According to a study by the U.S. Department of Agriculture, the average cost to raise a child from birth to age 18 is approximately $233,610. Yes, that’s per kid. While expenses will vary throughout a child’s lifetime, having the very latest and greatest information on tax codes can help parents minimize their tax burden and maximize their potential income tax refund. We asked tax experts to share their top advice for parents. Keep reading to see what they said.
1. Get credit where the child tax credit is due.
Now in effect for a second year, the increased federal child tax credit lets parents claim a credit up to $2,000 per child under age 17 as well as claim a credit up to $500 for other dependents, such as a dependent adult child who is still in college. Additionally, up to $1,400 is refundable—assuming that your tax liability is zero. The federal child tax credit was increased from $1,000, thanks to the 2017 tax reform law that went into effect in the tax year 2018. Notably, the income threshold to claim the credit increased from $110,000 for a married couple filing jointly to $400,000 for the same married couple filing jointly.
2. Depend on the child and dependent care credit.
For tax year 2019, the child and dependent care credit gives tax filers 20% to 35% of up to $3,000 of child care costs for a child under age 13. This credit also can apply to an incapacitated spouse or parent, or another qualified dependent. The total credit can increase to up to $6,000 of expenses for two or more dependents. New parent pro-tip: Even if your baby was born at the very end of the year on December 31, 2019, for tax purposes, your new baby counts as a dependent for the entire calendar year.
3. Stake a claim as head of the household.
Whether you’re filing your taxes jointly or separately, there are myriad benefits to claiming head of household on your tax return. Simply put, claiming the head of the household classifies the tax filer as someone with at least one qualified dependant, which provides unique deductions and a wider tax bracket. A qualified dependent must be younger than the tax filer (unless the over-age dependent has a permanent total disability), and be 19 years old or younger at the end of the tax year or 24 years old or younger if they still are a student.
4. Check out the updated adoption credit.
For adoptions that were finalized in 2019, the federal adoption tax credit increased from $13,810 to up to $14,080 per child. Rather than a direct refund, the 2019 adoption tax credit lets tax filers apply qualified adoptions expenses—such as attorney fees and home study costs—as a tax credit to lower an overall tax burden. Also, some companies offer employees adoption grants or loans, which can help to offset adoption costs.
5. 529 savings plans: not just for college anymore.
One of the most significant changes in the sweeping 2017 tax reform law was allowing parents to use the tax-advantaged savings account known as 529 savings plans toward eligible education expenses for elementary or secondary public, private, or religious schools, instead of for only college-related expenses. The new rule allowed parents to withdraw up to $10,000 per child from their existing 529 savings plans to fund education costs starting from kindergarten all the way through graduate school.
6. Deduct student loan interest.
Speaking of tuition costs, parents can deduct up to $2,500 of eligible interest payments on certain student loans, reducing taxable income and possibly lowering tax bills. The loans must come from a qualified lending institution, the loan must be created in the name of the parent (rather than the student), and your child needs to be enrolled at least half-time in a degree program when the loan was started.
7. The early bird gets the worm. And by the worm, we mean the refund.
As always, tax specialists recommend filing taxes as soon as you can. “If you have all of your documentation ready to go, why risk anything happening with your return?” says Mark Jaeger, director of tax development at TaxAct, a leading provider of tax preparation solutions. Jaeger says tax filers usually come in two varieties: the early birds who file in January and the procrastinators who file at the very last minute. By filing early, taxpayers can avoid the April 15 rush and determine if they can expect a refund—or if they owe additional taxes.
8. Be prepared.
Getting through tax season doesn’t have to be a chore, as long as you are prepared. That means collecting all of your necessary documents and forms in a timely and organized manner. For dependent children, it’s important to ensure that you have all of their proper identification, such as a social security number as well as the tax-payer ID numbers for child care providers and other child care and education programs that qualify as credits or deductions.