Food, clothing, insurance and educational costs for children can take a huge bite out of the family budget.
In fact, over the past decade alone, the cost of raising a child from birth to age 18 has risen nearly 40 percent to $226,920. And those figures don’t even include college tuition, which gets pricier every year.
At tax time, however, many parents don’t realize what a financial blessing our children can be. In other words, those same little rascals who drain our pockets all year long now actually come in pretty handy when it comes to dealing with Uncle Sam.
And thanks to the recent fiscal cliff deal – also called the American Taxpayer Relief Act of 2012 – Congress and President Barack Obama have just locked in several family-friendly tax breaks for at least five more years.
So if you are a parent, before you file your taxes this year, here are 10 tax perks and benefits that you should know. These juicy tax breaks may almost make you want to have another kid. (Well, almost.)
1. Exemptions for Dependents
In most cases, you can claim your child as a dependent on your tax return. That starts from the year in which your son or daughter was born, and generally runs until he or she is under age 19 or under age 24.
According to the IRS, for each dependent you claim as an exemption on your 2012 taxes, you lower your taxable income by $3,800. This ultimately decreases your tax bill – or increases your federal income tax refund.
For more information, see IRS Publication 501, Exemptions, Standard Deduction and Filing Information.
2. Child Tax Credit
With the passage of the fiscal cliff agreement, for the next five years you may be able to take advantage of this special tax credit and claim up to $1,000 for each of your children under age 17. If you cannot take the full amount of the Child Tax Credit, you may qualify for the Additional Child Tax Credit.
For more information, see IRS Publication 972, Child Tax Credit.
3. Child and Dependent Care Credit
Children aren’t cheap, so parents must work to feed those hungry mouths.
If you pay someone to care for your child or children under age 13 so that you can go to work, or even just look for work, you may be able to claim the Child and Dependent Care Credit. Working families scored a major victory with this tax credit under the fiscal cliff legislation. That’s because this tax credit was made permanent.
So now certain taxpayers can permanently deduct up to 35% of their childcare expenses, up to a maximum of $6,000. Check out IRS Publication 503, Child and Dependent Care Expenses, for more details.
4. Earned Income Tax Credit
The Earned Income Tax Credit is a tax benefit for certain low-to-moderate income people who have earned income from wages, self-employment or farming. The EITC reduces the amount of tax you owe and may also give you a big, fat refund.
If you’re filing your federal income tax return for the 2012 tax year, the maximum Earned Income Tax Credit you can get is as follows:
$5,891 with three or more qualifying children
$5,236 with two qualifying children
$3,169 with one qualifying child
$475 with no qualifying children
If those numbers are making your eyes pop, you should definitely read more on the EITC. IRS Publication 596, Earned Income Credit, has more details about this valuable tax credit…
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