As a family, tax planning can be a daunting task. It's easy to overlook credits and deductions that can save you a lot of money. In this article, we'll explore some of the most common tax credits and deductions that families often miss. We'll also provide you with tips on how to effectively plan for taxes as a family.
Tax credits and deductions are two ways that families can reduce their tax liability. A tax credit is a dollar-for-dollar reduction in your tax liability, while a deduction reduces the amount of your income that is subject to tax.
The Child Tax Credit (CTC) is a tax credit that provides financial relief to parents or guardians of children under the age of 17. The CTC is worth up to $2,000 per child, and up to $1,400 of that amount is refundable. To be eligible for the CTC, you must have a child who is under the age of 17 at the end of the tax year, and who is a U.S. citizen, U.S. national, or U.S. resident alien.
Education tax credits and deductions can help families save money on education expenses. There are two primary education tax credits: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The AOTC is worth up to $2,500 per year per eligible student, while the LLC is worth up to $2,000 per tax return. There are also deductions for education-related expenses, such as the tuition and fees deduction and the student loan interest deduction.
The Affordable Care Act (ACA) introduced several tax credits and deductions for families to help them afford health insurance. The premium tax credit (PTC) is a refundable tax credit that helps eligible individuals and families afford health insurance premiums. To be eligible for the PTC, you must purchase health insurance through the Health Insurance Marketplace and have an income between 100% and 400% of the federal poverty level. There are also deductions for medical and dental expenses that exceed 7.5% of your adjusted gross income.
The Retirement Savings Contributions Credit, also known as the Saver's Credit, is a tax credit that provides an incentive for low- and moderate-income individuals and families to save for retirement. The credit is worth up to $1,000 for individuals and $2,000 for couples who contribute to a retirement plan, such as an IRA or 401(k). To be eligible for the Saver's Credit, you must have an adjusted gross income below a certain limit.
Owning a home can come with a lot of tax benefits. One of the most significant tax benefits of homeownership is the mortgage interest deduction. This deduction allows you to deduct the interest paid on your mortgage from your taxable income. Additionally, there are deductions for property taxes and home office expenses.
To effectively plan for taxes as a family, there are several things you can do. First, make sure you're taking advantage of all the credits and deductions you're eligible for. Second, keep good records of all your expenses and income. Third, consider working with a tax professional to ensure you're maximizing your tax savings. Finally, make sure you're contributing to retirement accounts and taking advantage of employer-sponsored benefits.
Tax planning can be a complicated and overwhelming process, but it's essential for families to take advantage of all the credits and deductions available to them. By understanding the tax credits and deductions for families, you can save money on your taxes and reduce your overall tax liability. Some credits and deductions are more well-known than others, but it's important to make sure you're taking advantage of all the ones for which you qualify.