Putting a financial figure on children doesn’t seem right, but many people do just that. In an effort to show you that children are a manifold blessing from God, the following 6 steps can help you reduce your tax burden, all because you chose to start a family:
1. Exemptions for dependents — The IRS states that you can take an exemption for each of your dependents, provided that this person is a qualifying child or qualifying relative. However, you must list the Social Security Number for any dependent you are claiming. IRS Publication 501 has more information about this subject.
2. Adoption credit — The federal Affordable Care Act includes an adoption credit component. If you adopted a child in 2009 the credit was $12,150. If you adopted in 2010, the credit was increased to $13,170 per year. Adjustments for 2011 and beyond seem likely. Read Topic 607 – Adoption Credit for more information.
3. Dependent care credit — Paying someone to care for your child while you worked or were looking for work may be something you can claim with the Child and Dependent Care Credit on your federal income tax return. See IRS Publication 503 to see if you qualify for this deduction.
4. Earned income credit — Low to moderate income working families have benefited from the earned income tax credit since 1975. The EITC works when this credit exceeds the amount of taxes owed, resulting in a tax refund to those who claim and qualify for the credit. See IRS Publication 596 for more information.
5. Higher education credit — The IRS offers not one, but two tax credits to help taxpayers pay for their children’s higher education or for their own, for that matter. The American Opportunity Credit extends a $2,500 credit per eligible student. A $2,000 Lifetime Learning Credit is offered as well. You cannot take more than one credit per student in a tax year. However, if you have two children enrolled in college at the same time or you or your spouse are taking classes, then you can take more than one credit.
6. Student loan interest — If you are paying back a student loan, then you may be able to deduct the interest you pay on a qualified student loan. Typically, the amount you are permitted to deduct is the lesser of $2,500 or the amount of interest you actually paid. See IRS Publication 970 for more information.
For more information, visit IRS.gov to find publications, reports and tax tips on how you can reduce your family’s tax burden. None of the advice here should be taken apart from consulting with your tax advisor or the IRS.
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