The Daily Deduction

Celebrating Parents Everywhere on This Holiday

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Happy Parents’ Day to all the families in the eSmart Tax Community! Knowing about credits and deductions for parents can help you make smart tax decisions for you and your family.

The Child Tax Credit provides up to $1,000 for every child under 17 in your care if you meet certain income requirements.>For couples filing joint returns, the credit phases out if your adjusted gross income exceeds $110,000. The phase-out starts at $75,000 for single parents. If your filing status is Married Filing Separately, the phase-out begins at $55,000.

You may be able to take the Earned Income Tax Credit if you have less than $3,300 in investment income and one of the following conditions apply:

Three or more children lived with you and you earned less than $46,227 ($51,567 if married filing jointly),

Two children lived with you and you earned less than $43,038 ($48,378 if married filing jointly), or

One child lived with you and you earned less than $37,870 ($43,210 if married filing jointly).

Child care can be a costly expense.According to Child Care Aware of America, the annual cost for center-based care for an infant is higher than one year of in-state college tuition at a four-year public college (in a time where education costs are double than what the previous generation paid!)Fortunately, the Child and Dependent Care Credit provides some relief. If at least one parent works, you can claim up to $3,000 of the total cost of child care for one qualifying child. If you have two or more qualifying children, you may be able to claim up to $6,000 of costs.

Also, your employer may exclude up to $5,000 from your taxable wages for child-care expenses if your employer offers a Dependent Care Flexible Spending Account option.This deduction may not be added on top of the child and dependent care credit, so you must decide which works best for you.

Federal tax credits are mainly offered for post-secondary education, although some states may offer tax relief for parents paying for parochial-school tuition and supplies for children in kindergarten through high school.

The American Opportunity Credit was recently extended through December 2017. It allows for a credit of up to $2,500 for tuition and related expenses for each of the first four years attending college at least half-time. Individuals who earn no more than $80,000 and couples earning no more than $160,000 are eligible for the full American Opportunity Credit.

If you don’t claim the American Opportunity Credit or a Tuition and Fees Deduction, the Lifetime Learning Credit may be the credit for you. It is a nonrefundable credit (a tax credit that can't reduce the amount of tax owed to less than zero) of up to $2,000 per tax return.The limit on the Lifetime Learning Credit applies to each tax return, rather than to each student.Though the half-time student requirement does not apply, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:

Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.

The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more inqualifying tuition and fees and has sufficient tax liability.

Income limits are lower than under the American opportunity tax credit. For 2012, the full credit can be claimed by taxpayers whose modified AGI is $62,000 or less. For married couples filing ajoint return, the limit is $124,000. The credit is phased out for taxpayers with incomes above these levels.

If you don’t claim either of the education tax credits, you still have the option to deduct up to $4,000 by taking the Tuition and Fees Deduction. The income limits for the tuition and fees deduction are $80,000 for single taxpayers and $160,000 for married couples filing jointl y

A qualified tuition plan, or 529 plan, can help you save on taxes while providing for your child’s education. The state-by-state 529 plans authorized by the Internal Revenue Service allow you to invest and earn interest on the funds without subjecting you to federal income taxes. You must ensure that the withdrawals are spent on eligible education expenses, including tuition and room and board. Otherwise, you’ll get hit with income taxes after the money is spent.

As a trusted name in households everywhere, the Liberty Tax Service family is committed to ensuring that everyone receives the highest standard of professional tax preparation.We’re equipping our customers with tax knowledge, tax planning advice, and financial tips so that all customers have the opportunity to make smart decisions when it comes money. That’s why we continue to share our tax knowledge through our social media networks and blogs. Continue to connect with us on the following social media networks:

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The Daily Deduction

Posted To: The Daily Deduction By: Lauryn on 7/28/2013 02:15:00 AM
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