Posted: Wednesday, March 9, 2011 6:01 pm
Got Kids? They may have an impact on your tax situation. Listed below are the top 10 things the IRS wants you to consider if you have children.
1. Dependents: In most cases, a child can be claimed as a dependent beginning 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 $1,000 credit on your tax return 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. The Additional Child Tax Credit is a refundable credit and may give you a refund even if you do not owe any tax.
3. Child and Dependent Care Credit: You may be able to claim the credit if you pay someone to care for your child under age 13 so you can work or look for work. The credit may also apply for summer day camp expenses.
4. Earned Income Tax Credit :The EITC is a benefit for certain people who work some part of the year but don’t make a lot. EITC reduces the amount of tax you owe and may also give you a refund. The highest credit amount, $5,666, goes to married couples with children.
5. Adoption Credit: You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child.
6. Children with Earned Income: If your child has income earned from working they may be required to file a tax return.
7. 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.
8. 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.
9. Higher Education Credits: There are education tax credits or the Tuition and Fees Deduction that can help offset the costs of higher 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.
10. 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.