There are a number of common tax errors made by parents which can be costly. Here are several of the most frequent, and how to avoid them.
1. Not getting a Social Security Number (SSN) quickly for each new child. You can’t claim them on your taxes if they don’t have a number!
2. Not writing down the correct SSN numbers. Enough said.
3. Not taking an adoption credit.
If you are adopting, keep track of all involved expenses. File all the expenses for the year the adoption is finalized. For 2023, the adoption tax credit is fully available in the amount of $15,950 if your modified adjusted gross income is equal to or less than $239,230. If your modified adjusted gross income is more than $239,230 but less than $279,230, you will receive a reduced tax credit.
4. Not making the most of a Dependent Care Flexible Spending Account (FSA) or the Child and Dependent Care Credit, a tax credit offered by the IRS to help offset the costs of childcare or dependent care.
To be eligible for this credit, you (and your spouse, if married) must have earned income from a job and the care must have been necessary for you to work or look for work. The credit allows you to claim 20% to 35% of your care expenses, up to a maximum of $3,000 for one person or $6,000 for two or more people for the tax year 2023.
5. Not keeping track of dependent care expenses
If you pay for childcare, be sure to have the name, address and SSN of every caregiver you use. Don’t forget to claim for after-school programs for any children younger than 13. Summer day camp fees also count if a sole parent or both parents work full time and the child is under 13.
6. Forgetting to claim head of household status
This is important for single parents in particular, since it offers a number of tax benefits and allows them to claim their children as dependents.
7. Missing out on the child tax credit
This can be worth up to $2,000. The child must be under 17 and live more than half the year with the parent claiming the credit.
8. Forgetting to file taxes for an older child who has a part-time job
An older child might also be required to file taxes even if they are still a dependent. Failure to file could mean missing out on a refund, because children don’t usually earn enough be liable for taxes but the employers may still withhold them. The only way to get that money back is for the child to file a tax return.
9. Not making the most of tax-advantaged savings plans for your child
If you don’t have a 529 account for each child, you could be missing out. These are state-run college savings accounts that allow parents (and family members) to invest after-tax money and grow it tax free. There is no penalty for taking out the money as long as it is used to pay expenses related to higher education, such as tuition and books.
Yes, the North Carolina 529 plan, also known as the NC 529 Plan, allows residents to save for future college expenses. One of the benefits of this plan is that contributions are eligible for a state tax deduction. Individual taxpayers can deduct up to $2,500 per year, while married couples filing jointly can deduct up to $5,000 per year on their state taxes. This can provide significant tax savings and is a great incentive for saving for education.
A Coverdell Education Savings Account (ESA) is another option. It has a strict contribution limit of $2,000 a year and income limits, but the contributions are tax deductible.
10. Missing out on college cost benefits
Parents can claim student loan interest on their own taxes if the college student is still a dependent, even if the college student is the one paying the loan interest.
