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9 Tax Breaks Parents Should Know About

Parents, with a little tax and financial planning, can save more on future expenses, such as college. Tax breaks available to dependents are a great way to realize savings. For medium- and low-income families, these saved dollars can mean providing better care to their children during their adolescent years. Yahoo shares the top tax breaks available to parents:

Child Tax Credit“Having kids will enrich your life – but not your bank account. Parents need to save every penny. But the good news is that Uncle Sam can help. Vanessa Borges, enrolled agent and tax preparation supervisor at Tax Defense Network, says, ‘There’s one benefit to having children besides the joy they can bring you: tax breaks.’

“In fact, many moms may not know they could qualify for thousands of dollars of deductions, exemptions, and credits. Here, the top ways you can save, according to the pros.

1. Taking advantage of the dependency exemption. Claiming your child as a dependent allows you to deduct $4,000 of your income. ‘First things first, make sure you get a Social Security number for your new child,’ says Borges. ‘You’ll need one to claim your child as a dependent on your tax return.’ And make sure you request one at the hospital, because it may be a hassle to get one later if you don’t. Consider including a note about this in your birth plan.

2. Changing your withholdings and filing status. Reduce your withholdings on your paycheck by filing a new W-4 at work. If you are unmarried, you may also be able to claim head of household status if you are paying for more than half of the cost of providing a home for your child.

3. Claiming your $1,000 child tax credit. If your income is less than $110,000 for your household or $75,000 for a single head of household, you get a credit of $1,000 if your child, stepchild, or foster child is less than 17 years old.

4. Claiming your Earned Income Tax Credit (EITC). This credit is dependent on your income and number of children. For example, as a family with three children, you would qualify for a $6,242 credit if you make $47,747 singly or $53,267 jointly.

“According to Lisa Greene-Lewis, tax expert from TurboTax, ‘The IRS reports many people miss out on the EITC. Some people may earn lower than the minimum for filing taxes ($10,300) but could still be able to get the credit.’

5. Updating your information in the health-care marketplace. Greene-Lewis also points out that many parents who purchase their own insurance through the new marketplace may miss out on some savings by not changing their information to include any new additions to their family. Adding more to your household may help you get additional deductions.

6. Keeping track of medical expenses. Don’t lose those receipts for prenatal visits, prescriptions, and other medical expenses. If they total more than 10 percent of your income, you can deduct what is left, and don’t forget your child’s health-care costs can be included in that as well.
“Now, you can even deduct your breastfeeding and pumping supplies! Moms can write off the cost of items such as breast pumps and other lactation supplies.

7. Bearing in mind the tax credit for adoption. Just because you didn’t give birth to your child doesn’t mean you didn’t incur a lot of costs by adding to your family. This is one of the biggest credits worth over $13,000, and if your child is special needs, you automatically qualify for the full amount.

8. Deducting childcare. Depending on how much you make and spend on childcare, you could get some reimbursement ranging from 20–35 percent of costs. The catch: The childcare must be needed because the parent or parents are unable to care for the child due to work.

“Some employers also offer another option, the Childcare Reimbursement Account. This account allows you to deposit pre-tax money into a savings account to pay for childcare. Greene-Lewis reminds parents not to miss this opportunity if they can as the end of the year approaches, because if you miss the open enrollment period, you may have to wait a whole year to enroll.

9. Saving for college. Choosing a savings plan like a 529 state savings plan can help. Gabe Lumby, CPA, says, ‘In all 50 states, parents can get a deduction on their state return, and pay no tax on the gains.’”