Is there a new baby in the house? That's good news in many ways, because the chip off the old block also will allow you to chip away at some of the income taxes you owe.
A growing family makes you eligible for a variety of tax savings. They include an additional exemption, credits such as the child tax credit and the child- and dependent-care credit. To a lesser degree of effectiveness, you can also reduce taxes by shifting income to a youngster.
While the added family member usually is a child, you could claim a parent or even an unrelated person as long as he or she meets all of the following five tax dependency rules:
So, if the newest addition to your household passes all of these tests, then you've got another exemption. Just be sure to provide the dependent's Social Security number.
Bankrate's Tax Basics on credits discusses these breaks in more detail, but the ones you'll be most likely to qualify for once little Jimmy or Janie arrives are the child tax credit, the additional-child tax credit, and the child- and dependent-care credit.
Adoptive parents also may be able to claim a credit on their federal income tax return for qualified adoption expenses.