As an owner-operator, you are responsible for paying taxes and calculating the net profit for your business. You can minimize tax liability by claiming every legal deduction and credit available. If you are a parent, you entitled to numerous tax benefits. Having children qualifies you for some specific tax deductions that can significantly lower your liability. We have compiled a list of these deductions that will reduce the amount of taxes you owe.
Here are some tax deductions specific to parents:
- Claiming dependents. This is the most commonly known tax deduction for parents and a very important claim to significantly lower your liability. Claim your child as a dependent on your tax return, even if your child was born during the previous tax year. This will be shown as a certain amount and will reduce your taxable income. The dependent in question must be a US citizen and must have lived with you for more than half of the year in question. There are a few other exemptions for this claim…. Your tax professional can help you determine if you qualify or you can use the resources on www.IRS.gov to determine your eligibility.
- Child Tax Credit. For a child to be eligible, they must be 16 years old or younger and a relative. Also, they must not have provided more than half of their own support, and you must be claiming them as a dependent on your return. The Child Tax Credit could reduce your income up to $1,000. There is also an Additional Child Tax Credit for families with three or more children.
- Child and Dependent Care Credit. To qualify for this credit, a child must be less than 13 years old and someone other than a spouse or a dependent is paid to care for them. Both parents must be working to qualify.
- Earned Income Tax Credit. This is a tax benefit for people who make less than $50,270 a year. There are several specific qualifications, but you can easily find out if you qualify by using the EITC assistant. The amount you will receive depends on income, family size, etc. If you have qualifying children, you could get up to $5,891 extra back when you claim this credit. Be prepared to answer several questions with your tax professional for this fantastic credit that could save you thousands of dollars.
- Adoption Credit: If you adopted a child, there are tax benefits available regarding some expenses incurred during the adoption process. The Adoption Credit includes both a credit for the adoption expenses and exclusion for employer-provided adoption assistance.
- For foreign adoptions, you must wait until the adoption is finalized to claim these credits.
- For domestic adoptions, you can claim the credit for expenses paid before the year the adoption becomes final or you can claim the credit for the tax year following the year of payment.
- Higher Education Credits: If you paid for your child’s higher education, you may qualify for either the American Opportunity Credit or the Lifetime Learning Credit. The American Opportunity Credit can reduce tax liability up to $2,500 for each child in college as long as the adjusted gross income is less than $80,000 if single, and $160,000 if filing jointly. The Lifetime Learning Credit will also reduce the amount of tax you owe. If the credit is more than you owe, you could get a refund of up to $1,000. And if you paid for your own education, you could still be eligible for one of these credits. Talk to your tax professional for more details on how to qualify for these credits.
- Student Loan Interest: If you are paying student loans, you may be able to deduct the interest you paid from your income. This is applicable even if you do not itemize your deductions, however, the loan must have been taken out only to pay for education costs.
- Self-Employed Health Insurance Deduction: If you are paying for your child’s health insurance under your company health care plan, generally your company can deduct the insurance costs. Ask your tax professional for more details on how to use this deduction.
- Child Wages Deduction. Hiring your children to do easy tasks will give your business a tax deduction for their wages. Pay children with a check, issue them the appropriate tax form, and create a job description for them to claim this deduction.
As an owner-operator and a parent, it is important to the success of your business and your family’s future to take advantage of these great tax credits. If you would like more information on any of these tax credits for parents, call ATBS at 866.920.2827 (ATBS) or visit the IRS website.