Health and other associated issues - Tips, Information and Guides
Getting a Tax Credit for Your Kids
by: Richard A. Chapo As you know, raising a family is a full time job and can put stress on
your finances. Fortunately, you can claim a tax credit to help cut your IRS bill
if you have kids. Getting a Tax Credit for Your Kids With a tax deduction, you are reducing the total amount of adjusted gross
income you have. For instance, if you earned $50,000 dollars in 2005 and take a
$1,000 deduction for something, you’ll have to pay tax on $49,000 dollars in
earnings. Put another way, the $1,000 tax deduction will save you a hundred
dollars or so in the amount you have to send to the IRS. A tax credit is a beautiful thing. It is designed to reduce the amount of
taxes you on a dollar for dollar basis. Taking our example above, you would not
deduct a $1,000 tax credit from the $50,000 you earned. Instead, you would go to
the tax tables and determine the amount of tax you owe on the $50,000. Let’s
say the tax tables reveal you owe $9,000. You would reduce this amount by the
$1,000 tax credit and pay $8,000 dollars to Uncle Same. Put another way, tax
credits are tax deductions on steroids! If you are raising children, you may be able to claim a tax credit for
each one. They must be under 17 at the end of the tax year, a U.S. citizen, your
child and a dependent. Adopted children fit within the tax credit as do
stepchildren and certain foster children. This tax credit, however, does have some limitation. The primary issue is
something called the phase out. If you make more than a particular dollar
figure, the tax credit is either reduced or eliminated depending upon your
particular circumstances. The phase out start when your adjusted gross income
exceeds the following amounts: 1. Married filing Jointly: $110,000 2. Married filing Separately: $55,000 3. All Other Designations: $75,000 It is important to keep in mind that this tax credit is not a profit
center. If you owe the IRS $4,000, but can tax a tax credit for 5 children, you
will not get $1,000 back from the IRS. Instead, you tax bill is simply canceled
out.
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