Taxpaying schemes can seem to be extremely complicated when it comes to money management on a family basis. Thankfully, now the tax laws offer a number of tax breaks and deductions for families which can help lower potential tax liability and put money back in their pocket, says Scott Tominaga. Keep reading to explore them.
Claim for Child Tax Credit (CTC)
The Child Tax Credit offers a significant tax benefit for families. For the tax year 2023, it allowed individuals to claim a maximum of $2,000 for each qualifying child under the age of 17. This credit is refundable in part, which means that even with a lower tax bill, the taxpayer can still expect a tax refund. To qualify for the full credit, single parents should be under the income bracket of $200,000 for single parents while for couples, the income limit stands at $400,000 while filing jointly. If the income exceeds these amounts, the credit phases out gradually.
Maximize the Dependent Care Credit
The Dependent Care Credit benefits families who pay for daycare, after-school programs, or other childcare needs for children under 13. Only $3,000 of care for one child, or $6,000 for two or more children, is eligible. The percentage of expenses claimable changes with income: lower-income families can claim up to 35 percent, while higher-income families may be limited to a 20 percent tax credit. Be sure to keep records of all childcare expenses that may qualify for the credit says Scott Tominaga.
Claim the Earned Income Tax Credit
The Earned Income Tax Credit is an important benefit for working families, especially those with low and moderate incomes. The EITC offers a tax break, thereby reducing tax liabilities owed and returning a refund. The amount of the credit depends on income, marital status, and number of children as per Scott Tominaga. Families having children are granted $6,935 for 2023, even if they do not owe any taxes. It is very important to check if one qualifies for this credit, as it would mean great financial help.
Contributions to Tax-advantaged Accounts
Contributions to tax-advantaged accounts serve to reduce taxable income. Among the options are:
529 Plans: Contributions to such education saving accounts grow tax-deferred, while withdrawals for educational expenses are kept free. Some states also offer a tax deduction for contributions.
Health Savings Accounts (HSAs): For families that are covered by high-deductible health plans, HSA contributions reduce taxable income, while withdrawals used for qualifying medical expenses will be tax-free
Retirement Accounts: Paying into retirement plans such as IRAs or 401(k)s will serve to lower taxable income and consequently the tax liability for that particular year.
Think About Deductions Applicable for Parents
There exist deductions specifically for parents that can provide relief in taxable income. Some of these deductions include:
Mortgage Interest Deductions: Interest on mortgages, in case the parent has bought a home, lowers an individual’s taxable income.
Student Loan Interest Deduction: If the payment of a student loan is made on behalf of either self or some dependent, interest paid up to $2,500 can be deducted.
Charitable Donations: Donations made to qualified charities are tax-deductible. Thus families that donate to such charities may reduce their taxable income.
To leverage tax benefits, make sure to stay organized with related papers and documents. Keep detailed records of all deductible expenses, such as childcare costs, medical bills, and donations.
