Tax season is here again. And with it comes the headache of filing taxes—especially if you do it yourself. We spoke to tax experts and got advice on some common tax credits and tax deductions parents can claim on their returns. So check them out and see if you’re eligible!
Will you end up forking over fistfuls of cash, or hardly feeling any financial pain? The answer may depend on how savvy you are. Take advantage of all the deductions and credits you’re eligible for, and you can save up to thousands of dollars, and in some cases even get money back. Overlook these tax breaks, though, and the opposite will happen: You’ll end up forfeiting money that’s rightfully yours.
A good tax professional can help make sure you’re minimizing your payout. (Tax-prep software is another popular alternative.) And be aware of the credits and deductions listed here. While they may not be a comprehensive rundown of every last way you can reduce your taxes, they’re a good start.
Don’t Miss Out on These Tax Credits
One of the best ways to minimize your tax burden is by looking for credits you’re eligible to take—these reduce the amount of taxes you owe. Listed here are some tax credits that are particularly helpful for families.
The Child and Dependent Care Credit
“This is designed to provide a tax benefit for homes in which both parents work full-time or have earned income,” says Nicholas Sher, CPA, managing director of Sher & Associates, LLC, a boutique tax planning firm in midtown Manhattan. At the federal level, the credit is at least 20 percent of the first $3,000 of child care expense per child, for a maximum of two children. At the state level, you will receive a credit of at least 20 percent of the federal level. That means if you spend $3,000 on your child’s care you can save a minimum of $840 total—useful when you’re raising a family. Note: This credit is not available to a spouse who stays at home and doesn’t earn income.
Earned Income Tax Credit (EITC)
Didn’t have a great year financially? The EITC may be the break you need. This federal tax credit is available to people who have earned an income below a certain threshold, and it increases in relation to the amount of children in the home, up to a maximum of three kids, Sher explains. You can’t have earned very much—for instance, a married couple filing jointly, with three or more children, must have an earned income and adjusted gross income (that’s the total income you report that is eligible to be taxed, minus some adjustments you’re allowed to make) of each less than $53,930. But the credit can be sizeable: a maximum of $6,318. What’s scary is that according to Jackson Hewitt, nearly 1 in 5 eligible Americans fails to claim this tax credit, leaving up to thousands of dollars on the table. Even if you haven’t qualified for the EITC before, don’t forget to check with your tax professional to see if you qualify this time: nearly one-third of all people who can claim it are newly eligible each year.
The Saver’s Credit or Retirement Savings Contribution Credit
Have you been putting away money for your retirement? You deserve a pat on the back. And, depending on what you earn, the government wants to give you something more: a tax credit. If you’re married or filing jointly and make an income of $62,000 or less, you may be eligible for a credit of between 10-50 percent of your contributions to an Individual Retirement Account (IRA) or an employer-sponsored retirement savings program. If you’re filing as the head of household, you may be eligible for the credit if you earned $46,500 or less, Sher says.
See If You’re Eligible for These Clever Deductions
In addition to tax credits, stay on the lookout for deductions you can take. A deduction reduces your taxable income, which increases the chances of a lower overall tax bill. Read on; some of the ones listed here might apply to you.
Does someone in your family require extensive medical care? If your medical expenses exceed 10 percent of your adjusted gross income, you may be eligible for a deduction, says Rebecca Walser, a tax attorney, certified financial planner, and the author of Wealth Unbroken, but you must itemize your deductions in this case. New-mom gear, such as breast pumps and lactation equipment, can be included. And if you pay tuition for special education for a child with special needs, that too can be deductible if the curriculum is considered medically necessary, Sher says. (This is a highly scrutinized deduction, so check with your tax pro before you take it.) Going forward, consider funding a Health Savings Account, says Mark Kohler, a senior tax advisor with TaxSlayer, a tax preparation and financial technology company. The money you deposit in the account both grows tax-free and comes out tax-free for qualified family medical expenses. You also get a tax deduction for contributions on your tax return.
Health Insurance, If You’re Your Own Boss
“If you are self-employed you can deduct one hundred percent of the cost of health insurance for yourself,” Walser says.
It’s the rare family that doesn’t move at some point, but are the expenses related to a relocation deductible? It depends, Sher says. “You must move more than fifty miles away, and you must remain employed for thirty-nine weeks of the next fifty-two week period,” he explains. FYI, this is the last year that this deduction can be taken; it’s being swept away for 2018 with the new tax reforms we’ve all heard so much about.
Like medical expenses, these need to be itemized. And you will have to have launched a truly extensive search for new employment: You aren’t eligible for a deduction unless the costs exceeded 2 percent of your AGI.
New York State 529 Plan Contributions
“Anyone who is making a New York state 529 plan contribution should be taking the eligible deduction, which is up to ten thousand dollars for a married couple filing jointly,” Sher says. Though this account has been used to save for children’s college tuition up until now, beginning in 2018 contributions can also be used toward private school tuition.
Want more pointers? Consult your favorite tax professional. He or she can help you formulate a strategy to make tax time far less taxing on your family.