Raising children is more expensive than ever. Luckily, many of those costs can be turned into tax deductions and credits that can save you hundreds or even thousands on your 2019 federal income tax return.
Here’s a few of the best tax benefits that may help your family this tax season.
Child Tax Credit
Recent changes in tax law have made the Child Tax Credit a much more effective way to reduce your family’s 2019 tax liability, not to mention give your tax refund a real shot in the arm this coming tax season.
If you’re within a lower-to-moderate income tax bracket, you may now qualify for up to $2,000 for each qualifying child—as well as up to $500 of nonrefundable credit for any eligible dependents other than your children.
You may be eligible for the full Child Tax Credit if:
- Your modified adjusted gross income (MAGI) is under $400,000 (for married filing jointly) or $200,000 (for everyone else).
- Your child or qualifying dependent is 16 or younger at the end of the year.
- You’ve paid 50% or more of the qualifying child’s support in 2019.
- Your child or dependent has lived with you for half the year or more.
- Your child can’t file a joint return.
Earned Income Tax Credit
As far as federal income tax deductions go, the Earned Income Tax Credit is one of the most advantageous, particularly for families in low-to-moderate income ranges. Depending on your income and number of children, the EITC may result in significant tax savings for your family when it’s time to file.
Maximum earned income credits you may claim for 2019:
$529 – no children & max earnings (AGI) of $15,570 (single or head of household) or $21,370 (filing jointly)
$3,526 - 1 child & max AGI of $41,094 (single or head of household) or $46,884 (filing jointly)
$5,828 – 2 children & max AGI of $46,703 (single or head of household) or $52,493 (filing jointly)
$6,557 – 3 or more children & max AGI of $50,162 (single or head of household) or $55,952 (filing jointly)
The EITC is a refundable tax deduction, resulting in a potential refund on any amount after your tax burden is reduced to zero.
How do I qualify for the Earned Income Tax Credit?
To qualify for the EITC in 2019, you must:
- Have made at least $1 in earned income.
- Have made no more than $3,600 in investment income.
- File a return with the IRS, even if you owe no federal tax or have no legal obligation to file a return.
- Not file as married filing separately.
- Not file Form 2555 (foreign earned income) or Form 2555-EZ.
Child and Dependent Care Tax Deduction
Daycare expenses can add up fast. But they can also translate into a huge tax saver at the end of the year, allowing you to take a sizable chunk out of your 2019 tax bill.
With the Child and Dependent Care Credit, you can claim anywhere from 20% to 35% of up to $3,000 of childcare costs you paid for any child under 13. This includes care for any other qualifying dependent, incapacitated parent or spouse you paid for so you could work or find work during the year.
And if you have two or more dependents, the childcare tax deduction may equal as much as 35% of up to $6,000 in expenses, resulting in a maximum potential credit of $2,100.
Note that as your income goes up, the benefit you’re eligible for goes down. This is because the percentage of expenses and value you can claim decreases once you make more than the current AGI (adjusted gross income) threshold.
Also, the dependent care tax credit isn’t refundable, meaning that while it can reduce the taxes you owe to zero, you won’t get money back on any amount left over.
To qualify for the Child and Dependent Care Credit:
- Your dependent child must be younger than 13 when you paid for childcare.
- Incapacitated dependents or spouses must have been mentally or physically unable to care for themselves and must have lived in your household for over half the previous year.
- You must have earned money from a job (earned income). Passive income sources don’t count.
- You must file as ‘married filing jointly’ if you’re married.
- The care provider must have a legal name, address and Taxpayer ID Number (SSN or Employer ID Number).
Sending your kids to college can get expensive. Fortunately, popular tax deductions like the American Opportunity Credit and Lifetime Learning Credit can help offset the costs of high tuition and put some money back in your pocket.
The AOC tax deduction is good for up to $2,500 of the first $4,000 you spend on eligible education-related expenses, while the Lifetime Learning Credit pays up to $2,000 of the first $10,000 in tuition costs. You may claim one or the other for a qualifying dependent, but not both.
Education tax credit qualifying expenses
Qualifying expenses covered by the American Opportunity Tax Credit and the Lifetime Learning Credit:
- Expenses you paid for yourself, a dependent or spouse you claim as an exemption on your taxes.
- Qualifying tuition and specific attendance and enrollment-related costs paid to an eligible institution.
- Expenses needed for study, including supplies, books and equipment.
- Fees required as an explicit condition of enrollment, such as certain student-activity costs.
Note that while the American Opportunity Tax Credit is partially refundable (up to 40% or $1,000), the LLC can only knock money off what you owe and never be applied to your refund.
Student Loan Interest Deduction
If you’ve been paying down a student loan for yourself or a dependent in 2019, you’re probably eligible for the student loan interest deduction—a good way to adjust your taxable income and reduce what your family owes.
The student loan tax deduction allows you to deduct up to $2,500 in loan interest you paid for yourself, a spouse or dependent over the year.
To qualify for the loan interest tax deduction, you must:
- File as single, head of household, married filing jointly or qualifying widow(er).
- Not be claimed as a tax dependent by anyone else.
- Have a legal obligation to repay the loan.
- Must be paying a qualified student loan (employer plans and private loans don’t count).
Need help with tax deductions? To learn which tax credits may work best for your family, visit your local Liberty Tax® pro today.