8 Ways Children Lower Your Taxes
Guest Post .
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.
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 this can be claimed accurately.
4. 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.
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, children can have an impact on your tax profile. If you’re a parent, be sure to go over your situation with your accountant, tax preparer, or online software platform to make sure you’re getting the credits and deductions you’re entitled to.
Click here for helpful information on preparing your 2011 tax return and for fun U.S. tax facts.