Wednesday, February 11, 2015

7 Tax Deductions Every Parent Should Know About

Catherine Donaldson-Evans for writes:  Everyone wants to save money, and parents are no exception. But when it comes to filing taxes, did you know there are certain tax breaks that apply just for parents? Even if you feel like you're spending more than saving, having a child can actually help you save some cash during this tax season.

As much as we love our children, having kids often feels like a bottomless money pit. But there is some relief for overburdened parents.
Uncle Sam knows just how costly it is to have a baby, so there are a number of tax breaks and deductions parents can claim on their returns. Here are the ones to make sure you're covered in your taxes this year.
1. Child tax credit. Moms and dads can claim $1,000 per household child up to age 17, according to Ellie Kay, a Parents advisor for the Mom Money Clinic and a family financial expert. But once a couple's adjusted gross income is $110,000 or more (or $75,000 for single parents), that perk is no longer an option.
2. Earned income tax credit (EIC). Parents of three or more children who have earned less than $46,997 for the year if they're single or less than $52,427 if they're married can take this credit, Kay says. Very low-income parents of one or two kids can also qualify. The maximum EIC allowed is $6,143.
3. Child-care deductions and pretax accounts. Working parents who pay for child care might be able to deduct some of those costs from their taxes, according to Elisabeth Leamy, a money expert and consumer correspondent for The Dr. Oz Show. The amount is based on income and is between $600 and $1,050 in savings a year per child. For licensed day-care centers and after-school programs or qualified babysitters with social security numbers, parents can get a dependent care tax credit of up to 35 percent of the cost of that care. Keep in mind that there's a $6,000 maximum for two or more family members and a $3,000 cap per child. Another way to go, if your employer offers it as a benefit, is to put money into a flexible spending account, or FSA, for child-care costs, which allows up to $5,000 in contributions that aren't taxed. But, Leamy notes, parents can't take advantage of both an FSA and the child care credit; they have to choose one or the other.
4. Medical expenses deductions and pretax accounts. Total family health care expenses that exceed 7.5 percent of the household's adjusted gross income can be deducted from your taxes, according to Kay, including things like physical therapy and dental care but excluding insurance premiums. Or parents can invest in their employers' Health Spending Accounts (HSAs), which, like FSAs, allow pretax contributions of up to $5,000 a year.
5. College savings plan deductions. If you've opened a 529 plan account or started another state-sponsored college fund for your child, any contributions made in 2014 can be claimed as deductions on your state taxes.
6. Adoption tax credit. Parents who finalized adoptions in 2014 are eligible for up to $13,190 per child in federal tax credits. "A little caution, though: Make sure you have all the paperwork," Kay advises. "Adoptions can be drawn out, so if [the adoption] was not finalized in 2014, that could be a problem." At the very least, though, the credit would be postponed by a year.
7. Dependent tax exemption. When you're single, you can claim one exemption; when you're married, you get two; and when you have kids, you get one for each child, Leamy says. That amounts to $3,950 per person for 2014. Since this is a deduction rather than a credit, the savings is based on your tax bracket. For example, those in the 25 percent bracket will save $975 with the exemption.