For many parents, it seems as if we go from changing diapers to packing the kids up to go off to college. With all the hustle and craziness of being a full-time parent, life can become a time crunch and it’s easy to overlook financial shortcuts that make your life a little easier. Regardless of what stage your children are at, raising them can definitely be stressful and expensive at times, but knowing ways to save, particularly on your taxes, relieves some of those financial burdens.
If you meet certain qualifications, you could be eligible to claim valuable tax deductions and credits that are beneficial for you and your family. And now that tax season is in full swing, it’s time to tackle those finances and receive your biggest refund yet.
Below is a roundup of the most common parent tax deductions and credits that you should take advantage of when filing your taxes this season.
Adjust your withholding status: Adding a new child to your family can change the dynamics around your house, as well as change many things about how you file your taxes. If you had a baby remember you may be able to adjust your tax-withholding status at your job since having a baby can give you more tax deductions at tax-time enabling you to have less withheld you’re your paycheck. File an updated W-4 with your employer to lessen the amount of taxes taken out of your paycheck. TurboTax W-4 calculator can help you figure out the right amount of personal exemptions whether you want more back in your paycheck or a bigger tax refund.
Child and Dependent Care Credit: If you’re going back to work or school and will be paying for child care for your dependents, you may use this credit to claim up to 35% of $3,000 in expenses or $1,050 for one qualifying dependent. This provision enables you to claim a credit for expenses incurred in taking care of your children while you are at work. You can claim expenses ranging between 20% to 35 % of $3,000 for one child, and $6,000 for two or more children, and your earned income must exceed the amount that you pay for childcare expenses.
Child Tax Credit: You may also be eligible for the child tax credit, which is even better than a deduction, since it reduces your taxes dollar for dollar. The Child Tax Credit is an additional $1,000 credit you may be able to claim for your children under 17.
Deduction for Dependent Children: The IRS allows you to deduct up to $4,050 per child in 2016. The dependent must be a “qualifying child”, which can include a natural or adoptive child, stepchild, or foster child. The child must also live with you for more than half of the year, and be no older than 19 by the end of the year. If your child is a full-time student for the year, then you may claim him or her as a dependent as long as they are under 24 by the end of the year. The regulation defines “full-time student” as attending school for at least part of five calendar months during the year.
Earned Income Tax Credit: This is a tax credit that reduces your income tax liability based on a combination of your income and family size. The EITC is a refundable tax credit given to taxpayers that earn low to moderate income from a job or being self-employed. It may not only eliminate your income tax liability, but if the credit is more than the amount of tax you owe, you can receive a tax refund for the amount of your credit. The amount of the credit you are eligible for is based on your filing status, the number of qualifying children you are claiming, and of course your income level. For example, if you’re married filing jointly, and you have two qualifying children, then the maximum income you can earn to qualify for the credit is $50,198 for 2016. The maximum credit will be $5,572, with two children, but you can also get up to $506 even with no qualifying children.
Children can be expensive, but these tax breaks can take some of the sting out of the costs of child-rearing. Whenever you are feeling exasperated, just remember what valuable tax benefits they will qualify you for when you file your tax return. By taking all of the tax deductions and credits that your family is eligible for, you can minimize your tax liability and even increase your tax refund.
So what are you waiting for? Get your taxes started today and save big!