Check into these deductions—some may surprise you—to save serious cash.
1. Claim the Kids
The most common child-friendly tax break is the Exemption for Dependents, which allows you to deduct $3,700 for each kid as defined by the IRS. But there are two other lesser-known credits worth exploring.
- Child Tax Credit: You may be eligible if your kids are under 17; families get $1,000 for each child, depending on their modified adjusted gross income.
- Child and Dependent Care Credit: Working parents—or those who are disabled, in school full-time or looking for a job—can claim 20% to 35% of child care costs for kids under age 13. (This can also be used for summer day camp expenses.) While you don't need to show proof of disability or school attendance, you should keep accurate records in case the IRS asks for substantiation, says Bob Meighan, a vice president with TurboTax. You can claim up to $3,000 for one kid or $6,000 for two or more.
2. Get Smart About Education
Several tax breaks exist for families paying for college. Even if you're just saving up you may be entitled to a write-off, provided you're using a 529 plan. Currently 34 states and the District of Columbia let you deduct at least a portion of your contributions. In New York State, for example, residents who use 529 plans can write off $5,000 when filing single or $10,000 when married filing jointly.
3. Give Charitably
Parents may not know that donating money to a child's school counts as charitable giving. Yes, even writing a check to the PTA (which must be registered as a nonprofit) qualifies, although buying something like wrapping paper doesn't. What also counts is donating old stuff after cleaning out your closets. Estimate the value of every item using the Salvation Army's Value Guide at salvationarmyusa.org, and don't forget to ask for a receipt. Lastly, volunteers at nonprofits can claim the amount of gas used to drive to and from their projects.
4. Consider Special Needs
If you spend more than 7.5% of your adjusted gross income on school or therapy for a child with special needs, you may qualify for the medical-expense deduction, says Greg Rosica, contributing author to the Ernst & Young Tax Guide 2012. (Therapy must be prescribed by a licensed health care professional.) You can also write off pertinent travel costs.
Parents who already have at least one student in college should consider the following credits and deductions. The caveat: You can choose only one credit per student.
American Opportunity Credit
Up to $2,500
Eligible college costs, including tuition and required course materials.
Student must be pursuing a degree.
Good for only the first four years of postsecondary education.
$180,000 for joint filers
Lifetime Learning Credit
Up to $2,000
Can be used for graduate school
or for adults taking a community college class.
Student doesn’t have to be pursuing
a degree. May be useful for those on
a five-year (or longer) plan.
$122,000 for joint filers
Tuition & Fees Deduction
Up to $4,000
Eligible college expenses—even if
student is not pursuing a degree.
Expires this tax year.
$160,000 for joint filers
Originally published in the April 2012 issue of Family Circle magazine.