New Parents: Here’s How To Save Money On Taxes
While there is a lot to learn as a new parent, it’s nice to know how you can take advantage of these tax breaks.
Starting your family is an exciting time, as well as a big expense. You want to make sure you’re prepared, but also know how various costs can bring new tax deductions that can help you ride out the first years of parenthood.
Here are the major ways your tax situation may change now that you’re a parent.
Child Tax Credit
This credit, available for the 2020 and 2021 tax years, is worth up to $3,000 or $3,600 for the respective year. It can be claimed if you meet income qualifications and if you have a dependent 17 years of age or younger living with you. According to the Internal Revenue Service, families can benefit from this credit even if they don’t have earned income or don’t owe any taxes.
Child Care Credit
If you have a child under the age of 13 and paid for their care while working or looking for work, you may qualify for a child care credit for the 2020 and 2021 tax years. Be sure to gather information you need from your child care provider before filing your taxes. Additionally, it’s important to note that paid child care provided by certain family members would be ineligible.
Earned Income Tax Credit
This refundable tax credit is designed to provide support for those who work earning low to moderate incomes. The benefit amount varies depending on the recipient’s income and can be claimed by singles, couples without children, and those with children. For working parents, the limit for income increases depending on how many qualifying children they have. For example, a married couple’s 2020 taxable income can’t top $21,710 to qualify, but that limit rises to $47,646 when they add a child to the family.
Health Care Expenses
In order to claim a medical expense deduction, you have to spend more than 7.5% of your 2020 adjusted gross income on medical and dental costs; this is easier to achieve after the cost of going through pregnancy and delivery. These medical expenses include the hospital stay for delivery, as well as the related care that may be needed. It’s important to note that items related to childbirth, such as breast pumps and lactation supplies, also qualify as medical expenses.
You’ll be responsible for gathering all of your receipts for every doctor visit, hospital stay, medication purchase, and even the health insurance premiums you pay. Tax servicing sites make it easy to find out how much, if any, of your medical expenses are deductible, and will help with filling out all the right forms needed to claim the deduction.
While there is a lot to learn as a parent, it’s nice to know how you can take advantage of these tax breaks. A tax advisor can help you learn more about how parenthood affects what you owe Uncle Sam. The savings may help with your day-to-day spending for your new family, or to start saving for your family’s future.
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