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The Joys of Parenthood Include Tax Benefits by Rick Bazzani, CPA


Posted on March 29, 2017 by Rick Bazzani

As individuals prepare to file their 2016 income tax returns, they should remember that if they are the parents of dependent children, they may qualify for certain benefits that can reduce their taxable income. It is important to remember, however, that many of these tax credits and deductions may be limited based upon a taxpayer’s income, filing status and other unique circumstances.

Child Tax Credit.  Parents with children who are under the age of 17 and who live with the parent for at least one-half of the calendar year may claim a tax credit of up to $1,000 for each qualifying dependent. The credit is limited by the amount of income tax and alternative minimum tax (AMT) parents owe and will be completely unavailable for parents whose income exceed $110,000 for married couples, $55,000 for couples filing separately and $75,000 for all other taxpayers.

Child and Dependent Care Credit.  A parent who paid for someone else to care for his or her qualifying dependent child while the parent worked or looked for work in 2016, may qualify for a tax credit to cover a percentage of the expenses paid to the caregiver.  A qualifying dependent may include a child who is under the age of 13 who lives with the taxpayer for more than half of the year or an individual of any age who is unable to care for him or herself. For 2016 and 2017, the dollar limit on the amount of expenses used to calculate the credit is $3,000 for the care of one dependent or up to $6,000 for two or more qualifying dependents. The allowable percentage of the credit depends on the taxpayer’s adjusted gross income.

Adoption Credit.  Depending on their income, taxpayers who adopted a child in 2016 may claim a credit of up to $13,460 per child to cover the costs of qualifying adoption expenses.  The amount of the nonrefundable credit will be reduced if taxpayers’ modified adjusted gross income (MAGI) falls between $201,920 and $241,920; taxpayers’ with MAGI of more than $241,920 will not be entitled to apply the credit.

 

Dependent Deduction.  Taxpayers with children who were under the age of 19 at the end of 2016 (or 24 if the children are full-time students) may claim a dependent deduction up to $4,050 for each qualified child. The amount of the deduction may be reduced or eliminated entirely when taxpayers’ income exceeds certain limits based on their filing status.

Student Loan Interest Deduction. A taxpayer may deduct up to $2,500 in interest they paid towards education and student loans during the tax year.  The amount of the deduction will decrease when taxpayers’ MAGI exceeds certain levels. The credit is not available to single filing taxpayers whose MAGI exceeds $80,000 or married filing jointly filers with MAGI above $160,000.

Self-Employed Health Insurance. Entrepreneurial taxpayers who own their businesses and paid for health insurance coverage for a child under age 27 may deduct from their taxable income the amount of annual premiums they paid.

About the Author: Rick D. Bazzani, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where he provides individuals with a broad range of tax-efficient estate-, trust- and gift-planning services.  He can be reached in the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or at info@bpbcpa.com.