With IRS rules changing year-to-year, parents need to stay educated in able to take child tax credits and dependent tax deductions for families. Tax credits are especially helpful, as the money from a credit is taken off the taxes due, after figuring all other deductions.
Tax Deductions and Exemptions for Parents
A tax professional should be aware of all ways to legally cut taxes, however parents should be informed whether working with a tax expert or alone. Following are a few of the ways having children can help keep federal income taxes as low as possible.
1. Dependent Exemptions:
If a taxpayer's dependent child is 18 years old or younger, (or a full-time student aged 23 years or less for at least part of the tax year) a $3,650 dependent exemption can be claimed for each child. Filers should check for income limits and other rules that may affect eligibility. In most cases, it is important that a child being listed is not claimed as a dependent elsewhere.
It should be noted that child support paid out is not tax-deductible.Likewise, the person receiving child support payments does not need to consider child support as income for tax purposes.
2. Child Tax Credit:
Filers with dependent children under the age of 17 for all of 2009 may get a $1,000 Child Tax Credit per child by applying with IRS Publication 972, depending on income and other factors. According to the IRS online site, "A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence."
3. Additional Child Tax Credit:
If the Child Tax Credit is more than the amount of income tax owed, filers may still be able to claim the Additional Child Tax Credit. In this case, the government may actually end up paying the filer. Filers may uses Form 8812, Additional Child Tax Credit to apply. Additional credits or deductions are available for those paying for dependent child care, as well.
4. Child Adoption Credit:
A Child Adoption Credit of up to $12,150 may be applied in the year that a child is adopted. If expenses were paid the in the 2008, adoption expenses are still eligible by carrying them forward to 2009. For special needs adoptions, parents may be eligible for the entire credit, even if expenses did not reach $12,150. This credit begins to phase out for those making $222,180 and up.
5. Kids’ Income Accounts:
The first $950 of income from investment accounts in a child's name is not taxed. The next $950 is taxed at the child tax rate (10% for 2009). Everything above this amount is taxed at the parents' rate.
Tax Attorney, CPA or Tax Clinic Help
A tax professional can answer questions about all or any of these tax breaks as they apply to individual situations. Tax attorneys are best for handling complex, technical, and legal issues. More information on an Attorney for taxes can be found at Tax Attorneys - When Do You Need a Tax Attorney? and Selecting a Tax Attorney.
For those facing complex accounting issues as well as legal matters, an attorney who is also a Certified Public Accountant (CPA) may be a good choice.
Helpful free tax clinics, funded by the National Taxpayer Advocate. may help with less complex issues. A complete list of tax clinics for 2009 taxes are in IRS Publication 4134. Local libraries frequently offer tax help by volunteers.
Also see the article Top Tips to Get a Bigger IRS Tax Refund Check.
Resource: IRS.gov
Note: The author is not a tax professional or in any way a financial expert. This is not meant to be legal or professional advice.
VRS101
Janienne Jennrich - Janienne Jennrich, Topic Editor for Kids & Teen Parties and for Hair, is an award-winning freelance writer & webmaster.
