The oldest tax break is the long-standing personal exemption. Each member of a family is allowed a $2,750 reduction in taxable income. This number is increased yearly for inflation. However, these exemptions begin to phase out when a couple filing a joint return has Adjusted Gross Income (AGI) that exceeds $189,950. The threshold is $158,300 for Head of Household Status, and $126,600 for single filers.

Second, there is a Child Tax Credit that began with the 1998 filing season. Parents with children who are under age 17 at the close of the tax year and for whom they can claim a dependency exemption, are allowed a $500 tax credit per child in 1999. However, there are limitations to the credit. For joint filers, the credit begins to phase out when adjusted gross income reaches $110,000. Married filing separately taxpayer’s credit begins to phase out at $ 55,000. The figure is $75,000 for single taxpayers. In addition to the $500, parents of three or more children may qualify for a supplemental credit.

Third, there are now credits available for tuition expenses. The Hope Scholarship Credit provides a maximum allowable credit of $1,500 per student for the first two years of postsecondary education. The credit begins to phase out for married individuals with Adjusted Gross Income between $80,000 to $100,000. The second tuition credit is the Lifetime Learning Credit. This is a credit of 20 percent of qualified tuition expenses paid by the taxpayer for any year in which the Hope Credit is not claimed. The Lifetime Credit cannot exceed $1,000. The credits are elective and nonrefundable. A nonrefundable means that you can’t get more credit than you owe in taxes.  The phaseout of the credit is the same as the Hope Scholarship Credit. Neither credit is available to married taxpayers filing separate returns.

Fourth, taxpayers may now file Form 8839 and claim a nonrefundable credit of up to $5,000 for qualified adoption expenses for eligible children. Qualified adoption expenses include reasonable and necessary adoption fees, court costs, attorney fees, and other expenses which are directly related to the legal adoption of an eligible child. An eligible child is a child, under 18 or who is physically or mentally incapable of caring for himself. If expenses are incurred in a tax year prior the finalization of the adoption, the credit is allowed in the year in which the adoption is finalized. If the expenses are paid during or after the tax year in which the adoption is finalized, the credit is allowed for the tax year in which the expenses were incurred.

Next, there is a tax credit available for qualifying dependent care expenses. The credit is computed on Form 2441 Child and Dependent Care Expenses. In order to be eligible for the credit the taxpayer must maintain a household for one of the following:

• A dependent under 13 for whom a dependency exemption may be claimed
• Any other person who is physically or mentally incapable of caring for himself and can be claimed as a dependent
• The taxpayer’s spouse who is physically or mentally incapable of self-care
• Certain dependent children of divorced parents

Qualifying expenses include payments to relatives or non relatives for care of a qualifying individual. An exception to this are fees for an overnight camp. The maximum amount of expenditure to calculate the credit is $2,400 for one individual, or $4,800 for two or more individuals. The credit is equal to 30% of employment related expenses for taxpayers with adjusted gross income of $10,000 or less. For taxpayers with adjusted gross income over $10,000 the credit is reduced by one percentage point for each $2,000 of income over the $10,000. For taxpayers with adjusted gross income over $28,000 the credit is 20%. That works our to $480 of credit for one child if the maximum expenditure of $2,400 is made.

The final federal item is related to student loan interest. There is a deduction in arriving at Adjusted Gross Income for Interest on qualified education loans. The debt must be incurred by the taxpayer solely to pay qualified higher education expenses. The deduction is limited to interest paid during the first 60 months in which such payments are required. The maximum deductible amounts are $ 1,500 for 1999 and $2,000 for 2000.

Virginia has given taxpayers a break by allowing a subtraction for amounts paid to the Virginia Higher Education Tuition Trust Fund. The maximum amount of the subtraction is $2,000. A taxpayer who is over age 70, however, is not subject to the $2,000 limitation.

The wonderful thing about most of these credits is that they reduce the taxes owed column and not the taxable income column. The result is a far greater impact on taxes owed. So as you do taxes this year, make sure you check all of your “parent” deductions and credits.