Employ your children

Subject to labor laws you can hire your children under the age of 18 and owe no social security or federal unemployment taxes on their wages.  Up to the annual standard deduction your child will not have to pay taxes on those wages while you can deduct those wages from your business income.  You must be a sole proprietor or a partnership in which the only partners are the parents.

Paying More Than Half Of A Parent's Bills

When you pay for more than half of a parent's support you may qualify to take a dependency exemption for that parent. Just make sure their gross income is less than their exemption amount excluding non taxable income such as social security.  Also if you are paying for their medical expenses and paying for more than half of their support be sure to deduct such even if you can not claim them as a dependent.

IRA For a Working Child

If your child has earned income consider making a ROTH or traditional IRA contribution up to the lesser of the earned income or the maximum allowed by federal law for that year.  You can take the money from the income earned or gift the amount to the IRA.

Earned Income Credit - Schedule EIC

An eligible individual is allowed a credit any where from 7.65% to 40% on a maximum amount of earned income.  Phaseout percentages apply to specific phaseout amounts depending on your circumstances.

Shift Up to $1800 of Unearned Revenue to Your Kids.

For 2008 the child's first $900 of unearned income isn't taxed at all.  The next $900 is taxed at the child's tax rate, and the excess of the child's unearned income over $1800 is taxed at the parent's marginal rate. This is known as the KIDDIE TAX.  It affects children who have not reached 18 by the end of the taxable year or the child is 18 and their earned income doesn't exceed one-half of their support.  Also it can affect 19-23 yr. old children if they are full time students.

Child Tax Credit

If you have a child under 17 at the close of the calendar year in which the tax year begins you may be entitled to a $1000 credit against your regular and amt taxes.  Also when the tax liability reaches zero the child tax credit is refundable under certain circumstances!

Child Care Expense Credit

If you have a child under 13 and you are employed you may be able to take a credit for employment related expenses.  The credit will be as high as 35% of employment related expenses; but not below 20%.  The maximum amount of expenses for one qualifying individual is $3000 and for two or more children it is $6000.  Other restrictions apply!

Head of Household

If you are single you may be able to file as Head of Household if you have a qualifying child or parent. The tax rates are lower and the standard deduction is higher!

State Credit For Education

If you give money to a public school or a tuition organization you can qualify dollar for dollar for an AZ credit. Also if you itemize you will get an additional tax deduction on your federal income tax return!  Limits apply!

EE US Savings Bonds 

If you are age 24 or older and buy these bonds and use the proceeds including interest on higher educational expenses for you, your spouse, or your dependent children these bonds are completely tax free!  Additional rules apply!  Also another way to avoid income taxes is to put the bond in the child's name and make the election to pay the interest as it accrues.  The first $900 of unearned income is not taxed at all!