Taxes may not be the first thing on your mind as an expectant parent, but they shouldn’t be last, either.
Your family situation is about to change, and that means your tax situation likely will change, too.
That new bundle of joy, for example, will make you eligible for new tax deductions and credits – even before he or she is born.
And if your new baby is born as late as December 31, you’ll get a tax deduction for the entire year. That makes early March the conception cutoff for a happy, healthy full-term tax deduction by year’s end.
Here’s a look at some of the tax deductions and credits available to families in 2018.
Birth Control Pills. Fertility Enhancement. Pregnancy Test Kits. You can include the cost of each of these items in your medical expense deductions. For medical expenses to be deductible, you have to itemize your tax deductions, and your medical expenses have to exceed 7.5 percent of your adjusted gross income.
Now that the special gift is on the way, you’ll want to get things ready for his or her arrival. If you’re planning to nurse, you’ll be happy to know that the cost of breast pumps and supplies can be deductible medical expenses. Lactation expenses are also deductible as are laboratory fees that may be a part of your medical care.
The New Arrival
The tax deduction that comes with your new arrival can’t match the joy, but that’s OK. This still should make you happy. Under the new tax law, the child tax credit has doubled to $2,000 per qualifying child. And, unlike a tax deduction, which reduces the amount of your income subject to tax, a tax credit reduces your tax bill dollar for dollar. Not bad, right?
Planning for Baby’s Future
The new tax law lets parents save tax-free for their child’s education. Under the law, you can use up to $10,000 per child from a 529 plan to pay qualified expenses for elementary and secondary school and homeschool. The 529 plans can also be used to pay for college.
Speaking of college, if you want to think that far ahead, two tax credits are available to help with qualified educational expenses. Those credits are the American Opportunity Tax Credit, which provides a credit of up to $2,500 for qualified tuition and expenses for the first four years of college, and the Lifetime Learning Credit, which provides up to $2,000 per return.
The tax code is always changing.
In fact, many of the deductions and credits available today as part of the new tax law are set to expire after 2025. That’s why it’s always good to work with a tax professional whose job it is to keep up on changes to the tax code.
Besides, you don’t need to waste precious time thinking about taxes. You want to spend that time enjoying your new baby.
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Brian Ashcraft is Director of Tax Compliance for Liberty Tax Service, one of the fastest-growing tax preparation franchises. Brian is responsible for developing systems and processes to help franchisees and their tax preparers meet rigorous compliance standards. He works with company leaders and with independent owners at franchise locations across the United States and Canada, reviewing processes in place and setting benchmarks for compliance success.