5 Tax Tips All Parents Should Know
If you had a new baby in 2009, Uncle Sam is on your side. "The IRS realizes the state of the economy and is being more generous than ever with new and increased tax breaks," says tax attorney Roni Deutch, author of The Tax Lady's Guide to Beating the IRS and Saving Big Bucks on Your Taxes. "Just having your baby in 2009, as opposed to 2008, was worth up to an additional $1,276 in tax savings." Make sure your little bundle of joy helps you score big bucks on your tax return with these five baby-friendly tax tips.
1. Know Your Tax Credits
"In general, tax credits are more beneficial than deductions since the amount can come right off your tax bill," says Deutch. Take advantage of the Additional Child Tax Credit for 2009, which allow parents who qualify to claim up to $1,000 for each child under 17 years old. In addition, the Earned Income Tax Credit is the best tax benefit that many working parents overlook, says Deutch. It can save you $3,043 for a new baby and up to $5,657 if you have three or more children.
2. Timing is Everything
Even if your baby was born at 11:59 p.m. on December 31, 2009, you can claim her as an additional dependent exemption worth $3,650 on your income-tax return. A new baby often means you need to upgrade your car. You can now deduct the sales tax if you bought your new wheels (at a purchase price of up to $49,500) by this date.
3. Do's and Don'ts of Donating
Those cute onesies that your little one barely wore can add up to a nice-sized deduction as a charitable donation. Make sure any clothes (including your maternity wear), toys and furniture are in good condition. (You cannot donate damaged items.) Be sure to obtain written confirmation of your donation from the organization. Estimate the fair market value for your items at goodwill.org.
4. Get Adoption Aid
A typical adoption in the U.S. ranges from $5,000 to $40,000 in legal, travel and administrative fees. Ask if your employer has an adoption assistance program, which can help you with these costs with a tax-free reimbursement of up to $12,150. You may also be able to earn an additional credit of up to $12,150 from the government to offset any adoption expenses not covered by your employer's reimbursement.
5. Reimbursement Rx
The H1N1 virus scare had parents taking their babies to the doctor more often in 2009. Flexible spending accounts (FSAs) can help cover the costs of doctors' visits and prescriptions, as well as reduce your taxable income. If you don't have an FSA, you can still deduct your medical expenses (including those for special-needs babies) if they exceed 7.5 percent of your adjusted gross income.