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Reap tax rewards for housing foster children

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in Small Business Tax,Small Business Tax Deduction Strategies

If you’ve taken in a child under a foster-care arrangement, the payments you receive from the government or other qualified agency are generally tax-free. But the tax breaks don’t stop there.

Strategy: Claim the same tax benefits available for your natural child. For instance, if your foster child lives with you for more than half the year, you’re entitled to an extra dependency exemption if you meet the other tax law tests. Each exemption for 2006: $3,300.

Similarly, you may be in line for one or more of these tax benefits in 2006:

-The dependent-care credit for children under age 13.

-The earned-income credit.

-The child-tax credit.

-Medical-expense deductions paid on the child’s behalf.

Tip: You can also claim a charitable deduction for your out-ofpocket expenditures for feeding, clothing and caring for your foster child if it benefits a qualified tax-exempt organization.

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