The Child Tax Credit
The Child Tax Credit provides a tax benefit of $2,000 per qualifying dependent child for American families. This credit decreases taxpayers’ total tax liability on a dollar-for-dollar basis, with up to $1,540 of the tax credit being refundable in 2023.
Imagine a family with two dependent children – if the family’s year end tax liability before the Child Tax Credit were $5,000, the Child Tax Credit would reduce the amount owed to only $1,000. This credit can result in major tax savings for American families.
529 Education Savings Plans
Michigan residents can take a deduction of up to $5,000 per year (or $10,000 per year for joint filers) for contributions made to a qualified 529 education savings plan. This results in a current year reduction of Michigan income tax.
In addition, any investment earnings grow tax-deferred, and distributions to pay for the beneficiary’s qualified education costs come out federally tax-free. Recent legislation has expanded the number of programs that are considered 529 qualified education expenses. The funds can now be used for higher education, vocational and trade schools, and K-12 education.
Adoption Tax Credit
Parents who incur costs related to adoption can apply for an Adoption Tax Credit. This credit is non-refundable, meaning that the credit can reduce your tax liability down to zero. If the entire credit is not used in the current tax year, any remaining amount can be carried forward for up to five years.
Please note that many of the tax strategies listed above have additional qualifications and phase out thresholds not covered in this article. If you are interested in learning how you may benefit from the items described, please consult a tax advisor. If you’re looking for a professional who can take the complexity and headache out of tax planning, contact us today at kataxandconsulting@gmail.com
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