10 Tax Deduction Tips for Families

Buying a home is one of the ways a family can get a tax break.
Buying a home is one of the ways a family can get a tax break.
Digital Vision/Photodisc/ThinkStock

Everyone knows that one of the best reasons to have a family is to get those sweet, sweet tax breaks. Kids also fill your heart with joy and make you a better, more selfless person or whatever, but come April, love doesn't pay the bills.

But how can you make the most bank on your brood? You might want to consider taking the standard deduction if you don't think you'll be able to itemize enough deductions, for one. (Remember that if you're itemizing, you can only begin writing off deductions after you exceed 2 percent of your AGI.) But we'll include tips for families that are itemizing and taking the deduction to ensure that everyone can get the biggest piece of the pie they can.

10: Children

Very rarely does someone have to remind a parent -- in the midst of tax season -- to remember the children. When each one nets a sweet $3,950 exemption, it's unlikely that a parent will forget Kevin sleeping in the attic when it comes time to fill out the old tax return [source: Phillips Erb].

But it's important to remember that it's not just biological or adopted children you can claim: Stepchildren, foster children, siblings of any of your children or their descendants can count as "qualifying children" too. Qualifying children must live with you half the year, be under 19 years of age (24 if a full-time student) and be unable to provide more than half their own support.

The nice thing about claiming a child exemption is that it isn't just a credit on your tax bill. It's actually lowering your entire adjusted gross income (AGI), which could theoretically put you in a lower tax bracket in general.

9: Dependents

Don't forget that the people who depend on you for half their support aren't always children. It's important to claim exemptions for any dependents that rely on you as well.

Now, don't think you can get away with claiming your ne'er-do-well brother if you're only giving him $50 every month and a place to crash once in a while. But if you do have a relative, say your cousin Larry, who makes less than $3,900 a year and depends on you for at least half his support, you can absolutely claim another $3,950 deduction for him. It doesn't matter if the person lives with you or not; Grandma can still meet the requirement if she's living in her own place but depending on you to help pay the rent.

You can even claim a non-relative as a dependent as long as that person lives with you full-time and meets all the other qualifications. And a lot of dependents might meet the requirement because they're depending on you to pay for what we'll discuss next: medical expenses.

8: Medical Expenses

If you're itemizing your deductions and not taking the standard amount, bear in mind that you'll be able to claim medical expenses that surpass 10 percent of your AGI. That can be a real boon to families who can write off a host of medical bills and associated costs for all the members of the household.

A surprising number of medical expenses qualify. Anything you're paying for to prevent, diagnose or treat a medical condition is fair game. (A nose job doesn't count unless there's an underlying medical reason, in other words.) Transportation costs incurred while getting treatment also count, as do prescription drugs. You can even count your employer-based insurance premiums as long as they're over that 10 percent minimum.

If you are self-employed, don't forget that you can write off the cost of medical premiums no matter what. Even if you take the standard deduction, you can just claim it in Form 1040 without having to itemize.

7: Education Expenses

While it would be terrific if we could tell you to deduct private school tuition, the cost of school lunches and the price tag of that band uniform you've had to replace twice, deducting education expenses isn't quite so easy.

But there is a little hope. If any family members are in college, you can claim a deduction without having to itemize it. (That's extremely useful, because the deduction lowers your AGI; lowering your AGI means possibly sneaking into a lower tax bracket.) Depending on income or expenses, you can claim up to $4,000 a year on tuition or enrollment fees for a higher education program. Similarly, the American Opportunity Credit offers a $2,500 tax credit for all four years of college enrollment, dependent on income [source: IRS]. The Lifetime Learning Credit isn't restricted to four years and allows for a $2,000 credit per return.

So while the government is content to give out free public deductions for education, it's not shelling out for much else before college.

6: Charitable Contributions

If you're itemizing your deductions, the goal is to get as many as you can to lower that tax bill (and make it worthwhile to bypass the standard deduction). Remember that your deductions have to reach 2 percent of your AGI before you can start writing off items, so the more you can net, the better. Charitable contributions are a terrific way to slowly tick up deductions.

Obviously, you'll want to keep track of any donations you make to nonprofits or charitable donations throughout the year. But keep in mind that it's not just cash donations; if your last garage sale wasn't as successful as you had hoped and involved several trips to Goodwill, you can absolutely write off the market value of the property you donated. (That barely used rowing machine might finally have proved itself useful.) Even the cost of transportation to charitable events is deductible, so if you're traveling all over the county to help pick up litter for an environmental group, keep track of your mileage.

More Tax Deduction Tips for Families

Tax credits are available for child care.
Tax credits are available for child care.
Fuse/ThinkStock

5: Moving Expenses if Moving for a Job

If you were out of work for any part of the year, family taxes might seem especially daunting. But if you had to move to find new work -- or simply relocated to take the dream job you always wanted -- you might consider deducting expenses from your move.

The great news for families is that the deductions cover every member of the household, not just the person with the new job. That means that if you can meet the requirements, you can deduct things like lodging and transportation for the whole family while your move takes place. (You can't write off meals, unfortunately.)

In order to get the deduction, you have to meet both a time and distance test. The time test says that you have to have 39 weeks of employment in the year after the move [source: Pulawski]. (This is so you can't just move, get a job for a hot second and then quit it to collect that sweet deduction.) The distance test says that your new house must be located at least 50 miles (80 kilometers) farther away than your old work location was to your old house. (So if your new job is 50 miles [80 kilometers] from your old house and only 10 miles [16 kilometers] from your new house, you're golden.) And if that new job means you have to hire someone to watch the kids while you're working? Read on to find out how you can save some child care tax money.

4: Child Care Tax Credit

Working parents deserve many, many credits. And while we all love being showered with praise, financial credits are loads more helpful than kind words. The Child and Dependent Care Tax Credit can be extremely valuable to any family that employs help to watch the kids.

Now we should be clear: You can't take the credit if you're hiring a nanny to watch Junior while you pursue your wood carving hobby. You must be hiring child care while you're either working or looking for work [source: IRS]. The credit itself is nothing to sneeze at; it's worth up to 35 percent of the costs of care, which, depending on your income, could be up to $3,000 (or $6,000 if more than one person is being cared for).

It's important to point out that this qualifies not just for your children, but also for other dependents as well -- or even for spouses who require care due to physical or mental disabilities. So if your mother requires some at-home help that you can't provide during working hours, you can claim the credit too.

3: Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a nifty little credit designed to help lower-income workers supplement their wages. It's a really great credit because it's refundable; that means that even if you haven't had taxes withheld, you still can get a refund.

The average EITC credit is $2,300, but the size of your credit is based on income, marital status and qualifying children [source: IRS]. If you have a qualifying child, there's no age limit to the credit -- but without one, you must be between 25 and 65.

The credit is available to you even if you lost a job or worked fewer hours over the course of the year: As long as your income is under a certain limit, you can qualify. If you're filing alone with no children, you must make less than $14,590 a year. The scale goes up if you file jointly and add qualifying children: The highest AGI that qualifies for the EITC is $52,427 -- if filing jointly and with three or more qualifying children [source: IRS].

2: Home Office

Many Americans -- we're talking more than 20 million here -- don't take home office deductions even if they have a home office [source: Eisenberg]. While that seems straight-up silly, consider that the IRS rules for home offices were -- in the not-so-distant past -- a little difficult to maneuver. There was also a long-standing rumor that putting a home office deduction on your return immediately put it right on top of the "audit me, please" pile at the IRS.

But if you're itemizing deductions and looking for ways to relieve your family of some tax burden, be assured those days are over. In fact, the IRS has made it even easier to claim a home office deduction by introducing the "simplified" method. Previously, taxpayers had to determine what percentage of all their actual expenses were "business-related" to arrive at a deduction for a home office. Now, the IRS offers the option of simply multiplying the square footage of your office or home workspace by $5 to arrive at your deduction amount.

Now, don't assume you can scam the system. You still have to meet the same stringent requirements for a home office -- it's just whole lot easier to claim if you do.

1: Tax Preparation

There are a couple ways that the act of doing your taxes might actually save you a bit of coin on your tax bill. The first way is pretty simple: Do them yourself, because nothing beats free.

But there are obviously times when it can be worth it to seek out a pro. Professionals have years of experience combing through all the available tax breaks -- and therefore might be worth the cost, especially if you're itemizing. You can actually write off the cost of a tax preparer, or even tax software, on your miscellaneous deductions. If you're paying to e-file your return, that's a deduction, too.

The only catch is that you can't write off the year of the taxes you're currently working on -- you can only claim the taxes you paid the year before. So, if you're filing your 2014 return, you can write off the expenses incurred to prepare and file your 2013 taxes.

While these deduction tips are proven winners, there's always more you can do. For more tax and deduction information, check out the next page.

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Author's Note: 10 Tax Deduction Tips for Families

As if just getting dependent deductions isn't enough, there's one other sneaky way to make the kids work for you: Literally hire them to work for you. If you're self-employed or run your own business, you can hire your kids as employees -- and you don't have to withhold Social Security or federal unemployment tax if they're under a certain age. Already pay their phone bill? Consider it their wages, and you can write it off on your taxes.

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Sources

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