Tax Tip of the Week
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Use tax breaks to lower the cost of raising your child
For the week of
February 12, 2001
Adding a child to your household can enrich your family, but it can also deplete your bank account. Studies indicate that it costs over $150,000 to raise a child to age 18. Using every available tax break can help you reduce your costs. Check out these possibilities:
- If your child qualifies as your dependent for tax purposes, you may be entitled to a $2,800 tax deduction for 2000 ($2,900 for 2001). Special rules apply to minor children of divorced parents. Generally, if you have physical custody of your child, you are entitled to the tax benefits for your child. If you are not the custodial parent, you may still claim your child as your tax dependent, provided your ex-spouse transfers his or her right to the deduction to you by signing a special IRS form.
- You may be able to deduct up to $2,000 of interest on your child's qualified education loans for 2000. The deduction applies to the first 60 months in which interest payments are required, and you must have the legal obligation to repay the loan in order to deduct the interest. This deduction increases to $2,500 in 2001.
- If you are entitled to claim your child as your dependent,
you may be eligible for these valuable tax credits.
- Child tax credit - If you have children under age 17, you might be eligible for up to a $500 tax credit per child.
- Dependent care credit - If you pay day care expenses so you can work or look for work, you may qualify for this tax credit.
- Education credits - If you paid for your child to attend college or vocational school, you may qualify for the Hope credit or the lifetime learning credit.
- Earned income credit - You may qualify for this credit if you are a low-income working family. Children increase the credit amount.
Don't miss any valuable deductions or credits that you
are entitled to. Call us for details.
Click here to view previous tax tips.
"Tax Tips" are published weekly to
provide useful tax information. Return to this site every week for helpful tax-cutting suggestions, tax reminders,
and current tax information.
The information contained in this site is of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
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