Cash In on Kids at Tax Time

There are moments in a parent's life when you question why you had children in the first place. I know, I have three of them.

But as taxing as they may be, when tax season comes around, you realize that, if nothing else, your little darlings are a write-off.

Thankfully, you get money back from Uncle Sam for all your hard work and undying love.

Get Credit for Raising Your Kids

Right off the bat, you get additional exemptions for each dependent child. As long as your adjusted gross income doesn't exceed $107,025, you'll get a $3,100 exemption for each child (yourself and your spouse, too!). And if you had a newborn in 2004, take one for that baby, too. The exemptions will phase out, or decrease, as AGI climbs above $107,025.

Next, you may be eligible for the child tax credit. For 2004, the maximum amount of the credit is $1,000 for each dependent child under age 17.

Once your AGI hits $110,000 as a married couple filing jointly, the $1,000 credit starts to phase out by $50 until it hits zero. The phase-out begins at $75,000 if you file as single or head of household, which we'll get to in a minute.

If you have kids under age 13 and you pay someone to watch them so you and your spouse can work or go to school, you may also qualify for the child and dependent care credit. So tally up those daycare or after-school care costs. You can include up to $3,000 of the expenses paid in a year for one child, or up to $6,000 for two or more kids.

To calculate this credit, you must apply a percentage to that expense number. Anywhere from 20% to 35% of your qualifying expenses will count, depending upon your AGI. So the minimum credit you'll get is $1,200 (20% of $6,000), while the maximum is $2,100 if you have two kids.

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