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When inflation rises, so do childcare costs. If you are a parent, you may be hoping to get some financial relief during the upcoming tax season through deductions or credits. But since both child tax credits were recently reduced, you may not get as much back as you expected.
If you are like me, you may end up paying the IRS instead of getting a refund from Uncle Sam. To keep your money growing in 2023, you may want to reevaluate some of your recurring child-related expenses. Here are a few cost cutting strategies according to financial professionals.
Care for children
Many of the increased tax credits and deductions that parents enjoyed at the height of the pandemic are returning to their original limits. As a result, parents should be prepared to receive less this year, says Alton Bell II, chief accountant and founder of Bell Tax Accountants & Advisors in Chicago.
“I would brace for the shock of the tax refund cut because the dependency care loan has changed a lot,” he says.
In 2021, the Child and Dependent Care Credit has increased to make childcare more affordable for working parents. It has been increased to $4,000 for one eligible person and $8,000 for two or more eligible individuals and is potentially refundable. In 2022, the amount dropped again to a maximum of $1,050 for one eligible person and $2,100 for two or more people. In addition, the child tax credit returns to $2,000 for children of all ages in the 2022 tax year. In 2021, it increased to $3,600 for children under six and $3,000 for children aged 6 to 17.
With these cuts in mind, I thought it would be a good idea to forego follow-up care for my 5-year-old son this year. My living room may look like a volcano eruption scene more often, but I’ll save $200 a month. If you work remotely and can let your child stay at home for a few extra hours during the day, consider doing a trial run.
In addition, you can contribute to a Flexible Dependent Care Savings Account, which allows you to use pre-tax dollars to pay for child care. Bell suggests maximizing this account over the course of the year, as well as using an employer’s FSA compliance if your company offers it.
In 2023, you can contribute $5,000 per family to the FSA for Dependent Care, or $2,500 if you are married and applying separately.
If your snack bar runs out within three to five business days because your kids have bottomless bellies, you may be looking for ways to reduce your grocery bill. This may be especially the case if you feel the effects of higher food prices due to inflation.
One cost-saving strategy is to plan ahead for shopping so you don’t buy things you don’t need. Dominic Broadway, personal finance expert and founder of Finances Demystified in Miami, Florida, has moved from grocery shopping to grocery delivery to know exactly how much she will spend.
Broadway also recommends putting the same products in the carts of different delivery providers so you can side-by-side compare price differences.
“You’ll be surprised, the difference can be quite large – sometimes a 40, 50 bucks difference just because of shipping charges and inflated prices. It really adds up over time,” she says.
Premiums can become a noticeable expense if you pay them monthly. Adding copays every time you see a doctor adds to your out-of-pocket costs.
If you have a relatively healthy child and can say the same about yourself, consider whether a health savings account can save you money. HSA can be used to pay for medical expenses. The limit for HSA in 2023 is $3,850 for individuals and $7,750 for families. Contributions are made in pre-tax dollars and are also tax-free. You must have a high deductible health plan in order to contribute to HSA. High deductible health insurance plans sometimes have lower premiums, leading some people to save money. Keep in mind that with these plans, you may end up paying a higher deductible before your insurance starts sharing your health care costs.
I decided to test it in 2022. Because my son and I went to the doctor several times that year, my out-of-pocket expenses were about $700. The icing on the cake is that I have $1,500 left over from my employer’s contributions to my HSA account. Now I can transfer this money to the new year.
By the end of 2022, there were so many toys in my house that my son and I gave away half. This year I’m cutting costs by making better use of free events.
Broadway says that parents often buy children’s things only to find out what they really appreciate – it’s an experience.
“I bought a $3 activity kit from Target and had hours of fun and play with my kids using something like this instead of just buying them a bunch of toys,” she says. “I think that in and of itself is a great way to cut costs and build a better relationship with your kids, as well as make more memories with them.”
Speaking of experience, there is a trampoline park near our house that offers a $20/month subscription for endless play. It seems to me more cost effective to take my son there than to buy more trucks and excavators that I end up tripping over.
If any of these strategies result in savings this year, Broadway suggests investing in a custodial account for future child-related expenses and helping your children build wealth.
“Take this money and invest it in your children – let them work for you and for them.”
This article was written by NerdWallet and originally published by The Associated Press.