Whether you are planning to start a family or have children and want to reevaluate your spending, it’s important to plan for the expenses of having children. According to CBS news, the cost of raising a child from birth to 18 is nearly $240,000 BEFORE college. That’s a yearly average of $13,000 – $14,000 per child. Fortunately, you can receive credit on your tax return.
If your child, grandchild, niece, nephew, or foster child lives with you for more than half of the year, and you provide more than half of their support, then you can claim a credit on your tax return. The credit depends on the child’s age. If the child is under the age of 17, the credit is $2,000 per child. If the child is 17 or older, the credit is $500 per child.
But what is a tax credit? A tax credit is like a tax payment, because unlike the deductions and some exemptions, credits directly offset the tax amount. For example, if you owe $4,000 in tax prior to receiving the child tax credit, and you claim one kid under the age of 17, you’ll receive a $2,000 credit. That brings your total owed to $2,000, dollar-for-dollar ($4,000-$2,000). Adding expenses to your return to offset your taxes is a common misconception. In general, the extra self-employed expense only reduces the tax by about one-third. So, if you add $4,000 in additional expenses to the $4,000 you owe, you would only see a tax reduction of approximately $1,325, making the new tax $2,625. Deductions are not dollar-for-dollar.
A huge cost for families is daycare. Thankfully, you can claim a dependent care credit in addition to the child tax credit you can claim. You may not receive a large credit, but the dependent care credit is dollar-for-dollar. Groceries are also costly. Consider buying in bulk, and compare prices per pound or per ounce.
As always, Abacus CPAs is here to provide you better guidance. Contact our offices today for more information at 417.380.5000 or at transportation@abacus.cpa.
