Tax Breaks for Parents

| February 11, 2014

New parents are often overwhelmed by the factors to take into account during the first few months of life. As most will learn, diapers and formula are only the first on a lengthy list of expenses. The bright side is that the IRS offers a number of credits for child related costs. So in fact, when it comes to filing taxes sometimes it pays to have kids.

General Credits

The Child Tax Credit is by far the most popular credit due to its widespread applicability. With this provision, you can reduce your federal income tax up to $1,000 for all individuals 16 or younger. This credit stipulates that the child must meet the age criteria, pass the relationship test (must either be your son, daughter, stepchild, foster child, sibling, or a descendant of these individuals), be claimed on your federal tax return as a dependent, and lived with you for more than half of the filing year. What’s more, they cannot provide more than half of their financial support.

Families with three or more children qualify for another tax break called the Earned Income Tax Credit. If you earn less than $46,227 (single parents) or $51,567 as a joint couple, then you can file for this reduction.

Education Credits

On average, the majority of educational credits are for post-secondary school costs, i.e., college or university. The American Opportunity Credit, for example, is available through 2017 and allows up to $2,500 for tuition expenses for the first four years. As long as you don’t earn more than $80,000 as a single earner or $160,000 for couples, then you’re eligible.

Another break available to students in career training (or non-degree earning) programs is the Lifetime Learning Credit. The income requirement is capped at $61,000 for single filers and $122,000 for joint couples. The main difference between these two credits is the time period in which it is applicable. The American Opportunity Credit is limited to four post-secondary years while the Lifetime Learning Credit has an indefinite time span.

Tuition plans, sometimes known as 529 plans are a great way to build up a nest egg without being subject to federal income taxes and in certain cases even state income taxes.

 Miscellaneous

Lawrence Levy, Founder and CEO of Levy & Associates, says “If you have a child with an overbite, sign them up for clarinet lessons.” In a 1962 case, one orthodontist pled that the clarinet could lessen an overbite. Since then, both the clarinet and music lessons have become legal tax deductions.

If your child suffers from a medical condition—confirmed by a doctor—you may be able to deduct therapeutic massages, recovery programs, or a number of other costs related to their ailment.

Taking advantage of these tax breaks can really put a positive spin on tax season. For more information on tax credits and deductions you may qualify for, consult a tax professional. There’s no limit in the amount you can earn when you have an industry expert at your disposal.

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