Check out these tips that could help with your taxes!
8 Money-Saving Tax Tips for Parents
1. Dependent Exemption
Your child is also likely to be your dependent and eligible for the dependent exemption. An exemption, much like a deduction, reduces your taxable income, which can lower your tax obligation.
The IRS changes exemption amounts periodically. Qualifying children must be under 19 years of age at the end of the year to qualify (under 24 for students). If the qualifying child is permanently disabled, the age restriction does not apply.
You can also file a new W-4 form with your employer to claim additional withholding allowances. Since claiming an extra dependent likely will cut your tax bill, it also means you should be able to cut back on tax withholding from your paycheck.
2. Child Tax Credit
A tax credit directly lowers your tax bill dollar-for-dollar. For example, a child tax credit of $1,000 per child could lower your tax obligation by thousands of dollars if you have several children. But not every child qualifies. Your child must be:
Under age 17 at the end of the year
Your own child, a stepchild or a foster child
Claimed as a dependent on your taxes
A U.S. citizen, national or resident alien
Living with you more than half of the year
Moderate-income households can benefit from the child tax credit. Javier and his wife Sara used the credit after they took in teenage nephews at their Modesto, CA home.
"Every penny counts ... We all look forward to getting something back at the end of the year, or at least, breaking even. I think that it's very beneficial to all families who have children," says Javier of the tax break.
Many parents work hard to make ends meet, so it's important to have some help like the child tax credit, he adds.
3. Child and Dependent Care Credit
You may qualify for a child and dependent care tax credit if:
You had child care expenses for children who were under 13 at the end of the year.
The child care allowed you either to work or to look for a job.
You (and your spouse, if married) earned income during the tax year to claim the child care credit.
4. Earned Income Tax Credit
Working parents with modest incomes may qualify for the earned income credit (EIC). The amount of credit depends on the number of children you have and your income for the tax year, since income limits apply. The EIC can reduce your tax bill and may result in a refund if it lowers your tax obligation to zero.
5. Adoption Tax Credit
The adoption tax credit can offset the costs of adopting a child. Income limits apply, and you can only claim a certain dollar amount per adoptive child. Some of the expenses that may qualify for this credit include:
Court and attorney fees
Related travel expenses
Related meal expenses
Adopting a child with special needs can allow you to claim the entire adoption credit, even if it exceeds your actual expenses. However, it is nonrefundable, so it can't exceed the amount of your actual tax liability.
6. Higher Education Tax Credits
Parents can claim two credits for higher education:
The American Opportunity Tax Credit (AOTC)
The Lifetime Learning Credit (LLC)
The AOTC can be used for up to four years. The Lifetime Learning Credit has no limit as long as your child participates in an eligible degree program.
Qualified expenses include:
Personal living expenses, such as room and board and transportation, don't qualify.
Income limits apply, and you can receive a refund of a portion of the AOTC, even if it results in zero tax obligations.
7. Student Loan Interest Deduction
Parents can deduct interest payments on certain student loans. The deduction can reduce the amount of taxable income, and possibly lower your tax bill. For example, you can reduce your taxable income up to a certain amount, such as $2,500.
Student loans must come from a qualified lending institution — not a relative — and your child had to be enrolled at least half-time in a degree program when the loans were originated. Income limits apply based on filing status.
8. Self-Employed Health Insurance
Self-employed parents often must pay for their own and their family's health insurance.
If you're self-employed, generally you can deduct 100% of the cost of health insurance premiums paid for children under the age of 27.
This includes medical, dental and long-term care premiums, even if your adult child isn't a dependent. The deductions can't exceed the amount your business earns and you can only take the deduction if you and your spouse are ineligible for an employer-paid plan.