I’m a Tax Expert: My Top 4 Tips for Parents

Cody Bay

If you’re a parent working on that annual act of ultimate adulthood – filing your taxes – you may already know there are usually some special provisions in the tax code specifically for you. Perhaps the most obvious among them is the Child Tax Credit, which has been in news headlines lately as Congress deliberates whether to expand it (more on that later).

Many families rely on getting money back in their pockets as part of their financial plan. According to a recent survey of moms by What To Expect, a third (38%) are aiming to pay down debt and home expenses with their tax refund this year. Thirty-one percent plan to purchase items for their children and 20% will use the refund for childcare costs.

To dig into some tax moves to help parents maximize their savings and returns, GOBankingRates reached out to a few tax professionals to gather up their top tips this season.

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Child Tax Credit

One of the first tax breaks that parents should look to, according to many of the tax experts we spoke to, is the Child Tax Credit. For the 2023 tax year, eligible families making $200,000 or less (or $400,000, if filing jointly) can claim the full credit, while those making more than that may still be eligible for partial credit. Families are eligible for up to $2,000 per qualifying child.

According to the Tax Policy Center, an estimated 90 percent of families with children received an average tax credit of $2,390 in 2022 through the CTC.

The Child Tax Credit was expanded in 2021 as part of a COVID aid package but has since dropped back to its pre-pandemic rate. Congress is again considering an increase to the credit that would apply to tax years 2023-2025, which in its current state would increase the refundable portion of the CTC to $1,800 per child for 2023.

For taxpayers wondering whether they should hold off on filing their taxes to see if the expansion passes, Paul Miller, managing partner and certified public accountant (CPA) at Miller & Company, has the following advice:

“Taxpayers should not wait to file their taxes until the current bill status is determined. The IRS estimates that the bill, if passed, would only apply to about 10% of taxpayers,” Miller said. “Furthermore, if the bill is passed after taxpayers file their taxes, and they are entitled to the additional credit, the IRS will automatically calculate the extra credit and refund the additional amount.”

If you don’t owe taxes and wouldn’t benefit from the reduced tax liability that the CTC provides, the Additional Child Tax Credit may help. It can provide a tax refund payment for any portion of the CTC that you couldn’t use, up to $1,600.

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Child and Dependent Care Credit

The Child Tax Credit is not to be confused with the Child and Dependent Care Credit, which is meant to offset the costs of child care for working parents. Miller advises working parents paying for care for children under 13 to see if they can claim this credit.

“Tuition for preschool and nursery school is eligible for the credit, but not for kindergarten and above. After-school expenses, day camp expenses and weekend expenses are eligible if the parent works those times,” Miller said. “The credit is a percentage of the expenses (20% – 35% depending on the parent(s) adjusted gross income) and is a nonrefundable credit. The credit will lower your tax due dollar-for-dollar, but no portion of the credit is refundable. If you don’t owe tax you will not be refunded the credit,” he said.

Education Tax Credits

Moira Corcoran, a CPA and tax expert at JustAnswer, points out that there are still tax breaks to take advantage of if your kids are college-age and beyond. “Parents who help pay for their child’s education may also benefit from one of two education credits: the American Opportunity Credit ($2,500 per year) or the Lifetime Learning Credit ($2,000 per year),” Corcoran said.

These apply if you’re paying for qualified education expenses (like tuition and fees) at an eligible higher education institution. The student could be your child, or you or your spouse.

There are subtle but important differences between the two education credits, such as whether your child is enrolled in a four-year degree program or pursuing other types of coursework. You can see which one you might qualify for using this comparison chart from the IRS.

Open a College Savings Account

A common favorite move among the tax pros we heard from is not only great for paying fewer taxes, but also for supporting your child’s future education.

Patricia Roberts, chief operating officer (COO) at The Gift of College and an expert in saving for higher education, recommends that parents use all or part of this year’s tax refund to open or contribute to a 529 savings plan.

“What’s great about 529 plans from a tax perspective is that when contributions grow in value, the earnings are not taxed and will never be taxed when withdrawn to pay for a wide range of higher education expenses at institutions of all sorts across the U.S. and world,” Roberts said. “As an added benefit, 37 states along with the District of Columbia offer annual state tax deductions or credits for contributions to 529 plans. Paying less tax can result in more money for college or other forms of higher education.”

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This article originally appeared on GOBankingRates.com: I’m a Tax Expert: My Top 4 Tips for Parents

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