Parents are always looking for simple ways to get ahead financially. Overlooked tax breaks are one of the easiest ways to keep more cash in your pocket.
Here are a few tax credits and deductions that could help reduce the amount you owe the government this tax season.
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Child Tax Credit
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The Child Tax Credit may be the first tax break that comes to mind when you think of parents. The Tax Cuts and Jobs Act of 2017 doubled the credit to $2,000 for each qualifying child.
A portion of the credit is actually refundable and can be returned to you as a taxpayer if you qualify. The Tax Cut and Jobs Act also allows more families to qualify for the credit.
Tax credits are worth more than tax deductions. They reduce your income tax liability dollar for dollar. On the other hand, tax deductions simply lower the amount of your income subject to taxation.
Credit for Other Dependents
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If you have a dependent who doesn't qualify for the Child Tax Credit, you may still be able to claim the Credit for Other Dependents.
This is worth up to $500 per qualifying person. It may apply to kids who are age 17 or older, qualifying relatives, and dependent parents.
Child and Dependent Care Tax Credit
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If you paid someone to take care of your kids or another person in your household while you worked, you may qualify for the Child and Dependent Care Tax Credit.
You can claim up to 35% of such expenses within certain limits. The credit may vary based on your income. Services provided by babysitters, daycare centers, and day camps may qualify.
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Medical and dental expense deductions
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Some of your family's medical and dental expenses may be deductible. If unreimbursed healthcare expenses exceed 7.5% of your adjusted gross income, you can claim the amount above that percentage as an itemized deduction.
Keep in mind that these expenses need to meet specific criteria, such as being tied to the prevention, diagnosis, or treatment of disease. Check with your tax professional to see if you qualify.
Earned Income Tax Credit
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The Earned Income Tax Credit is for low- and moderate-income working families. You can receive a credit based on a percentage of your earnings up to a maximum credit that varies according to family size.
If your family earned less than $66,819 in 2024 and you're filing jointly, you may be able to qualify for a credit of up to $7,830 if you have three or more qualifying children.
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529 plan contributions
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Qualified tuition plans — also known as 529 plans — are a way to save on taxes when you put money away for your kids' education.
These state-by-state 529 plans authorized by the IRS let you invest or earn interest on the funds without being subject to federal income taxes. Your state also might offer tax breaks tied to 529 plans.
Education tax credits
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Parents helping to pay for their kids' education may be able to benefit from one of two education tax credits.
The American Opportunity Tax Credit may be worth up to $2,500 per year for the cost of tuition and other fees for the first four years of higher education. Your income will determine if you qualify.
You may also qualify for the Lifetime Learning Credit, which is worth up to $2,000 per tax return for undergraduate, graduate, and professional degree courses. That includes courses to help with job skills.
You cannot claim both of these credits for the same student in the same year.
Adoption credit
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If you adopt an eligible child, you can claim the Adoption Credit on your federal income taxes. It covered up to $16,810 in qualified expenses for 2024.
Those expenses include court costs, adoption agency fees, travel costs, and attorney fees. The amount you can claim varies based on your income. It's nonrefundable for 2024, which means you're limited by your tax liability.
Bottom line
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Being a parent can be expensive. Fortunately, it can also help you qualify for some pretty good tax breaks that might lower your financial stress.
So, check to see if you qualify for tax credits and deductions that are worth thousands of dollars. Also, don't forget to explore tax breaks that are available from your state.
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