Raising a child is a gift few parents would give up but almost parents wish were less expensive. Paying for child care, food, medical bills, and the possibility of college tuition is certain to take is toll on your wallet. Fortunately enough for you, the parent, there are plenty of tax benefits and tax breaks set in place by the government to reduce your child’s, or children’s, impact on your checking account.
Deductions vs Credits
It is important to realize that there is a distinct difference between a tax deduction and a tax credit. A deduction is simply a discount on your household’s taxable income while a tax credit works like a gift card from the IRS. With a tax credit, you are able to subtract the exact amount from you bill or trade it in for cash on your refund.
Deduction for Parents
All parents are eligible for three main types of tax deductions: Exemptions, Tuition and Fees, and interest on student loans.
- An exemption is a per-person, tax-deductible amount. In 2009 each member of a household was eligible for an exemption of just over $3,500.
- If you are planning to assist your child with college fees and tuition, you are eligible of a tax deduction of up to $4,000 per year.
- There is a good chance that you will need to take out a college loan for your child, even if you have been saving. Luckily for you, up to $2,500 of these loans are also deductible.
Credits for Parents
For each child you have under the age of 17, you are awarded a tax credit of $1,000. The amount of children you receive this for is unrestricted but there are restrictions on income.
There are also several other tax credits available to parents:
- One for Child and dependent care,
- American opportunity (which is another discount for helping your child pay for their college tuition) and
- An Adoption credit (for parents of adoptive children).
Getting Help
The rules and regulation for both credits and deductions vary from case to case depending on your household income. If you are curious where you stand as far as credits and deductions go, it is important to speak with a qualified tax attorney who will be able to highlight all the tax benefits available to you.
