When starting a family, thinking about taxes is the last thing most people consider. Still, there are some things that soon-to-be parents need to know when it comes to deductions, benefits, and credits. With these tools at your disposal, you will be well on your way to ultimate success in the tax world
How Children Affect Your Taxes
If you are expecting to have a baby in 2021, congratulations first and foremost. Or maybe you have already had the baby. Even though you are a little tired, you need to think through a few things for your future. But, you do need to understand how your taxes change with children. Check out this list of five that should be on your radar.
No Tax Benefit
For starters, there is no tax benefit for having kids. “What,” you say. That is correct. Just because you have a kid does not mean you will make some money from the government. So, do not have a baby just because you think you will be rolling in the cash. This example will lead you astray if you believe that. Once you get past this, move onto the next tip. If this was the only reason you were going to have a kid, you are mistaken.
Spouse Staying Home
Some couples understand how children affect their taxes. With this in mind, some parents choose to have one spouse stay at home. They watch the child(ren) while the other one goes to work. The stay-at-home parent cannot make any money.
But, the couple can use a dependent tax credit. In turn, a lot of money savings happens during tax season.
Parent Tax Deduction
So, how does having a child impact your taxes? Well, it comes in the form of taxes with a parent tax deduction. Here is how. If parents opt for child care, they receive a tax deduction. The spouse with the lower income is the one who must claim the child care expenses in this case. But, there are specific circumstances where this has loopholes.
However, some fees do not fall under this tax deduction. If you put your children through tennis or Scouts, some parents think this will work for a tax deduction. Many do not understand how children affect their taxes here. In this instance, this example is not child care. In turn, no claim happens.
The Canadian Child Benefit
One thing that parents can sign up for is the Canada Child Benefit. How does having a child impact your taxes with this benefit? Well, it is a tax-free pay system that the federal government oversees. The amount that parents get involves the net income from family to family.
So, how do your taxes change with children here? Parents will receive the beginning payment within eight weeks. The government needs an application first, and then things will start rolling. If the form is online, you can expect the eight weeks to happen. However, if you complete a mail-in application, eleven weeks is more of what you can expect.
Lack Of Tax Credits
There was a time when there were tax credits if you place your children in art or sports classes. However, this does not fly anymore. In the past, parents could claim around $500 for every child. This example was through the fitness tax credit for children. Another $250 could have been a tax credit for math tutoring, foreign languages, and art events. Unfortunately, the government went away with this policy.
Now that you know all the ins and outs of taxes involving children, you are ready for tax season. Know what your family’s value is. Use tax deductions to your advantage. But, know there are not as many benefits as there once were. We wish you the best of luck in future tax seasons ahead.