Parenting should be about the squeals on Christmas morning, turkeys drawn from hand tracings, and off-key singing in the back seat of the car, not potentially annoying or costly issues at tax time. With a big hat tip to the folks at IRS.gov, here are eight tax tips for parents:
8 Tax Tips for Parents
8 Ways Parents Can Cut Their Taxes and Smooth the Process
Secure a Social Security number for a new child as soon as possible. You can often fill out the paperwork at the hospital. Having a number will let you claim the child as a dependent on your tax return and will help in getting medical care and other services for the child, too.
Even if your child was born at the end of the year, he or she can be claimed as a dependent on your tax return, with the ensuing benefits not pro-rated. In other words, it's as if you had the child all year long. Note that a child can only be claimed as a dependent by one taxpaying entity, meaning both you and your ex can't claim the same kid.
Many parents will qualify for the Child Tax Credit. It offers up to $1,000 for each qualifying child (age 16 or younger) and is phased out for incomes above $75,000 (for singles, widowed people and heads of households), $110,000 (for married couples filing jointly), or $55,000 (for married people filing separately). And that $1,000 is a powerful, dollar-for-dollar tax-bill reduction.
The Child and Dependent Care Credit applies to children younger than 13 and to dependents such as a disabled spouse or elderly parents in your care. Expenses that might lower your tax bill include day care, meal preparations and in-home care. Special accounts might help you set aside pre-tax dollars to care for dependents. Some employers offer "dependent are" plans or Flexible Spending Accounts. An FSA needs to be designated for health care expenses or dependent-care expenses, but not both.
Be sure that your withholding status reflects each child. You can claim new dependents by filing a new W-4 form with your employer, reducing the amount of income withheld in your paychecks.
Education Savings Accounts and 529 plans permit you to sock money away for college in a tax-advantaged way. With 529s, the money in the account grows tax-deferred, and distributions used for qualified college expenses are exempt from taxes. ESAs work similarly, but withdrawals can be applied to primary and secondary school expenses, not just college expenses.
If you adopted your child, you may be able to recoup many expenses related to the process, such as travel and legal fees, via the adoption credit, which is worth up to $12,970 for tax year 2013.
You may be able to deduct the fair market value of donated clothes and toys if you have receipts and follow the rules.