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Children are a joy, no doubt—at least most of the time. But they can also be expensive, as we are reminded every fall at back-to-school time. Backpacks, school supplies and new clothes may reduce your bank account, but it’s a good idea to plan or review the tax saving you may be eligible for as a parent or guardian.
Additional child credit for low-incomers. If you claim the child tax credit and it more than wipes out your tax liability, you may qualify for this additional credit, which can trigger a refund check from the IRS.
Adoption credit. You can claim a tax credit for up to $13,460 of adoption expenses paid in 2016. If you adopt a child with special needs, you get the full credit even if the adoption cost is less.
Dependent care credit. You can earn a tax credit for payments made to care for a child under the age of 13, or other qualifying dependent, while you work. This also includes day camps for sports and dance, and kindergarten.
Earned income tax credit. This is a special tax credit for low-income workers. Whether you qualify for the credit and the exact size of the credit depends on your income, your filing status and the number of children who live with you.
Exchange students. If you have an exchange student living with you, you can deduct $50 a month as a charitable contribution for your out of pocket expenses.
State college savings plans. State college savings plans (often called “529 plans” after the section of the tax law that authorizes them) allow you to save money, tax-free, to pay for college. Although contributions are not deductible on your federal return, many states permit residents to deduct contributions on state returns.
The American Opportunity Tax Credit or Lifetime Learning Credit is available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the taxpayer, spouse and dependents. The American Opportunity Tax Credit provides a credit for each eligible student, while the Lifetime Learning Credit provides a maximum credit per tax return.
Though a taxpayer often qualifies for both of these credits, he or she can only claim one of them for a particular student in a particular year. The credits apply to eligible students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. The credits are subject to income limits that could reduce the amount claimed on your tax return.
To make sure you take advantage of all the credits and deductions for which you are eligible, be sure speak with your tax professional.