Following are some basic tax breaks related to children. Consult with your tax advisor for more details.

1. The Basic Exemption. For each child, you can claim a $3,200 exemption in 2005, if your income doesn't exceed a certain amount.
2. The Child Tax Credit. Thanks to the Taxpayer Relief Act of 1997, people supporting children under 17 can claim a $700 (in 2005-2008) tax credit each year per child. Your income must not exceed a certain amount to qualify.
3. The Adoption Credit. You can also claim an adoption tax credit, if applicable, for a child under 18, for up to $10,160 of qualified adoption expenses.
4. Educational Tax Credits. These include the Hope Credit and Lifetime Learning Credits.
5. Deductions on Educational Related Interest. Interest on loans is deductible up to $2,500. There is an income limit, though, to qualify for the deductions.
6. Child Care Credits. You may qualify for child-care income-tax credits, as long as you pay your baby-sitter or day-care center by check and keep accurate records. The credit (which acts as an immediate tax reduction) ranges from $600 to $1,050 a year for one child ($1,200-$2,100 for two or more), depending on your income.

Tax Forms Relating to Children

• Form 2441, to claim the tax credit of a child, or other dependent care expenses.
• Form 8615, to claim child's income exceeding $1,400.
• Form 8839, for adoption credits.
• Publication 605, for educational tax credits.

For tax forms, visit the IRS Web site.  

• Did You Know...?
  You can try to maximize earnings and minimize taxes through several tax-advantaged strategies. Investing in tax-free municipal bonds or bond funds, setting up a trust, and making a gift under the Uniform Gift to Minors Act are three ways to possibly lower the tax bite. Consult your tax advisor and attorney regarding these approaches.

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