There are lots of great things about having kids. They add a sense of adventure to life and they teach you things you’d never have learned otherwise. Plus, they come with some tax breaks to help you through the not-so-great times. Here are three tax planning opportunities you can take advantage of if you have children.
- A Dependent-Care FSA — With this account, you can set aside up to $5,000 pre-tax for child care expenses. The amount of the credit is based on your adjusted gross income and applies only to your federal income taxes. There are a few eligibility requirements and restrictions on what expenses are included, but for many families the Dependent Care FSA is a good option.
- The Child and Dependent Care Tax Credit — You can deduct up to 35% of qualifying child care costs, up to $3,000 per child or $6,000 for two or more. This credit even covers after-school activities and day camp, and applies to high earners as well as lower-income. Here are the details.
- The Child Tax Credit — As long as you and your spouse file jointly and have a modified gross income of $110,000 or less, you can reduce your tax bill by $1000 for every child you have. (If you earn more, you can still claim the credit, but at a reduced benefit.) Single or divorced parents have an income limit of $75,000, and are required to have the child live with them more than half the year in order to claim the credit. There are a few other requirements as well.
If you’ve got kids, you might as well take advantage of the tax savings.