Five Tax Benefits That Can Save Your Family Thousands

While few people look forward to tax time, it might not be so bad if you can take advantage of some of the many tax benefits aimed squarely at providing relief for parents. While raising kids these days can often seem like losing money to a financial black hole, there’s a good chance you can recoup some of those expenses at tax time.   Make sure not to pass up these five tax benefits for parents that can save your family thousands of dollars.

  1. Exemption for Dependents.

You can deduct from your taxable income $4,000 for each child who is your “dependent.” A dependent includes any of child who is (1) under the age of 19 at the end of the applicable tax year; (2) a full-time student under the age of 24 at the end of the applicable tax year; or (3) any age and has severe special needs. You cannot claim a child as a dependent if the child claims the personal exemption on his or her own tax return.

The child also must have lived with you for more than half the year. If you are separated or divorced from the child’s other parent, then the custodial parent is generally entitled to claim an exemption for the child unless the custodial parent signs Form 8332, a written declaration that he or she won’t claim the child as a dependent for the year. The noncustodial parent must attach this form to his or her tax return.

  1. Child Tax Credit

Parents can claim a Child Tax Credit of $1,000 per child if their income is less than $110,000 for married couples filing jointly or $75,000 for individuals filing as Head of Household. The credit begins to phase out for incomes above these levels and phases out completely for married couples filing jointly who earn more than $130,000 or a head of household earning more than $95,000.

Divorced or separated parents can claim the credit under the same conditions that apply to the dependent exemption for the child.

  1. Dependent Care Credit

With childcare often approaching or exceeding the cost of a college education, any relief helps, and the Dependent Care Credit, while limited, can help you recoup a bit of this expense. The Dependent Care Credit allows you to claim a credit for a percentage of qualifying childcare expenses for children under age 13. For parents with income over $43,000, the credit is limited to 20% of up to $3,000 of qualifying expenses per child, or $1,200 for two children.

Unlike the exemption for dependent children and the Child Tax Credit, the Dependent Care Credit can only be claimed by the custodial parent.

  1. Adoption Credit

If you’ve adopted a child or had adoption-related expenses in 2015, you may be able to claim a credit for related expenses. With up to $13,400 in tax savings, this is one credit you don’t want to miss! The full credit is available for taxpayers with income under $201,010, at which point it begins to be phased out and is completely eliminated for taxpayers with income over $241,010.

  1. Higher Education Benefits

If you have a child in college, you may qualify for a host of tax programs to incentivize higher education. The American Opportunity Credit is the best of the bunch, with a credit of up to $2,500 available to a head of household with income under $90,000 and married couples filing jointly with income under $180,000.

While the American Opportunity Credit applies only to the first four years of college, the Lifetime Learning credit applies to graduate school as well. So if you’re heading back to school to beef up your credentials or change careers, you can claim the Lifetime Learning Credit for yourself.

 

About the Author

Shannon McNulty

Shannon McNulty is the founder of Savvy-Parents.com and a lawyer in New York City who provides legal planning for parents with young children. Shannon received her J.D. from Georgetown University Law Center and her LL.M. in Taxation from NYU School of Law. She has also earned her CERTIFIED FINANCIAL PLANNER(TM) designation. You can learn more about Shannon and her firm at www.cityparentslaw.com.

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