Got Kids? Here are 10 Tax Benefits For Parents

Posts Tagged ‘tax deductions’

Got Kids? Here are 10 Tax Benefits For Parents

|

Any parent knows that kids can be awfully expensive.

They eat a lot, or sometimes not much at all, picking all over their food and wasting it.

They tend to sprout up like weeds, outgrowing clothes, shoes and even hats and gloves before those things get a proper wearing. (By that, I mean there should be holes in all those items before they’re handed down to a younger sibling).

And then, of course, kids want a lot of stuff. Can you say iPhone, Nintendo DS or Xbox 360 Kinect?

Little wonder that, in the past decade alone, the cost of raising a child from birth to age 18 has risen nearly 40% to $226,920. Continue reading “Got Kids? Here are 10 Tax Benefits For Parents” »

Is There an Age Limit on Claiming My Child as a Dependent on my Income Tax Return?

|

Author: The Money Coach

You can reduce you total taxes owed by claiming a child as a dependent on your income tax return. But not all children qualify and age is a factor. In some cases, you can claim a child under the age of 19. In other instances, you can claim a child under the age of 24. And in still other scenarios, a child might not qualify at all – regardless of their age.

Read on for more details about under what circumstance you can claim a child as a dependent on your income taxes.

Continue reading “Is There an Age Limit on Claiming My Child as a Dependent on my Income Tax Return?” »

How Can I Lower My Income Taxes?

|

Author: The Money Coach

Q: How Can I Lower My Income Taxes? My Wife and I Make About $140,000 Combined a Year. We have Two Young Children. We Live in Massachusetts. We Owed Money Last Year and This Year We Owe About $4,600.

A: I know it hurts to get a big tax bill, and it’s not fun to find out that you owe the government nearly five thousand bucks. But there are some ways you can start to lower your taxes in the future. Here are six strategies I’d recommend:

Adjust Your Withholdings At Work
Since you said that you owed money last year also, and that your wife was recently laid off for two months, it very well could be the case that your W-4 withholdings need to be tweaked at work – possibly at both of your places of employment. In essence, you need to adjust your withholdings so that more taxes are taken out over the course of the year. Even though this is still paying taxes, it’s spread out. So you’re less likely to feel the sting of it. Also, by prepaying the proper amount of taxes due over the year, you’ll avoid those nasty IRS penalties for under-payments. Publication 919 from the IRS has more details about properly adjusting your withholdings to that you don’t wind up paying too much tax. The IRS also has a Withholding Calculator available online. Click the following link for more info. http://www.irs.gov/individuals/article/0,,id=96196,00.html.

Max Out Your 401(k)
If you have a 401(k), a 403(b) or any other type of employer-sponsored retirement plan, try to contribute the maximum allowable. Not only might you get a matching contribution from your employer, but you will also reduce your taxable income because money put into a 401(l) plan is contributed on a pre-tax basis. In 2010, the maximum contribution for a 401(k) plan is $16,500. People who are 50 and older can put in an additional $5,500.
The 2010 maximum contribution amount is $5,000 for IRAs, and an additional $1,000 contribution to an IRA is allowable for those 50 and older. So max out that 401(k) plan. Ditto for your wife at her job.

Take Advantage of Health Savings Accounts and Flexible Savings Accounts
If your company has a Health Savings Account, and you haven’t already done so, do sign up for it. Since you have two young children, you can contribute up to $6,150 to an HSA on a pre-tax basis. If you’re going to have to pay for certain health-related costs anyway, why not get a tax break for doing so? Do the same thing with a flexible spending account, which currently has a maximum contribution of $5,000. So get prepared for your next open enrollment season at your job, when you’ll be able to make 2011 selections for your FSA.

Itemize and Boost Deductions
One other way to lower your taxes is to ramp up your deductions. If you don’t take the standard deduction, you obviously need to itemize your deductions. This calls for some good record-keeping. Even though many taxpayers could benefit financially from itemizing their deductions, the IRS reports that lots of people don’t do it – simply because of the extra work involved.

To boost your deductions, here are some ideas about what you can claim:

•   charitable contributions
•   mortgage interest
•   interest on student loan payments
•   business use of a home
•   state, local and foreign income taxes
•   real estate taxes
•   personal property taxes
•   state and local sales taxes
•   qualified motor vehicle taxes
•   any estimated taxes you paid to state or local governments during the year
•   any prior year’s state or local income tax you paid during the year
•   miscellaneous deductions (in excess of 2% of your adjusted gross income)

In your case, your 2010 miscellaneous deductions could be significant. Since your wife was recently out of work, she can claim job-search expenses (like resume preparation, headhunter services, postage for mailings, unreimbursed travel and hotel bills for interviews, etc.). Under the category of “miscellaneous deductions,” you can also take deductions for things like tax and investment advice, as well as unreimbursed employee expenses.

Fund a 529 Plan for Each of the Kids
Since you mentioned having a 5-year-old and an 8-year-old, it’s possible that you’ve already thought about saving money for their future. One great way to do it is by opening a 529 Plan. That’s a state-sponsored college savings plan. Money invested in a 529 plan grows tax free and when you later take the money out to pay for college, the appreciation or gains that have been racked up in a 529 plan are also tax free. Best of all, many states offer a tax deduction for 529 Plan contributions. In 2009, you could put up to $13,000 in a 529 plan without triggering any federal gift taxes. In Massachusetts, where you live, unfortunately there is no direct state tax deduction or credit for contributions. However, according to SavingforCollege.com, which offers great information about 529 plans, Massachusetts does exempt qualified distribution from 529 plans, in conformity with federal law. The state also allows for tax-free treatment of 529 rollovers (i.e. earnings rolled into or out of a 529 plan). Again, if you’re already saving for your kids’ college education, or had planned to do so, you can get some serious bang for your buck with these tax-advantaged 529 plans.

Professional Help Wouldn’t Hurt
In addition to the strategies I’ve just recommended, as a practical matter, it would certainly not hurt you to also do some front-end planning with an accountant or financial advisor. This means you should get going now on tax-reduction activities, ahead of the April 15th tax filing deadline, and continue to make some smart money-moves all year long. A qualified CPA or other tax/financial expert should be able to review your overall financial picture, and give you even more specific advice about how to lower your tax bill.

If you use all these options, chances are by the time next year rolls around, you won’t find yourself having to write yet another big check to Uncle Sam.

Tip for Tax Time: Those Tax Credits Add Up

|

Author: The Money Coach

By Lynnette Khalfani-Cox, The Money Coach

How is this for positive financial news: Uncle Sam wants to put more money back into your pockets. Lots of it. A slew of tax credits are on the horizon; some new, others continuing — and one or more may have your name written on them. Some of the juiciest tax credits for 2009 include:

A tax credit, in the form of an interest-free loan, up to $7,500 for new homeowners. (If the 2009 economic stimulus passes, the limit will increase to $15,000, will not have to be repaid, and will extend to other home buyers beyond first-timers. The Senate approved this amendment on February 4, 2009 to up the credit, but the whole stimulus bill would still need to pass before it takes effect.)
A tax credit for up to $1,000 per child for those supporting youngsters under the age of 17 at the end of 2008
A tax credit for of as much as $4,824 for low-income earners with children. (A lot more people will qualify as “low income” because of layoffs, reduced work hours, or cuts in their pay.)
A tax credit worth thousands – or even tens of thousands of dollars – for people socked with a big AMT, or Alternative Minimum Tax, bill in the past. (You’re eligible if you have so-called long-term unused AMT credits, or unused AMT credits generated any year prior to 2005)

If you qualify for any of the above tax credits, it would be dollar-for-dollar money in your pocket as tax credits are far more valuable than tax deductions.

Lynnette Khalfani-Cox on The Daily Drum WHUR 96.3 Howard University Radio (askthemoneycoach.com)
Child Tax Credit (turbotax.intuit.com)
Video: Learn About the New 2009 College Tax Credit (turbotax.intuit.com)

Ask The Money Coach

Posts Tagged ‘tax deductions’