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Foster parents: Latch onto tax breaks

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in Small Business Tax,Small Business Tax Deduction Strategies

Have you volunteered to take in a foster child? Besides doing a good deed, you may be in line for tax breaks.

Strategy: Don’t hesitate to claim tax benefits available to foster parents. There’s no shame in reducing your tax bill in conjunction with this worthwhile cause.

For starters, the payments you receive from the government or other qualified agency are generally tax free. But you may also realize one or more of the following tax breaks:

  • Assuming the child resides in your home for more than half the year, you may be entitled to a dependency exemption deduction. Each exemption for 2017 is $4,050.
  • If you pay for someone to look after an under-age 13 child while you and your spouse work, you can claim a dependent care credit for the child. For most taxpayers, the maximum annual credit is $600 for one child and $1,200 for two or more children.
  • Lower-income foster parents may be eligible for earned income tax credit.
  • You may claim a child tax credit (CTC) subject to a phase-out based on the adjusted gross income. If the amount of the CTC is greater than the tax you owe, then you may be able to claim the Additional Child Tax Credit.
  • Medical expenses paid on behalf of the child count toward the annual threshold of 10% of AGI.

Tip: You can also claim a charitable deduction for your out-of-pocket expenditures for feeding, clothing and caring for a foster child if this benefits a tax-exempt charity.

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