4 Expenses for Parents to Reassess in 2023

4 Expenses for Parents to Reassess in 2023

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

If you’re like me, you could end up paying the IRS instead of getting a refund from Uncle Sam. To help make your money go further in 2023, you may want to reevaluate some of your recurring child-related expenses. Here are some strategies to reduce costs, according to financial professionals.

Child care

Many of the biggest tax credits and deductions that parents enjoyed during the height of the pandemic are going back 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 set myself up for a tax refund reduction shock because the credit around dependent care has changed significantly,” he says.

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 qualified person and $8,000 for two or more qualified people, and potentially reimbursable. For 2022, the amount has dropped back down to a maximum of $1,050 for one qualifying person and $2,100 for two or more. In addition, the child tax credit will revert to $2,000 for children of all ages for tax year 2022. For 2021, it has increased to $3,600 for children under six and $3,000 for children ages 6-17.

With these cuts in mind, I thought it might be a good idea to drop aftercare for my 5-year-old son this year. My living room may more often look like the scene of a volcanic eruption, but I’ll save $200 a month. If you work remotely and can handle having your child home for a few more hours during the day, consider giving it a try.

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

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

Groceries

If your snack pantry is empty within three to five business days because your kids have bottomless bellies, then you may be looking for ways to lower your grocery bill. This may be especially the case if you are feeling the effects of higher food costs due to inflation.

One cost-saving strategy is to plan your purchases in advance to avoid buying items you don’t need. Dominique Broadway, personal finance expert and founder of Finances Demystified in Miami, Florida, went from going to the store to using grocery delivery services to find out exactly how much she will spend herself.

Broadway also recommends putting the same foods in different carts from delivery service providers so you can do a price difference comparison side by side.

“You will be surprised, the difference can be quite large, sometimes 40, 50 dollars difference just because of the shipping fees and inflated prices. Over time, that really adds up,” she says.

Health care

Premiums can become a noticeable expense when you pay them monthly. Adding copays each time you visit the doctor further increases your out-of-pocket costs.

If you have a relatively healthy child and you can say the same for yourself, consider whether a health savings account could save you money. HSAs can be used to pay for health care expenses. The limit for HSAs in 2023 is $3,850 for individuals and $7,750 for families. 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, saving some people money. Keep in mind that with these plans, you may end up paying a higher deductible before your insurance begins to share health care costs with you.

I decided to give it a try in 2022. Since my son and I went to the doctor multiple times that year, my out-of-pocket costs came to almost $700. The icing on the cake is that I had $1,500 left over from my employer’s contributions to my HSA account. Now I can carry that money over to the new year.

Entertainment

There were so many toys in my house at the end of 2022 that my son and I gave away half of them. This year, I’m cutting costs by making better use of free activities.

Parents often buy children’s items, only to realize that what they really value is the experiences, says Broadway.

“I bought a $3 activity kit from Target and I get hours of fun and play with my kids with something like this instead of just buying them a bunch of toys,” she says. “I think it’s just a great way to cut costs and build a better relationship with your kids and also make more memories with them.”

Speaking of experiences, there is a trampoline park near our house that offers a $20 monthly subscription for endless play. It seems more cost effective to take my son there than to buy more trucks and bulldozers that I will end up tripping over.

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

“Take that money and invest it for your children, make it work for you and for them.”

This article was written by NerdWallet and originally published by The Associated Press.

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