Family Taxes: Take Advantage of Tax Savings

Tackling family taxes may seem like a puzzle, but have no worries—it’s also a new journey with new perks you may be able to take advantage of. 

Navigating the landscape of your family’s income taxes can be smoother going than you think, especially when you uncover the hidden gems in the tax code that were designed with families in mind.

From ways to claim your parents to accounting for other dependents, the tax world offers avenues to ease your financial load and put some valuable dollars back in your pocket.

Explore how the benefits of having such exemptions, deductions and credits can turn your family’s finances into a rewarding picture of savings.

Are there benefits of having a family when doing taxes?

The benefits of having dependents can translate into some very advantageous tax savings. 

One major perk is the Child Tax Credit, where parents can claim a tax credit for each qualifying child. It’s even better than a tax deduction because it reduces your taxes dollar for dollar.

Additionally, there’s the Earned Income Tax Credit (EITC), a financial boost for low-to-moderate-income families that have children. This credit is a refundable credit in that if the credit is greater than the tax you owe, you can still get the difference as a refund.

Parents can also benefit from the Credit for Child and Dependent Care, which offers relief for expenses incurred in caring for your child while working or looking for work.

Education-related tax breaks such as the American Opportunity Credit and the Lifetime Learning Credit can also ease the financial burden of higher education costs for dependents and provide a significant reduction of your family’s income taxes.

These tax benefits are like the government’s way of acknowledging the financial challenges that often accompany raising a family. Having children can enrich your life.  These child-related tax breaks can help lighten your tax load, providing tangible advantages come tax time.

Tax credits for families

The following family tax credits will help reduce your taxes or even help provide you with a tax refund. This tax savings

an be used toward your children’s education or even to start your family’s new financial plan!

Earned Income Tax Credit

If you have children and generate a low-to-modest income, then you may be eligible for the Earned Income Tax Credit (EITC).  The EITC is a government initiative designed to provide financial support to working families. The EITC helps ease the burden on family income taxes and ensures that families with lower earnings receive a meaningful financial lift for their families.

For the 2023 tax year, you may be able to file for the EITC if you have earned income under $63,398.In addition, your investment income must be under $11,000. You also need to have a Social Security number and you must be a US citizen or a resident alien who lived and worked in the United States for the entire year.

The more dependents you have, the higher your potential credit. For example, those with one qualifying child will get a credit of up to $3,995, while those with three or more qualifying children can get a credit of up to $7,430.

Ultimately, the EITC is one way the government recognizes and supports hardworking families, by putting a bit of extra cash in your pockets come tax time.

Child Tax Credit

You could receive up to $2,000 for each qualifying child with the Child Tax Credit.This tax credit reduces your taxes dollar for dollar.

 There are some requirements that must be met, such as the child’s age, your relationship with the child, how you financially supported the child, and his or her immigration status.

The child must be under the age of 17 and be a dependent on your tax return. They must receive more than half of their financial support from you and they must ‌have lived with you for more than half of the year. The child must also be a citizen or a resident of the U.S.. Your child needs a  Social Security number in order to claim the Child Tax Credit. The credit is gradually decreased if you have a modified adjusted gross income of more than $200,000 (or $400,000, if married and filing jointly).

Child and Dependent Care Credit

The Credit for Child and/ Dependent Care is another tax credit you can claim for the expenses associated with the care of your little ones (including nursery school, after-school programs, daycare, and even summer camp). 

If you have children under the age of 13 (there is no age limit if they are disabled) and you pay someone else to take care of them, you could qualify to receive this valuable tax break for child care. 

Similar to the Earned Income Tax Credit, one of the requirements to claim this credit is that you were working or were looking for work. The person who takes care of your children can’t be someone that you claim as a dependent (for example, an older child or your dependent parents) on your tax return.

Adoption Tax Credit

The adoption tax credit is another perk in the tax landscape, making the journey of expanding your family a bit more affordable. When you qualify, it helps offset the expenses incurred during the adoption process, covering things such as agency fees, legal costs, and even travel expenses.

For the 2023 tax year, the maximum amount for this credit is $15,950 per child.

To claim this credit, there are some rules regarding timing of your expenses. 

For domestic adoptions, qualifying expenses paid before the year the adoption becomes final are eligible for this credit the tax year following the year of payment. 

For foreign adoptions, expenses paid before and during the year the adoption becomes final are eligible for the credit.

Education Tax Credits

You can claim an education tax credit if you or your dependent pays qualified expenses for higher education. 

The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are two types of education credits that may help reduce your tax liability.

The AOTC offers a credit for qualified education expenses during the first four years of higher education. It’s a great way to ease the financial load of tuition, books, and other necessary education supplies.

You can receive a maximum annual credit of $2,500 with the AOTC. If this tax credit brings your tax liability to $0, you can receive up 40% of any remaining credit (up to to $1,000) refunded to you.

The LLC caters to both undergraduate and graduate students, as well as those pursuing professional degrees. While the AOTC focuses on the early college years, the LLC provides a credit for a broader range of educational pursuits and includes courses to acquire or improve your job skills.

There’s no limit on the number of years that you can claim the LCC. This credit is non-refundable, and you can receive a maximum amount of $2,000 per tax year.

Deductions for families

These deductions directed toward families can help provide a bit of relief this tax season. As you start preparing your paperwork and as we approach the tax deadline, don’t overlook these deductions when filing your family taxes.

Medical expense deductions

If your family’s medical expenses are more than 7.5% of your adjusted gross income, you may qualify for a deduction. These expenses may include medical bills, prescriptions, and even certain travel costs for medical care.

Medical expense deductions are provided to acknowledge the substantial burden that health-related costs can place on families. So, when tallying up family taxes, exploring medical expense deductions is a smart move!.

Student loan interest deduction

The student loan interest deduction is a beacon of relief for those navigating the world of debt incurred for higher education. This interest deduction allows eligible taxpayersto deduct up to $2,500 of the interest paid on qualified student loans from your taxable income.

Don’t overlook the opportunity to claim the student loan interest deduction this tax season. It’s a smart strategy for reducing the financial burden of student loans while offering your family a bit of tax savings.

Deductions for education savings programs

Deductions for education savings programs, such as 529 plans, are tax-friendly strategies for families aiming to save for their children’s future education expenses.

Contributions to 529 plans, designed to cover qualified educational costs, often come with state tax deductions. It’s like a double benefit – You are preparing for your child’s academic journey, and you are getting a break on your state taxes as well!