Having a baby is expensive. If you're a middle income family, you'll probably spend around $12,000 on your little bundle of joy during her first year of life, according to Parenting.com. The Internal Revenue Service offers a bit of relief in the form of tax exemptions, credits and deductions.
You can claim your new baby as a dependent for the year she was born, and you get to claim her for the entire year, regardless of when during the year she was born. If she was born on December 31, you get the same tax deduction as if she were born on January 1. The dependent exemption for a new baby born in 2012 lets you deduct an additional $3,800 from your taxable income.
You can deduct medical expenses related to the pregnancy, delivery and postpartum care of both mother and child, provided you itemize your deductions. You can only deduct the amount of your total medical and dental expenses that exceed 7.5 percent of your adjusted gross income for the 2012 tax year. After 2012, you'll only be able to deduct the amount that exceeds 10 percent of your AGI. Deductible medical expenses include certain fertility enhancements that helped you conceive, pregnancy tests to determine if you were pregnant, inpatient care at the hospital, doctor's services, laboratory fees, breast pumps and birth control pills.
The $1,000 Child Tax Credit is available through the end of 2012. You can take the credit if your child was born by December 31, 2012, although the amount of the credit might be reduced or eliminated if your income exceeds $110,000 and you are married and filing a joint return, $75,000 for single parents. A new child might also qualify you for the Earned Income Tax Credit. If it's your first baby, the EITC could be worth up to $3,169, depending on your income.
Once your new baby has arrived, you will probably start thinking about her future needs, including starting a college fund. There are a number of tax-advantaged savings plans, such as the Section 529 Education Savings Plan, that allow you to sock away some cash toward her education. You don't get to take a tax deduction for your contributions, but all of the investments in the plan grow tax-deferred as long as they are in the account. If your child uses the money in the account to pay for her qualifying higher education expenses, the earnings are tax-free.
- IRS: Publication 502, Medical and Dental Expenses
- IRS: Six Important Facts about Dependents and Exemptions
- IRS: Publication 501, Exemptions, Standard Deduction and Filing Information
- TurboTax: Tax Deductible Pregnancy Medical Expenses
- Kiplinger: Deductions and Tax Credits for Children and Dependents
- Parenting: The Cost of Raising a Baby
- IRS: Form 1040
- Smart Money: Child Tax Credit Of $1000 Extended Temporarily For 2011-2012
- IRS: Preview of 2012 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates