Becoming a new parent is a life-changing experience filled with joy, but it also comes with added responsibilities, including managing your finances. As a new parent, navigating the tax landscape can seem daunting, but with the proper knowledge, you can take advantage of valuable tax benefits and savings opportunities. Here’s an in-depth look at each tip to help you maximize your tax savings and benefits: 

  1. Claim the Child Tax Credit

    The Child Tax Credit is a valuable tax benefit that provides up to $2,000 per qualifying child under 17. To qualify, your child must meet specific criteria, including age, relationship to you, and residency. This credit can directly reduce the tax you owe, and if it exceeds your tax liability, you may be eligible for a refund of up to $1,400 per child. You can claim this credit on Form 1040. According to the IRS, the child must: 

  • Be under the age of 17 
  • Be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these 
  • Provide no more than half of their own financial support during the year  
  • Have lived with you for more than half the year  
  • Be claimed appropriately as your dependent on your tax return 
  • Not file a joint return with their spouse for the tax year OR file it only to claim a refund of withheld income tax or estimated tax paid  
  • Have been a U.S. citizen, U.S. National or U.S. resident alien 

  1. Utilize the Child and Dependent Care Credit

    The Child and Dependent Care Credit can help offset the cost of childcare or dependent care expenses incurred to allow you and your spouse to work or look for work. Eligible expenses include daycare, preschool, summer day camp, and even expenses for a babysitter or nanny. Depending on your income level, the credit can cover up to 35% of qualifying expenses, with a maximum credit of $3,000 for one child or $6,000 for two or more children. To qualify, the dependent child must be under the age of 13 when the care was provided. You can find more information on qualifications here. 

  2. Consider the Earned Income Tax Credit (EITC)

    The Earned Income Tax Credit is a refundable tax credit designed to assist low to moderate-income families, especially those with children. Having a child may increase the credit amount you’re eligible to receive. The amount of the credit depends on your income, filing status, and the number of qualifying children you have. For tax year 2023, the maximum credit ranges from $600 to $7,430, depending on your circumstances.

    You can file married filing jointly, married filing separately, head of household, qualifying surviving spouse, or single to claim the credit. There are special qualifying rules for military members, clergy members, and taxpayers and their relatives with disabilities. Learn more about the qualifications on the IRS website.

  3. Save for College with a 529 Plan

    Setting up a 529 college savings plan for your child’s future education expenses can provide both tax benefits and peace of mind. These plans offer tax-deferred growth and tax-free withdrawals when used for qualified education expenses, such as tuition, fees, books, and room and board. Additionally, some states offer tax deductions or credits for contributions made to a 529 plan. 

  1. Adjust Your Withholding

    With the addition of a child, consider adjusting your withholding allowances on your W-4 to reflect your new family size. This can help ensure you’re not overpaying or underpaying taxes throughout the year, potentially putting more money back in your pocket. Use the IRS withholding calculator to determine the appropriate number of allowances for your situation.

  2. Keep Detailed Records

    Keep thorough records of childcare expenses, medical expenses, and any other costs related to your child. These records will be essential when claiming tax credits and deductions, ensuring you receive the maximum benefit available. Be sure to keep receipts, invoices, and documentation of payments for expenses such as daycare, medical bills, and educational expenses.

  3. Review Your Filing Status

    Major life events such as marriage, divorce, or the birth of a child can impact your filing status. Ensure you’re using the correct filing status for your situation, as it can affect your tax liability and eligibility for certain credits and deductions. Consider whether filing jointly or separately is more advantageous for you and your spouse, taking into account your income, deductions, and other tax considerations.

  4. Consult a Tax Professional

    Tax laws can be complex, especially when claiming credits and deductions related to children. Consider consulting with an Abacus professional to ensure you maximize your tax benefits as a new parent. We can provide personalized advice based on your financial situation, helping you make informed decisions for your family’s future. We can also help you navigate any changes in tax laws or regulations that may affect your tax situation, ensuring you stay compliant and take advantage of all available tax-saving opportunities.

As a new parent, taking advantage of available tax benefits and savings opportunities can help ease the financial burden and provide valuable support as you navigate the joys and challenges of parenthood. By implementing these tax tips, you can ensure you’re making the most of your tax situation and setting your family up for financial success. 

At Abacus, we’re here to help. You can reach our team of Abacus Professionals at 417.823.7171 or by email at info@abacuspro.com.