Friday, 25 Feb 2011

7 Tax Tips for Parents

Tax time is rolling around again, and if you’re like most people you’re looking for ways to decrease your tax burden. For families with children there is good news–those kids could help you save some money on your tax payment, providing you meet certain criteria. Here are 7 tax tips that may be helpful for parents.

Child Tax Credit

If your children meet the government’s criteria, you may be able to take advantage of the Child Tax Credit of up $1,000 for each child. There are six tests each child must pass in order to qualify.

  1. The child needs to be 16 years of age or younger at the end of 2010.
  2. The child must have a proven relationship to you, such as a son, daughter, stepchild, or foster child. The minor child could also be a close relative, such as a brother or sister, or a stepbrother or stepsister. They could also be a child of any of these, such as a grandchild, niece, or nephew.
  3. You must have supplied at least half of the child’s support during the year.
  4. Your federal tax return must show the child as a dependent.
  5. The child must be a U.S. citizen.
  6. With some exceptions, the child must have lived with you at least half the year.

Child Care

If you pay for daycare for your child aged 12 or younger, or an adult dependent that is disabled, you may be eligible for a federal tax credit of up to 35% of the price of that care.

Your Parent as an Exemption

If you claim your parent as a deduction, you may be entitled to a tax credit as an added personal exemption on your income tax. An exemption diminishes your total taxable income by $3,500.

Earned Income Tax Credit

An Earned Income Tax Credit (EITC) is a tax credit for low wage earners. It can come either as a tax refund or a tax credit. The EITC has been around since 1975 and acts as an incentive to work. If you work, but don’t make a lot of money, you get the credit.

Higher Education Credits

There are numerous tax incentives for parents who are saving for their child’s higher education or already have a child in school. There are even tax breaks for parents who are paying off school loans. A couple of possible tax credits are a tuition deduction or Hope and Lifetime Learning Credit.

Self-Employment Health Insurance Deduction

If you’re self-employed, there are additional tax credits available. You are allowed to take a tax deduction for health insurance costs for your family, including yourself, your spouse, and any dependents. Certain criteria must be met in order to take the deduction. One of the qualifications is that you can take a deduction for the full cost of health insurance, but aren’t allowed to be part of a group insurance plan.

Adoption Tax Credit

An adopted child is viewed as if they were your own child, and could qualify for a Child Tax Credit. You can also receive credit for expenses associated with an adoption. It is an extremely complicated credit system, and it would serve you well to see a tax professional in order to help you understand the details and requirements.

More Tax Credits

The deductions and tax credits listed here are only the tip of the ice berg for possible tax relief. Along with these tips is one additional tip that may be the best advice anyone can give you before turning in your tax return: it would be to your benefit to consult a tax attorney or an accountant. They are specially trained to provide you with accurate information that can help you receive any tax credits you may qualify for.

Guest post from Bailey Harris. Bailey writes about home insurance and related topics for www.homeinsurance.org.


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