Having kids can be a drain on your wallet but you may be able to get some of that cash back at tax time. There are a number of credits and deductions available that can help lower your tax bill or potentially bump up your refund. With the cost of raising children hovering around $241,000, parents need to be on the lookout for these key tax breaks.
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1. Child Tax Credit
If you have children, claiming the Child Tax Credit is a no-brainer. The credit is good for up to $1,000 per qualifying child for taxpayers who meet certain income guidelines. For IRS purposes, a qualifying child must be a son, daughter, stepchild, foster child, sibling or stepsibling who is under age 17 at the end of the tax year. The child must have lived with you for more than half of the year and they can’t be responsible for providing more than half of their own support.
Your ability to claim the full amount of the credit is determined by your filing status and income. For 2013, the phase-out limits are $110,000 for married couples filing jointly, $55,000 for married couples filing separately and $75,000 for single filers, heads of household and qualifying widows or widowers. For every $1,000 of income over the limit, the amount of the credit is reduced by $50.
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2. Child and Dependent Care Credit
Daycare is expensive but the Child and Dependent Care Credit allows you to recoup some of the cost. The credit applies for care expenses you paid for a qualifying child so that you could work. The age cutoff for qualifying children is 13 unless your child is physically and mentally unable to care for himself or herself. If you’re married and file jointly, you can only claim the credit as long as you were both working or looking for work.
For 2013, the amount of the credit is capped at $3,000 for a single qualifying child or $6,000 if you paid care expenses for more than one child. If your employer provided any dependent care benefits, you’ll have to deduct this amount from your expenses when calculating the amount of credit you qualify for. Generally, you can exclude up to $5,000 of dependent care benefits paid by your employer.
3. Earned Income Credit
The Earned Income Credit is designed to help out low to moderate income families who have dependent children. To qualify for the credit you must have earned income, either from work or self-employment, and it must be under certain limits based on your filing status and the number of qualifying children you claim. The fewer children you have, the lower the income threshold will be.
For the 2013 tax year, single filers with three or more qualifying children can get the credit if their adjusted gross income is less than $46,227. The limit is $51,567 for married couples filing jointly. If you file single and have just one child you can only qualify if your AGI is less than $37,870. Married couples who file separately aren’t eligible for the credit.
4. Education Credits and Deductions
With tuition prices on the rise, a college degree costs more than ever but there’s good news for parents who are helping students with some of the expense. There are several education tax benefits including the American Opportunity Credit, the Lifetime Learning Credit and the tuition and fees deduction that can ease some of the burden.
There are different requirements for each tax break but generally, you can only claim them if you paid qualified higher education expenses such as tuition, books and fees. The student must also attend an eligible educational institution, which means any school that’s able to participate in federal student aid programs.
There are also specific rules about when you can claim each credit. For example, the American Opportunity Credit, which is good for up to $2,500 for 2013, can only be claimed during the first four years of post-secondary education. The Lifetime Learning Credit, which is worth $2,000, can be claimed for any number of years. You can’t use the same expenses to claim more than one credit or deduction in the same tax year so you’ll need to run the numbers to determine which one gives you the most bang for your buck.
5. Adoption Tax Credit
If you’re thinking of adding to your family, the IRS offers an incentive in the form of the Adoption Tax Credit. This is a non-refundable credit that’s intended to offset some of the expenses of adopting a child. This includes any child under the age of 18 or children over 18 who are mentally and physically incapable of caring for themselves.
For the 2013 tax year, the adoption credit is worth up to $12,970. The kinds of expenses you can use to claim the credit include court costs, attorney fees and travel expenses. You can’t claim the credit if you adopted your spouse’s child or for adoption expenses that were reimbursed by your employer or covered by a federal, state or local aid program.
When it comes to your taxes every penny counts, especially for families who are living on a tight budget. Raising children can sometimes be a struggle financially so it pays to make sure you’re getting the biggest benefit possible at tax time.
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