Top 9 Family Tax Breaks every parent should know about. Ca-ching.
Ahhh, tax time. It’s overwhelming and it stinks, but if you take your time and educate yourself on all the available credits and deductions, you can save some major dough, that was really yours anyways.
1. Child and Dependent Care Tax Credit (i.e. summer camps!)
While this sounds similar to the Child Tax Credit, it’s not. A family might be able to claim both. This tax credit allows working parents who rely on some kind of child care to claim a portion of those expenses on their taxes. But get this: The IRS defines childcare not just as daycare but nearly any entity that has a tax ID number that you send your child (under age 13) to while you are working. When my daughters were younger and attended camps, we always made sure we chose camps with tax ID numbers so we could include those expenses as part of the Child and Dependent Care Tax Credit. According to the American Institute of CPAs, this credit could be worth up to $3,000 for one qualifying child and $6,000 for more than one. Many parents I’ve spoken to have no idea that summer camps qualify.
2. State Sales Taxes
This is particularly important to you if you live in a state that does not impose a state income tax. You see, Congress offers itemizers the choice between deducting the state income taxes or state sales taxes they paid. You choose whichever gives you the largest deduction. So if your state doesn’t have an income tax, the sales tax write-off is clearly the way to go. In some cases, even filers who pay state income taxes can come out ahead with the sales tax choice.
The IRS has tables that show how much residents of various states can deduct, based on their income and state and local sales tax rates. But the tables aren’t the last word. If you purchased a vehicle, boat or airplane, you may add the sales tax you paid on that big-ticket item to the amount shown in the IRS table for your state.
3. Out-of-Pocket Charitable Donations
It’s hard to overlook the big charitable gifts you made during the year, but little things add up, too, and you can write off out-of-pocket costs incurred while doing work for a charity. For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you buy for a school’s fund-raising mailing count as charitable contributions. Keep your receipts. If your contribution totals more than $250, you’ll also need an acknowledgement from the charity documenting the support you provided. If you drove your car for charity in 2013, remember to deduct 14 cents per mile, plus parking and tolls paid, in your philanthropic journeys.
4. Job Hunting Costs
If you’re among the millions of unemployed Americans who were looking for a job in 2013, we hope you kept track of your job-search expenses … or can reconstruct them. If you’re looking for a position in the same line of work, you can deduct job-hunting costs as miscellaneous expenses if you itemize. Qualifying expenses can be written off even if you didn’t land a new job. But such expenses can be deducted only to the extent that your total miscellaneous expenses exceed 2% of your adjusted gross income. Job-hunting expenses incurred while looking for your first job don’t qualify. Deductible job-search costs include, but aren’t limited to:
- Transportation expenses incurred as part of the job search, including 56.5 cents a mile for driving your own car plus parking and tolls
- Food and lodging expenses if your search takes you away from home overnight
- Cab fares
- Employment agency fees
- Costs of printing resumes, business cards, postage, and advertising.
5. Childcare Credit
A credit is so much better than a deduction; it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax. In the 25% bracket, each dollar of deductions is worth a quarter; each dollar of credits is worth a greenback.
You can qualify for a tax credit worth between 20% and 35% of what you pay for child care while you work. But if your boss offers a child care reimbursement account—which allows you to pay for the child care with pretax dollars—that’s likely to be an even better deal. If you qualify for a 20% credit but are in the 25% tax bracket, for example, the reimbursement plan is the way to go. (In any case, only amounts paid for the care of children younger than age 13 count.)
You can’t double dip. Expenses paid through a plan can’t also be used to generate the tax credit. But get this: Although only $5,000 in expenses can be paid through a tax-favored reimbursement account, up to $6,000 for the care of two or more children can qualify for the credit. So if you run the maximum through a plan at work but spend even more for work-related child care, you can claim the credit on as much as $1,000 of additional expenses. That would cut your tax bill by at least $200.
6. Adult Education
College credits aren’t just for youngsters, nor are they limited to just the first four years of college. The Lifetime Learning credit can be claimed for any number of years and can be used to offset the cost of higher education for yourself or your spouse . . . not just for your children.
The credit is worth up to $2,000 a year, based on 20% of up to $10,000 you spend for post-high-school courses that lead to new or improved job skills. Classes you take even in retirement at a vocational school or community college can count. If you brushed up on skills in 2013, this credit can help pay the bills. The right to claim this tax-saver phases out as income rises from $53,000 to $63,000 on an individual return and from $107,000 to $127,000 for couples filing jointly.
7. Airline Baggage Fees
Airlines seem to revel in driving travelers batty with extra fees for baggage and for changing travel plans. Such fees add up to billions of dollars each year. If you get burned, maybe Uncle Sam will help ease the pain. If you’re self-employed and travelling on business, be sure to add those costs to your deductible travel expenses.
8. Energy Saving Home Improvements
Credits for Energy-Saving Home Improvements ThinkstockIt appears 2013 will be the end of the road—for real—for a tax credit that’s worth 10% of the cost of qualifying energy savers, such as new windows and insulation. (It expired before, in 2011, but was retroactively revived for 2012 and 2013.) If you made qualifying improvements in 2013—and you did not use up the maximum $500 credit (only $200 of which can be for windows) in earlier years—be sure to cash in with your 2013 return.
Another credit for saving energy is still alive, though, and it has no dollar limit. This credit goes to homeowners who install qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. Your credit can be 30% of the total cost (including labor) of such systems installed through 2016.
9. Caring for a Parent
Most people are aware of their ability to claim tax credits for child care, but many often forget that they can also claim a total annual expenses benefit of $3,000 when it comes to taking care of a parent.According to the IRS, this credit is based on a percentage of the amount of work-related expenses you pay to a caregiver to take care of your parent. The IRS qualifies this Dependent Care Credit as any spouse or dependents who are physically or mentally incapable of taking care of themselves and who spend at least eight hours per day in your household, and the deduction is based on your annual income.
Some deductions may sound like they’re not worth bothering, but a few little ones can add up to major savings. Always check with a tax professional to make sure you qualify for any tax deductions and credits.