20 Tax Benefits Every Parent Should Know About
Discover 20 powerful tax benefits that can save parents thousands of dollars, from childcare credits to college savings and beyond!
- Alyana Aguja
- 6 min read
Bringing up children costs money, but clever parents can tap massive tax savings by choosing the correct credits and deductions. From Child Tax Credit through college saving credits and childcare benefits, the Internal Revenue Service provides numerous avenues of keeping money in your pocket. Whether saving up for your youngster’s future or simply hoping to lower your annual tax payment this year, the following 20 tax perks have the ability to maximize your payout and keep worry at bay!
1. Child Tax Credit (CTC)
Daiga Ellaby from Unsplash
If you have children under 17, you can claim $2,000 per child on your return. Even if you don’t owe any taxes, you may still receive up to $1,600 as a refundable credit in 2024. This can reduce your tax amount or increase your refund.
2. Earned Income Tax Credit (EITC)
Alexander Mils from Unsplash
Low to moderate-income parents may be eligible for a tax credit of as much as $7,430 (for three or more children). The EITC is a fully refundable credit, so you can receive a refund even if you don’t owe taxes. The income levels vary annually, so check and see if you qualify!
3. Child and Dependent Care Credit
Gautam Arora from Unsplash
If you spend money on daycare, babysitters, or after-school care, you might receive up to $1,050 for a single child or $2,100 for two or more. The credit can be used for up to 35% of qualifying costs, such as summer camp or preschool. Unlike deductions, this lowers your tax bill dollar for dollar!
4. Adoption Tax Credit
Guillaume de Germain from Unsplash
It costs money to adopt a child, but the IRS assists by providing a credit of as much as $15,950 per child in 2023. This includes legal expenses, court expenses, and even travel expenses for the adoption. However, if your modified adjusted gross income (MAGI) is too high, the credit phases out.
5. Head of Household Filing Status
CDC from Unsplash
Single parents receive larger tax savings by filing as Head of Household rather than Single. This filing status offers a greater standard deduction ($20,800 in 2024 compared to $13,850 for single filers) and lower taxation rates. To be eligible, you must pay over half the cost of keeping a house for your child.
6. 529 College Savings Plan Tax Benefits
Element5 Digital from Unsplash
The money you put into a 529 plan accumulates tax-free, and withdrawals for education costs aren’t taxed either. Even some states provide tax credits or deductions for contributions. The good news? You can use these funds for K-12 tuition, not only in college.
7. American Opportunity Tax Credit (AOTC)
Dom Fou from Unsplash
If your student is in college, you may claim a tax credit of as much as $2,500 per student for tuition, books, and fees. The first $2,000 is a refundable credit, which means you can receive money back even if you don’t owe the government anything. To qualify, your income should be below $90,000 (single) or $180,000 (joint filing).
8. Lifetime Learning Credit (LLC)
Priscilla Du Preez from Unsplash
Unlike the AOTC, the Lifetime Learning Credit does not depend on whether your child is earning a degree. It returns 20% of the first $10,000 in tuition and fees, up to a $2,000 maximum credit annually. It’s refundable for unlimited years—fantastic for back-to-school parents, too!
9. Student Loan Interest Deduction
Sincerely Media from Unsplash
If you or your child are repaying student loans, you can deduct interest paid of up to $2,500 per year. This reduction in taxable income is not a direct credit. It does phase out for more affluent taxpayers, though many parents qualify.
10. Health Insurance Premium Tax Credit
National Cancer Institute from Unsplash
If you purchase health coverage in the marketplace, you could be eligible for a Premium Tax Credit to make your costs less expensive. Your income and the size of your family determine how much, and it’s considered refundable so that it can raise your refund amount. Families with incomes between 100% and 400% of the federal poverty guideline typically qualify.
11. Dependent Exemption (A Few States Still Permit It!)
Edi Libedinsky from Unsplash
Although federal tax legislation no longer permits personal exemptions, most states still allow you to claim a standard amount for every dependent. This will decrease your state taxable income and your tax bill. Contact your state tax department to learn whether you can benefit.
12. Employer-Provided Dependent Care Benefits
Vika Strawberrika from Unsplash
Some employers provide Dependent Care Flexible Spending Accounts (FSAs), allowing you to save up to $5,000 tax-free for childcare. You don’t owe income or payroll taxes on these contributions, which can save you thousands. It pays for daycare, preschool, and even summer camp.
13. Kiddie Tax Savings (Investing for Your Child)
Juan Encalada from Unsplash
Children with unearned income (like from investments) can use their tax bracket, usually lower than yours. The first $1,250 is tax-free, and the next $1,250 is taxed at only 10%. This is useful if you’re gifting stocks or setting up a custodial investment account (UTMA/UGMA).
14. Self-Employment Tax Deductions for Family Businesses
Dylan Gillis from Unsplash
If you own a business and employ your child, you can exclude their wages from payroll taxes if they are under 18. In addition, your child’s income is taxed at their rate, and they can contribute to a Roth IRA with the funds. This is an incredibly effective family business wealth-building technique!
15. Home Office Deduction for Remote Work & Homeschooling
Dillon Shook from Unsplash
If you work at home and have a separate office area, you can take a home office deduction. This allows you to deduct part of your rent, mortgage, utilities, and internet. Homeschooling itself doesn’t qualify, but you might be eligible if you tutor or freelance at home!
16. Moving Expense Deduction for Military Families
Filip Andrejevic from Unsplash
If you’re in the military and relocate due to orders, you can deduct moving expenses like travel, lodging, and shipping household goods. This applies even if you don’t itemize deductions. It can save military families hundreds to thousands of dollars at tax time.
17. Charitable Contribution Deductions for School Donations
Ivan Aleksic from Unsplash
If you give to your child’s school (PTA, band, sports), your donations might be tax-deductible. You’ll need a receipt and documentation of the donation, which must go to a qualified nonprofit. A few states even provide tax credits for school donations!
18. Electric Vehicle Tax Credit (If You Have Teen Drivers)
Precious Madubuike from Unsplash
If you purchase an electric vehicle (EV) for your family, you may be eligible for a tax credit of up to $7,500. The credit is for some new and used EVs that qualify based on battery and income. It’s a smart way to save while going green for your teen driver!
19. Energy-Efficient Home Improvements for Families
MICHAEL WILSON from Unsplash
If you install energy-efficient features such as solar panels, insulation, or energy-efficient windows, you can qualify for a 30% tax credit. You can save thousands and reduce your energy bills. Some utility companies and states have extra rebates in addition to federal credits.
20. State-Specific Family Tax Breaks
Hoi An Photographer from Unsplash
Several states provide special tax advantages for parents, such as education deductions, childcare credits, and family tax exemptions. New York, for instance, has a college savings deduction, while California has an earned income tax credit for low-income families. Always review your state’s tax code to optimize your savings!