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If you’re a parent, you already know kids are expensive. From buying thousands of diapers to saving for college, it all adds up. And fast.
But we’ve got some great news: having kids can actually help you save money on taxes.
That’s right! All the money you spend on your kids throughout the year can help put some extra cash back into your pocket come April.
Keep in mind that age and income limits apply, so work with a tax pro to see if these six credits and deductions can help you save on taxes this year.
1. Dependent Exemption
Did you have a baby in 2016? Congratulations! Not only do you have a sweet baby to love, the IRS will give you something else to celebrate: tax savings!
Claiming your new baby as a dependent on your tax bill can significantly lower the amount you owe, reducing your taxable income by up to $4,050 this year. If you’re in the 25% tax bracket, that means you could save around $1,000.
Before you can claim your child as a dependent, your bundle of joy will need a Social Security number. You can request a Social Security card at the hospital when you apply for the birth certificate.
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2. Child Tax Credit | Save up to $1,000 per child
For the first 16 years of your child’s life, you get all of the joys of parenthood—including a hefty tax break. The Child Tax Credit reduces your tax bill dollar for dollar, which means you can knock a smooth grand off your final bill for each qualifying child.
The year your child turns 17 is a big year – you’ll be helping your child think through plans for the future as they look toward adulthood. It’s also the year you’ll say goodbye to the Child Tax Credit. It was good while it lasted!
3. Adoption Credit | Save up to $13,460 per child
If you adopted a child in 2016, there’s a good chance you’re eligible for the Adoption Credit. This credit covers up to $13,460 of your expenses per adopted child. Qualified adoption expenses include:
- Any necessary adoption fees
- Court costs and attorney fees
- Traveling expenses
- Any other costs directly related to your adoption
If the credit is larger than your tax bill, you may not get the whole amount back this year. However, the difference can be refunded to your future tax bills for up to five years.
4. Child and Dependent Care Credit | Save up to $3,000 for one child ($6,000 for two or more)
Did you pay someone to care for your child so you could work or look for a job? You could qualify for a credit of up to $3,000 for one child or up to $6,000 for two or more. That’s more than chump change!
Qualifying childcare expenses include more than just daycare. Don’t forget about nanny services, after-school care and summer day camps! Just make sure you have the name, address, and taxpayer identification number for each care provider you’ve used.
5. Single Parent Filing as Head of Household
If you’re a single parent, in most cases you can file as head of household. Not only could that lower your tax rate, it also allows you to take a higher standard deduction. For example, if you file as head of household in 2016, your standard deduction will be $9,350, compared to just $6,350 for a single person.
That means if you make $55,000 as a single parent, with the combination of the lower tax bracket and the higher standard deduction, you could save around $1,700 by filing head of household instead of single.
6. American Opportunity Tax Credit | Save up to $2,500 per student
Did you help your child pay for college expenses in 2016? The American Opportunity Tax Credit (AOTC) might be for you! The credit applies to any qualified education expenses, such as:
- School fees
- Required textbooks
The credit covers 100% of education expenses up to $2,000 and 25% of the next $2,000. That means you could decrease your tax bill by $2,500 overall if you spent $4,000 or more on higher education last year.
Don’t Miss Out on Tax Savings
If you’re like most parents, you’ve got a million things on your to-do list—everything from getting your kid to basketball practice to making sure all the homework is done. Preparing your taxes is just one more thing you don’t have time for. And trying to squeeze it into your already jam-packed schedule could mean missing valuable deductions and credits.
That’s why we recommend working with a tax advisor. Working with a pro gives you confidence that you’ve done your taxes correctly and taken advantage of all of the savings you’ve earned.
Need proof? We surveyed 2,000 of Dave’s Facebook fans and found that those who worked with a tax pro received an average of $791 more back than those who filed on their own!
If you’re looking to save time, stress and money, partner with a tax advisor who has your best interest at heart. We can help you find a tax pro in your area today!