by Harold Jean-Louis

Did you have a baby in 2014? This is a very exciting time for you and your family, albeit expensive. But did you know that there are several tax credits for which you may qualify? Think of this as a toolkit of nifty terms that you can use when you go sit with your tax professional this year.

The most important fact to keep in mind, for tax purposes, is a child is considered born in a tax year if he or she was born before midnight of the last day of the year (for the 2014, that is December 31, 2014). Isn’t that exciting? On your tax return you can receive a full year’s benefit even if your child was in existence for just one minute within the tax year.

What you must have before claiming your child on your tax return
The first thing on your to-do list: get your newborn a Social Security card. The most common (and easiest) method is to apply at the hospital. When you give information for your baby’s birth certificate, you will be asked whether you want to apply for a social security card. You can save yourself the headache of having to physically go to the Social Security office by just filling out the paperwork while at the hospital or waiting for it in the mail. Your child needs a Social security card in order for you to be able to claim your newborn on your tax return. Your child will be claimed on your tax return as a dependent, which will allow you to claim a dependent exemption of up to $3,950 for your child until they are 19 years old (or 24 if they are full-time students). If you have more than one child, you can claim the dependent exemption for each child.

If you get your tax return done professionally, let your tax advisor know about these tax terms and credits for which you may qualify:

Tip #1:  Child Tax Credit
A child tax credit is a $1,000 tax credit that is available to each dependent child. To qualify for this credit, your child must be younger than 17 and have lived with you more than half of the year. This credit starts phasing out when your income exceeds a certain threshold. For 2014 tax year, this threshold is $75,000 (or $110,000 if married filing jointly and $55,000 if married filing separately).

If you want additional details on this topic, refer to the IRS page on the Child Tax Credit to discuss it with your tax professional.

Tip #2:  Child and Dependent Care Expense
If both parents are working and paid for day care expenses, you may be eligible for a federal tax credit of up to 35 percent of the cost of care provided. This means that child care cost of up to $3,000 for one child and $6,000 for more than one child can be deducted. You should also know there are employers who may offer child and dependent care programs which allow you to withhold money pretax. We will discuss employer-based programs and mention other tax planning strategies in our next article. If you want read more on this topic, more information on the Child and Dependent Care Expense is available here.

Tip #3:  Earned Income Tax Credit
This Earned Income Tax credit is designed to help low to moderate-income families. Parents with income up to $38,511 (single) or $43,941 (married filing jointly) can take advantage of this credit. For the 2014 tax year, the credit is worth $496 if you have no children and up to $6,143 if you have three or more children.

Now, we have equipped you with some meaningful terms to bring to your tax advisor. The tax system is much more complicated, so we do encourage first time parents to seek the assistance of a tax professional to maximize their refund. Congratulations again! And we’re looking forward to telling you more in our next article.

Contributed to by Emmanuel Joseph, CPA

Emmanuel Joseph, CPA is the President of J&L Tax Inc. He has over 12 years of tax experience and has gained the respect of his community due to his hard work ethics and passion for what he does.