fbpx

Tax Breaks Worth Noting

Tax savingsHere are some great opportunities to cut your tax bill as your family grows.

You'll need an SSN to claim your new baby as a dependent on your tax return. If you don't report the number, it can mean a $50 fine and tie up your refund. Request a Social Security number for your newborn at the hospital when you apply for a birth certificate.

Dependency Exemption. Claiming your son or daughter as a dependent will shelter $4,000 of your income from taxes in 2015, which will save you $1,000 if you are in the 25% bracket. You will receive the full year's exemption, no matter when the child was born or adopted during the year.

Child Tax Credit. A new baby also gets you a $1,000 child tax credit every year until your dependent son or daughter turns 17, no matter when the child was born during the year. Unlike an exemption that reduces the amount of income the government gets to tax, a credit reduces your tax bill dollar for dollar. So, the $1,000 child credit will reduce your tax bill by $1,000.

Increase Your Take-Home Pay. When you claim another dependent, you will cut your tax bill. So decrease your tax withholding from your paychecks with a new W-4 form.

Head of Household Filing Status. If you're single, having a child may allow you to file as a head of household rather than as a single, which enables you to get a bigger standard deduction and more advantageous tax brackets. To qualify as a head of household, you must pay more than half the cost of providing a home for a qualifying person like your new child.

Earned Income Credit. Having a child pushes the cutoff to claim this credit which offsets federal payroll and income taxes for low- and moderate-income workers to $44,650 for 2015 returns. The income cutoff is higher if you have two or more children.

Child-Care Credit. If you pay for child care to allow you to work, and that income is taxed, you can earn a credit if you're paying for the care of children under 13. The size of your credit depends on how much you pay for care and your income.

Kid IRAs. This can be a relatively small investment when a child is young that can really grow over many decades. But you can't just open an IRA for your newborn and start throwing in cash: a person has to have earned income from a job or self-employment to have an IRA (gifts and investment income don't count). As such, you probably can't open an IRA for your newborn (unless he or she gets paid as an infant model!). But as soon as your kid starts earning some money—whether by babysitting or delivering papers or the modeling gig—he or she can open an IRA. Remember that although a child must have earned income to have an IRA, his or her own money doesn't have to go into the account. Parents or grandparents can give the child money for the IRA, limited to the lesser of $5,500 a year or 100% of the child's earnings.

Reference: Kiplinger (February 2016) "The Most-Overlooked Tax Breaks for New Parents"

 

Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on pinterest
Share on Pinterest

Leave a comment

LIKE THIS POST?

We have a LOT more where that came from!

We hate spam too. We will never share or sell your information.

Call Now ButtonCall Us Now https://jsfiddle.net/7h5246b8/

Request a free consultation

We hate spam too. We will never share or sell your information.

We've been putting together as many resources as possible so that we can continue to help:

  • If you’re a current client with a signing appointment or a prospective client with a consultation and would prefer that meeting take place in your own home, we can accomplish that with a little bit of pre-planning on our part and with the addition of a laptop, smartphone, tablet or other computer in your home to facilitate this virtual meeting. For those of you that need to sign legal documents, that too can be accomplished with the use of a webcam (FaceTime etc.), so that we can witness and electronically notarize all of your important legal documents.
  • We launched the rollout of our on-demand webinar early so that new clients and our allied professionals can view the important component parts of ‘an estate plan that works’ at their convenience.  That is available on our website.
  • Live video workshops will be produced as quickly as possible and certainly ahead of our previous schedule; we will keep you posted as these events become available. Given the ‘boutique’ nature of the firm, we rarely have more than ten people in our office including team members at any one time. During this period of ‘social distancing,’ we promise to have no more than 8 people at any time.   This allows us to comply with the Governor’s directive to limit in-person gatherings.
  • The best way to communicate with us is still by phone during regular office hours of 8:30 to 5:00, Monday through Friday, or, you can email any of our team members (that is, their first name followed by @zarembalaw.com).  We will respond to these emails as quickly as possible.
  • Please continue to follow the directives of our local, state, and federal agencies. For your health and in consideration of our team who is assisting you, if you’ve scheduled an office appointment or planned to drop off paperwork and are experiencing a fever, dry cough, or shortness of breath, please contact your primary care doctor for guidance and then our office to reschedule.

Thank you, Walt and the Zaremba Team

Coronavirus/Covid-19
Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.