by Sam Ashe-Edmunds
Parents, if you’re in tax-filing mode (and you should be!), make sure your not leaving a dime on the government’s table. Make sure you’re taking the tax deductions you have coming your way with these most common ones as well as some lesser known but just-as-deductible ones you can claim.
1. Withholding allowances/exemptions
As a parent, you probably know you can claim a withholding allowance for each child who is a dependent. However, claiming an allowance doesn’t lower your annual taxes. It just reduces your withholding payments each paycheck, allowing you to keep more of each check instead of having to wait for a possible refund for overpaid taxes at the year of the year.
Claiming the allowances can improve your bottom line in other ways, though. For example, having that extra cash in each paycheck to pay bills during the year can decrease the amount of credit card interest you pay (if you use cards to pay for things and have to carry a balance). Claiming more allowances and increasing the amount of money in your pocket can also let you invest the extra take-home pay, such as putting it in a 401(k) contribution.
In addition to your allowances, you also get a standard child credit deduction for each child you can claim as a dependent. The benefits of exemptions and deductions depend on your marital status, children’s ages and your income, but if you qualify, they can add up to thousands of dollars in savings.
2. Head of Household status
If you’re not married and are supporting a child, you might qualify for a lower tax rate and earn higher deductions. Your ability to qualify for Head of Household status will depend on a number of factors, such as whether your child qualifies as a dependent, how long she lives with you during the year, how much income you earn or if you are a full-time student. Check with a tax professional to determine if you qualify for this tax status.
3. Sports camps, day care, pre-K and other youth activities
Do your children participate in sports camps? What about an after-school band program? Some of these qualify as child-care programs and get you a tax deduction. The deductions aren’t available for everyone – for example, a stay-at-home parent negates the child-care deduction. Even if a camp qualifies as a child-care deduction, most of the expenses associated with it (such as equipment, instruments, transportation or lunches) don’t earn you a deduction. Kelly Phillips Erb provides a nice breakdown of what qualifies in her Forbes magazine article. Voluntary educational programs, such as pre-K and kindergarten programs, also qualify for child-care deductions if you need to put your child in the classes so you can work or look for work.
4. Volunteer coaching
Do you coach your child’s soccer or baseball team? While you can’t deduct the value of your time, you can write off some of the expenses you have related to your volunteerism. This can be an especially nice deduction if you coach a travel team that makes a regional, sectional or national playoff trip. You can deduct your travel expenses, personal coaching uniform and any other items you purchased if:
- The organization is a 501(c)3 charity
- You use the items you’re deducting only for your coaching
- You are not reimbursed after you buy items
Note that the IRS mileage deduction for volunteering for charitable activities is not the same (or nearly as high) as the deduction for business-related travel. You’ll need to check the mileage rate each year you coach, keep track of your trips and mileage, and then claim the deductions.
5. Child wages
If you own your own business, you can pay your children if they do legitimate work for your business, deducting their reasonable wages as a business expense. This will reduce your business’s income tax liability, and you won’t pay Social Security and Medicare tax contributions on those wages, according to Hood.
6. Donations of used children’s items
When your kids have outgrown their clothes, toys and other items, don’t just drop them in a donation box or sell them at a yard sale just to get rid of them. Take them to a Goodwill, Salvation Army or other charitable thrift operations that will assess their value and give you a receipt. The valuations on donations to charities can be very generous, according to Kevin Hood, CPA, owner of C. Kevin Hood, Accounting & Tax, Inc., Hilton Head Island, SC.
If you pay for someone to watch your child while you’re at work or job hunting, you might be able to claim the Credit for Child and Dependent Care. A housekeeper who’s there while you’re there, splitting child-watching duties, won’t qualify. For a caregiver to qualify as a deduction, the children must be younger than age 13, and you must hire the nanny or babysitter because you are working or looking for work. This helpful summary by the IRS provides more information about who qualifies.
8. Medical-related travel
Did you know that driving to the orthodontist or urgent care center can help you lower your taxes? If your child has a condition that requires regular trips to a doctor or treatment center, it might be worth your while to keep track of your miles. The IRS provides parents a mileage deduction of 23.5 cents per mile (in 2014) driven for qualifying medical care.
9. IRA contributions
If your children have earned income (including the income you pay them through your business), you can invest this money into an IRA or Roth IRA for them. While this won’t get you a tax deduction, it’s a great way to get your kids started on the path to retirement security. Having this tax-advantaged money earn compound interest over 40 or more years can add up to a huge retirement payoff.
10. College costs
You probably know that financially helping your child with college earns you a deduction or deductions, depending on how you assist your child. With the growing hue and cry regarding the rising cost of college tuition, education deductions continue to change, don’t plan on last year’s deductions remaining the same. Even President Obama temporarily considered changing the 529 college savings plan deduction amount. The IRS provides a nice breakdown of education tax credits on its website.
11. Health care plans and expenses
Take advantage of health care plans and accounts you can use to pay child health care expenses. For example, a Health Savings Account, Health Reimbursement Arrangement or Flexible Spending Account lets you and/or your employer put money into an account you then use to pay medical bills during the year. The money goes directly from your paycheck to the account, and the amount you contribute isn’t subject to payroll taxes. These programs have different benefits and limits, but the bottom line is you’ll pay lower taxes, the savings of which you can use to help pay for medical expenses (some of which might also qualify for tax deductions). Depending on your employer’s plan, you might get a matching contribution from your company.
Under the Affordable Care Act (also known as “Obamacare”), “children” who qualify for some health care deductions include those as old as 26 years old, even if they’re not your dependents. These expenses include insurance premiums, deductibles, co-pays and other medical expenses.
12. Adoption Expense
If you adopt a child, you can write off specific expenses related to the adoption process. Meet with a qualified tax expert and/or the adoption agency to make sure you get full credit for any qualifying expenses you incur. Find out which expenses will qualify so you can save your receipts and other paperwork as you go through the process, which can take more than one tax year.
Sam Ashe-Edmunds has been a small-business consultant and owner for more than 25 years. He has written for a wide variety of magazines, newspapers and websites, includingEntrepreneur, The Chicago Tribune, Chron Small Business, AZ Central Your Business,TheNest, Zacks, Motley Fool, Synonym Money, GlobalPost and Opposing Views.