Tax Deductions

Babies bring immense joy to their families, but they introduce new complexities as well. Parents that are fresh on the scene often lack knowledge of what they can and cannot deduct, and the tax code is confusing enough to navigate without accounting for dependents and child-related expenses.

The good news is that new parents qualify for a number of tax deductions, tax credits and tax exemptions that greatly lessen the financial burden of having a child. With a bit of knowledge, the joys of parenthood can take center stage over financial stress.

Which Initial Costs Can and Can’t be Deducted?

Medical care is the first and most obvious tax deduction. Prenatal care, prescription medicine, pediatric care, and most other medical expenses will be covered by insurance if the parents have coverage. In order to qualify for deductions, the out-of-pocket expenses that insurance won’t pay needs to exceed 7.5 percent of their gross household income.

Something most people don’t know is that childbirth classes can be lumped in with medical expenses, and that allows new parents to deduct part of the cost from their taxes. However, personal ceremonies like benedictions or christenings do not fall under the umbrella of tax deductibles; the full expense falls upon the parents or the family.

Other Tax Deductions and Credits

Parents can claim their newborn as a dependent even if they are born as late as December 31st, and the benefits will apply to the entirety of the fiscal year. The first $3,000 of childcare expenses can also be deducted from their taxes if both parents work or are in school. If one parent is disabled or otherwise unable to work or use their income, a total of $250.00 in monthly income can be deducted from the total cost of childcare.

Earned Income Credit (EIC)

There’s also a tax credit available for low-income families. A married couple that makes less than $41,132 per year can qualify for an Earned Income Tax Credit, or EIC, of up to $3,000. A family with more than one child that earns less than $46,044 can get an EIC of up to $5,000 or more.

If parents hire a babysitter to watch their children while they do volunteer work, the cost can be deducted as a charitable contribution. There’s also the child tax credit wherein each US citizen is given a $3,650 exemption for each dependent child under the age of 19, and that extends to the age of 24 if the child is a full-time student.

There aren’t enough credits and exemptions to nullify the costs associated with raising children, but there are enough to make the financial burden much easier to bear. As children get older, parents can claim a wide variety of benefits in relation to education, after school activities, college savings, and unforeseen expenses. Considering everything that goes into child-rearing, even something that just takes the edge off of the biggest bills can go a long way.

See Also:

• Does It Pay to Work When Paying For Child Care?
• Taxes and Freedom
• Exploring the Not-So-Altruistic Aspects of the “Buffett Rule …
• Healthcare Savings Account | UnemploymentData.com
• U.S. Tax Burden Good News? | InflationData.com
• Family Health Insurance Plans
• Working Family Tax Credit (U.K.)
• Putting a Gleam in Your IRA
• Charitable Contributions Tax Deductions