportunities for tax savings or developing a comprehensive financial plan, we can guide you every step of the way.

The Importance of Planning: Create an Emergency Packet

ST. CROIX INSIGHTS

The Importance of Planning: Create an Emergency Packet

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

the lessons never end

Life, with its twists and turns, presents us with certainties we often prefer to overlook—sickness, mortality, and the unexpected. These topics rarely claim space in our day-to-day conversations, yet they remain an undeniable reality.

In my years as a guide through the realms of financial planning and insurance, I’ve encountered numerous instances where clients faced illness, hospitalization, or life-altering diagnoses. A friend once remarked, “The stuff you’ve been selling for the last 25 years is finally coming true.”

Translation: aging is universal, and while it’s convenient to postpone contemplation on these matters, illness and mortality touch us all.

One aspect that frequently emerges, surprising in its significance, is the prevalence of passwords as vital information within our personal ecosystems. Passwords guarding phones, emails, safes, and online accounts now hold crucial importance. I’ve even layered passcodes atop passwords to fortify the shield around my online presence.

When life takes an unexpected turn, the last thing our loved ones should endure is a scavenger hunt for critical information. I call this crucial data “Waldo,” the linchpin that holds the keys to our vital documents—power of attorney, health directives, financial portfolios, insurance policies, and the roster of contacts (CPAs, attorneys, advisors).

Picture the distress of assuming funeral expenses were prepaid, only to struggle locating the necessary paperwork. Let this serve as a gentle nudge to revisit and reassess your estate plan, life insurance beneficiaries, retirement arrangements, and beyond.

Create an Emergency Packet for your family. Whether physical or digital, it should include all the vital documents in one place. Once you create it, tell your family it’s location and how to access it if it’s behind a safeguard.

Having witnessed and experienced these “Where’s Waldo” scenarios both professionally and personally, I can tell you that being prepared and making these items easily accessible is one additional way you can show how much you love your family.

(However, as I’ve told my kids and continue to remind them, they’d better treat me well; if they don’t, I have no problem playing Where’s Waldo from the grave too. I guess it’s the reverse way of me showing them I love them; if they want my passwords and information, they’ll need to work for them. There is no free lunch!)

As for where to safeguard these folders, the choice is yours. Whether in a physical safe, your desk drawer, or an agreed-upon location, communication with your loved ones about their whereabouts is crucial. Some individuals even maintain vital documents in a folder labeled “Call Brett.” The simplicity of this approach cannot be overstated. Making these documents easily accessible significantly alleviates stress and time for your loved ones during challenging times.

Christmas Message

ST. CROIX INSIGHTS

Christmas Message 2023

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

the lessons never end

It’s a birth celebration like no other!

I fondly remember the excitement of Christmas morning as a kid, especially trying to guess what Mom had placed under the tree for me. Over the years, this became a running joke in the family: before we’d exchange gifts, I’d ask Big Guy (my dad) if he knew what he bought us. This wasn’t just on Christmases but birthdays too. After all, the gift tag always said, “From Mom and Dad.” But we knew Big Guy had one job at Christmas each year: buy Mom’s Christmas present!

Over the past couple of years, I’ve been thinking daily about heavenly and earthly treasures. We come into the world with no physical possessions, and we leave with none. Yet while we’re here on Earth, it’s so much fun to receive earthly treasures. I know I’d never turn them down!

I believe the word “treasure” has a few different meanings. Maybe wisdom comes with age, but as I’ve gotten older, I’ve developed a better understanding of what a treasure truly is.

It’s that time of year when family and friends gather; when you invite others to your home to celebrate the birth of Jesus; when family traditions come out in full force. It’s that time of year when a country, a nation, or even the world comes together for one primary purchase: the Hope of Eternal Life.

When it comes to earthly financial treasures, it’s that time of year when you see so many people giving financially to the local food shelf or homeless shelter, or to their church hosting a meal for those in need.

Treasures are when it’s cold outside and the fire is warm in your home. Treasures can even be something as simple as having a dog or cat. Someone once told me having a pet was a financial luxury. The more I thought about it, the more I agreed. Those little rascals aren’t cheap!

Did you know one of God’s perfect foods is chocolate? According to Genesis 1:11–13,

Then God said, “Let the land produce vegetation: seed-bearing plants and trees on the land that bear fruit with seed in it, according to their various kinds.” And it was so. The land produced vegetation: plants bearing seed according to their kinds and trees bearing fruit with seed in it according to their kinds. And God saw that it was good. And there was evening, and there was morning—the third day.

Somehow, God knew I wouldn’t survive on Earth without chocolate. And it was good! Life’s too good for lousy chocolates, so enjoy this earthly treasure. (My question I’ll have for him one day will be this: “Why did it take you three whole days to create this perfect food?”)

Wishing you a Merry Christmas and a Happy New Year.

The Lessons Never End – Life Lesson 50 of 50

ST. CROIX INSIGHTS

The Lessons Never End

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

the lessons never end

Photo by Nils Nedel

Well, it’s finally happened: after starting earlier this year, offering my thoughts on the world around me—everything from chocolate to Walmart to cancer to leaving a job—I finally reached 50 Life Lessons. What a milestone! The lessons never end.

The lessons never end. Maybe my two kids will read these lessons one day and better understand their dad. Better understand that life isn’t always easy. Better understand that their old man has walked in their shoes many times, and sometimes he really does know better.

But the thing is, even I don’t have all the answers. (I know. It came as a shock to me too.)

And that seems to be the pattern: Just as we master a new lesson in life, we’re presented with a brand-new one to figure out and work through. Just when we’re sure we have this whole “living” thing figured out, life conspires to remind us how wrong we are and how much we have yet to learn.

It seems there’s a new lesson to be learned every day—and that’s the key to this final lesson. There’s always more to learn. We just have to be open to the lessons. The lessons never end.

“Trust Me”: Don’t Trust It – Life Lesson 46 of 50

ST. CROIX INSIGHTS

Don’t Trust People Who Say “Trust Me”

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

Photo by Joseph Chan

I find myself hesitant whenever someone says, “trust me.” It’s an immediate red flag, triggering my skepticism. My instinctive reaction is simple: “Why should I?”

Don’t just tell me to trust you—show me. Prove through your words and deeds that integrity defines you. Without demonstration, I won’t take your word for it, so spare the effort.

In today’s world, the term “trust” has been so excessively used that it’s lost much of its meaning. In a landscape where every dubious individual is eager to inundate you with extravagant guarantees for products and services of questionable quality, how can any of us discern when trust is genuinely deserved?

Food for Thought

You’ll rarely hear me say “trust me”—I won’t insult you like that. I know that trust is something I have to earn over time. You’ll either end up trusting me or you won’t, but you’ll do it for your own reasons, not because I told you to.

I encourage you to be introspective with this one. Catch yourself when you say it next, and follow it by asking what your true intentions are. It is perfectly okay to be skeptical of others who use words as comfort rather than take action.

What can you do to prove that you are trustworthy? What can someone else do to prove it to you?

Broke vs Poor – Life Lesson 44 of 50

ST. CROIX INSIGHTS

Broke vs. Poor

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

broke vs. poor

Frequently, we use the term “poor” to describe our financial situation when what we truly mean is “broke.” Why does it matter? These words signify two distinct circumstances, and using them interchangeably diminishes the very genuine experiences shared by millions of Americans.

Being Broke Is a Drag

Most individuals have experienced being broke at one time or another. I know I have. In my simple definition, “broke” means having a roof over your head, food in the fridge (even though you might think you never have anything good to eat in the house), clothes, shoes, and a car or bike—but your phone might be a few years old, you make your own coffee before you head to work, and you probably aren’t taking lavish vacations.

Broke signifies not having enough funds for the non-essentials we desire—like the latest iPhone, fancy meals, or designer clothing. It’s about getting by and hoping for better days ahead.

Being Poor Is a Crisis

On the other hand, poor means not having a roof over your head or knowing where your next meal is coming from. It means that a single surprise, accident, or medical issue would be catastrophic. It means hope is as hard to come by as a decent night’s sleep. Poor is a life-threatening condition that affects entire families across the country. I pray you and I never experience it.

While we may not all possess the latest car, trendiest gadgets, or high-end devices, you know what? That’s okay. Occasionally, we may gripe about not having what we desire, but it’s crucial to acknowledge the disparity between being broke and being poor so we don’t overlook the struggles faced by numerous Americans.