TOP 10 TAX TOPICS FOR TAXPAYERS WITH KIDS
As the saying goes, "kids change everything!". Not surprisingly, "everything" includes parents' tax situation. Listed below are the top 10 things parents should consider this tax season:
1. Dependents: In most cases, a child can be claimed as a dependent in the year he or she was born.
2. Earned Income Tax Credit (EITC): 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.
3. 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 federal income tax dollar-for-dollar, unlike a deduction, which reduces taxable income.
4. 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.
5. Children with Investment Income: Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate.
6. Children with Earned Income: If a child has income earned from working, the child may be required to file an individual tax return rather than report on the parents' personal return.
7. Adoption Credit: Parents may be able to take a tax credit for qualifying expenses paid to adopt an eligible child.
8. Child and Dependent Care Credit: Parents may be able to claim the credit if theypay someone to care for their child(ren) under age 13 so that they can work or look for work.
9. Child Tax Credit: Parents may be able to take this credit on their tax return for each of their children under age 17. Even if a parent does not benefit from the full amount of the Child Tax Credit, the parent may be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit and may yield a refund even if no tax is owed.
10. Student Loan Interest: Parents (or children) may be able to deduct interest they pay on a qualified student loan. The deduction is claimed as an adjustment to income so there is no need to itemize deductions.
If any points on this Top 10 List hit home, contact me to discuss how we can maximize the tax laws to your parental advantage!
-Derived from IRS TAX TIP 2010-08
2. Earned Income Tax Credit (EITC): 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.
3. 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 federal income tax dollar-for-dollar, unlike a deduction, which reduces taxable income.
4. 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.
5. Children with Investment Income: Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate.
6. Children with Earned Income: If a child has income earned from working, the child may be required to file an individual tax return rather than report on the parents' personal return.
7. Adoption Credit: Parents may be able to take a tax credit for qualifying expenses paid to adopt an eligible child.
8. Child and Dependent Care Credit: Parents may be able to claim the credit if theypay someone to care for their child(ren) under age 13 so that they can work or look for work.
9. Child Tax Credit: Parents may be able to take this credit on their tax return for each of their children under age 17. Even if a parent does not benefit from the full amount of the Child Tax Credit, the parent may be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit and may yield a refund even if no tax is owed.
10. Student Loan Interest: Parents (or children) may be able to deduct interest they pay on a qualified student loan. The deduction is claimed as an adjustment to income so there is no need to itemize deductions.
If any points on this Top 10 List hit home, contact me to discuss how we can maximize the tax laws to your parental advantage!
-Derived from IRS TAX TIP 2010-08
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