New Parents Tax Blog
By: Tim Dougherty, CFP®
Becoming a new parent is stressful then add financial questions and taxes into the mix. Honestly, this may cause some parents to break out in hives! Benadryl, anyone?
There is a lot to know when it comes to the finances of parenting – the baby budget, daycare expenses, tax credits or deductions, and of course, saving for college in a 529 plan. Tax season has just come to a close and I felt it was an excellent time to share some tax information, so you head into the next tax season with more information.
Did you know that cute little bundle you are holding can offset your income?
Yes, he/she can reduce your taxable income in the way of tax credits. Don’t miss out on the potential tax savings, review the summary list below to learn more.
1. Social Security number
- To claim your child as a dependent, be sure he/she has a Social Security number on file.
2. Withholding
- Check withholding on your paycheck and update with your employer. You may need to review and update it now that you can claim new credits or deductions. Complete the estimator at IRS Tax Withholding Estimator and complete an updated Form W-4 with your employer, if necessary.
3. Child Tax Credit
- Child Tax Credit The maximum credit in 2023 was $2,000 per qualifying dependent and is based on your modified adjusted gross income (MAGI) $200,000 single or $400,000 joint filing. Child Tax Credit details.
4. Child and Dependent Care Credit
- Child and Dependent Care Credit Do you pay for daycare expenses? You may be eligible to claim the costs for dependents under the age of 13 who lived with you for more than half the year. Child and Dependent Care Credit Information.
5. Adoption Tax Credit
- This credit allows families who are in the process of adoption during the tax-year to claim eligible qualified adoption expenses (travel, lodging, or legal fees) for each eligible child. The Adoption Credit can be applied to international, domestic, private and public foster care adoptions. There is a maximum amount allowed and income limits apply. Adoption Tax Credit.
6. State Tax Deduction for 529 Contributions
- Several states offer a tax deduction for 529 contributions on your state income tax return. In Ohio for example, a state tax deduction is given for contributions to a 529 plan of up to $4,000 per year per beneficiary for any filing status. Tax deductions can be carry-forward with no limit – allowing for super-funding of 529 plans.
You may still have specific questions unique to your situation, if you would like to discuss tax strategies or 529 college funding give me a call or email doughterty.tim@wealthp.com
My objective is to place young parents on a successful financial path towards reaching their short and long-term goals. With financial planning, coaching, and advising, I help individuals make informed, confident decisions.
