Yes, they may literally eat you out of house and home. And thinking about their college costs may keep you up at night. Kids are costly and messy, but here's the good news--your children may help reduce the amount of taxes you owe this year.
If you're a parent, here are 10 tax benefits you should look for when you file your federal tax return:
1. Dependents. In most cases, you can claim your child as a dependent. You can deduct $4,000 for each dependent you are entitled to claim. You must reduce this amount if your income is above certain limits.
For more on these rules see Publication 501, Exemptions, Standard Deduction and Filing Information.
2. Child Tax Credit. You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit.
3. Child and Dependent Care Credit. You may be able to claim this credit if you paid for the care of one or more qualifying persons. For example, dependent children under age 13 are among those who qualify. You can claim the credit only if the care you pay for allows you to work or look for work. See Publication 503, Child and Dependent Care Expenses, for more on this credit.
4. Earned Income Tax Credit (EITC). This is a benefit for working people with low to moderate income. If your child is a qualifying child (based on their relationship to you, age and residency) you may be eligible. Remember, only one person can claim the same child.
5. College Savings Plans. Yes, they do grow up so fast and before you know it you're not only talking about college, you're paying for it. For parents anticipating college tuition, a 529 plan is available in most states and works as a tax shelter for savings earmarked solely for post-secondary education.
6. Education Tax Credits. For parents who are already paying those college bills, you need to know about two credits here that can help you with the cost of higher education. The American Opportunity Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If these credits reduce your tax to less than zero, you may even get a refund. Even if you don't owe any taxes, you still may qualify.
7. Tuition and Fees Deduction. Make sure your tax pro is up to date on tuition and fees deductions for qualified education expenses. This can reduce the amount of your income subject to tax by up to $4,000. You can't claim this deduction if your filing status is married, filing separately or if another person can claim an exemption for you as a dependent on his or her tax return.
8. Student Loan Interest. Students, this one is for you. Those of you who are up to your ears in debt can use some help. You may be able to deduct the interest you paid on a qualified student loan. You can claim this benefit even if you don't itemize your deductions.
9. Self-employed Health Insurance Deduction. If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid during the year. This may include the cost to cover your children under age 27, even if they are not your dependent. See Publication 535 Business Expenses, for details.
10. Adoption Credit. You may be able to claim a tax credit for certain costs you paid to adopt a child. For details see IRS Form 8839, Qualified Adoption Expenses. Better yet, get to a tax pro who already knows these rules.
As a father, I know every penny really does count. Why not let your kids help you save more on your taxes? After all, they're just going to take that money from you anyway. New iPhone, Dad? Pleeeeease......
Enjoy the journey!