A small child is a welcome in every home and he usually ends up having a lot of costs piled on him. But now, you can get a relief from his costs too. You can claim certain deductions too. Many types of savings help you go that extra mile in keeping the smile on the baby's face.
Here is a list of the available options. (a) Supplementary exemption called Dependency Exemption (b) Child Tax Credit (c) Child and Dependent Care Credit (d) Tax deduction, by transferring revenue to the child. (a) Dependency Exemption: necessary amount from your gross income is deducted in accordance with inflation rates. ? The child (dependent) must be living at your residence throughout the year or he/she must be a relative.
? The dependent's gross income must not exceed the annual exemption amount. This clause, however, does not apply to children who are less than 19 years of age or are full-time students whose age is less than 24 years. ? The taxpayer must support at least half the dependent's total cost of living. ? The dependent must be a resident of the US, Mexico or Canada. If the kid meets all the rules, you then provide your SSN and claim deductions. (b) Tax Credits: this is the case of a new born kid.
For instance, you are entitled to Child Tax Credit and Child and Dependent Care Credit. Tax Credits are the true savior because they measure the amount on per dollar basis. If a kid is adopted, the foster parents can claim a part of expense of legal adoption.
(c) Income shifting: transfer funds to children as they naturally fall under the lower income group but exercise caution and play within the rules of the game. After all you don't want to take the smile on your family's face. They want a bright and a nice future.
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