Re: Tax season is approaching and I’m wondering if I’m eligible for any breaks if I have children?
Yep, kids = deductions, credits, and exemptions. Here are some guidelines my own tax pro gave me:
Everyday costs: The IRS gives you a $3,500 exemption for each child, which means you can lower your income by that amount for tax calculation purposes. For example, if you and your husband earn $100,000, you could calculate your taxes based on an income of $96,500.
After that, you may be eligible for an extra $1,000 tax credit for children under 17. Tax credits work like gift cards from the IRS. After calculating how much you owe, treat the credit like cash and wipe its amount directly off your tax total. The remaining balance is what you'll pay the government.
This tax credit isn’t for everyone. Married people with an income of $110,000 and below and single parents with an income of $75,000 and under can claim the full $1,000 amount. If you make more, the dollar amount of the credit drops by $50 for every additional $1,000 you earn.
Childcare expenses: Have a nanny or use a daycare? You can set aside $3,000 of your childcare costs ($6,000 if you have two or more kids). Then, you can multiply that amount by 20 to 35 percent, depending on your income. (For the full 35 percent you need to earn under $15,000. After that as your income rises the percent you can take goes down.) The answer is the amount of money you can slice from your tax total. The best part: This credit is for everyone. There’s no income ceiling.
Medical expenses: Medical expenses are only deductable if they add up to more than 7.5 percent of your income. Benefits, however, are the perks of having a job, and some companies offer Flexible Spending Accounts. That means your employer can put up to $5,000 of your salary into an account for you to use for medical expenses. (Think doctor copays, eye exams, and over-the-counter drugs.) The catch: This may interfere with your ability to take the childcare credit, so look at your financial situation from both angles -- getting some professional tax help probably wouldn’t hurt. Also, these accounts are usually use-or-lose, which means if there’s money left in there when the year ends, it’ll evaporate unspent.