It seems like so much money is withheld from my paycheck for taxes. What can I do to lower my taxes? I have two young children.
First of all, if you tend to get a refund when you file your taxes, adjust your tax withholding so you get more money with every paycheck instead of a big refund check in the spring. All you have to do is file a new W-4 form with your employer’s payroll office. Use our withholding calculator to get started.
Several tax breaks for families can cut your tax bill. For example, you can claim the child-care credit if you pay for day care, a nanny, preschool, before-school or after-school care or even day camp for your children (under age 13) while you work. To qualify, you (and your spouse, if filing jointly) must work or be looking for work (one of you can be a full-time student while the other is working).
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
You can count up to $3,000 in child-care expenses for one child, or up to $6,000 for two or more children. Families earning less than $15,000 can claim a credit for up to 25% of eligible expenses; the size of the credit gradually decreases as income rises. Families earning more than $43,000 can claim a credit for up to 20% of the eligible costs (with no maximum income limit). This translates into a credit of $600 to $1,050 if you have one child, or $1,200 to $2,100 if you have two or more children. Because it’s a credit, not a deduction, it lowers your tax liability dollar for dollar. See Take a Tax Break for Summer Camp for details.
Also take advantage of your employer’s flexible-spending account. Money you contribute to an FSA escapes income taxes and Social Security taxes. If your employer offers such a program, you can set aside up to $2,500 in a health-care FSA to use tax-free for deductibles, co-payments and other uninsured medical expenses. And you may be able to contribute up to $5,000 to a dependent-care FSA to cover child-care costs for kids under age 13.
The rules for a dependent-care FSA are the same as the rules for the child-care tax credit, but the FSA is usually a better deal if you have the option. Families with two or more kids may be able to claim part of the child-care credit even if they use an FSA.
You usually sign up for both types of FSA during an open-enrollment period in the fall. Use our flexible-spending account calculator for more information.
If you contribute to a 401(k), 403(b), 457, Thrift Savings Plan, Roth or traditional IRA or other retirement-savings plan, you may qualify for the frequently overlooked retirement savers’ tax credit, which can reduce your tax bill by up to $1,000. The lower your income, the higher the credit you can receive (the credit phases out entirely for married couples earning more than $59,000 in 2013, heads of household earning more than $44,250 and singles earning more than $29,500). See Take Advantage of the Retirement Savers’ Tax Credit and the IRS savers’ credit factsheet for details.
Also check out The Most-Overlooked Tax Deductions and 71 Ways to Cut Your Tax Bill for more tax-saving ideas.
-
Stock Market Today: Stocks Stabilize After Powell's Rate-Cut WarningThe main indexes temporarily tumbled after Fed Chair Powell said interest rates could stay higher for longer.
-
How Did O.J. Simpson Avoid Paying the Brown and Goldman Families?And now that he’s died, will the families of Nicole Brown Simpson and Ron Goldman be able to collect on the 1997 civil judgment?
-
It’s Not Too Late to Boost Retirement Savings for 2018retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
-
How to Correct a Mistake on Your RMDs from IRAsretirement If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may show some leniency.
-
Ways to Spend Your Flexible Spending Account Money by March 15 Deadline
spending Many workers will be hitting the drugstore in the next few days to use up leftover flexible spending account money from 2018 so they don’t lose it.
-
Making the Most of a Health Savings Account Once You Turn Age 65
Making Your Money Last You’ll face a stiff penalty and taxes if you tap your health savings account for non-medical expenses before the age of 65. After that, the rules change.
-
Reporting Charitable IRA Distributions on Tax Returns Can Be Confusing
IRAs Taxpayers need to be careful when reporting charitable gifts from their IRA on their tax returns, or they may end up overpaying Uncle Sam.
-
When You Can Expect to Receive Your Tax Refund
taxes The quickest way to receive your tax refund is to file electronically and have the money directly deposited into your bank account.
-
How a Move Can Change Your 529 Plan Tax Deduction
529 Plans The tax deduction you get for contributing to your state’s 529 plan can disappear if you move to another state.
-
Tap an IRA Tax-Free With an HSA Rollover
IRAs You can convert tax-deferred money in a traditional IRA into tax-free cash by rolling it over to a health savings account and using it to pay for medical bills.
