There are few, if any, joys in life that can be compared to the birth of your child.
Yet, in the middle of such happiness, someone (usually an uncle you only see twice a year) always seems to tell you how expensive a child will be in the 18 years that you’ll be responsible for them.
Depending on where and how you decided to have your child (hospital, birthing center, home care birthing specialists) you probably got popped with a pretty large medical expense to bring your little bundle of joy into this world.
Although paying medical bills isn’t too much fun, the good news is that you can deduct those expenses (as itemized deductions) on that year’s taxes, saving you quite a bundle.
I don’t know if it’s common practice, but my wife and I were still receiving bills from nurses and anesthesiologists when our baby was seven months old. This serves as a reminder to keep excellent records and store all of your receipts and documents in a safe place.
Your Child is Dependent on You
A new baby is totally dependent on his or her parents, but they also give mom and dad quite a nice tax break. The word on the street is that claiming a dependent (newborn or not) on your 2012 tax return will net you a $3,800 deduction. That’s $100 more than 2011 and you can claim this exemption no matter what time of year your child was born.
Your Child’s Gift to You
Not only do parents get to reap the benefits of a new dependent on their tax returns, but they also get another small gift from their little bundle of joy – the Child Tax Credit.
This year, the child tax credit remains the same at $1,000 per child. Here’s how a tax deduction and credit differ:
- a deduction reduces the overall amount of your taxable income
- while a tax credit reduces your tax bill by the actual dollar amount
This means that a $1000 Child Tax Credit reduces your tax bill by $1,000.
The Gift that Keeps on Giving – Your W4
Tax breaks on tax day are great, but don’t forget about your monthly take home pay.
When you have a child, this new person in your life also changes how you fill out your W-4 at work. Because claiming a dependent changes your tax bill, this means you may be able to now cut back a little bit on your tax withholding at your job.
Simply put, a new baby at home can upgrade your take-home pay. All you have to do is request to file an updated W-4 with your employer.
It might also be important to note that, if you’re a single parent, a new child might enable you to change your filing status from “single” to “head of household”. This simple change will increase your standard deduction.
Credit for Adoption
There are many people each year that adopt their new precious little bundle. And thanks to Uncle Sam, this scenario also comes with plenty of tax help.
In 2012, the Adoption Credit is worth $12,650 to help offset the cost of adopting a child. And for parents who adopt a child with “special needs” the IRS allows them to claim the full amount of the credit, even if the actual adoption costs were less.
No matter how you look at it, bringing a new child into your home and raising them to adulthood will cost quite a bit, but using TurboTax will help you apply all of the tax deductions, credits, and tax breaks that the government allows.