Top Ten Tax Tips for Parents

Ten Tax Benefits for Parents 

Did you know that your children may help you qualify for some tax benefits? Here are 10 tax benefits the IRS wants parents to consider when filing their tax returns this year.

1.     Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2.     Child Tax Credit You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3.     Child and Dependent Care Credit You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.

4.     Earned Income Tax Credit The EITC is a benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.

5.     Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child.  Taxpayers claiming the adoption credit must file a paper tax return because adoption-related documentation must be included.  For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6.     Children with Earned Income If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.

7.     Children with Investment Income Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.

8.     Higher Education Credits Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income.  For more information see IRS Publication 970, Tax Benefits for Education.

9.     Student loan Interest You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.

10.   Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage after March 29, 2010, for any child of yours who was under age 27 at the end of 2010, even if the child was not your dependent. For more information see the IRS website.

Tax planning is an important component of Financial Planning.  It is important to know the laws and use a licesned professional to guide you. 

Tax Season is Here

Tax Season is here.  Its important to know which form to file.

Choose the Simplest Tax Form for Your Situation

To file your 2010 individual tax return, you’ll have to decide which form to use…unless you e-file.  This year, choosing which form to file will be even more important since the IRS will no longer be mailing paper tax packages. The IRS is taking this step because of the continued growth in electronic filing, the availability of free options to taxpayers and to help reduce costs. If you file your return using IRS e-file, the system will automatically decide which form you need.

Here are some general rules to consider when deciding which paper tax form to file.

Use the 1040EZ if:
• Your taxable income is below $100,000
• Your filing status is Single or Married Filing Jointly
• You and your spouse – if married -- are under age 65 and not blind
• You are not claiming any dependents
• Your interest income is $1,500 or less

Use the 1040A if:
• Your taxable income is below $100,000
• You have capital gain distributions
• You claim certain tax credits
• You claim adjustments to income for IRA contributions and student loan interest

If you cannot use the 1040EZ or the 1040A, you’ll probably need to file using the 1040. Among the reasons you must use the 1040 are:
• Your taxable income is $100,000 or more
• You claim itemized deductions
• You are reporting self-employment income
• You are reporting income from sale of property

Tax preparation is an important part of your overall financial plan.  Its also a great time of year to sit down with your financial advisor as to whether or not you are adequately protected.  Its a great time to review and discuss life insurance, wills, trusts, estate tax needs, and other items on your financial to do list.