Kid-friendly Tax Deductions
When Children Pay Off
Raising kids can cost a fortune. In fact, the cost of raising children grew 40 percent over the past decade. But as the economy continues to drift upwards, there are some hidden deals you can take advantage of to help lower your tax bill and put more money in your pocket. Here are a few:
- Child Tax Credit: This credit can save you $1,000 come tax season and possibly give you a tax credit. To qualify, you have to claim the kid as a dependent and there’s no limit as to how many kids you can claim. The child must be related to the taxpayer, or be a stepchild or foster child or adopted child and under the age age 17 at the end of the tax year. The credit will decrease to $500 in 2013.
- Adoption Tax Credit: Taxpayers who adopted a child can claim up to $13,360 for each adopted kid for the past six years on their 2011 tax return. But act fast: 2011 may be the last year it can be claimed.
- Child Support: If you make child support payments mandated by a divorce settlement, they’re tax-free to the recipient.
- American Opportunity Credit: Formerly called the Hope college credit, this credit is worth up to $2,500 every year a taxpayer has a son or daughter in college, for the first four years.
- Exchange Students: Did you open your home so a foreign student could study in the U.S. for a part of the year? Then you can deduct $50 a month as a charitable contribution.
- Foster Care Payments: Foster parents can play an important part of a child’s life, so the government excludes qualifying payments from state or local agencies from a taxpayer’s income. The payments must be for the care of a child placed in their home.
While raising or looking after children is no easy task, keeping track of your tax obligations can also be difficult. You can tell the kids to take out the trash, but don’t expect them to navigate a Form 1040.
So if you end up owing back taxes to the IRS, make sure to hire a tax attorney to help resolve it as favorably as possible. You could end up with more money in your pocket, which is pocket change your kids would be happy to have.