Parenting is probably one of the most expensive endeavors in life that anyone can embark on. Raising a child from infancy to college is a significant investment, and that doesn’t even count expenses incurred during pregnancy or through early adulthood.
I have two young children, and though they’re still pretty little, already a large portion of our household budget goes to their care and wellbeing, as it should. Looking to the future, I am not particularly excited for college tuition payments or the price tags on cars during their teen years. Lucky for us, the government agrees that it’s expensive to have and rear a child, and they’ve given us a few options for some financial relief when it comes to having kids. In this series, we will discuss different savings and tax advantages we can set up to make sure we make the most of our money. Please keep in mind though that it is likely at least some tips I mention will change (as the government is apt to do), so please reach out if you have any questions, and I can help walk you through the particulars of your situation. Let’s be smart financially.
Child Tax Credit
This one is well known, and Turbo Tax will surely cover you on this. It’s simple and likely the largest credit parents will receive; anyone with a minor living in their home may be eligible for a Child Tax Credit . But before you forget it and move on to the next topic, be aware this can count for stepchildren, brothers, sisters, half-brothers and half-sisters, and any descendant (grandchild, niece, or nephew). There are a few stipulations to this credit though:
The child must be under 17 at the end of the calendar year.
You must provide more than half their support.
The child had to have lived with you for at least half the year.
This credit is $2,000 per child for 2024 but does phase out if you earn above $200,000 or if you are married filing jointly $400,000. If you fall into this camp, please reach out and we can assess if you will still be able to take advantage of the credit.
Don’t miss this one if you have a newborn either. Any child born during 2024 counts for this credit. Even if they were born on 12/31/2024, they would qualify for the full amount in 2024. So don’t forget those December babies!
If you don’t owe any taxes for the year and are feeling bummed you missed the benefit, hold on because there is an additional child tax credit for which you might qualify.
Dependent Care FSA
This is an awesome little benefit. Dependent Care FSA allows you to take up to $5,000 in pre-tax earnings to reimburse yourself for dependent care, whether for a child or an elderly parent. Sadly, the government has not raised the maximum amount since its inception in 1986, even with exponentially rising costs over the last four decades.
This FSA account can be contributed and then paid out prior to tax, saving you total tax. This is an obvious tool for small and medium business owners since it won’t cost much to set up and will allow you to help pay a small amount to dependent care tax free. As a small business, you should be fully taking advantage of this benefit.
FSA reimbursements can be made with a receipt from a daycare or other care facility. In my family, we make sure we reimburse ourselves every other month. While not a huge amount, it is usually $600-$800 and always feels nice on our budget for the month. This does need to be reported during tax season, but it won’t change your tax number. It is just an acknowledgment that it was paid to FSA eligible reimbursements.
Utilizing the benefits of the Child Tax Credit and Dependent Care FSAs are the first steps in savvy saving when it comes to kids. Having and taking care of children is always going to come at a significant cost to you, so take advantage of every benefit you can. And stay tuned for Part 2 of this series for more ways you can save with kids!
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