Tax Tips for Recently Married Couples and First-Time Parents.
While celebrating significant life changes like a marriage or the birth of a child, taxes may not be top of mind. However, once the excitement settles, it's crucial to focus on your taxes, especially as a newlywed or new parent. Organizing your documents, updating your withholding, and knowing which tax credits you're eligible for are essential steps in navigating tax season, according to Henry Grzes, lead manager of tax practice & ethics for the American Institute of CPAs.
The deadline to file your 2024 taxes is Tuesday, though if you need more time, you can file for an extension until October 15. Here are some expert tips for newlyweds and new parents:
Get Organized
Keeping your tax documents organized is always beneficial. Tyler Horn, a certified financial planner and head of planning at Origin, a financial planning app, suggests digitizing your documents and storing them securely. "Just take a picture with your phone, send it, and keep it in that secure folder on your computer. That way, you have everything together," Horn advises.
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It's also wise to retain your records for future reference. The IRS recommends keeping your tax documents for at least three years, or up to seven years, depending on your situation.
Update Your Name with the Social Security Administration
If you’ve changed your last name after marriage, it's essential to update your records with the Social Security Administration. Your tax return must match your Social Security number, so it's crucial to make this change ahead of time to avoid mistakes on your tax return.
“That's something people don’t necessarily think about, and when they do, sometimes it’s too late,” Grzes notes. For more information on changing your name, visit the Social Security Administration’s website.
Married Filing Status: Joint or Separate?
One of the most significant changes for married couples is deciding whether to file taxes jointly or separately. In most cases, filing jointly is the most beneficial, as it provides access to new tax credits and deductions, according to Horn. However, every couple should consider their unique situation before deciding.
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Importantly, if you are married as of December 31, you are considered married for the entire year, according to Grzes. Even if you tied the knot in the summer, for tax purposes, you’ve been married all year long.
Update Your W-4
If you plan to file jointly with your spouse, don’t forget to update your W-4 form with your employer. This update will reflect your new marital status and tax withholding, ensuring you avoid any surprises at tax time.
Know Your Tax Credits and Deductions
Understanding the tax credits and deductions you're eligible for is vital. Married couples may qualify for credits such as the Earned Income, American Opportunity, and Lifetime Learning credits.
You can either opt for the standard deduction or itemize deductions. Itemizing only makes sense if your itemized deductions exceed the current standard deduction of $29,200 for a married couple.
It's also important to note that qualifying for the Earned Income Credit as a single filer doesn’t necessarily mean you’ll qualify if you file jointly, Grzes points out. To avoid surprises, it’s a good idea to consult with a tax professional in advance.
Credit: Jacob Wackerhausen on Istock
Social Security Number for Your Newborn
For first-time parents, obtaining a Social Security number for your newborn is crucial. You’ll need the number to claim them as a dependent on your taxes. If you don’t have a Social Security number for your child, the IRS will deny your claim.
Hospitals often help with the registration process, but you can also apply online or at your local Social Security office.
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Take Advantage of Tax Credits for Parents
Once your child has a Social Security number, you can apply for several tax credits, including the Child Tax Credit, Childcare Credit, and Adoption Credit. Additionally, the Earned Income Credit will still apply based on your income and the number of children you have.
“The Earned Income Credit provides a significant refund, and by having a child, you could increase the amount of income you can earn and still qualify for that credit,” Grzes explains.
Parents should also consider tax-free accounts such as a flexible spending account (FSA) or a 529 account. An FSA allows you to set aside pre-tax dollars for healthcare and childcare costs, while a 529 account helps save for education expenses.
“It’s worth making sure you are maximizing your tax opportunities,” Grzes adds.
Conclusion
Navigating taxes as a newlywed or first-time parent can seem overwhelming, but taking advantage of available credits, deductions, and proper organization can make the process easier and even result in savings. Be sure to seek professional advice and use the tools available to you—every small win adds up. By staying proactive, you can reduce your stress and ensure you're taking advantage of every tax benefit you’re entitled to. Don't hesitate to take any help you can get during this busy, exciting time.
