Ask a CPA is a column I write as a Certified Public Accountant to share accounting, business and tax knowledge to readers of The Corporate Sister.
As a working parent, you know how precious your kids are. You also know how expensive raising them can be. From the astronomical cost of childcare to medical bills, and the prospect of college education, the costs of being a parent keep increasing each and every year. Which is why most of us welcome any breaks we can get to help lighten the modern financial weight of parenting. Especially when it comes to tax breaks…
Related: 5 things every working parent must know about the new Tax Reform
These tax breaks come in handy for working families at tax time. Some of these breaks come in the form of deductions, which reduce your taxable income, or the amount you’re being taxed on. Some examples of deductions include college tuition and fees for instance. Other tax breaks come in the form of credits, which are subtracted from your tax bill dollar for dollar or are added to your refund. An example of tax credit is the child-tax credit. However, both of these are subject to income limits.
If you’re wondering about these, here are 6 tax breaks you can get as a working parent:
- The student loan interest deduction
For working parents needing to borrow money for their child’s college education, the student loan interest deduction provides some relief. As a parent, you can write off up to $2,500 in student loan interest. However, if you’re a married filer with a Adjusted Gross Income (AGI) between $135,000 and $165,000, the deduction starts phasing out. If you’re single, the same restriction applies if your AGI falls between $65,000 and $80,000.
- The child-tax credit
As a result of the Tax Cuts and Job Act, for 2018 through 2025, this credit amounts to $2,000 per child as a federal income tax credit. There are no limits to how many children can qualify within a household. However, there is an income limit here, as with most tax credits. It starts to phase out for married-filing-joint couples with modified Adjusted Gross Incomes (AGI) over $400,000. For unmarried people, the phase-put starts at $200,000 of AGI.
- The child and dependent care credit
If you’re a working parent in a household with two incomes or are looking for a job with children under the age of 13, you may qualify for this credit. If you’re a student or a disabled parent, you may also qualify.
Basically, this credit allows you to claim a credit of 20 to 35% on childcare expenses up to $3,000 for one child. For two (2) or more children, this credit is up to $6,000. Here as well, there is an income limit for parents earning more than $43,000, for whom the credit will begin to shrink.
- American Opportunity Higher Education Credit
This credit helps with the cost of undergraduate college education. If your child is in their first four years of college, he or she may qualify for up to $2,500 a year worth of credit. The number of children to qualify in a household is not limited here.
However, there are income restrictions for married joint filers whose modified AGI is between $160,000 and $180,000. If you’re a single parent, then the credit phases out if your modified AGI is between $80,000 and $90,000.
- Lifetime Learning Higher Education Credit
This second higher education credit applies to students who have more than four (4) years of college credit under their belt. It also applies to any other family members also taking classes. One major restriction of this credit is that it cannot be claimed more than once on any given tax return.
With this credit, you can claim 20% of tuition and other qualified expenses, up to $10,000 worth of expenses. The maximum credit you can then claim is $2,000. If you’re marrying filing jointly with your partner, this credit is phased out if your modified AGI is between $114,000 and $134,000. As a single parent, the same restriction applies if your modified AGI is between $57,000 and $67,000.
- The adoption credit
If you’ve adopted a child, you may be able to claim an adoption credit to help with the related expenses. For 2018, this credit is up to $13,810. If you’ve adopted a special-needs child, you may take the entirety of the credit, even if your actual expenses are less than the credit. The income restriction is for parents with modified AGIs in excess of $207,140. Beyond $247,140 as a modified AGI, this credit is completely phased out.
What are your tax concerns as working parents?
The Corporate Sis.
