The birth of a child is a major financial commitment that can entirely change your financial view. As a result, it should come as no surprise that the birth of a child can also have tax implications. If you are a new parent, it is important that you maximize any tax benefits that may be available to you. Learn about some of the things you should know and do before you file to maximize your benefits.
Contact the Social Security Administration
As soon as your child is born, you need to contact the social security administration to request a social security number for your child. The IRS will only accept a filing for your child if they have this number, a birth certificate or hospital documentation is not enough. More than likely, you should have received an application to complete in the hospital, but if you did not, you can contact the agency directly to begin the process.
Worry Little About the Birthday
You need not worry about when your child was born when it comes to including your child on your tax record. The IRS rules are very straightforward in that as long as the child was born in the tax year for which you are filing, you can include them, even if their birth date is December 31st. While some of the care expenses you can claim will be minimal for a child born later in the year, you can still claim the federal child tax credit, which is helpful.
Reassess Filing Status
A child might also alter which filing status offers you the most benefit. For example, a couple may have filed as married, but filed separately in the past for the most benefit. However, with a child, filing married and joint could reduce their tax burden. For a single person, a switch from a single to a head of household may be beneficial. A tax professional can help you determine which status is best.
Seek Care at a Licensed Facility
A portion of childcare costs can be credited against your taxes due, but only with the right documentation. The IRS is highly unlikely to audit an average earner, but it can happen. In this scenario, you must be able to provide documentation that shows how much you paid for this expense and to whom. Licensed facilities not only keep track of this information, but they also submit their records to the IRS on your behalf.
Again, working with a tax professional is one way to maximize your benefits, so don't hesitate to enlist the help of a professional before you file. Reach out to tax preparation services to learn more.