Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.
Your child should have a social security number as soon as possible. The reason for this is that you need to claim your children as dependents on your income tax return and you have to provide your child’s social security number on the return in order to claim them.
You can file for a Social Security card for your child at the same time you are filing an application for a birth certificate. It is standard procedure in many hospitals to supply you with the Social Security card form along with all the other paperwork you must fill out upon your child’s birth.
You are entitled to a full year’s exemption, even if your child was born on the last day of that year. Claiming a dependent on your return obligates you to file a new W-4 form, adding a dependent claim for your child. You can also use the child credit on the W-4, and this will reduce your withholding even further.
If you are single, you might want to consider filing as Head of Household. This filing status will give you a larger deduction and should change your tax bracket status. To file as Head of Household, you must be responsible for more than fifty percent of the support cost of the dependent child.
If you have adopted a child, you can claim the cost of adoption. If you have adopted a special needs child, you can claim the maximum deduction, even if the adoption did not cost that much.
There are several ways you can save by investing in your child’s college savings from early years on. While the federal government will not allow you to invest this money tax free, some states will, and in both cases the funds grow tax free and are not taxable upon pay out if the funds are used for tuition in a qualifying university or college. Another way is to put money into an ESA or Education Savings Account. Again, the deposit is not deductible, but you can fund the account at $2000 per year and the earnings are tax free, as long as they are used for education. Education Savings Accounts can also be used to fund high school and elementary school expenses.
If you hire someone to babysit your child in your home, the Internal Revenue Service will probably consider you to be an employer and you will become liable for Social Security and unemployment taxes for the babysitter or nanny. You might avoid these taxes if you hire a nanny service because the service is the employer.
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