Child Tax Tips
The Internal Revenue Service gives most parents three tax breaks when they have children: the child tax credit, extra exemptions and, for parents with children in day care, child care credits. However, if you have a small business, older children who attend summer day camp or are dealing with special circumstances like divorce, you may be able to find even more places to save on taxes.
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Child Taxes and Divorce
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If you claim a child as an exemption, you are the only one eligible to claim him on the child tax credit. In the case of divorced parents, the custodial parent gets this right by default. However, if both parents desire, that right can be transferred to the noncustodial parent in the divorce papers. In this case, the custodial parent must fill out IRS Form 8332 and give it to the noncustodial parent to file with her taxes. The custodial parent may relinquish these rights for multiple years, but the noncustodial parent must attach a copy to her taxes every year. In no case may the parents split up taxes for a single child.
Childcare Tax Credits
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As of 2011, the IRS allows you to claim 35 percent of up to $3,000 in child care expenses for one child under 13 years of age ($6,000 for two or more) as a tax credit. You may split this up however you wish; for instance, if you have a toddler and a school-age child who stays with Grandma after school, you may claim up to $6,000 for the toddler's daycare expenses even if your older child had no day care expenses at all. You may also claim these tax credits if you send your child to summer day camp (not overnight camp) or to after-school care.
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Older Kids and Taxes
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You can't get the child care tax credit for teens, and the child tax credit goes away when your kid is 17. However, you can still find tax savings. If you have a small home-based business, you can hire your kid to work for you. You can deduct his wages just as you would with any employee, and he gets taxed at regular rates, with the standard exemption. In addition, you and your child-employee are exempt from Social Security and FICA taxes until the child is 18 as long as you are running a sole-proprietorship or husband-wife business. You can also deduct a certain portion of college tuition costs paid for your college-age children, up to $4,000 annually for a family with joint spouse filing as of 2011. Because there are several other college deductions you can take, parents who anticipate high college costs in the near future should speak to a tax professional for strategies to maximize their tax savings.
Child Support
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Regular child support is never deductible; the parent paying it pays the taxes, the parent receiving it gets it tax-free. However, a noncustodial parent who also pays a very large part of his out-of-pocket income toward a child's medical expenses can deduct a portion of them. Noncustodial parents paying for a child's college may also be able to claim some of this expense as either a lifetime learning credit or a Hope tax credit; if the expense is large, it is smart to hire a tax professional to help you through this. Unfortunately, most federal taxes are in place to help custodial parents. Noncustodial parents who do not have an arrangement to claim children on their taxes have few tax breaks.
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References
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