Top 8 Ways Children Lower Your Taxes

Top 8 Ways Children Lower Your Taxes

Got kids? They may have an impact on your tax situation. Here are the top 8 things to consider if you have children.
  1. Dependents: In most cases, a child can be claimed as a dependent in the year they were born. Be sure to let us know if your family increased this year and we’ll take a look at whether you can claim the child as a dependent this year.
  2. Child Tax Credit: You may be able to take this 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 this credit if you pay someone to care for your child under age 13 so that you can work or look for work. Be sure to keep track of your child care expenses so we can claim this credit accurately.
  4. Earned Income Tax Credit: The EITC is a 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.
  5. Adoption Credit: You may be able to take a tax credit for qualifying expenses paid to adopt a child.
  6. Coverdell Education Savings Account: This savings account is used to pay qualified expenses at an eligible educational institution. Contributions are not deductible; however, qualified distributions generally are tax-free.
  7. 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.
  8. 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.
As you can see, having children can make a big impact on your tax profile. If you’re a parent, we’ll go over your situation with you to make sure you’re getting the appropriate credits and deductions. This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.  http://www.precisetaxcpas.com/newsletter.php#3 My additions to this list. * If you are a business owner and you have your children help you in that business, you can pay them to reduce your income as what they earn will most likely be in a lower tax bracket than yours. Talk to your tax adviser about this strategy. * Also, instead of # 6. I recommend talking to me (Jennifer Hansen 845-649-7487) about a more lucrative strategy that could save more taxes and has fewer penalties and restrictions. This could improve #7 & # 8. as well, at the same time. I also recommend IRC 7702 rather than the traditional IRC 529 as a way to pay for education tuition.    
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March 10, 2011 · Jennifer · No Comments
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