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Tax Breaks for Parents

Parents have several options for claiming tax credits and/or deductions for dependent children, education expenses, and possibly health insurance premiums.

Dependents

Dependents are those children who are younger than you and at the end of the calendar year were either younger than 19, younger than 24 if a student, or any age if permanently and totally disabled. Only one parent may claim the child as dependent if parents are divorced. You may also claim dependents who meet the qualifying relative test.

  • The 2015 deduction is $4,000 per qualifying dependent. There are income limits that phase out the deduction starting at $154,950 for married persons filing separate returns. Other filing status’ have different, higher amount thresholds.
  • The Child Tax Credit is a maximum $1,000 per qualifying child under age 17. Income limits apply.
  • The Child and Dependent Care Credit is available for people who paid for child care so that they could work or look for work. You must identify the care provider on your tax return, and the person you pay cannot be a person you or your spouse claim as a dependent. Qualifying dependents are children who are under age 13, a spouse or other dependent who were not physically or mentally able to care for themselves and lived with you for more than half the year.
  • The Adoption Credit is available for qualified adoption expenses. The maximum credit and exclusion for employer-provided benefits for 2015 is $13,400 per eligible child. Income limits begin with modified adjusted gross income of $201,010.

Education

  • The American Opportunity Tax Credit provides a maximum $2,500 annual credit per eligible higher education student. The credit is available for a total of four years, but the student must meet criteria, such as be pursuing a degree or credential and be enrolled at least half time for at least one academic period in the last year.
  • The Lifetime Learning Credit is worth up to $2,000 per tax return, with no limit on number of years. It applies to you, your spouse, or a dependent you claim on your tax return. The credit is for undergraduate, graduate, and professional degree courses, including those that improve job skills.
  • The interest you paid on a qualified student loan may be deductible, even if you don’t itemize deductions.

Self-employed

Self-employed individuals who paid for health insurance may be able to deduct premiums paid during the year. You may include the cost to cover children under age 27, even if they are not your dependent.

Please talk with a Salmon Sims Thomas tax advisor  to make sure that you claim all available tax credits and deductions.