Your little bundle of joy born in 2013 has probably changed your life for the better in many ways already. Although babies tend to put a dent in your finances, you'll probably get back at least some of that money at tax time. The federal government offers several significant perks for parents filing taxes. In the midst of the chaos of teething, diaper changes, and keeping little hands out of trouble, use these tips as you complete your tax return.
1. December 31st babies count: While you ordinarily need to have your child live with you at least half of the year to be claimed as a dependent, the rules are different in the year your child is born. As long as your baby was born during 2013, he or she will count as a dependent on your tax return for the tax year. If your baby was born on New Year's Day of this year, you will have to wait until next tax season to claim your bundle of joy.
2. Get your baby a Social Security Number: Listing your baby's name as a dependent on your tax return won't be enough if you don't list your baby's Social Security Number as well. In most cases, the hospital submits the application to the Social Security Administration on your behalf. However, if you don't remember this happening or you haven't received your baby's card in the mail yet, contact the Social Security Administration right away to apply for a number.
3. Include your baby as a dependent on your tax return:The first tax perk you'll see from having a baby is being able to include your baby as a dependent. This qualifies you for an additional exemption, which cuts $3,900 from your taxable income in 2013. When you list your baby, ensure the name is spelled correctly and the Social Security Number is accurate. It can be easy to transpose digits on an unfamiliar number.
4. Deduct high medical costs: You might still be in sticker shock from the hospital bills if you don't have stellar health insurance. The good news is that if you itemize deductions, you may be able to deduct some of your medical costs. You can deduct any medical costs your household paid, including the cost of health insurance, that exceed 10% of your gross income. However, you can't include costs that were paid out of pre-tax money, which your health insurance might be if it is through your employer. You also cannot deduct costs if you paid them out of a Health Savings Account or health care Flexible Spending Account.
5. Claim the child tax credit: Many taxpayers are eligible for a tax credit of $1,000 for each child. The amount of the credit is phased out if your income is more than $110,000 if you're married filing jointly, $55,000 if you're married filing separately, or $75,000 with any other filing status. This tax credit directly offsets your tax bill for the year.
6. Claim the additional child tax credit if applicable: The additional child tax credit isn't if you have additional children, so don't look over it if this is your first baby. If you did not get to claim the full amount of the child tax credit because you did not have enough tax liability, you may be able to claim the additional child tax credit. This credit is refundable, and its amount varies depending on your earned income and other tax details. When you file with OnePriceTaxes, the details will all be calculated for you.
7. Check whether you qualify for the earned income tax credit: If this baby is your first child, you may be surprised to learn that you can take the earned income tax credit. This tax credit is for households that earn income, but not very much. Think of it as a reward for working a low-paying job. While a married couple without children must earn less than $19,680 per year to qualify, that same couple with one child can earn up to $43,210 and qualify for the credit. Especially if only one of you works, this may be a credit you can start taking.
8. Claim the child and dependent care tax credit: If you paid someone to take care of your child last year, there's a tax credit you may be able to take. You can get back between 20% and 35% of the first $3,000 you spend on child care. If you have more than one child, the credit is on the first $6,000 you spend. However, if you used other tax-free dollars to pay for child care, this reduces your $3,000 or $6,000 credit, dollar for dollar.
9. Set up a child and dependent care flexible spending account (FSA) for next year: If your AGI is $43,000 or more, you will likely benefit more next year by using a child care flexible spending account instead of taking the tax credit. Check whether you can set one up with your employer. If you can, you are allowed to set aside up to $5,000 of pre-tax income, and you don't even have to pay Social Security and Medicare taxes on this income. However, you must use it all during the calendar year because it does not roll over to the next year.
10. Consider using your refund for your baby: When you get to the end of your tax return with OnePriceTaxes, you may find that you're getting a big tax refund. If this is the case, consider using the windfall for your baby. Purchase that nice stroller you've been eyeing or get a toddler car seat with good safety ratings. Another idea is to set aside the money in a college savings account. If you start with a deposit of several thousand dollars, this money will have plenty of time to grow before your little one heads off to college.
Have a baby in 2013? Here are 10 tax tips for new parents
Posted on March 3 2014