How Your Newborn will Affect You Come Tax Time

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Congratulations on the new addition to your family! Your new baby will no doubt change pretty much every aspect of your life—including your taxes. Let’s look at some of the changes a new dependent brings to your individual income tax return. You’ll probably want to get a shoebox ready to start collecting your receipts.

  • All of your out-of-pocket expenses for medical are deductible if you itemize deductions and meet the threshold for out-of-pocket costs. The tax code allows you to claim any unreimbursed medical expenses that exceed ten percent of your adjusted gross income as an itemized deduction. These expenses include any prescription medications for the mom-to-be, all prenatal care, any ultrasounds, blood work, and other lab work and medical tests. Expenses for the hospital, such as the labor and delivery room, mom’s bed, and the baby’s incubator. After the mom and baby go home, there are still medical expenses, such as the after-tax cost of health insurance, the well-baby checkups, mom’s post baby checkup, and many others.
  • If you are able to participate in a medical Flex Spending Account (FSA) through your job, you may want to consider starting one. You’re allowed to put up to $2,500 of your pay into the FSA before taxes, which can then be used to pay your doctors, hospital, lab, and prescription fees. It’s convenient to know you have money for these costs set aside, but there is also tax savings because there is no income tax on money put into an FSA and there is no Social Security or Medicare taxes, commonly referred to as payroll taxes, withheld from this money. However, any money left in the account after all your 2013 expenses are paid will be lost, so plan carefully.
  • As long as your child is born before midnight, December 31, 2013, you will be able to claim the dependent exemption of $3,900 for your child, or each child if you have more than one. You may be eligible for the Child Tax Credit, a $1,000 credit available for each dependent child under the age of 17 as long as your income is less than $75,000 ($110,000 if married filing jointly and $55,000 if married filing separately). For taxpayers who do not need the full $1,000 per child to reduce their taxes to zero, there is the Additional Child Tax Credit. This credit allows qualified taxpayers to claim the balance of their Child Tax Credit as a refundable credit and pay any additional taxes or increase their refund.
  • If you and your spouse will both work after the baby arrives, child care costs up to $3,000 for one child and $6,000 for more than one child may qualify for the nonrefundable tax credit, the Credit for Child and Dependent Care Expenses. Depending on your income, this credit can be up to 35 percent of your qualified expenses and has no maximum income limit. As a nonrefundable credit, you can use the credit to offset your income tax liability only and any unused portion is not allowed as a refund.
  • Like the FSA, many employers offer a pre-tax Dependent Care Benefit (DCB) program. You may be eligible to put up to $5,000 total per year in their DCB account, tax-free. The money may then be used to pay eligible daycare expenses during the year, reducing your taxable income. If you have more than one qualifying child in daycare and your expenses exceed the $5,000 maximum, you can claim the credit for any expenses between $5,001 and $6,000. However, like the FSA, make sure you use all the money in the account for your childcare or you will lose the income and must add-back any unused DCB to your wages when doing your tax return.
  • Taxpayers with an income of less than $46,227 ($51,567 if married filing jointly) and up to three children may qualify for the refundable Earned Income Tax Credit (EITC) of up to $6,044. The credit amount varies based on total earned income, adjusted gross income and family size. Like the Additional Child Tax Credit, the EITC is available to taxpayers as a refund if their credits, withholdings, and any estimated tax payments exceed their total tax bill.

These are just a few of the most common tax benefits awaiting new parents. Congratulations again. Now try to get some sleep!


Jackson Hewitt Donates to Ronald McDonald House Charities

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On Tuesday morning June 18, 2013, a team from Jackson Hewitt® presented a donation check to Ronald McDonald House Charities® (RMHC®) at their global headquarters in Oak Brook, Illinois.  The donation resulted from a special tax season campaign that started in January 2013. For every customer who showed a special coupon at the time of tax preparation at a local office, Jackson Hewitt donated $3 to the charity.  Customers found out about the promotion through coupons distributed at their local participating McDonalds® restaurants, on Facebook® and Twitter®.

“We believe in the work RMHC is doing to make a difference in the lives of children and their families both here in the USA and around the world” said Debra Small, Senior Director of Retail Marketing.  “Our Jackson Hewitt franchisees support the effort nationally through donations and locally through fundraising and volunteering at local RMHC Chapters and Ronald McDonald Houses.”

“We have worked closely with Jackson Hewitt for several years to raise funds that support our core family-centered programs the 
Ronald McDonald House®Ronald McDonald Family Room® and Ronald McDonald Care Mobile®,” said Greg Borkowski, Manager of Development for RMHC. “The support we receive from Jackson Hewitt helps us keep families together so their children can heal faster, and that is something we are very grateful for."

Looks like this campaign was good for everyone!


What Our Founding Father's May Have Deducted Under Today's Tax Code

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We all know that the Fourth of July represents the birth of the United States of America. It marks the day we declared our independence from the sovereign nation of Great Britain. But did you ever wonder if the Founding Fathers thought about their taxes? Of course they did! Unfair taxation was one of the main motivations for forming our great nation! But what would the Founding Fathers tax situations look like under today’s tax code? Let’s check it out!

Thomas Jefferson: a representative of Virginia, a noted scientist, and a writer. He was also chosen to write the Declaration of Independence for the fledgling country.  Jefferson kept a diary of his travel from Monticello to Philadelphia and receipts for his hotel stay and food to maintain his personal records and ledgers. Since Jefferson was a member of the Continental Congress, the cost of his travel, food and lodging can be deducted as an employee business expense and any supplies he purchased that weren’t reimbursed, such as paper and ink, could also be claimed. But Jefferson was a business owner, author and an inventor as well.  Each of these endeavors is a business and allows deductions for travel, education, training, supplies and equipment. The income and expenses for each business, should he have been alive and well today, would be reported on the appropriate form for the business, such as a Schedule C for a sole proprietor.  

Paul Revere: a silversmith by trade who also worked as a courier for the Boston Committee of Public Safety, he regularly traveled to New York and Philadelphia to report on political unrest and provided engravings for political magazines and other popular periodicals and papers of the time.  As you can see, Paul would have at least three separate businesses, the courier business, the news articles and engravings, and the silversmith business. Each business would have deductions based on the expenses for that business. Paul could have mileage expenses for the courier and silversmith businesses and raw materials for his silversmith and engraving businesses.  In addition, Paul would have employees in his silversmith business so he would have employment taxes to pay and returns to file as well as benefits such as health insurance. But, perhaps his best tax break would come from his 14 children. Yes, 14, and for all those under 17, he would get a $1,000 tax credit – assuming his modified AGI is less than $110,000. 

Benjamin Franklin:  This famous elder statesman was also the consummate entrepreneur.  Franklin was an author, scientist, politician, postmaster, inventor, musician, satirist, and diplomat for the fledgling United States. Franklin needed to keep detailed records of his travel, lodging, meals, and supplies expenses so he could correctly claim the appropriate expenses against each source of income. Much of Franklin’s work was done out of a home office, allowing him to deduct a portion of his housing expenses. While he only had three children compared to Paul Revere’s 14, Ben Franklin can still claim the child tax credits for his children under age 17.

Benedict Arnold: Benedict Arnold was a businessman and military man throughout his life.  His businesses often failed as spectacularly as his military career both in the Continental Army and in Great Britain. General Arnold was very lax in his recordkeeping, especially when it came to his expenses. Prior to his defection from the Continental Army, Benedict Arnold was informed by the Continental Army that his reimbursement for the expenses of the Battle for Ontario would be £1,000 less than expected due to lack of receipts. However, Arnold would pay a hefty tax bill today since the British paid him £20,000 to defect and sell U.S. secrets. The income from his traitorous activity is taxable and he is not able to deduct any expenses as the tax code requires all income, including income from illegal activities, to be reported on the tax return. However, the expenses against income from illegal activities are not allowed as a deduction.