New Babies bring TAX Savings!!
The feeling to become parents first time or second time can't be described in words. When I had my child in my hands I did not know how was I going to react. There was just happiness of being with my child. However, did not know there was a cost attached to any new born.
At my time diapers were still new in the market but even then nappies, day care, and doctor bills all costed a fortune. There is a good news, certain Tax Breaks for new parents can really offset some of these expenses. Lets see some tax benefits and how you might qualify.
Benefit payments First, the federal government offers several benefit programs for people with children:
Tax credits Starting the year your child is born, you can also claim certain credits:
How to apply for all this?
Regardless of your province, you can apply for EI through Service Canada.
Dependent Exemption The first benefit to having a new baby is your baby qualifies as a new dependent. The IRS gives a deduction of $3,900 for 2013 for each one claimed on your tax return, including you and your spouse.
Your new baby adds another exemption, therefore reducing your taxable income. There are some rules about who qualifies as a dependent, but most of the time, children will qualify.
Head of Household Status The next benefit is if you status changes. If you are not married or have been separated from your spouse for the last 6 months of the year, your child may qualify you for the Head of Household filing status.
This filing status could be better than filing as single and decrease your taxable income. If you are married and living with your spouse, you are not allowed to claim head of household.
Earned Income Tax Credit This can amount to several hundreds or thousands of dollars in tax refund money for some families.
It is what is called a refundable tax credit and can be received even if the credit exceeds your tax liability. To qualify, you must have what the IRS considers a qualifying child, or relative, for whom you provided more than fifty percent of their support.
The credit is also based on an income scale and depends on other factors such as filing status. You can only get the Earned Income Credit if you worked and have earned income, such as W2 earnings. You cannot get earned income credit if you had non-earned income such as social security or unemployment.
Child Tax Credit The fourth tax benefit for a new baby is the Child Tax Credit. This is a credit the IRS gives for a qualifying child up to $1000 per child. This is a non-refundable credit, which means the credit can be used to decrease any taxes owed, or even eliminate them. However, unlike the refundable earned income credit, it cannot produce a refund.
So, for example, if your taxes owed is zero, you cannot get the child tax credit as a refund. But if your taxes owed is $2,000.00 and you qualify for the $1,000.00 child tax credit, your taxes owed could be reduced to $1,000.00. The child tax credit only applies to children under the age of seventeen and is also based on your income.
Child and Dependent Care Credit The fifth tax benefit of a new baby is the Child and Dependent Care Credit. If your child under 13 goes to day care, you can claim expenses paid for day care on your tax return up to $1,050 for one child and $2,100 for two or more children.
The credit can be claimed even if the child stays with an individual or a relative during the day and there is no age limit if your child is disabled. The relative cannot be your spouse, the parent of the qualifying child, someone you claim as a dependent, or your child who will not be 19 or older by the end of the tax year.
The individual would have to provide their social security number to give to the IRS on your tax return to show the money was paid.
The Child and Dependent care credit cannot be claimed if only one parent worked. Both parents must be able to prove income in order to show the need for day care. In some cases, even summer camps or day camps can qualify for the dependent care credit.
As you can see, there are many wonderful tax benefits to having a new child in your family and you don’t need to know all of the details and tax laws behind these tax benefits.
Please contact us at firstname.lastname@example.org for more details.
Atul Prakash is a financial advisor for last 25 years in Toronto and currently works as a broker for Top Firms in Finance such as Manulife, Sunlife etc.
GET FREE COFFEE and TIM BITS (10) when you FILE YOUR INDIVIDUAL INCOME TAX FINANCIAL YEAR 2013
What you need for tax return?
You have worked for 365 days in 2013.
During this time the Canada Revenue Agency (CRA) has chopped off the Income Tax from your employment income, in every successive biweekly paycheque given to you. The time from March 01, 2014 till April 30, 2014 has been given to you to reclaim as much of your Income Tax kept with the CRA, as you can demonstrate in your Income Tax Returns. The CRA wants your final signature on this document so that what you have successfully claimed is refunded back to you and what has not been claimed is now theirs. That shows how vitally important this little document is to the Canadian Government.
Unless you’re expecting a T3, you should have everything you need to start your 2014 tax return. Before you begin, you should gather all your slips, receipts, and other relevant papers. To make sure you don’t miss something, and to help you get every deduction and credit you can, we’ve prepared this handy checklist. If you prefer, you can also download and print a copy of our Canadian Tax Return Checklist.
Author - Atul Prakash
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