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 Tea

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.

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:

• 242,242 Hershey's Milk Chocolate bars
• 3,298 Taylor Swift concert tickets
• 582 Ikea Skogsta dining tables
• 8 Mini Cooper JCW 2-doors
• 0.4 Berkshire Hathaway A-class shares

All right, all right. 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: The 529 is king among college savings plans, but there are some attractive alternatives.

The Take

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, with the help of the Illinois CPA Society, we're going to take a look at six 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 2024 tax year … or, if you've already filed, plan around these credits for the 2025 tax year.

1. Child Tax Credit: The child tax credit may be worth up to $2,000 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 $16,810 in qualified expenses in 2024. Further, if you received adoption benefits from your employer, you could also exclude up to $16,810 of those benefits from your income. The credit is nonrefundable, so you can't get back more than you owe in taxes. 

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. 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. 

6. 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 $632 to $7,830 if eligible. 

Note that most of these have limits and/or phase-outs based on your modified adjusted gross income (MAGI).

End Notes

A quick look at important financial news from this week:

Stocks in Correction

Stocks have been trending lower for almost a month now, but this week, an official "correction"—a decline of 10% or more from a peak—was confirmed. Specifically, the S&P 500's March 13 close at 5,521.52 marked a decline of just more than 10% from Feb. 19's close at 6,144.15. If you're curious, the index would reach bear-market status at 4,915.32. And while there are different gauges for when we've officially exited a correction (or bear market), our preferred one is when the market returns to its previous high … so, for the S&P 500, 6,144.15.

Consumer Sentiment Tanking

The University of Michigan Survey of Consumers' March reading was 57.9, which was down 10.5% from February, below Dow Jones-surveyed economists' expectations for 63.2, the worst reading since June 2022, and similar to readings seen during the Great Financial Crisis of 2007-09. While the survey has for years demonstrated increasing amounts of partisanship on behalf of respondents, March's reading showed significant declines in sentiment from Democrats, independents, and Republicans alike. Inflation expectations spiked, too—the one-year outlook is for 4.9% (highest since November 2022) and the five-year outlook is for 3.9% (highest since February 1993).

Thank you for reading! We'll see you next weekend!

Riley & Kyle

Young and the Invested

Like what you're reading but not yet a subscriber? Get our weekly financial insights and updates delivered to your inbox every Saturday morning by signing up for The Weekend Tea today! You can also follow us on Flipboard for more great advice and insights.