While driving home from work the other day, I was listening to a call-in show on NPR. A woman called to find out the best way for her family to save money for their child’s college fund. It made me think about how expensive our little bundles of joy can be. It also made me think that we really need to get cracking on our own little guy’s college fund. So far it consists of a few small savings bonds from the grandmas and all our handfuls of loose change from the past two years. I haven’t even taken it to the bank yet, but I don’t think we’ve even hit $2000. It’s a good thing we have 16 years to go – but that time is flying by.
The good news – kids don’t always separate you from your money – sometimes they actually help you keep some! Here are a few ways your kids will help fatten your wallet come tax time.
Let’s start with the famous Child Tax Credit. This credit is usually worth $1000 per qualifying child, depending on your income and other factors. Since it’s a credit, not a deduction, you get to subtract it from the amount you owe.
If you are married and filing jointly, you get a larger standard deduction. According to the IRS, “your tax may be lower than your combined tax for the other filing statuses.” You’ll also get some extra tax breaks that aren’t available to unmarried filers.
If you’re single, check into filing as head of household. This option is usually preferable to filing single because it offers lower tax rates and a higher standard deduction. If you’ve recently divorced, make sure you follow the divorce decree as to which parent gets to claim the kids for tax purposes.
If you’ve suffered the passing of your spouse, you could file as a qualifying widow or widower with a dependent child for two years following the death. This allows you the same benefits as a married filer.
Your dependent children count as exemptions on your tax return. The IRS sets an adjusted amount each year that you multiply by the number of exemptions you have. Then you subtract this number from your income.
If you pay for daycare, you may be able to get some of your money back – up to $3000 for one child (under 13 years) and $6000 for two or more.
Did you adopt your child? You may be able to get a tax credit for qualifying expenses, if your child is eligible.
This is not an exhaustive list. Make sure you talk with a tax professional to determine the best route for you and your family.
Now, back to thinking about saving for college!