Having children is one the biggest joys in one’s life. Raising them costs plenty of money. Everything from childcare, medical costs, college tuition to all other type of costs. However, there are several ways as parent you can save money on your taxes through various tax breaks. Below is a couple of examples that helps you as a parent save on taxes.
As always please consult your tax consultant before making your decisions as the rules can be complex.
First and foremost, as a parent one needs to know the different between Tax deductions and Tax credits.
Deductions: A tax deduction such as payment for college-tuition only decreases the taxable income.
Tax Credit: A tax credit such as the child tax credit will allow you reduce the amount from your tax bill.
Deductions
Student-loan interest:As a parent you can deduct up $2,500 on the interest you pay for your child’s college loans as long you make less than $135,000. It gets phases out for couples with incomes between $135,000-160,000 (half for single filers) for 2018. This amount increases to $140,000-170,000 for 2019.
Tuition and fees: Parents can deduct up to $2,000/child for tuition and fees as long as the married couple do not make more than $130,00 combined ($65,000 single parents). This rule is still in limbo.
Tax Credits
Child and dependent care: The IRS allows working parents (also those looking for jobs) a tax credit between 20-35% on expenses for up to $3,000 for one child and $6,000 for 2 or more children. This means one can a get of $1,050 for one child and $2,100 or more. Unfortunately this credit gets lowered to only $600 for 1 child ($1,200 for 2 or more) if you make more than $43,000.
American Opportunity higher-education credit: This credit helps you pay a college education. You receive a credit up to $2,500/child. It gets phased out between $160,000-180,000 in couple’s income (half for single filer)
Lifetime Learning higher-education credit: This credit allows parents who’s child have more than 4 years of college credit to receive a deduction worth 20% of tuition and other qualified expenses of up to $10,000, for a maximum credit of $2,000. It gets phased out between $114,000-134,000 in couple’s income (half for single filer) for 2018. This amount increases to $116,000-136,000 for 2019.
Adoption Credit: You receive a credit of $13,810 for 2018; $14,080 for 2019. This adoption credit gets phased out between $207,140-247,140 in couple’s income. This range is $211,160-$251,160 for 2019.
Dependent-Care FSA: If you make more than $43,000 it is often beneficial to sign-up for your employer’s dependent care FSA program. Basically here you can put aside $5,000 pre-tax money to use for dependent care. This way you save paying any taxes on this $5,000 amount. As a summary, there are plenty of ways as parent on can save money on taxes just by taking advantage of the deductions and tax-credits that the IRS allow. All in it could up to several thousand dollars in savings.
