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#1 – Dependent Exemption
Everyone can take a deduction called the “Dependent Exemption” for yourself, your spouse, AND for each and every child you can claim on your tax return. For 2017, the dependent exemption reduces your taxable income by $4,050 for EACH child you have. So if you are a family of 4, that’s $16,200 that you DON’T have to pay tax on! For a family of 6, like mine, I get $24,300 I don’t have to pay tax on. You can begin taking this deduction in the year your child is born, even if your child was born on December 31st at 11:59 pm!! And you can claim this exemption until your child turns 19 (or 24 if they are a full time student). Depending on your tax bracket, this can SAVE you between $600 and $1000 in taxes for EACH kid!
#2 – Child Tax Credit
This credit cuts $1,000 directly off the tax you owe for every qualifying child under the age of 17. There are a number of requirements that you should check out here to confirm you can take this credit for example, that the child lived with you for more than half the year. The down side to this credit is that there is a phase out starting at $110,000 for married couples filing joint returns, $75,000 for those filing as head of household, and $55,000 for a married person filing separately. For every $1000 over these thresholds, the tax credit is reduced by $50.
#3 – Child and Dependent Care Credit
If you paid for childcare while you were working or looking for work, you may be eligible for a credit of 20%-35% of your child care costs, with a max cost of $3,000 for 1 child or $6,000 for more than 1 child. A few of the important items to note:
- Your child is under the age of 13
- If married, both you AND your spouse were working, looking for work, or were a full time student
- after-school care and day camps can qualify
- You need to provide the name, address and tax ID or social security number of your daycare provider
#4 – Dependent Care Flexible Spending Account (FSA)
Many employers offer a Dependent Care FSA, which allows you to aside pre-tax dollars from your paycheck to be used to pay for child care expenses. The IRS allows you to set aside up to $5,000 or $2,500 for a married person filing separately. The downside is that you cannot take advantage of both the child and dependent care credit and the Dependent Care FSA. So you should really do the math to determine which method is more beneficial to you.
#5 – Earned Income Credit
This tax credit can be claimed if your earned income is below a certain level. While people without kids may be eligible for this credit, the income threshold is very low to qualify. However if you have children, the maximum income level makes many more people eligible. For 2017, a married couple filing jointly with 1 child must have less than $45,207 of earned income to qualify, or $53,930 if they have 3 or more children. The maximum credit a married couple filing jointly may be eligible for is $3,400 with 1 child or $6,318 with 3 or more children. For low to moderate income households, this is a huge tax credit!
#6 – Medical Flexible Spending Account (FSA)
When it comes to medical expenses, if you have kids you probably have a lot of them. Between co-pays for doctors’ visits for fevers and vomiting, or dentist visits and braces, or emergency room broken bones and stitches, kids create a ton of medical expenses. In order to deduct some of those out of pocket expenses, you must have paid more than 10% of your adjusted gross income. And even then, you can only deduct the amount that exceeds that 10%! BUT…if your company offers the option of a Medical FSA, you can put aside up to $2,600 pre-tax dollars per year from your paycheck to pay these expenses. Depending on your tax bracket, this can save you hundreds of dollars in taxes! And if you are married filing jointly and both employers offer a Medical FSA, you can both put in $2,600 each, and save upwards of $1,000 in taxes!
#7 – Head of Household Filing Status
For those of you single parents out there, you may be able to file as head of household rather than single if you meet certain requirements. Compared to filing as single, filing as head of household gives you a larger standard deduction, lower tax brackets, and some larger deductions and credits. Check out the rules on filing as head of household on the IRS website here to make sure you meet the requirements. Make sure you are paying attention to these tax saving opportunities to help keep more money in your pocket. In addition to being the joys of your life, kids cost us a ton to support and raise, and we can use every dollar we can save! Start saving by doing your own taxes and check out my post “7 Reasons to do Your Own Taxes and Not be Afraid”. Please check back often for more tax tips and other money saving advice! Please comment below with your experiences and thoughts, or let me know of any questions you have, advice you are looking for, or topics you are interested in reading about. Subscribe here to receive notifications of new posts and updates.