Baby, baby, baby. From the time they are born until they graduate from college, children in the household can greatly affect the family tax situation. If you’re wondering which federal income tax deductions or credits may make sense for your household, take a look at some that are available.
Born on New Year’s Eve: Any child born in 2014 -- even up to the last minute of the year – can be claimed for the entire year.
Child Tax Credit: This credit is worth up to $1,000 for each qualifying child. A qualifying child must be under age 17 and be either a son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or descendant of any of the former (including grandchild, niece and nephew). This credit is nonrefundable, and can only reduce your income tax.
Dependent’s Exemption: You can claim a dependent’s exemption of $3,950 for each qualifying child. Children who are working cannot claim their own exemptions if they qualify to be claimed as a dependent.
Earned Income Tax Credit: The refundable credit can reduce or eliminate your tax liabilities if you are an eligible low- to moderate-income wage earner with and without children. For families without children the credit is $496 and, for families with three or more children, the maximum credit is $6,143.
Child and Dependent Care Credit: If you’re employed or looking for work and must pay someone to care for dependents under age 13, or for a qualified disabled person, you may be able to take this credit for up to 35% of qualified child and dependent care expenses. Qualified expenses up to $3,000 may be allowed for one eligible child or dependent, and $6,000 for two or more.
Education Credits for Children in College: Several credits are available for families with children or family members in college. Qualifying higher education expenses, such as tuition and fees paid for you, a spouse, or a dependent may be deductible. The American Opportunity Tax Credit will be available through 2017. Taxpayers may deduct qualified education expenses up to $2,500 per eligible student. The credit is available for up to 100 percent of the first $2,000 in expenses, fees and tuition, and 25 percent of the next $2,000 in education expenses.
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