Spring is so close we can almost feel it (almost), which only means one thing: tax season is upon us! Paying Uncle Sam every year can be a confusing and complicated matter, but did you know that our tax system actually offers quite a few valuable deductions and credits specifically meant for parents? Whether you do your own taxes or use a professional, it's always important to stay informed about where your money is going. The new tax overhaul is also sure to affect some of these exemptions and credits in the near future, so don't wait to take advantage of them.
- Dependents Tax Exemption: Parents can deduct $4,050 per child on their tax bracket for 2017, which ultimately reduces the taxable income. For example, if you have two children, you can reduce your taxable income by $8,100 per year as long as the kids are younger than 19 years of age.
- Child Tax Credit: You can claim the Child Tax Credit for each of your children that are under the age of 17 if you earn less than $110,000 (filing jointly). Something new for 2017 is the Disaster Tax Relief, which allows you to use your 2016 earned income to work out your 2017 additional child tax credit (if you were in a presidentially declared disaster area).
- Adoption Credit: If you adopted a child last year, you rock! You may also get to save up to $13,570 per eligible child in 2017.
- Child and Dependent Care Credit: This is a valuable credit to take advantage of if you have a child under the age of 13 that goes to after-care, daycare, or preschool. Basically, if you're paying someone to watch your child while you go to work, the government may let you have a credit of up to 35 percent of the expense, depending on your income bracket. There is a $3,000 cap on the maximum credit per child. Otherwise, you can also take advantage of an employer's FSA account for childcare costs that can allow for $5,000 of income to be untaxed. It's important to note that you can't use both an FSA and a Child Care Credit; you must pick one.
- Earned Income Tax Credit: It you were employed but earned less than $50,270 in 2017, you may be able to qualify for the Earned Income Tax Credit. If your children qualify, you can see up to $5,891 in a refund check!
- College Savings Plan: If you're saving money for your children's college education, opening up a 529 plan (or a state-sponsored college plan) is a smart option because any earnings are exempt from federal taxes (and typically state taxes too). Unfortunately, though, contributions to a college savings plan are no longer deductible.