Tax Deductions for Your New Addition
Did you have a baby this year? If so, congratulations on the little tax deduction!
Just kidding – congratulations on the addition to your family!
While you’re probably a little groggy still, kudos to you for thinking about your taxes when most can barely think at all.
Fortunately, along with your new baby, your family is now eligible for new tax deductions as well. Don’t overlook the tax advantages that come when you add a new member to your family.
Tax Benefits for Having Children
First, you receive another exemption when you have a child. Each exemption you have represents a deduction of $3,900 for 2013.
So, a new child means that your income is reduced by the exemption amount. While this isn’t as valuable as a tax credit, it is still worthwhile, since a smaller income means a smaller tax liability.
You might also be eligible to claim the Earned Income Tax Credit. Parents that meet certain income requirements and have children can claim the EITC, which is a tax refundable credit.
Another possible tax benefit is the Child Tax Credit. This is a credit worth up to $1,000 for each child under the age of 17. Because it’s a credit, it represents a dollar for dollar reduction of your tax bill.
Not everyone is eligible for the Child Tax Credit and eligibility is based on adjusted gross income. For 2013, the phaseout for the credit begins at $110,000 for those filing jointly and $75,000 for those filing as single (married filing separately begin phasing out at $55,000).
It’s also possible to claim the Child and Dependent Care Tax Credit. This credit allows you to claim qualified child care costs as deductions.
There is still a phaseout with this credit too, so you might not be eligible if your income is above a threshold. You can also check to see if there is a Dependent Care Account offered by your employer. Money contributed to this account is tax deductible, and it can be used to pay child care expenses.
If you adopted, there is a generous tax credit for those who wish to adopt. The Adoption Tax Credit is refundable, and it can help offset the costs incurred as you adopted your new addition.
There are phaseouts for this credit as well, but they are much higher than the phaseouts for the other tax deductions and credits. If you adopted, you must look into this credit.
Finally, remember to get a Social Security Number. In order to claim any of these tax advantages as a result of adding a child to your family, you will need a Social Security number.
If your baby is new, you need to apply for a Social Security Number. If you are taking over the care of a child and are eligible to claim the exemption or the Dependent Care Credit, you need to make sure you know his or her Social Security number.
Bringing a child into your family is a big step — and one that is very rewarding on an emotional level. However, your new bundle of joy also comes with some financial advantages to go with the financial costs.
While most of them simply offset some of your costs, others can actually be extremely beneficial so it’s important to look into them.
And get some sleep!