Raising a child has been shown to be one of the most expensive things you will ever do, to the tune of almost $250,000 over the first 18 years. Luckily, there are a number of tax-saving opportunities offered by the IRS that can help offset some of these enormous costs. Are you wondering what baby gears can be deducted from your taxable income? Is car seat tax deductible? Let’s find out.
A tax credit, unlike a deduction, not only provides an income tax break, but also some tax credits can lead to a larger income tax refund. Credits are considered both a credit and an allowance of deductions. If you are a parent or guardian who is looking to save money on raising a kid, here are five tax breaks that you may be eligible to claim. Is car seat tax deductible from your taxable income? The simple answer is no. It is not covered by the credit you will get, nor it will be removed from your taxable income.
Tax Credit for Child and Dependent Care
Do you pay for child care while you work? You may be able to claim the tax credit on your tax return for child and dependent care. This will give you a tax break on qualified expenses like care before and after school or summer camps your child needs to attend. For you to qualify for this benefit, your child should be under 13 years old.
For the tax year 2020, they don’t have any restrictions on who can claim the tax credit. However, a parent or guardian can’t claim any amount more than $3,000 per child or $6,000 for two or more children. In addition to this, there is only a percentage of total expenses you can claim based on your household income. For households with less than $15,000, they can claim up to 35% and for those with $43,000 or more, they can claim up to 20% of expenses.
Child and dependent care have increased for the year 2021. An upper-income limit has been set for you to qualify. if you are a taxpayer that earns up to $125,000 can now claim 50% of qualified expenses. Now a parent or guardian can claim up to $8,000 per child or $16,000 for two if they are qualified.
If you are earning between $125,000 to $400,000, the percentage you can claim will go down from 50% to 20%. For households that earn $400,000 and more, their credit will decrease by 1% for every $2,000 in excess of $400,000.
Qualified Expenses
- Educational expenses: These include fees for nursery, preschool, and other programs under the kindergarten level.
- Before and after school care: Any fees paid for caring for your child before and after school.
- Summer camp. Fees are paid for your child’s summer camp. This is only for parents or guardians working during standard time and overnight expenses for camp are excluded.
- Transportation cost: Any fee paid to any babysitter or care provider’s transport to and from where your child will be or is being cared for.
- Care outside your home. Any cost or fee for qualified child care provided.
2. Child Tax Credit (CTC)
Child Tax Credit is a tax credit that gives financial benefit that is significant for Americans with children. For the year 2020, the IRS allowed parents or guardians to claim up to $2,000 per child if they are under the age of 17. This tax credit will lower the amount you owe in taxes and $1,400 can be refunded to you. For the year 2021, this amount has gone up to $3,600 for children under 6 years old and $3,000 for children 6 to 17 years old.
To qualify for the maximum child tax credit, your total gross income should be $75,000 for single parents/guardians and $150,00 for married couples. If your earnings are more than the said amount, you can have reduced credit or you won’t be able to qualify for any amount.
Your child will also need the following to qualify to claim CTC:
- A valid social number.
- Your child must have lived with you for at least 6 months and should be related to you.
- You must be providing half of your child’s expenses of financial support (food, housing, utilities, schooling, clothes)
3. Earned Income Tax Credit
Earned income tax credit is created to help reduce poverty and motivate low to moderate-income work taxpayers’ work participation. This is based on your earned income, examples of this are income earned through wages, tips, and self-employed income. However, there are things that aren’t considered earned income, this includes alimony, child support, and unemployment income.
Parents can get higher tax credits, but you can also claim tax credits even if you don’t have a child.
Your child can qualify if they are the following:
- Owns valid social number.
- 19 years old and under or 24 if are in college full-time.
- Related to you.
- Stayed and lived with you for at least 6 months.
To claim the earned income tax credit, you will need to meet the income threshold which is different on your filing status and the number of children that you have. A married couple with 3 or more children, can qualify with an income up to $57,414 as of 2021. Single parents/guardians tax filers may qualify if they earn less than $51,464 as of 2021.
Depending on how much you earn and how many children you have, you can claim up to $6,728 (the updated year 2021).
4. Education Tax Credit
Education Tax Credit is for parents who are paying qualified education expenses for their child’s first four years of college. They can claim expenses for their tuition fees and other course material. Parents can claim up to $2,500 per child. This is 100% of the first $2,000 you paid and 25% for the next $2,000.
You must have Form 1098-T from an eligible school or any eligible educational institution like universities or colleges. If you earn more than $80,000 for a single tax filer or $160,000 for a married couple, your credit may be reduced or receive no credit at all.
5. 529 State Tax Plans
A 529 state plan is a savings account that you designate to help you save for your children’s future educational expenses. Each 529 plan is sponsored and under a state agency. All 50 states including the District of Columbia have at least one 529 plan.
You can choose between two types of 529 plans. There is a prepaid tuition plan that grants you access to purchase credits at any college or university for the future attendance of your child. There is also a plan called educational savings plan which will allow you to save up for your child’s future university, elementary or secondary school.
Conclusion:
So, is car seat tax deductible from your taxable income? The simple answer is no. But you can file for other things that involve your child. For example their daycare, education, and other utilities.
