David Smith writes:
If I could make one change in the tax code, I would eliminate any benefits for having children. I chose to be single. I chose not to have children. I am appalled to see how much our tax system subsidizes having children. It is welfare, just put forth another way.
I already pay property taxes in my state. Those property taxes are used to pay for schools to educate children that I don’t have. I understand that education is something that benefits society, so I don’t mind.
I feel similarly about programs that pay for medical insurance for children. I do think all children should have medical insurance.
But I don’t think that anyone should receive extra tax benefits because they chose to have children. It was especially annoying to see that Congress offered extra stimulus checks per child last year. Combined with extra exemptions and the earned income tax credit, people with children get huge breaks when it comes to taxes. I don’t think this makes sense and I don’t think it’s fair.
Taxpayer asks:
My son wants to know when he’ll have to file for taxes, he started mowing lawns this summer and is getting paid $25 per yard.
Taxgirl says:
Wow, I feel old. I used to get paid $10/yard for biggish yards in the country. *sigh*
Whether your son will have to file and pay depends on a lot of things. The two most important issues are his age and exactly how many of those yards he mows (his income).
The so-called “kiddie tax” is a term to describe when a child may be taxed at his or her parents’ rate. It has been around for about 20 years now.
Here’s how it works: for 2008, children under 19 and full-time students under 24 with earned income which is less than to half of support may have up to $1,700 in unearned income, meaning income such as dividends and interest on investments (not wages) before the kiddie tax kicks in. The first $850 is exempt from taxation and the next $850 is taxed at the child’s income tax rate.
But. Unearned income over $1,700, tax is computed at the parent’s tax rate. Earned income (wages or pay for, say, mowing the grass) is taxed at the child’s tax rate.
If your child has unearned income of $8500, that income can be included on a parent’s return. Otherwise, the child should file an individual return (see the exemptions from tax above).
Before you rush to include your child’s income on your personal return, don’t forget that this would add to your own adjusted gross income. While you may consider it the same pile of money for purposes of paying the tax, it can subject you to phase-outs or other limits.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl!
–
This post is part of the b5media Business Channel Great Blog Off! Find out more about the Blog Off here.
The Business Channel is supporting Accion International for the Great Blog Off. You can make a donation directly to Accion. Donations are, of course, tax deductible.
It’s the return of Fix the Tax Code Friday!
Since there’s been some discussion on the blog lately about whether or not parents should receive tax “benefits” in the form of exemptions and credits, I thought I would make it the Fix the Tax Code Friday question:
Should parents be entitled to exemptions and credits to offset the additional costs of raising children? Or should having children be a tax-neutral event?
In recent weeks, I’ve received a flurry of emails from parents asking about whether band uniforms, soccer cleats and other expenses related to children are deductible. I thought it might be useful to have a checklist of some child-related deductions that you may be overlooking.
1, Child tax credit. If your modified AGI (adjusted gross income) is $75,000 or less for a single person or head of household ($110,000 for married taxpayers) and you have a qualifying child, you may be eligible for the child tax credit of up to $1000.
2, Child care expenses. If you paid qualifying child care expenses, you may be entitled to a tax credit for those expenses. For more details about what constitutes qualifying child care expenses, see my prior post.
3, Hope credit for college expenses. You may be eligible for a tax credit for your dependents who are college students in their first two years of college, provided that you are responsible for paying those expenses. The credit is up to $1,650 on the first $2,200 of college tuition and fees and is available for students engaged in study at least half-time.
4, Lifetime Learning Credit. You may be eligible for a tax credit of up to $2,000 on the first $10,000 of college tuition and fees for your dependents, provided that you are responsible for paying those expenses. This credit is available for students who take at least one course; the students need not be engaged in study at least half-time.
5, Tuition and Fees Deduction. Expenses for tuition, registration fees, and other required fees for your dependents who attend eligible educational institution (for example, most colleges, universities and vocational schools) may qualify for the Tuition and Fees Deduction. The deduction is limited to $4,000 per year. Your modified AGI must be less than $80,000 for a single taxpayer or head of household and $160,000 for married taxpayers.
6, Adoption Credit. If you have out of pocket expenses relating to adopting a child, you may be eligible for a credit of up to $11,650 per eligible child. Out of pocket expenses include adoption fees, legal fees, court fees and travel expenses; you are not eligible to deduct expenses that are reimbursed to you from any organization.
7, Medical and Dental Expenses. If you paid medical or dental expenses for your dependents, you may be able to take a deduction for the expenses that exceed 7.5% of your AGI.
8, Investment Fees and Expenses. To the extent that you pay investment fees, custodial fees, trust administration fees, and other expenses for managing investments that produce taxable income that is reported on your income tax return, those expenses are deductible. This includes fees related to income reported on your income tax return for investments in the names of your dependents.
9, Charitable Donations. While tuition payments for private and parochial schools are not usually deductible, donations of goods and cash may be. In fact, most schools (private, public and parochial) have 501(c)(3) status – if you’re not sure, just ask. If you make a donation of cash and goods that would otherwise qualify for a deduction, and you do not receive a benefit in return, the value of that donation is tax deductible.
Of course, this is just a short list and the expenses and credits listed may be subject to phase outs, eligibility requirements and other limitations. If you’re not sure whether these expenses or credits apply to you, ask your tax professional!
