kids

10 Tax Benefits for Parents with Kids

Your children may help you qualify for some valuable tax benefits.

Here are 10 things parents should consider when filing their taxes this year.

1. Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2. Child Tax Credit You may be able to take this credit for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit You may be able to claim this credit if you pay someone to care for your child or children under age 13 so that you can work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.

 

10 Tax Benefits for Parents with Kids

4. Earned Income Tax Credit The EITC is a tax benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. IRS Publication 596, Earned Income Credit, has more details.

5. Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with required adoption-related documents.  For details, see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Children with earned income If your child has income earned from working, they may be required to file a tax return. For more information, see IRS Publication 501.

7. Children with investment income Under certain circumstances a child’s investment income may be taxed at their parent’s tax rate. For more information, see IRS Publication 929, Tax Rules for Children and Dependents.

8. Higher education credits Education tax credits can help offset the costs of higher education. The American Opportunity and the Lifetime Learning Credits are education credits that can reduce your federal income tax dollar-for-dollar. See IRS Publication 970, Tax Benefits for Education, for details.

9. Student loan interest You may be able to deduct interest paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970.

10. Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage for any child of yours who was under age 27 at the end of the year, even if the child was not your dependent.

child care tax credit

Expanded Adoption Credit Available for Tax-Year 2010

WASHINGTON — The Internal Revenue Service today issued guidance on the expanded adoption credit included in the Affordable Care Act. The IRS also released a draft version of the form that eligible taxpayers will use to claim the newly-expanded adoption credit on 2010 tax returns filed next year.

The Affordable Care Act raises the maximum adoption credit to $13,170 per child, up from $12,150 in 2009. It also makes the credit refundable, meaning that eligible taxpayers can get it even if they owe no tax for that year. In general, the credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply.

 

Expanded Adoption Credit Available for Tax-Year 2010

In addition to filling out Form 8839, Qualified Adoption Expenses, eligible taxpayers must include with their 2010 tax returns one or more adoption-related documents, detailed in the guidance issued today.

The documentation requirements, designed to ensure that taxpayers properly claim the credit, mean that taxpayers claiming the credit will have to file paper tax returns. Normally, it takes six to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. The IRS encourages taxpayers to use direct deposit to speed their refund.

Taxpayers claiming the credit will still be able to use Free File to prepare their returns, but the returns must be printed out and sent to the IRS, along with all required documentation.

Ten Tax Tips for Taxpayers with Children and Students

Do you have children? Having children or students enrolled in higher education will most likely change your tax situation. Below you will find 10 things you should consider before filing your taxes.

Dependents – In most cases, a child can be claimed as a dependent the first year they were born. There are however a few exceptions to this. Refer to the IRS publication 501 – Exemptions, Standard Deduction, and Filing Information.

Child Tax Credit – For each of your children under age 17, you may be able to take this credit. If you only qualify for a partial credit instead of the full Child Tax Credit, you may be eligible for the Additional Child Tax Credit. Even if you don’t owe any tax, you may still be eligible for the Additional Child Tax Credit which is a refundable credit and may give you a refund. See IRS Publication 972, Child Tax Credit

Child and Dependent Care Credit – If you work or are looking for work and you have to pay someone to care for your child under the age of 13, you may be able to claim this credit. See IRS Publication 503, Child and Dependent Care Expenses.

Earned Income Credit – The EITC or EIC is a great benefit for taxpayers who work and have earned income from wages, self-employment or farming. The EITC reduces the amount of tax you owe and may also give you a refund. See IRS Publication 596, EIC Table to see if you qualify and check your AGI in the EIC table.

Adoption Credit – If you adopted a child you may be eligible for a tax credit covering your qualifying expenses paid to adopt an eligible child. qualifying expenses paid to adopt an eligible child. See the instructions for IRS Form 8839, Qualified Adoption Expenses.

Children with Earned Income – If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.

Children with Investment Income – Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.

 

Student Tax Tips

Coverdell Education Savings Account – This savings account is used to pay qualified educational expenses at an eligible educational institution. Contributions are not deductible, however, qualified distributions generally are tax-free. For more information see IRS Publication 970, Tax Benefits for Education.

Higher Education Credits – Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income. For more information see IRS Publication 970.

Student Loan Interest – You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.