Happy Labor Day! If you are in labor this weekend or were in labor anytime this year you may find that babies not only bring you joy, but they can also bring you bundles of savings come tax time.
New Parent’s Guide to Taxes
When we became parents for the first time, we were pleasantly surprised at the tax benefits we were able to claim. When our second child arrived we were able to look forward to even bigger savings.
If you’re expecting your little one very soon, here are some tax deductions and credits you want to keep tabs on.
- Dependent Exemption: One big financial benefit of your little one is that you can claim a dependent exemption. What’s wonderful about this is the exemption reduces your taxable income. The exemption amount for 2016 is $4,050 per child when you file your taxes, up from $4,000 each for 2015.
- Earned Income Tax Credit: Depending on your family’s income, size, and filing status, you may be able to take advantage of this refundable tax credit (meaning you may be able to get some money back even if it exceeds your tax liability). Working families may find this credit can be worth over $3,000 for one qualifying child.
- Child and Dependent Care Credit: If you’re going back to work or school and will be paying for child care for your dependents, you may use this credit to claim up to 35% of expenses of $3,000 for one qualifying dependent.
- Child Tax Credit: You may also be eligible for a child tax credit, which is even better than a deduction, since it reduces your taxes dollar for dollar. It’s an additional $1,000 credit you may be able to claim for children under 17.
- Medical Expenses: If your medical expenses are more than 10% of your adjusted gross income, you may be able to deduct them. Keep all receipts and don’t forget you can deduct you child’s medical expenses (all those check-ups can add up quickly).
Start that College Fund
Even though you have years and years before your baby is ready for college, setting aside money now can be a smart move for you and your child.
Opening up a 529 to pay for the college expenses is usually quick and easy. You may want to check with your state as some of them offer tax breaks for 529 contributions.
Thoughts on Becoming Parents
I hope these tips help out with your family’s finances. If you do get a tax refund, you can make it go further by setting aside some of it for paying down debt, or saving it.
If you need more tax tips, check out other family posts here on TurboTax.
How many of you had your bundle of joy this year? What have been some of your favorite moments so far? How many are expecting one soon?