Ten Tax Benefits for Parents
It is received wisdom that come tax time children can bring benefits beyond those traditionally associated with raising a family. Taxpaying parents are indeed eligible for a slew of child-related tax benefits if they approach IRS rules and regulations knowledgeably, meaning with help and guidance from tax professionals, such as an enrolled agent or CPAs, who understand how to maximize these rules. Studies suggest that when families consult tax professionals over how best to leverage these special tax breaks they can save on-average $3,500 per tax year. This is not surprising since a tax enrolled agent is required to take continuing education tax courses in order to meet EA CPE requirements, which is essential for maintaining EA certification and the EA license. Enrolled agents are consequently some of the most informed tax professionals on the subject of tax breaks for parents.
Below are ten tax benefits that the IRS recommends tax professionals encourage their clients who are parents to consider when filing tax returns this coming year.
In majority of cases, a parent can claim a child as a dependent in the year that the child was born. For more information, tax professionals should consult IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
# 2-Child Tax Credit
Parents may be eligible for the child tax credit for every child under age 17. Clients who are not able to take advantage of the full amount of this credit may wish to consider the Additional Child Tax Credit. For more information, see IRS Publication 972, Child Tax Credit.
# 3-Child and Dependent Care Credit
One of the most commonly leveraged tax breaks for parents is the child and dependent care credit. Eligibility hinges on whether or not a client pays someone to care for a child under age 13 so that they can either work or job hunt. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
# 4-Earned Income Tax Credit (EITC)
The EITC is a benefit specifically for working individuals who claim earned income from wages, self-employment or farming. The advantages of this credit include reducing the amount of tax a client owes and possibly even bringing a refund. For more information, see IRS Publication 596, Earned Income Credit.
# 5-Adoption Credit
One of the more overlooked tax breaks for new parents is the adoption credit, a tax credit for qualifying expenses paid to adopt a child. Tax professionals should advise qualifying individuals to file a paper tax return because adoption-related documentation must be included. For more information, see the instructions for IRS Form 8839, Qualified Adoption Expenses.
# 6-Children with Earned Income
When children have earned income from a job, parents should be advised that these minors may be required to file a tax return. For more information, see IRS Publication 501.
# 7-Children with Investment Income
Enrolled agents and CPAs should also inform parents that under certain circumstances, a child’s investment income may be taxed at the parent’s tax rate. For more information on this rule, and the circumstances that may warrant this action, see IRS Publication 929, Tax Rules for Children and Dependents.
# 8-Higher Education Credits
Education tax credits are designed to help parents offset the expenses associated with educating their children. Two of the most popular such credits-the American Opportunity and the Lifetime Learning Credit-reduce a parent’s federal income tax dollar-for-dollar, unlike a deduction, which reduces taxable income. For more information, see IRS Publication 970, Tax Benefits for Education.
# 9-Student loan Interest
Tax Professionals have even greater news for parents with children in college. They may be able to deduct interest paid on qualified student loans. In this scenario, the deduction is claimed as an adjustment to income. eliminating the need to itemize deductions. For more information, see IRS Publication 970.
# 10-Self-employed health insurance deduction
Finally, there is good news for the self-employed who pay for health insurance. People in this category may be able to deduct any premiums paid for coverage (after March 29, 2010) on children under age 27 (at the end of 2010), even if the child was not the person’s dependent. For more information, see the IRS website.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.