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CCH Lists Ten Ways Tax Code Benefits Parents
(RIVERWOODS, ILL., March 8, 2010) – Raising kids is expensive, but the tax laws can ease that burden, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (CCHGroup.com). From birth through college graduation, there are breaks that reduce taxes and help defray the costs of education. Here are ten ways:
- Personal Exemption –A reduction of taxable income of $3,650 ($3,650 in 2010) for each dependent child under age 19 or, if a full-time student, under age 24. For divorced parents filing separately, generally the exemption goes to the parent who has custody for the greater part of the year.
- Child Credit –A reduction of tax of $1,000 per child, beginning to phase out when adjusted gross income (AGI) exceeds $75,000 for single filers and $110,000 for joint filers. May be partially refundable, depending on income.
- Childcare Tax Credit – A credit based on childcare expenses for children up to age 13, or older children if they are physically or mentally incapable of caring for themselves. Credit taken against maximum qualifying expenses of $3,000 for one qualifying dependent and $6,000 for two or more. Credit equals 35 percent of qualifying expenses for taxpayers with AGI up to $15,000 and decreases with income to 20 percent of allowable expenses for AGI of $43,000 or more.
- Adoption Credit – A m aximum credit of $12,150 for a regular adoption, with credit amounts phased out at incomes between $182,180 and $222,180 for both single filers and joint filers. For a special-needs adoption, the credit is figured without regard to the actual expenses paid or incurred in the year the adoption becomes final.
- Earned Income Tax Credit (EITC) – Amounts increase for eligible taxpayers with children. Size of increase depends on income level, number of children.
- Coverdell Education Savings Accounts (ESAs) – E arnings in these accounts grow tax-free. Withdrawals also are tax-free if used to pay for qualified educational expenses. Can be used to pay for tuition, fees, books, supplies and equipment for both K-12 and post-secondary. For K-12, can also pay for uniforms, transportation, supplementary items and services such as extended day programs, room and board and purchase of computer technology and Internet access. Contributions limited to $2,000 per year.
- Qualified Tuition Programs (529 Plans) – I nvestment earnings in these plans are not taxed if withdrawals are used for qualified expenses. Contributions to state-sponsored programs are partially or fully deductible on some state tax returns. Annual contribution limits for the plans are set by the state or educational institutions sponsoring the plan and may be in excess of $300,000, but a contribution in excess of $65,000 by any individual ($130,000 for joint filers) in one year could restrict those persons’ ability to make additional contributions in further years without being subject to gift tax.
- Bond interest – For 2009, interest on proceeds of qualified savings bonds (specifically, Series I bonds or qualified Series EE bonds issued after 1989) cashed to pay education expenses is tax free for joint filers with less than $104,900 in AGI, partially tax free for AGI of $104,900-$134,900; comparable limits for single filers are $69,950-$84,950. For 2010 returns, phaseout ranges are $105,100-$135,100 for joint returns, $70,100-$85,100 for single filers.
- Higher Education Tuition Deduction –An above the line deduction for qualifying educational expenses of up to $4,000 at an accredited post-secondary institution. The deduction is reduced to $2,000 at AGI above $65,000 ($130,000 for joint filers) and is not available if AGI exceeds $80,000 ($160,000 for joint filers). This must be coordinated with other educational exclusions and cannot be used for anyone for whom the American Opportunity Tax Credit or Lifetime Learning Credit is claimed.
- American Opportunity, Hope and Lifetime Learning Credits – For 2009 and 2010, the American Opportunity Credit virtually replaces the Hope and Lifetime Learning credits for undergraduate expenses, providing a credit of up to $2,500 per student per year for the first four years of post-secondary qualified tuition and expenses. Up to 40 percent of the credit is refundable, depending on income. Residents of Ark., Ill., Ind., Iowa, Kan., Mich., Minn., Miss., Neb. and Wis. who are in the “Midwestern Disaster Area” might do better choosing the Hope Credit for 2009 expenses.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. CCH is based in Riverwoods, Ill. Wolters Kluwer is a leading global information services and publishing company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands (www.wolterskluwer.com).
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