Get a Deduction Just For Your Kids

If you’re a parent, you may find some comfort in the fact that your children can actually save you money. While most of your parenthood is spent, spending, the IRS offers you a tax deduction just for having kids. The following tax savers may come in handy for your family, as far as putting a little extra cash back into your budget.

• Child Tax Credit allows parents to deduct $1,000 per child under the age of 17. Taxpayers who are married and file jointly with an AGI more than $110,000 may be eligible for a reduced credit of $50 over the AGI limit.
• The dependent exemption allows parents to save $4,000 per eligible child, in so much so that that amount of the parents’ income will remain untaxed. Generally, taxpayers in the 25% bracket can save $1000.
• The Child and Dependent Care Credit can save parents who pay for care of their child while they work. There are certain requirements that must be met in order to claim the expenses, and can be worth up to $600 for one dependent.
• The Adoption Tax Credit is excellent for those who adopted a child during the tax year. This tax credit can cover $13,190 worth of adoption expenses, and has certain limitations for parents at specific income levels.
• If you chose to employ your own child, under the age of 18, following specific child employment protocol, you may be able to save money at tax time. While you have to file a W-4 and complete all paperwork for employing a child, you may be able to save tax dollars by paying up to the maximum standard deduction, before you’re required to pay employment and income taxes.

The Future is Bright with Tax Benefits

Are you planning for retirement by saving now? While you probably know that it’s a smart investment in your future, you may not be aware that retirement savings can net you some extra benefits at tax time. Retirement savings can positively affect your tax situation, though you are still responsible for any penalties or fees assessed for late or early withdrawals. There are several different types of retirement savings accounts, so depending on the type you have, the following tax facts apply:

• 401(k): if you want to save immediately, you can chose to defer paying the income tax on your contributions, and won’t be responsible to pay it until you withdraw the funds. You are allowed to defer tax on up to $18,000 of contributions to a 401(k), 403(b), or a Thrift Savings Plan.
• IRA: similar to the rules for a 401(k), you can defer tax on up to $5,500 of contributions made to a traditional IRA plan. You should consider making a contribution right before you file your taxes, as it can lower your tax obligation and possibly grant you a bigger refund.
• Roth IRA: money put into a Roth IRA is subject to the same limitations as a traditional IRA, however the contributions are made after taxes. When you begin distributions during retirement, the money is tax-free.
• Roth 401(k): while the tax benefit for this type of account isn’t immediate, you aren’t required to pay taxes on any withdrawals from accounts you’ve had longer than five years. Additionally, your savings can multiply with the worry of taxation on your contributions.

Other Retirement Savings

If you are an employee over the age of 50, you are eligible to add $6,000 to a 401(k) or IRA savings plan above the usual limitations. Traditional IRA contributions are finished at the age of 70 ½ so it’s important to plan as necessary.

Early withdrawals can be damaging to both your taxes and your retirement accounts. Early withdrawals occur when a taxpayer takes a distribution of their savings before age 59 ½. The withdrawals are taxed 10%, although exceptions are in place if the money is withdrawn from an IRA and used for college, first home purchase, medical bills, or health insurance.

After the age of 70 ½, you are required to begin distribution from your traditional IRA and 401 (k) plans. If you don’t take a minimum withdrawal amount, you could be penalized at up to 50% tax rate. You can delay your distributions from your current employer if you are still working at age 70 ½ and own less than 5% of the company.

Don’t forget about the Saver’s Credit. It’s in addition to other tax deductions for employees who file Single status and have an adjusted gross income of less than $30,500 ($45,750 head of household, $61,000 for married status). This credit benefit is between 10% and 50% of your current retirement savings, up to $2,000 for single filers, and $4,000 for couples. Basically, the less you make, the bigger you’ll get credit-wise.

Pay For Child Care, Get Credit

You may qualify for the Child Care Credit if you are employed and pay for childcare services where you work. There are certain requirements that you must meet in order to claim the credit on your federal tax return. Ask your tax adviser if you need help determining whether you qualify to claim the child care tax credit.

Which Types of Child Care Qualify?

Day care services are the most common types of child care that meets the criteria for the child care tax credit. While overnight camps do not qualify, day camp expenses are eligible. The child care services must be used so you can work or seek regular employment opportunities. Taxpayers can claim the credit whether they file single or jointly. If you are married and you claim the Child Care Tax Credit both you and your spouse must work, or be a full-time student.

Which Children Qualify?

Children who are your dependents and under age 13 who receive care from a qualified child care provider are eligible to have expenses considered under the Child Care Tax Credit. The age requirement is extended for children over the age of 12 who are physically or mentally incapable of self-care. The child must live in your residence for at least half of the year in order for their expenses to be eligible. Major life changes, such as birth, death, or divorce can alter the requirements.

Who is a Qualified Provider?

Certain providers, such as a nanny or babysitter, may provide child care in your home and still qualify. Your spouse does not qualify as a care provider in terms of the Child Tax Credit, nor does care services provided by another dependent child or a non-dependent under the age of 19.

What is the Maximum Credit?

If you pay for care for one child you can claim up to $3,000 of expenses, with the limit extended to $6,000 for two or more children. The credit is then assessed at 20 to 30% of your unreimbursed childcare expenses.

Which Form to File?

When filing your tax return, you must include Form 2441, Child and Dependent Care Expenses. You’ll be required to provide the child care servicer’s contact information, including name address and employer identification number.

Get Educated About these Tax Breaks

The IRS offers some tax breaks that can help you recover some of the money you spent on higher education, such as tuition costs or interest you’ve paid on student loans. This can help make your college education a bit more affordable in the long run.

Tax Credits

There are two different tax credits that you can assess to your expenses in terms of supplies, books, equipment fees, and tuition. These credits have different rules, so check to see which you qualify for:

• American Opportunity Credit: Claim up to $2,500 for the first four years of post-secondary school
• Lifetime Learning Credit: Claim up to $2,000 per student year, applicable to any fees or required tuition in order to attend

Students may be able to add some extra cash to their pocket even if they aren’t required to file a tax return. Some of the additional student credits may be available in these situations.

Student Loan Interest Deduction – If you used student loans to pay for your education, you are eligible to deduct any interest you paid during the tax year. This deduction works for any loans, not just federal loans, which were used for higher education. The deduction caps at $2,500 each year.

IRA Disbursements – You are eligible to use disbursements from your IRA in order to pay for higher education expenses for yourself, spouse or dependent. The total is subject to federal income tax, however you won’t be assessed early withdrawal fees.

Personal Exemption Is Your Gift

Don’t say the IRS doesn’t give you anything. While you’re forced to pay taxes, the IRS offers a personal exemption just for doing so. That means you get a deduction of a set amount each year just because you pay taxes. In 2015, the personal exemption amount is $4,000, which is an increase of $50 over last year.

There are no specific requirements in order to claim a personal exemption. They are available to every taxpayer who files a return. If you’re married, both you and your spouse are eligible to claim a personal exemption as long as they file jointly, meaning their return will have two exemptions listed. Those who file separately from their spouse are only able to claim their spouse’s exemption if the spouse has zero income and is not a dependent of another taxpayer.

Dependents who are claimed on another’s tax return are not eligible for a personal exemption. This generally occurs when children have income and have to file a tax return of their own, but are claimed as a dependent on their parent’s return. In these situations, the child cannot claim a personal exemption on their own return.