For first-time parents, your adorable new addition is also your ticket to a whole new set of tax breaks. The IRS recognizes the challenges of raising a child and grants you credits here and deductions there, some of which can be claimed year after year until adulthood -- and not just when your baby is born.
Child Tax Credit
Whether your baby is your first or your 10th, you can claim a child tax credit for every child who qualifies. Tax form 972 works out the amount you can claim. As of 2015, you can subtract $1,000 per child from your overall tax bill. However, your income must be below $110,000 if married filing jointly, $55,000 for married filing separately or $75,000 for single head of household.
While it may be a while before your infant heads off to college, a variety of educational tax breaks could be in store when the time comes. As of 2015, the American Opportunity Tax Credit and Lifetime Learning Credit allow you to reduce your tax bill by up to $2,500 per student and $2,000 per return, respectively, for higher-education expenses such as tuition, fees and course materials. If the AOTC is more than what you owe, you could be entitled to a refund.
The dependent exemption, not to be confused with the child tax credit, lets you claim another exemption on your 1040 other than the ones you claim for yourselves. You can claim this every year for your child until she turns 19. The amount of the tax savings depends on your tax bracket. However, once your adjusted gross income exceeds a certain threshold, the dependent exemption gets phased out.
Child and Dependent Care Credit
If you are a first-time parent swamped with childcare duties, you can qualify for a child and dependent care credit. As of 2015, this credit can shave off up to $3,000 in caregiving expenses for children under 13 or $6,000 for two children under 13. The credit is a percentage of the amount you pay a care provider for her services, and the percentage depends on your adjusted gross income.
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