Raising children can be a financial strain. There are some tax benefits that you should not forget. Here are eight CPA tax benefits parents should look out for when filing their federal tax returns.
1. Dependents. In most cases, you can claim your child as a dependent. This applies even if your child was born anytime in 2013. For more details, see Publication 501, Exemptions, Standard Deduction and Filing Information. Watch out for joint custody arrangements. As CPAs, we have had tax returns rejected because the other spouse had claimed the child as a dependent.
2. Child Tax Credit. You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17 at the end of the year. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more about both credits, see the instructions for Schedule 8812, Child Tax Credit, and Publication 972, Child Tax Credit.
3. Child and Dependent Care Credit. You may be able to claim this credit if you paid someone to care for one or more qualifying persons. Your dependent child or children under age 13 are among those who are qualified. You must have paid for care so you could work or look for work. For more, see Publication 503, Child and Dependent Care Expenses. You should have the name, address, federal ID number, and amount paid ready for your CPA at tax time.
4. Earned Income Tax Credit. This is the most audited area by the IRS due to fraud. If you don’t make too much money and have dependents, you may be able to take advantage of it. Use the EITC Assistant tool at IRS.gov to find out if you qualify or see Publication 596, Earned Income Tax Credit. A CPA is at risk also, if a client misleads them in regards to this item.
5. Adoption Credit. You may be able to claim a tax credit for certain expenses you paid to adopt a child. For details, see the instructions for Form 8839, Qualified Adoption Expenses.
6. Higher education credits. If you paid for higher education for yourself or an immediate family member, you may qualify for either of two education tax credits. Both the American Opportunity Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the American Opportunity Credit is more than the tax you owe, you could be eligible for a refund of up to $1,000. See Publication 970, Tax Benefits for Education.
7. Student loan interest. You may be able to deduct interest you paid on a qualified student loan, even if you don’t itemize deductions on your tax return. For more information, see Publication 970.
8. Self-employed health insurance deduction. If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid to cover your child under the Affordable Care Act. It applies to children under age 27 at the end of the year, even if not your dependent. See Notice 2010-38 for information. Be careful if you are an owner of an S-corporation, partnership, or LLC. There are specific rules to follow in order to get the deduction. A CPA can help guide you through the process but you should contact us well before the end of each year to make sure things like W-2’s correctly reflect this if applicable.
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