“`html

Tax Tips for New Parents

Welcoming a new baby into your family is a joyous occasion, but it also brings about significant changes to your tax situation. From new deductions to potential tax credits, understanding these changes can help you maximize your tax benefits. Here’s what you need to know.

Does a New Baby Mean a New Exemption?

Prior to 2017, the birth of a child meant a new tax deduction. However, the Tax Cuts and Jobs Act of 2017 eliminated personal exemptions through 2025, replacing them with larger standard deductions. While you won’t get a standalone tax deduction for your new baby, there are other tax benefits to consider.

Will Your Filing Status Change?

If you were filing as a single person, adding a qualifying dependent child may allow you to change your tax filing status to head of household, which comes with a higher standard deduction. Here are the standard deductions for 2023 and 2024:

• Single and married filing separately: $13,850 (2023), $14,600 (2024)
• Head of household: $20,800 (2023), $21,900 (2024)
• Married filing jointly: $27,700 (2023), $29,200 (2024)

As head of household, you also benefit from more favorable tax brackets. Note that only one parent can claim the child if you are not married to the child’s other parent. The IRS has tiebreaker rules to help determine which parent should claim the dependent.

Can You Claim Tax Credits?

Having a dependent child may make you eligible for various tax credits, which reduce your tax bill dollar for dollar. Here are some tax credits you might qualify for:

Child Tax Credit

The child tax credit provides up to $2,000 per qualifying child. To qualify for the full credit, your annual income must be $200,000 or less ($400,000 if married filing jointly). Up to $1,600 of this credit may be refundable.

Adoption Credit

If you’ve adopted a child, you may qualify for a federal adoption tax credit of up to $15,950 per child in 2023. This credit covers qualified adoption expenses such as fees, court costs, and travel expenses.

Child and Dependent Care Credit

This credit provides nonrefundable tax credits for care costs incurred so you can work, look for work, or attend school. In 2023, you can claim 20% to 30% of up to $3,000 in qualifying expenses for one dependent or up to $6,000 for two or more dependents.

Earned Income Tax Credit (EITC)

Increasing your household size may help you qualify for the EITC or increase the amount you can claim. This refundable tax credit is designed to provide relief for low- to moderate-income taxpayers. Here are the EITC income limits and maximum credits for 2023:

• Zero children: $17,640 (single), $24,210 (married), $600 (maximum credit)
• One child: $46,560 (single), $53,120 (married), $3,995 (maximum credit)
• Two children: $52,918 (single), $59,478 (married), $6,604 (maximum credit)
• Three or more children: $56,838 (single), $63,398 (married), $7,430 (maximum credit)

4 Things to Do to File Your Taxes as a New Parent

Here are four essential steps to prepare for your first tax season as a new parent:

1. Get a Social Security Number

Apply for a Social Security number for your baby when you submit birth certificate paperwork. You’ll need this number to claim your child as a dependent and to qualify for tax credits. If you missed this step, you can apply online at SocialSecurity.gov.

2. Consider Tax-Advantaged Savings

Start saving for your child’s future with a 529 education account, which offers tax-free growth. You might also consider employer-based childcare subsidies or a flexible spending account (FSA) for childcare or healthcare expenses.

3. Document Your Deductible Expenses

Keep records of qualifying expenses if you open an FSA or plan to claim the child and dependent care credit. Save receipts for out-of-pocket medical expenses, as you may be able to deduct some of these costs if they exceed 7.5% of your adjusted gross income.

4. Adjust Your Withholding

Consider adjusting your withholding to reflect your new tax situation. Re-evaluate after completing your tax return to ensure you’re setting aside the correct amount each paycheck.

The Bottom Line

Adjusting to life with a new baby is challenging enough without the added stress of tax changes. Focus on essentials like obtaining a Social Security number and checking eligibility for tax credits to ensure you’re not missing out on key benefits. For additional help, consider working with a tax advisor.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. We are here to assist you with all your mortgage requirements.

“`