With the joy of bringing a child to the world, comes a list of expenses that can signify a big issue to expectant parents. However, what most people aren’t aware of are the possible ways to offset the the multitude of child related expenses. If becoming a parent is in your future plans, take a look at the following tips!
Social Security
The first step to ensure that you can claim your child as a dependent on your tax return is getting a Social Security number for your child. Keep in mind that not reporting the number can result in fines and a delay in the claiming process. (The reason why the IRS makes this a request is to avoid people claiming non-valid dependents such as pets.)
Dependency Exemption
Once your child has a Social Security number, you can claim them as a dependent. The tax benefits of claiming your son or daughter as a dependent include a full year’s exemption the first year they were born and even saving you money if you are in the 25% bracket. In addition, newborns signify a $1,000 child tax credit until they turn 17.
Adoption Credit
Last tax year, parents who adopted got a federal adoption tax credit of as much as $13,190 for expenses related to the adoption. However, it’s important to keep in mind that this is a non-refundable credit.
Child Care and Nanny Tax
Do your clients have children in daycare? If so and their kids are under 13 years of age, they are eligible for a tax credit of up to $3,000 per child. However, if you hire someone to take care of your child at home, you might become the employer and have additional tax duties.
Filing Status
Even though the filing status of married couples isn’t affected when a child is born, single parents may take advantage of higher tax benefits by filing as a head of household. The requirements to be considered head of household are paying for more than half of the house expenses.
Breast Feeding Supplies
The Affordable Care Act (2010) requires most health insurance plans to cover the cost of a breast pump as it’s considered part of women’s preventative health services. In some cases, insurance companies require pre-authorization so make sure to check with your insurance before purchasing. Your client can also deduct any expenses related to breast pump supplies, such as breast milk bags and pump parts.
Saving for College
As expensive as college can be in the 21st century, it is a good idea to start saving as early as possible. This is why a good option to save is having a 529 plan. Even though contributions in this plan are not deductible, the earnings are not subject to federal tax when used for expenses such as tuition and school materials.
Understanding the tax implications of having children can lead to more prepared parents and better financial opportunities for families. Your clients are probably not aware of all of the cost-saving tax deductions available to them.