For example, one of the goals we have is for our little one be financially savvy with her money when it comes time for her to move out.

Raise a Super Saver

Here are five ways parents have successfully gotten their kids into saving their money.

1.  Match their savings: Low interest rates can be great if you want to refinance a loan, but it’s terrible for savers, especially young ones. With banks paying pitiful rates right now, parents might want to boost the return on the account by offering a match. Depending on their age, you perhaps may do a 1 to 1 match with their contributions. If they are older and can save a bit more, you can still choose to create an incentive by giving a bonus on a monthly or quarterly basis.

2.  Have them be a part of the team: This year for the family vacation perhaps you can involve your kids with the spending plans. Everyone one who pitches in the pot can have a special activity planned. Perhaps your little one can save up for an ice cream shop visit after visiting the park. Plan ahead and help them to see how much certain activities cost. Perhaps the kids can team up for a common goal – a win-win for the family.

3.  Make it a contest: If your child loves to compete, having a contest with a prize at the end can help  show him or her the value of saving for long term goals. If they save up enough for a video game console, like an Xbox by a certain date that you two choose, then offer to get them a game or additional controller.

4.  Keep it visual: Let’s be honest – saving money at the bank isn’t the most exciting thing for kids. Help them out by having a visual reminder of the progress they’re making, perhaps a chart or poster of what they are saving up for along with their current savings.

5.  Set the example: This is the best way to encourage your kids to save – lead by example. Whether it’s saving for a car, their college fund, or your next vacation, show them that you save as part of your money routine and it’ll be easier for them to follow.

Right now we’re saving our little one’s small savings in an online bank. When she gets older we’ll work with her on using her money to reach her goals.

Thoughts on Kids and Savings

For all the parents reading this, what has worked well for you and your family when it comes to getting your kids to save?

Infographic by Column Five Media

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Dependency exemption. In 2012, you can claim a personal exemption deduction of $3,800 for each child and other dependent, and for 2013 that increases to $3,900. Those exemptions reduce the portion of your income that is subject to federal tax. If you are in the 15% bracket this will save you $570 for 2012, and at 25%, $950 in 2012. The higher your tax bracket, the more each dependency exemption saves you.

Child Tax Credit. You may also be eligible for a tax credit, which is even better than a deduction, since it reduces your taxes dollar for dollar. The Child Tax Credit is an additional $1,000 credit you may be able to claim for children under 17. For married couples with income over $110,000 or $75,000 for a single parent, the credit phases out.

Child and Dependent Care Credit.  Child care is expensive, but Uncle Sam can help you out with the cost. If you are working or actively seeking work and you pay child care for your dependent who is under age 13, you can claim the Child and Dependent Care Credit.

This credit is a dollar for dollar reduction of your taxes, based on your child care expenses up to 35% of $3,000 for one child or $6,000 for two or more children. The credit ranges from 20 to 35 percent of your child-care expenses, depending on your income.  Nursery school, private kindergarten, after school programs and day care are all qualifying expenses.

Earned Income Tax Credit. There’s a special credit available if your wages and self-employment income fall below a certain level. How much you can earn and qualify for the credit depends on how many dependent children you have.

For 2012, if you have three or more children, you can earn up to $45,060 and qualify. With just two children, that drops to $41,952. Only one child, your earnings and adjusted gross income can’t top $36,920. The refundable tax credit you can receive ranges from a maximum of $5,891 if you have three children, to $475 if you have no children. Unlike other tax credits, the earned income credit is refundable, so if the credit is greater than the tax you owe, the IRS will send you the difference.

So next time the kids are driving you crazy, remember the tax savings and give them a big hug instead.

Don’t forget that TurboTax will help you get all of the tax credits and deductions you’re eligible for so you keep all of your hard-earned money.

Still have questions?  TurboTax walks you through the appropriate questions to help you get the dependent tax deductions you are eligible for.

Yet, in the middle of such happiness, someone (usually an uncle you only see twice a year) always seems to tell you how expensive a child will be in the 18 years that you’ll be responsible for them.

Medical Expenses

Depending on where and how you decided to have your child (hospital, birthing center, home care birthing specialists) you probably got popped with a pretty large medical expense to bring your little bundle of joy into this world.

Although paying medical bills isn’t too much fun, the good news is that you can deduct those expenses (as itemized deductions) on that year’s taxes, saving you quite a bundle.

I don’t know if it’s common practice, but my wife and I were still receiving bills from nurses and anesthesiologists when our baby was seven months old. This serves as a reminder to keep excellent records and store all of your receipts and documents in a safe place.

Your Child is Dependent on You

A new baby is totally dependent on his or her parents, but they also give mom and dad quite a nice tax break. The word on the street is that claiming a dependent (newborn or not) on your 2012 tax return will net you a $3,800 deduction. That’s $100 more than 2011 and you can claim this exemption no matter what time of year your child was born.

Your Child’s Gift to You

Not only do parents get to reap the benefits of a new dependent on their tax returns, but they also get another small gift from their little bundle of joy – the Child Tax Credit.

This year, the child tax credit remains the same at $1,000 per child. Here’s how a tax deduction and credit differ:

• a deduction reduces the overall amount of your taxable income
• while a tax credit reduces your tax bill by the actual dollar amount

This means that a $1000 Child Tax Credit reduces your tax bill by $1,000.

The Gift that Keeps on Giving – Your W4

Tax breaks on tax day are great, but don’t forget about your monthly take home pay.

When you have a child, this new person in your life also changes how you fill out your W-4 at work. Because claiming a dependent changes your tax bill, this means you may be able to now cut back a little bit on your tax withholding at your job.

Simply put, a new baby at home can upgrade your take-home pay. All you have to do is request to file an updated W-4 with your employer.

It might also be important to note that, if you’re a single parent, a new child might enable you to change your filing status from “single” to “head of household”. This simple change will increase your standard deduction.

Credit for Adoption

There are many people each year that adopt their new precious little bundle. And thanks to Uncle Sam, this scenario also comes with plenty of tax help.

In 2012, the Adoption Credit is worth $12,650 to help offset the cost of adopting a child. And for parents who adopt a child with “special needs” the IRS allows them to claim the full amount of the credit, even if the actual adoption costs were less.

No matter how you look at it, bringing a new child into your home and raising them to adulthood will cost quite a bit, but using TurboTax will help you apply all of the tax deductions, credits, and tax breaks that the government allows.

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?

Interactive by Column Five

Sorry, the money you paid to send your child off to the amusement park this summer isn’t tax deductible, but costs for day camp may be.

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Allowance

Allowance for Chores

One big benefit of having commission for chores is that it can help kids realize the connection between work and a paycheck – you have to earn it. Some financial gurus like Dave Ramsey prefer having kids work for their money as it can also help them appreciate the value of it. For some children, there is something special about money that one had to work for versus money just given.

With involved parents, it can be a great teaching opportunity for little ones as they take on more and more responsibilities and find ways to earn more.

The drawback for giving an allowance for chores is that your child could expect to be paid for every assignment they have. The tough part would be working a system where certain chores are to be completed without pay as a part of family responsibilities.

Weekly Allowance

With a regular allowance, kids can start a basic budget. They get paid on a set day and the money has to last until the next allowance day. Instead of just demanding money from their parents whenever they want it, having a scheduled allowance can give children a sense of responsibility. They can also set up goals for buying things that they might want, helping them learn the habit of saving.

For some parents, they start off with a set amount and add bonuses to certain chores. Others tie allowance to their kids’ age and increase as their children gain more responsibility.

The drawback for the scheduled allowance not tied to chores is the expectation of money without having to do anything. Parents would need some ground rules on what is expected for the child to get his or her allowance.

Thoughts on Kids and Allowances

Raising financially savvy kids takes patience and effort. Just because parents have a plan doesn’t mean things will work out that way. It’s about adjusting the allowance until all of you find a balance that works. What will we do? We’re not sure yet, but we’ll be keeping our eyes open for opportunities to teach her about money.

I’d love to hear from you about your family. How many of you have allowances for your children? How is it handled – do you tie it to chores or do you have another system? How do you determine what is a fair amount for allowances?

Indeed, summer vacation is greeted eagerly by children around the country (but not in my household, where my oldest is routinely distraught in late June by the reality of no school for an extended period). As for parents, they must prepare for challenge number one: keeping their children busy and out of trouble without breaking the bank.

Enter summer camp

Indeed, summer camp remains a ritual of growing up for some families.  Depending on the camp, the expense varies widely.  Fortunately, there is tax help – maybe.

The Child and Dependent Care Tax Credit  – Qualifications and Expense Limits

The Child and Dependent Care Tax Credit can be applied to summer camp expenses, subject to certain restrictions.  Your first consideration is the type of summer camp.  If your child sleeps over at the camp, that camp does not qualify.  In addition, if your child is 13 or older, he or she’s out – only expenses for kids 12 and under qualify for this credit.

Of course, it’s not as though you’ll instantly get tax help even if you decide to send your nine-year-old to day camp. That’s because there is another limit to the credit.  Once the total dollar amount spent on child care exceeds $3,000 per year for one qualifying child (or $6,000 for two or more qualifying children), you reach the maximum expense for which you can apply the credit towards.  This maximum amount includes not only day camp but also any child care expenses (including a nanny) you incur throughout the year.

Calculating the Child and Dependent Care Tax Credit

The calculation of the credit is based on the number of children under 13, your total child care expenses, and your adjusted gross income (AGI).  If you have one child and spend the maximum or more, you can multiply the top dollar amount ($3,000) by a rate based on your AGI which ranges from 20% to 35%.  The 20% rate applies to households whose AGI exceeds $43,000. Your income must be less than $15,000 to benefit from the maximum 35% rate.

If you have one qualifying child and earn $43,000 or more, your maximum credit may be $600 ($3,000 multiplied by 20%). If you have two or more qualifying children and $6,000 or more in expenses, you may receive a credit of $1,200 ($6,000 multiplied by 20%).  Keep in mind a credit reduces your taxes dollar-for-dollar and therefore may be more valuable than a tax deduction.

The Child and Dependent Care Tax Credit won’t make summer camp free, but it just might make it more affordable.  Just remember to use part of the savings for bug spray.

Dependents

Before you can get any of the tax breaks that you deserve, make sure your child has his or her own social security number. Now, when you file your tax return, you have an additional exemption to claim.

In 2011, an exemption represents a deduction against your income of $3,700 and in 2012 the exemption will increase to $3,800. Not to be confused with tax credits which are a dollar for dollar savings for you, these deductions simply reduce the final tally for your taxable income. In the 15% bracket this will save you $555, and at 25%, $925 in 2011, you get the idea.

If you adopted a child, you are eligible for The Adoption Tax Credit, up to $13,360 for 2011 to offset your out of pocket costs . The credit begins to phase out for couples with a Modified Adjusted Gross Income (MAGI) over $185,210 and is completely eliminated at a MAGI of $225,210 for 2011.

The Child Tax Credit is an additional $1,000 credit you may be eligible for if you have a child under 17. It’s available to couples whose MAGI is under $110,000 or $75,000 for a single parent, and phased out above these levels.

If you pay someone to take care of your child under the age of 13, while you are working or actively seeking work, you may qualify for a Child and Dependent Care Tax credit up to $1,050. Families that earn less than $15,000 can claim a credit for 35% of qualifying expenses up to 3,000 for one child and up to $6,000 for two or more children.  If your earned income is more than $43,000 you are still are allowed 20% of eligible costs.

If you are in the 25% bracket or higher, instead of the credit, it may make sense to use a Dependent Care Account (DCA) if your employer offers it. You may deduct up to $5000 pretax and apply for reimbursement of expenses for your child under the age of 13 (or older child incapable of caring for his or her self.) Important to note, even though the enrollment period is usually once a year, around November, the change in family status (i.e. having the new child) enables a during-the-year change request.

The Flexible Spending Account (FSA) is another opportunity to withhold pretax money. The typical limit offered by most companies is $5,000 per year. Similar to the DCA, this account is used to cover medical expenses, co-pays, prescription medicine, glasses, or other medical procedures not reimbursed by your insurance. While you may have one with or without a child, the hospital bills for a child birth add up, and this is a great way to cut your tax bill a bit further. This account is “use it or lose it,” so plan carefully. If December approaches and you realize there’s extra money, it’s time for new glasses. Non-prescription medicine is no longer eligible, although you can certainly ask your doctor to write one for aspirin, cough medicine, etc, during a regular visit.

By the way, just when you can’t remember what it was like to sleep through the night, your child will be a teenager and sleep till noon every chance he gets.

It’s also important to make sure you’re claiming every dependent you can. If this recent economic crisis has taught us anything, it’s that it’s very important to get your taxes right so you get the largest refund you’re entitled to. Last year, the average tax refund was nearly three thousand dollars according to the IRS. Who wouldn’t want an extra $3,000 to help with bills this year?

So, let’s discuss how the rules have changed and who you can claim as a dependent for the tax year 2010.

Qualifying Dependents

By definition, a dependent is someone who is a qualifying child or qualifying relative, which by definition makes it only possible for that dependent to appear on one tax return. When it comes to deciding if someone is a qualifying child or relative, qualifying child takes precedence if the individual satisfies all the requirements..

Qualifying Child

To be considered a qualifying child, you need to satisfy four criteria – relationship, residence, age, and support. On relationship, the child must be your child, step child, adopted or foster child, brother or sister, or a descendant of one of these (so nephews count too). They must live with you for more than half the year (residence) and be under the age of nineteen unless they are in college, then the age limit rises to twenty four. The age restriction is removed if they are totally and permanently disabled. Finally, you must provide more than half of his or her financial support during the year.

Qualifying Relative

To satisfy the requirements to be a qualifying relative, there are six requirements. First, they can’t be a qualifying child. They have to earn less than the personal exemption amount during the year, which for TY2010 was $3,650. You must also provide more than half of the total support. If they are married, they cannot file a joint return with their spouse (this would be double counting). They must be related to you in some way (the laundry list includes every conceivable familial relationship you can think of) or live with you for the entire year. Finally, they have to be a citizen or resident alien of the United States, Canada, or Mexico.

As you can see, many of the rules exist so that one dependent cannot be claimed on two returns.

Finally, we leave with this word of warning. This is also one of the areas where being accurate is crucial. If you claim someone who is already being claimed by another taxpayer, you’ll get audited regardless of which tax bracket you’re in. This makes it especially important for divorced parents to communicate with one another.