Children may help reduce the amount of taxes owed for the year. If you’re a parent, here are several tax benefits you should look for when you file your federal tax return:

 

  •  In most cases, you can claim your child as a dependent. You can deduct $3,950 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.
  • 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. For more, see Schedule 8812 and Publication 972, both titled Child Tax Credit.
  • Child and Dependent Care Credit. MORE BELOW. You may be able to claim this credit if you paid for the care of one or more qualifying persons. Dependent children under age 13 are among those who qualify. You must have paid for care so that you could work or could look for work. See Publication 503, Child and Dependent Care Expenses, for more on this credit.
  • Earned Income Tax Credit.  You may qualify for EITC if you worked but earned less than $52,427 last year. You can get up to $6,143 in EITC. You may qualify with or without children. Use the 2014 EITC Assistant tool at IRS.gov to find out if you qualify. See Publication 596, Earned Income Tax Credit, to learn more.
  • Adoption Credit.  You may be able to claim a tax credit for certain costs you paid to adopt a child. For details see Form 8839, Qualified Adoption Expenses.
  • Education tax credits.  An education credit can help you with the cost of higher education.  There are two credits that are available. The American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the credit reduces your tax to less than zero, you may get a refund. Even if you don’t owe any taxes, you still may qualify. You must complete Form 8863, Education Credits, and file a return to claim these credits. Use the Interactive Tax Assistant tool on IRS.gov to see if you can claim them. Visit the IRS’s Education Credits Web page to learn more. Also see Publication 970, Tax Benefits for Education, for more on this topic.
  • Student loan interest.  You may be able to deduct interest you paid on a qualified student loan. You can claim this benefit even if you do not itemize your deductions. For more information, see Publication 970.
  • 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.

 

-Tax Facts about Exemptions and Dependents

Nearly everyone can claim an exemption on their tax return and it usually lowers your taxable income. In most cases, that reduces the amount of tax you owe for the year. .

  1. Exemptions cut income.  There are two types of exemptions. The first type is a personal exemption. The second type is an exemption for a dependent. You can usually deduct $3,950 for each exemption you claim on your 2014 tax return

 

  1. Personal exemptions.  You can usually claim an exemption for yourself. If you’re married and file a joint return, you can claim one for your spouse, too. If you file a separate return, you can claim an exemption for your spouse only if your spouse:
    • Had no gross income,
    • Is not filing a tax return, and
    • Was not the dependent of another taxpayer.
  2. Exemptions for dependents. You can usually claim an exemption for each of your dependents. A dependent is either your child or a relative who meets a set of tests. You can’t claim your spouse as a dependent. You must list the Social Security number of each dependent you claim on your tax return. For more on these rules, see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. You can get Publication 501 on IRS.gov. Just click on the “Forms & Pubs” tab on the home page.
  3. Report health care coverage. The health care law requires you to report certain health insurance information for you and your family. The individual shared responsibility provision requires you and each member of your family to either:
    • Have qualifying health insurance, called minimum essential coverage, or
    • Have an exemption from this coverage requirement, or
    • Make a shared responsibility payment when you file your 2014 tax return.

 

  1. Some people don’t qualify. You normally may not claim married persons as dependents if they file a joint return with their spouse. There are some exceptions to this rule.
  2. Dependents may have to file. A person who you can claim as your dependent may have to file their own tax return. This depends on certain factors, like the amount of their income, whether they are married and if they owe certain taxes.
  3. No exemption on dependent’s return.  If you can claim a person as a dependent, that person can’t claim a personal exemption on his or her own tax return. This is true even if you don’t actually claim that person on your tax return. This rule applies because you can claim that person is your dependent.
  4. Exemption phase-out.  The $3,950 per exemption is subject to income limits. This rule may reduce or eliminate the amount you can claim based on the amount of your income. See Publication 501 for details.

 

-Things You Should Know about the Child Tax Credit

  1.  The Child Tax Credit may help reduce your federal income tax by up to $1,000 for each qualifying child that you are eligible to claim on your tax return.
  2. Additional Child Tax Credit.  If you qualify and get less than the full Child Tax Credit, you could receive a refund even if you owe no tax with the Additional Child Tax Credit.
  3.  For this credit, a qualifying child must pass several tests:
    • Age test. The child must have been under age 17 at the end of 2014.
    • Relationship test. The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, or stepsister. The child may be a descendant of any of these individuals. A qualifying child could also include your grandchild, niece or nephew. You would always treat an adopted child as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
    • Support test. The child must not have provided more than half of their own support for the year.
    • Dependent test.  The child must be a dependent that you claim on your federal tax return.
    • Joint return test. The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.
    • Citizenship test.  The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
    • Residence test. In most cases, the child must have lived with you for more than half of 2014.

 

  1.  The Child Tax Credit is subject to income limitations. The limits may reduce or eliminate your credit depending on your filing status and income.
  2. Schedule 8812. If you qualify to claim the Child Tax Credit, make sure to check whether you must complete and attach Schedule 8812, Child Tax Credit, with your tax return. For example, if you claim a credit for a child with an Individual Taxpayer Identification Number, you must complete Part I of Schedule 8812. If you qualify to claim the Additional Child Tax Credit, you must complete and attach Schedule 8812. Visit IRS.gov to view, download or print IRS tax forms anytime.

-Children with Investment Income

Special tax rules may apply to some children who receive investment income. The rules may affect the amount of tax and how to report the income.

  1. Investment Income.  Investment income generally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.
  2. Parent’s Tax Rate.  If your child’s total investment income is more than $2,000 then your tax rate may apply to part of that income instead of your child’s tax rate. See the instructions for Form 8615, Tax for Certain Children Who Have Unearned Income.
  3. Parent’s Return.  You may be able to include your child’s investment income on your tax return if it was less than $10,000 for the year. If you make this choice, then your child will not have to file his or her own return. See Form 8814, Parents’ Election to Report Child’s Interest and Dividends, for more.
  4. Child’s Return.  If your child’s investment income was $10,000 or more in 2014 then the child must file their own return. File Form 8615 with the child’s federal tax return.
  5. Net Investment Income Tax.  Your child may be subject to the Net Investment Income Tax if they must file Form 8615. Use Form 8960, Net Investment Income Tax, to figure this tax. For more on this topic, visit gov.

Refer to IRS Publication 929, Tax Rules for Children and Dependents, for complete details on this topic. Visit IRS.gov/forms to view, download or print IRS forms and publications anytime.

 

 

-Reduce Your Taxes with the Child and Dependent Care Tax Credit

If you paid someone to care for a person in your household last year while you worked or looked for work, then readon about this important tax credit:

  1. Child, Dependent or Spouse. You may be able to claim the credit if you paid someone to care for your child, dependent or spouse last year.
  2. Work-Related Expense. The care must have been necessary so you could work or look for work. If you are married, the care also must have been necessary so your spouse could work or look for work. This rule does not apply if your spouse was disabled or a full-time student.
  3. Qualifying Person. The care must have been for “qualifying persons.” A qualifying person can be your child under age 13. A qualifying person can also be your spouse or dependent who lived with you for more than half the year and is physically or mentally incapable of self-care.
  4. Earned Income.  You must have earned income for the year, such as wages from a job. If you are married and file a joint tax return, your spouse must also have earned income. Special rules apply to a spouse who is a student or disabled.
  5. Credit Percentage / Expense Limits. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on the amount of your income. Your allowable expenses are limited to $3,000 if you paid for the care of one qualifying person. The limit is $6,000 if you paid for the care of two or more.
  6. Dependent Care Benefits.  If your employer gives you dependent care benefits, special rules apply. For more on these rules see Form 2441, Child and Dependent Care Expenses.
  7. Qualifying Person’s SSN. You must include the Social Security Number of each qualifying person to claim the credit.
  8. Care Provider Information. You must include the name, address and taxpayer identification number of your care provider on your tax return.
  9. Form 2441. You file Form 2441 with your tax return to claim the credit.

 

 

-Facts about Adoption Tax Benefits

If you adopted or tried to adopt a child in 2014, you may qualify for a tax credit. If your employer helped pay for the costs of an adoption, you may be able to exclude some of your income from tax.

 

  1. Credit or Exclusion.  The credit is nonrefundable. This means that the credit may reduce your tax to zero. If the credit is more than your tax, you can’t get any additional amount as a refund. If your employer helped pay for the adoption through a written qualified adoption assistance program, you may qualify to exclude that amount from tax.
  2. Maximum Benefit. The maximum adoption tax credit and exclusion for 2014 is $13,190 per child.
  3. Credit Carryover.  If your credit is more than your tax, you can carry any unused credit forward. This means that if you have an unused credit in 2014, you can use it to reduce your taxes for 2015. You can do this for up to five years, or until you fully use the credit, whichever comes first.
  4. Eligible Child. An eligible child is under age 18. This rule does not apply to persons who are physically or mentally unable to care for themselves.
  5. Qualified Expenses. Adoption expenses must be directly related to the adoption of the child and be reasonable and necessary. Types of expenses that can qualify include adoption fees, court costs, attorney fees and travel.
  6. Domestic or Foreign Adoptions.  In most cases, you can claim the credit whether the adoption is domestic or foreign. However, the timing rules for which expenses to include differ between the two types of adoption.
  7. Special Needs Child.  If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you didn’t pay any qualified adoption expenses.
  8. No Double Benefit. Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you can’t claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.
  9. Income Limits.  The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on the amount of your income.

 


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