If you are a parent of school-age children, you know that raising a family is not for the financially faint of heart. Fortunately, the federal government has included several provisions in the tax code that offer you a fighting chance to minimize your tax liability. The following is a list of important tax credits that are available to you as a parent.
1. The Child Tax Credit
The most well-known tax credit related to parenthood is the Child Tax Credit. Depending upon your income, you could be eligible to receive a credit on your federal taxes for as much as $1000 per qualifying dependent child. It is important to understand that as your family’s income increases, the amount you are eligible to receive via the Child Tax Credit will decrease. There are many factors that go into determining the eligibility of each child you claim; among other qualifications, the child must be a dependent, reside with you for more than half the tax year, contribute less than half of his or her own financial support and must not have reached the age of 17.
2. The Child and Dependent Care Credit
If your children spend time with a qualifying day care provider, the Child and Dependent Care Credit is one of the most useful provisions in the tax code. This provision allows you, as the parent of children 12 years of age or under, to receive a credit of up to 35 percent of your expenses related to child care.
3. Your Child’s Personal Exemption
If you can legally claim a child as a dependent, you are permitted to claim his or her personal exemption as well as your own. Personal exemptions do not currently phase out with income and are set for the 2012 tax year at $3,800. As you can see, the ability to claim multiple children as dependents can significantly decrease your tax liability.
4. Educational Tax Credits
If one or more of your children is at least a half-time college student, you have many options for tax credits available to you. The Hope Credit, the American Opportunity Credit, the Lifetime Learning Credit, and various state tuition savings plans all offer you significant tax advantages and are available to most middle-class families.
As a parent, you face significant financial pressures. Over the years, the tax code has been revised to provide assistance to parents who deal with the financial realities of both child care and college tuition on a daily basis. If you take the time to examine your options carefully, you may find that the structure of today’s federal tax code provides welcome financial assistance to you and your family.
Russell Schaller is a tax-savvy freelance blogger who writes advice to help others maximize their tax savings. If you are a parent, you can find out how much you will save through child tax credits by using this tax credit calculator 2013/14 here http://taxcredits.net/working-with-children/.