3 Basic Tax Tips For New Parents
Did you have a baby in the last year? If so, congratulations! Your new little one will bring you lots of joy, as well as occasionally complicating your life. The same could be said about your taxes now that you're a parent. Your tax filings are about to get more complicated than they used to be, but the changes are mostly in your favor. Check out a few things you should know about filing taxes as a parent:
You Might be the Head of Your Household
If you're married and living with your spouse, you'll probably continue to file jointly or separately as married. However, if you're a single parent, then you may be about to switch to a new tax status: head of household. If you do qualify for this filing status, you'll have a lower tax rate than you had a single person, and your standard deduction will be higher. This usually means that you'll owe less, or get a larger refund.
You qualify to use the head of household filing if you live with a qualifying dependent (that's your new baby) and if you paid more than half the cost of running the household over the past year. You also should be single, divorced, widowed, legally separated, or "considered unmarried" to use this filing status. To the IRS, "considered unmarried" means that you and your spouse did not live together, your spouse is not paying more than half the cost of running the household, and that you're not filing a joint return.
You May Get New Credits and Exemption
Even if you don't qualify for a new filing status, you could qualify for the child tax credit and the dependent exemption. What's the difference? The tax credit reduces the amount of taxes that you owe. The exemption, on the other hand, reduces the amount of money that can be taxed in the first place. Both save you money.
Don't Forget the Child and Dependent Care Credit
Once you have a baby, getting out of the house gets a lot harder, even when you're just going to work. It also gets more expensive! Babysitters and daycares can eat up a sizable chunk of your income. Luckily, you can claim some of that expense as a credit on your taxes, further reducing the amount of tax you owe this year.
The child and dependent care credit allows you to claim a portion of your childcare expenses if they qualify. To qualify, the childcare expenses must be incurred for childcare while you or your spouse are working or looking for work – you can't claim the cost of your date night babysitters. You'll need to show that you have earned income from wages, salaries, or self-employment. Also, the childcare provider can't be a spouse, the other parent of your child, or an older sibling. You'll need to identify the childcare provider with a tax ID number or social security number.
If you're finding taxes as a new parent to be a little more complicated than you expected, don't hesitate to seek help from a tax professional. They can help ensure that you file with the correct status and get all of the credits and exemptions you're entitled to.
Contact a Dave Ramsey endorsed local provider for more information and assistance.
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