Are you getting all the tax breaks you’re entitled to as a parent?
If you are a parent, chances are that the 2012 tax law changes will affect you.
Several important tax breaks were scheduled to expire at the end of 2011. There was a wide expectation the breaks would eventually be extended for 2012, but Congress kept us all in suspense as long as possible.
Finally, on January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 (ATRA).
Thanks to ATRA, you may be able to take these extended tax breaks:
1. Liberalized education credits
The American Opportunity Tax Credit (AOTC), a more generous replacement of the Hope credit, provides a higher credit for more years of education than its predecessor. You may also get more money back due to the AOTC than you paid or had withheld in tax, which was not allowed with the Hope credit.
2. Extension of lowered tax rates
Permanent extension of lowered tax rates, including the 10% tax bracket for lower income taxpayers.
3. Larger child tax credit
The child tax credit had been temporarily increased from $500 to $1,000 per child. ATRA makes that increase permanent. It also makes permanent the additional child tax credit, which in some cases means you could receive a credit in excess of the taxes you paid or had withheld from your pay.
4. Above-the-line deduction for tuition and related education expenses
This provision lets you reduce your taxable income even if you don’t itemize your deductions. In addition, by lowering your adjusted gross income, it may help you qualify for other tax breaks.
5. Higher child and dependent care credits
You can take the credit based on up to $3,000 of child care expenses, or $6,000 if you have two or more children. Depending on your income level, you may be able to take a credit for up to 35% of those expenses (up from 30% if expanded benefits had not been extended).
6. Deduction for mortgage insurance premiums
Most homeowners, who must pay mortgage insurance premiums, generally because they have less than 20% equity in their homes, can continue to deduct the premiums along with their mortgage interest deduction.
7. Marriage penalty relief
The “marriage penalty” refers to multiple instances in the tax law where a married couple is treated less favorably than two single individuals. Marriage penalty relief seeks to remedy that; for instance, by setting the standard deduction for married couples at exactly twice the level of single filers. ATRA extends these remedies.
8. Adoption credit expansion
If you adopted a child, the maximum amount you can claim as a credit is higher than it would have been if the changes had expired. You can take a dollar-for-dollar credit for up to $10,000 in adoption expenses. If you adopt a special needs child, you can take the maximum credit, even if you spent less than that amount on adoption expenses.
In addition, there are dozens of other tax favors that were scheduled to expire at the end of 2011.
Most of the extended provisions don’t require you to do anything to take advantage of them. The expanded credits, deductions, and other calculations are built into TaxACT. You enter your information in the Step by Step sections, and we take care of the rest.
Other tax provisions can only help you if you know or are asked about them. For example, you must enter your adoption expenses and indicate you have adopted a special needs child, if that is true, to take advantage of the expanded adoption credit. Likewise, you can still deduct mortgage insurance premiums, so be sure to find them before you prepare your return.
How many tax breaks are you taking advantage of this year that are related to your children?