5 Child and Dependent Expenses You Can Deduct From Your Taxes This Year
The rising cost of living is a significant burden for many U.S. families. While you can’t deduct grocery bills or utilities from your tax bill, other family-related expenses can reduce your overall tax bill this year. From child care and adoption fees to education-related expenses, there are several tax credits you should leverage.
This post outlines the five child and dependent expenses that may just earn you a deduction this tax season, including:
- The Child Tax Credit
- The Child and Dependent Care Tax Credit
- The Adoption Tax Credit
- The American Opportunity Tax Credit
- The Lifetime Learning Tax Credit
Keep reading to see if you qualify for any or all of the five tax credits.
Child Tax Credit
You may have heard the buzz around the Child Tax Credit (CTC) in recent years. First introduced in 1997 by President Clinton, the Child Tax Credit is a fully refundable tax credit for children under 17. In 2021, the Biden-Harris Administration expanded the Child Tax Credit to $3,600 per child under the age of 6 and $3,000 for other qualifying children under 18.
However, that expansion ended in 2022, and the credit will return to the original $2,000 per qualifying child under the age of 18.
How to Qualify for the Child Tax Credit
There are two factors to qualify for the Child Tax Credit: qualifications for you as the filer and qualifications for the child or dependant.
To qualify for the full CTC for each child, you must ensure you have a qualifying child and that the child has a valid Social Security number. Additionally, your annual income cannot be more than:
- $150,000 for married filing jointly, or if you are filing as a qualifying widower
- $112,500 for head of household filers
- $75,000 for single filers or married filing separately
Your child or dependent must meet the following criteria to be eligible to file for the CTC on your tax filing:
- Be under 18 at the end of the year
- Be your child, stepchild, eligible foster child, sibling, stepsibling, half-sibling, or descendant (e.g., grandchild, niece, or nephew)
- Provide no more than 50% of their own financial support during the tax year
- Live with you for more than half the year
- Be claimed as a dependant on your return
- Not file a joint return with a spouse
- Be a U.S. citizen, national, or resident alien
If you and your child or dependent meet the eligibility criteria, you can claim the Child Tax Credit on your tax return by filling out Form 1040 and submitting your Individual Income Tax Return with Schedule 8812 attached.
Child and Dependent Care Tax Credit
Another potential money saver for your family is the Child and Dependent Care Tax Credit. This credit provides cost savings for families who paid for care for their child or dependent. Child care can include care provided at a center, daycare facility, camps, or relative. At this time, state-based care does not qualify for the credit.
How to Qualify for the Child and Dependent Care Tax Credit
To qualify for this cost-saving credit, you:
- Paid for care for a qualifying child or dependent under the age of 13
- Paid for care for a qualifying child or dependent to look for employment
- Paid less for care than your total yearly income
If you meet the eligibility criteria, you can claim the Child and Dependent Care Tax Credit on your tax return by filling out Form 2441 with your Individual Income Tax Return.
Adoption Tax Credit
If you adopted a child or are in the process of adopting a child, you may qualify for the Adoption Tax Credit. It’s well-known the adoption process is lengthy and expensive. Luckily, the Adoption Tax Credit can help you save up to $14,440 per eligible child. Though there are some income limits and other eligibility factors, it may be worth your time and effort to consider filing for this tax credit.
How to Qualify for the Adoption Tax Credit
To qualify for the Adoption Tax Credit, the child you are adopting must be under the age of 18 or, if over the age of 18, must be unable to care for themselves. Additionally, the adoption credit is based on your modified adjusted gross income (MAGI), and you should check the IRS website or reach out to us to confirm the MAGI amount for 2022.
Qualified expenses include adoption fees, legal fees, adoption-related travel expenses, and other directly related expenses. To research other related expenses such as home study or same-sex parent adoption credits, read this article published by the IRS.
If you meet the eligibility criteria, you can claim the Adoption Tax Credit on your tax return by filling out Form 8839 with your Individual Income Tax Return.
American Opportunity Credit
If your child or dependent is a student at an eligible higher education institution, you may be eligible for an annual credit of $2,500 per student through the American Opportunity Tax Credit (AOTC).
AOTC provides tax credits for qualified education expenses paid for during the first four years of higher education, including tuition, fees, books, supplies, equipment, and other related student expenses.
How to Qualify for the American Opportunity Tax Credit
Similar to the Child Tax Credit, there are two categories of eligibility: one to determine student eligibility and the other to determine if you can claim the credit on your tax return.
To be eligible for AOTC, a student must:
- Earning a degree or education credential
- Be enrolled at least part-time for at least one academic period beginning in the current tax year
- Not have claimed the credit for more than four tax years
- Not have a felony drug conviction
To claim AOTC on your return, you must have a MAGI of $80,000 or less or $160,000 for married couples filing jointly. You may be eligible for partial credit if your MAGI is over $80,000 but less than $90,000 or over $160,000 but under $180,000 for married filing jointly.
If you meet the eligibility criteria, you can claim the American Opportunity Tax Credit on your tax return by filling out Form 8863 with your Individual Income Tax Return.
Lifetime Learning Tax Credit
In addition to the ATOC education tax credit, you may be eligible to save up to $2,000 on your tax bill by claiming the Lifetime Learning Credit (LLC). The LLC covers qualified tuition and related expenses. Unlike the AOTC, the LLC helps students pay for undergraduate, graduate, and professional degree courses and other related expenses.
Although the AOTC provides a slightly higher return, there is no limit on the number of years you can claim the tax return. To claim the LLC on your tax return this year you, your dependent, or a third party must have paid for qualified education expenses for higher education and paid the education expenses for an eligible student enrolled at an eligible education institution. Additionally, the eligible student must be yourself, your spouse, or the dependent listed on your tax return.
How to Qualify for the Lifetime Learning Tax Credit
To be considered an eligible student and claim the LLC, the student must be enrolled or taking courses for at least one academic period at an eligible education institution to get a degree or credential or improve job skills.
If you meet the eligibility criteria, you can claim the Lifetime Learning Tax Credit on your tax return by filling out Form 8863 with your Individual Income Tax Return.
There are many ways to save money on your tax return, especially if you have a child or dependent. While these five tax credits are a good place to start, the best way to get the lowest tax bill is by reaching out to a professional accountant to walk you through tailored solutions.
Schedule a free consultation with Cook CPA Group today to leverage these tax credits on this year’s tax return. Our team of expert and approachable accountants make sure you don’t pay more than you have to.