If you are a parent, having a little one (or not so little one), can give you some big tax benefits. You may already know that for 2011 you can deduct $3,700 for each dependent as an exemption on your tax return.

However there are a couple more tax credits that all parents should review to save more on your taxes.

Dependents

Child Tax Credit – $1,000

The Child Tax Credit can be a significant help with reducing your federal taxes. Depending on your income you can claim up to $1,000 per qualifying child.

What defines a qualifying child? There are a few criteria that have to be met:

• Relationship: To claim this credit, biological children, adopted children, step-children, and foster children qualify. Other family members may also qualify.
• Age: Your child(ren) has to be age 16 or younger at the end of 2011.
• Support: Your child must not have provided over half of their own support.
• Residence:  Your child must have lived with you over half of the year.
• Dependent: You have to claim your child as a dependent on your federal taxes.
• Citizenship: Qualifying children include U.S. citizen, U.S. national, and U.S. resident alien.

If you’re using tax software like TurboTax then these factors will be checked as you file your taxes to make sure you get the credit if you qualify.

But the Child Tax Credit isn’t the only tax break you should look at. The Child and Dependent Care Tax Credit can also be a big win for you.

The Child and Dependent Care Tax Credit

If you paid for child care last year, then you may qualify for a tax credit based on your dependent care expenses up to $3,000 for one dependent and up to $6,000 if you are claiming two or more.

To qualify you must also identify the person who provided the care for your child. You and your spouse if filing jointly must have earned income. The child care expenses paid should not be given to your spouse or someone claimed as a dependent on your taxes.

Thoughts on Children and Tax Credits and Breaks

For parents looking at getting their taxes filed, have you looked at the Child Tax Credit and Dependent Care Credit? How much do you qualify for? What credits are you claiming this year?

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1. Consider Life and Disability Insurance

From diapers to diplomas, the cost of raising a child can really add up. If something awful were to happen to you or your spouse, life and disability insurance offer a safety net to keep your loved ones’ financial lives on track. You can get an estimate of your insurance needs by using the online calculators at the non-profit Life and Health Insurance Foundation for Education (LIFE).

2. Build an Emergency Savings Fund

You never know when your roof will spring a leak or when the job market will turn sour. Keeping six months of income in a savings account or money market fund can help weather life’s inevitable pitfalls. Try setting aside money at the beginning of the month, not the “extra” at the end – there’s rarely any extra!

3. Start Saving for College

Your baby may not even be crawling yet, but with college costs rising 40% in the last decade, it’s a good idea to start saving early. Consider opening a Section 529 college savings account. As long as you use the account for qualified higher education expenses, all distributions will be tax-free.

4. Let your employer help

Many employers offer flexible spending accounts which allow you to set aside thousands of dollars in pre-tax income to pay for qualified childcare and healthcare expenses. Depending on which tax bracket you are in, using these accounts can save you thousands of dollars a year.

5 . Claim the child care credit

Your baby brings a new dependent deduction for your tax return, but other benefits are available as well. Though child care is expensive, Uncle Sam can help take the sting away with a tax credit. If you work and pay for child care, until your child turns 13, you can claim up to 35% of the first $3,000 of expenses ($6,000 for two or more children). Nursery school, private kindergarten, after school programs and day care are all qualifying expenses.

The financial stakes rise considerably when you bring a new child into the world. As you travel the road to financial security, be sure to take time to enjoy your new baby!

Click here for more tax tips for new parents.

The first thing you will need to do is apply for a Social Security number if the hospital hasn’t already done so on your behalf. When you file your first tax return that includes your newborn the IRS will want to see her social security number along with yours and your spouses. If you are a single parent you may file under head of household status which provides you a bit of savings over filing as a single. Your child comes with her own exemption which means another $3,650 dollars off your gross income before you calculate the tax you owe.

There are a number of additional tax incentives you should be aware of.

First is the Earned Income Tax Credit (EITC) which reduces your tax burden by $3,050 if you’re filing jointly and your adjusted gross income (AGI) is $40,545 or less. Note: A tax credit reduces your tax dollar for dollar as compared to a deduction which reduces your taxable income. For EITC you lose this credit if your investment income for the year is greater than $3,100. If you qualify based on AGI a bit of planning may be in order to keep your investment income below this threshold.

Next we have the Child Tax Credit. This credit is worth up to $1000 for each qualifying child under the age of 17. The credit phases out for a married couple beginning at $110,000. The exact rules and requirements to take advantage of this credit are complex but tax software like TurboTax will walk you through every deduction and credit you deserve.

If both parents are working and/or attending school full time you should consider the Dependent Care Account (DCA) if either of your employers offers this. The DCA allows you to deduct up to $5,000 annually for reimbursement of the expenses incurred for child care up to the age of 13. Your employer should have a website or pamphlet that explains the expenses the DCA covers. The most common expenses are day care, a nanny/au pair, nursery or after school care programs. This benefit is “use it or lose it”, if you don’t submit receipts to cover all of the money you’ve had withheld your employer will not refund it to you. For this reason careful planning is recommended as you must choose between the Child Tax Credit or DCA, no double dipping here.

Last, you may wish to take advantage of the Flexible Spending Account (FSA). Similar to the DCA in that money is held from your paycheck pretax the FSA can be used for any out of pocket health care costs including the copay for any doctor or dentist visits as well as for prescribed medicines (Note: until this year over the counter medicines were reimbursable but this has been changed for 2011). One subtle distinction between the DCA and the FSA is that you may be reimbursed from the FSA account before deposits have been made. In other words if you chose to have $4,000 withheld over the year you may submit and get reimbursed as soon as you’ve incurred up to $4,000 worth of eligible expenses. For the DCA you are reimbursed only as deposits fill your account.

For the two employer plans, a change in family status permits a change to your participating in these plans. Just because your child is born after you made the 2011 benefits decisions does not mean you missed out for the year. Contact HR and put your request in as soon as you can after the birth. Best wishes to you and your new family!

Between the dismal economy and just business as usual, the year 2009 was filled with major life changes for many people. Now, as we approach Valentine’s Day, many more can expect another major life change in the near future–marriage.  An estimated 2.2 million Americans get married each year, and approximately 10% of those marriage proposals happen on Valentine’s Day.

Valentine’s Day also happens to fall during tax season–and it’s important to know that most of life’s big milestones, such as having a baby or buying a home, come with lovely (forgive the pun!) implications. Here are some timely tax tips to plan for these life-altering events which may have occurred in 2009:

You Got Hitched in 2009

Americans are waiting longer to get married. The median age for a man and woman’s first marriage was 27.6 and 25.9 years, respectively, in 2008. (In 1960, men typically got hitched at age 22.8 while women were 20.3.) There are plenty of social implications for delaying marriage, but waiting longer to tie the knot means that you may be more established in your financial life, too. And that can make filing your taxes more complicated. Yet while all married couples can file their taxes together or separately, most save thousands of dollars by filing jointly. That’s because filing separately disqualifies you for some of the most significant tax credits and deductions which include:

• The Earned Income Credit

The Earned Income Credit is responsible for more than $49 billion in tax credits, so you don’t want to miss out. Congress originally approved the tax credit legislation in 1975 as a way to offset Social Security taxes and to provide an incentive for workers. For 2009, you’ll need an AGI (adjusted gross income) of $70,950 if married filing jointly to qualify.

• Child and Dependent Care deductions

The typical American family with two young children spends an average of $14,000 a year on child care, which is almost a quarter of its annual income, according to the U.S. Census bureau. The good news is that some of those childcare costs are tax-deductible; the bad news is that figuring out if you qualify can be extremely tricky. (We have a full-time caregiver for our son, so I know firsthand that you will need to jump though several hoops to get these deductions.) And that’s why TurboTax is an excellent resource for sorting out the complex paperwork to get you what you are owed.

• American Opportunity and Lifetime Learning credits

For 2009, there are several tax credits available to help you offset the costs of higher education by reducing the amount of your income tax, depending on your income. The Lifetime Learning Credit can be used for qualified education expenses for you, your spouse or your offspring while the American Opportunity Credit can be claimed for tuition and certain fees you pay for higher education in 2009 and 2010. For the tax year, you may be able to claim a Lifetime Learning Credit of up to $2,000 (and the credit is $4,000 if you are a student in a Midwestern disaster area). The American Opportunity Credit is worth up to $2,500 for qualified tuition and expenses.

• Student loan interest deduction

The interest you pay on your student loans may also be tax-deductible.For 2009, the tax deduction is phased out if your filing status is married filing jointly and your modified adjusted gross income is between $120,000 and $150,000. Keep in mind that you aren’t eligible for this deduction if your modified AGI is $150,000 or more.

You Had a Baby in 2009

If your bundle of joy lives with you and does not provide more than half of his or her own support, you can claim that kid as your dependent. Additionally, there are other credits your child may qualify for:

• Child Tax Credit

This credit, which can be as much as $1,000 per eligible child, is in addition to the regular $3,500 exemption claimed for each dependent.

• Earned Income Credit

The Earned Income Credit is pretty hefty. You get a credit of $5,657 with three or more qualifying children; $5,028 with two qualifying children; and $3,043 with one qualifying child.

You Bought A Home in 2009

If you’re the primary borrower on your home loan and you make the loan payments, you qualify for a mortgage interest deduction. All you need to take the deduction is your mortgage statements. Other key deductions include property taxes, private mortgage insurance payments, purchase points, home improvements for medical reasons and mortgage interest on a second home.

If you are a first-time homebuyer, you are in luck, too. Thanks the stimulus plan, the maximum credit amount is $8,000 for a first-time homebuyer –– which is a buyer who has not owned a primary residence during the three years up to the date of purchase. There’s also a long-time resident credit of up to $6,500 to others who do not qualify. Keep in mind those buyers must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.

Remember that you can’t e-file if you take this credit.  You need to paper file and provide documentation.

You Changed Jobs in 2009

Getting a raise, starting a new job, or retiring from an old one can also have a dramatic impact on your taxes. Here are few final tax-saving tips:

• Keep receipts for job hunting and work-related moving expenses. They are deductible!

• When you rollover your 401(k), have it directly deposited into your new account.

• If you’ll owe taxes on your Social Security benefits, request voluntary withholding to minimize the tax bite.

• To find out if your tax will rate will change with a new salary, compare your last year’s tax bracket to this year’s. Your tax bracket is the rate at which your last dollar of income is taxed. It’s higher than your actual tax rate. But it will give you a good idea of how much of your income will go to Uncle Sam.

As you spend Valentine’s Day with your significant other, make sure you raise a glass of champagne to celebrate love and its many tax benefits!

To all new parents who entered the contest – congratulations on your beautiful new bundles of joy and 17 more years of tax credits of course!

For more tips on being a tax-savvy parent, check out this post.

So how do you get involved? It’s easy.

Visit our Facebook Page and click the TurboChat tab. You can visit anytime between now and Feb. 4 to enter your question, or come back to join us live Feb. 4. Bob will answer questions in a video format, streaming live.

Once you’re on the TurboChat tab, type a tax question in the “update your status about this event” box and post. Bob will address it Feb. 4!

Want more help this tax season? Don’t fret, you’ve got options.

• @TeamTurboTax: Follow us on Twitter to get tax and tech help live from our team.
• Live Community: All tax season, search tons of questions and answers by your fellow TurboTax users, superusers and tax experts. You can enter your own questions too and get answers fast.
• TurboTax Support: Get free answers to the most-asked questions about our products and tax time. Live chat with support.
• Get TurboTax tools and tricks: Anything from TaxCaster so you can estimate your refund, to tons of great in-depth articles about the tax topics folks want to know the most about.

Our next TurboChat will take place Feb. 11. Mark your calendars!

If you’re a parent, you’ll be happy to know that you may qualify for a tax credit if you have children. This credit can help you decrease your tax burden.

How Much is the Child Tax Credit?

On your 1040 and 1040A, you can claim $1,000 per child that meets IRS’ qualifications. The Child Tax Credit is a nonrefundable tax credit, meaning it can reduce your taxes owed, but you will not receive a refund from it (with few exceptions).

How Do I Qualify for the Child Tax Credit?

In order to claim the full tax credit, you must meet the IRS requirements, these include:

• Your child is under the age of 17 at the end of the year and either a US citizen or resident.

• You must be able to provide your child(ren)’s Social Security number.

• The child has lived with you for more than half the year.

• Your household income is below the phase out threshold.

o Married (Filing Joint): $110,000

o Married (Filing Separately): $55,000

o Single: $75,000

If you make more than the above amounts, your tax credit will phased out at $50 total for every $1,000 your modified adjusted gross income goes beyond the IRS’ limits. Read the full details from the IRS on the Child Tax Credit.

Check Out Other Tax Credits

While you’re claiming the Child Tax Credit, you should see if you qualify to receive the Child and Dependent Care Credit. You may be able to further reduce your tax burden!

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1)    Get a social security number for your child. This enables you to claim your new bundle of joy as a dependent on your tax return.

2)    Don’t overlook new tax breaks.  New babies could deliver a $1,000 child tax credit.  This is a gift that keeps on giving until they turn 17-years-old.

3)    File a new W-4 form with your employer.  Claiming an additional withholding allowance could increase your take-home pay since your child reduces your tax liability.

4)    Use pre-tax dollars for childcare.  Take advantage of your employer’s childcare reimbursement account if they offer one. These accounts, often called flex plans, let you divert up to $5,000 a year of your salary into a special account that you can then tap to pay childcare bills.

5)    Claim the adoption tax credit. It’s worth as much $12,150 in 2009, if you adopted a child. .

6)    Start saving for college. One option is an education savings plan (also called a 529 Plan). Contributions to these plans are not deductible, but the earnings grow tax free, and payouts are tax free too if the money is used to pay qualifying college expenses.

7)    Establish and contribute to a Coverdell Education Savings Account (ESA). Up to $2,000 a year can go into an ESA for any beneficiary, including newborns. Earnings are tax free if used to pay education expenses and ESA money can even pay for elementary and high school expenses (even a computer used for school and educational software) as well as for college costs.

8 )    Open an IRA in your child’s name. As soon as your youngster starts earning some money—babysitting or delivering papers, for example, or even paid modeling for infants—he or she can open an IRA. Relatively small investments when a child is young can grow to eye-popping balances over the years.

What’s even more rewarding is that if you welcomed a family addition between December 1 – 31, 2009, don’t forget that your new bundle of joy can win you a bundle… a $5,000 bundle of cash, that is!  Visit America’s Cutest Last-Minute Tax Deduction for more information. There’s only a few days left to submit your photo and enter to win.

Undeniably, though, children are expensive. Parents and guardians have to provide food, clothing, education, health, shelter, time, love, and care to raise a thriving child, and those things can really eat into your pocketbook.

Thankfully, the tax laws offer quite a bit of help to parents by making the burden of taxation easier on them. Here are five key things to remember if you’re a parent.

1. Standard Deduction Each child in your family is another dependent on your tax form, which means a $3,750 deduction if you’re filing using standard deductions (which many people do, particularly those who do not own homes). If you have two children, like I do, this can easily save you $1,000 on your tax bill, if not more.

2. Child Tax Credit You can earn a tax credit of up to $1,000 per child if your total household income is $110,000 or below. See IRS Publication 972 for full details on this benefit.

3. Child and Dependent Care Credit You can earn a tax credit of up to 35% of your child care expenses. If you have child care for your children, this is a must. See IRS Publication 503 and Form 2441 for the full scoop.

4. Education Credit If you have a student enrolled in an eligible educational institution (most colleges qualify), you can get the Hope Education Credit, which is worth up to $1,800. Check out IRS Form 8863 for more information.

5. Earned Income Tax Credit If you have children, it’s much easier to qualify for the Earned Income Tax Credit, which is a powerful benefit for people with a low income. You can use the IRS EITC Wizard to find out if you qualify for this credit.

Having a child may be expensive, but that child can do wonders when it comes to tax time.

TurboTax Blog Team Note: Check out the TurboTax Cutest Last-Minute Tax Deduction Contest for a chance to win $5,000.

Child Tax Credits and Deductions for Summer Camp

During the school year, depending on their age, your children are in after-day care at the local center or spend a couple of hours at home alone in the afternoon.  You keep the monthly child care center’s bills in your tax files for the child care tax credit on your next year’s tax return.

Now it is summer and you can’t leave the kids home alone all day while you work. It’s a mixed calendar. The first few weeks the kids are attending the local summer camp, for a couple of weeks they’ll be at the overnight camp a few hours away from home, and then the rest of the summer, your neighbor will be the “baby” sitter at your home. Are these summer expenses eligible for your child care credit?

The day camp expenses are eligible. If the camp costs include a fee for transporting your kid to and from the camp, that’s an eligible cost too.  Before the camp days are over, get the camp’s information (official name, address, and identification number) for your next year’s tax return. The overnight camp costs are not eligible for the child care credit. Sorry.

The dollars that you pay the neighbor can certainly be included in your child care costs.  Let the babysitter know that you will be listing her name, address, and social security on your tax return. And if you pay her more than $1,000, you may be a household employer.  If so, you may have to withhold and pay social security, Medicare, and federal/ state unemployment tax on your payments to the neighbor. Check out IRS Tax Topic 756 and IRS Pub 926 .

If any of your children turn 14 during the summer, you can still claim the child care costs up until the day they turn 14.  So if your son turns 14 on August 15th, you can still deduct his local camp costs through August 14th.

If you have your own business and your kids are old enough to do some work there, maybe you don’t need a sitter or camp this summer. You can employ your kids at a fair-market wage and deduct their wages as a business expense. If your business is a sole proprietorship or a partnership and your child is under age 18, the child’s wages are not subject to social security and Medicare taxes. You could also set up IRAs for them for $5,000 per year or up to their earned income, whichever is less and get their future savings started.

For more detailed information check out:

IRS- Child and Dependent Care Credit

IRS Pub 503 – Child & Dependent Care Expenses

IRS – Family Help in Your Business

When a family has a new baby, their priorities are not taxes. Trying to figure out how to get more sleep – yes; taxes – no. But when it comes to tax time, it’s good for them to know that not only has the baby brought goodness into the world but also tax breaks!

We thought we would put together a list of what new parents need to know about taxes.

· Child’s Social Security Number (SSN)

o At the top of the list for tax breaks, be sure to get a social security number for your child prior to filing your return.  You must include your child’s SSN on your tax return in order to claim the child as a dependent and take any deductions or credits related to that child. For the steps in applying for your child’s SSN, see How to Get a Social Security Number.

o Tax return note:  when entering your child’s name on your tax return, be sure it matches exactly the name on the child’s SSN card. If you file electronically and the name doesn’t match the card, the IRS may make you go stand in line at the post office and mail your return.

· Exemption

o On a typical return, a child listed as a dependent, will reduce the family’s income by $3,500 for 2008. This is known as a dependency exemption.

o This $3,500 will start being reduced when your adjusted gross income (see Form 1040, page one, last line) is $239,950 or greater when filing married filing jointly.

o TurboTax will calculate the exemptions for your return.

· Day Care expenses

o If both you and your spouse work, your care expenses can reduce your tax to some degree. It’s the Credit for Child and Dependent Care Expenses. The credit is a percentage (20%-35%) of your child care expenses based (again) on your adjusted gross income.

o When you choose your child care providers, be sure that you write down their social security numbers (SSN) or employer identification numbers (EIN). In order to claim this credit, you will report their name, address, and identification number on Form 2441 with your tax return.

o If you pay someone to look after your child in your home, you may have to file Schedule H- Household Employment Taxes.  TurboTax will help you determine if you need to file this form and if so, how much the additional taxes will be. For further questions, see IRS Topic 756.

o If you receive dependent care benefits from your employer, or have any other questions about this credit, be sure to read IRS Tax Topic 602 .

· Child tax credit

o This is another credit that reduces your tax.  The most you can claim for this credit is $1,000 for each child and once more, if you have a high adjusted gross income (if married filing jointly, over $110,000), the credit starts being reduced.

o Yes, this credit lowers your tax but with the typical return, it can’t be more than your tax.  So if you have two children and your tax is $1,700, you will only get a credit for $1,700, not $2,000.

o There are exceptions to this rule and you may receive an additional child tax credit that is refundable over and above your tax. TurboTax will ask you the right questions and determine your total child tax credit.

o For more information, see IRS Publication 972.

· Earned Income credit

o Depending on the income that you and your spouse earned and the number of children listed on your tax return, you may be eligible for an earned income credit. The maximum amount of credit if you have one child is $2,917 and $4,824 if you have two or more children.

o If you’re filing married filed jointly, you won’t receive any credit if your earned income is much more than $41,000 and you have two or more children. If you have additional questions, see IRS Tax Topic 601

· Adoption expenses

o If you adopted your child, you might also receive a reduction in taxes for those adoption expenses, including lawyer fees and travel expenses, up to a maximum credit $11,650 for 2008. See IRS Tax Topic 607.

o Note: If filing married filing jointly and your adjusted gross income is more than $174,730, the credit will start being phased-out.

o Also check and see if your employer has an Adoption Assistance Plan that helps pay for some or all of your adoption expenses.

· Child’s investment income

o If your child has investment income, beware that if that investment income is greater than $900 in 2008, you may have to file a tax return for the child.

o If the child’s investment income is over $1,800, the income will be taxed at parents’ tax rate.  To save time filing that child’s return, you can elect to include that income on your tax return.

o For more information, see IRS Tax Topic 556

·

Future

College

Expenses

o The two best ways to save for your child’s college expenses are college savings plans and prepaid tuition plans. These programs are known as Section 529 plans and are established and maintained by states.

o Some states have both types and some have one type or the other but every state has at least one type.

o The prepaid tuition plans let you lock in the college’s current price to pay for your child’s future college expenses.  College savings plans don’t have this guarantee.

o Anyone, not just the parents, can contribute to these plans.

o There is no federal deduction when a contribution is made to a plan but you may get a deduction on your state return if you investment in your state’s 529 plan.

o The earnings on these plans are tax-deferred. You don’t pay taxes on the yearly earnings.

o If the money from the plan is used for the child’s college expenses, the distribution is tax free.

o If you start a 529 plan, be sure that you plan to leave the money in the plan until your child is ready for college. If you cancel the plan, you will have to pay tax on the earnings and a possible 10 % penalty.

o Here are some good websites for a better understanding of these college plans

Saving for College

College Savings Plan Network

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