In simpler times, all you needed to welcome a new baby into your family was love and an empty drawer in which he or she could sleep. In 2015, babies are expensive and modern parents need a lot of gear: diapers, cribs, strollers and car seats—not to mention child care. The list can seem endless. And, it all adds up fast.
The good news is, there are more ways than ever to offset the considerable costs related to having a child. If you are expecting or planning to have a child, the seven tax tips below might help.
For couples facing infertility (roughly 10 percent of the U.S. population), costs can start mounting long before the much-coveted positive pregnancy test. In fact, couples who require medical assistance to conceive often get hit with a one-two punch—the emotional pain of infertility and the fear of not being able to afford treatments.
So, what can you do?
First, contact your insurer to find out if any type of treatment is covered. Some insurance plans cover certain procedures, but not medications and vice versa. If you live in one of a handful of states that mandate coverage for infertility, you might be pleasantly surprised. However, this is often the exception rather than the rule.
Once it is clear what, if any, treatments will be covered, parents should set up a medical expense flexible spending account (FSA) with their employer and begin medical treatment once the account is funded. Money taken from an employee's paycheck and put into an FSA is not subject to payroll taxes, resulting in significant tax savings. Fertility treatments, like all medical and dental expenses, can be deducted from Schedule A if they exceed 10 percent of a couple's annual gross adjusted income.
For soon-to-be parents, now is a great opportunity to learn how we, at Complete Financial Services, can demonstrate our value to you as a trusted adviser that can help with tax and financial planning. Below is a short refresher of critical tax exemption and deduction information:
- In 2014, the exemption was $3,950.
$1,000 Child Tax Credit for Qualifying Individuals and Couples
- Couples who file a joint return with combined income of less than $110,000 or individuals whose income is less than $75,000 may qualify for a child tax credit for as much as $1,000 per child.
- If you are a single parent, it is important for us to help you determine whether or not you can claim head-of-household status rather than single status to gain additional tax advantages.
- The adoption credit can help offset the cost of adoption and can be as much as $13,190 for tax year 2014.
Daycare and Day Camp (yep, even camp!) are tax deductible in certain cases
- If the parent has a child under age 13 who attends daycare or day camp, they may qualify for the child and dependent care tax credit of up to 35 percent of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children or dependents.
Breast Feeding Supplies
Many think nursing a baby is a simple and cost effective way to provide your new little one with nutrition. But, purchasing supplies can add up. Below are some cost saving tips.
- Breast pumps are now covered by insurance in many cases. Remind them to contact their insurer to find out which pumps it will cover.
- If the parents' insurance plan does not cover an electric breast pump, it is possible to deduct the cost of the pump if total out-of-pocket medical costs for the year exceed 10 percent of annual gross adjusted income (Schedule A, itemized deduction). The parents can also deduct the cost of all related supplies: nursing pads, breast milk storage bags, lanolin cream, storage bottles and parts for the pump. Just make sure you save those receipts!
Reviewing the tax implications of having a family can help parents plan for the future and navigate myriad child-related financial decisions, like which stroller to buy.