Hello, I'm Jeremy from TurboTax with important information for new parents.
The new addition to your family is likely to be one of the most joyous events in your life. However, it may also be the most expensive. With the average cost of raising a child estimated to be $250,000, it's important that you take advantage of all tax saving benefits available to you.
The first thing you must do is contact your local social security administration office to get your newborn a social security number. Before you can take any tax benefit, the IRS will require this. After receiving the baby's social security number, the easiest benefit you can take is a dependent exemption.
The tax exemption amount reduces your taxable income in the same way as a tax deduction. You may also want to see if you are eligible to claim the Child Tax Credit. Depending on the year you file, the amount, and availability of this tax credit may vary.
For 2014, the maximum $1,000 tax credit reduces the amount of tax you owe on a dollar for dollar basis. So, if at the end of the year your taxes are $5,000 and you have paid $5,000 through withholding, the IRS will send you a $1,000 tax refund. You should also consider setting up a 529 account for the baby's education. Any deposits you make into the account are tax deductible in the current year.
The balance in the account can earn income tax free as long as you only make withdrawals to pay education expenses. For more information about income taxes, visit TurboTax.com.