By Alan L. Olsen, MBA, CPA (tax)
Greenstein, Rogoff, Olsen and Co., LLP
While many Americans are choosing pets over children, they fail to see the benefits in having posterity. A child is someone who can care for you when you are older, someone to pass on your family name to, someone to make you laugh and someone to give you a few extra tax benefits. As families with children see their expenses spread thin, they can feel reassured that there are most likely tax credits heading their way.
If you have children, review the following tax credits to see if you will qualify for them on your tax return:
1. Child Tax Credit
The child tax credit can be taken by parents who have a child under the age of 17. The child must have lived with the parents for more than half of the year and must have an eligible relationship with their care-taker. They must also be a US citizen or resident. Also, the child must not have provided for more than half of their support during the given year. The child tax credit is worth up to $1000 per qualifying child. There are phase out limits for the credit. If you are married and filing jointly, the phase out for adjusted gross income is $110,000. For all other taxpayers, the phase out is $75,000.
2. Adoption Credit
If your family has recently had an addition through adoption, you may be eligible for this credit. The adoption credit is a refundable credit for expenses that were used in adopting a child. According to the IRS website, qualified expenses for the credit include:
-Traveling expenses (meals and lodging included)
-Other expenses related to the legal adoption of an eligible child
In order to claim the credit, you must attach Form 8839 to your tax return with appropriate adoption paperwork (you can find what appropriate documentation is in Form 8839 instructions line 1). There are certain income and filing status requirements to qualify for this refundable credit.
3. Child and Dependent Care Credit
Do you hire care for a dependent age 12 or younger or a child or spouse with disabilities while you work or look for work? If yes, then you may be eligible for the Child and Dependent Care Credit. There are some requirements that you must meet to qualify for the credit. The individual that you hire to care for your child cannot be your spouse. Your dependent must have lived with you for over half of the year to qualify. Expenses from hiring a cook, nanny or housekeeper also qualify if the services benefit the qualifying child or spouse. The maximum amount for the credit is 35% of qualifying expenses . Qualification for the credit is dependent upon your adjusted gross income. For more information on qualifying expenses see IRS Form 2441.
4. American Opportunity Credit
If you have children in college, you may qualify for this credit. The American Opportunity Credit is a refundable credit that can be applied for expenses incurred from tuition, books, school supplies, equipment (such as a laptop), etc. for the first four years of post-secondary education. This credit can be refundable for up to 40% of $2500 paid in tuition and other fees. The maximum refundable credit that you can receive for this is $1000.
5. Lifetime Learning Credit
The Lifetime Learning Credit is a credit that you can be eligible for if you have a dependent on your tax return that is in a post-secondary education program. If you claim your child as a dependent on your tax return, any fees that have been paid for tuition are treated as if the parent had paid them. Additionally, a child cannot claim the credit if they are a dependent on your tax return. This credit is equal to 20% of out of pocket expenses for qualified tuition and related expenses up to a maximum of $10,000. The maximum amount that you can claim for this credit is $2000.
6. Earned Income Tax Credit
If you have a home that brings in a low to moderate income, you may qualify for this credit. You must have earned income during the year to receive the credit.
According to the IRS website, for the 2011 tax year, you can receive the following maximum credit amounts:
• $5,751 with three or more qualifying children
• $5,112 with two qualifying children
• $3,094 with one qualifying child
• $464 with no qualifying children
There are several qualifications that you must meet to receive the credit including limits on your adjusted gross income (AGI). For example, a couple with three or more qualifying children can only receive the credit if they file jointly and have an AGI of less than $49,078. To see if you meet qualifications see http://www.irs.gov/individuals/article/0,,id=233839,00.html
There are many opportunities for tax credits that you can qualify for if you have children. You should seek help from a tax professional to determine if you are eligible for the above tax credits. To learn more about these credits, please visit www.irs.gov.
Alan L. Olsen is Managing Partner at Greenstein, Rogoff, Olsen & Co., LLP, a leading CPA firm in the San Francisco Bay Area. With more than 25 years of experience in public accounting, Alan works with some of the most successful venture capitalists in the world, developing innovative financial strategies for individuals and businesses. Olsen is also host of KDOW 1220AM’s radio show Alan Olsen’s American Dreams.