by Shawn Jensen, manager, H&R Block
Raising children can be expensive, as any parent knows. Knowing what taxpayers are eligible for when they become parents can keep them from paying more in taxes than they owe.
Just outfitting a nursery and stockpiling diapers can really add up. According to a “baby-cost” calculator on BabyCenter.com, parents can expect to spend $72 per month on disposable diapers and $76 per month on a cloth diaper service. And, of course, day care is likely to be much more expensive. H&R Block (NYSE: HRB) advises new parents to make sure they claim all the tax breaks they are eligible to claim, which can help put money in their pocket to cover new expenses.
Following are some tax breaks taxpayers need to keep in mind as they file their 2014 tax returns:
- Child Dependent Exemptions: For tax year 2014, tax-payers may deduct $3,950 from their taxable in-come for each qualifying child or qualifying relative they claim as a dependent. Among other requirements, a dependent must be a U.S. citizen, U.S. resident, U.S. national or a resident of Canada or Mexico.
- Child Tax Credit: Generally, a taxpayer who has a qualifying child who is a U.S. citizen or resident and who is under age 17 at the end of the calendar year may claim the Child Tax Credit.This credit is worth up to $1,000 per dependent child. Taxpayers whose tax liability is less than the credit for which they are eligible may be able to claim some or all of the $1,000 as an Additional Child Tax Credit if their earned income is more than $3,000 for 2014.
- Earned Income Tax Credit: The Earned Income Tax Credit can be worth up to $6,143 for 2014 depending on taxpayers’ filing status, income and how many qualifying children they have. This credit is refundable, meaning even if tax liability is reduced to zero, the remaining amount of the credit will be refunded.
- Dependent Care Credit: Generally, parents may be eligible to claim the Child and Dependent Care Credit if they work, or are looking for work, and have one or more children age 12 or younger in day care or cared for by a babysitter. The credit can be claimed for 20-35 percent of qualifying expenses for in-home care givers, day care facilities and some day camps. The percentage that applies is based on the taxpayer’s income. The maximum amount of qualifying expenses that may be considered for the credit is $3,000 for one child and $6,000 for two or more children. For some taxpayers pre-tax dependent care benefits through an employer’s cafeteria plan may be more beneficial.
When big changes — good, bad, happy and sad — happen in life there are often big tax changes to consider. To make sure you understand your tax outlook and are able to make sound financial decisions, consider meeting with a tax professional to discuss your individual situation.