Being a parent comes with great joys but also significant expenses. A study showed that Miami parents spend more than $250,000 on their children from birth to teenage years. The good news is the government offers several tax breaks to help ease the financial burden on parents.
These tax breaks include child tax credits, pregnancy-related tax breaks, earned income tax credits, and so on. Read this blog to learn more about them. If you are a parent with a low income, a Miami virtual accountant can help you identify the possible deductions and credits.
Top five tax breaks every parent should know about
-
Child tax credit.
If you are a parent or guardian, the government gives you a tax credit of up to $2000 every year. However, there are some rules that your child must qualify for to be eligible for child tax credit.
The biggest advantage of this tax break is that if your credit exceeds the income tax you owe to the state government, the extra amount will be converted into an Additional child tax credit, which is refundable.
To qualify for the child tax credit, your child must be younger than 17 years old on December 31st, 2025, claimed as a dependent on your tax return, and has lived with you for at least half of the year.
-
Child and dependent care tax credit.
Parents in Miami can claim child and dependent care tax credit if they pay for child care while looking for work. You can get tax breaks on qualified expenses for your child, like daycare and summer camp. To qualify, your child must be under the age of thirteen and physically and mentally incapable of taking care of themselves.
If you have a single child, you can only use a maximum of $3,000 of your childcare expenses to calculate this tax credit. However, if you have a bigger family, this limit can go up to $6000. Expenses that may qualify for this credit include education costs, before and after-school care, summer camps, transportation costs, and care outside of your home.
-
529 plans.
Although anyone can open a 529 plan in Miami, parents often do this to get tax breaks. If you have invested in a 529 plan, your money grows tax-free. This means the government will not tax interest earned on the money in the account if you use it for college.
When you want to withdraw the money, you can take it out with the interest it earned. Parents who use this plan wisely can get maximum benefits.
-
Pregnancy-related tax breaks.
If your child was born in 2023, and you paid for their medical care out of your pocket, you might be able to save money on your taxes. However, to claim your money, the medical expenses should exceed at least 10% of your adjusted gross income.
The expenses can include childbirth, parental care, etc. Even your first trimester’s expenses, such as weight monitoring, general physical examination, urine analysis, and blood tests, can be deducted. Make sure to gather all the receipts for the hospital stays and medication purchases to save your money on federal taxes.
2. Earned income tax credit.
The earned income tax credit is designed for people with low to moderate income in Miami. It can help reduce property and encourage work production. It is based on a percentage of your earned income, including tips, wages, and net self-employment income.
However, alimony, child support, and unemployment income do not come under earned income for the EITC. You do not need to have a child for this credit. However, parents with qualifying children can get a lot more benefits.
Are you aware of all the tax breaks?
Raising a child can already be expensive, and tax problems just add up to it. If you are a parent with a qualifying child, seek help from a virtual accountant in Miami to discover possible ways to reduce your taxes legally!