Numerous tax changes in recent years have proved helpful for families, providing several deductions and credits. Some benefits are credits only-that is, they reduce the amount of tax owed. Others may be refundable, actually turning up in a check from Uncle Sam.
1. Listing all your dependents is the most important thing. A dependent doesn’t have to be a blood relative or even a child. Anyone who lived in your home more than six months of the year may be eligible to be claimed. A person can also live outside of your home, if you provided more than 50% of their support. This can include your parents. The total number of dependents effects your standard deduction for reduction of tax owed and provides the base for other credits. If you are not married, but have dependents , you may qualify as Head of Household which gives you many of the family benefits.
2. The Child and Dependent Care Credit is for expenses paid for care for a dependent in order for the taxpayer(s) to work or look for work. Care can also include summer camps, so don’t forget about those. This is a credit and doesn’t cover the full amount of expenses, but is very helpful. You will need to supply the name of the persons or organizations that provided the care, their address and taxpayer ID, along with receipts verifying the amount. Family members do not meet criteria for care givers unless they own a business providing such care.
3. Anyone in the family taking classes or attending school past high school? There are education credits to be had: The Hope Credit and the Lifetime Learning credit. There are several restrictions for claiming these credits, so check with a tax-wise person. This benefit is credit only.
4. Child Tax Credit and Additional Child Tax Credit. This is an extra credit for dependent children. This law changed in 2005, so be sure the latest information is used. This benefit is for credit, but may also be refundable.
5. The Earned Income Credit is one many families have overlooked in the past. There are restrictions as to the amount of income and qualifications of dependents which need to be checked. This is a refundable benefit.
In order to take full advantage of these credits, you can purchase inexpensive software tax programs which will automatically calculate these benefits. Another alternative would be to consult free or volunteer tax preparation organizations. Look in your local paper during tax season to see what might be available. AARP, for instance, serves low to moderate income people and you do not have to be over 50 or a member of that organization.