Expecting a Baby? Tax Tips for New Parents

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 a baby or planning to have a child, the eight tax tips below might help.

Infertility Treatments

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, you should 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, you should set up a medical expense flexible spending account (FSA) with your 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.

Below is a short refresher of critical tax exemption and deduction information:

Dependency Exemption

For 2015, the dependent exemption bumps up to $4,000 from $3,950 in 2014.

$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.

Filing Status

If you are a single parent, you may be able to claim head-of-household status rather than single status to gain additional tax advantages.

Adoption Credit

For 2015, the credit allowed for an adoption of a child with special needs is $13,400, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,400. Phaseouts do apply beginning at taxpayers with modified adjusted gross income (MAGI) in excess of $201,010 and completely phased out for taxpayers with MAGI of $241,010 or more. For 2016, the credit allowed for an adoption of a child with special needs is bumped up to $13,460.

Daycare and Day Camp (yep, even camp!) are tax deductible in certain cases

If you have 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. Be sure to contact your  insurer to find out which pumps it will cover.
  •    If your 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). You can also deduct the cost of all related supplies: nursing pads, breast milk storage bags, lanolin cream, storage bottles and parts for the pump. Save those receipts!

Medical Expenses

If you have a high deductible health insurance plan, you may reach the threshold for deducting medical expenses if you itemize your deductions on Schedule A, as hospital stays for mother and baby can be quite expensive. Neonatal or intensive care for your new baby may also rack up the medical bills, so these may qualify you for the deduction. Keep in mind, only the amount over 10 percent is deductible.

Reviewing the tax implications of having a family can help you plan for the future and navigate myriad child-related financial decisions, like which stroller to buy. Questions? Contact Gurian PLLC, Dallas CPA Firm, today to schedule an appointment with a CPA.

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