6 Tax Tips for Parents of a New Baby
The tax filing deadline is around the corner, and if you’re the parent of a newborn you’re offered very valuable tax breaks. Although you may be overwhelmed by everything that is becoming parents for the first time, don’t overlook your taxes even though it may be toward the bottom of your list. Raising a child for 18 years is an expensive feat so any kind of savings adds up! If you’re trying to figure out how to file your taxes with your new addition, here’s a cheat sheet that may be helpful. Below we’ve outlined 6 tax tips for parents of a new baby.
You need to get a Social Security number for your baby
In order to claim parental tax breaks, your little one already needs to have a Social Security number. Confirming the baby’s birth is the only way the government can honor all of the deductions and credits new parents claim. Applying for the number is usually as easy as completing a birth registration form at the hospital where you gave birth. If you had the baby at home or a birthing center, you’ll need to stop by the local Social Security Administration (SSA) office and complete the Form SS-5, Application for Social Security Number. There are many things you aren’t prepared for with motherhood, but this task is an easy one to fix.
The month and day your baby was born doesn’t matter
In the eyes of the IRS, even if your baby was born Dec. 31, 2018 it counts for the entire tax year. The assumption for some new parents is that since your baby was born later in the year it would affect the savings. This is incorrect. If this is your first child, you’ll be claiming parental tax breaks. If you have questions, it may be best to work with a tax professional to identify which tax credits and deductions new parents are entitled to.
The baby entitles you to new tax credits and deductions
Some people joke that they would have had a baby sooner if they knew how many tax breaks they’re now entitled to. It’s worth repeating: babies are expensive! And the IRS knows this, which is why new parents are potentially eligible for The Earned Income Tax Credit, The Child Tax Credit and The Child and Dependent Care Credit. Remember, tax credits provide a dollar-for-dollar reduction on your income. So if you owe $2,000 in taxes and get a $1,000 child tax credit, your tax liability just went down to $1,000. Although it can be daunting at first, it’s completely worth it to dig for the deductions.
Keep your receipts organized
Having a baby typically comes with a lot of chaos, especially at first. But if you can stay organized right off the bat and keep receipts somewhere safe, it will be that much easier to have them ready for tax time. You’ll need them for deductions you’re claiming.
Consider adjusting your withholdings to account for the new baby
Because a new baby means tax credits you don’t normally have, this could mean a substantially reduced tax bill. To make sure you don’t end up overpaying the IRS during the year, consider adjusting your withholdings to account for the new baby. File a new W-4 that reduces how much is withheld from your paycheck in taxes. Now that you have a dependent you won’t owe as much, so there’s no need to prepare as much tax throughout the year.
Make saving money a big goal
Keep this in mind: you don’t have to pay any taxes on saved money. Consider using cash-back credit cards that can provide a percentage back on your purchase. And know that it’s never too early to start saving for the big things, like establishing a college fund. A 529 plan account can save money for college tax-free and can be claimed as a deduction.
A baby is a lot more expensive than you think. By following these basic tax tips, you can save quite a bit of money. Consider that a life-saving move for those unexpected expenses that are guaranteed to pop up.
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