Tax Breaks For New Parents
When you have a child, your entire focus shifts. A baby can be expensive with daily expenses, add in medical costs and day care, and you are looking at a major shift in how you handle your finances. However, you can qualify for additional tax breaks as a new parent. Here are a few that you should look into.
Child Tax Credit
The child tax credit is a tax credit that reduces the amount that you owe. According to the IRS, you can claim $1,000 per child. This will cover the amount that you own in taxes. If the amount you owe in taxes is less than $1,000, you can claim the Additional Child Care Tax Credit that allows you to have remainder of the tax credit refunded to you. Your tax accountant should be able to help you file for both of these credits when he does your taxes.
Child and Dependent Care Tax Credit
This credit is available if you have your child enrolled in daycare or child care services. If you are paying a nanny, you can also claim the credit. The IRS has set limits of $3,000 for one child and $6,000 for two or more children that you claim on the credit. This is a percentage of your childcare costs, and you can only claim it if both spouses are working and that is why you need childcare. You will need the tax identification number of the childcare provider in order to file the credit, as well as a statement with how much you paid for the year. If you have funds withheld from your paycheck in a flexible spending account each month to cover child, you must exclude that amount from what you submit for this credit. The credit is based on a percentage of what you pay each year.
Earned Income Tax Credit
The Earned Income Tax Credit is available for people who are working, but who may not be making very much money. The amount of the credit depends on how much you worked and earned and your family size. It also depends on whether or not you are married or single. According to the IRS if you have one child and you are married, but made less than $43,941, you may qualify for part of the credit. The amount increases for up to three children to $52,247. For this credit if there is money left over after covering your taxes, you can have the remainder refunded to you.
College Savings 529 Plan
This is a plan that you can use to save for your child's education. Currently contributions are not tax deductible. The advantage is that you can make withdrawals without being taxed on the interest that the account earns. It is one of the best ways to save for your child's education and reduce taxes in the future.
To learn more, contact a company like UniqueTAXx AND ACCOUNTING.