The bright, inquisitive eyes and delightful smiles of babies are incredibly endearing. What may not be so charming is the sticker shock parents face when raising their bundle of joy. A middle-income family will expect to shell out nearly a quarter of a million dollars, $233,610 to be exact, to bring up a baby who was born in 2015. On average, families spend anywhere from $12,350 to $14,000 per year to cover the expenses related to child rearing, according to the statistics gathered by the United States Department of Agriculture.
The Costs of Child-Bearing
The costs of having children are astronomical. But these tax breaks can help to save thousands when parents need it most.
How could a giggling youngster possibly require hundreds of thousands of dollars to rear? Housing, namely an extra bedroom, is the primary expenditure. Growing babies need sustenance, and food costs contribute to the next highest expense for families—at least 18 percent of total child-rearing expenses. Child care costs, which average $37,378 per child, comes in third as the next most pricey responsibility parents face. As children grow into teenagers, transportation, and health care costs surge. Hungry teenagers also account for a rapid spike in food costs for parents—up to 22 percent more than feeding a child between 6 and 8 years of age.
The US government is keenly aware of the high cost of raising a child. As a benefit to parents, federal tax breaks are available. A parent simply needs the child’s social security number to claim the child as a dependent on the parent’s tax return.
Dependency Tax Break
Parents can claim their child as a dependent, saving the parents $4,050 (in 2017). Keep in mind that the more income parents earn, the exemption is accordingly lowered. Single parents who bring in over $259,400 in gross income or couples who file a joint return and earn over $311,300 see a reduction in the dependency exemption.
Child Tax Credit
Parents of children under the age of 17 receive an annual child tax credit of $1,000. Once the child reaches his or her 17th birthday, however, parents are no longer eligible to receive the credit. Parents may only claim the child tax credit if their income meets certain standards: income that does not exceed $110,000 for married parents, $75,000 for single parents and $55,000 for married people filing separately.
Child Care Credit
Paying for child care is taxing. Uncle Sam, however, gives parents a tax credit in the form of a child care tax credit. Working parents can earn a child care tax credit that falls in the range of $600 to $1,050 (if child care expenses are for one child under 13 years old) or $1,200 to $2,100 (if two or more kids under the age of 13 receive child care). The amount of child care credit parents receive depends on two factors: how much parents pay for child care and their annual income.
Paycheck Withholdings
Employees with children can boost their take home pay by claiming an additional withholding allowance. Parents simply need to fill out and submit a new W-4 form to their employer, to claim the allowance.
Head of Household Status
Those parents who file their taxes using the single filing status should instead consider filing as head of household. A single parent needs to first qualify as head of household. To be eligible to file as head of household, the filer must be unmarried for that tax year. Additionally, the parent must provide at least half the cost of housing a qualifying person or dependent, such as a son or daughter.
A qualifying child must also be under the age of 19 if he or she is not enrolled as a student and under the age of 24 if he or she is a student in college fulltime. A qualifying dependent must also have lived in the home of the head of household for six months or more.
Adoption Credit
Parents of adoptees are eligible to receive the adoption credit, provided their modified adjusted gross income does not exceed $243,540—at which point the adoption credit is eliminated. High-income earners with wages that fall between $203,541 and $243,539 (in 2017) will see a reduction in the amount of the adoption credit.
Earned Income Tax Credit
The earned income tax credit (EITC) is available to low-income or moderate-income working parents with qualifying children. Working parents receive a tax credit that is equivalent to a percentage of their income and which is capped at a maximum credit. The credits increase in proportion to the number of children in the family. In 2017, for example, parents with one child received a maximum of $3,400 in earned income tax credits. During the same year, families with three or more children received a maximum of $6,318 in earned income tax credits.
Wills, Trusts, and Estate Planning
No matter what tax breaks families receive, fresh-faced children, with eager inclinations to explore the new world around them, are vulnerable without solid, future financial plans arranged by their parents. Plan your family’s security with a legal will and trust. A trust is a fiduciary arrangement that outlines when assets are to be dispersed to beneficiaries by a designated third party. Trusts avoid probate, making the assets more quickly accessible to beneficiaries as opposed to a will.
When you elect to create a will or trust, Berry K. Tucker & Associates, Ltd. will guide you through the legal process. Our law firm of trust and estate planning attorneys offers over 50 years of combined legal experience, including drafting wills and trusts for area families. Our skilled trust and estate planning attorneys provide their legal expertise to create, modify or contest wills.
Numerous trusts are available based on varying state laws. Examples of trusts include dynasty trusts, spendthrift trusts, charitable trusts, family trusts, irrevocable trusts, and special needs trusts. The knowledgeable lawyers at Berry K. Tucker & Associates, Ltd. will help you navigate through the many trust options and select the most appropriate trust to benefit your family’s individual needs.
Berry Tucker has years of experience with wills and trusts as well as estate planning. Give him a call to learn more about how he can help you with your documents.
Our lawyers at Berry K. Tucker & Associates, Ltd. stay current on the changing Illinois laws surrounding trusts and estate planning. We serve the Oak Lawn, IL and surrounding communities with dedication and commitment.
Schedule a Consultation
To schedule your initial consultation with one of our estate planning attorneys, give us a call at (708) 425-9530 or fill out a contact form. We look forward to working with you soon!
Tags: estate planning, tax breaks every parent should know about, tax breaks for parents, tax breaks that help parents, wills and trusts
