Children Offer Parents Some Great Tax Benefits

Between child tax credits, child and dependent care credits, an increase in deductions and exemptions, children do give parents some great tax benefits.

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Chapter from TaxAssurances’ Book: Child Tax Credit

The following post is a chapter in the TaxAssurances’ book, “Top 12 Tax Deductions You Might Have Missed. Tax Tips For People Who Do Their Own Federal Taxes.”

You can purchase the full book on Amazon.

Chapter 1 Child Tax Credit

Besides being a blessing to a parent’s life, children can provide some real tax benefits. There are a few to consider.

First and foremost, they increase the number of exemptions and deductions a parent can have on their tax return. That’s a great start. But in this chapter, we’ll specifically discuss the child tax credit.

The $1,000 credit per child helps lower a parent’s tax liability for the year. And parents can use the credit for each one of their children.

There are some requirements to take the child tax credit and the IRS has provided some guidance. Here’s exactly what they say:

A qualifying child for purposes of the child tax credit is a child who:
1. Is your son, daughter, stepchild, foster child, adopted child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, your grandchild, niece, or nephew),
2. Will be under age 17 at the end of the year,
3. Did not provide over half of his or her own support for the year,
4. Lived with you for more than half of the year (with certain exceptions),
5. Is claimed as a dependent on your return,
6. Does not file a joint return for the year (or files it only to claim a refund of withheld income tax or estimated tax paid), and
7. Was a U.S. citizen, a U.S. national, or a U.S. resident alien. For more information, see Pub. 519, U.S. Tax Guide for Aliens. If the child was adopted, see Adopted child, later.

Now, it is worth noting that the IRS imposes limits on taking the credit. Also, some parents may not be able to take the credit at all. Here’s what they says about those limits specifically:

You must reduce the maximum credit amount of $1,000 for each child if either (1) or (2) applies.

1. The amount on Form 1040, line 47; Form 1040A, line 30; or Form 1040NR, line 45, is less than the credit. If this amount is zero, you cannot take this credit because there is not any tax to reduce. But you may be able to take the additional child tax credit. This credit is for certain individuals who get less than the full amount of the child tax credit. The additional child tax credit may give you a refund even if you do not owe any tax.

2. Your modified adjusted gross income (AGI) is more than the amount shown below for your filing status.
a. Married filing jointly – $110,000.
b. Single, head of household, or qualifying widow(er)
– $75,000.
c. Married filing separately – $55,000.

Now if that seems confusing don’t worry. The tax prep software works out the details for you. Just know that it is a credit that should appear on your tax return if you qualify.

So if you’re a parent that meets all of these qualifications, make sure you include all your child’s information on your tax return. It can help lower your taxes and potentially get you a larger tax refund.

For more information about the child tax credit and the additional child tax credit, read IRS Publication 972 on the IRS.gov website.

Again, You can purchase the full book on Amazon.

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Ten Things to Know About the Child and Dependent Care Credit

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Child care is expensive. Month in and month out, parents across the country work hard to pay for childcare. Thankfully there is some tax relief from the government.

Lawmakers years ago recognized that parents needed some sort of relief from the childcare cost burden. The relief caps out at a certain amount and it doesn’t cover every dollar spent but it does help some.

Here’s IRS guidance on how to take advantage of the child and dependent care credit:

Ten Things to Know About the Child and Dependent Care Credit

If you paid someone to care for your child, spouse, or dependent last year, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are 10 things the IRS wants you to know about claiming a credit for child and dependent care expenses.

  1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.
  2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
  3. You – and your spouse if you file jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or were physically or mentally unable to care for themselves.
  4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.
  5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
  6. The qualifying person must have lived with you for more than half of 2010. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. See Publication 503, Child and Dependent Care Expenses.
  7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
  8. For 2010, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
  9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
  10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. See Publication 926, Household Employer’s Tax Guide.

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The President and First Lady’s Full Tax Return for 2015

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The President and First Lady’s Full Tax Return for 2015

https://www.whitehouse.gov/sites/whitehouse.gov/files/images/Blog/Obamas%202015%20Taxes.pdf

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IRS Rules on Deducting Charitable Giving

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Every year people give away billions in money and items to charities. This giving helps people in need. There are tax benefits that can come with that giving. To help provide guidance on that giving, the IRS has guidelines. Here are the guidelines:

Rules for Charitable Contributions of Clothing and Household Items

To be tax-deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Donors must get a written acknowledgement from the charity for all gifts worth $250 or more that includes, among other things, a description of the items contributed. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

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Federal Government Spending on the E.B.T. Card

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The E.B.T. card. For many people, it creates a heated controversy on its need, use, waste and fraud.

In 2015, the federal government spent $103 Billion on E.B.T. card related benefits through the Department of Agriculture.  That’s 2.78% of the $3.7 Trillion that the federal government spent overall in 2015.

Here’s how it was spent and a description of the programs it was spent on:

  • $76 Billion on SNAP

http://www.fns.usda.gov/snap/supplemental-nutrition-assistance-program-snap

  • $21 Billion on Child Nutrition

https://fnic.nal.usda.gov/lifecycle-nutrition/child-nutrition

  • $6 Billion on WIC

http://www.fns.usda.gov/wic/women-infants-and-children-wic

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Money Clubs for Children

zealblack2bboy2band2bpiggy2bbankStarting an after school money club with a few other classmates can go a long way in the development of a child’s understanding of money. They can not only arrange trips to the bank together but they can also sit down every so often and talk about how money affects their lives. This provides a great experience that can go a long way in a child’s understanding of money.

Today many schools do not make money management a part of their daily curriculum. There are a number of very valid reasons why. Something has to be done however to bridge the money intelligence gap. The reason, at a certain point every child will grow up and have to be money smart. Without lessons on money they will have a financial intelligence gap that could hinder them. It won’t help with their family and it won’t help their work life.

Take Children to the Bank

Clubs can do a number of things to promote childhood understanding of money. As mentioned earlier members can take monthly trips to local banks. While they are there, club members can deposit allowance, birthday and holiday money they get from family and friends. They can talk with the tellers, bank managers and other employees about their accounts and how they work. They can also go over many other aspects of banking.

Children Share Reports on Money with Each Other

The young members of the club can also do reports on different aspects of money management and share those finding with their fellow members. They can go over the history of money, report on how salaries work or explain to each other how bills are paid. However, no matter what the money report is about each member gets something that they might not have received before. Those who have, can add to the conversation.

Parents Share Money Ideas with the Club

Another great way for children to bridge the money intelligence gap is to have parents come into the meetings with their own experiences with how to handle money. Parents can do this on their own, through the PTA or working with the local bank representatives.

Children look up to adults and parents especially. Parents can work together on the right ideas and presenters to give their children the best lesson they can on how to handle money.

Children of all ages can start or continue the process of learning about money management along with everything else they need to learn. The challenge however has been how to make that learning happen on a regular basis. Starting and expanding a money club can go a long way in encouraging that learning process.

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