Congrats, you had a baby! That's the upside. The downside? Your taxes could get a little more complicated, but they don't have to if you know what to expect.
We hear ya, Mama: In between feedings, diaper changes, hormones and attempting to keep up at work and at home, there's a lot going on. And for good reason: You had a baby this year! While this joyful time is also a stressful time, Uncle Sam doesn't care. In fact, your taxes may be a little different this year, just like they were if you got hitched.
If you had other big changes this year—like buying a house, taking out stock or changing jobs—most accountants agree it's best to have your taxes completed by a professional instead of filing on your own. (While we're sure you and the hubby can figure it out, sometimes TurboTax isn't as reassuring and explanatory as someone with a degree. But then again, the professionals would want you to think that.) Get prepared for tax season after Baby with these helpful tips from a tax attorney and financial expert.
You'll probably get a refund
Now that you have an additional mouth to feed, your household has a dependent. Tax accountant Michael Eckstein says this is good news, and one to share with the government, stat: "After telling your relatives, friends, and coworkers that you had a baby, don't forget to tell your accountant and the IRS," he explains. "Your newborn, or as the IRS calls it 'dependent,' lets you claim all sorts of deductions and credits. But, to claim these deductions and credits, you have to add your child as a dependent on your annual tax return."
For all parents, this is a big plus because dependents often come with tax write-offs and may result in not only breaking even but sometimes getting more money back. Jenna Rogers, a certified financial planner with Mission Wealth in Santa Barbara, Calif., says most parents forget that Baby paints a rosier picture for their taxes, even if he may feel like a never-ending bundle of money. "Between dependent deductions and tax credits it isn't uncommon for there to be over $5,000 in deductions/credits that the parents never had before," she says. "Most likely this will mean that they withheld too much from their taxes during the year and will get a refund. Be sure to adjust your withholding accordingly for 2016 so the correct amount of tax is withheld from your paycheck going forward."
You may be eligible for a tax credit
Fun fact: Some new parents get an automatic $1,000 tax credit for the year their child (and every child after that) is born. Rogers advises talking to your accountant on whether your family qualifies for the credit. After all, a cool grand back in your pocket means the beginnings of a trust fund, or plane ticket somewhere exotic. Or, ya know, more diapers.
Request a social security card ASAP
To file taxes and claim your baby as a dependent, she will need a social security card. You can get one regardless of how young your baby is, and Rogers suggests doing it at the same time you request a birth certificate.
Keep detailed logs of child care
"If you paid for the new baby to receive care while you worked, you may be eligible for a child care credit," Rogers says. "The size of your credit depends on how much you pay for care, so be sure to keep accurate records." If you have a go-to nanny, simply make a log-in, log-out sheet to make it easier to know how much you've paid her and how much you're eligible to receive in return. Eckstein adds: "To deduct child care, you'll need some information about your daycare provider such as their name, address, and tax ID number."
Consider your taxes as a reminder for the future
If seeing photos of baby a few months ago makes you want to cry because he's growing so fast, Rogers last piece of advice may be the toughest: It's time to start thinking about college. Sure, it's nearly two decades away, but there are some smart ways to put money away tax-free that will benefit you and your child. "College is expensive and the sooner you address it the better," she says. "529 Education Accounts are savings vehicles where the earnings grow tax-free as long as the funds are used for college. Set up an automatic contribution each month, starting from when the baby is born. Even if it is only $25 a month, the earlier the savings begins, the more time it has to grow."