Taxes can be a huge stressor and like most Americans, we’re sure you’re looking for ways to reduce your taxes. With the right knowledge and decision-making, taxes don’t have to be as burdensome. Here are 6 effective ways to reduce your taxes when you have children.
1. The Child Tax Credit
The Child Tax Credit is a valuable asset for many parents and guardians. It provides financial relief to families who have dependents under the age of 17, allowing them to save on their taxes. The amount of the credit varies depending on the number of dependents in a household, as well as the amount of taxable income reported. For example, the credit is worth up to $2,000 per dependent in 2023. In addition, up to $1,500 of the credit is refundable, which means that even if the taxpayer does not owe any taxes, they can still receive a payment from the IRS. To qualify for the Child Tax Credit, a dependent must be claimed as a dependent on the taxpayer’s tax return and must have a valid Social Security Number.
2. The Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for low- and moderate-income working individuals and families. The amount of the EITC depends on income, filing status, and the number of qualifying children. Generally, the greater the number of children, the larger the credit amount. So, this is a great way to reduce your taxes if you are someone who has children and needing assistance with paying them. The EITC essentially puts more money into the pockets of working individuals and families, helping them to meet their basic needs and achieve financial stability.
3. The Dependent Care Credit
The Dependent Care Credit is a great way to reduce your taxes if you are a parent or caretaker of a dependent. This credit is available to taxpayers who pay for care while they work or look for work. Depending on your income and the number of dependents you have, you may be able to reduce your tax bill significantly. The credit applies to expenses for care of children under the age of 13, disabled dependents, and even care for elderly dependents. It covers costs for day care or day camp, before and after school care, in-home care, and even care provided by a family member. The maximum amount you can claim depends on the number of dependents and your adjusted gross income (AGI).
4. Education Tax Credits
The two main types of education credits are the American Opportunity Tax Credit and the Lifetime Learning Credit. To qualify for either credit, you must pay qualified tuition and related expenses for an eligible student. Additionally, if a dependent you claimed on your tax return is the student, they have to be full-time under the age of 24 at the end of the year. There are certain qualifications and income restrictions that may limit your ability to get these credits, so make sure to consult a tax professional for more information. Taking advantage of education tax credits can be an effective way to reduce your taxes and offset the cost of higher education.
5. The Adoption Tax Credit
Are you thinking about adopting a child or adopted one already? If so, you may be eligible for the Adoption Tax Credit. The credit is designed to help offset the cost of adoption, which can be quite substantial. It is available to both those who are adopting domestically and internationally, as well as those who are adopting special-needs children. To be eligible for the Adoption Tax Credit, you must meet certain criteria:
First, you must have adopted a child in the current tax year. Secondly, you must either have paid out-of-pocket expenses or have received adoption assistance from an employer or other organization. Finally, you must provide proof of legal adoption. If you meet these criteria, you can claim the credit on your taxes and receive a deduction of up to $14,890 per child. It is important to note that this credit is often not refundable, meaning you can use it to reduce your taxes but not receive a refund if your taxes are already zero.
6. Take Advantage of the Standard Deduction
As a parent, it is important to maximize the tax deductions you can take advantage of to reduce your taxes. One of the most valuable deductions is the standard deduction, which is an amount that can be subtracted from your income each year and it is available to all taxpayers. It is also important to remember that the standard deduction only applies if you do not itemize your deductions. If you have a lot of deductible expenses such as mortgage interest or charitable contributions then you may be better off itemizing your deductions.