Babies change everything about their parents’ lives, including their taxes
After all the time you spent getting ready for your new baby, bringing him or her into the world, and caring for him or her when you went home, your taxes are probably the last thing on your sleep-deprived mind. But they shouldn't be.
Children can save their parents money on their taxes in many ways. This is why, if you have a new baby or are even thinking about having one, you should know about all of the credits and deductions you can get for becoming a parent.
All new and prospective parents can use some help in navigating the tax code to save some money. Some credits and deductions are designed particularly to offset the expenses involved in raising a child, so make sure you know about all of those you're eligible for.
- Your Child's Social Security Number
- The Dependent Exemption
- The Child Tax Credit
The first thing you need to do is to get your newborn his or her own Social Security number. This number is the only way the IRS can verify that the child exists and that you are, in fact, eligible to receive all of the deductions and credits you're claiming.
Most hospitals will help you get your child's number at the same time you request his or her birth certificate. It can only benefit you to get it as soon as possible, since without it you will have to file a form (FSS-5) with the Social Security Administration, you will be fined $50 for every dependent you claim who doesn't have a valid number, and you may not receive your refund for several months.
You're probably ready and willing to take the dependent exemption for your child. You are eligible to claim this exemption for whichever tax year your child was born in. With it, you get to keep $4,050 of your income exempt from being taxed, which will be very helpful in taking care of your new baby.
If you have a child under age 17, take the Child Tax Credit. This credit can be worth up to $1,000, and you are probably eligible to claim it regardless of your income.
If you're a high-earning filer, though, it does phase out. Before you can claim the credit, you and/or your child have to meet the seven eligibility requirements set by the IRS. These are as follows:
- Your Relationship with the Child
- Financial Support
- Claiming as a Dependent
- Family Income
The child has to be 16 or younger by December 31 of the tax year for which you want to claim the credit.
You can only claim the credit for your child, your stepchild, or a foster child placed into your care by an authorized state agency or court. Alternatively, you may have adopted the child through a legal adoption process. If this is the case, this process must either be concluded or ongoing by December 31 of the tax year for which you want to claim the credit.
Siblings may also qualify, and you can also claim descendants of people who qualify if they meet the IRS's other requirements.
Has the child supported himself or herself with more than half of his or her own money by December 31 of the year for which you want the credit? If so, you don't qualify for the credit.
The child in question is eligible to be claimed as your dependent only if he or she is related to you by blood or by law and is under the age of 19. He or she can be claimed up to age 24 if he or she is a full-time student more than five months out of the year and has had to live in your household for more than half of the year.
A child who has not supported himself or herself financially for more than half the year or is permanently disabled may also be claimed.
The child has to be a U.S. citizen, a U.S. national, or a U.S. resident alien.
Your child has to have lived in your household for more than six months if you want to claim the credit. Any child born or who passed away during the tax year will be counted as having lived with you for the full year.
You can still meet this requirement if you or your child was absent temporarily for the following reasons: attending school, going on vacation, medical or business reasons, military service, or incarceration in a juvenile facility. These circumstances may count as time the child lived with you.
If your modified adjusted gross income falls above a specific threshold per your tax-filing status, the amount you can get from the Child Tax Credit is lowered. For every $1,000 you earn over your applicable threshold, $50 is taken away from the amount of the credit.
In addition, you can't collect the amount of the credit as part of a refund; if you don't owe anything on this year's taxes, the credit is unused.
Working parents can deduct the costs of babysitters, nannies, and daycare programs from their taxes, but only if they provide the proper records for each care provider.
You must be able to provide either the Tax ID or Social Security number for any and all care providers you employ during the year in order to claim the Child and Dependent Tax Credit. If you don't, the IRS will probably deny your claim for the credit.
You might also be eligible for the credit if your child is under age 13 and enrolled in a summer camp while the parents are working, looking for work, or enrolled in school. Make sure to have all of the camp's necessary information to claim this expense.
Most single parents overlook the head of household tax break, which allows them to claim dependents as well as other advantages.
To qualify for this status, you have to have paid more than half of the costs related to maintaining the household in which you and your children live over the course of the year. In addition, you also have to have lived in that residence for more than half of the tax year.
There are other tax breaks for which new parents may be eligible, but these are the ones that are overlooked most often. Don't miss out on these savings!
Source: Banking Sense