- Tax years follow calendar years: A new year begins at 12 a.m. every Jan. 1 and ends at 11:59 p.m. every Dec. 31. Your tax return takes into account every financial event that happened between those two times. As a result, most people figure and file their taxes after the tax year ends, when all relevant financial events have occurred. A baby born while you are calculating last year's taxes cannot be claimed in last year's return.
- Having a baby costs a lot of money, and raising one involves even more cash. Luckily, a baby usually means a lower tax bill. You can claim your baby as a dependent until you no longer support him financially, which adds an extra personal exemption and makes you eligible for some tax credits. The Internal Revenue Service states that you can start claiming a baby as a dependent in the tax year he was born.
- The IRS now requires all filers who report dependents to report the dependent's Social Security number as well. The IRS uses the number to verify that the dependent exists and is being claimed by only one filer (or two, in the case that parents file as married, filing jointly). TurboTax reports that requiring Social Security numbers cuts down on tax fraud: Taxpayers reported 7 million fewer dependents in the first year that the IRS required Social Security numbers along with names.
- Along with an extra personal exemption, your baby opens the door to other tax savings. Available credits and rules change every year. For example, in 2010, new parents could claim a $1,000 tax credit (mothers giving birth in January 2011 missed out on this savings). You may also claim a credit of up to $1,050 if you pay for childcare while you work. Furthermore, college savings come with some benefits, such as the Section 529 Education Savings Plan, which allows parents to invest college savings and not pay tax on the profits.
Tax Year
Dependents
Social Security Number
Credits and Savings
SHARE
