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Tips & Tricks for Getting Great Tax Benefits for Your Family 08 October, 2020   

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Whether you have a child who is preparing for college or you're preparing to bring your bundle of joy home for the first time, you likely know that raising children can be very expensive. After you take care of many of the early costs that are associated with parenthood, such as diapers and baby food, you'll also notice that there are some tax-related benefits of having children. When you take advantage of tax credits and deductions for parenting expenses, this can result in a higher refund and an overall tax bill. Here are some tips and tricks for getting great tax benefits for your family.

Student Loan Interest Deduction

If you have a son or daughter in college, you can deduct interest payments on some student loans. This reduction can lower the amount of taxable income and reduce your overall tax bill. You may be able to reduce your income up to about $2,500. The student loans that qualify for deduction have to come from a certified lending institution. Your child has to be enrolled at least part-time in a college degree program when the loans are originated.

Dependent Exemption

For tax years before 2018, your son or daughter was probably your dependent, which meant he/she was eligible for dependent exemption. An exemption is similar to a deduction and reduces your taxable income. This can lower your overall tax obligation. In previous years, children under who qualified for the dependent exemption have to be 19 years of age or younger at the end of the year. Dependents who are students must be under the age of 24. There is no age limit for dependents who are permanently disabled. As of 2018, dependent exemption was replaced with dependent credits like the increased child tax credit. To get a dependent exemption, you'll need to file a new W-4 form with your employer to ensure you can claim additional withholding allowances.

Car Donation

There are several tax benefits of donating a car. You will get a tax deduction for your donation, which means you'll either owe less on your taxes or you'll get a better return. In most cases, you won't have to fill out any extra paperwork for vehicles you donate if the cars are worth $500 or less. When you donate a car to a local charity, sometimes professional mechanics will make necessary repairs to the car and donate it to a family in need. Some charities and community organizations will use the cars in raffles or sell it for a very low price to provide an affordable vehicle for a member of the community.

Earned Income Tax Credit (EIC)

If you're a working parent and have modest income, you may be eligible for an EIC or earned income credit. The amount of your EIC depends on how many children you have and your income during the tax year, since there are income limits for the Earned Income Tax Credit. If the EIC reduces your tax obligations to zero, you'll receive a refund. The EIC can also lower your overall tax bill.

Child Tax Credit

Tax credit directly lowers your tax bill dollar for dollar. A credit of $2,000 could reduce some of all of your tax obligations if you have more than one child. However, not every child qualifies for this credit. Your son or daughter must be 17 or younger by the end of the year you're filing taxes. The child must also be your biological child, stepchild, sibling, half-sibling, niece, nephew, grandchild, or foster child. The child must also be your dependent and a U.S. citizen, national, or residential alien. You can also get a tax credit if the child you're claiming lives with you for more than half of the year. Several parents can benefit from this tax benefit, since it helps to make ends meet. The child tax credit is ideal for lower- and lower middle class families. When parents know they're getting something back at the close of the year or can at least break even, this can be a huge relief.

These are just a few of the ways you can get significant tax benefits for yourself and your family. These tips can save you money when filing your taxes and provide a refund once your taxes are processed, which can contribute to the family budget in a beneficial way.

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