Having a new baby is an exciting yet daunting time for a myriad of reasons, and this spills over to your first tax return as a new parent as well. These five tips will help you make sure you have everything covered for tax time and get every dollar your new baby has earned you!
- Apply for a social security number
Before you can reap any of the tax benefits available now that your new little bundle has arrived, you must first apply for a social security number for your newborn child. You generally can do this at the hospital while applying for your child’s birth certificate and will need to have the number in hand before filing your first tax return. - Adjust your federal and state withholdings through your employer
Because of the numerous tax benefits associated with having a child your annual tax liability will likely decrease. As such, it is important to change the number of federal and state withholdings from your paycheck so that you are able to receive more money month to month, yet not owe money at the end of the year. - Check your filing status
If you are married your filing status will not change with the birth of a baby, but if you are single you may now be able to file as head of household. This results in the benefit of being able to take an $8,950 standard deduction in 2013 as opposed to $5,700 and also being in a more advantageous tax bracket. - Claim your child as a dependent
There are three major benefits to having a dependent child on your tax return: an additional dependency exemption, the child tax credit, and the earned income credit. The first benefit, the dependency exemption, results in an automatic $3,900 decrease in your taxable income. The child tax credit, which is up to $1,000 per child, reduces your tax bill dollar-for-dollar and if you already do not owe any tax, in some circumstances the government will still pay you a portion or all of the credit. Lastly, the earned income credit, which is based on your household income and the number of dependent children you have, can be as much as $3,050 for families with one child and as much as $5,666 for families with three or more children. - Track child care expenses
If you pay someone to care for your child so that you can go to work or school, the expenses you incur may qualify to be credited through the Child and Dependent Care Credit. You can claim up to $3,000 in child care expenses per child, but to do so make sure you keep accurate records of expenses incurred as well as obtain the social security or tax identification number of the individual or business caring for your child.