Tax Tips for Parents

by High Yield Savings Accounts

Since raising children can come with a heavy tab, the government offers certain financial benefits for parents.  The IRS recently laid out some ways you can save money come tax time if you are a parent.  These benefits come in the form of various tax deductions and credits.

In most cases, your children depend on you for all their basic needs.  Since they are “dependents,” you can receive a slew of tax breaks.  Though there are certain criteria your children must meet to be considered dependents, they are not very restrictive.  As a result, most people raising children will qualify for the benefits.  There are several other instances where your children can reduce your tax bill as well.  For instance, if your child is under the age of 17, you may qualify for a $1,000 Child Tax Credit.  However, you have to fall within a certain income bracket.

Anyone who has worked while raising a child knows it can be a challenge.  The government tries to make that task a little easier by reducing the tax bill for parents who work.  If you are a low to moderate income earner, you may be able to get the Earned Income Tax Credit by filing a W-5 Form.  The credit rewards earning an income while parenting.  Parents sometimes have to hire a helping hand to care for their children while they work.  The government tries to reduce that cost by offering a tax credit if your child is less than 13 years old and you had to hire someone to care for him or her.

As children grow older, parents frequently pay for higher education.  If your child is a student at a college or university, you may be able to receive the American Opportunity Tax Credit.  This is a credit for undergraduate college expenses.  The Lifetime Learning Credit also provides a credit for higher education expenses.  If your child took out a student loan and you pay interest on that loan, you may qualify for an additional tax deduction.

There are other less common instances where parents can save money on taxes due to their kids.  If you adopted a child, you may qualify to receive a credit of $12,150.  This credit is provided to help cover expenses related to the adoption process.  The government also tries to help self-employed parents pay for health insurance.  If your child is under the age of 27, you may be able to deduct premiums you paid for health care coverage.

Lastly, you should be aware that your child might have to file their own tax return in certain circumstances even if they are listed as a dependent.   If your child earned more than $5,700 in income the past year, they will have to file a tax return.  Similarly, if your child earned income from investments, interest, and dividends in excess of $1,900, it may be taxed at your rate.

Sorting through these various tax breaks, credits, and deductions can get confusing.  However, if you are a parent, it might be worth your time to look into the details of these benefits because they can significantly reduce your tax bill.


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