900 N. Kings Highway, Cherry Hill, New Jersey 08034
856.667.4100 ·
215.563.0276 ·
Fax: 856.667.3652
The Online Advisor - January 2000
Tax cuts could be all in the family
As you begin your tax planning for 2000 (and look for ways that will still cut your 1999 tax bill), don't overlook the tax-saving opportunities provided by your children.
- First, look into the child tax credit, a $500 credit against taxes for each child under age 17. Note that the credit begins to phase out if your modified adjusted gross income exceeds $110,000 for a joint return ($75,000 single).
- Don't forget the child care credit. If you paid child care expenses for a dependent under age 13 so you and your spouse could work in 1999, you may be able to claim a credit against taxes of up to $480 for child care expenses ($960 for two or more children). The rules are complicated, so contact our office if you think you qualify.
- Other tax-cutting opportunities come from the $2,750 exemption for each child who qualifies as a dependent. Children can qualify up to age 24 if they're enrolled as full-time students, so don't overlook your older kids in college if you still support them. And divorced parents can arrange to assign the dependency exemption from the custodial parent to the noncustodial parent if it makes more tax sense.
- Consider shifting some income to your children this year. You can shift up to $1,400 of investment income to a child under age 14 before the "kiddie tax" kicks in and requires the income to be taxed at your rates.
- If you own your own business, you can reduce taxes overall by employing your child, perhaps to help out during school vacations. Provided it's a real job and you pay a reasonable wage for the work, your business can claim a deduction, and your child will pay taxes on the income at his or her lower rates.
- Tax planning applies to your child's income, too. Let’s say your teenage daughter has income from a part-time job. She should seriously consider opening up a Roth IRA and putting aside up to $2,000 of her earnings. By beginning to save at this early age, she'll get a great start on her retirement nest egg.
Of course, deciding to invest in a Roth IRA could affect other strategies for her education expenses. That's why your tax planning should cover income taxes for all family members, and it should include estate tax planning, too.