Tax Implications of Having Children

[legion]

I'm a planner. I need to know things way in advance. I don't like financial surprises.

I'm 1-2 years from getting serious about having kids. I want to make sure I am financially ready.

What does having kids do to you tax wise?

[lendaddy]

It helps a ton unless you're an AMT household. I forget the specifics, but it's several thousand a year.

[Tobra]

Depends on where your income is, losing proposition, financially anyway.

[the]

You get a deduction (or maybe even a credit), so you "save" some money, but it is "saving" money in the same way as getting a coupon in the mail for $1,500 off on a new Rolls Royce.

[legion]

Can any generalization be made percentage-wise?

How does it affect deductions?

We are not AMT (yet).

[lendaddy]

Originally Posted by Tobra

Depends on where your income is, losing proposition, financially anyway.

It doesn't have to be. We spend less now than before our two sons but we do a lot less too. You're lifestyle [should] change drastically as far as selfish purchases and leisure are concerned.

Don't take that to mean I think you need to have children. There's nothing wrong with a selfish/childless life, you just find pleasure in different things.

[the]

google "child tax credit" for info.

http://financialplan.about.com/cs/taxes/a/ChildTaxCredit.htm

looks like for most, it's a $1000 credit per child.

[89911]

I've got 4. Sure, you get a tax break of a grand or so for each. Small in comparison to the estimated $250,000 each it cost to raise them. Hardly a money maker

[Rick Lee]

I believe you can claim your dependants for the entire year in which they are born. So if you have twins before midnight on new year's eve, you've done pretty well.

[lisa_spyder]

Originally Posted by legion

I'm a planner. I need to know things way in advance. I don't like financial surprises.

Well, having kids is full of surprises - financial and otherwise Chris - I guess you know that already though .

My (our) experience has been that kids don't necessarily fit into long term financial plans very well; sometimes our planning has been thrown out the window by their needs (change schools, location etc).

I would never, ever want to sit down to work out what our 3 have actually cost us $$-wise . Anyway, they're priceless (in oh so many ways )...

Down here - we are actually a "big" family (3 or more kids) and therefore if we qualify for family tax benefit we get a large family supplement to boot.

[lendaddy]

I just went into my '06 return and deleted my kids, my tax went up over $3k for Federal and I imagine state would be another grand or so.

[Tobra]

Originally Posted by lendaddy

It doesn't have to be. We spend less now than before our two sons but we do a lot less too. You're lifestyle [should] change drastically as far as selfish purchases and leisure are concerned.

Don't take that to mean I think you need to have children. There's nothing wrong with a selfish/childless life, you just find pleasure in different things.

I was being a bit facetious, I have children, even a grandchild and don't really view this as a serious question.

You don't have kids with an eye on tax implications if you ask me, you have them because you are emotionally prepared for it and at the point in your life where it is "time", whatever that means...

[legion]

I'm just trying to figure out how to afford child care for that first year. It doesn't sound like the tax situation changes enough to really take into consideration.

[Tobra]

Day care is tough, especially for an infant. Financially and finding someone trustworthy. A good family member is best, IMHO.

My wife is doing that full time for our grandson, which is lucky for him. I shudder to think what it would cost to hire an experienced ER/ICU/NICU nurse(which she is) for 50-60 hours a week.

[lisa_spyder]

I don't know what the system is like over there, but maybe you should be looking at whether there are any rebates for childcare available. Here there are a couple; one income tested and the other not. Been a while since mine were in care, but the non-income tested rebate didn't add up to much anyway (kinda like the tax break).

Also, care for under 2yo is more expensive here than for over 2s. Mostly to do with staff/children in care ratios. What I do remember is that by the time no 3 was in care it was getting mighty expensive.

[legion]

I agree on the family thing, but we are 150 miles from my wife's parents, and 1,500 miles to my mother...

Infant daycare in Bloomington/Normal runs around $600 a month. Enough that the expense is a serious concern, but not enough that one of us not working would be worthwhile.

[lendaddy]

Originally Posted by Tobra

I was being a bit facetious, I have children, even a grandchild and don't really view this as a serious question.

You don't have kids with an eye on tax implications if you ask me, you have them because you are emotionally prepared for it and at the point in your life where it is "time", whatever that means...

I think my reply came out wrong, I wasn't trying to challenge you. I know a lot of people that spend a ton on raising kids because they have a ton of money to spend, it's just natural progression. It doesn't have to be that way, not saying it's right or wrong/ better or worse...just that it's not required.

[legion]

Originally Posted by lisa_spyder

I don't know what the system is like over there, but maybe you should be looking at whether there are any rebates for childcare available. Here there are a couple; one income tested and the other not. Been a while since mine were in care, but the non-income tested rebate didn't add up to much anyway (kinda like the tax break).

Also, care for under 2yo is more expensive here than for over 2s. Mostly to do with staff/children in care ratios. What I do remember is that by the time no 3 was in care it was getting mighty expensive.

I'm pretty firmly in the group of people that the bleeding hearts don't give handouts to--and usually blame for all of society's ills.

[Noah930]

I'd agree that daycare is possibly the biggest surprise, financially. Not unusual to pay about $1000/month for 5 days/wk. Does it cost more to work full-time and have full-time daycare? Or just quit your job and raise your kids on your own? Additionally, daycare may or may not be tax deductible, depending upon your family work situation. The tax credit thing is so small, in the big picture, that it's a non-issue. (Should I have kids because I love raising a family? Or for the tax credits?)

[many944s]

First off, a child gives you +1 on the "Exemptions" line.
Next, there is the line 53 "child tax credit" which is usually good for $1k.
There are also a few $$ that can be saved on line 66 (EIC) and 68 (additional child tax credit) but those will vary with income/employment/daycare/etc..

In the long run, yes you will pay out the a$$ for kids, but between the joy and pride you get from raising them, it's a nice little pat on the back when Uncle Sam gives you back an extra grand at the end of the year It makes a nice little deposit in the college fund! (or car fund depending on how you want to spend it)

Since my first child was born last year, my eyes were opened when I filed this past time!!

-Nick

P.S. As my wise elders always told me: "If you wait to be financially stable before you have children, you will never have any"