7 Tax Breaks for Parents

Kids, as we've mentioned here before, are 'spensive.

If it's any consolation, there are myriad steps you can take to thin out some of those expenses, including using a dependent care flexible spending account (FSA), buying used clothes and certain gear (say, baby monitors and gently used toys), and nanny shares.

But perhaps your greatest ally in reducing child care costs is none other than the IRS.

The Cost of Raising Children

In a previous Weekend Tea, we outlined the costs you can expect to incur for your baby's first year in this world. The answer? $20,384 … and that doesn't even account for medical delivery expenses.

But the hits don't stop coming after that.

Young and the Invested Tip: Are you a tax DIYer or just want to get an idea of how much you’ll owe before you file? Start by checking out federal tax brackets and rates for 2025 and 2026.

Depending on what study you're looking at, the average costs of raising a child until age 18 is between $233,000 and $320,000 per child. At the high end, that clocks in around $18,000 a year.

To put $320,000 in perspective, that's enough to buy:

• 214,765 Costco hot dog-and-soda combos
• 1,185 Backstreet Boys: Into the Millenium tickets
• 640 KitchenAid 5.5-quart stand mixers
• 291 iPhone 17 Pro Max phones
• 4 GR Supra MkV Final Editions
• 0.43 Berkshire Hathaway A-class shares

Fine. That probably didn't provide a helpful perspective. But it was fun to write.

Anyways, the point is that raising a child will require a significant portion of your income. So, every dollar you can claw back is a dollar less you have to stress out about every time you look at the monthly budget—or even if your budget isn't stretched, it's a dollar more that you can put toward your child's education and other future expenses.

Young and the Invested Tip: Some people only have to contend with the April 15 tax filing deadline, but many other filers have to adhere to a larger set of deadlines. Here’s what you need to know.

7 Tax Credits for Parents

While there are lots of ways to save a dollar here and a dollar there, some of the most meaningful "chunk" savings come from the U.S. Internal Revenue Code.

Today, we're going to take a look at seven tax credits and deductions that parents can take advantage of. And seeing as Tax Day is just about a month away, now's a great time to either determine whether you qualify for any of these tax credits for the 2025 tax year … or, if you've already filed, plan around these credits for the 2026 tax year.

1. Child Tax Credit: The child tax credit may be worth up to $2,200 per qualifying child or dependent who has a valid U.S. Social Security number, per annual income limitations. 

2. Child and Dependent Care Credit: Did you pay someone to care for your child or another qualifying person so you (and your spouse if filing jointly) could work or look for work? If so, you may be able to claim a credit of up to $3,000 (or $6,000 for two or more qualifying individuals) for your child and dependent care expenses. Dependent care expenses like daycare and day camp (not including overnight camps) for dependents under the age of 13, or dependents of any age who are incapable of self-care and who live with you for more than half of the year, may qualify for this federal credit. 

3. Adoption Tax Credit: If you adopted a child through eligible international, domestic, private, or public foster care adoptions, you could claim a credit for up to $17,280 in qualified expenses for the 2025 tax year. Further, if you received adoption benefits from your employer, you could also exclude up to $17,280 of those benefits from your income. (You can claim both the credit and exclusion for the same adoption, but you must claim them for different expenses, up to a combined total of $17,280.) Also, starting with the 2025 tax year, up to $5,000 of the Adoption Tax Credit is refundable. Any remaining unused credit can be carried over for up to five years.

4. American Opportunity Tax Credit (AOTC): The American Opportunity tax credit is for qualified education expenses paid for an eligible student for the first four years of higher education. Per annual income limitations, the maximum annual credit is $2,500 per eligible student, and if the credit brings the amount of tax owed to zero, 40% of any remaining credit amount (up to $1,000) is refundable. 

5. Lifetime learning credit (LLC): Students enrolled in an eligible educational institution can claim the lifetime learning credit (LLC) against qualified tuition and other related expenses. The student must be enrolled in one or more courses meant to acquire or improve job skills for at least the academic period that began during 2025 (or the first three months of 2026 if the claimed qualified expenses were paid in 2025). The maximum credit is $2,000 (20% of the first $10,000 of qualified expenses). Unlike the AOTC, the LLC is available for an unlimited number of tax years.

6. Student Loan Interest Deduction: Did you incur interest on loans for qualifying higher education? If eligible based on annual income, you may be able to deduct the lesser of $2,500 or the amount of interest actually paid during the year.

7. Earned Income Tax Credit (EITC): The ​earned income tax credit​ allows qualifying low- and moderate-income workers and families to reduce taxes owed, potentially increasing a tax refund. The credit is based on various factors, such as adjusted gross income, filing status, dependents, and more, but could be worth $649 to $8,046 for the 2025 tax year if eligible.

Note: Most of above credits have limits and/or phase-outs based on your modified adjusted gross income (MAGI).

Thank you for reading! And for any of you who are celebrating your alma mater’s entrance into the NCAA basketball tourneys, remember: Don’t pick your team to go far in the brackets. Ever.

Riley & Kyle

Young and the Invested

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