The arrival of a new baby can leave your life in a whirlwind. Almost every significant aspect of your routing and lifestyle goes for a spin.
There’s hardly any reason your earnings and income taxes remain unaffected from this significant milestone. There are quite a few things you’ll have to bear in mind while filing your next tax return. Let’s help you out and throw some light on some of the crucial considerations for your tax filing.
1. Social Security Number for your child
A Social Security Number also acts as a Tax Identification Number. You should obtain a Social Security Number for your child as soon as possible. Without a Social Security Number, you’re not entitled to claim for income tax credits and deductions in relation to your child.
It’s easy to obtain a Social Security Number after you have a child. You need to check the box requesting for the Social Security Number in the birth registration form provided by the hospital where your child is born. If you apply for a Social Security Number later, you’ll have to visit the Social Security Administration office, fill out the requisite form and supply necessary identification documents.
2. Child Tax Credit
If you have a child below 17 years of age, the IRS allows you to deduct up to USD 2000 from your income tax. Many new parents are unaware of this benefit, and hence end up paying more in income tax than they actually should. Of course, there are certain limits and qualification requirements to getting the full credit. You can contact an IRS Lawyer and obtain advice regarding how much child tax credit you are qualified to get.
3. Childcare expenses
New parents are unsure of what expenses count as childcare expenses. Most first time parents even end up not claiming deductions for childcare expenses at all. This is a very common mistake.
As a new parent, you should know that any money you spend paying someone to care for your child, or for day care centre services, qualify as dependent care credit. You can qualify for a tax credit of a few thousand bucks depending on how many children you have. These expenses are allowed as standard deduction, so there’s no need to itemize them.
4. Medical expenses
A newborn comes with significant hospital and medical expenses. We hope you’ve maintained a file of records with all the medical bills and receipts. The IRS allows tax breaks for medical expenses but only if they’re itemized in the income tax return. Make sure you file your returns with all qualifying medical expenses duly itemized and save some money on the tax payable.
5. Tax credit for adopted children
Adoption expenses are also recognized by the IRS for permitting deductions. Adoption expenses which include adoption fees, court expenses, travel spend etc. qualify for tax credit. The IRS, however, doesn’t treat adoption of your ex-spouse’s child in the same light, and you can’t claim the credit for such adoption.
When you adopt a child with special needs, you are allowed to claim the entire amount of tax credit irrespective of the actual expenses incurred.
6. College Savings
Parents are keen on planning for their child’s future and college education.
You should definitely consider opting for the 529 plan, it’s a good cover for the future and has tax benefits too. If you’ve also decided to set up a 529 plan for your child’s education, you would know that it’s a tax-free saving plan. That means the funds you put in such savings wouldn’t be taxed at all.
You’ll have to pay some taxes for hiring a nanny for your child. That’s simply because the IRS considers you as an employer and expects you to file the paperwork with your tax return.
Sometimes there’s a thin line of difference between adult babysitters and nannies, especially if the baby sitter routinely watches your child. Make sure you’re clear about your tax position regarding hiring a nanny or babysitter.