Following are some basic tax breaks related to children. Consult with your tax advisor for more details, as this information is not intended to be tax advice.
- The Basic Exemption. For each child living with you, you can claim a $ 3,500 exemption for 2008, if your income doesn't exceed a certain amount.
- The Child Tax Credit. People supporting children under 17 can claim a $1,000 (for 2008) tax credit each year per child. Your income must not exceed a certain amount to qualify.
- The Adoption Credit. You can also claim an adoption tax credit, if applicable, for a child under 18, for up to $11,650 of qualified adoption expenses for 2008.
- Educational Tax Credits. These include the Hope Credit and Lifetime Learning Credits.
- 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.
- Your Child's Part-Time Job Income. In 2008, your dependent child is entitled to a standard deduction equal to the greater of $900, or $300 plus earned income (up to the regular standard deduction).
- 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 (in 2007) a year for one child ($1,200 to $2,100 for 2 or more children), 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 investment income exceeding $1,800
- Form 8839, for adoption credits
- Publication 8863, for Education credits (Hope and Lifetime Learning Credits)
- Publication 970, for tax benefits for education
- Publications 972, for Child Tax Credits
- Publication 4156, for From Birth through Childhood Tax Benefits and Credits
For tax forms, visit the IRS Web site.
- Did You Know...?
If your child is under age 18, and has investment income of more than $1,800 in 2008, the excess will be taxed at your top marginal tax rate. (Established in 1986, this law was created to prohibit sheltering parents' money in children's accounts.) Children get $900 of non-taxable income; the next $900 is taxed at a child's rate; the excess at the parent's top rate. For taxable years beginning after May 25, 2007, the “kiddie tax” also applies to 18 year old children and 19 to 23 year old full-time students who do not provide at least half of his or her own support with earned income.
- 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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