Listed here are just a few methods you may improve your month-to-month little one tax deductions
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In July, the first of six monthly child tax credits went to more than 35 million households with approximately 60 million children, according to the IRS.
The money is an advance on a 2021 credit and is an extension of the existing child tax credit. For 2021, the loan will increase from $ 2,000 per child under 17 years of age to $ 3,000, with an additional benefit of $ 600 for children under 6 years of age.
Unless they opt out, most families receive half of the credit in monthly payments of $ 250 per month for children ages 6-17 and $ 300 per month for children under 6. In July, the average payout to families, according to the IRS, was $ 423.
Full credit is available to all children under the age of 17 in families with Adjusted Gross Income less than $ 75,000 for a single parent and $ 150,000 for a married couple in 2020 or 2019, and ends for individuals who are $ 95,000 and married couples filing $ 170,000 together while still eligible for the regular child tax credit.
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About 90% of families in the United States receive the child tax credit and the prepayments, according to the IRS. While the expansion is aimed at helping the lowest-income families, it is also a significant boost for middle-class Americans affected by the coronavirus pandemic.
For many families, the extra money is used to catch up on bills, pay household expenses such as utilities and groceries, or buy new school clothes and other essentials for children. But others may have the option to save or invest the money to use for their children in the future.
“The first thing you need to do is measure, ‘Have my most important household items been taken care of?'” Said Michael Foguth, founder of Foguth Financial Group in Brighton, Michigan. Once you determine that you are okay with your daily expenses and also have a solid emergency fund on hand, you can move on to other things related to the money, such as: he said.
Here are some ideas that experts suggest to help increase the child tax credits you receive.
Invest in a college savings plan
A great way to use the extra money is to invest it in a 529 college savings plan. Most states offer such plans, and when the money is used for approved educational expenses, it can grow and be withdrawn tax-free.
“We know that many families have problems every day, but there are also families who have the opportunity to really plan and use these resources for the future,” said Mary Morris, CEO of Virginia529 and ABLEnow.
The money in a 529 account can be used before college, although there is a withdrawal limit of $ 10,000 per year for elementary, middle or high school expenses. And even if your child is not attending secondary school, the account can usually be passed on to another beneficiary. These can be siblings, parents, nieces or nephews.
Some states may also have tax breaks on funds deposited in a 529 plan.
“Using these tax credits is a good place to start,” she said, adding that over time, some people donate small amounts like $ 50 a month. While that’s not a huge amount, it adds up over time and grows exponentially as it is generally invested in the stock market.
“If you really don’t need it right now, there really is something you can do about it,” she said.
Open an ABLE account
If you have a child with a disability, you can also save part of the tax credit in an ABLE account, a tax-privileged savings program for eligible people with disabilities.
As with a 529 college savings plan, families can save in the accounts and withdraw money tax-free when it is used for skilled disability expenses such as care, education, living expenses, food and more.
Starting such an account early on can help parents manage their expenses later, especially for children, including adult dependents, who are unable to be independent.
“That gives you a head start and you can develop some resources,” said Morris.
Even if you have a disabled child who can later become independent, an ABLE account can still be a good idea, she said.
Having an ABLE account for a person with a disability can be of great help in making sure they can continue to access other government assistance programs. That’s because the money in an ABLE account doesn’t count towards many of the means tests that can limit eligibility for those with more than $ 2,000 in resources such as savings accounts, retirement plans, or other cash.
Save on an investment account
Parents could also transfer the money to their own brokerage account or, if they have earned an income, to an individual retirement account such as B. a Roth IRA, deposit and make your child the beneficiary. That way, you can put the money in the stock market and get returns, Foguth said.
He suggests that parents look for things like index funds, mutual funds, and exchange traded funds to invest with lower risk for the long term. This will help you save for later and will also help you escape the inflation that has picked up recently and undermined purchasing power.
“You probably won’t be doubling your money in a few months,” he said. “But if things stay normal you will gradually be moving in the right direction and you will have significantly higher odds than the bank.”