The Tax-Man cometh…and three things are about to happen.
My psychic powers really shine here. AHEM.
*finger to temple* *adjusts turban*
Option A: You will get a big refund check. If this is you, you’re being ripped off. (Surprised? Check out Money Tip #3.)
Option B: You will get a small refund check.
Option C: You will have to send the IRS a check. *condolences*
The best-of-all-world’s scenario here is Option B. Today’s post is designed to help you get there. Here are the tax strategies and tips you’ll want to use as a parent this year to offset the cost of raising minions. (Which is prohibitive enough as it is, am I right?)
Do You Have Your Baby’s SSN?
In order for you to enjoy any of these financial benefits, though, you’ll need your child’s Social Security Number. Usually you do that at the hospital when your child was born, and it’s mailed to your house 4-6 weeks after the birth.
If you had a home-birth, or don’t remember getting your child’s card, click here to learn how to request your child’s SSN.
Don’t forget to jealously guard your child’s SSN. We keep our children’s cards in a locked water-and-fireproof safe.
The “Parenthood is 24/7” Deduction
Do you ever wonder how much you are getting paid to do all this parenting stuff?
Well, in this deduction (formally called the “Dependency Exemption”), the government will allow you to reduce the amount of your pre-tax income by $4,050 per household member.
That translates to *licking pencil* $0.46 an hour for a year’s worth of care.
How did I get that ridiculously cheap number? Take $4,050 divided by the number of hours in a year (8,765).
Fortunately, this deduction can be used for each parent AND each child. In fact, it can be used for any child, stepchild, foster child, sibling or step-sibling…or even a grandchild if the child is living with you for more than half the year and is under 19 or a full time student. (Read more about this here.)
Want an example?
Well, in my family of 2 married adults and 3 kids, we would be able to use a total deduction of $20,250. ($4,050 x 5 members)
Which means….Motherhood paid me $2.31 an hour in 2016. (That’s $0.31 per hour raise! woo hoo!)
The “Kids are Expensive” Tax Credit
This isn’t a deduction, this is a credit.
A tax deduction is taken off your income, magically making the government overlook what you really made, for a lower amount. Magic! (In the case of the Taylor Family, about $20,250 less.)
A tax credit is money that you can use to reduce your tax burden at the end of year. (Either increasing your refund, or decreasing what you owe.)
If you are married and filing jointly with an income less than $110K ($75K for single) you can use a credit of up to $1000 per child. Click here for more details on this benefit.
That is in addition to the Dependency Exemption above, btw. Don’t forget to use it!
The “Adoption is Awesome” Credit
If you adopted a child in 2014 you can get a tax credit of $13,190 for any international or domestic adoption costs you incurred.
You also get a big high-five from me worth $14,190 (payable via Bank of Monopoly) because adoption is amazing. Difficult and gut-wrenching at times, but something that changes the world, one child at a time.
Click here for more details on the adoption credit.
The “Throw Me a Bone, Here” Credit
If you are seriously scraping the bottom of your bank account on a regular basis, (we’ve all been there, friend) you may find the “Earned Income Tax Credit” or ETC helpful.
Basically, this is a credit given to lower or middle-class families to help them avoid shelling out more than they can afford.
How much is the credit?
It will depend. Use this simple EIC calculator to find out if you’re eligible.
If it’s late at night and you’re having trouble sleeping, check out the IRS explanation of this benefit here. I give it 5 minutes before you’re passed out cold and drooling. It’s that dry.
The “I Use Childcare” Credit
This tax credit helps you offset some of the costs of paying for childcare while you’re working (or looking for work).
If you have a child in childcare who is under the age of 12, you can use this credit for up to $3000 for a single child or $6,000 for two or more kids of paid dependent care fees.
That said, the person taking care of your child cannot be…
- Your spouse. *Homer Simpson DOH!*
- The child’s parent (like an ex-wife or ex-husband)
- An older child you’re listing as a dependent on your tax return
There are a few other requirements, so if this is something that interests you, go here for all the nitty gritty details.
Don’t forget to check with your employer to see if they offer to withhold dependent care benefits from your paycheck as part of your flexible spending arrangement. If you do, the benefits are withheld prior to income tax AND social security and Medicare taxes. In tired-parent terms, it will save you money.
Money. Keep Yours.
a fan of agreeable about paying my taxes. After all, it keeps our country safe, provides help for needy families, and keeps the anarchists away. I also like to donate to charities, buy my kids a few birthday gifts, and order a pizza to avoid cooking.
You know, those extra things.
Now that you’ve passed the sacred trials of parenthood (either by birth or by adoption), it’s time for you to take that money and run.
Did you use any of these techniques this year?
How much did you end up saving?
Since I am not a CPA, I had this article edited and approved by my family’s CPA Kevin Knaust. You can find him being awesome at Spectrum Wealth Advisors.
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