Shift Income
You can lower your family’s tax burden by shifting income to your children. For example, with your spouse’s consent, you can gift up to $20,000 of assets free of federal gift tax to each of your children. For children ages 14 and older, their first $25,750 of income (earned and unearned) will be taxed at the 15% rate. For children under age 14, unearned income in excess of $1,400 on investment assets will be taxed at your marginal rate, so the benefit of shifting income to them is limited.
Take advantage of credit
Many of these credits phase out if your income is above the certain levels and are subject to certain restrictions:
- Child. You may claim a nonrefundable credit of $500 for each child under the age of 17.
- Adoption. You may take a credit of up to $5,000 of qualifying expenses to adopt an eligible child and up to $6,000 if the child has special needs. You are eligible fore a separate credit for each child you adopt.
- Child and dependent care. This credit offsets certain child and dependent care expenses that enable parents to work. It can be as high as $720 if you have one qualifying child or dependent, or $1,440 if you have more than one.
Understand child support vs. alimony payments.
Child support is not included on the recipient’s return and is not deductible on the payer’s return. On the other hand, alimony must be included as income on the recipient’s tax return and is deductible above the line on the payer’s return. If less than the total alimony and child support required under a divorce agreement is paid, only any excess over the total required child support amount is considered alimony. [ << Previous ] [ Next >> ]
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