Tax Pointers for Expectant Parents
Is there a baby on board? Or maybe you are hopeful there will be one soon?
Already in the past few weeks, I've written about tips for students (and their parents), as well as newlyweds. So it seems only natural to hit you up with some tax tips for new parents.
It probably doesn't have to be said that babies are expensive! And when you have (or adopt) a baby, lots of gear is required. I mean think about it. You need nursery furnishings, diapers, car seats, strollers (ever price one of those exercise strollers?) and of course those bouncy things that seem to keep the little ones pleasantly occupied for long periods of time.
And then, if both parents are working or desire to work outside the home, there are child care considerations. The list goes on and on, with a resulting heavy price tag. Fortunately, some of these costs can result in tax benefits/savings that can help offset some of the mounting costs. Here are a few of the more noteworthy:
Dependency Exemption: Most people are familiar with this deduction on your tax return. For 2015, it will be $4,000. How much it saves you will depend on your tax bracket. For instance, if you are in the 15% bracket, this will save you about $600. Further, as long as baby is born before midnight New Year's Eve, you qualify to take the exemption.
Filing Status: If you happen to be a single parent, you may very well qualify to change your filing status from “Single” status to what's called “Head of Household”. This change can help your income stay taxed in the lower tax brackets up to a higher amount than filing Single status.
Child Tax Credit: Couples who file a joint return with combined income of less than $110,000 or individuals whose income is less than $75,000 may qualify for a child tax credit of as much as $1,000 per child.
Earned Income Credit: If you otherwise qualify, the addition of another child to the household can result in some cases in an increase to your earned income credit. See irs.gov, where you can search “EITC” for more information.
Adoption Credit: If you adopt a child and it is finalized in 2015, you may qualify for a credit of up to $13,400 to help offset some of your adoption costs. In 2015, families with a modified adjusted gross income below $201,010 can claim full credit. Those with incomes above $241,010 cannot claim the credit; those with incomes from $201,010 to $241,010 can claim partial credit.
Daycare: If you have a child under age 13 and you work (or if married, both parents work) and as a result the child attends daycare, you may qualify for the child and dependent care tax credit. The credit ranges from 20 percent up to 35 percent of qualifying expenses of up to $3,000 for one child or dependent, or up to $6,000 for two or more children or dependents. You may even be able to claim the credit on the cost of summer day camp in certain situations.
Medical Deduction: Most people are aware that medical expenses exceeding certain amounts are deductible as itemized deductions. But did you know that the breast feeding supplies, such as breast pumps, nursing pads, etc. count as a medical expense for such purposes? So does the cost of infertility treatments, which can by quite expensive. But first, be sure to check with your health insurance provider to see if these types of expenses are covered by your insurance. In many cases they are.
Even if not covered, with expensive treatments such as the infertility treatments, if your employer offers a medical expense flexible spending account (or FSA), you could set up such an account, fund it, and then begin your treatments, so you at least get pre-tax treatment of the amounts contributed to the FSA.
Utilizing some or all of the above opportunities for savings can help take the budget pinch out of having a baby, allowing you to kick back and concentrate more fully on your new bundle of joy!
