“Children are a gift from the Lord; babies are a reward. Children who are born to a young man are like arrows in the hand of a warrior. Happy is the man who has his bag full of arrows.” Psalm 127:3
God certainly sees the benefits of children. The picture above shows my three grandchildren with my youngest son Michael at a family function this summer.
The two youngest are Ephraim and Benaiah (being held on the left and right of the picture) who are both less than one year old and Carli who is three. She’s not too happy in this picture but most of the time she’s a beautifully happy young girl.
Children and grandchildren are a joy to be around. They give us joy, happiness and fill us with the promise of new life. Our grandchildren are often in our home. My wife and I recently had the pleasure of caring for Benaiah last week while his parents were away on business. They are truly a joy to see them grow and develop.
Our tax code recognizes this also. It is filled with benefits for those who are raising children.
In 2015 the personal exemption will rise to $4,000. This is the most common deduction people think of regarding children. But there are many, many other advantages.
The single largest credit available for taxpayers with children is the Earned Income Credit. That credit is going to rise in 2015 to a whopping $6,242. The credit is based upon “earned income”. It is given on a sliding scale. I do have some clients that receive the maximum credit.
The tax code rewards parents with a $1,000 child credit until the child reaches age 17.
But there are dependent care credits, adoption credits, Additional child tax credits, education credits and a host of deductions and credits for monies that are allocated to their education and development.
Of course, all of these exemptions deductions and credits are subject to a variety of caps and cuts based on your level of income.
One of the most powerful tax savings devices I encourage my business clients to consider is a custodial account.
The law recognizes that until the age of 18 (or 21 in many states) children are minors. While they do file their own tax return (with some exceptions) they do not legally control their monies.
A business owner has the right to hire their children and pay them a fair wage for the work they do. That parent can then deposit those earnings into a custodial account and serve as the trustee for those funds.
There are several advantages to this. It is a wonderful income splitting device. The amounts deposited to the accounts can be used by the parent for the benefit of their child. However, the earnings are taxed at the child’s rate of taxation-which is usually lower than the parents’ rate.
Children do hold a special place in our hearts and lives. And, the tax code gives us many, many benefits for the care and upbringing of those children.
They are very powerful tools in an overall tax reduction strategy-IF you know how to use them.
Call the Eldridge Group today for an analysis of just how your children can be a powerful tax savings tool.