How much does having a child reduce your tax burden?

[PingSpike]

The child tax credit is $1000...so for each child you get $1000, whether you made any money or not right?

But then you have a deduction for a dependent. How much does each of these deductions reduce your tax burden? Do they reduce your taxable income by a certain amount?

 

[dquan97]

How much the additional exemption is ultimately worth depends on your tax bracket.

 

[PingSpike]

Originally posted by: dquan97
How much the additional exemption is ultimately worth depends on your tax bracket.

I think I understand that concept...if you income is 75K, a reduction of X dollars is going to net you 0.25*X dollars right? If its 50K, it'll next you 0.15*X dollars though.

But...what is the X for an exemption? (each kid lets you claim an additonal excemption on your taxes, right?

And I still don't fully understand the standard deduction. Its like 10K or so for married couples. Does that mean your taxable income is reduced by 10K? And if so, does that mean if you make 70K that you'll actually be in 15% tax bracket?

 

[spidey07]

Deductions are simply that, they deduct money from your taxable income. In your 70K example they would still be in the 25% bracket because their Adjusted gross income is 60K.

 

[PingSpike]

Originally posted by: spidey07
Deductions are simply that, they deduct money from your taxable income. In your 70K example they would still be in the 25% bracket because their Adjusted gross income is 60K.

Bur for married filing jointly...the 25% bracket begins at 65,100...so wouldn't they still be in the 15% bracket? Or does Adjusted gross income not move your actual tax bracket? I was under the impression that it did.

 

[spidey07]

Whoops, I was thinking about single. Your tax rate is based on your adjusted gross income so if you put the AGI under the 65K then it is 15%.

But remember that tax rates aren't straight percentage. If your AGI is over 65K then you pay 15% on that 65K and 25% on whatever is over 65K. Eitherway lowering your AGI is always a good thing so keep cranking out kids. The tax code highly encourages you to.

 

[Megatomic]

Any tax burden reduction children nets you is negated by their expenses throughout the year. I have 3, they cost me plenty.

 

[Queasy]

Originally posted by: Megatomic
Any tax burden reduction children nets you is negated by their expenses throughout the year. I have 3, they cost me plenty.

Tell me about it. I have to register both kids for soccer by this weekend. That's $145 right there + $ for soccer cleats + $ for pictures, etc. I need a tax deduction for this!

 

[PingSpike]

Originally posted by: Megatomic
Any tax burden reduction children nets you is negated by their expenses throughout the year. I have 3, they cost me plenty.

I understand that!

We've been discussing my wife staying home. This would result in a pretty signifigant hit to income. According to my budget it, we can barely afford it. Which means we actually can't. We've been working to reduce some fixed costs, but I'm wondering how much "government help" is actually going to appear in the old pay check.

So I'm still wondering...how much does the deduction/exemption reduce taxable income? Is each exemption worth tax bracket*$1000? $2000? $3000?

 

[PowerEngineer]

The easiest way to get a reliable answer to your question is to use TurboTax or TaxCut to run a comparison between your taxes in 2007 and an "alternate reality" where you added a dependent and dropped your wife's income. There are also free on-line options if you (or a friend) didn't use tax software.

 

[nakedfrog]

Originally posted by: Queasy

Originally posted by: Megatomic
Any tax burden reduction children nets you is negated by their expenses throughout the year. I have 3, they cost me plenty.

Tell me about it. I have to register both kids for soccer by this weekend. That's $145 right there + $ for soccer cleats + $ for pictures, etc. I need a tax deduction for this!

Yeah, I had to pay $280 for band camp for ONE kid, plus $30 for the DVD of the final concert because of course they don't allow you to record it yourself.