Adding a new child into your life is a great joy in itself. But it can also bring new tax benefits with proper tax planning. Here are a few tips to consider if you are expecting a baby:
Having a baby could affect your filing status. For example, a single adult with a baby may be able to change his or her filing status to “head of household.” In most cases, changing your filing status will mean a better tax rate. If you are married but are used to filing separately, you may want to consider a joint return to take advantage of certain credits and deductions.
Reduce your wage withholdings for immediate savings. You can do this with your employer by requesting to update your W4 by adding 1 more exemption.
Child care is expensive, but there are ways to reduce the overall cost with a little tax planning. The child and dependent care tax credit allows married couples filing jointly to claim up to $3,000 in child care expenses per qualifying child (up to $6,000 total). A qualifying child must be under the age of 13 and claimed on the tax return as a dependent. Married couples claiming the credit must both have earned income. If your employer offers dependent care benefits, you may be able to divert up to $5,000 of your salary on a pre-tax basis to pay for child care expenses.
Many parents can claim tax credits without doing anything. After the passing of tax reform in December 2017, a child tax credit is worth up to $2,000 per qualifying child, with up to $1,400 being refundable, even if you already don’t owe any tax. A qualifying child must be under age 17 and claimed as a dependent.
Contact Us Today
If you will be planning a baby shower in the next year, be sure to invite Tolonen Tax & Accounting – we will bring you a diaper cake full of tax deductions and credits. Congratulations!