By A.J. Gross, C.P.A., E.A.
1) Dependent Exemption – You may be able to claim a dependency exemption for each child living with you. The dependency exemption for 2013 is up to $3,900 per child. The dependency exemption increased to $3,950 in 2014. The child must be considered a qualifying child or qualifying relative. The child must be a U.S. citizen, U.S. national, or U.S. resident alien.
There are 4 main tests for qualifying child: relationship, age, residency, and support. Relationship, the child must be your son, daughter, stepchild, brother, sister, stepbrother, stepsister, grandchild, foster child, or a descendent. Age, the child must be under 19 years old or a student under 24 years old. Residency, the child must have lived with you for more than 50% of the year. Support, you must provide more than 50% of the child’s support. There are exceptions to these tests.
2) Child Tax Credit – Parents are able to claim the Child Tax Credit for each qualifying child under the age 17. The credit is up to $1,000 per child. The child must meet the 4 qualifying child tests. However, the child must be under the age 17. Finally, the child must be claimed as a dependent on your tax return.
3) College Tuition Credits – There are two college tuition credits. The American Opportunity Credit and the Lifetime Learning Credit. The American Opportunity Credit is up to $2,500 for the first $4,000 of qualified college expenses paid. You can claim the American Opportunity Credit for the first 4 years of college. After the child has attended college for 4 years, you can claim the Lifetime Learning Credit. The Life Time Learning Credit is up to $2,000 for the first $10,000 of qualified college expenses paid.
4) Child and Dependent Care Credit – You may be eligible to claim a credit for child daycare while you work. To qualify you must be earning income or looking for work. For two parent households, both parents must be earning income. The child must be under the age 13 to qualify.
5) Adoption Credit – For 2013, you may receive up to a $12,970 credit for qualifying expenses for adopting a child.
IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.
A.J. Gross, C.P.A., E.A. is President of ALG Tax Solutions. A.J. Gross can be contacted at AJGross@algtaxsolutions.com or www.ALGTaxSolutions.com.
This was printed in the March 9, 2014 - March 22, 2014 edition