5 ways your kids can save you (tax) money

Taxes, Family/Kids, Money, Relationships

The U.S. Treasury has been kind enough over the years to carve out several parent-friendly tax breaks and incentives designed to lessen the burden of childrearing — well, the expenses anyway. If you or your partner gave birth, blended a family, adopted or accepted the placement of a foster child in 2014, you are likely eligible for a slew of tax benefits to help not only reduce your tax liability but increase your possible refund.

Below we cover the major child-related tax considerations, but be sure to review your return with a qualified professional prior to filing. You never know what other deductions may be available.

1. Child tax credits

Unlike a deduction, which merely reduces your taxable income, having a child can actually earn you a tax credit. In other words, the IRS will throw $1,000 your way for every dependent child under age 17 living in your care. If you are above a certain income threshold — $110,000 for married couples, $75,000 for single parents — this credit will gradually phase out. But, it’s a credit nonetheless, and you’ve earned it! For divorced parents, only the parent with whom the child resides for more than half the year can claim the credit.

2. Childcare deduction

If your children are in daycare or supervised by a nanny while you and your spouse pursue a career or education, you can deduct a certain portion of these childcare expenses from your total taxable income. Currently, parents of one child can deduct up to $3,000 for childcare, or up to $6,000 for two or more children. While the average annual cost of daycare is a staggering $18,000, this deduction can still be a welcome break for working parents.

3. Education benefits

Parents with school-age children may be able to deduct the costs of certain necessary school supplies or even the cost of private school tuition, depending on the state. On their federal tax return, parents with college-age scholars can deduct the costs of supplies, books and tuition up to the somewhat paltry $2,500. Likewise, post-graduates or parents footing the bill can deduct student loan interest payments from their taxable income.

4. College savings plans

For parents anticipating college tuition, a 529 plan is available in most states and works as a tax shelter for savings earmarked solely for post-secondary education. This is not a deduction or credit but a cost-savings measure for earning tax-free income on investment funds that will be used for university tuition. And, with the average cost of in-state public college tuition expected to hit $42,000 per year in 2030, you had better open an account on the way home from labor and delivery.

5. Other ideas

There are several lesser-known deductions that could prove beneficial. For instance, the IRS allows for an “alternative medicine” deduction, so long as the provider is a licensed medical doctor. If your parenting style calls for herbal remedies over antibiotics, you may be able to deduct these expenses come tax time. Also, don’t forget to deduct the sales tax assessed on that new minivan you just bought, as most states allow filers to offset this cost with a reduction in tax liability.

Once you’re done with your taxes, be sure to update your estate planning documents to make sure your new family is protected. Find a great estate planning lawyer in your area, or speak to one on the phone within minutes using Avvo Advisor.

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