With tax changes, parents need to rethink four expenses

When inflation rises, child care expenses do, too. If you’re a parent, you may be hoping to get a little financial relief during the upcoming tax season through deductions or credits. But because there have been recent reductions to both of the child tax credits, you may not get as much back as you anticipated.

To help your money go further in 2023, you may want to re-evaluate some of your recurring child-related expenses.

Here are a few strategies for reducing costs, according to finance professionals.

Child care

Many of the increased tax credits and deductions parents enjoyed during the height of the pandemic are reverting to their original limits. Parents should be prepared to get less back this year, says Alton Bell II, principal accountant and founder at Bell Tax Accountants & Advisors in Chicago.

In 2021, the child and dependent care credit increased to make child care more affordable for working parents. It was raised to a maximum of $4,000 for one qualifying person and $8,000 for two or more qualifying persons, and potentially refundable. For 2022, the amount has gone back down to a maximum of $1,050 for one qualifying person and $2,100 for two or more. Also, the child tax credit is reverting to $2,000 for children of all ages for the 2022 tax year. For 2021, it increased to $3,600 for children under 6 and $3,000 for kids ages 6 to 17.

If you work remotely and can handle having your child home a few extra hours during the day, consider giving this a test run.

Also, you could contribute to a dependent care flexible savings account, which allows you to use pre-tax dollars to pay for child care. Bell suggests maxing out that account for the year and also using an employer FSA match if your company offers one.

You can contribute $ 5,000 per household to a dependent care FSA in 2023, or $2,500 if you’re married filing separately.

Groceries

One cost-saving strategy is to plan your shopping ahead of time to avoid buying items you don’t need. Dominique Broadway, a personal finance expert and founder of Finances Demystified in Miami, Florida, switched from going to the store to using grocery delivery services so she knows exactly how much she’ll spend.

Broadway also recommends putting the same groceries in different delivery service provider carts so you can do a side-by-side comparison of the price difference.

“You’ll be surprised, the difference can be pretty large — sometimes 40, 50 bucks difference just because of delivery fees and the inflated prices. Over time that actually does add up,” she says.

Health care

If you have a relatively healthy child and can say the same for yourself, think about whether a health savings account could save you money. HSAS can be used to pay health care expenses. The limit for HSAS in 2023 is $3,850 for individuals and $7,750 for families. The contributions are made with pre-tax dollars and are also tax-deductible. You must have a high-deductible health insurance plan to contribute to an HSA. High-deductible health plans sometimes have lower premiums, which leads to some people saving money.

Entertainment

Oftentimes, parents buy children items, only to realize what they really value is experiences, Broadway says.

If any of these strategies lead to savings this year, Broadway suggests investing the money in a custodial account for child-related future expenses and to help your kids build wealth.

“Take that money and invest it for your children — have it working for you and for them.”