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Tax Savings for Parents: Tax Credits and Deductions Parents Need to Know

Tax Savings for Parents: Tax Credits and Deductions Parents Need to Know

Do you have children?

Though your little bundle of joy taps into your pocket book throughout the year, but during tax time, they can help you put money back into your pockets.

According to the U.S. Department of Agriculture, it will cost a middle-income family approximately $226,920 to raise a child born in 2010 through age 17.

Fortunately, the cost per child decreases for additional children and may be less depending on your cost of living.

Similarly, the more children you have, the bigger your tax savings. Uncle Sam offers several family-oriented tax benefits. Determining which ones you qualify for can be confusing because of rules about filing status, itemized deductions and income levels.

Whether you do your own taxes or hire a professional, it’s good to have a general idea of which tax breaks are available. If you don’t qualify this year, you may in the future.

Here are several popular credits and deductions for children and families available that you need to know:

Earned Income Tax Credit

Every year, millions of taxpayers who qualify don’t claim the Earned Income Tax Credit.

Families earning less than $50,270 in 2012 may receive this credit worth up to $5,891, depending on income level and number of qualifying children.

If the credit eliminates taxes owed, you can receive the remaining amount as a refund. Married taxpayers must file joint returns.

Child & Dependent Care Credit

If you pay for the care of children under 13 years of age so you (and your spouse) can work, find work or attend school, you may be eligible for the Child & Dependent Care Credit.

Examples of care include nursery school, pre-school, before and after school care, day camps (no overnight) and in-home nanny care. The credit is worth 20 to 35% of your expenses, up to $3,000 for one dependent or $6,000 for two or more dependents but phases out at higher income levels.

Child Tax Credit

The Child Tax Credit is worth up to $1,000 per qualifying child if your 2012 modified AGI is less than $110,000 on joint returns, $55,000 on married filing separate returns or $75,000 for other filing statuses.

If you receive less than the full amount because the credit eliminates your tax bill, you may qualify for the refundable Additional Child Tax Credit.

Medical and Dental Expenses

If your family’s unreimbursed medical and dental expenses in 2012 exceed 7.5% of adjusted gross income (AGI ), you can claim the amount above 7.5% as an itemized deduction.

Expenses must be for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment.

Premiums for medical, dental and some long-term care insurance, and transportation costs primarily for and essential to medical care may also qualify. Only prescription medication and insulin are eligible.

Adoption Credit

The Adoption Credit will cover up to $12,650 in adoption expenses for 2012 depending on your income.

Expenses include court costs, adoption agency fees, attorney fees and travel. The credit is non-refundable for 2012, and your return and adoption-related documents must be mailed to the IRS.

Alimony or Back Alimony

If you paid alimony or back alimony in cash during 2012, you can deduct that amount even if you claim the standard deduction.

Property settlements, child support, and lump-sum alimony paid are not deductible.

If you received alimony, the IRS considers that taxable income; however, child support received is not taxed.

Qualified Tuition Programs and Coverdell Education Savings Accounts

Some education savings plans offer tax benefits.

A portion of distributions and earnings from Qualified Tuition Programs and Coverdell Education Savings Accounts for education expenses are generally tax free.

Plus, up to $2,000 in annual contributions to Coverdell Savings Accounts are tax free depending on your income level.

Student Loan Interest Deduction

Have children in college? If you claim them as dependents, you may qualify for the Student Loan Interest Deduction, American Opportunity Credit or Lifetime Learning Credit.

Photo credit: peasap via photopin cc

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