The policy on child care tax deduction gives you more reasons to maintain your family’s progress. With the joys of a new birth, there are also many tax savings that you may be entitled to. Here are some of the benefits:
(a) Dependency Exemption, which is a supplementary exemption.
(b) Credit on Child Tax.
(c) Credit on Child and Dependent Care.
(d) Tax deduction, through transferring revenue to your child.
(a) Dependency Exemption is a type of personal exemption which will reduce your tax bill by subtracting your gross income’s necessary amount which will be directly proportional to the annual inflation. To benefit from this exemption, you should meet the following criteria:
• The child or dependent must be living in your home the whole year or must be a relative.
• The gross income of your dependent should not exceed the amount of the annual exemption. Note that this benefit doesn’t apply to children under the age of 19 years or full-time students under the age of 24 years.
• You (the taxpayer) should be supporting at least half of your child’s total cost of living.
• The dependent must be a US, Mexico or Canada resident.
If the dependent conforms to all the above rules, then all that is needed for this exemption is the child’s social security number.
(b) Credits on Tax: Together with the personal dependency exemption, there are also certain tax credits that you can apply for after child birth. For example, you can receive Child Tax Credit and Child and Dependent Care Credit. Credits on Tax are a real advantage because they actually reduce the total amount of tax you will pay. If your child is adopted, the foster parents can seek tax credits on their income tax for expenditure on legal adoption.
(c) Income shifting: Since children are included within a lower tax bracket, it will also be possible to save on tax money through transferring your funds from your account to your children’s. Nevertheless, you should take care when doing this. It is not allowed, for example to putting an adult’s investment in a child’s name.
Elliott Dawson is a contributing editor at DebtFinanceArticles.com. This article may be reproduced provided that its complete content, links and author byline are kept intact and unchanged. No additional links permitted. Hyperlinks and/or URLs must remain both human clickable and search engine spiderable.