Having a baby can be one of life’s greatest treasures. From their first smile, first step, first word, and even their first tax deduction- wait, what?
That’s right, having a baby not only enriches your life, but also your pocket come tax time. The US Department of Agriculture reports that it costs an average of $245,340 to raise a child until the age of 18 (and that’s assuming they become independent at this point), so every little bit helps when it comes to saving with children. At tax time, your dependent children can lead to a few extra tax breaks for your family.
- Child Tax Credit: At the end of the year, each dependent child under 17 year old can net you a tax credit of up to $1,000 per child. Married couples who file jointly with an AGI greater than $110,000 are subject to a credit reduction of $50 for each $1,000 over the AGI threshold.
- Extra Exemption: For this tax year, dependents offer an exemption of $3,950 each, meaning that $3,950 of your income will remain untaxed. Taxpayers in the 25% tax bracket can save $987.50 in government taxes.
- Child and Dependent Care Credit: Payments made to a care provider for dependents under the age of 13, or a qualifying relative, so you can work may allow you to claim the Child and Dependent Care Credit. This credit is worth up to $600 for one dependent, depending on your income. Summer day camps qualify, however school expenses and overnight camps do not.
- Adoption Tax Credit: Taxpayers who adopted a child in 2014 are eligible to receive a tax credit worth up to $13,190 per child to cover expenses incurred through the adoption process. Those who adopted a special needs child can claim the full credit, regardless of their actual expenses. This credit lessens for those with AGI above $194,580 on married, joint returns, and is completely unavailable at income levels higher than $234,580.
- Employing Your Own Child: A child under the age of 18 whom you employ at your own business can help you save some tax dollars. It’s important to note there are specific regulations to employing a child. The IRS claims a child can be an employee at the age of seven, as long as the compensation is reasonable and all legal employee regulations are followed. This means you can’t pay your child a few hundred dollars an hour for dusting your office, and you have to complete a W-4 and other required paperwork. Though if done correctly, you can find yourself saving a bit in taxes. You can pay your child up to $6,200 in wages, which is the maximum standard deduction, before you have to pay employment taxes and income taxes. In this case, the wages remain untaxed for your child and you are able to deduct the expenses on your business tax return.