The financial demands of parenting are never-ending. From the moment you learn you’re going to be a father, you start stressing, saving, and preparing for the cost of raising a child.
But filing your tax return might be the one time of year when having a family actually helps you keep more of your money in your pocket. Tax credits, deductions, and exemptions can all help you write off the costs of raising a child or caring for a family. You’ll pay less taxes, keep more of your hard-earned money, and maybe receive a nice tax refund, too.
Here are nine essential tax credits and deductions that can help you pay less on your 2016 taxes. You can’t afford to miss them.
1. Dependent Exemption
The more members in your household, the more mouths to feed. To account for this, the IRS has a dependency exemption for children, spouses, or others for whom you financially provide.
For the 2016 tax year, this exemption reduces your taxable income by $4,050 for each adult (yourself and your spouse, if filing jointly), and for each qualifying child or other dependent.
How do you tell if your child is a dependent? If they lived with you for more than half the year and are under the age of 19, you can claim this dependent exemption. It can also be claimed for an adult dependent up to 24-years-old and enrolled in college full-time if you provide more than half their financial support.
If you have parents, grandparents, relatives, or others whom you financially support, you might also be able to claim them as dependents. This IRS questionnaire will help you determine who qualifies as a dependent.
2. Child and Dependent Care Credit
Once you know who your dependents are, look at whether you paid for their care in 2016. This will include childcare, preschool, or after-school care costs for children who are 12 and under at the end of 2016. It could also include care provided for another dependent, such as a disabled spouse or an elderly grandparent.
You can claim up to $3,000 in care expenses for one dependent, and $6,000 for two or more dependents. As a tax credit, this will lower your tax liability and can even increase your refund.
To qualify, the care has to have been provided so you (and your spouse, if filing jointly) could work or look for work. What you paid a babysitter for date nights won’t qualify for this credit.
3. Child Tax Credit
The Child Tax Credit directly reduces the taxes you owe, dollar-for-dollar, by up to $1,000 per child. Each child must be 16 or younger at the end of 2016 and meet other requirements to qualify for the Child Tax Credit.
Your exact savings will depend on your income. For married couples filing jointly, this tax credit is phased out at a modified adjusted gross income (MAGI) of $115,000 combined, or $55,000 for married filing separately. For a single head of household, the Child Tax Credit is phased out at $75,000. You may still save with the Child Tax Credit, but it won’t be the full $1,000.
4. College Expense Tax Credits and Deductions
There are also some valuable write-offs that help offset college and education-related expenses. If you paid for college costs for yourself, a spouse, or a dependent in 2016, chances are good you can claim a tax deduction or credit.
There are three main ways to write off educational expenses on tax returns:
American Opportunity Credit
Lifetime Learning Credit
Tuition and Fees Deduction
Each has its own rules and requirements to qualify, but they can greatly reduce your tax liability or taxable income for big savings.
5. Student Loan Interest Deduction
On top of writing off educational costs, you can also claim any interest you paid on student loans in 2016. This could lower your taxable income by $2,500 – that’s dollar-for-dollar savings of up to $625.
In order to claim this deduction, you must be the personal legally responsible for paying the student loans. In other words, they must be in your name (this includes Parent PLUS loans in your name). That means you can write off student loan interest even if someone else has been making your payments. You can also write off interest for payments you made on your child’s student loans if you’re a co-signer.
If you’re unsure about whether you can claim this tax deduction, this student loan interest deduction calculator can help you find out and estimate how much you could save.
6. State Tax Deductions for 529 Contributions
There are no federal income tax deductions for contributions to 529 savings plans, which are administered at the state level. But most states that levy a state income tax offer a tax deduction for contributions to these accounts.
The potential savings are big. For instance, you can write off up to $14,000 per filer, per beneficiary, from state income tax in Pennsylvania. This list from FinAid.org shows the 529 tax deductions for each state.
7. Married Filing Jointly or Separately
Married men will want to consider how choosing to file separately versus jointly could affect their taxes. It’s a common belief that filing jointly always saves on taxes – but that’s not necessarily true.
A study from The New York Times showed that, depending on what each spouse earns, filing jointly can result in either a tax bonus or penalty. Which is best for you? The answer can be complicated, especially when children or dependents are added in.
The only way to know for sure is to prepare joint federal and state tax returns and separate tax returns for each of you and compare the results. Keep in mind that if you file separately, you will also be prohibited from claiming certain child tax credits.
A professional tax preparer can also advise you on if you should file jointly or separately. Then you can choose which one will give you the best results.
8. Adoption Credit
If you adopted a child in 2016, congratulations! There’s more good news: you can offset adoption costs including fees, court and legal costs, travel, and other adoption-related costs with the Adoption Credit.
This credit directly lowers your tax liability by up to $13,460 per child and begins to phase out at an adjusted gross income of $201,920. You can only claim the amount up to your tax liability. But you can carry forward any excess Adoption Credit for the next five years.
Keep in mind that most of these tax credits and benefits can only be claimed on one return. So if you are married or filing separately, or divorced and share custody of your children, only one parent can claim each tax write-off on their return.
9. Earned Income Tax Credit
Last, but not least, is the Earned Income Tax Credit (EITC). This is a refundable tax credit that can offset the tax burden for low-income families, or even increase your income. It can lower your tax liability by up to $6,269 in 2016. On average, filers claiming the EITC get $2,500 back.
How much you get back depends on your income and number of children claimed on your return. Parents with one child can receive this credit with earned income of less than $39,296 in 2016 for a single parent, or $44,846 for married couples filing jointly.
If you’re on the border of that income, double-check whether you qualify; 20 percent of taxpayers who qualify fail to claim this credit.
It takes some legwork to figure out the tax credits and deductions you can claim as a father. But the potential tax savings could add up to thousands of dollars. And that’s more cash you have to investment in your family and give your children the best chance in life. What could be better than that?
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