Choosing between the child care credit and flexible accounts

Article Abstract:

A computerized model for evaluating the relative advantages of using a flexible sending account (FSA) for child care as opposed to claiming the federal tax credit for child care indicates that an FSA provides more attractive benefits for all taxpayers except for those with low incomes. The model, which takes into consideration the possible situations wherein FSA and for child care tax credit can be used, incorporates the 1993 provisions for federal income tax and allows for such assumptions as the filing of joint returns, standard deduction and local tax rates that are around 6% of the amount being taxed at the federal level. The model shows that only in a small number of situations is the child care credit more beneficial than an FSA, such as when taxpayers have two children and an annual gross income (AGI) of $10,485 and when taxpayers have one child and an AGI of $9,220.

Laws, regulations and rules, Child care tax credits

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Minimize AGI once to maximize Roth IRA break

Article Abstract:

Tax benefits of individual retirement accounts (IRAs) received a boost from the Tax Reform Act of 1997, which not only created the new Roth IRAs but also allows an existing IRA to be converted to a Roth IRA. However, conversion to a Roth IRA requires that the taxpayer's adjusted gross income (AGI) must not be more than $100,000 during the year of conversion. To lower the AGI, planned sales of appreciated investments must be made before or after the target year while those of loss-generating investments must be made during the target year. Meanwhile, taxable E, EE, H, or HH bonds must be cashed before or after the target year. On the other hand, accelerating and deferring income and expenses and bunching income either before or after the target year for simple and complex trusts, respectively, also reduce the AGI.

Commercial Banks, Public Finance Activities, Investment Banking and Securities Dealing, Bank Individual Retirement Accounts, Personal Income Tax Deductions, Tax deductions, Personal income tax, Individual retirement accounts

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Timing gifts to children to maximize tax benefits after TRA '86

Article Abstract:

Funding a child's education with gifts from parents can be attractive despite tax reform if the timing and amounts of such gifts are carefully planned. Computerized simulations are described that calculate optimal gifts for children, maximizing the extent to which the child's after-tax wealth accumulation at age 18 exceeds that of the parents. The simulations also reflect the effects of varying rates of return and the effects of compounding.

Interpretation and construction, Tax law, Gifts to minors

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