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Tuesday, November 1, 2016

4 Top Child and Dependent Tax Exemptions

Some countries give a flat money amount to families for each child they have. Seems a lot simpler sometimes than the myriad of options available for claiming dependents on your annual tax return. But we aren't other countries, so below I've outlined the top 4 exemptions you can take if you have kids.

1. Earned Income Tax Credit

If your income is below a certain level and how many children you have. If you earn up to $47,955 or $53,505 if married and filing jointly, and have 3 or more children, you qualify. If you have 2 children, it's $44,648 or $50,198 if married and filing jointly. Lastly, if you have just 1 child then your earnings and adjusted gross income has to be less than $39,396 or $44,846 if married and filing jointly.

This credit can give you up to $6,269 maximum for 3 children or $506 if you have no children. This tax credit is also refundable. This means if you owe less than the credit, IRS will pay you back the difference!

2. Dependency Exemption

Each child you claim as a dependent earns you $4,050 as an exemption. An exemption reduces your income that is subject to federal taxes. So if you make $50,000, with the dependency exemption, you can lower that taxable amount by $4,050 or more!

For those in the 15-25% tax bracket, you can save $600-$1,100! The higher your tax bracket, the more impact this has on your tax savings.

3. Child and Dependent Care Credit

This is a credit that reduces your taxes based on what you spend for childcare. The credit is between 25-35% of your childcare expenses. The exact amount is dependent on your income. Many types of care are included in this credit, including private kindergarten, after school programs, daycare and more.

4. Child Tax Credit

This is a $1,000 credit you may be able to take for any child under 17 that you can claim as a dependent. The credit is determined by your income, single or married.

If you aren't sure which deductions or credits you can claim, and what your taxable income is, give me a call!

The IRS has a great chart with an outline about all child related benefits, which you can find here.

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