Let take a moment to give it up for all the Boss Women who have kids and businesses. I don’t need to be a parent to know that kids takes a LOT of time, energy, and patience!
I respect women who balance both family and work – it’s no easy thing to do. When I decided to quit my job in 2010, one of my main motivators was that I wanted to have a healthy work-life balance when the time was right for me to start a family. I didn’t want to feel like one had to take away from the other. In my eyes, being in charge of my own work life was the only way to accomplish that.
I think most parents would agree that childcare, healthcare and education are probably the most expensive parts of raising a child. Luckily, the IRS believes these are worthy causes to provide a little something back for parents who are spending a fortune to provide the best for their child(ren).
Child Tax Credit
The Child Tax credit, as it is now with the tax reform, is relatively new and replaced what was previously known as the Dependent Exemption. For tax years beginning with 2018, the child tax credit is worth up to $2,000 per qualifying child with a refundable portion of up to $1,400. You’re eligible for the full credit if you make less than $200,000 for single filers and $400,000 for joint filers, anything higher and the credit begins to phase out.
You don’t have to have a child in order to claim the earned income credit (EIC). However, it tends to benefit more based on the number of children you have. For instance, if you have three or more kids and earned less than $49,194 as a single parent or $54,884 as a married couple, then you are eligible for a tax credit of up to $6,431. Those with 0 – 2 children would have to meet lower income thresholds to receive a reduced EIC. In general, the less you earn, the larger the EIC. If your income meets the requirement, it’s a beautiful way to get a dollar for dollar reduction of your tax liability with this refundable tax credit.
Parents who’ve adopted a child can rejoice knowing there’s a credit to help cut costs for court and attorney fees as well as related travel and meal expenses. This credit is up to $13,810 per child! If your family makes less than $247,140 then you could be eligible for a full or partial tax credit.
The cost of childcare is no joke. I know some parents quit their jobs because they pay more in childcare than they earn in wages. In fact I have many clients paying more than $2,000 a month per child. Parents figure why not stay at home with the kids instead of paying upwards of $500+ a week to have someone else look after them.
It’s ridiculous but I get it. Thankfully though, there’s a tiny silver lining for those that do pay.
It’s called the Child and Dependent Care credit. It coversto 35% of child-care expenses or $3,000 for a child under 13 (and up to $6,000 of expenses for two or more dependents)..
The percentage of allowable expenses decreases fo4r higher-income earners – and therefore the value of the credit also decreases – but it never completely disappears. Keep in mind that qualifying expenses can go beyond care taking; it can be household expenses such as paying someone to help with cleaning and cooking.
Self-Employed Health insurance
Self-employed parents more than likely have to pay for their own health insurance as well as their families. This is not cheap. Generally though, you can deduct 100% of the cost of health insurance premiums paid for children under the age of 27, even if they are no longer your dependent. Phew, this one could save you a LOT so make sure you’re using it! As long as your business profits is greater than self-employed health insurance costs, then you can deduct the full amount of premiums paid. If your business is in a loss, you are not eligible for the deduction at all.
If you have older kids who are undergraduates in college,you should consider using the American Opportunity Tax credit. It provides up to $2,500 tax credit for the first $4,000 you spend on qualifying educational expenses or each of the first four years attending college (must be attending at least half-time).
It’s available for individuals who earn $80,000 or less or double for couples at $160,000 or less. This credit is available on a per-student basis, so if you have more than one kid attending college or planning to, the tax credits can really add up.
My #ChikasTaxTip: Take ALL of the eligible deductions possible. Because why not?! This is no time to be shy. If you feel like you are eligible for some of these deductions and your tax preparer, accountant or Turbo Tax program (whatever you’re using) is not including it for some reason, then question it! Don’t be afraid to be your own advocate – it could mean the world of difference plus thousands saved in taxes.
P.S. You know the FB group is poppin’! Join Chika’s Tax Tips community. Connect with other women entrepreneurs, learn useful business tips, and have your questions answered. Oh, and follow me on Instagram @chikaobihcpa. Just cause 😉