Raising a child is without question the most important and rewarding role in life, but it can also get expensive. Families are estimated to spend between $12,350 – $14,000 a year per child (birth to 17 years old), on average, per the Department of Agriculture.
But there’s good news for parents! You can take advantage of the different tax breaks available – and there are quite a few. Read below for our list of popular tax credits (subtracted from the amount you owe) or tax exemptions (decrease the amount of the income upon which you are taxed) to increase your return.
TIPS FOR TAX BREAKS
1. Adoption Credit
If you’ve recently adopted a child or multiple children under the age of 18, check out Form 8839 to receive a credit up to $13,570 per child. Qualified adoption expenses include: court costs, attorney fees, travel expenses and other expenses (including meals) that are directly related to the legal adoption of a child. Like most credits, there are income limits to be eligible.
Note: The adoption credits begin to phase out when modified adjusted gross incomes reach $203,540, and phase out completely above $243,540.
2. Dependent Exemption
Most parents can qualify for a $4,050 per dependent exemption as long as their child is under the age 19 (24 if they are a full-time student), and they live with you at least half of the year if you financially qualify. Exemptions begin to phase out after you reach certain income levels:
- $261,500 for a single individual
- $313,800 for married filing jointly
Tip:The IRS has an Interactive Tax Assistant tool on their site you can use to help determine who can be claimed as a dependent.
3. Child Tax Credit
Unlike the exemption above, tax credits lower your tax bill dollar-for-dollar. Most parents are eligible for a Child Tax Credit for each qualifying child under the age of 17 if:
- they are considered a dependent
- you pay for at least half of their expenses
- they live with you for at least half of the year
The maximum credit is $1,000 per child, if your income is less than $75,000 for a single individual filer or $110,000 for a married couple filing jointly, and $55,000 for a married individual filing a separate return. . For higher-income earners, you may still be eligible for a partial credit, use of the IRS Interactive Tax Assistant tool to determine if a child qualifies for the Child Tax Credit.
4. Child and Dependent Care Credit
You should consider this credit if you paid someone to take care of your child (13 and under) in order to work or to find a job. The credit is capped at $3,000 for one qualified child or $6,000 for two or more qualified individuals. Like most credits, your actual adjusted gross income will have some limitations on how much of a credit you’ll receive. This credit can also be used toward care for a disabled adult in the family. For more information on this credit use the IRS Interactive Tax Assistant tool to determine if your family qualifies for this credit.
Note: If your employer makes any contributions towards your qualified child expenses, you must subtract them from your own qualifying expenses.
5. American Opportunity Tax Credit
This credit can be used for your child, your spouse or yourself, up to $2,500 per year per student for the first four years of college education – however, room and board expenses don’t qualify. Qualified expenses include:
- enrollment fees
- some school expenses
To be eligible for the full credit, your adjusted gross income must be $160,000 or less if married filing jointly; $80,00 or less if filling single. Parents can get a reduced credit with adjusted gross incomes up to $180,000 married filing jointly or $90,000 filing as a single filer.
6. Home Office Deduction
If you work from home, or as a freelancer, this is a deduction you’ll want to explore – but only if you have a dedicated space in your home where you work. Common deductions often include:
- a portion of mortgage interest
- property taxes
- some household expenses (such as a phone line, computer, car mileage, office supplies and equipment)
Always be sure to keep records and save receipts, including proof of payment for any tax-related expenditures. IRS has a booklet on guidelines for home office deductions that you will want to check out.
Note:Be careful what you declare as an “office”, working at the kitchen table does not count nor does an office that also converts to a playroom after 5 PM.
7. Employ Your Kids
If you own a small business, you can hire your child for age-appropriate tasks such as: filing, providing computer tech support, or even posting on a company social media account. Children under the age of 18 who work for their parent’s business are not subject to social security or Medicare taxes – if the business is sole proprietorship or a partnership in which each partner is a parent of the child.
The first $6,350 earned by each child is tax-free (known as the standard deduction) and any additional income is taxed at the child’s tax rate (which is usually lower than the parents’ rate). You, as the business owner, meanwhile, can declare that amount fully deductible as a business expense.
Tip:The IRS has a guideline that you should read before hiring any family member.