Eight Tax Credits and Deductions for Parents in 2013

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Learning Credit. Both credits may reduce the amount of tax you owe and are claimed by filing IRS Form 8863. If the American Opportunity Credit is more than the tax you owe, you could be eligible for a refund of up to $1,000. However, your adjusted gross income had to be less than $90,000 if single and $180,000 if married filing jointly to qualify for the credits. Your children may help you qualify for valuable tax certain credits and deductions listed below when filing your 2013 taxes.

1. Dependency Exemption. In most cases, you can claim your child as a dependent who lives with you regardless of when the child was born as long as you provide more than 50 % of the child support.

2. Child Tax Credit. You may be able to claim the Child Tax Credit of $1,000 for each of your children that were under age 17 at the end of 2013 by filing form 8812. However your adjusted gross income must be less than $75,000 if single and $110,000 if married filing jointly to qualify for the credit.

3. Child and Dependent Care Credit. You may be able to claim this credit if you paid someone to care for your child or children under age 13, so that you could work. The credit is claimed on IRS Form 2441. However, if you are married filing jointly both parents must work to be eligible for the credit.

4. Earned Income Tax Credit. If you worked but earned less than $51,000 in 2013, you may qualify for Earned Income Tax Credit. If you have qualifying children, you may get up to $5,900 dollars extra back when you file a 1040 tax return and claim the credit on Schedule EIC.

5. Adoption Credit. You may be able to take a tax credit of up to $12,700 for certain expenses you incurred to adopt a child. You must file IRS Form 8839 in the year the adoption is finalized and your modified adjusted gross income had to be less than $190,000 to qualify for the full credit.

6. Higher education credits. If you paid higher education costs for yourself or another student who is an immediate family member, you may qualify for either the American Opportunity Credit or the Lifetime.

7. Student loan interest. You may be able to deduct interest you paid on a qualified student loan, even if you do not itemize your deductions on IRS Form 1040, line 33. However, your adjusted gross income must be less than $75,000 if Single and $155,000 if married filing jointly to claim the deduction.

8. Self-employed health insurance deduction – If you were self-employed and pay for your own health insurance, you may be able to deduct premiums you paid not only for yourself but to cover your child. It applies to children under age 27 at the end of the 2013, even if they are not your dependent.

If you have any questions or need help in preparing your taxes please contact Gregory J. Spadea of Spadea & associates, LLC in Ridley Park, Pennsylvania at 610-521-0604. He prepares tax returns year round and can amend an earlier year return if you missed taking advantage of one of the credits listed above.

Why I Must Claim my Child as my Dependent Even if He or She is Over 18

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Besides the personal and spousal exemptions, you should also claim an exemption for each of your dependents. The reason is that unless your dependent had taxable income of at least $20,000 in 2010 they will not be able to use the entire $2,500 of education tax credits because their income tax will be less than $2,500. However, your child must realize they may not claim themselves when you claim them as a dependent. If they do take a personal exemption for themselves, then they would have to file an amended return if you wanted to claim them as a dependent on your return. Spadea & Associates, LLC would gladly assist them in amending their return.

Briefly, if the individual meets all of the following tests, he or she is your dependent and is not permitted to claim an individual exemption on his or her own tax return:

the member-of-household or the relationship test
the citizenship test
the joint return test
the gross income test
the support test

Member of Household or Relationship Test

If your child or other dependent died during the year but would otherwise have met all five tests, you can still claim the exemption for the dependent. Conversely, if your child was born on the last day of the year and met all five tests above you can claim him or her them as a dependent. If the individual is not a close relative under the IRS’s definition, he or she can still meet the first test for dependent status by living with you for the entire year as a member of your household.

Foster children (or adults) can be treated as dependents if they live with you for the entire year, unless you receive payments as a foster parent from a state government, a political subdivision, or a tax-exempt child-placement agency. If you receive any such payments, you can’t claim a dependency exemption for the child. If you receive some payments as a foster parent, you can claim a charitable deduction for the excess expenses, if your actual expenses for the child are higher than the amount of payments you receive.

Citizenship Test

This test for dependent status is met if the person is a U.S. citizen or resident alien, or is a resident of Canada or Mexico for at least part of the calendar year in which your tax year begins.

Joint Return Test

This test for dependent status refers to the tax return filed by the dependent, not your own tax return. In most cases, you can not claim a dependency exemption for any married person who files a joint return with his or her spouse. The exception to this rule is if neither the dependent nor his or her spouse is required to file a tax return, but they file one merely to get a refund, and neither the dependent nor his or her spouse would owe any tax if they filed separately rather than jointly.

Gross Income test

The dependent must either (a) be your child who is age 18 or younger, or under the age of 24 and a student, or (b) have gross income that is less than the amount of the dependency exemption for the year, which means less than $3,650 for 2010.

Therefore even if your child was over 18 and in college and earned more than $3,650 in 2010, you should still claim that child on your return if you provided more than half of their support and you are in a higher tax bracket. The reason is that you can take advantage of the $1,500 Hope Education credit and $1,000 American Opportunity Credit which your child may not be able to use because they may not have enough taxable income to get the full education credit as stated earlier.

Remember the education credits are not refundable tax credits like the Earned Income Credit so if your child does not owe tax of less than $2,500, they will not be using the entire education credit that you would be eligible for assuming you are in a higher tax bracket.

Support Test

The final part of the test for dependent status requires that you provide more than half of the person’s total support during the calendar year.

Planning Point for Self Employed Parents

If your child is 15 or older you can hire him or her and pay them up to $3,650 in 2010 and they will pay no income tax and you can still claim them as a dependent.

However, household employees or foreign exchange students that live with you will not qualify as dependents.

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