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.
And since those figures don’t even include college, just send my husband and me to the poorhouse now. We’ve got three kids to raise, and every year the costs of everything seem to only increase.
At tax time, however, many parents don’t realize what a financial blessing our children can be. In other words, those same little rascals who drain our pockets all year long now actually come in pretty handy when it comes to dealing with Uncle Sam.
Here’s a look at 10 things the IRS wants parents to know when filing taxes this year.
These tax perks and benefits almost make me want to have another kid. Well, almost.
In most cases, you can claim your child as a dependent on your tax return. That starts from the year in which your son or daughter was born and generally runs until he or she is under age 19 or under age 24. Here’s more detailed advice on the age limits on claiming a child as a dependent. Also, for more information, see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
2. Child Tax Credit
You may be eligible to claim this juicy tax credit for each of your children under age 17. If you can’t take the full amount of the Child Tax Credit, you may qualify for the Additional Child Tax Credit. For more information, see IRS Publication 972, Child Tax Credit.
3. Child and Dependent Care Credit
Like I mentioned, children aren’t cheap. So you may be working in order to feed those hungry mouths. If that’s the case, and you pay someone to car for your child or children under age 13 so that you can go to work, or even just look for work, you may be able to claim the Child and Dependent Care Credit. Check out IRS Publication 503, Child and Dependent Care Expenses, for more details on this one.
4. Earned Income Tax Credit
The Earned Income Tax Credit, or EITC, is a tax benefit for certain low-to-moderate income people who have earned income from wages, self-employment or farming. The EITC reduces the amount of tax you owe and may also give you a big, fat refund.
If you’re filing your federal income tax return for the 2011 tax year, the maximum Earned Income Tax Credit you can get is:
- $5,751 with three or more qualifying children
- $5,112 with two qualifying children
- $3,094 with one qualifying child
- $464 with no qualifying children
In tax year 2012, the maximum EITC credit you can receive is:
- $5,891 with three or more qualifying children
- $5,236 with two qualifying children
- $3,169 with one qualifying child
- $475 with no qualifying children
If those numbers are making your eyes pop, you should definitely read up more on the EITC. Here are three things you probably didn’t know about the EITC. Furthermore, IRS Publication 596, Earned Income Credit, has more details about this valuable tax credit.
5. Adoption Credit
According to the IRS, You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with required adoption-related documents. For details, review the instructions for IRS Form 8839, Qualified Adoption Expenses.
6. Children with earned income
You child may not be bringing home serious dollars like Will Smith and Jada Pinkett Smith’s offspring. Nevertheless, if your child has income earned from working, they may be required to file a tax return. For more information, see IRS Publication 501.
7. Children with investment income
Under certain circumstances a child’s investment income may be taxed at their parent’s tax rate. For more information, see IRS Publication 929, Tax Rules for Children and Dependents.
8. Higher education credits
The price tag of a college education has skyrocketed, putting the cost of higher education out of reach for many middle-class families. If you’re shelling out big bucks for your child’s college tuition and other costs, education tax credits can help offset the costs of higher education.
The American Opportunity and the Lifetime Learning Credits are education credits that can reduce your federal income tax dollar-for-dollar. See IRS Publication 970, Tax Benefits for Education, for details.
9. Student loan interest
You know that student loan you signed or co-signed for? You may be able to deduct interest paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970.
10. Self-employed health insurance deduction
If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage for any child of yours who was under age 27 at the end of the year, even if the child wasn’t your dependent.
Use these tax benefits to get at least some relief from the cost of raising children. And if all you can’t nab any of these perks, tell those kids of yours it’s time for them to get a job! Hey, even a seven-year old can walk a neighbor’s dog, right?